2763 1 IN THE IOWA DISTRICT COURT FOR POLK COUNTY ----------------------------------------------- 2 JOE COMES; RILEY PAINT, ) 3 INC., an Iowa Corporation;) SKEFFINGTON'S FORMAL ) 4 WEAR OF IOWA, INC., an ) NO. CL82311 Iowa Corporation; and ) 5 PATRICIA ANNE LARSEN; ) ) TRANSCRIPT OF 6 Plaintiffs, ) PROCEEDINGS ) VOLUME XI 7 vs. ) ) 8 MICROSOFT CORPORATION, ) a Washington Corporation ,) 9 ) Defendant. ) 10 ----------------------------------------------- 11 The above-entitled matter came on for 12 trial before the Honorable Scott D. Rosenberg 13 and a jury commencing at 8 a.m., December 4, 14 2006, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 2764 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, Iowa 50309 (515)283-1111 6 RICHARD M. HAGSTROM 7 Attorney at Law Zelle, Hofmann, Voelbel, 8 Mason & Gette, LLP 500 Washington Avenue South 9 Suite 4000 Minneapolis, Minnesota 55415 10 (612)339-2020 11 ROBERT J. GRALEWSKI, JR. Attorney at Law 12 Gergosian & Gralewski 550 West C Street 13 Suite 1600 San Diego, CA 92101 14 (619) 230-0104 15 16 17 18 19 20 21 22 23 24 25 2765 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 Attorneys at Law Sullivan & Cromwell, LLP 4 125 Broad Street New York, New York 10004-2498 5 (212)558-3749 6 ROBERT A. ROSENFELD Attorney at Law 7 Heller Ehrman, LLP 333 Bush Street 8 San Francisco, California 94104 (415)772-6000 9 STEPHEN A. TUGGY 10 HEIDI B. BRADLEY Attorneys at Law 11 Heller Ehrman, LLP 333 South Hope Street 12 Suite 3900 Los Angeles, CA 90071-3043 13 (213) 689-0200 14 DANIEL S. SILVERMAN Attorney at Law 15 Heller Ehrman, LLP 4350 La Jolla Village Drive 16 Seventh Floor San Diego, CA 92122-1246 17 (858)450-8400 18 BRENT B. GREEN Attorney at Law 19 Duncan, Green, Brown & Langeness, PC 20 Suite 380 400 Locust Street 21 Des Moines, Iowa 50309 (515)288-6440 22 23 24 25 2766 1 RICHARD J. WALLIS STEVEN J. AESCHBACHER 2 Attorneys at Law Microsoft Corporation 3 One Microsoft Way Redmond, California 98052 4 (425)882-8080 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2767 1 THE COURT: Go ahead, Chris. 2 MR. GREEN: Yeah. There are several 3 things pending, but I think the only thing that 4 we need to take up this morning is we'd like to 5 be heard on a curative instruction regarding 6 what we believe are improper statements made by 7 Ms. Conlin in her opening statement. 8 And I believe Ms. Nelles is going to 9 do that. And we haven't got a brief, but we're 10 prepared to argue that unless the Court wants a 11 full briefing now. 12 MS. NELLES: Your Honor, I think I can 13 be very quick and perhaps we can get this done 14 while Mr. Tuggy is on his way over and they are 15 negotiating this evidence. 16 But something that occurred on Friday 17 we wanted to raise. We think it requires a 18 correction. Your Honor, during her opening 19 statement on Friday, Ms. Conlin made several 20 statements to the Jury that are contrary to the 21 Court's instructions. 22 Specifically, during her opening 23 statement, Ms. Conlin told the Jury that the 24 Iowa Competition Law requires companies to, 25 quote, compete fairly. 2768 1 This is not the law as accepted by the 2 United States Supreme Court. It's not the law 3 as set forth by the Supreme Court of Iowa, and 4 it is not the law as the Court instructed the 5 Jury. 6 Unfair conduct, of course, is not the 7 same as anticompetitive conduct. And that is 8 what Plaintiffs must prove here. 9 And Microsoft would ask that the Court 10 provide a corrective instruction to remedy the 11 incorrect statements that were made. 12 Now, let me just tell you exactly what 13 Ms. Conlin said to the Jury. What she said 14 was, and I'm quoting, the rules say that 15 companies should compete as vigorously as they 16 can, do everything they can to win, make the 17 best, the most innovative, the most creative 18 products, get the best sales force, and try to 19 win on the merits. 20 But the rules also say you have to 21 compete fairly. If you don't, you have to be 22 held accountable for the damage that you do to 23 the competitive process and to the free market 24 and to consumers. 25 That's from Friday's transcript, the 2769 1 December 1 transcript at page 2602, lines 14 2 through 24. I have copies I can show you. 3 Now, shortly after making this 4 statement, Ms. Conlin went on to add what the 5 law requires of Microsoft is exactly what the 6 law requires of all companies. Compete fair 7 and square. Microsoft did not. That's, again, 8 the December 1 transcript, page 2604, lines 1 9 through 4. 10 And then, again, Ms. Conlin later 11 equated unfair and illegal tactics. She said 12 to the Jury, when they cannot win on fair 13 competition on features, on price, they resort 14 to unfair and illegal tactics like these 15 exclusionary contract terms, December 1 16 transcript at page 2715, lines 16 through 19. 17 These statements are just wrong. I 18 believe Mr. Holley went through this many times 19 in going through the Jury instructions. 20 The antitrust laws are not a 21 codisability. It is well settled that unfair 22 conduct does not itself constitute a violation 23 of the antitrust laws. 24 The Supreme Court of the United States 25 said this itself in Brook Limited versus Brown 2770 1 and Williamson Tobacco Corp. 2 The Supreme Court said even an act of 3 pure malice by one business competitor against 4 another does not, without more, state a claim 5 under the federal antitrust laws. 6 Those laws do not create a federal law 7 of unfair competition. That's on the 509 U.S. 8 209. The jump site is 229, a 1993 case. 9 The Iowa Supreme Court has made a very 10 similar observation. Next Generation Realty 11 versus Iowa Realty, Inc. 12 The Iowa Supreme Court said the 13 marketplace is often unfair, sometimes brutal, 14 sometimes tortious acts take place there, but 15 until an act impacts on the public's access to 16 a competitive market, the injured are left to 17 proceed with traditional tort or contract 18 remedies. 19 In other words, Your Honor, brutal and 20 tortious behavior alone and certainly unfair -- 21 and arguably unfair behavior alone is not in 22 and of itself a violation of the Iowa 23 Competition Law. 24 Your Honor, the antitrust laws 25 encourage all products, even monopolists, to 2771 1 compete aggressively and to win for themselves 2 all the business they can. 3 In order to actually prove 4 anticompetitive conduct, it is Plaintiffs' 5 burden here to demonstrate that the conduct 6 they allege was conduct without a legitimate 7 business purpose that makes sense only because 8 of eliminating competition, not simply that the 9 conduct was not fair. 10 Now, the Court and Your Honor 11 instructing the Jury, Preliminary Instruction 12 Number 8, appropriately told the Jury that not 13 all behavior that enters competitors as 14 anticompetitive and that the difference between 15 anticompetitive conduct and conduct that has a 16 legitimate business purpose can be difficult to 17 determine. 18 By implying that unfair is enough, 19 that unfair conduct is illegal, Plaintiffs' 20 counsel has contradicted this Court's 21 instruction in a fundamental way. And we would 22 ask that the Court cure the harm from counsel's 23 assertion about unfairness and provide a 24 corrective instruction to the Jury before 25 opening statements continue. 2772 1 I have a proposal I'd like to bring up 2 to Your Honor. 3 MS. CONLIN: Maybe I could see it too. 4 MS. NELLES: I'll give it to you too. 5 I'm sorry. 6 Here's the proposed instruction. 7 Here's the transcript cites, and here is the 8 Next Generation Realty case. 9 Let me get a copy for Ms. Conlin. 10 THE COURT: Anything else, Ms. Nelles? 11 MS. NELLES: No. That's it, Your 12 Honor. Thank you. 13 THE COURT: Very well. 14 Any response, Ms. Conlin? 15 MS. CONLIN: Yes, Your Honor, if I 16 may. 17 First of all, of course, we had no 18 notice whatsoever that this was going to come 19 up this morning. No objection was made at the 20 time, which is what I understand the rules 21 require. 22 This is a typical tactic on 23 Microsoft's behalf which we saw in Minnesota. 24 They take the transcript and have minions run 25 through it, parsing every word, making every 2773 1 attempt that they can think of in law or in 2 fact to criticize. And we really did have this 3 very same thing come up in Minnesota. 4 Every single morning we would come to 5 court and there would be some new thing that 6 some member of the Defendant's trial team had 7 done that overnight they had decided was 8 somehow wrong. 9 They use the term unfair in a 10 colloquial sense. It's an easily 11 understandable word. I was very clear with the 12 Jury about what was required. I did not in any 13 way attempt to contradict the words of the 14 Court. 15 In fact, as I recall, I specifically 16 said to the Jury that it was the Court and the 17 Court alone that decided what the law was and 18 that only the Court has that ability to do 19 that. 20 A curative instruction, Your Honor, 21 would -- I haven't even had a chance to look at 22 this, but a curative instruction would 23 certainly be completely unwarranted under these 24 circumstances. 25 I'm not -- I wasn't saying that they 2774 1 should be civil, they meaning Microsoft. I 2 did, in fact, say to the Jury that tough 3 competition, aggressive competition was 4 perfectly fine. But that when it crossed the 5 line, it was not. 6 I'm not trying to mislead the Jury, 7 and I think it would be manifestly unfair for 8 the Court to instruct the Jury on such a small 9 -- I mean, I'm kind of surprised that after 10 reading an entire day of testimony, they could 11 only find this one thing to bring to the Court 12 this morning. 13 And I ask the Court not to instruct 14 the Jury and to perhaps instruct Microsoft that 15 if they have objections to what I'm saying, 16 then they should be made at the time, and that 17 this kind of tactic of reading the transcript 18 with a magnifying glass and trying to find some 19 word to criticize would not be the way that we 20 would be approaching this case. 21 THE COURT: Ms. Nelles, anything 22 further, ma'am? 23 MS. NELLES: Yes, Your Honor. 24 First of all, for the record, I wish I 25 had many minions -- I don't -- going through 2775 1 the transcript. 2 And, frankly, I think there were many 3 errors in law that, in fact, were said during 4 the opening, but I think those are 5 appropriately addressed when we make our 6 opening except for one here that very much 7 conflicts with the Court's instruction. 8 And unfair is hardly a colloquial 9 term. It's a particularly troubling term to 10 use in this context. 11 Every juror has his or her own sense 12 of what it means. 13 Your Honor, if you'll forgive me, let 14 me use a very New York analogy. Here we are 15 talking about vigorous competition among 16 companies for market share. In New York, we 17 compete very vigorously for taxi cabs. 18 And I've often stood on a street 19 corner with a baby on my hip with my arm in the 20 air -- one of the very first signals my 21 children ever learned -- waiting for a taxi, 22 and the convention of people line up behind 23 you. 24 And when you finally get one, you jump 25 in that cab. And on occasion, I have stood in 2776 1 line for a very long time, had the door open, 2 been trying to fold up my stroller and have 3 someone jump in the cab. Well, I would say 4 that's unfair. 5 And, in fact, I would say if it's 6 raining out, it's pretty ruthless, but it is 7 certainly not illegal. 8 However, if someone pushes me to the 9 ground, well, that violates the law. And that 10 is what you cannot do. 11 And the difference between unfair and 12 illegal is critical to this case, Your Honor. 13 It is critical. 14 It is what Plaintiffs have to prove. 15 They have to prove anticompetitive conduct. 16 They don't have to prove unfair conduct. 17 Unfair conduct is not enough. That is 18 what Your Honor told this jury, and it should 19 not be obscured to the Jury, and it has been. 20 Thank you. 21 THE COURT: Anything further on this 22 issue? 23 MS. CONLIN: Your Honor, if the Court 24 has any inclination to give an instruction, 25 which would be an attack on my credibility, I 2777 1 would ask for some time to brief this issue. 2 It just seems -- if the Court will 3 permit me -- unfair for them to come in at the 4 crack of dawn, on Monday morning, while I'm in 5 the middle of my opening statement and say 6 here, Your Honor, tell the Jury that Ms. Conlin 7 used the wrong word. 8 So I would ask if that's -- and, of 9 course, the instruction is intended to tell the 10 Jury that they -- that they cannot count on 11 what I have to say. 12 THE COURT: Anything else? 13 MS. NELLES: Your Honor, we think we 14 gave Ms. Conlin the courtesy by not jumping up 15 in the middle of her opening and wanted to 16 resolve this during a recess. I would ask that 17 it be resolved as soon as Your Honor thinks 18 it's appropriate. 19 Thank you. 20 THE COURT: Very well. 21 Anything further on the issue, 22 Ms. Conlin. 23 MS. CONLIN: No, Your Honor. 24 THE COURT: The Court has considered 25 the matter. A curative instruction will not be 2778 1 given at this time. I will consider giving it 2 as a final instruction. 3 The Court reminds the parties that the 4 instructions as set out, particularly 5 Preliminary Instruction Number 8, is the law, 6 and it's unlawful or illegal competition, not 7 unfair competition. You should refer to it as 8 that, both parties. 9 I will allow the Defendant in their 10 opening to clarify the instruction or to read 11 from it or to state that -- or contradict 12 Ms. Conlin, to say that it's not unfair 13 competition, but illegal competition if they 14 wish. 15 Anything further? 16 MS. NELLES: No. 17 Thank you, Your Honor. 18 THE COURT: Any other issues? 19 MS. CONLIN: Yes, there are other 20 issues. 21 THE COURT: Oh, did you get those 22 resolved? 23 MR. GRALEWSKI: Your Honor, if I can 24 beg the Court's indulgence for about two 25 minutes to confer with Mr. Tuggy. 2779 1 THE COURT: Okay. Sure. 2 MR. GRALEWSKI: He has the materials 3 and he may need to speak with Mr. Tulchin. And 4 we may be in a position to take it up in about 5 five minutes. 6 THE COURT: That's fine. 7 MS. CONLIN: Then let's talk about the 8 website for a minute, Your Honor, if we could. 9 This is your order of November 2nd in 10 which you say that you are presented with the 11 issue of displaying of exhibits on a proposed 12 website during the trial. 13 The Court finds that exhibits may be 14 displayed on a proposed website approved by the 15 Court if they are first admitted into evidence 16 by the Court on the record. 17 And I'm a little unclear where we are 18 on that issue. 19 THE COURT: It's not admitted yet. 20 MS. CONLIN: No, I understand that, 21 Your Honor, but do you know if there is a 22 website? 23 THE COURT: Oh, I don't know. 24 MS. CONLIN: Carrie was here, but then 25 she left the room. 2780 1 THE COURT: When she comes back, you 2 can tell her to take a look. 3 MS. CONLIN: All right. Thanks, Your 4 Honor. 5 THE COURT: She's been gone. 6 MS. CONLIN: That's all that -- 7 Oh, no, Your Honor. One additional 8 matter. 9 The Court gave me over the weekend to 10 consider the matter of whether or not we wanted 11 to persist in bringing Mr. Ballmer and 12 Mr. Gates in our case in chief. 13 And we have decided that we will not 14 do that, that we will be patient and wait until 15 the Defendant brings those two witnesses in 16 their case, and they have promised to do so. 17 We believe that permitting the 18 Defendant to put on their case right in the 19 middle of ours by their direct evidence would 20 be confusing to the Jury and disruptive to our 21 proof. 22 So we'll wait -- we also had the 23 problem of a January 10th date, which simply 24 does not, does not work for us at all. So 25 that's the decision that we've made. 2781 1 And I appreciate the Court giving me a 2 chance to check that with my colleagues and 3 make that decision. 4 THE COURT: Okay. Any objection? 5 MS. NELLES: Not at all, Your Honor. 6 We simply appreciate Ms. Conlin letting us 7 know. 8 THE COURT: Very well. That's 9 resolved. 10 Off the record. 11 (An off-the-record discussion was 12 held.) 13 MS. NELLES: Your Honor, the website 14 if I may. 15 Just, I believe, the order is going to 16 say it's with a Court-approved website. I just 17 want to make sure that both have an opportunity 18 to look at it. 19 MS. CHRISTENSEN: Did anybody put a 20 request in for it? 21 MS. NELLES: No, not at all, Carrie. 22 MS. CONLIN: We did. We made a 23 written request. 24 MS. CHRISTENSEN: And it got to Beth? 25 And because she said it was going to take a 2782 1 long time to be approved by ISIS. 2 MS. CONLIN: We did that several weeks 3 ago. 4 THE COURT: Well, I guess I'll talk to 5 Beth. 6 (Off-the-record discussion was held.) 7 MR. GRALEWSKI: Four documents. 8 THE COURT: Sir? 9 MR. GRALEWSKI: Your Honor, if I may 10 approach. I have a couple things to aid in the 11 argument. 12 THE COURT: Okay. 13 MR. GRALEWSKI: First, Your Honor, 14 there are four documents at issue this morning. 15 This is a rulings chart and a copy of those 16 four documents for the Court. 17 THE COURT: Very well. 18 MR. GRALEWSKI: And while I'm up here, 19 Your Honor, just very quickly, Phase 6, there 20 was a document that we needed to clean up some 21 attorney comments. 22 And Mr. Reece asked me to give this to 23 you this morning. This is a copy of the 24 original document as it was produced. The 25 reference to Bob in the upper right-hand corner 2783 1 is no reference to any Bobs sitting in the 2 courtroom today. 3 Your Honor, I'm going to argue two 4 documents, and Ms. Conlin is going to argue two 5 documents. 6 The first one that I'd like to direct 7 Your Honor to is PX 9729. It's the last 8 document in your pile. It's a relatively thick 9 15-, 20-page document. 10 Your Honor, what this is is a 11 transcript of various comments by various 12 Microsoft executives concerning the Windows XP 13 launch that was held in New York City on 14 October 25th, 2001. 15 This document, Your Honor, has -- I 16 think what's at issue this morning -- hearsay 17 objections to it. 18 One issue during our meet and confer 19 process last week, Your Honor, was a foundation 20 issue. Microsoft was interested in agreeing on 21 this document's admission if we could provide 22 foundation. 23 We provided that foundation, Your 24 Honor. This document is currently to this day, 25 probably to this very moment, maintained on 2784 1 Microsoft's own website. 2 You can click a link on Microsoft's 3 website and go right to this transcript. So I 4 believe that, Your Honor, establishes and 5 proves the reliability and trustworthiness of 6 this document. 7 To the extent that Microsoft had any 8 issues with it, they certainly wouldn't still 9 maintain it on its website. 10 I think the main issue this morning, 11 Your Honor, is whether statements contained in 12 this document are admissions. 13 And quite simply, Your Honor, we 14 believe that the statements of Microsoft's 15 executives are. 16 Mr. Tulchin, I believe, is going to 17 address Microsoft's position. And I believe 18 what he's going to say is that the Plaintiffs 19 have to show that a statement by Microsoft's 20 executives in this document is contrary to a 21 position that they are taking now. 22 This was argued by Mr. Rosenfeld when 23 we were addressing the Gates motion about ten 24 days ago or so. 25 And, as Ms. Conlin articulated and is 2785 1 the Plaintiffs' position, we don't believe that 2 position has any merit in the law and certainly 3 not in the rule. The admissions provision in 4 Rule 5.801(d)(2) simply says -- and this is Sub 5 D -- a statement by the party's agent or 6 servant concerning a matter in the scope of the 7 agency or employment made during the existence 8 of the relationship. 9 So we think that is satisfied here, 10 Your Honor. 11 However, to the extent the Court is 12 indulgent of Mr. Tulchin's view, we believe 13 that the statements at issue are against 14 Microsoft's interest. 15 For example, one of the statements 16 that we offered this document for is a 17 statement by Mr. Gates where he says that until 18 the release of XP, Windows was simply a graphic 19 user interface that sat on top of DOS. 20 That is a position that the parties 21 disagree about and is certainly a position that 22 is contrary to Microsoft's interest, Your 23 Honor. 24 And at this point I have nothing 25 further on 9729. 2786 1 THE COURT: Mr. Tuggy or Mr. Tulchin? 2 MR. TULCHIN: I think Mr. Tuggy will 3 handle this, Your Honor. Thank you. 4 THE COURT: Okay. 5 MR. TUGGY: Your Honor, this 6 Plaintiffs' exhibit was not one that went 7 through our Special Master process. 8 It was a designation shortly before 9 opening statements and which has made it 10 somewhat difficult to track down its foundation 11 and the evidence that might support its 12 admission. Microsoft has asserted several 13 objections to this document. 14 One is embedded hearsay. And, based 15 on Plaintiffs' argument, it appears they are 16 conceding that statements, for example, by 17 someone from Sting, Regis Philbin, 18 non-Microsoft employees whose statements are in 19 this document are not to be admitted for their 20 truth or shown in any way. 21 The argument was restricted by 22 statements of Microsoft executives as reflected 23 in this transcript. And those go to 24 Microsoft's hearsay objection. 