Donald P. Driscoll State Bar No. 95472 William M. Henley State Bar No. 141575 436 Fourteenth Street, Suite 1411 Oakland, California 94612 Telephone: (510) 834-4500 Attorney for Plaintiffs ALAMEDA COUNTY SUPERIOR COURT DOUGLAS K. MARTIN, M.D., JOHN PATCHETT, JOHN T HANKES, JOHN CRAIN, ANDREW BUCK, JOHN STOTT, JOSEPH EVANS, JIM CHEVIRON, PATRICIA L. TRENT, DAN LITTLE, JUREK KOLASA, RODNEY RAY, REYES BALDERAS, PAUL MAGID, MARK F. HEIL, and, WILLIAM E. MYERS, on behalf of the general public, Plaintiffs, vs. SYNCRONYS SOFTCORP, COMPUSA, INC., QVC NETWORK, INC.,WAL-MART STORES INC., TIGER DIRECT, INGRAM MICRO, INC., RAINER POERTNER, WENDALL BROWN and Does 1 through 250, Defendants. )) ) ) ) ))) ) ) ) ) ))))))))))))) NO. CLASS ACTION COMPLAINT FOR FRAUD AND BREACH OF WARRANTY Plaintiff will prove: 1. Captions contained in this complaint are for the purpose of clarity only, and do not alter the meaning of the allegations. This complaint alleges fraud and other causes of action based on the sale of SoftRAM , a product which defendants claim enhances the performance of IBM PC compatible computers running Microsoft Windows, by allowing Microsoft Windows to run more programs faster. In fact SoftRAM does not have that effect. 2. Defendants sold SoftRAM throughout the nation, including in Alameda County. Plaintiff Patricia L. Trent purchased SoftRAM in Alameda County, where it was sold and advertised by the defendants. The Plaintiffs 3. Each plaintiff bought SoftRAM, a product created by defendant Syncronys for the purpose of enhancing the performance of Microsoft Windows. In each instance, each plaintiff failed to obtain benefit from SoftRAM. 4. Each plaintiff bought SoftRAM in reliance upon Syncronys' representations that SoftRAM enhanced the performance of Microsoft Windows. Class Action Allegations 5. This action is brought on behalf of the class of all persons who purchased Syncronys anywhere in the world. All such purchases were made after January 1, 1995. Over one hundred thousand persons made such purchases. The class is so numerous that joinder of all members individually would be impractical. 6. Each plaintiff and each member of the class purchased SoftRAM in reliance on identical written claims made on the SoftRAM box and elsewhere. The core representations on which each plaintiff and each class member relied were the claim that SoftRAM is "RAM Doubling & Resource Expansion Software" for Microsoft Windows; that SoftRAM 95 will "double your memory"; and that SoftRAM is "safe, tested, & guaranteed." Each of these representations was made on each SoftRAM box. 7. Common questions of law and fact predominate. 8. The named plaintiffs' claims are typical of the class generally. 9. The named plaintiffs can and will fairly and adequately protect the interests of all the members of the class. Defendants a. Syncronys Defendants. 10. Each of the following defendants shall collectively be referred to as "Syncronys." 11. Defendant Syncronys Softcorp is a corporation with its primary place of business in Culver City, California. 12. At all relevant times defendant Rainer Poertner was CEO of Syncronys Softcorp. 13. At all relevant times defendant Wendall Brown was an officer of Syncronys Softcorp. 14. Does 1 through 20 owned or operated Syncronys. b. Distributor Defendants. 15. Each of the following defendants shall be referred to as a "distributor defendant." 16. Defendant Ingram Micro, Inc., and Does 21 through 50 distributed SoftRAM for Syncronys and committed all acts alleged in this complaint. c. Retailer Defendants. 17. Each of the following defendants shall be referred to as a "retailer defendant." 18. Defendant CompUSA, Inc. is a corporation which does business throughout California and the United States as a chain retail seller of computer products. 19. Defendant QVC Network, Inc., is a Delaware Corporation, a cable television network, and a national mail order distributor. 20. Defendant Wal-Mart Stores Inc. owns and operates Sam's Clubs, a chain of retail stores which sell SoftRAM. 21. Fry's Electronics, Inc., operates a chain or retail computer stores. Fry's operates stores in California and sells SoftRAM. 22. Does 51 through 199 sold SoftRAM. d. Co-Conspirator Defendants. 23. Each of the following defendants conspired with Syncronys to commit all acts alleged in this complaint, but was neither a distributor nor a retailer: Does 200-250. Doe Allegations 24. The true names of the Doe defendants are not known. This complaint will be amended to assert those names when they are learned. Conspiracy 25. In early 1995, defendant Syncronys and others devised a plan to engage in the fraudulent sale of software. That software was promoted though favorable reviews provided by co-conspirators who worked for computer magazines and were not employed by Syncronys. The on-going purpose of the conspiracy was to move Syncronys' SoftRAM first to retailers and then from there to consumers. 