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Dell lawsuit: Pattern of deceit

According to a recently unsealed lawsuit, Dell shipped approximately 12 million computers containing faulty components and then tried to hide the problems from buyers.
Written by Michael Krigsman, Contributor

According to a recently unsealed lawsuit, Dell shipped approximately 12 million computers containing faulty components and then tried to hide the problems from buyers. By doing so, Dell allegedly engaged in a large-scale pattern of deceit against its enterprise customers.

New York Times article describes the massive extent of this problem:

Internal documents show that Dell shipped at least 11.8 million computers from May 2003 to July 2005 that were at risk of failing because of the faulty components.

A study by Dell found that OptiPlex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period, according to the lawsuit.

As complaints mounted, Dell hired a contractor to investigate the situation. According to a Dell filing in the lawsuit, which has not yet gone to trial, the contractor found that 10 times more computers were at risk of failing than Dell had estimated. Making problems worse, Dell replaced faulty motherboards with other faulty motherboards, according to the contractor’s findings.

The lawsuit accuses Dell of deliberately blaming customers for product failures caused by the faulty components. The Times article explains this deception:

Dell employees went out of their way to conceal these problems. In one e-mail exchange between Dell customer support employees concerning computers at the Simpson Thacher & Bartlett law firm, a Dell worker states, “We need to avoid all language indicating the boards were bad or had ‘issues’ per our discussion this morning.”

In other documents about how to handle questions around the faulty OptiPlex systems, Dell salespeople were told, “Don’t bring this to customer’s attention proactively” and “Emphasize uncertainty.”

One document from the lawsuit, which is embedded at the bottom of this post, makes a variety of specific allegations against Dell:

  • Dell's Motion serves up half-truths while sweeping inconvenient information under the rug...
  • When Dell first knew or should have known about the defective capacitors in the Dell OptiPlex computers. Dell admits in a 2004 e-mail in response to a customer inquiry its awareness of motherboard and thermal issues in November 2002.
  • When Dell first...acknowledged defective capacitors as the cause of computer failures... Dell documents indicate strenuous efforts to attribute OptiPlex failures to customer use and site conditions even when Dell knew that defective capacitors were to blame. Dell advised enterprise customer that it was the “only one” reporting OptiPlex problems.
  • What Dell knew about the pervasive impact of defective capacitors on computer failures when supplying the defective computers. Dell knew before March 2005 that 1.8m units were potentially affected and estimated in September 2005 that 8.m+ were potentially affected by motherboard issues
  • Whether Dell misled AIT and other enterprise customers about the computer failures customers experienced. Dell documents indicate an orchestrated campaign to pin the failures on customers even though Dell knew about the capacitor problem.
  • Whether Dell conducted sham analyses on the causes of computer failures to deflect attention from the cause of the capacitor failures at [plaintiff] AIT. Dell documents indicate that Dell concocted “individualized” solutions to what Dell knew to be an “industry-wide” problem that affected all customers alike. Dell internal communications in April 2005 directing Dell employees to divert attention from OptiPlex quality issues Dell was already aware of to customer-related causes

I asked Ira Winkler, author and expert witness against Dell, to explain the significance of this case:

The most striking aspect of this story is that Dell knew about problems with the capacitors but did not alert customers, which could have prevented damages from occurring. Dell also made up ridiculous reasons for the failures.

This is the first case where liability for hardware or software failures is heading toward plaintiff success in a big way. Typically, hardware and software manufacturers are only responsible for replacing the failed products. In this case, however, the judge is allowing a company to pursue Dell liability for replacing failed products and for all damages resulting from the failures. That outcome involves potentially hundreds of billions of dollars in aggregate, if you use the plaintiff's claim as a base.

The Austin Statesman reports Dell's reactions to the New York Times story: "Dell said the issue was 'old news and the implication that this situation affects Dell currently is incorrect.'"

My take. This situation should remind enterprise buyers to work with trustworthy vendors who have demonstrated willingness to acknowledge and fix problems in a timely manner. The need for trust applies equally well to hardware vendors, software vendors, and consulting companies.

Most large initiatives encounter unexpected challenges somewhere between start and completion. Therefore, the true measure of a vendor becomes their willingness and ability to help customers overcome difficulties that arise.

The lawsuit alleges that Dell arrogantly and callously abused its customers' trust. If Dell loses, I urge the court to award aggressive damages.

Please share your thoughts on Dell and this situation in the comments.

Dell Lawsuit Document

Photo of leaking Dell capacitors from Dell Hell Again.

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