25 And, as to those, it is Microsoft's 2787 1 position that merely the fact that this 2 document appears on its website is not an 3 adoption or a representation in any form by 4 Microsoft. 5 That transcript is accurate and 6 accurately reflects the statements by these 7 executives at this launch. 8 And without that kind of foundation or 9 the time we've needed to confirm it, there 10 isn't the foundation under the hearsay rule for 11 this to be admitted as an admission of these 12 exhibits -- as an admission of the fact that 13 this transcript is a correct transcription of 14 what occurred at this Windows XP launch. 15 THE COURT: Where did you get the 16 transcript? 17 MR. GRALEWSKI: By clicking on a link 18 on Microsoft's website. And the link is still 19 there, Your Honor. 20 THE COURT: This is all taken from 21 Microsoft's website? 22 MR. GRALEWSKI: Yes, Your Honor. 23 THE COURT: Anything else on this 24 issue? 25 MR. GRALEWSKI: Ten seconds. We are 2788 1 not moving for its admission under Sub B of the 2 admissions rule, which is the adoptive 3 admission. We are moving under Sub D. 4 And we are not offering the comments 5 of Sting for their truth, Your Honor. 6 THE COURT: You don't trust them? 7 MR. GRALEWSKI: I do. 8 THE COURT: Mr. Tuggy, anything else? 9 MR. TUGGY: Nothing further, Your 10 Honor. 11 THE COURT: You're not a fan of Sting 12 either? 13 MR. TUGGY: No. 14 THE COURT: Very well. 15 Objection is overruled. Statements of 16 Mr. Gates and other Microsoft employees are 17 admissible. Other statements are not. 18 Next? 19 MR. GRALEWSKI: Thank you, Your Honor. 20 I know the Jury is waiting, so I'll be quick on 21 my next document. 22 4498, Your Honor. 23 THE COURT: You go from back to front. 24 Okay. 4498? 25 MR. GRALEWSKI: 4498 -- 2789 1 THE COURT: Got it. 2 MR. GRALEWSKI: -- is from Hewlett 3 Packard to Microsoft. And you'll notice that 4 there are three paragraphs of embedded hearsay. 5 The second and third paragraphs of embedded 6 hearsay Ms. Conlin will not refer to during her 7 opening statement. 8 The only issue presently before Your 9 Honor is whether Ms. Conlin may display and 10 refer to the first embedded hearsay paragraph. 11 We submit that the nonhearsay purpose, 12 Your Honor, is for notice of what HP is 13 reporting the effect of Microsoft's policies 14 are. 15 THE COURT: You're offering -- the 16 three paragraphs at issue are the ones 17 highlighted? 18 MR. GRALEWSKI: The three paragraphs 19 at issue contain the embedded hearsay. The 20 only issue before Your Honor is the first 21 paragraph because the second and third are not 22 going to be displayed to the Jury. 23 So when the document appears on the 24 screen, they won't be able to see the second 25 and third paragraphs of the embedded hearsay. 2790 1 THE COURT: Very well. 2 Mr. Tuggy? 3 MR. TUGGY: Yes, Your Honor. 4 As we have discussed with other 5 documents, Microsoft recognizes that when 6 here's -- when something that's otherwise 7 hearsay is offered as notice to a recipient, 8 that it may be admissible for that purpose. 9 However, the notice has to be relevant. 10 And in this case Plaintiffs seek to 11 offer to the Jury in the opening a section of 12 this letter where HP states that Microsoft's 13 contractual requirements prove significant and 14 costly for HP. 15 And the fact that Microsoft may have 16 been aware of such a statement by HP and, 17 therefore, quote, on notice, end quote, of that 18 is not a relevant issue in this lawsuit. 19 THE COURT: So are you agreeing or 20 saying it's not hearsay? Are you just arguing 21 relevance? 22 MR. TUGGY: It's hearsay being offered 23 for a nonhearsay purpose, but the proffered 24 nonhearsay purpose is irrelevant. 25 THE COURT: Okay. 2791 1 MR. TUGGY: In other words, it's 2 prejudicial language Plaintiffs would like to 3 display because of its prejudicial effect. And 4 the proper nonhearsay purpose is not real. 5 It's not really why they want it. 6 THE COURT: Anything else, 7 Mr. Gralewski? 8 MR. GRALEWSKI: With respect to 9 relevance, Your Honor, to remind the Court, 10 this paragraph mirrors Finding of Fact 214 that 11 you read to the Jury already. 12 On the hearsay issue, I think -- I 13 think it is not hearsay actually. The 14 introductory paragraph, as was stated -- as was 15 clearly stated on many occasions to you and 16 other members of the OEM team, that is simply 17 common phraseology used in language -- in 18 letters like this. 19 What is being stated here is being 20 stated in the letter, and that is Microsoft's 21 mandated removal of all OEM group sequences, et 22 cetera, et cetera. 23 So, for example, with that -- the 24 paragraph would stand on its own without that 25 introductory clause. And it's simply a 2792 1 statement that's being made by HP to Microsoft 2 in this instance in this letter. 3 MS. CONLIN: Your Honor, if I may add 4 to that. 5 THE COURT: Go ahead. 6 MS. CONLIN: Paragraph 214. When the 7 Court ruled on Microsoft's motion in limine 8 with respect to collateral estoppel, one of the 9 things we discussed, Your Honor, was showing 10 the Jury the documents themselves that were 11 quoted by the district court in the findings of 12 fact. This is one such document. 13 And as I understood the Court's 14 ruling, putting these findings of fact into 15 context and showing the Jury the actual 16 documents on which Judge Jackson relied in 17 making his findings was a perfectly permissible 18 use for us to make of the documents. 19 The Court has read the exact -- the 20 words that Microsoft objects to have already 21 been read to the Jury in paragraph 214. 22 I just want to show them the document 23 in my opening statement, Your Honor. 24 THE COURT: Anything else? 25 MR. TUGGY: Your Honor, if I may 2793 1 respond. 2 THE COURT: Sure. 3 MR. TUGGY: Two points. 4 One, on the issue of collateral 5 estoppel, Microsoft objects to this document 6 and also the next two on the ground that this 7 is barred by the collateral estoppel document 8 from being shown to the Jury because this is a 9 document -- and the part that Plaintiffs seek 10 to show is subsumed within a finding of fact. 11 And it is both cumulative and 12 prejudicial under the rule prohibiting the 13 admission of evidence causing undue prejudice. 14 And it is also violative of the 15 collateral estoppel doctrine in that it is 16 unfair for Plaintiffs to seek to obtain 17 collateral estoppel of finding of fact. 18 In addition to offer evidence in 19 support of that finding of fact, to take the 20 position that Microsoft is precluded from 21 offering evidence adverse to that finding of 22 fact. 23 That it was not your ruling on any 24 motion in limine or other matter previous to 25 this that the Plaintiffs are entitled to show 2794 1 evidence that is quoted in findings of fact or 2 in findings of fact. 3 In addition to obtaining collateral 4 estoppel effect, the findings of fact 5 themselves. 6 And on the argument that this is 7 nonhearsay, the time for that argument, Your 8 Honor, has passed. This was a document 9 designated during the Special Master process. 10 Microsoft asserted an embedded hearsay 11 objection. The Plaintiffs conceded the 12 objection did not submit it to the Special 13 Master for ruling. 14 And now is not the time to attempt to 15 resurrect an argument that this was nonhearsay. 16 They acknowledge and have conceded 17 that it's hearsay. And at issue here is 18 whether it could be offered for a nonhearsay 19 purpose. 20 They have not made any showing of 21 irrelevancy of this for its nonhearsay purpose. 22 The argument that it ought to be 23 admitted because it reflects what a finding of 24 fact said or that it ought to be admitted for 25 its truth is simply not available to Plaintiffs 2795 1 at this time. 2 The question is whether it is -- it is 3 admissible nonhearsay, and it is not. They 4 have not shown the relevance of their 5 nonhearsay purpose and haven't even attempted 6 to argue it. 7 So based both on the proper 8 application of the collateral estoppel doctrine 9 and the fact that there's no link to a relevant 10 nonhearsay purpose, Plaintiffs' Exhibit 4498 11 ought not be shown in the opening. 12 THE COURT: They just want to show the 13 first paragraph? 14 MR. TUGGY: Correct. That paragraph. 15 THE COURT: Anything else? 16 MS. CONLIN: No, Your Honor. 17 THE COURT: You just want a ruling 18 right now on the first paragraph or the entire 19 document? 20 MR. GRALEWSKI: No, Your Honor. Just 21 the first paragraph. 22 Very quickly, Your Honor, echoing what 23 Ms. Conlin said. 24 One relevant nonhearsay purpose with 25 respect to notice is that Plaintiffs will need 2796 1 to demonstrate to the Jury willfulness of 2 Microsoft's actions, separate and apart from 3 the findings of fact. 4 This shows that Microsoft was aware of 5 the effect of its business decisions on its 6 customers and, nonetheless, continue to go 7 forward with its OEM restrictions and its 8 licenses. 9 That's certainly a purpose over and 10 above the collaterally estopped facts from 11 paragraph 214. 12 So not only is it relevant, as 13 Ms. Conlin said to put it in context, but also 14 on the issue of willfulness. 15 THE COURT: How are you going to show 16 the date? 17 MS. CONLIN: What is the question, 18 Your Honor? 19 THE COURT: How are you going to show 20 the date? You said you want to put them on 21 notice. What's the date? 22 MR. GRALEWSKI: There is in the third 23 -- I'm sorry, Ms. Conlin. 24 MS. CONLIN: The letter from Hewlett 25 Packard is dated, Your Honor. 2797 1 THE COURT: Where? 2 MS. CONLIN: March of 1997. 3 THE COURT: I fail to see it. Where 4 is it? 5 MS. CONLIN: Well, let me see if I 6 can. 7 THE COURT: Not on my copy. 8 MR. GRALEWSKI: Also, Your Honor, in 9 the third paragraph, you'll notice that HP in 10 writing to Microsoft in a parenthetical says 11 something like -- Ms. Conlin is looking at my 12 document, but it says something like -- it says 13 -- 14 THE COURT: As of 3-10-96? 15 MR. GRALEWSKI: Right. So if the 16 document doesn't have a date specific on it, 17 there's a reasonable inference that the data is 18 current and it is at least dated in March of 19 '97. 20 MS. CONLIN: And that's what the 21 finding of fact says, Your Honor, March of 22 1997. 23 Finding of fact 214 says was a letter 24 that the manager of research and development at 25 Hewlett Packard sent to Microsoft in March of 2798 1 1997. He wrote, and then the quote. 2 MR. ROSENFELD: Your Honor, if I 3 might. 4 THE COURT: Sure. 5 Mr. Rosenfeld? 6 MR. ROSENFELD: This seems to me to be 7 a classic example of Plaintiffs trying to get 8 the benefits of collateral estoppel, to take a 9 document that is quoted in the finding and then 10 to also ask to introduce the evidence. 11 And that is precisely what collateral 12 estoppel is designed to preclude. You make a 13 choice. You get these preclusive binding 14 facts, but you then don't also get to introduce 15 the evidence. 16 And if Plaintiffs are going to be 17 allowed to argue every time that this evidence 18 is independently relevant to willfulness or 19 whatever, then, you will have allowed these 146 20 preclusive findings. And they're also trying 21 to introduce all the evidence that supports 22 them. 23 And, as I recall, Your Honor, in the 24 hearing that we had back in April, you put 25 precisely the question to me, very pointedly, 2799 1 about whether if certain preclusive findings, 2 broad, preclusive findings were entered by Your 3 Honor, whether Microsoft would try nonetheless 4 to introduce the underlying evidence. And you 5 warned me that that was not going to happen. 6 That is exactly what the Plaintiffs 7 are doing here, and this is the core example. 8 Since they want you to admit the underlying 9 evidence that is quoted in the finding. 10 If collateral estoppel means anything, 11 it means they should not be able to do that 12 here. 13 THE COURT: Counsel? 14 MR. GRALEWSKI: Your Honor, that's a 15 parade of horribles argument. This document, 16 we're not seeking its admission. We want to 17 know if Ms. Conlin can display on the screen. 18 It is, as we talked about last week, 19 relevant to the issue of willfulness, and it's 20 something that's consistent with Your Honor's 21 ruling on the Gates' deposition. The 22 Plaintiffs are entitled to proffer to the Court 23 and to the Jury. 24 THE COURT: Anything else? 25 MR. GRALEWSKI: Not from Plaintiffs, 2800 1 Your Honor. 2 THE COURT: Defendants? 3 MR. ROSENFELD: No, Your Honor. 4 Thank you. 5 THE COURT: I'll allow you to present 6 the paragraph in question without the first 7 clause. 8 MS. CONLIN: I beg your pardon, Your 9 Honor? 10 THE COURT: I will allow you to 11 present the paragraph in question without the 12 first clause. 13 MS. CONLIN: I want to be sure that I 14 understand. 15 THE COURT: In other words, you can 16 state you will not include as was clearly 17 stated on many occasions to you and other 18 members of the OEM team, that will not be 19 displayed. 20 MS. CONLIN: Okay. 21 Thank you, Your Honor. 22 THE COURT: Understood? 23 MS. CONLIN: I got it. 24 THE COURT: Next? 25 MS. CONLIN: Your Honor, there are two 2801 1 more exhibits, but having kept the Jury 2 waiting, I think that it's unlikely that I will 3 reach those today. 4 And so perhaps we can take them up at 5 the close of business today rather than keeping 6 the Jury waiting any further. 7 THE COURT: Any objection? 8 MR. TULCHIN: No, Your Honor. That's 9 perfectly fine with us. 10 THE COURT: Very well. 11 MR. GRALEWSKI: Thank you, Your Honor. 12 THE COURT: Counsel, I've been told 13 that Ms. Baldwin, our court administrator, 14 needs some detail as to what you want on the 15 website. 16 And what else? 17 THE CLERK: Just a memo to ISIS what 18 exactly needs to be on it, how you want it set 19 up so they can get started on it. 20 THE COURT: What you would like on it? 21 MS. NELLES: I would like nothing on 22 it, Your Honor. 23 THE COURT: Okay. 24 MS. NELLES: But if the Plaintiffs are 25 going to make a proposal, I'd like to see it 2802 1 and then have an opportunity to respond. 2 THE COURT: Just do a short memo of 3 what you want on it. 4 MS. CONLIN: All right, Your Honor. 5 THE COURT: And give it to Carrie and 6 she'll give it to Beth. 7 Thanks. Okay, get the Jury. 8 Thank you, Carrie. 9 (The following record was made in the 10 presence of the jury.) 11 THE CLERK: All rise. 12 THE COURT: Sorry about the delay. 13 We had a motion that only the Court 14 can consider regarding some legal issues. So, 15 as we stated earlier in the preliminary 16 instructions, sometimes that comes up. It did 17 come up. 18 Then I understand somebody had a 19 problem getting car space. Okay. 20 I will try to talk to court 21 administration about reserving spots for you. 22 We probably should have some reserved, so -- 23 [Juror Name]: Across the street. 24 THE COURT: Across the street. Okay. 25 Carrie will get on that. 2803 1 THE COURT: Then I'll hear about it 2 later. 3 All right. 4 Ms. Conlin? 5 MS. CONLIN: Thank you, Your Honor. 6 May it please the Court. Good morning. 7 Let me begin by introducing you to Sam 8 Jennison. Let me first try to get through the 9 cords. 10 Sam Jennison is from Burlington. He 11 is a representative of Riley Paint 12 Manufacturing Company, one of the class 13 representatives. 14 When we ended on Friday, I was talking 15 to you about DR-DOS, one of the competitors in 16 the operating system market with MS-DOS, and we 17 were in about the middle of 1991, 15 years ago. 18 So stay with me. 19 One of the things that we thought 20 might be helpful to you that we have prepared 21 is a time line so that you can sort of keep 22 track of what is generally happening. 23 And we are going to put the time line 24 on this screen and take it down and put it up 25 because there's also, as you will recall from 2804 1 Friday, a kind of an outline to guide us as we 2 work through this process. 3 We are in July of 1991. DR-DOS 5.1 4 has been released, and MS-DOS 5.0 is also in 5 the market, though, it was in the market more 6 than a year after DR-DOS 5.0 came out. 7 In July of 1991, on July 17th, Novell, 8 which is a networking company -- Novell is in 9 the software business, but not in the desktop 10 software business, in the server software 11 business. 12 It's a large company. It has its own 13 relationship with OEMs, the computer 14 manufacturers. 15 And on July 17th Novell announces its 16 intention to merge with DRI, the manufacturer, 17 the software developer of DR-DOS. 18 Just a very few days later Bill Gates 19 tries kind of a last-ditch effort to stop the 20 merger from becoming effective. 21 He calls Ray Noorda. Mr. Noorda is 22 the CEO of Novell. And wants to institute 23 merger discussions between Microsoft and 24 Novell. 25 He makes very clear, Mr. Gates, in his 2805 1 phone call to Mr. Noorda, that as a 2 prerequisite of discussions between Novell and 3 Microsoft about merger, it would be necessary 4 for Novell to get rid of DRI, which they just 5 days before had acquired. 6 Noorda responds that the merger that 7 Mr. Gates is proposing might have problems 8 getting government approval. And Gates says, 9 in effect, according to Mr. Noorda's testimony, 10 we know how to handle the government. 11 Now, I will tell you that Mr. Noorda 12 is no fan of Microsoft. But he is the CEO of a 13 public company. And he is obliged to inform 14 his board of directors and to explore these 15 discussions. So that's what he does. 16 David Bradford -- during this time 17 frame, during a very long period of time was 18 Novell's general counsel. He will be here to 19 talk to you about the merger discussions and 20 about a number of other things as well. 21 Negotiations occur until March of 22 1992. And in March of 1992, without any 23 warning to Novell, Microsoft acquires a 24 different company, another company. And that 25 would have made FTC approval even more 2806 1 difficult. 2 And so at that time Novell calls off 3 the discussions and is convinced that Microsoft 4 never really intended to seriously explore any 5 kind of a merger with Novell, that it was just 6 an effort to interfere with the merger of 7 Novell and DRI. 8 Mr. Noorda recently died of 9 Alzheimer's. He provided a deposition in 1998. 10 He stopped being the CEO of Novell in 1994. 11 Mr. Bradford will tell you that the 12 reason he stopped was because he was having so 13 much difficulty with his memory. He felt he 14 could no longer function adequately as the CEO 15 of a company. 16 Mr. Bradford worked daily with 17 Mr. Noorda. 18 Microsoft has indicated that it is 19 going to play that deposition anyway. You will 20 see that Mr. Noorda gets very confused. Twice 21 or three times he says that he stopped being 22 the CEO in 1944. And there are other things. 23 And I don't want you to be confused by 24 his confusion. Mr. Bradford will talk to you a 25 little bit about that. 2807 1 While the merger talks are proceeding, 2 you know, July 1991, DRI is acquired and merges 3 with Novell. 4 Right after that, at Mr. Gates' 5 instance, merger discussions go on between 6 Novell and Microsoft. 7 And even while those merger 8 discussions are proceeding, Microsoft at the 9 highest levels is thinking up all kinds of 10 things to do harm to DRI, Novell. 11 Brad Silverberg sends a working 12 outline to Steve Ballmer on August 6, 1991, 13 describing some of what they intend to do. 14 That is Plaintiffs' Exhibit 895. 15 I can't see this very well anyway, but 16 I sure can't see it if it's not even turned to 17 me. 18 And Mr. Silverberg says, here is the 19 working outline for the document. MS-DOS 5, 6 20 key issues: What unique synergies can we 21 create with Windows 3? Derail the train before 22 it starts. Communicate DR-DOS product 23 weaknesses. Lock in OEMs to long-term 24 contracts. 25 And I told you earlier about the 2808 1 long-term contracts. And the reason for the 2 long-term contracts is quite clearly stated by 3 Mr. Silverberg right here. 4 And, finally, on the document, should 5 reverse engineer their protocols just in case. 6 Now, IBM has shown interest in DR-DOS 7 for quite some time. 8 By June of 1991, Silverberg and others 9 are notified by Eric Straub, who is a Microsoft 10 employee, he's a program manager, that IBM is 11 in negotiation with DRI and that -- and here is 12 Exhibit 9832. 13 What Mr. Straub says is high-level 14 management at IBM is interested in moving away 15 from Microsoft in the DOS business if at all 16 possible. 17 Then in September of 1991, IBM 18 publicly endorses DR-DOS 6.0 saying that it's 19 excellent technology and, within a week, 20 Mr. Gates publicly vows to retaliate against 21 IBM if it moves to DR-DOS. 22 Of course, if IBM announces support 23 for DR-DOS, that will give it great impetus in 24 the market. And due to that threatened 25 retaliation, IBM does not adopt DR-DOS. 2809 1 IBM's also concerned about the same 2 problems that we discussed earlier, and that is 3 future compatibility with Windows. 4 Microsoft will say that the reason 5 that IBM withdraws its support for DR-DOS is 6 because of testing done by an IBM employee 7 named Tony -- and I'm not sure how to pronounce 8 his last name, but I'm going to give it a 9 shot -- Ingenuso. 10 Mr. Ingenuso, who is a very close 11 friend of Brad Silverberg's, who is the 12 Microsoft executive in charge of MS-DOS and 13 Windows, will provide testimony to you by 14 deposition. 