26. As will be set forth in further detail, the retailers were initially unaware of the fraudulent nature of SoftRAM. By November 1, 1995, each of the retailer defendants learned that SoftRAM did not perform as represented, but entered the conspiracy and agreed to continue to sell the SoftRAM after they knew it did not work. 27. The conspiracy depended for its success on the continued sale of SoftRAM after November 1, 1995. This is because the cost of initially starting a successful software product is high, but the marginal cost of selling additional units of software is low. Thus, all the sales were interconnected by the fact the conspirators intended to make money selling in volume, and would fail to make money unless volume was achieved. 28. The retailer defendants, because they joined the conspiracy, are liable for acts in furtherance of the conspiracy, including those which took place before they joined the conspiracy. Each retailer defendant is liable as a principle in the enterprise which defrauded each plaintiff and every class member. 29. It was Syncronys' intention from the start, if caught, to claim that SoftRAM did not work because of a "bug" (i.e., a programming glitch) and to say that it would provide an upgraded version which would work. In fact, as Syncronys knew at all times, SoftRAM did not have a "bug" in it. Rather, as Syncronys knew at all times, the version of SoftRAM which was sold never functioned, was never intended to function, and was sold because, as Syncronys knew, it was unable to complete a compression program which would function. FIRST CAUSE OF ACTION FRAUD AGAINST EACH DEFENDANT 30. Each of the preceding paragraphs is incorporated by reference. 31. Defendant Syncronys is a California Corporation engaged in the manufacture and sale of a computer program called SoftRAM. SoftRAM is a program for use in conjunction with Microsoft Windows running on a IBM PC compatible computer. Syncronys represents that SoftRAM facilitates the running of other programs on the computer. SoftRAM is not sold as having any other purpose. 32. Each plaintiff purchased Syncronys SoftRAM, as did each member of the class. 33. The Distributor defendants distribute SoftRAM on behalf of Syncronys. 34. The Retailer defendants sell SoftRAM. 35. Each defendant sells SoftRAM as a product for Windows 3.0 and Windows 95, and represents that SoftRAM is "RAM Doubling and Resource Expansion Software." 36. Syncronys explicitly represents that "SoftRAM 95's Patent Pending RAM compression technology takes your Windows memory and at least doubles it." (Emphasis in original.) In fact, this claim and others are fraudulent. SoftRAM fails to work. 37. Terminology. The following terms are defined for this complaint: RAM Memory 38. "RAM memory" (Random Access Memory) is the memory contained in a computer's memory chips. In a typical PC today, the amount of RAM memory in a PC is much less than the amount of hard disk storage on the same computer. However, accessing hard disk storage is much slower than accessing RAM memory. Virtual Memory 39. Virtual Memory is a concept which allows the more plentiful space on a hard disk to function as a stand-in for RAM memory. The concept is implemented on a PC by dividing RAM memory into sections called "pages." When a page of RAM memory is not in use by the computer, Windows can temporarily store the page on a hard disk. That frees up RAM memory for other uses. When a program tries to use RAM memory that has been moved to the hard disk, Windows 95 stops the program, retrieves the RAM page from the hard disk, and puts the page back in the physical RAM memory on the computer's chips. (This process is called "swapping.") SoftRAM Compressed Memory 40. "Compressed Memory" provides a third alternative. "Compressed Memory"of the sort claimed for Syncronys takes pages of RAM which could have been swapped to the hard disk and compresses them. The compressed pages purportedly take up less room, although they must be uncompressed before they can be used. 41. The computer process of compression is the equivalent of shortening a book by using abbreviations for things which repeat. The extent to which compression can be achieved generally depends upon finding parts of memory which repeat and can be abbreviated. Inherently False Representations 42. Syncronys makes various statements on the box in which it sells SoftRAM which are inherently false. As hereafter used, the term "inherently false" is used to describe things which information theory can prove to be false for any program, not just SoftRAM 95. Information theory is a branch of mathematics. 