15 And he will say that he tested DR-DOS 16 and found it terrible in every possible way. 17 But in order to find it terrible in every 18 possible way, he invents his own test of 19 DR-DOS. He doesn't ever discuss this with 20 anybody at DRI or Novell. 21 No one at DRI even hears of him, and 22 someone at IBM leaks this information directly 23 to Microsoft. Even IBM falls victim to FUD, 24 threats and retaliation, vaporware, just like 25 other OEMs. 2810 1 Now, we're going to move to September 2 1991, to December 1993. DR-DOS 6.0. This is 3 the shrink-wrapped package of DR-DOS 6.0, and 4 this was sold at retail. 5 And it was released in September 1991. 6 That's three months after the announced merger 7 with DRI. And, once again, releasing DR-DOS 8 6.0, that surpasses the features available and 9 any Microsoft product. 10 The most important feature in DR-DOS 11 6.0 responds to user's need for more and more 12 hard disk space. 13 This new product allows users to store 14 more data in less space. And there are other 15 new and significantly improved features in 16 DR-DOS like task switching. 17 You know, you can jump back and forth 18 between your word processing and your 19 spreadsheet. 20 A greatly improved disk cache, which 21 improves performance, improved memory 22 management, and full online help. 23 Executives at Microsoft just go 24 ballistic. Here is Mr. Allchin. Mr. Allchin, 25 one of the very most senior executives writes 2811 1 in Exhibit 948, we must slow down Novell. As 2 you said, Bill, it has to be dramatic. We need 3 to slaughter Novell before they get stronger. 4 And in this time frame Microsoft is 5 using those same exclusionary practices, those 6 same exclusionary contracts that we previously 7 discussed. 8 Per processor, minimum commitments, 9 long-term contracts, unreasonably large minimum 10 commitments. And this is the tilted playing 11 field that DR-DOS 6.0 is introduced into. 12 But there's more. The familiar FUD. 13 And, specifically, Microsoft begins to claim 14 that DR-DOS will actually cause Windows, the 15 GUI, the separate GUI I just pointed to to 16 break. 17 To block out DR-DOS, Microsoft begins 18 explicitly informing OEMs, the computer 19 manufacturers, that Microsoft would guarantee 20 that Windows would not work with DR-DOS. And 21 if they, the OEMs, licensed DR-DOS, they would 22 be making a critical mistake in the 23 marketplace. 24 The beta blacklist. You recall that 25 the beta is the early prerelease version of a 2812 1 product. And this product is Windows 3.1. 2 At this time, of course, it is the 3 graphical extension. It's a separate product, 4 and Microsoft is testing, beta testing, in the 5 marketplace the 3.1 version of Windows. 6 Windows and DR-DOS do not compete. 7 DR-DOS is an operating system. Windows is the 8 GUI that sits on top of the operating system. 9 DR-DOS competes with MS-DOS, but not 10 with Windows. It works with Windows. 11 During the beta test cycle for Windows 12 3.0, DRI was permitted to have the beta. 13 Customarily when incompatibilities 14 arise between products that are supposed to 15 work together, the practice in the industry is 16 just to fix them. 17 This is particularly true with a 18 product like Microsoft Windows, which is 19 supposed to work with lots of different 20 products. 21 And it is in Microsoft's interest to 22 make sure that its Windows product is 23 compatible with other products because the more 24 products it's compatible with, the more Windows 25 can be sold. 2813 1 And, certainly, having compatible 2 products is in the best interest of end users. 3 Microsoft, however, wants to protect 4 its monopoly. Microsoft knows that if the 5 DR-DOS development team has the Windows 3.1 6 beta, they can make it compatible. And 7 Microsoft decides to withhold from DRI that 8 beta. 9 A Windows 3.1 distribution list dated 10 May 31, 1991, indicates that 2,155 sites are 11 going to receive this Windows 3.1 beta. 12 Microsoft, then, formalizes its beta 13 exclusion policy into something called the 14 Windows DOS beta blacklist. 15 It's a list of companies that are not 16 going to be permitted to have the 3.1 betas. 17 DRI -- and I didn't make up that name. 18 That's right on the document. It's called the 19 beta, Windows DOS beta blacklist. 20 DRI is listed on this blacklist from 21 July 13, 1991. 22 Now, the beta testers are important to 23 Microsoft. Microsoft sets up a way for them to 24 communicate with Microsoft about any problems 25 they have, about any questions that they have. 2814 1 And so, you know, imagine that someone 2 gets -- it's one of these 2,000-plus beta sites 3 that gets the Windows 3.1 beta. And they load 4 it over DR-DOS. 5 When those folks call in concerning 6 the interoperability of Windows 3.1 and DR-DOS, 7 they are explicitly informed that Microsoft 8 does not want Windows to work with DR-DOS. 9 On October 31, 1991, Andy Hill, who is 10 a program manager for MS-DOS 5.0, tells his 11 Windows 3.1 beta staff -- and this is 12 Plaintiffs' Exhibit 1054 -- DR-DOS is an 13 untested and, therefore, unsupported operating 14 system. 15 MS-DOS or OEM versions of it is 16 required for Windows. Using DR-DOS with 17 Microsoft Windows is at the sole risk of the 18 user. We don't support it. 19 As you will see, this refusal is 20 happening at the very time Microsoft is making 21 decisions about the Windows code that will 22 create real or perceived incompatibilities with 23 DR-DOS, the operating system that competes with 24 its monopoly operating system. 25 Claire Lematta is a senior vice 2815 1 president of a company called Weggener Edstrom, 2 and it is Microsoft's outside PR firm. 3 She advises Silverberg on November 4 7th, 1991, of the dangerous course that 5 Microsoft has chosen with this beta blacklist. 6 This is Plaintiffs' Exhibit 1079. She 7 says PR is going to have limited ability to 8 help you if Microsoft is deliberately and 9 selectively keeping DRI from participating in 10 the beta program. 11 That is, if you are making a special 12 case of them that is not consistent with the 13 way that the beta program is being administered 14 for the rest of the industry. 15 My advice is that you really think 16 through what you are doing here, and WRT -- 17 means with regard to -- the beta program. 18 When this gets out, and it will get 19 out, we'll really reflect badly on Microsoft 20 from the press perspective. I think you should 21 also get some legal advice on this issue. 22 Microsoft's tactics work. On January 23 20th, 1992, DRI is notified, for instance, by a 24 potential corporate account of its decision to 25 reject DR-DOS 6.0. 2816 1 This is Plaintiffs' Exhibit 1190. 2 And in the letter, the corporate 3 account tells DR-DOS, what I feel is the most 4 important factor, however, is the rift 5 developing between Digital Research and 6 Microsoft. 7 By this, I mean, Microsoft not 8 allowing you to beta test Windows 3.1. Since 9 the users who would be most inclined to switch 10 to DR-DOS are also using Windows, this one 11 factor is of particular concern. 12 Windows 3.1 launches worldwide on 13 April 6, 1992. 14 And users immediately bombard 15 Microsoft product support services with 16 requests concerning setting up Windows 3.0 on 17 top of DR-DOS. 18 During the beta cycle, Silverberg has 19 told beta support -- these are the people who 20 are talking to the beta testers -- in 21 Plaintiffs' Exhibit 9840, post a nice SOL 22 message. I think I -- I think I know what that 23 means, and you probably do too. 24 Bottom line is that he needs MS-DOS, 25 something that is compatible with Windows. 2817 1 This is during the beta cycle. That 2 same thing continues after the release of the 3 product. 4 He, Silverberg, directs product 5 support services on April 9, 1992. In 6 Plaintiffs' Exhibit 1284, he says, Windows is 7 designed and tested for MS-DOS, not DR-DOS. It 8 says MS-DOS on the box, not MS-DOS or DR-DOS. 9 This is what to tell the world (in a 10 nice way). Using a system other than MS-DOS 11 puts the user at his own risk. It says this 12 very clearly, first thing in the read me. 13 There is another fix for them. Use 14 MS-DOS. That should be mentioned in addition 15 to telling them that Digital Research is 16 providing them with a new version. 17 Now, what's happening here is 18 Microsoft put the product in the market and 19 DR-DOS, then, is able to make its product 20 compatible. 21 And so when they're telling these 22 callers that DR-DOS won't work with MS-DOS, in 23 fact, they already know that DR-DOS is going to 24 provide, is providing a compatible product. 25 Novell quickly ships that update, and 2818 1 the damage is already done. When coupled with 2 the AARD code, which I'm going to talk about in 3 a minute, and with intentional 4 incompatibilities, which I'll also talk about, 5 users begin to perceive the malevolence of 6 Microsoft's intent and its ability to make that 7 intent a reality. 8 OEMs and end users abandon DR-DOS, not 9 because it isn't a good product and not because 10 it doesn't work with Windows, but because 11 Microsoft's stated intent is to make sure that 12 it doesn't work with Windows. 13 Now, let's go back to the beta program 14 because I do want to talk with you about the 15 AARD code. That is AARD, and those are the 16 initials of its developer. 17 In December 1991, Microsoft releases a 18 beta version, it's called the Christmas beta, 19 which unbeknownst to users, beta testers and 20 the press includes secret encrypted code 21 designed to produce false error messages when 22 users try to install Windows 3.0 over DR-DOS. 23 The messages themselves tell the user 24 that a nonfatal error has occurred. They don't 25 describe the error, the cause of the error, or 2819 1 whether it's safe to proceed. 2 Microsoft hides the code in five 3 different places in the source code and 4 encrypts it, which makes it very difficult for 5 anybody, no matter how sophisticated, to 6 discover that these errors are not really 7 errors. 8 No one will tell us exactly when the 9 AARD code was dreamed up or who decided it 10 would be done. 11 Even the author of the code, Aaron 12 Reynolds, says he has no knowledge of who 13 instigated this little coding excursion. 14 By September 27, however, plans are 15 sufficiently advanced to generate debate and 16 even dissent within Microsoft. 17 This is Plaintiffs' Exhibit 607A. 18 And this is Brad Chase speaking. Brad 19 Chase is MS-DOS 6.0 general manager. 20 He says two cents from Rich F, that's 21 Richard Fade and I. 22 One, the check for DR-DOS better be 23 perfect. Otherwise, you could be in a heap of 24 trouble. Ex, meaning example, comes up on 25 Compaq or Zenith DOS. 2820 1 Moreover, this check better be good 2 enough so that DR does not work around it and 3 prevent the message from coming up. 4 Two, the message has to be consistent 5 with our other error messages (caution box, et 6 cetera) and avoid making us look bad. 7 The message below, in my opinion, 8 leads us open -- I think that's supposed to be 9 leaves us open to bad PR. It surely is the 10 outer boundary of rudeness. It is also fairly 11 extreme compared to others in the product we 12 have seen. 13 The point is to tell users we don't 14 work and that they should proceed with caution. 15 We can do this more professionally. 16 I want you to remember this Exhibit 17 607A when Microsoft tells you that the AARD 18 code is not directed at DR-DOS. 19 In what I just read you, note DR-DOS 20 is specifically mentioned, not once but twice. 21 And there are lots of other exhibits. 22 Mercifully, I won't be showing you all of them 23 during my opening. 24 In this e-mail, it's clear that DR-DOS 25 is the focus of the AARD code. 2821 1 Now, Richard Abel, who is the group 2 manager of Windows, so he's in charge of the 3 product that they're making say this message, 4 this warning. 5 He says, I hate this whole thing. I 6 think it's totally rude. Reinforces the image 7 that users have of us as the evil ones, et 8 cetera. 9 Like what I told you earlier, here's 10 another employee within Microsoft expressing 11 concern about his employer's proposed tactics. 12 But, again, Microsoft just ignores this 13 employee's stop sign and drives right through. 14 Aaron Reynolds writes and tests the 15 AARD code in about seven days. And, by 16 November 8th, a decision is made to implement 17 it in the final beta, the Christmas beta, 18 December 22nd, 1991. 19 But Microsoft decides not to use the 20 final warning, but to put a softer warning in, 21 into the beta. 22 This is Plaintiffs' Exhibit 5418A. 23 And I believe this is by Mr. Reynolds. 24 5. What will be in the final beta? 25 Detection for the absence of MS-DOS will be in 2822 1 the final beta release, AKA beta 3, but the 2 message will not. Instead, the message will 3 say, nonfatal error detected, error number, 4 please contact Windows 3.1 beta support. 5 This will allow us to widely test our 6 detection scheme, but not cause undue PR 7 problems. 8 At one point, the users of Windows 3.1 9 beta on DR-DOS are going to see the warning 10 just the first time they load, but then it is 11 decided that they are going to see it every 12 time they turn the computer on. 13 Reynolds says -- and this is Exhibit 14 1133 -- yesterday it was decided to do this 15 detection and display the message, if 16 appropriate, every time we run Windows. 17 Aaron has some code that you can add 18 to win.com. 19 In setup and MSD -- now, these words 20 are different modules of the computer source 21 code. The message is a prompt message. 22 Nonfatal or detected. Error number, number, 23 number, number. Please contact Windows 3.1 24 beta support. Press enter to exit or C to 25 continue. 2823 1 And then Mr. Reynolds adds some 2 comments under the word notes. 3 Do not try and trace into this 4 routine, you will die. Try to obscure as much 5 as possible. The code that makes this call and 6 the code which prints the message based on the 7 result are well-separated. 8 That makes it harder for people to 9 find out what's going on. 10 The bit that controls the message is 11 stored in a variable that is touched, read, 12 written, all over the place. 13 The Windows 3.1 beta ships on December 14 twenty -- I think it's December 21st or 22nd, 15 and goes out to between 12,000 and 15,000 16 sites. 17 It is, according to Microsoft, a 18 marketing tool to get the product into the 19 hands of people making buying decisions, and 20 members of the press also get this beta with 21 this thing in it. 22 Microsoft anticipates that the 23 nonfatal error message will be alarming and 24 will be controversial, and that, as a PR 25 matter, they will need to lie. 2824 1 This is Plaintiffs' Exhibit 3498. And 2 it's by Andy Hill, who is a program manager for 3 bids 3.1. Janine -- and this is Janine 4 Harrison. She's the beta manager -- has 5 brought up some good questions on how we handle 6 the error messages that the users will get if 7 they aren't using MS-DOS. 8 The beta testers will ask questions. 9 How should the techs respond? Ignorance, the 10 truth, other? 11 And then Cole, the Win 3.1 group 12 program manager, said, let's plead ignorance 13 for a while. We need to figure out our overall 14 strategy for this. 15 The author of the AARD code testifies 16 clearly that the error message represents a 17 false incompatibility. He says there's no 18 problem. 19 Okay. So you are -- the beta user has 20 DR-DOS as the operating system. Loads the 21 Windows 3.1 beta and up comes this message. 22 You know, they try to figure out what 23 it is. They can't because it's all hidden in 24 there. 25 It looks like a problem. It's 2825 1 supposed to look like a problem, but it isn't a 2 problem. 3 Here is Mr. Reynolds, the author of 4 this code, telling us there is no problem. 5 (Whereupon, the following video was 6 played to the Jury.) 7 MS. ENGEL: Okay, a data collection 8 tool device program. I'm sorry, you call it 9 data collection. 10 MR. REYNOLDS: A data collection 11 program. 12 MS. ENGEL: Okay. So the data 13 collection program runs. It doesn't tell me 14 what's caused the error; is that correct? 15 MR. REYNOLDS: There is no error. 16 MS. ENGEL: Does it tell me why the 17 error message has come up? 18 MR. REYNOLDS: If you understand, as I 19 did, what was going on relating to this, yes, 20 you could tell what caused the error, which was 21 not an error. 22 You would go look at the OS version 23 field or whatever it was and see if it said 24 MS-DOS or nonMS-DOS. 25 MS. ENGEL: Okay. If I'm not you and 2826 1 I'm the beta user, am I going to be able to 2 tell what the problem is? 3 MR. REYNOLDS: There is no problem. 4 MS. ENGEL: There's no problems, but 5 I've gotten five error messages in loading 6 Windows? 7 MR. REYNOLDS: There's no problem. 8 MS. ENGEL: Okay. There's no actual 9 problem, but you have led me to believe that 10 there is with these messages; is that correct? 11 MR. REYNOLDS: I can't answer what 12 beta users thought. 13 (Whereupon, playing of video 14 concluded.) 15 MS. CONLIN: So there you go. Five 16 times this message pops up. There's the guy 17 who wrote it. No error. 18 The AARD code, of course, directly 19 impacts how OEMs view DR-DOS. They discuss the 20 error message among themselves. 21 Theo Lieven, Vobis CEO, specifically 22 says he's concerned about the nonfatal error 23 message, and Bruce Fryer -- Mr. Fryer is the 24 product manager at Zenith Data Systems in 25 1992 -- and he testifies that his software 2827 1 engineers run afoul of the AARD code during 2 beta tests of Windows 3.1 on DR-DOS, and here's 3 what he says. 4 (Whereupon, the following video was 5 played to the Jury.) 6 THE QUESTIONER: When you were -- your 7 Armstrong group was investigating the operating 8 systems, did you test to see whether Windows 9 would run on DR-DOS? 10 MR. FRYER: We did. 11 THE QUESTIONER: What did you find? 12 MR. FRYER: Our engineers found that 13 when -- and this was -- I do recollect -- I'm 14 not sure of the exact version number, but we 15 were running a beta of Windows on DR-DOS that 16 worked fine, except they got a very strange 17 error message that only occurred when you are 18 running DR-DOS, but didn't occur when you're 19 running MS-DOS. 20 My engineers further investigated it 21 and found that there was a spurious subroutine 22 that didn't cause any damage and its only 23 purpose was to produce this error message. 24 (Whereupon, playing of video 25 concluded.) 2828 1 MS. CONLIN: And even so, even though 2 Zenith knows that this is not a real error, 3 they, nonetheless, abandon any further 4 consideration of DR-DOS based on fear. 5 (Whereupon, the following video was 6 played to the Jury.) 7 MR. FRYER: One of the scenarios that 8 we envision, based on the experience with the 9 beta bug, was the fact that Microsoft might 10 intentionally put code in Windows that would 11 cause problems with DR-DOS. 12 (Whereupon, playing of video 13 concluded.) 14 MS. CONLIN: So the AARD code does 15 what it is intended to do. 16 Throughout January and February, 17 Microsoft executives continue to debate and 18 wordsmith what message should be inserted in 19 the release version of Windows 3.1, and 20 Mr. Gates and Mr. Ballmer are intimately 21 involved in those discussions. 22 They look for a clever way to say that 23 the detection is not of DR-DOS, which semantics 24 aside, it plainly is. 25 At one point, as late as January 28, 2829 1 1992, what the message is to state is, quote, 2 the Windows setup program has detected another 3 operating system on your machine. And this 4 prompts Brad Silverberg's concern expressed in 5 Plaintiffs' Exhibit 3501. 6 He says, I'm wondering if we should 7 change the detection words to say we failed to 8 detect MS-DOS, rather than we detected an OS 9 other than MS-DOS. The latter words would make 10 people think we are looking for DR-DOS. 11 By February 7th, Silverberg reports 12 that Steve B. said put in a kinder, gentler 13 message. And this prompts an exchange between 14 Cole and Silverberg, three days later. That 15 really lays the exact purpose behind this 16 entire scheme, and this is Plaintiffs' Exhibit 17 1221, and this is David Cole speaking. 18 A kind, gentle message in setup would 19 probably not offend anyone and probably won't 20 get the press up in arms, but I don't think it 21 serves much of a warning. Bill P. made an 22 excellent point. What is the guy supposed to 23 do? 24 And then in Plaintiffs' Exhibit 3506, 25 Mr. Silverberg responds to Mr. Cole's inquiry, 2830 1 what is the guy supposed to do. And he says, 2 what the guy is supposed to do is feel 3 uncomfortable. And when he has bugs, suspect 4 that the problem is DR-DOS, and then go out to 5 buy MS-DOS, or decide not to take the risk for 6 the other machines he has to buy for the 7 office. 8 This is the real goal and this is the 9 executive in charge of achieving that goal. 10 Ultimately, the code is disabled in 11 the final release. Because they were so 12 concerned over the negative PR impact. It's 13 still in there, but it is disabled. 14 Mr. Silverberg, however, says that 15 there is no code inside Windows 3.1 that checks 16 is this MS-DOS. 17 As I said, it is disabled. But it's 18 already taken its toll. When Microsoft tells 19 you that the AARD code didn't have any effect 20 because it was only in the beta, remember what 21 Mr. Fryer had to say about that. 22 Remember that it went to thousands, 23 thousands, and thousands of important users. 24 And Mr. Alepin, who is one of our technical and 25 industry experts, years of experience in the 2831 1 software industry, will also talk about the 2 kind of harm that something like the AARD code 3 does. 4 I want to talk -- besides the AARD 5 code, there was other technical sabotage that 6 Microsoft did in Windows 3.1 to harm DR-DOS. 7 Following Novell's announcement of its 8 impending merger with DRI, Microsoft executives 9 began to consider implementing other 10 intentional incompatibilities. 11 On July 17th, Mr. Allchin, Jim 12 Allchin, one of the very top executives at 13 Microsoft, proposes 8 -- this is Plaintiffs' 14 Exhibit 838. 15 We consider changing our apps to not 16 run unless the OS is our OS. 17 Remember, earlier I talked about how 18 Microsoft around September 1991 becomes 19 increasingly concerned about a partnership 20 between IBM and DR-DOS? And at the time they 21 make specific plans to change Windows 3.1 to 22 thwart compatibility with DR-DOS. 23 On September 27th, Silverberg and 24 Allchin correspond. 25 This is Plaintiffs' Exhibit 978. 2832 1 Silverberg says, We don't know 2 precisely what IBM is going to announce. My 3 best hunch is that they will offer DR-DOS as 4 the preferred solution for 286 OS/2 2.0 for 5 386. 6 They will also probably continue to 7 offer MS-DOS at $165, DR-DOS for $99. DR-DOS 8 has problems running Windows today, and I 9 assume will have more problems in the future. 10 Mr. Allchin responds, you should make 11 sure it has problems in the future. And that 12 is -- I don't know if you can see that. That's 13 a smiley face winking. 14 Four hours later, Silverberg asks Phil 15 Barrett, the guy who's in charge of Windows 16 3.1, what he's planning to do in response to 17 Allchin's suggestion. 18 This is Plaintiffs' Exhibit 0979, and 19 Silverberg says, Can you tell me specifically 20 what we're going to do to bind ourselves closer 21 to MS-DOS? Since you haven't been replying to 22 my messages, I don't know how to interpret your 23 silence. 24 Let me emphasize the importance. IBM 25 is going to announce the DR-DOS deal at COMDEX, 2833 1 almost 100 percent certain. 2 Okay. And Barrett responds -- as I 3 said, the Win 3.1 development group manager. 4 Sorry for the silence. Don't 5 interpret it as ignoring you. 6 The approach that Ralph and I have 7 discussed is to use a VxD to extend DOS by 8 patching it. Don't worry, you don't really 9 have to understand that yet, and somebody will 10 explain it later. 11 The big advantage here is that we 12 provide a legitimate performance improvement. 13 However, it won't prevent us from running on 14 foreign OSs unless we explicitly decide to 15 exclude. They -- foreign OSs -- just won't run 16 as fast. 17 Is this the approach that you want to 18 take? Or would you prefer a simple check and 19 refuse to run? That's a lot easier, but 20 clearly quite defeatable. I'll come and talk 21 to you about it. 22 And then Mr. Silverberg says let's 23 talk. 24 On September 30, 1991, Cole puts the 25 question explicitly to Silverberg and Barrett 2834 1 as to exactly how Windows 3.1 will be designed 2 to be intentionally incompatible with DR-DOS. 3 This is Plaintiffs' Exhibit 3480. September 4 30th, 1991. 5 It's pretty clear we need to make sure 6 Windows 3.1 only runs on top of MS-DOS or an 7 OEM version of it. I checked with legal, and 8 they are working up some text we are supposed 9 to display if someone tries to setup or run 10 Windows on an alien operating system. 11 We are supposed to give the user the 12 option of continuing after the warning. 13 However, we should surely crash at some point 14 shortly later. 15 Now, to the point of this mail. How 16 shall we proceed on the issue of making sure 17 Win 3.1 requires MS-DOS? We need to have some 18 pretty fancy internal checks to make sure we 19 are on the right one. 20 Maybe there are several very 21 sophisticated checks so that competitors get 22 put on a treadmill. 23 Aaron R. -- that's Aaron Reynolds of 24 AARD code. Aaron R. had some pretty wild ideas 25 after three or so beers. Earl H. -- that is 2835 1 Earl Horton -- has some too. 2 We need to make sure this doesn't 3 distract the team for a couple of reasons. 4 One, the pure distraction factor. 5 And, two, the less people know about 6 exactly what gets done, the better. 7 Please advise. 8 No one remembers precisely what they 9 do, but it is clear they do make Windows 10 incompatible with DR-DOS. All on the coding 11 team know DR-DOS is supposed to be incompatible 12 with Windows 3.1. 13 When Silverberg directs that the team 14 change all text displays in Windows 3.1 from 15 DOS to MS-DOS on October 17th, Mr. Cole 16 resists. 17 He says -- this is Plaintiffs' Exhibit 18 9838 -- I don't understand this. Are you 19 saying you want the DOS prompt to become the 20 MS-DOS prompt? 21 Given the fact that Windows 3.1 will 22 only run on MS-DOS, the rest of this seems a 23 bit silly. 24 And then in Plaintiffs' Exhibit 5402, 25 he says, I personally don't think this is going 2836 1 to matter squat since we will only run with 2 MS-DOS. 3 What he's saying here is why go to all 4 the trouble of changing everything to MS-DOS 5 when, in fact, we are only going to run on 6 MS-DOS. DR-DOS isn't going to run Windows at 7 this point. 8 When considering the blacklist issues 9 raised by the merger of DRI and Novell, 10 Silverberg says on September 24, 1991 -- this 11 is Plaintiffs' Exhibit 5383 -- remind Kaikal 12 that we do not support Windows on DR-DOS. They 13 are on their own. There are plenty of 14 problems, too, hee hee. 15 On October 29th, 1991, Mr. Freedman, 16 who you will hear from by deposition. 17 I don't expect that you'll remember 18 either all of the names or all of the titles, 19 but suffice it to say they have lots of titles. 20 They change all the time at Microsoft, and this 21 guy at this time is the MS-DOS 6.1 product 22 manager. 23 He reports that he has tested a 24 Windows 3.1 beta on DR-DOS 6.0 and -- this is 25 October 29, 1991 -- Richard Freedman tests and 2837 1 Windows 3.1 runs fine on DR-DOS. 2 Here's what he says, 1048, in short, I 3 haven't seen any basic kernel 4 incompatibilities. 5 Silverberg apparently knows, however, 6 that the latest build is designed to fail to 7 run on DR-DOS and he asks Freedman which 8 version of 3.1. 9 Why does Microsoft think that DR-DOS 10 won't be able to run Windows? Well, I talked 11 about Bambi. I just resent that this scheme is 12 called Bambi. 13 This is Microsoft's name for its disk 14 cache, a disk cache utility. And a disk cache 15 is supposed to improve performance by taking 16 advantage of available memory so that the 17 computer doesn't have to -- it minimizes the 18 number of times a computer has to read from and 19 write to a disk. 20 When it works correctly, it speeds 21 performance, and there's a group of e-mails 22 between its developers, the Bambi developers, 23 on September 29th and September 30th, 1991, 24 that reveals what happens. 25 This is Plaintiffs' Exhibit 981. This 2838 1 is from -- I think this is Eric Straub again. 2 I tracked down a serious 3 incompatibility with DR-DOS 6.0 -- 6. Just 6. 4 They don't use the normal device driver 5 interface with 32M partitions. 6 Instead of setting the regular start 7 sector field to off, off, off -- f-f-f-f-h and 8 then using a brand-new 32-bit field the way 9 MS-DOS has always done, they simply extended 10 the start sector field by 16 bits. 11 This seems like a foolish oversight on 12 their part and will likely result in extensive 13 incompatibilities when they try to run with 14 third part device drivers. I think probably 15 third-party device drivers. 16 I've patched a version of Bambi to 17 work with DRD6 and it seems to run Win 3.1 18 without difficulty. This same problem may have 19 caused other problems with Win 3.1 and swap 20 file under DRD 6. 21 It is possible to make Bambi work, 22 assuming we can come up with a reasonably safe 23 method for detecting DRD 6. 24 Mr. Barrett responds. I'm not exactly 25 sure how to pronounce that, but I'm going to 2839 1 say heh, heh, heh, which I believe is about 2 right. My proposal is to have Bambi refuse to 3 run on this alien OS. 4 Comments. 5 And then in Plaintiffs' Exhibit 986, 6 The approach we will take is to detect DR 6 and 7 refuse to load. The error message should be 8 something like invalid device driver interface. 9 Mike, Tom, Mack, do you have a 10 reliable DR 6 detection mechanism? 11 Now, this is before the AARD code. 12 This is in September. The AARD code comes in 13 December. 14 A September 30th progress report on 15 Bambi reports that Barrett's plan has been 16 implemented. Software engineer Scott Quinn 17 reports in Plaintiffs' Exhibit 990. Bambi 18 version .35 has passed developer testing. 19 The primary change fixes a major 20 problem with accessing logical units on 21 external hard disks. Also, DR-DOS is detected, 22 needs testing, and Bambi refuses to load. 23 Silverberg first hears on October 8th 24 that the detection works and forwards this 25 message to Brad Chase, Steve Ballmer, and Tom 2840 1 Lennon in Plaintiffs' Exhibit 1011. 2 Thought you'd appreciate the following 3 excerpt from Janine H.'s Win 3.1 beta report. 4 Windows 3.1 doesn't run with DR-DOS. 5 We sent one person MS-DOS 5.0 to use and Randy 6 M. is working with another large account. This 7 may stop them from going to DR-DOS 6.0. 8 Microsoft has surreptitiously 9 contacted DRI to obtain information which 10 Microsoft will then use to code in 11 incompatibility. 12 On September 30th, a Microsoft 13 employee named Cliff Garrett, who's e-mail 14 alias is Cliff G., states -- this is 15 Plaintiffs' Exhibit 989 -- I got the previous 16 mailings -- is that word -- mailings info from 17 DR personally. I have a person I can get 18 internals from. 19 And later that he posts an e-mail 20 message -- and this is 988. 21 The official way to detect DR-DOS is 22 as follows. And then he sets out the way to do 23 it. 24 Set the carry flag. 25 2, int 21h ax equals 4425h. 2841 1 And, 3, the carry will be clear if it 2 is DR-DOS and set if it's PC-DOCS. 3 Cliff calls up DRI and identifies 4 himself as Roger Sour and requests the 5 information necessary to detect DR-DOS 6.0. 6 Five days later, on November 6, the 7 FTC contacts Microsoft about this DR-DOS 8 detection scheme. Doesn't slow Microsoft down. 9 And Cole's e-mail summary is evidence 10 that the mysterious Roger Sour is well-known 11 inside Microsoft, and certainly his information 12 is proven to be very useful to Microsoft. 13 It is the exact information that they 14 use to code incompatibility into Windows 3.1 so 15 that it will not load with DR-DOS. 16 And Bambi isn't the only technical 17 sabotage. Microsoft adds a gratuitous version 18 check to the Windows 3.1 setup program. And 19 that's the program that installs Windows files 20 on to the user's disk which makes it impossible 21 for Windows to install on a normal DR-DOS 22 system. 23 There isn't any purpose for this 24 version check. Although any user who uses -- 25 who tries to install Windows is warned that it 2842 1 is. 2 As to Bambi, it's clear that a 3 Microsoft programmer already fixed any 4 purported bugs. Remember I read you that. 5 But, instead, it is instructed to 6 detect the presence of DR-DOS and refuse to 7 run. 8 Bambi, when it ships, is called 9 SmartDrive, and it is sent to beta sites with 10 the detection code in place. And SmartDrive 11 displays a message that says fatal error. 12 It says, Invalid device driver 13 interface, unable to load. Importantly, this 14 version of SmartDrive would have worked with 15 DR-DOS but for Microsoft's decision to detect 16 DR-DOS and refuse to load. 17 Microsoft also introduces another bug 18 that causes a fatal error when users try to run 19 Windows 3.1 with DR-DOS. 20 The bug appears early in the beta 21 cycle and is included in the final release 22 version of Windows 3.1. 23 This fatal error message reads, fault 24 in MS-DOS Extender and prevents users from 25 installing Windows 3.1 over DR-DOS. 2843 1 This error results from Microsoft's 2 failure to clear what's called the nested task 3 flag. 4 It is essentially simply a simple 5 on/off switch, and the error results from -- 6 well, Microsoft knows about the problem, knows 7 how to fix it, and instead of fixing it like a 8 software business looking to do something other 9 than stop -- competitor would do, Microsoft 10 blames the problem on DR-DOS. And at the same 11 time prevents DR-DOS from fixing it because 12 DR-DOS is on the beta blacklist. 13 The problem could have been easily 14 cured if DRI had had the beta. What Microsoft 15 has done is used code in Windows 3.1 for one 16 purpose and one purpose only, to make sure it 17 would not run -- Windows 3.1 would not run on 18 its operating system competitor DR-DOS. 19 There is no legitimate reason to do 20 such a thing. And remember this, Microsoft is 21 harming its own customers. These are people 22 who want to buy Windows 3.1. Microsoft is 23 selling 3.1, Windows 3.1. 24 These are people who want to use 25 Microsoft's GUI product, but they want to use a 2844 1 different operating system. And Microsoft is 2 harming those people who want to use that 3 different operating system. 4 Whatever Microsoft might say to you 5 now, Microsoft tells you clearly in its own 6 documents that it did this sneaky thing to 7 destroy competition in the operating system 8 market. 9 We talked about FUD earlier. This is 10 FUD for DR-DOS 6.0. We talked about FUD for 11 DR-DOS 5.0. We've got new and better FUD for 12 6.0. 13 Bear in mind that in June of 1991, 14 Microsoft has received the NSTL report finding 15 that Windows 3.0 is perfectly compatible with 16 DR-DOS. 17 Plaintiffs' Exhibit 5306. 18 Nonetheless, Brad Chase, Microsoft's 19 general MS-DOS 6.0 general manager has all 20 along directed that purported Windows 21 incompatibilities be raised with OEMs 22 considering the possibility of buying, loading 23 DR-DOS. 24 In Plaintiffs' Exhibit 892 he says, 25 you need to be clear to them that DR-DOS and 2845 1 Windows will get them complaints. 2 In addition, they will get even more 3 questions later as we update -- as we update 4 MS-DOS 6 and Windows as DR-DOS could not be 5 compatible, i.e., we do not support DR-DOS with 6 Windows, don't test on it, et cetera. 7 And then in Exhibit 942. Also ask 8 them -- these are the OEMs -- if they really 9 want to risk their reputation on their 10 brand-new machines with a brand-new unproven, 11 poorly tested OS. 12 What if it doesn't work with the next 13 version of Windows? They could literally blow 14 their whole PC business. First impressions are 15 hard to overcome if they blow it. 16 Raising the specter of incompatibility 17 in order to FUD DR-DOS. 18 A few months earlier, a day after the 19 announcement of the merger, we have discussed 20 this blunt statement from high-level executive 21 Jim Allchin in Plaintiffs' Exhibit 948. We 22 need to slaughter Novell before they get 23 stronger. 24 On September 9th, Digital Research 25 announces the availability of DR-DOS 6.0, and 2846 1 Mr. Chase takes FUD to an even higher level. 2 He directs his marketing staff in 3 Plaintiffs' Exhibit 954 -- this is awfully 4 harsh to read. Issues to bring up -- this is 5 954. Issues to bring up if given the 6 appropriate opening. And he's talking about 7 OEMs. 8 Future DR-DOS incompatibility with 9 Windows. Key here is not to say we will 10 purposely present compatibility with DR-DOS, 11 but if given the chance, it is okay to say the 12 truth, that we only test Windows on Microsoft 13 supported operating systems. So there's really 14 no way to know in the future what will work and 15 what will not. 16 As he says, the latter part is the 17 key. Not knowing what will work. 18 But Microsoft has no way of knowing 19 either. Microsoft doesn't know whether or not 20 DR-DOS would be incompatible with the next 21 version of Windows. It isn't done at this 22 point. 23 Plus, Microsoft does test DR-DOS. 24 When DR-DOS 6.0 hits the market, Microsoft 25 obtains a copy of the product and asks its DOS 2847 1 testers to engage in what Microsoft calls a DR 2 Hammer Fest. 3 THE COURT: Ms. Conlin, I want to 4 interrupt for just a few minutes. Why don't we 5 take a ten-minute break to stretch your legs. 6 MS. CONLIN: All right, Your Honor. 7 THE COURT: Remember the admonition 8 previously given. Leave your notebooks here. 9 (A recess was taken from 10:11 a.m. 10 to 10:22 a.m.) 11 THE CLERK: All rise. 12 THE COURT: Thank you. 13 Ms. Conlin, I apologize for the 14 interruption. 15 MS. CONLIN: No problem, Your Honor. 16 Thank you very much. 17 We are talking about the DR Hammer 18 Fest, and that's what Microsoft called it. 19 What it was going to do with DR-DOS 6.0 20 immediately after it came out. 21 The Windows -- the test suite includes 22 a test of DR-DOS 6.0 on a Windows 3.0 beta. 23 They do these tests on September 19th 24 and 20th, and they report their findings. The 25 DR Hammer Fest findings on a form specifically 2848 1 that was developed for the purpose. Lots of 2 people are doing this, and there's a great big 3 bunch of stuff about this. 4 One of the questions that testers are 5 asked is anything you like about DR-DOS that we 6 should add to future MS-DOS versions? 7 And this is, I believe Tony A., Tony 8 A., and he says DRMEM program output looks 9 sharp. Layout is clearer and offers more info 10 than ours. DOSBOOK online help looks pretty 11 fancy and helpful. 12 DR SETUP lets user tune system after 13 installation. 14 This concept is good, but their 15 explanation is not useful enough. 16 And any general comments is question 17 four. 18 And he says, I hate to say I find more 19 stuff I like than I don't like, but that looks 20 like it, at least for today's testing. Let's 21 find some big bugs tomorrow. 22 In Exhibit -- did I tell you what 23 exhibit that one was? That was 607BJ, 607BJ. 24 And here is 5367. 25 And this is from a man named Hon Keat 2849 1 Chan. 2 Anything you like about DR-DOS that we 3 should add to future MS-DOS versions? Can you 4 see that? Can you, Darin, just blow up that 5 very top part? Thanks. 6 Okay. Anything you like about DR-DOS 7 that we should add to future MS-DOS versions? 8 And I think he's saying that hhrrummph, here 9 goes, and then you can see. 10 Put that down. Yeah, there's a long 11 list of things that he says we should add to 12 our future MS-DOS versions. 13 And then, any general comments. He 14 says, I like two key ideas from DR-DOS 6. 15 A, the availability of an automaton 16 (setup) to manipulate the config.sys and 17 autoexec.bat. 18 B, the user's capability to write 19 script programs (both for start-up and 20 otherwise) that fit a more contemporary style 21 with more up-to-date structures. 22 Here is 5378 from Mark Lucousky, who 23 is a developer. Quick application testing. 24 The application testing results were as 25 follows. 2850 1 And then can you just show a little 2 bit of that. He finds DR-DOS works with 386. 3 Fastback, Lotus Metro, Lotus 1-2-3, Emma, Turbo 4 Debugger, and so on. 5 And then at the bottom he says, for 6 the most part, DR-DOS ran okay. And then he 7 gives a couple of exceptions. 8 So after all this testing that shows 9 that people at Microsoft think there are grave 10 features in DR-DOS and don't find 11 incompatibilities, what does Microsoft say 12 about DR-DOS 6? Just keeps up the FUD. Keeps 13 saying it's incompatible. It keeps saying it 14 won't work. It keeps saying only bad things 15 about DR-DOS. 16 And what Silverberg says is very 17 interesting. He says -- this is in Plaintiffs' 18 Exhibit 5401. It's clear that he does not want 19 end users to know the facts. 20 This is a very important point, he 21 says. We need to create the reputation for 22 problems and incompatibilities to undermine 23 confidence in DR-DOS 6. So people will make 24 judgments against it without knowing details or 25 fats. 2851 1 Now, Mr. Silverberg says that's 2 supposed to be facts. That's a typo. 3 So what he's saying there is we want 4 people to judge DR-DOS on the basis of what we 5 say, without knowing details, without knowing 6 the facts. 7 One of the most stunning successes in 8 Microsoft's FUD campaign against DR-DOS occurs 9 in June of 1992. 10 Sears decides to deliver at least 11 150,000 DR-DOS-equipped computers to the United 12 States Navy. It is the long-awaited 13 breakthrough for DR-DOS. 14 Sears is a major retailer supplying 15 the operating system for the government lends 16 it legitimacy that is likely to reassure other 17 potential users. 18 DR is notified of Sears' decision and 19 is, no doubt, celebrating this important sale, 20 but Microsoft gets wind of it and will not 21 allow this deal to go through. 22 Here's what happens in the words of 23 the people who do it. This is to 24 Mr. Silverberg from Jon Kechjiam, who is the -- 25 who is on the OS product development. 2852 1 Debbie Rea -- who works for Microsoft 2 as a federal sales rep -- and I called on Sears 3 Business Systems-Federal Group in their 4 Washington, D.C. offices on May 13th, 1992. 