43. The SoftRAM box states that "SoftRAM 95's Patent Pending RAM compression technology takes your Windows memory and at least doubles it." This claim is a claim that SoftRAM 95 always achieves compression of 2:1. Such a claim is inherently false. For any compression algorithm, it can be shown that there is data which that compression algorithm will be unable to compress at all, much less two to one. 44. The box in which SoftRAM is sold also contains the following language: Imagine: 4MB becomes 8MB 8MB becomes 16MB... You become doubly productive. Install SoftRAM and instantly speed up Windows, run larger applications and open more applications simultaneously. Say good-bye to `Out-of-Memory' messages. (Ellipsis in original.) 45. The language quoted in the preceding paragraph includes the inherently false claim, set forth above, that compression will necessarily be achieved. The quoted language also contains the claim that SoftRAM will speed up programs running under Microsoft Windows. That claim is also inherently false in that attempts to compress memory use computer processing time and have the potential to speed up the computer only if compression is achieved. Since a claim that compression will be achieved is inherently false, so is a claim that an increase in speed will be achieved. Additional False Representations 46. SoftRAM is not a good faith attempt to implement Compression Memory so as to speed up a computer's operation. Instead, it was intended by Syncronys to be fraudulent. The program makes no attempt to compress anything, and at all relevant times Syncronys has known the program does not compress anything. 47. SoftRAM does contain an attempt to create the illusion that it is compressing memory. It does so by asking Windows to increase the amount of disk space allocated to virtual memory and then reporting back to the user that it has created compressed memory. 48. As a general proposition, SoftRAM has no impact on the amount of virtual memory. This is for several different reasons. First, when SoftRAM is run under Windows 95, SoftRAM generally simply disables itself even when it reports to the user that it is enabled. Second, under Windows 95 running with default settings, all available disk space is used as needed for virtual memory. Third, under Windows 3.0 and 3.1, SoftRAM has an impact on virtual memory only if the user has selected the temporary swap file option. Under those circumstances SoftRAM simply resets Windows to increase the amount of virtual memory available (if there is sufficient space on the hard disk.) The same result could be achieved by the user (if desired) simply by changing Windows settings accessible to the user. 49. SoftRAM uses computer resources to conceal the falsity of the claim that it is compressing memory, which it never does. Consequently, as a practical matter SoftRAM when not disabled will generally slow down the computer. 50. Syncronys also represents that SoftRAM will "expand your System Resources...and is compatible with Windows 95." "System Resources" is a technical term relating to certain aspects of Windows 95. Due to amateurish programming, SoftRAM in fact almost never expands system resources under Windows 3.0 and 3.1. Consequently it is not of merchantable quality as a program to increase "systems resources." Even if SoftRAM were enabled under Windows 95, which it is not, it would not increase system resources. The problems which existed in Windows 3.0 which enabled various vendors to sell add-on programs to expand system resources have largely been eliminated in Windows. 51. For all these reasons it is false and misleading to claim that SoftRAM increases "system resources." Syncronys so knew at all relevant times. 52. Likewise the claim "Say good-bye to `Out-of-Memory" messages is false. THE FRAUDULENT CONDUCT 53. Syncronys is owned in significant part by two insider-shareholders: Rainer Poertner and Wendell Brown. Mr. Poertner is CEO of Syncronys, and Mr. Brown is an officer. Each of them knowingly participated in Syncronys' fraud. 54. At all relevant times Poertner and Brown knew Syncronys did not have a working RAM compressor. Nonetheless Poertner and Brown caused Syncronys to sell SoftRAM as a RAM compressor. As hereafter used, "Syncronys" means and refers to Poertner, Brown and Syncronys. 55. SoftRAM contains a display program. It shows a display when a user runs the SoftRAM program. The purpose of this display is to falsely communicate to the user that SoftRAM is effective and is working. In fact, the display states that "SoftRAM " has been made available to the computer, even though no such memory is actually made available to the computer. The display is as follows: /// /// /// /// /// /// /// /// /// /// 56. The display program also presents the user with options, which do nothing. The sole purpose of Syncronys in creating the "options" was to create the false impression that the program was compressing memory, and was responsive to the user's wishes. Further, Syncronys advertises: "RAM Analyst dynamically tracks and records the memory requirements of the application you use and optimizes performance based on your patterns of usage" and "Advanced setting allow the user to configure SoftRAM 's behavior." As Syncronys knew at all times, each of these claims is false; the dashboard display shown above lacks functionality. Additional False Representations In Marketing SoftRAM 57. Microsoft has registered various trademarks in connection with its Windowsr Products, including the following: 58. Microsoft licences various persons to use this symbol, and the words, "Designed For Windows 95." It issues such a license only after testing the software for various characteristics, including architectural compatibility with Windows 95 and integration with various Windows 95 features. 