5 Sears had recently won the Navy 6 LapHeld contract, 25,000 to 75,000 PCs per year 7 for three years, the only notebook award in the 8 federal government, which included DR-DOS. 9 Debbie and I met with Sears technical 10 lead to discuss DR-DOS support issues versus 11 MS-DOS and future Windows compatibility in an 12 effort to get Sears to replace DR-DOS 6 with 13 MS-DOS 5. 14 Sears said they were going with DR-DOS 15 unless DR cannot abide by the terms of the Navy 16 contract. Sears was content to let DR assume 17 the risk of Windows compatibility. 18 Debbie Rea and Brett Swartz found a 19 clause in the Navy contract requiring 20 compatibility with Windows and got the Navy to 21 insist Sears honor it. 22 After Debbie and I made clear to Sears 23 DR-DOS and Windows compatibility would always 24 be a major issue as well as DR's regular 25 business updates for which Sears is 2853 1 responsible. 2 Sears included a clause guaranteeing 3 DR-DOS would be compatible with Windows now and 4 in the future with Sears agreement with DR. 5 DR's lawyers refused to sign the contract. 6 The deal was signed Friday, May 29th, 7 with Sears solidly behind MS-DOS and already 8 looking to swap the bid applications for 9 Windows and Windows applications. 10 Sears expects to sell at least 150,000 11 PCs over the life of this contract to federal 12 agencies. 13 And then Mr. Silverberg responds on 14 June 2nd, 1992. This is a big win for us. 15 They had chosen DR-DOS. We called the MS-DOS 16 trans team in and they turned it around. 17 So DRI had won the contract and 18 Microsoft turned it around with FUD. 19 Things like, you know, how can you be 20 sure that Windows will be compatible in the 21 future? And what about the next version of 22 Windows? You know, we discovered all kinds of 23 problems, incompatibility, et cetera, et 24 cetera. 25 Of course, I don't know for sure what 2854 1 they actually said, but we know what they said 2 to others. And it's fair to assume they use 3 the same tactics. 4 You might wonder why DRI's lawyers 5 balked at guaranteeing future Windows 6 compatibility. 7 It would be foolish to sign such an 8 agreement given what Windows -- what Microsoft 9 was doing and what it might do in the future. 10 Microsoft has determined and has shown 11 itself at this point in time to be determined 12 to defeat compatibility between DR-DOS and the 13 Windows GUI. 14 As with DR-DOS 5.0, Microsoft, again, 15 contracts with an outside testing laboratory, 16 this time, X-X-C-A-L, which I've been 17 pronouncing XXCAL. 18 What Microsoft tells XXCAL lab is that 19 it wants DR-DOS 6 put through the ringer. 20 XXCAL understands that -- and this is in 21 Plaintiffs' Exhibit 1110 -- testing was 22 intended to identify bugs, inconsistencies, and 23 functionality errors related to the operation 24 of DR-DOS 6.0. 25 They test 38 applications. They test 2855 1 commands and peripherals and come up out of the 2 38 -- in all the different testing they do, 3 they come up with five applications that they 4 say are incompatible. 5 There is subsequent testing and 6 there's only two of the five that are actually 7 -- that actually have any problems. 8 And when Microsoft disseminates 9 information regarding the problems, it ignores 10 the fact that Microsoft's MS-DOS 5.0 has the 11 same problems, or even greater problems with 12 some of the same applications. 13 You'll have that whole test, and 14 Mr. Schulman will be talking about this. 15 There's just no question that this is 16 working for Microsoft. A report from the field 17 states -- and this is Exhibit 5432 -- please 18 advise, whomever put together the two documents 19 about DR-DOS, the press blurb list, and the 20 multipage tech expose, that they saved this 21 deal (so far) for Microsoft. 22 As FUD is our witness, we will never 23 go hungry again. Quoting, of course, from Gone 24 With the Wind. 25 But what is the truth? What's really 2856 1 going on? Let's look at an e-mail from one of 2 the technical folks to the entire DOS and 3 Windows development team. 4 This is May 1, 1992. And he's writing 5 everybody about DR-DOS. 6 Here's what he says in Exhibit 1307. 7 Okay, folks. I have been asked to 8 explain, technically, why MS-DOS is a better 9 platform than DR-DOS to run Windows 3.x. and 10 sadly, I cannot think of any technical reasons. 11 Plenty of marketing reasons come to 12 mind, but none that actually say DR-DOS is not 13 good for running Windows because -- with a 14 line. The fact that Windows runs on DR makes 15 arguing the point very hard. 16 However, this doesn't stop Microsoft 17 from doing exactly that. 18 Tying, we talked about before, and -- 19 but I'm going to talk about it in connection 20 with DR-DOS 6.0. 21 Direct contract ties between Windows 22 and MS-DOS, two separate products, MS-DOS 23 monopoly product, Windows, GUI, continue, and 24 are discussed among the executives. 25 Microsoft account managers directly 2857 1 tie MS-DOS and Windows by contract. 2 On January 23, 1992, for instance, a 3 Microsoft account manager -- this is a 4 Microsoft account manager -- sends this letter 5 to Diamond Trading. Boy, that's hard to see, 6 isn't it? 7 Here's what it says. This Diamond 8 Trading is a British OEM. And this is 9 Plaintiffs' Exhibit 1194. 10 Further to our conversation yesterday, 11 I am writing to confirm that Microsoft is 12 unable to supply you Windows as a single 13 product. 14 Microsoft will only sell you Windows 15 as a combined package with MS-DOS version 5. 16 It couldn't be clearer. If you want 17 the GUI, you must buy MS-DOS and not DR-DOS. 18 This is tying of the most brazen sort. 19 Now, Microsoft will say that the 20 letter sent to Diamond Trading Company telling 21 them they couldn't buy Windows as a separate 22 product is just a little mistake and it's 23 rescinded later. 24 Microsoft has said that this account 25 manager is disciplined for violating 2858 1 Microsoft's antitrust policies. 2 There are two things wrong with that 3 statement. First, we asked for and we have and 4 you will have all of the personnel materials 5 involving this employee. 6 There is not one word in any of her 7 personnel appraisals or any of the personnel 8 materials about any discipline for violating 9 any antitrust policies, and also, as best we 10 know at this point in time, Microsoft did not 11 have any antitrust policies. 12 Microsoft also claims that it cannot 13 find any contracts for this Diamond Trading 14 Company. 15 Roger Harvey, whose OEM Qubie, 16 Q-u-b-i-e, is a leading proponent of DR-DOS 17 tells us -- do we have Mr. -- there he is. 18 (Whereupon, the following video was 19 played for the Jury.) 20 MR. HARVEY: They just said that they 21 had changed the way in which they market the 22 product, instead of it being available as two 23 separate packages, it now came as an integrated 24 package, which was DOS and Windows 3.11 or DOS 25 and Windows for Workgroups 3.11, take it or 2859 1 leave it. 2 (Whereupon, playing of video 3 concluded.) 4 MS. CONLIN: Microsoft 5 representatives, in fact, taunt DRI with the 6 fact that it is refusing to sell Windows to 7 customers who do not also buy MS-DOS. 8 Sandy Duncan -- and he is Microsoft's 9 United Kingdom OEM sales manager -- informs a 10 man named Tony Speakman -- and Mr. Duncan is 11 the Microsoft sales manager. Mr. Speakman is a 12 DRI account -- sales account manager for DRI. 13 And Sandy Duncan tells Tony Speakman 14 that DRI customers could not get Windows from 15 Microsoft and that if he's ever asked about it, 16 he's going to deny it. 17 He gloats that he knows this is 18 serious illegal conduct, which is why he will 19 deny it if he's ever asked about it. 20 Here is Mr. Speakman talking about his 21 conversations with Mr. Duncan on this subject. 22 (Whereupon, the following video was 23 played for the Jury.) 24 MR. SPEAKMAN: There was another 25 contact I had with Sandy sometime later, which 2860 1 was I rang him to actually try and license 2 Windows from him because a number of my 3 existing OEM customers and potential OEM 4 customers were telling me that they had 5 problems getting Windows from Microsoft if they 6 had DR-DOS, because Microsoft weren't willing 7 to license Windows on its own. 8 THE QUESTIONER: Did he say to you 9 that Microsoft did not make Windows separately 10 available to its OEM customers? 11 MR. SPEAKMAN: He was fully aware when 12 I rang him that that was the situation. 13 THE QUESTIONER: And what do you base 14 that statement on, he was fully aware that that 15 was the situation? What did he say? 16 MR. SPEAKMAN: He joked about the fact 17 that my customers couldn't get Windows from. 18 And there is actually a document from 19 one company where Microsoft wrote to the 20 customer that I was dealing with, Diamond 21 Trading, saying that they weren't able to 22 supply Windows alone. 23 THE QUESTIONER: Have you ever heard a 24 Microsoft employee say that? 25 MR. SPEAKMAN: I'm fairly confident in 2861 1 the conversation that I had with Sandy Duncan 2 when I rang him to try and license the product 3 that he made a statement along the lines of the 4 fact that he would deny it was ever said, but 5 that, yes, they were doing it. 6 THE QUESTIONER: Do you recall 7 Mr. Duncan saying that? 8 MR. SPEAKMAN: Yes. 9 THE QUESTIONER: And what did he say 10 again? 11 MR. SPEAKMAN: To the best of my 12 recollection, he said that he would deny it. 13 He would deny ever saying it, but they wouldn't 14 license Windows to customers who had DR-DOS. 15 THE QUESTIONER: You said earlier that 16 Mr. Duncan said that jokingly. Could you tell 17 whether Mr. Duncan was serious or whether it 18 was a joke? 19 I mean, you said that the two of you 20 had a good, light-hearted relationship. What 21 was the tone of his comment? 22 MR. SPEAKMAN: The tone of his comment 23 was that he was aware of the seriousness of 24 making any statement in that he was aware of 25 the fact that to do so would be illegal, and, 2862 1 therefore, he was making light of the fact, at 2 the same time recognizing that that was the 3 situation. 4 (Whereupon, playing of video 5 concluded.) 6 MS. CONLIN: Tying. Threats and 7 intimidation. Microsoft also knows that its 8 use of the beta blacklist has been effective 9 and expands its beta blacklist campaign to 10 retaliate against OEMs or ISVs, who are 11 independent software developers. They are the 12 people who write applications. 13 And Microsoft expands the beta 14 blacklist to include OEMs and independent 15 software vendors who even associate with 16 DR-DOS. 17 And denial of access to the Windows 18 development and beta information is first 19 hinted at when IBM flirts with DRI about a 20 DR-DOS bundle. 21 Nathan Mhryvold, who is vice president 22 of advanced technical and business development 23 group, we've heard a little from him before. 24 He graphically expresses his views to 25 Mr. Silverberg and Mr. Ballmer on September 2863 1 11th, 1991. 2 I apologize for the language. 3 This is about IBM, and Mr. Nathan 4 Mhryvold says, If they do bundle DR-DOS, then 5 fuck 'em. They get to hear about our new 6 releases and new features on announcement day 7 just like other retail stuff. 8 In other words, we'll withhold 9 information from this OEM if they bundle 10 DR-DOS. 11 Such an action by Microsoft against 12 IBM would cripple the PC division. 13 IBM's got two divisions -- and we'll 14 be talking about that. The PC division that 15 manufactures hardware and then the software 16 division that has software, in some cases that 17 competes with Microsoft. 18 If IBM can't get advanced copies, they 19 can't -- they have to engineer their hardware 20 so it works with MS-DOS. They have to have 21 advanced copies to do that. 22 And it is shortly after Mr. Mhryvold 23 makes his comments in September of 1991 that 24 Microsoft decides it can't risk, it can't risk 25 bundling DR-DOS. 2864 1 Following the launch of Windows 3.1, 2 Silverberg begins to wield Windows as a club 3 against anybody disloyal to MS-DOS. 4 May 15th, 1992, this is Exhibit 1324. 5 This is a press release that comes to 6 Mr. Silverberg. And you can see this -- 7 Darin, why don't you kind of blow up 8 the whole thing so that it's incorporated -- 9 this press release is incorporated in a message 10 from Mr. Raines to -- that comes to 11 Mr. Silverberg. 12 And the press release says, Novell, 13 desktop systems group has introduced an update 14 to its DR-DOS 6.0 operating system that makes 15 it fully compatible with Microsoft Windows 3.1. 16 And on the next page, the press 17 release goes on to say, Z-NIX Pomona, 18 California, has bundled DR-DOS 6.0 and 19 Microsoft Windows 3.1 with its Super Mouse II 20 and Cordless Super Mouse products. 21 We've been testing the two products 22 from top to bottom for a month now and have 23 uncovered no incompatibilities, said C. J. 24 D'Angelo, vice president of sales. We are 25 confident our OEMs and end users will be 2865 1 equally successful. 2 When Mr. Silverberg learns of this in 3 this e-mail, here is what he says. 4 Again, the language, which I will read 5 to you. 6 Look what Z-NIX is doing! Cut those 7 fuckers off. 8 Now, what Z-NIX is doing -- why don't 9 you take that down -- is bundling DR-DOS with 10 Windows and with its mouse. 11 Microsoft's retaliation against Z-NIX 12 is shocking. 13 Within three weeks of directing that 14 Microsoft cut those blankers off for consorting 15 with DR-DOS, Microsoft's legal department 16 demands an audit of Z-NIX's entire business. 17 When Z-NIX refuses to comply, Microsoft files a 18 lawsuit against Z-NIX. 19 I think I mentioned this to you. 20 Whenever anything comes up where Microsoft's 21 going to have to deal with the press on some 22 issue, they prepare something called a Rude Q 23 and A, you know, to prepare the people who are 24 going to have to talk about it to do so. 25 And here is a set of rude Q and As 2866 1 called Z-NIX case rude Z Q and A, June 23rd, 2 1992. 3 This is Plaintiffs' Exhibit 7454. 4 Last month we heard they had 5 negotiated a contract with Digital Research for 6 DR-DOS. Do you think they would expect a 7 contract with us if they have one with DR-DOS? 8 Keep in mind, Windows does not compete 9 with DR-DOS. It's an application. Windows is 10 an application that works on top of DR-DOS. 11 They're basically saying if you use DR-DOS, we 12 are going to deny you access to our products. 13 Do you think they would expect a 14 contract with us if they have one with DR-DOS? 15 This type of information permeates the 16 industry. You know, everybody knows this kind 17 of thing is going on. And it puts OEMs and 18 independent software vendors, the application 19 writers, on notice that you better not 20 associate with DR-DOS because access to Windows 21 information is linked directly to purchasing 22 MS-DOS. 23 We talked about the exclusionary 24 license terms. 25 During the 18 months between the 2867 1 launch of DR-DOS 6 and MS-DOS 6, there's 18 2 months between September of 1991 when DR-DOS 3 6.0 comes out and when MS-DOS 6.0 comes out. 4 Microsoft aggressively continues its 5 anticompetitive licensing practices. The per 6 processor licenses, the minimum commitments, 7 and with prepaid balances and even long-term -- 8 longer terms, which are designed to lock out 9 DRI and prevent OEMs from loading DRI on the 10 computers it sells to end users. 11 When Novell attempts to get Dell to 12 license DR-DOS in November of '91, Dell 13 explains the realities of its per processor 14 license. 15 This is Plaintiffs' Exhibit 1105. 16 Dell says, due to the contract with Microsoft, 17 DR-DOS needs to be offered on a no-cost basis 18 except for the upgrade program cost. 19 Even OEMs as large and powerful as 20 Dell feel the pinch. 21 And this goes on and on. In September 22 of '92 Joachim Kempin, the worldwide director 23 of OEM sales for Microsoft, gets personally 24 involved with the negotiation of the contract 25 with Dell. And this is from Mr. Kempin to -- 2868 1 about Dell, re: Dell. 2 And here is what he says in Exhibit 3 5511. 4 Dell has two options, to play or not 5 to play. If they want a cheap per copy deal, 6 they won't get it. 7 Build to order is not helping us to 8 grow share. In addition, I'm mad at them 9 looking at their Novell Lite promo in their 10 catalogue. 11 If they associate themselves with 12 Novell and DRI's product quality and believe we 13 will do a shitty job as well, all the power to 14 fail to them. 15 Carl, increase pressure: Tell them 16 that the offer expires 14-10-92 -- that's the 17 European way of writing -- that means for us 18 October 14, 1992. Because we already have too 19 many companies who want to participate in the 20 launch. 21 If they want a discussion, refer them 22 to me, Steve. Steve B., Steve Ballmer, is on 23 vacation and I don't want him to get involved. 24 If they call Bill G., intercept the call. 25 Threats and intimidation. They're to 2869 1 associate with DRI and you will pay the price 2 one way or another. And the price for crossing 3 Microsoft is very high indeed. 4 We've talked about FUD and tying and 5 threats and intimidation. And now we'll talk 6 about vaporware in connection with DR-DOS 6.0. 7 Remember, that's released in September 8 of 1991. 9 At that time MS-DOS 5 is on the 10 market, and it was only released in June. So 11 this is the three-month period between the time 12 of the release of MS-DOS 5 and DR-DOS 6. 13 Microsoft -- and, of course, DR-DOS 14 comes into a market already distorted by these 15 exclusionary licensing practices, but Microsoft 16 uses FUD and vaporware as well. 17 This gets a little complicated because 18 Silverberg in September, right when DR-DOS 19 releases 6.0, gives presentations to the 20 computer manufacturer, OEM, on future MS-DOS 21 plans. 22 DR-DOS comes out, Silverberg is out 23 there telling OEMs about what Microsoft is 24 going to do in the future. 25 On September 6, in a presentation to 2870 1 NCR, he discusses DOS coming soon, and MS-DOS 2 6.0, he says, will have an installable file 3 system; improved installation, configuration, 4 administration; improved network support; 5 unified approach to localization called EJAL; 6 enhanced support for mobile computing. 7 We want your input. 8 This presentation occurs a month after 9 Microsoft leaks its plans to the press, and it 10 occurs before Microsoft has any final 11 specifications for MS-DOS 6.0. 12 And Silverberg knows that. He's 13 advised by Eric Straub in August, less than a 14 month before, that version 6.0 -- this is 15 Plaintiffs' Exhibit 5343 -- I told them it was 16 not defined yet, and we need to know what it is 17 before we ship it. 18 On September 16th and 17th, there are 19 scores of OEMs assembled in Seattle, and 20 Silverberg, again, discussed in considerable 21 depth the plans Microsoft has for MS-DOS 6.0. 22 He says MS-DOS 6.0 will be available 23 in 1993 and describes the product to the 24 assembled groups. 25 This is Plaintiffs' Exhibit 5384. 2871 1 And, again, he talks about preemptive 2 multitasking, threads, better memory 3 management, and so on. 4 And it was disclosed that Windows 4 5 (not official name) will require DOS 6 as it 6 will depend on DOS for key services listed 7 above. 8 What he's saying in September of 1991 9 is there will be no way for Windows to work on 10 anything except MS-DOS. 11 The product that he describes in this 12 time frame is not even a close cousin to the 13 product that eventually ships as Windows 6.0. 14 Silverberg admits that those products 15 described in September of 1991 are a rough 16 approximation of what hits the market in August 17 of 1995 as Windows 95. 18 Microsoft is telling the world in 19 September of 1991, the month DR-DOS 6.0 ships, 20 that coming soon is that which never arrives, 21 and that is a separate DOS -- the separate DOS 22 component of Windows 95. 23 It's not until February of '92 that 24 Microsoft is actually designing a new MS-DOS. 25 It's code named Astro. And it's specifically 2872 1 designed to counter the DR-DOS, the popular 2 DR-DOS 6.0 features. 3 In fact, what Microsoft does is just 4 buy some utilities competitive to the DR-DOS 5 feature set and bundle them and release. 6 A presentation from that era makes the 7 point. It is Plaintiffs' Exhibit 946. 8 Astro, the code name for MS-DOS 6.0. 9 MS-DOS 5 kernel plus cool new 10 utilities equals MS-DOS 6 equals dollars. He 11 calls it a checkbook release. And it will 12 include acquired and in-house developed 13 utilities. Philosophy: Get excellent products 14 with low share for cheap. Defend DOS. Stay 15 aggressive. Put Novell/DR on treadmill. 16 When Microsoft announces its revised 17 plans for MS-DOS 6, it drops the product, 18 MS-DOS 6.0, into the time frame that it has 19 outlined previously for the vaporware that 20 becomes Windows 95, and not released until 21 August of 1995. 22 But they put this new MS-DOS 6.0, the 23 checkbook release with the utilities into the 24 time frame they said they would be releasing 25 what turns out to be Windows 95. 2873 1 And we're going to talk about Windows 2 95. 3 Clear back in 1989, Nathan Mhryvold, 4 who was then Microsoft's principal technical 5 strategist, writes the Microsoft executive 6 staff about plans to merge DOS and Windows. 7 Instead of offering Windows separately 8 from the operating system as they were doing at 9 that point, Microsoft wants to bolt the two 10 together. Why? Nathan Mhryvold tells us why 11 Microsoft would bolt these two products 12 together. 13 He says -- this is Exhibit 97A -- we 14 put a bullet in the head of our would-be 15 competitors on DOS like DRI. 16 Mhryvold suggests no technological 17 benefit. In fact, there are lots of problems 18 with the merge that he mentions, including how 19 to convince OEMs to accept it and whether the 20 bundle can be quoted to overcome poor quality. 21 But the DR/Novell merger and the 22 possible IBM/Novell alliance are alarming. 23 Jim Allchin writes Gates and Ballmer 24 in September 1991 urging the hardest of hard 25 core responses to the threatening advances that 2874 1 Novell is making. And this is Plaintiffs' 2 Exhibit 948. 3 MS response: Two, integrate Windows 4 with DOS. Common install. Make it so there is 5 no reason to try DR-DOS to get Windows. 6 We must slow down Novell. As you 7 said, Bill, it has to be dramatic. 8 Net net. We must sell lots of 9 Windows. We need to slaughter Novell before 10 they get stronger. 11 This is the impetus for the Chicago 12 project, which becomes Windows 95 and which is 13 the combination of DOS and Windows that 14 destroys the DOS market for all time. 15 In May 1992, Paul Maritz, by this time 16 head of all MS systems, reports that Chicago is 17 being designed as the next major Windows and 18 MS-DOS. 19 And a presentation from this era 20 explicitly notes that Chicago would be -- this 21 is 3226 -- Windows and new MS-DOS packaged 22 together. 23 Now, at this point, not merged, just 24 packaged together. 25 THE COURT: Time for a break? 2875 1 MS. CONLIN: Yes, Your Honor. 2 THE COURT: We'll take our lunch break 3 at this time. 4 Remember the admonition previously 5 given. Please leave the notebooks on your 6 chairs. 7 See you at noon in the Jury lounge and 8 we'll start then. 9 (A recess was taken from 11 a.m. to 10 12 p.m.) 11 (The following record was made out 12 of the presence of the jury.) 13 MR. GREEN: Your Honor, we'd like to 14 make a short record before the Jury -- 15 THE COURT: Okay. 16 Mr. Green? 17 MR. GREEN: Your Honor, I've been 18 asked to make this record because I am familiar 19 with the Iowa rules. 20 And I don't think any of us are 21 kidding ourselves that Ms. Conlin's opening 22 statement is not an opening statement, but more 23 in the form of a closing argument and goes 24 beyond the Iowa Rules of Civil Procedure, which 25 governs opening statements. 2876 1 And the Court's decisions in that 2 regard, for instance at -- let me see if I got 3 the right exhibit -- anyway, the rule is, in 4 quoting from the Iowa Rules, the rule is that 5 counsel should only tell the Jury about 6 evidence that counsel has a good faith belief 7 will be offered and admissible. 8 And that's Kester versus -- I'll get 9 the right cite here, Your Honor -- Bruns, 10 B-r-u-n-s, at 326 N.W. 2d 281. 11 Now, there's many instances where 12 Ms. Conlin is making conclusions of law, of 13 fact, in certain cases even speculates what 14 might be the conclusions that the Jury can draw 15 from the various evidence that she has. 16 And while we don't think it would be 17 prudent to jump up and down every time she does 18 that because we would have a mess because she's 19 doing it all the time, and she's just unabashed 20 about it. 21 The only thing we want to make 22 clear -- and we know that it's in the sound 23 discretion of the trial court to determine 24 whether the improper comments made during 25 opening statement have a prejudicial effect 2877 1 upon the deliberations of the Jury and normally 2 the Supreme Court says the trial court can do 3 -- whatever they decide is probably not going 4 to be reversible error due to the discretion of 5 the trial court. 6 But we just want to make clear that 7 this goose and gander rule that Ms. Conlin has 8 previously talked about applies here and that 9 we'll be accorded the same manner when we 10 present opening statement and be allowed to 11 open in kind. 12 And rather than -- and I think the 13 remedy is probably move for a mistrial. I 14 don't think we want to jump up and down and 15 move for a mistrial every time that she does 16 this, but she does it quite frequently. 17 I don't think a person as seasoned as 18 she is would even dispute that. She's making 19 pure conclusions from the evidence is what 20 she's not supposed to do under the Iowa Rules 21 governing opening statements. So we just 22 wanted to make a record in that regard, Your 23 Honor. 24 THE COURT: Very well. Thank you, 25 Mr. Green. 2878 1 Any response by Ms. Conlin or 2 Mr. Hagstrom? 3 MS. CONLIN: Well, Your Honor, if I'm 4 doing something objectionable, they should make 5 their objections. I don't think I am. I am 6 trying to adhere closely to the facts and rely 7 on the documents and the evidence that I 8 believe would be part of the law. 9 THE COURT: Anything further? 10 MR. GREEN: I couldn't hear what she 11 said. 12 THE COURT: Do you want the court 13 reporter to read it back? 14 MR. GREEN: Yeah, why don't you have 15 her read it back. 16 THE COURT: Sandy? 17 (Requested portion was read back.) 18 MR. GREEN: Well, Your Honor, I don't 19 think it takes a person with very hard 20 listening to know that that's simply not true. 21 And we don't intend to stand up and 22 object every time she does it, but we just want 23 to make sure that we are accorded the same -- 24 the same benefit as Ms. Conlin is getting with 25 the latitude in her opening statements. 2879 1 That's all, Your Honor. 2 THE COURT: Anything else? 3 MS. CONLIN: No, Your Honor. 4 THE COURT: Well, as I understand the 5 purpose of opening statements, to give a 6 preview and expectation of what each party 7 believes the evidence will prove, though not 8 yet proven yet, or in defense when Defendant 9 gets up as to what the evidence will be to 10 support the defense or will not prove from the 11 Plaintiffs' case. 12 As you stated, the Court does usually 13 grant latitude in that regard. I would expect 14 both the Plaintiffs and the Defendant to abide 15 by the Iowa Rule and make sure that the opening 16 statement is a preview of the evidence that 17 they intend to present and what they intend to 18 prove. 19 There should be no attempt to 20 interject evidence, of course, which is known 21 or likely known to be inadmissible. Because if 22 that happens, there is prejudicial error in 23 regard to that. 24 So at this time I guess I'm telling 25 both sides, make sure your opening statement is 2880 1 a preview or expectation of what you intend to 2 prove or what will be proved, not yet proved. 3 Anything further? 4 MR. GREEN: Nothing here, Your Honor. 5 Thank you. 6 MS. CONLIN: Nothing. 7 THE COURT: Very well. Are you guys 8 ready for the Jury? Okay. 9 THE CLERK: All rise. 10 THE COURT: Sorry for the 10-minute 11 delay. We had a motion or an issue of law I 12 had to take up. 13 So we are ready to proceed again at 14 this time. 15 MS. CONLIN: Thank you, Your Honor. 16 Good afternoon. 17 Let me summarize -- we were talking 18 about the DOS Windows merger. And let me 19 summarize the discussions that occurred in '92 20 and '93 about putting these two products 21 together. 22 There are dozens and dozens of 23 exhibits that prove that the reason why 24 Microsoft did this, put its two separate 25 products together, was, in fact, to destroy 2881 1 competition in the operating system market. 2 Through '92 and into 1993, Microsoft's 3 executives tell the industry that Chicago is 4 Windows 4 and MS-DOS 7 -- is Windows 4 sitting 5 on top of MS-DOS 7.0. In other words, it is 6 the two updated products, the GUI and the 7 operating system bolted together, stuck 8 together. 9 And, in fact, the packaging decision 10 that eliminates the competition in the DOS 11 market is simply that you have to buy the two 12 together. 13 Let's talk about MS-DOS 6.0, which 14 comes in this time frame. 15 In March of 1993, Microsoft talks 16 about Chicago, but releases MS-DOS 6. It's 18 17 months after DR-DOS 6.0 comes on to the market, 18 and it does not have all of the features of 19 DR-DOS 6. 20 It does have something that DR-DOS 6 21 doesn't have and that is severe bugs, most 22 severe up to that point in Microsoft's history. 23 By May 26 Microsoft has to release a 24 statement giving an outline of the bugs. 25 This is Plaintiffs' Exhibit 5559. And 2882 1 it's a press release. Microsoft talks about 2 DOS 6.0 bugs. 3 Microsoft has released a statement 4 concerning the potential problems in MS-DOS 5 6.0. The bugs, as outlined by the company, are 6 the following, and there are some of the bugs. 7 And this is a result of a letter that 8 went out objectively discussing MS-DOS 6 and 9 mistakes we made in customer feedback. 10 Brad Chase reveals the severity of the 11 data loss problem the next day in an internal 12 e-mail to Microsoft executive staff, and this 13 is Exhibit 5562. 14 The current number of US MS-DOS 6 15 upgrade customers losing data, full or partial, 16 is about three in 1,000. I do not know how to 17 define acceptable, but this feels much too high 18 to me. 19 And in response, Steve Ballmer directs 20 that Microsoft should push for a new level of 21 cleverness in our naming. 22 And what this means is Microsoft is 23 going to issue a bug fix and charge for it. 24 It's issued as MS-DOS 6.2 in November. 25 Cost 9.95, and it's called an upgrade to MS-DOS 2883 1 6.0. 2 Microsoft users have to pay Microsoft 3 again so that the Microsoft operating system 4 they just bought doesn't destroy their data and 5 crash their computer. 6 Moving to the period December '93 to 7 September '94, when Novell-DOS 7.0 is released. 8 In late December of 1993, Novell, 9 remember the merger, issues an upgrade to 10 DR-DOS 6.0 that is called Novell DOS 7.0. 11 At one point in this period, Novell 12 makes a decision -- or almost makes the 13 decision internally -- not to release another 14 product. 15 But there are lots of people inside 16 and outside of Novell that are committed to the 17 idea of maintaining their DOS product. 18 And, again, when they release DOS 7.0, 19 it includes features that users are waiting 20 for. Such things as peer-to-peer networking, 21 multitasking program manufacturer. 22 Peer-to-peer networking allows users 23 to network together without having a server, 24 and the multitasking program manager is a 25 feature no Microsoft product has. 2884 1 And this allows users to start one DOS 2 application running and then switch to another, 3 and the first one stays operating in the 4 background. 5 We're used to that now, but at that 6 time there wasn't any such program. 7 On July 21st, 1993, Mr. Gates tells 8 his executives that he wants Novell to stay in 9 the front of the minds of his staff. 10 This is Plaintiffs' Exhibit 1728. He 11 asks who at Microsoft gets up every morning 12 thinking about how to compete with these guys 13 in the short term, specifically cut their 14 revenue. Perhaps we need more focus on this. 15 After their behavior in this FTC 16 investigation, I am very keen on this. 17 When Novell announces its feature set 18 for Novell DOS 7.0, on March 26, Microsoft 19 realizes that, once again, Novell has hit the 20 mark. 21 Richard Freedman, who is MS-DOS 22 product manager, writes Mr. Chase and 23 Mr. Silverberg in Plaintiffs' Exhibit 1591. 24 And says if they really release a 25 version with all this junk in it, it will mean 2885 1 that for three MS-DOS releases in a row, 5, 6, 2 and 7, DR will have had our key features in 3 their product 12 to 18 months before us. 4 Then he gives examples, kernel in HMA, 5 compression, VxD/multitasking. Given that 6 track record, it's going to be impossible to 7 shake this "MS as follower" image. It's been 8 very difficult so far as it is. 9 You saw Mr. Fryer a little bit 10 earlier. He's a product strategy manager for 11 Zenith Data Systems. And he will tell you that 12 his software engineers tested Novell DOS 7 and 13 preferred it over MS-DOS 6.0 due to capability 14 and compatibility concerns. 15 Mr. Fryer will tell you, by 16 deposition, that Novell DOS 7.0 had fewer 17 problems than MS-DOS, and that he received 18 fewer technical support calls. 19 Novell is attacking Microsoft on 20 several fronts. 21 Jim Allchin, who you've heard from 22 before -- inside Microsoft -- he's doing the 23 NT, networking, and the NT Windows new 24 technology called NT was facing its own battle 25 against Novell's NetWare. 2886 1 And he says on September 18th, 1993, 2 he surveys the state of the competitive 3 situation between them, and concludes the time 4 has come for decisive action. 5 This is Plaintiffs' Exhibit 1793. 6 Here is what he says. Sentiment is 7 against us. We can and must turn this around. 8 As we become more aggressive against Novell 9 product and marketing-wise, we must get our 10 mouth in order. The press, et cetera, is very 11 skeptical of us. 12 So one slip up, and we get set back 13 quite a ways. 14 This really isn't that hard. If 15 you're going to kill someone, there isn't much 16 reason to get all worked up about it and angry. 17 You just pull the trigger. 18 Any discussions beforehand are a waste 19 of time. We need to smile at Novell while we 20 pull the trigger. 21 There are thousands of documents that 22 show the truth. 23 Microsoft is not just a tough 24 competitor. It's not just an aggressive 25 competitor. It is a competitor who is willing 2887 1 to break the law and commit anticompetitive 2 acts in order to destroy competition. 3 So when DR-DOS 7 is on the horizon, 4 all of the tools that Microsoft has used, all 5 of its formula, come out again, and that 6 includes vaporware. 7 Novell's plans for version 7.0 are of 8 concern as early as July 1992. And this is a 9 product that comes out in December of 1993. 10 Novell's first operating system that 11 comes out after the merger. 12 One strategy used is to tell the world 13 that Novell's 7.0 DOS won't run on Windows 95, 14 or they're not calling it -- they're calling it 15 Chicago at that point. 16 And on July 9th, Paul Maritz, head of 17 all of Microsoft systems, wrote in Plaintiffs' 18 Exhibit 1371, In the corporate market, we 19 should probably start to raise the profile of 20 Sparta and then Chicago. 21 We have to keep the focus on Windows 22 as the way to go and start to undermine 23 Novell's story that DOS and Windows decision 24 can be made entirely separately. 25 Maybe we need a corporate Chicago tour 2888 1 later this year that under NDA shows how we are 2 going to mate DOS and Windows and shows how 3 Chicago technically can't work on DR-DOS? 4 And, remember, that Microsoft knows 5 that NDAs are likely to result in lots of juicy 6 leaks to the press. 7 Within two weeks, MS-DOS -- the MS-DOS 8 6 marketing plan is laid out. 9 This is Plaintiffs' Exhibit 3231. 10 And among those things in the 11 marketing objectives are keep Novell/DR from 12 gaining momentum. Preempt DR-DOS 7 PR. 13 Position DR-DOS 7 as a proprietary operating 14 system. Freeze DR-DOS 7 out of the channel. 15 And keep DR from signing any major OEMs. 16 Microsoft, thereafter, begins to 17 dribble out leaks and make presentations 18 disclosing that Chicago would be released to 19 the market in '93, and then it moves to '94. 20 All of these statements are by 21 evidence direct and circumstantial false when 22 made, and even though by this time the trade 23 press is beginning to doubt the dates, there's 24 lots of details that emanate from Microsoft 25 promising release by at least mid-1974. 2889 1 Microsoft knows, anticipates that 2 Novell DOS 7.0 could come to market in the fall 3 of '93. 4 And on July 8th, '93, Tony Audino, 5 director of marketing, advises Chase and 6 Silverberg in Plaintiffs' Exhibit 588. 7 Novell DOS 7, we presently anticipate 8 a September release and we will be prepared. 9 Then the second part, prepare 10 positioning and leak of MS-DOS 7 to coincide 11 with Novell DOS 7 announcement. 12 As I've told you, there never was an 13 MS-DOS 7 released as a separate product. It 14 was only released as a part of Chicago. 15 Novell DOS 7 ships in December, and in 16 January Microsoft invites technical press to 17 attend its professional developers conference 18 and sends a letter from Chase, who's now 19 manager of marketing and development for Win 20 95, to all press to disclose that in 21 Plaintiffs' Exhibit 5631, Chicago is scheduled 22 to ship in the second half of 1994. 23 This causes reaction within Microsoft. 24 Plaintiffs' Exhibit 5651 says -- do you have 25 5651? 2890 1 Wow, if you really -- if you are 2 really still telling the field, the RTM -- that 3 means release to manufacturing -- is September 4 30th, and if you are really serious, we have a 5 ton of work to do very fast. 6 Is this just propaganda mail? 7 Making me nervous about getting a 8 channel lined up this fast if you are serious. 9 And, of course, as you know, they're 10 not serious. It doesn't come out until August 11 of 1995. 12 MR. TULCHIN: Object to that, Your 13 Honor. 14 THE COURT: Sustained. 15 MR. TULCHIN: For reasons that we 16 talked about. 17 MS. CONLIN: The August 1995 -- excuse 18 me, Your Honor. 19 August 1995 is the release date of 20 Windows 95, which is the product being 21 discussed in this e-mail, which is 5651. 22 Even as late as July 30th, 1994, 23 presentations are being made by Microsoft 24 personnel indicating that Chicago would ship 25 before the end of 1994. 2891 1 So there's FUD, vaporware, contract 2 restrictions, and OEMs associating with any 3 other DOS are blacklisted. 4 We talked about Z-NIX earlier. Here 5 is another example. This is Plaintiffs' 6 Exhibit 1919. 7 This is from Mr. Silverberg to 8 Mr. Maritz, Krueger, Chase, and the subject is 9 a company called Insignia. This is November 10 18th, 1993. 11 And here's what Mr. Silverberg says. 12 I talked to the CEO of Insignia at the show. I 13 forget his name, sorry. He was an English guy. 14 The issue is that I've heard through 15 the grapevine that Insignia promoted DR-DOS to 16 Apple instead of MS-DOS for inclusion in their 17 new machine that has a 486. 18 He was caught off-guard by my question 19 and I could see from his reaction that, yes, 20 there is truth to this rumor. 21 We talked for a bit, and it is clear 22 that they are actively telling OEMs about 23 DR-DOS. Are they promoting DR-DOS? That's 24 more a matter of judgment, but it's clear that 25 they are steering OEMs to DR-DOS and letting 2892 1 OEMs know DR-DOS is a viable alternative to 2 MS-DOS for the cost-sensitive OEMs. And who 3 isn't cost sensitive. 4 I let him know that this presented a 5 conflict to us. Giving him access to Windows 6 source when he's out there -- when he's out 7 promoting DR-DOS instead of MS-DOS. While we 8 didn't agree on the definition of promote, I 9 think he got the message. 10 I am not going to provide source code 11 to someone who is out there promoting DR-DOS. 12 So Mr. Silverberg tells other 13 executives that Microsoft is not going to 14 permit access to Windows information to OEMs 15 and ISVs unless they are working exclusively 16 with Microsoft. 17 In Plaintiffs' Exhibit 1667, this is 18 from Mr. Specter. And this is about AST, 19 another OEM. 20 And Mr. Specter says in Exhibit 1667, 21 As we suspected, AST will stand on stage with 22 IBM next week and announce that they will sign 23 a license with IBM for OS/2 and other related 24 products. 25 These other related products will 2893 1 include PC DOS. They will offer these products 2 only to their customers that request them. 3 This is about OS/2 and we are going to 4 talk about that next. That's another competing 5 operating system that IBM produces. And so AST 6 is going to stand on stage with IBM when IBM 7 announces OS/2. 8 Kempin -- Mr. Kempin who you will 9 recall is the head of worldwide OEM sales for 10 Microsoft, says -- his typing is as bad as 11 mine. He says, Very clear to me no Chicago, no 12 cooperation, no beta, no alpha code. Total 13 war. 14 And Mr. Adler adds, Please add AST to 15 the no-ship list for Chicago and snowball 16 materials. 17 And Silverberg then says, They should 18 understand that if they ship PC DOS, they are 19 at war with us. 20 This adds AST to the beta blacklist 21 for standing on stage with a company about to 22 launch a competing product. 23 In the spring of 1994, Chicago enters 24 its beta cycle finally. And Microsoft asks for 25 nondisclosure agreements from independent 2894 1 software vendors who are going to get the 2 Chicago beta. 3 This is Plaintiffs' Exhibit 9060. And 4 this is just a part of a long contract. 5 In consideration of the license 6 granted herein, for a period of three years, 7 company -- and that would be the ISV -- agrees 8 to prohibit any authorized individuals who have 9 had access to the product -- the product is the 10 Chicago beta -- from participating in the 11 design and/or development, feedback, or 12 guidance of a company -- a product or 13 technology that is competitive with the 14 product, the Chicago product. 15 So what this asks, if you are going to 16 get the Chicago beta, you have to promise not 17 to work on any competing product for three 18 years. 19 Now, you know, Chicago comes out in 20 August of 1995. So it's not only during the 21 beta period, it's after the beta period that 22 people are required to sign an NDA not to work 23 on any competing product. 24 At some point after December 1993, 25 Microsoft executives make the decision not to 2895 1 offer MS-DOS 7.0 on a stand-alone basis. 