59. At all times Syncronys was not licensed to use the windows logo in conjunction with the words "Designed For Windows 95" and it so knew. Nonetheless, Syncronys falsely represented in its advertising that it had obtained approval for its product from Microsoft , including by placing the following on the Syncronys SoftRAM box: Designed for 60. The inclusion of the logo was for the purpose and had the effect of falsely representing that Microsoft had approved SoftRAM as designed for Windows 95, when it in fact had not. Defendant Retailers Join Conspiracy 61. Syncronys commenced fraudulent sales of SoftRAM in the first half of 1996. Initially, Syncronys' wholesalers and retailers were not part of its fraud. 62. By October, 1995, problems with SoftRAM began to receive press attention. A reputable German computer magazine, Magazine Fur Computer Technik (October 12, 1995), published an article by Ingo T. Storm exposing SoftRAM , and put a copy in English on the Internet, where it was immediately available in the United States. 63. Consequently, Syncronys went forward with its contingency plan. On +October 20, 1995, Syncronys, as reported by Business Wire, announced "a problem exists with the Windows 95 version, the net result of which is that RAM compression is not being delivered to the operating system. The company believes that it has identified the solution to this problem, and its development team is working on a new upgrade release that will deliver full RAM compression functionality for Windows 95. The company anticipates production of this new upgrade release by early December." 64. As part of the October 20, 1995, press release, Syncronys announced "a comprehensive program" to deal with the problem as follows: 1) The company will automatically distribute the new upgrade release free of charge to all registered SoftRAM 95 customers. 2) The company will post the new upgrade release on AOL, CompuServe, and other online services so that all SoftRAM 95 customers (whether registered or not) can download it free of charge. 3) The company will be setting up a home page on the Internet to make this new upgrade release available to all SoftRAM 95 customers and to communicate the status of this new upgrade release. 4) The company will provide an immediate unconditional money-back guarantee for those SoftRAM 95 customers who are not prepared to wait for this new upgrade release or are not completely satisfied with it. In many cases, a full refund may be obtained by returning the product to the place of purchase. If, for any reason, full satisfaction cannot be obtained from the place of purchase, customers can contact the company with proof-of-purchase to receive an immediate full refund. 65. The promises contained in the preceding press release were false in that SoftRAM lacks the resources to make good on its guarantee and refund. The promises were made to further the continued sale of SoftRAM. 66. By on or about October 20, 1995, each retailer defendant and distributor defendant knew that SoftRAM did not work on Windows 95. Further, each defendant retailer knew that the claims on the SoftRAM box were untrue, including (a) claims regarding functionality (b) claims that the product was approved by Microsoft as Windows 95 compatible, and (c) claims that the product was "safe, tested & guaranteed." 67. Syncronys offered each retailer of SoftRAM the opportunity to join in the conspiracy to commit fraud. Syncronys agreed that if the retailer would continue to sell the product with the false representations, that Syncronys would bear the losses associated with the fact that the product did not function. 68. Some non-defendant retailers chose to cease selling SoftRAM. Each defendant retailer, rather than withdraw the product, and rather than inform the potential customer that the product did not work, simply secured the agreement of Syncronys that in the event the customer became dissatisfied, it would be Syncronys which was responsible for providing an upgrade or a refund. Since, even without the availability of an upgrade, most customers do not return defective software, a profit was to be had. 69. Thus, as of October 21, 1995, a conspiracy existed between Syncronys and the defendant retailers that the retailers would continue to sell SoftRAM which they knew did not work, and in return Syncronys would agree to bear the resulting liability. 