2 Nobody says -- we don't have evidence 3 as to who made the decision or when it was 4 made. 5 Microsoft begins to plan the actual 6 marketing and pricing of Chicago. Because it 7 is Windows and MS-DOS in a single package, the 8 then current price of those two products 9 together is sort of the assumed price of 10 Chicago, of Windows 95. 11 Microsoft continues to create the 12 illusion of an integrated operating system 13 where, in fact, Windows is simply MS-DOS 14 running on top -- Windows running on top of 15 MS-DOS. 16 In Plaintiffs' Exhibit 1888, Mr. Adler 17 says, We are pushing Chicago as not just 18 Windows on top of DOS. 19 He notes that that perception is 20 broken pretty badly if you boot into DOS and 21 type Win. 22 It also creates problems if people 23 start expecting Chicago to run atop MS-DOS 6.x 24 or DR Novell DOS of any variety. Why would we 25 want to boot direct to DOS? 2896 1 Mr. Silverberg says, Customers should 2 just boot to Windows and not have to type Win. 3 If you want some f5 thingie on boot to clean 4 boot DOS and then bail out, that's fine. 5 Especially, if there's a way to get from there 6 to Chicago. 7 I do not want an option on bootup to 8 ask the user whether he wants to boot to 9 Chicago or stop. 10 For the average user, the integrated 11 operating system illusion is maintained. It 12 boots -- Windows boots to the old MS-DOS 13 command prompt and a DOS -- and Mr. Schulman 14 will explain to you what that means and why 15 that indicates that, in fact, MS-DOS is 16 underneath the Windows. 17 Microsoft told the public for many 18 years that that was not so; that Windows was an 19 integrated operating system. 20 In April of 1994, Ray Noorda, who is 21 then 70, turns over the day-to-day operation of 22 Novell to a man named Bob Frankenberg, who 23 comes from HP. 24 Mr. Noorda retires for the reason that 25 I told you about. And then Mr. Noorda 2897 1 subsequently even retires from the board of 2 directors. 3 With his experience as an OEM 4 executive, Mr. Frankenberg knows about the 5 exclusionary licensing practices. He knows 6 about the long-term per processor licenses. He 7 knows about the minimum commitments and PPBs. 8 And he also, of course, knows, as does 9 all the industry, that Microsoft has positioned 10 Chicago as the end of the DOS market 11 altogether, as a separate DOS market. 12 Seeing little chance for success of 13 DR-DOS, Frankenberg determines that Novell will 14 discontinue DR-DOS, and announces that 15 withdrawal of DR-DOS from the market in late 16 '94. 17 Shortly after Novell indicates that it 18 is withdrawing DR-DOS from the market, in 19 Plaintiffs' Exhibit 5682, Microsoft announces 20 to -- here's what this says. 21 Microsoft Corporation today announced 22 that Windows 95 may not be available until 23 August 1995. 24 And that goes out on December 20th, 25 1994. 2898 1 So DR-DOS is gone. Microsoft 2 indicates that Windows 95 won't be available 3 until August 1995. 4 And now Windows 95 and Microsoft win, 5 not because it's a better product, but because 6 it is willing to break the law. 7 I want to talk with you about what 8 Microsoft's evidence is going to be, is likely 9 to be, what we think it may be. 10 Microsoft's evidence -- you might 11 wonder how I know what Microsoft's evidence 12 will be, and that is because of the documents 13 that we got in discovery and the depositions. 14 With respect to the exclusionary 15 contracts, one of the things that Microsoft has 16 said is that a per processor license is just a 17 volume license, perfectly okay kind of volume 18 license. 19 The usual contract between businesses 20 based on volume would be something like this. 21 I will sell you 100 widgets, and you 22 will pay me $1 each for them, or $100. If you 23 buy 200 widgets, you can get them for $175 24 rather than $200. That's a volume discount. 25 But the Microsoft contracts are very 2899 1 different. If you want the best price, you 2 have to pay Microsoft for every single product 3 you ship with that processor, whether you use 4 Microsoft's operating system or not. 5 And you must tell Microsoft in advance 6 how many products you're going to ship and pay 7 quarterly based on that prediction. And if you 8 don't sell that much, we're going to keep the 9 money, and you have to do it for at least two 10 years. And, if you want the best price, three 11 or four years. 12 Let me give you an example of how this 13 happens. 14 Let's say that the OEM thought they 15 could sell $1 million a year of product, and 16 that would be $2 million for two years. And 17 every quarter you pay $250,000 to Microsoft, 18 every quarter. However many you are shipping. 19 And then the economy turns sour or 20 something happens. And instead of shipping $1 21 million in the first year, you only ship 22 $750,000 worth of product. So you're in the 23 hole $250 to start with. 24 And then the next year is even worse. 25 You're still paying your 250 a quarter. You're 2900 1 paying another million, but you only sell 2 $500,000 worth of product. 3 So in a two-year contract, if those 4 are the things that happen, the OEM has paid 5 Microsoft $750,000 more than the products that 6 it shipped. 7 Microsoft has $750,000 of the OEM's 8 money. 9 Now, if they want to keep this OEM as 10 a customer, they will permit the OEM to take 11 some of the balance and apply it to a new 12 Microsoft contract. 13 And then the process starts all over 14 again. And, you know, you make your minimum 15 commitment, you pay your amount quarterly, and 16 then if you go in the hole, you don't get the 17 overpayments back unless you enter a new 18 contract. 19 Microsoft even calls these PPBs golden 20 handcuffs. 21 Microsoft may also claim that it 22 granted exemptions to OEM that were -- OEMs 23 that were distributing Microsoft under per 24 processor licenses that would allow them to 25 distribute an alternate operating system. 2901 1 Microsoft also says that the OEM could 2 use other types of contracts if they wanted to. 3 There is evidence to indicate that is 4 not so. 5 Viglen is an OEM, and it writes 6 Microsoft on June 5th, 1992 to express its 7 dissatisfaction with not being permitted any 8 kind of contract except the per processor 9 license. It also complains about not being 10 able to have shorter terms. 11 Here is what it says in Exhibit 5483. 12 Although we have signed this contract, which I 13 understand is the best that we could negotiate, 14 I would for the record like to point out three 15 issues which we are not entirely happy with. 16 I'm skipping the first one. 17 The second one, the second issue is 18 the fact that the only OEM agreement you have 19 been prepared to offer us on MS-DOS and Windows 20 is a per processor license. 21 Our main concern here is that a small 22 proportion of our business involves providing 23 non-Microsoft operating systems, such as 24 networks and others, to our customers who 25 require it. 2902 1 This means that we will be paying a 2 royalty to Microsoft even though we would not 3 be supplying Microsoft products. 4 We have tried many times even to get 5 exemption on named models on which we would not 6 be supplying Microsoft products, but this has 7 not been accepted by yourselves. Neither has a 8 per copy license based on the same volume of 9 business. 10 After the fact, Microsoft has some 11 alternate reasons for per processor minimum 12 commitment, long-term contracts. 13 They have per processor contracts, 14 first of all, that the OEMs requested them, but 15 there is not evidence as to who or when. You 16 won't see that in the documents about per 17 processor licenses. 18 Rick Apple is an officer of a company 19 called ZEos. And he gives an apt analogy when 20 he testifies about whether the per processor 21 licenses were necessary for the convenience of 22 the OEM. 23 He says -- and I'm reading this to 24 you. His testimony will be presented, but he 25 testified at a trial, and so it will be read to 2903 1 you as opposed to videotape. 2 Here is what Mr. Apple says. This is 3 like, you know, charging people that walk into 4 Target for everything in the aisle because it 5 would be easier than going through the shopping 6 cart. 7 Another of Microsoft's justifications 8 for the per processor licenses has been to say 9 that they combat piracy and counterfeiting. 10 But we have not found any studies as 11 to how that would affect piracy or 12 counterfeiting. There are -- the documents 13 don't say -- and I've showed you only a few of 14 the dozens and dozens and dozens of documents 15 about per processor licenses and what they're 16 supposed to do. 17 And they don't say signed per 18 processor license to prevent piracy or 19 counterfeiting. They say things like signed 20 per processor licenses to block out DRI, to 21 stop DRI. You saw those documents earlier. 22 Microsoft implemented per processor 23 licenses for one reason and one reason alone, 24 and that is to eliminate competition from other 25 operating systems. 2904 1 Microsoft also offers, and has offered 2 in the past -- we believe will offer to you -- 3 a generalized rationale for the failure of 4 DR-DOS. 5 What they say is the world wanted 6 Windows. And DRI, Novell, simply missed the 7 boat. But DRI, Novell, did not miss the boat. 8 They knew Windows was a popular GUI, and they 9 sought distribution on nondiscriminatory terms. 10 Instead, Microsoft put them on the 11 beta blacklist, released the beta with the AARD 12 code with a scary warning message, incorporated 13 technical incompatibilities, vaporware, FUDs, 14 threats, and so on. 15 Microsoft may also say that DRI failed 16 because there was no customer demand for the 17 product. Now, keep in mind for most people -- 18 well, keep in mind it's usually an OEM who 19 decides. That's the customer here who decides 20 what OS most people will get on their 21 computers. 22 And Microsoft had the OEMs locked into 23 the per processor licenses with the huge 24 minimum commitments, the prepaid balances, and 25 so on. 2905 1 About 85 percent -- and I'm unsure 2 what the numbers were back in this time -- but 3 a great number of people who get their 4 computers from the OEM with the operating 5 system already installed by the OEM. 6 So DR-DOS could not break into the OEM 7 business because of the various restricted 8 contract provisions. 9 With respect to vaporware, Microsoft 10 admits that it made these preemptive 11 announcements and that it shipped its products 12 months, sometimes years, later than they were 13 originally promised. 14 The internal documents that you have 15 seen and that you will see prove that Microsoft 16 was not simply mistaken. This is not in the 17 category of all software is late. The timing 18 is not coincidental. 19 Even Microsoft's PR people recognized 20 that there are serious problems with Microsoft 21 vaporware. 22 On 3-25-91, Microsoft's PR people take 23 a look at these dates that I have shared with 24 you and say in Exhibit 630 -- this is from 25 Collins Hemingway -- March 25th, 1991, to 2906 1 various executives, and Marty Towcher who is in 2 the internal Microsoft PR department. Subject. 3 History of DOS looks, well, incriminating, he 4 says. 5 Help me here, guys. The history of 6 DOS shows that we did, in fact, preannounce DOS 7 5.0 to preempt DR-DOS. At least, the dates 8 look suspicious. Can someone make this clearer 9 or less clear, as the case may be? 10 Microsoft may also defend its 11 presentations to customers, to the OEMs, and to 12 the media by saying, well, we had these 13 nondisclosure agreements. But Microsoft 14 executives concede that there is no secrecy. 15 For instance, as plans for Windows -- 16 as to plans for Windows NT, Ballmer wrote Jon 17 Lazarus in April of 1994. 18 This is Exhibit 5484. This is 19 Mr. Ballmer speaking. The design preview has 20 not leaked to the press. Are you surprised? 21 Do you wish it would? If so, when? 22 In another exhibit, 5500, this is 23 Colleen Lacter of Weggener Edstrom. 24 She suggests create industry 25 excitement by going out on a mini tour week of 2907 1 August 17 under nondisclosure and showing 2 MS-DOS 6.0 beta to the industry talkers. 3 We would need to make sure -- she 4 mentions some of the industry talkers, and as I 5 look at it, I see John Dunkle, who is a witness 6 that Microsoft may present to you. 7 In any event, this is Colleen talking 8 to the industry talkers. We would need to make 9 sure that our presentation includes at least 10 one piece of information on MS-DOS 6.0 that is 11 just too good not to pass on. 12 So Microsoft is fully aware that the 13 NDAs will not keep this material out of the 14 press, and indeed expects that this material 15 will get into the press. 16 One of Microsoft's experts will tell 17 you that preannouncements are fine. He calls 18 them preannouncements, rather than vaporware. 19 He also will tell you that Microsoft 20 does not have to make its products compatible 21 with DR-DOS. I say this because I don't want 22 you to get confused. 23 Of course, Microsoft does not have to 24 make its products compatible with DRI's 25 products. And we'll not say that they do. 2908 1 What we say is that it must make its 2 products available on nondiscriminatory terms 3 so that DR-DOS can make its products compatible 4 with Microsoft's products. Not the other way 5 around. 6 We are not saying that Microsoft has 7 an obligation to make its products compatible 8 with DR-DOS. We're saying what Microsoft must 9 do is make its products available on 10 nondiscriminatory terms, so that other 11 companies, even DRI, or Novell, can make its 12 products, DRI's products compatible with 13 Microsoft's products. 14 And the beta blacklist, I'm not sure 15 what they will be saying about that. Sometimes 16 -- for a period of time they said there wasn't 17 one. 18 But here's the problem -- 19 MR. TULCHIN: Object, Your Honor, to 20 that. 21 THE COURT: Sustained. 22 MS. CONLIN: The problem with the beta 23 blacklist is Microsoft's operating system is 24 not a competitor -- I beg your pardon. 25 Microsoft's Windows is not a 2909 1 competitor of DR-DOS. So what does Microsoft 2 do given the fact that the product, DR-DOS, 3 doesn't compete with Windows? 4 In Plaintiffs' Exhibit 912, 5 Mr. Silverberg comes up with a reason and tells 6 his staff dealing with the beta blacklist 7 issue -- this is 912 -- we recently decided to 8 start referring to Windows as an operating 9 system in our communications, not a graphical 10 environment or user interface for DOS. 11 We should be consistent in the new 12 usage. Thanks. 13 So what Microsoft has done is renamed 14 the GUI as an operating system so they can say 15 that it competes with DR-DOS. 16 Another reason that was not noted at 17 the time for denying DR-DOS the beta of Windows 18 3.0 is Microsoft may tell you that DRI was 19 trying to develop a competing GUI. 20 There were a couple of projects, one 21 was called Cutlass. It was a study done for 22 DRI. And it concluded that trying to compete 23 with Windows would be both cost and time 24 prohibitive, and it never got off the drawing 25 board. 2910 1 There was a later project called Star 2 Trek, which was a joint development project 3 between Novell and Apple, to come up with some 4 sort of graphical user interface for Intel 5 processors, but that started after the denial 6 of the beta -- of the Windows 3.1 beta. 7 And it was shortly thereafter 8 abandoned for the same reasons, cost 9 prohibitive, and Windows was already on most 10 machines. 11 Microsoft also says that DRI 12 recognized that it was history if it wasn't 13 able to develop Cutlass or some other 14 Windows-like product. 15 And you'll see in the DRI documents 16 very strong language to that effect. 17 But the reason why DRI was looking to 18 develop some product like Windows is because 19 DRI was worried and concerned based on what 20 Microsoft had already done that Microsoft would 21 not permit it to have Windows on machines that 22 were operated by the DR-DOS operating system. 23 We've talked about technical 24 incompatibilities, and we've talked about four 25 of them. 2911 1 Verify DOS, which was the early one 2 that Mr. Gates talked about in 1988, the Bambi, 3 the nested task flag, and the AARD code. 4 Microsoft will say that DRI is at 5 fault for Bambi and the nested task flag, but 6 if Microsoft had let DRI have the beta, or one 7 line of code on Microsoft's behalf, would have 8 fixed any actual problems that existed. 9 With respect to the AARD code, 10 Mr. Schulman was the one who discovered the 11 AARD code in the released product. And we'll 12 talk to you about that. And he found it 13 hidden. 14 He found it programmed to disable any 15 tools that you could use to look for it, and in 16 five different places. 17 And with respect to Win 95, the 18 standard line had been to say that Windows 95 19 was not MS-DOS and Windows bolted together. 20 Because if Microsoft bolted the two 21 products together in order to eliminate 22 competition, then that would be a violation of 23 the law. 24 MR. TULCHIN: Object, Your Honor. 25 THE COURT: Sustained. 2912 1 MS. CONLIN: I'm sorry, Your Honor. 2 Let me be clear on what I'm saying. 3 We're not saying that the world should 4 have stuck with character-based interfaces. 5 We're not saying that we should move forward. 6 But, in fact, there was a demand for MS-DOS. 7 And let me show you Phil Barrett, a 8 lead developer on MS-DOS 5, Windows 3.1, and 9 until his departure in October '94, Windows 95. 10 He talks about the reality of Windows 95. 11 (Whereupon, the following video was 12 played to the jury. 13 MR. HARRIS: I think when you and I 14 talked about it before, you described Windows 15 95 as DOS and Windows stuck together with 16 bailing wire and bubblegum. 17 MR. BARRETT: That is a fair, if 18 colloquial representation of that, yes. 19 MR. HARRIS: And what do you mean by 20 that? 21 MR. BARRETT: That basically, yes, 22 there is DOS on the underlying -- under the 23 hood there is DOS. There is a form of DOS, a 24 version of DOS that was -- and I don't know all 25 of the details of what was developed. 2913 1 I don't understand all they did there, 2 but you can actually produce a bootable DOS 3 diskette. There is still 16-bit code inside. 4 (Whereupon, playing of video 5 concluded.) 6 MS. CONLIN: Mr. Barrett is clear that 7 there is not required to be a single product to 8 take advantage of advances in Windows 95. 9 To the contrary, he says it could have 10 been done as to separate products. He also 11 says that the only technical advantage of a 12 single product was to have a single 13 installation. 14 He testifies that the design challenge 15 is the same, whether it was a single combined 16 installation program or a separate DOS than 17 Windows. 18 Microsoft experts and witnesses may go 19 to lengths to convince you that Windows 95 20 wasn't MS-DOS sitting on top of Windows. 21 Let me tell you what Mr. Gates says at 22 the launch of Windows XP on October 25th, 2001. 23 This is Plaintiffs' Exhibit 9729. And 24 Mr. Gates is speaking. 25 Well, in fact, in a sense this is the 2914 1 end of an era. Microsoft and the original PC 2 rose to prominence based on the MS-DOS product. 3 And even as Windows came along, 4 Windows 3.1, Windows 95, Windows 98, underneath 5 MS-DOS was running there. Windows simply sat 6 on top of MS-DOS. 7 Surely, the last best word should come 8 from Mr. Gates. 9 Microsoft will also claim that DRI is 10 not relevant for damages because it wouldn't 11 have survived into the class period. The class 12 period begins in '94, May of '94. 13 Microsoft says that the DOS Win merge 14 in Windows 95 was a pro-competitive act that 15 benefited consumers and, as a side effect and 16 only a side effect, eliminated the market for 17 stand-alone DOS. 18 But Windows 95 did not eliminate the 19 market for stand-alone DOS. 20 In 1996 -- 1996 after Windows 95 was 21 on the market -- OEM purchasers of MS-DOS 22 exceeded OEM purchases of Windows by 2 million 23 units. 24 So at least 2 million computer 25 purchasers did not want a Microsoft GUI 2915 1 preinstalled on their computers. 2 Nothing is achieved, according to our 3 experts, by the DOS/Win merge that the OEMs 4 could not have done without the merge. 5 Microsoft also presumes that the 6 market as it existed immediately prior to the 7 release of Windows 95 would be the market into 8 which any competing product would have been 9 released. 10 But, in fact, if Microsoft had 11 competed within the law, then DR-DOS would have 12 had a chance to be sold to OEMs, be preloaded 13 on computers, and customers might have been 14 freely mixing, you know, DR-DOS and a Windows 15 GUI or some other GUI, so that the market would 16 have looked different. 17 Another claim that Microsoft may make 18 is that DRI, DR-DOS failed because they didn't 19 answer their customer support calls. 20 There is a woman named Jody Clifton, 21 who was with DRI at the time. And, in fact, 22 there was a period when DRI product support 23 services were pretty overwhelmed, which is not 24 an uncommon situation. 25 One of Microsoft's defenses is based 2916 1 on the fact that the operating system is a 2 small part of the total cost of the computer. 