70. That conspiracy continued until approximately December 17, 1995, when postings on the Internet by two computer experts, Dr. Mark Russinovich and Andrew Schulman, a series of news articles, including PC Magazine (November 7, 1995), San Jose Mercury News (November 18, 1995), and a Time Magazine article (November 27, 1995), follow-up reporting by Magazine Fur Computer Technik, and FTC demands for a recall made circumstances untenable for Syncronys. At that time Syncronys recalled SoftRAM from store shelves. 71. Each plaintiff and each class member relied upon the false representations set forth in this complaint and was injured not less than to the extent of the purchase price of SoftRAM 95. Due to badly written installation and deinstallation software, some class members suffered additional damage to their computer system. All Elements of An Actionable Fraud Are Present 72. All elements of a fraud cause of action are present as set forth in, e.g., Schultz v. Harney, 27 Cal.App.4th 1611, 1620 (1994): (1) misrepresentation, including by implication a misrepresentation of fact; (2) knowledge that the representation is false; (3) intent to defraud; (4) justifiable reliance; (5) resulting damage. 73. The misrepresentations are those which have been set forth in this complaint. Every plaintiff and every class member saw the representations prior to purchasing the product, in writing. 74. Syncronys and the defendant coconspirators knew at all relevant times that the representations were false. Each other defendant learned that the representations were false and joined the conspiracy. 75. Each defendant intended to defraud. 76. Each plaintiff and each class member justifiably relied on the representations. 77. Punitive damages are appropriate. SECOND CAUSE OF ACTION BREACH OF THE WARRANTY OF MERCHANTABILITY 78. Plaintiffs incorporate by reference all allegations of this complaint. 79. This cause of action is brought by all plaintiffs on behalf of themselves and the class, against all defendants. 80. Each sale of SoftRAM carried with it an implied warranty of merchantability. This implied warranty existed because no attempt to disclaim it was available to the purchaser prior to the purchase. 81. The Implied Warranty of Merchantability existed under California Civil Code Section 1791.1, because each sale was a sale of consumer goods. The same Implied Warranty of Merchantability exists under the Uniform Commercial Code or similar provisions applicable to each plaintiff. Commercial Code Section 2314 provides that such a warranty of merchantability exists if the seller is a merchant with respect to goods of that kind. Each retailer defendant is a merchant with respect to computer programs. 82. SoftRAM was sold to each plaintiff and each class member under the contract description as "RAM Doubling & Resource Expansion Software." SoftRAM does not pass without objection in the trade under the contract description. 83. Each plaintiff and each class member purchased SoftRAM in a package containing all representations alleged in this complaint, including that SoftRAM "takes your Windows memory and at least doubles it"; that SoftRAM will "instantly speed up windows", that SoftRAM is "safe, tested & guaranteed", and that "RAM AnalystO dynamically tracks and records the memory requirements of the applications you use and optimizes performance based on your patterns of usage." 84. Each defendant joined in the conspiracy and enterprise of the defendants in selling SoftRAM and is jointly and severally liable for all sales of SoftRAM. THIRD CAUSE OF ACTION UNFAIR COMPETITION 85. Plaintiffs incorporate by reference all allegations of this complaint. 86. The allegations of this complaint establish unfair competition within the meaning of Business and Professions Code Section 17200 et seq. Those business practices will continue unless enjoined. 87. Plaintiffs seek injunction and restitution. 88. Plaintiffs ask: 1. That defendants be temporarily and permanently enjoined from engaging in false, deceptive, and misleading advertising of the nature set forth in this complaint; 2. That defendants give damages and restitution to all persons who have purchased SoftRAM in the amount of the purchase price paid by them; 3. That defendants pay punitive damages to plaintiffs and each class member; 4. That defendants pay consequential damages according to proof; 5. That defendants pay plaintiff and plaintiff's attorney the costs of suit together with a reasonable attorney's fee; and 6. That this court grant all further relief which is appropriate. Dated: January 2, 1996 Donald P. Driscoll Attorney for Plaintiff 10/30/95