3 And that is a defense that you will 4 want to pay close attention to because if, in 5 fact, the amount that a product costs is 6 material to the question of whether or not they 7 engage in anticompetitive behavior, then the 8 law would not mean very much if a product 9 didn't cost very much. 10 We say that Microsoft's conduct costs 11 the consumers of Iowa hundreds of millions of 12 dollars over time and all together. 13 There may be many other defenses, but 14 Microsoft's own internal communications are 15 what we believe tell the story of what 16 Microsoft did and why they did it. 17 We would ask that you test the 18 defenses, any new defenses Microsoft has 19 against those documents, against what Microsoft 20 was saying at the time and what Microsoft was 21 doing at the time and what Microsoft was 22 internally giving as reasons for its conduct. 23 We believe that the evidence will 24 prove that Microsoft broke Iowa's competition 25 law by illegal acts, that it maintained its 2917 1 monopolies by breaking the law, and that that 2 resulted in higher prices, less innovation, and 3 less choice for Iowa consumers. 4 Your Honor, I'm going to move on to GO 5 at this time. Let's see, what -- shall I just 6 move right on? 7 I want to talk to you about a product 8 or a company and a product called GO. In 1987, 9 there -- even portable computers are very large 10 and very clumsy. 11 I'm going to show you one of those 12 portable computers. It's called, really quite 13 appropriately, the lugable. We have to have 14 Andrew lug it for us. 15 And it's an interesting device. It 16 does -- you could lug it with you if you -- if 17 you really wanted to, you could take it with 18 you. 19 In 1987, Gary Kaplan, who has a Ph.D. 20 in artificial intelligence, and another guy 21 named Mitch Kapor of Lotus 1-2-3 fame conceive 22 a completely different kind of computer. A 23 small, lightweight, without a disk, flat, no 24 keyboard, and you could write on it with a 25 stylus, and electronic ink, and you could use 2918 1 it on the go. That's why they called it GO 2 computer. 3 You could handwrite on it just like 4 you could on a tablet, but you could do things 5 with a GO computer that you couldn't do with 6 handwriting. You could sort it, send it, 7 enlarge it, make it smaller. 8 And this is pretty revolutionary 9 nearly two decades ago. 10 GO, the company, starts in September 11 of 1987 in Silicon Valley. The cofounders are 12 Jerry Kaplan, as I mentioned, and another man 13 named Robert Karr. 14 Why don't you give me the little GO 15 computer? No, that one, the first one. 16 This is the GO computer. You can see 17 the size and there is a picture of it as well. 18 And you could hold it this way. You could 19 write on it this way with your electronic ink, 20 and there's a stylus in here that you just -- 21 you know, you would just write on it. Or you 22 could also use it this way and write on it. 23 And it doesn't work. It had 24 proprietary batteries, and it just -- it's gone 25 now. 2919 1 They started in 1987, and they built a 2 prototype, about 500. Then they demonstrated 3 to the press and to hardware manufacturers and 4 ISVs. And their vision is to create a new 5 operating system specifically designed for this 6 little diskless handwriting computer. 7 Mr. Kaplan will tell you that adapting 8 an existing desktop operating system won't work 9 very well, and he uses a car/motorcycle 10 analogy. You don't build a motorcycle by 11 taking a car and ripping off two wheels and 12 then trying to rebalance it. 13 It needs a different motor. It needs 14 to be lightweight. You have to be able to get 15 your legs around it. It doesn't need as much 16 power as a car motor does. 17 So Mr. Kaplan and Mr. Karr think that 18 this new diskless computer needs a new 19 from-the-ground-up operating system, and they 20 call it GOOSE, the GO operating system. 21 Eventually, it's named PenPoint. And 22 ISVs, independent software developers, develop 23 new applications for the PenPoint, and so does 24 GO. 25 You can imagine the challenge. They 2920 1 are back in the late '80s at this point, of 2 getting an operating system to recognize 3 handwriting. And they had to make a screen 4 that you could write on. 5 They had to write software without a 6 disk. And they had to create and get other 7 people to create applications that could read 8 handwriting. 9 And then all of that had to be able to 10 synch up with a desktop operating system. 11 It does take about three years to 12 develop the product, about the same amount of 13 time that it takes Microsoft to update its 14 products from Win 3.1 to Win 95, from Win 95 to 15 Win 98, but GO is starting from scratch. 16 During the development period, GO 17 keeps its product plans secret, but it needs to 18 work with other companies. It needs to work 19 with individuals to get them interested in 20 developing useful software for the platform. 21 And so they do that under the NDA, the 22 nondisclosure agreements that we have talked 23 about. 24 And during the three years from the 25 founding of the company until the first 2921 1 product, the developer released, which happens 2 in January of 1991, money's going out, you 3 know, for salaries and travel and promotion for 4 the like. And there's not much coming in 5 because they don't have a product to sell. 6 In January of 1991, GO holds a 7 developer summit and invites about 800 OEMs and 8 ISVs and the press to a two-day event with a 9 product demonstration. 10 And people who see this little 11 computer are really excited about it. You 12 could -- according to Mr. Kaplan's testimony, 13 you could write on it. You could write numbers 14 like two plus two, and it would calculate. You 15 could write them in your handwriting. 16 And the computer would recognize the 17 numbers and perform the calculations. You 18 could handdraw an organizational chart, and the 19 computer would turn it into a presentation 20 document. 21 You could store thousands and 22 thousands of pages in this computer. Fill out 23 forms, edit a handwriting document, delete 24 words, reformat, cut and paste, insert a 25 picture, and so on. 2922 1 In this January 1991 developer summit, 2 software development kits are available to 3 ISVs. This little computer makes the cover of 4 trade publications and even mainstream 5 publications. 6 The product goes out the door to 7 developers so that they can create 8 applications. This is in January of '91. The 9 product is released for the public in April of 10 1992. 11 In discussing the GO story, you will 12 see some of the same kinds of things that we 13 discussed, the same kinds of acts that we 14 discussed in connection with DRI. 15 You will see vaporware. You will see 16 FUD. You will see threats and intimidation. 17 GO makes the beta blacklist. 18 You will see that Microsoft dishonors 19 its contracts with GO, and uses exclusionary 20 licensing practices, and also copies GO's 21 ideas. 22 Ultimately, GO is driven out of 23 business. 24 In -- I'm going to go back to the 25 beginning. 2923 1 Jerry Kaplan would take his idea, not 2 a prototype yet, but he'd take his idea to 3 conferences and try to persuade developers to 4 create applications. 5 And the three biggest companies at 6 that time creating applications are Lotus, 7 WordPerfect, and Ashton-Tate. 8 He approaches the CEOs of those 9 companies, and others, and convinces them to 10 devote time and resources and personnel to 11 investigating this little computer. 12 He shows them the ideas. He shows 13 them the plans, and all of them agree to 14 investigate or begin development of 15 applications for GO. 16 GO reaches out to Microsoft, and 17 Mr. Gates comes to a meeting at GO in the 18 summer of 1988 and agrees to sign the NDA with 19 GO computer. 20 This is Exhibit 27, which says GO 21 Corporation has disclosed or may disclose 22 business or technical information, GO 23 information, to you in connection with a 24 proposed business relationship. 25 And the proposed business relationship 2924 1 that Mr. Kaplan says GO wants is for Microsoft 2 to develop applications for PenPoint or for the 3 GO computer. 4 Mr. Kaplan also says that they want to 5 be able to exchange information with a desktop 6 OS and need to match up their file format so 7 that they can do that. 8 At the time no desktop computer can 9 read handwriting. 10 In Exhibit 27, the NDA that Mr. -- I 11 think it is Mr. Gates that signs that. 12 It says, In consideration of any 13 disclosure and any negotiations concerning the 14 proposed business relationship, you agree as 15 follows. 16 Number 1, you will hold in confidence 17 and not use or disclose any GO information 18 except information that you can document is in 19 the public domain, was known to you prior, or 20 was properly disclosed by another person. 21 Two, if you decide not to proceed with 22 the proposed business relationship, or if asked 23 by GO, you will promptly return all GO 24 information and all copies. 25 This is pretty standard information. 2925 1 Three, you will promptly notify GO of 2 any unauthorized release of GO information. 3 The NDA is supposed to mean keep your 4 eyes on our material and give it back if you 5 are not going to have a business relationship. 6 Gates signs, I think Kaplan signs, and 7 Mr. Gates and Mr. Kaplan and Mr. Karr have a 8 meeting. 9 And Kaplan demonstrates a very 10 preliminary version of the product -- this is 11 July of '88 -- and how it would relate to the 12 desktop. 13 He perceives that Mr. Gates is 14 excited. He will tell you Mr. Gates says this 15 is cool. I'll go back and get some of my guys 16 to do the next step. And he's going to talk 17 with a Mr. Mike Maples who you haven't heard 18 yet. 19 Mr. Maples is the head of Microsoft 20 applications. He also, by signing the NDA, 21 promises that he will keep these ideas out of 22 the operating system side of Microsoft. 23 What Mr. Gates does not say that 24 Microsoft is planning on coming out with any 25 sort of handwriting technology or its own pen 2926 1 computing system. 2 The GO idea is a new, unique idea, and 3 Mr. Gates is learning of it from Mr. Kaplan. 4 We talked a little bit about -- I 5 guess we didn't talk about the Chinese wall and 6 the church and state problem that Microsoft 7 has. 8 Because it is in both the operating 9 system side and the application side, there are 10 some problems that Microsoft needs to solve. 11 Microsoft needs to get outside people 12 to write applications for MS-DOS operating 13 system, and they need to be comfortable that 14 whatever ideas they have, whatever they provide 15 to Microsoft, won't be taken by the Microsoft 16 application group. 17 So they've got the two parts of 18 Microsoft, operating system, applications. And 19 Microsoft needs ISVs to believe they are on a 20 level playing field, that Microsoft 21 applications won't get special favors or 22 advanced knowledge or anything of that sort. 23 And Microsoft in many ways tells the 24 industry that there is a Chinese wall between 25 the two divisions. Sometimes they describe it 2927 1 as the separation of church and state. 2 And they do that so people will write 3 applications for Microsoft's operating system, 4 even though Microsoft writes its own 5 applications. 6 That is an important concept for GO 7 with this new idea. GO needs to tell Microsoft 8 about it to try to persuade Microsoft to write 9 applications for GO. 10 But GO does not want the operating 11 system people to get access to the information 12 it discloses to Microsoft. 13 Gates goes back to Redmond after the 14 meeting. And in a few weeks Mike Maples 15 contacts Jerry Kaplan, and Microsoft wants to 16 send more people to GO to look at the product, 17 talk to the engineers, the documentation. 18 GO says fine, but there will be 19 another agreement, and this is called the joint 20 development agreement. It is our Exhibit 58. 21 And it is dated February 10th, 1989. 22 And says, This letter documents a joint project 23 between Microsoft Corporation of Redmond, 24 Washington, and GO Corporation of Foster City, 25 California. 2928 1 The assumptions. Microsoft is 2 interested in exploring potential business 3 opportunities relating to the GO notebook 4 computer. 5 Potential projects include native 6 applications, adaptations of desktop-based 7 Microsoft products, and ensuring smooth 8 exchange of data between notebook and desktop 9 applications. 10 GO is seeking strategic partners to 11 develop applications for GO's notebook 12 computer. 13 Then it goes down to a project 14 definition. Microsoft will assign a minimum of 15 one-half-time person to work with GO to 16 identify projects of potential interest to 17 Microsoft. 18 20 hours a week. 19 GO will provide temporary office 20 space, access to proprietary design information 21 -- I beg your pardon. Proprietary design 22 documentation and related information, and 23 technical cooperation to the assigned Microsoft 24 project representatives. 25 And GO agrees to let that person see 2929 1 the design documentation. 2 It goes on to say, To protect each 3 party's information, each party agrees, Number 4 1, to use information only for the purpose of 5 furthering this joint project. 6 There's a 2 and a 3, but 4, that No 7 copies of information are to be made without 8 the express written consent of the other party. 9 And 6 is, To promptly notify the other 10 party of any unauthorized release of the 11 other's information. 12 Right after the first summer meeting 13 with Gates in 1988, Mr. Gates writes his 14 executives describing the GO technology in some 15 detail, but tells his executives that he does 16 not want to do apps for the GO computer. 17 This is before Microsoft signs the JDA 18 that you just saw, the joint development 19 agreement, and before anybody from Microsoft 20 comes to GO to look at GO's technology and 21 before GO discloses any of its plans or 22 technology. 23 Microsoft then sends, after this joint 24 development agreement, they send a man named 25 Lloyd Frink, who is a senior engineer at 2930 1 Microsoft, to GO on May 3rd, 1989. 2 He and another Microsoft employee meet 3 with Mr. Kaplan and Mr. Karr, and the agenda 4 for that meeting shows that it does include 5 technical information. 6 This is Exhibit 91. These are 7 handwritten notes. It says, LF, Lloyd Frink, 8 to spend more days at GO to soak up GO tech. 9 What GO believes Microsoft's Lloyd 10 Frink is doing is evaluating GO's system to 11 determine what it would take to do applications 12 for it and collecting information so Microsoft 13 can make its decision about whether or not to 14 do applications. 15 Instead, what is happening is that Mr. 16 Frink does tell Microsoft operating system 17 people what GO is doing. 18 The notebook concept is obviously easy 19 to understand, but it's a key piece of GO's 20 intellectual property. And they don't want -- 21 they don't want to share it widely. They think 22 they've got it protected with the two 23 agreements. 24 So Mr. Frink comes and goes as he 25 pleases. Mr. Kaplan will tell you that he 2931 1 talks to who he wants to. He asks questions. 2 And then he returns to Microsoft and 3 writes a report. And that is Exhibit 115. 4 This is dated May 17th, 1989. You 5 will see it goes to Bill Gates. It goes to 6 Jeff Raikes. Mr. Raikes is -- I'm not sure 7 what he's doing, what Mr. Raikes is doing at 8 this time. 9 It goes to several other people. And 10 it is a GO trip report for a trip Mr. Frink 11 made May 15th and 16th. 12 Purpose of the trip. 13 Number 1, for me to learn in more 14 detail what GO is developing. In particular, 15 A, their development environment; and, B, their 16 notebook metaphor. 17 We can take this information into 18 consideration when putting Windows on similar 19 types of machine -- machines. 20 That is not consistent with the 21 purpose that GO believes that Mr. Frink is 22 there for. 23 He goes on to say, The whole time I 24 was down there I was politely telling them that 25 it was all very unlikely Microsoft would 2932 1 develop apps for their machine because of their 2 nonstandard operating system and not so slick 3 GO environment. 4 And then skipping down, finally, Karr, 5 Mr. Karr, said he wanted to come up and discuss 6 technical issues with the Win 3.0 people and 7 explore the possibilities. 8 According to Mr. Kaplan, they want to 9 talk about interoperating with the desktop. 10 He goes on to say, The one key piece 11 we need in order to put Windows on flat 12 computers made by other manufacturers is the 13 handwriting recognition software. 14 The GO people wouldn't let me get near 15 any of their stuff, with good reason. 16 During his visits, Mr. Frink gets 17 access eventually to virtually all of those 18 confidential ideas, plans, technology, 19 including screen shots, including marketing 20 material, and engineering and, you know, 21 chatting with engineering people. 22 At the time Microsoft does not have 23 handwriting technology under development. In 24 fact, what Microsoft is doing is shopping for a 25 company that has some kind of handwriting 2933 1 software done. 2 Here is Exhibit 193, and this is dated 3 12-15-89. So this is some months after Mr. 4 Frink's visit -- visits. This is from Mr. 5 Raikes November '89 report. 6 Summary, he says. Made offer on Infa 7 handwriting software. Began prototyping Win-H. 8 Then he talks about Infa offer. After 9 six months of trying to find a complete, or 10 nearly complete handwriting package to buy, 11 Infa is the only company that took the right 12 approach to the problem. 13 Therefore, I believe we should 14 purchase this software and use it as a base to 15 develop our own handwriting. 16 Those discussions with Microsoft stop 17 and GO expects and has a right to expect that 18 Microsoft will make no further use of the 19 confidential information that it has supplied. 20 GO begins moving forward on other 21 fronts. GO negotiates a deal with IBM to 22 manufacture these tablet computers which will 23 have no disk. 24 It won't run Microsoft's planned 25 product which needs a disk. Getting such a 2934 1 deal with IBM is just great for GO and they 2 seem to publicize it and call a press 3 conference in July of 1990. 4 They don't demonstrate the product, 5 but they talk about it. They don't talk about 6 technical detail, but they want the people who 7 are there to know that IBM is going to 8 manufacture this little computer to use GO 9 PenPoint. 10 A company -- we know this company here 11 in Iowa -- State Farm Insurance is also 12 interested in GO, and they promote the product 13 to others. 14 They see it as ideal for their 15 adjusters who can use it when they go out to 16 see a car that's been in a wreck. You know, 17 they walk around, they hold it, they can take 18 notes, fill out forms, they could even cut a 19 check on the spot if they would want to do 20 that. 21 And they -- State Farm uses the GO 22 computer in the field. 23 What's Microsoft doing during this 24 time frame? The PenPoint operating system is 25 developed on a desktop and will also run a 2935 1 desktop PC. 2 Microsoft sees it as a platform or 3 operating system competitor. GO seeks 4 endorsement from Intel, the chip maker, and 5 seeks investment from Intel. 6 Intel's endorsement would be critical 7 to GO's success. And, in fact, the 8 endorsement, according to Mr. Kaplan, is more 9 important than the money because, with such an 10 endorsement, other investors would be 11 enthusiastic. There would be credibility lent 12 to the project. 13 Mr. Kaplan has several meetings with 14 Intel personnel, some even with Andy Grove, who 15 is Intel's CEO. 16 Mr. Kaplan requests both public 17 endorsement and an investment of 5 to 10 18 million dollars, and he comes away believing 19 that that's going to happen, that Intel sees 20 this as a new opportunity for Intel and will 21 invest 5 to 10 million dollars and will make a 22 public endorsement, which Mr. Kaplan believes 23 will create momentum. 24 The deal is nearly done when abruptly 25 Intel says that it's not going to invest 5 to 2936 1 10 million dollars and that it's going to 2 provide 2 million dollars, but GO must keep the 3 investment secret. No public endorsement. 4 Jerry is surprised. Mr. Kaplan is 5 surprised. He asks why. He does not get an 6 answer. 7 But let me show you some documents 8 that may answer the question. 9 Here is Exhibit 310. This is from 10 Carl Stork, and this is June 19th, 1990. It's 11 to various people, Mr. Raikes, Mr. Frink, and 12 Pradeep Singh, copy to Mr. Gates, Mr. Nathan 13 Mhryvold, and Steve Ballmer. And the subject 14 is Intel and GO. It is, as I said, 310. 15 He says, Mr. Raikes says, I made the 16 same points to Hughes, who is an Intel 17 executive, that Bill made to House, another 18 Intel executive, earlier. That GO is a 19 software competitor and that Intel should not 20 endorse that. 21 Mr. Gates himself becomes involved, 22 and on the same day he writes the same folks 23 and says, Intel getting involved is really 24 strange. We need to be a little wild about 25 guessing how quickly we will be able to help 2937 1 people build products, but, otherwise, we 2 should be open and friendly. 3 Supposedly we can stop this. I will 4 call Miller or Grove and try to get a reprieve 5 until they visit us. 6 In Exhibit 293 -- this is, again, Carl 7 Stork -- and he writes Mr. Gates, Mr. Raikes, 8 Lloyd Frink, and others, and says -- this is 9 June 26, or it's a little bit later than the 10 ones we saw. 11 We met today with a group of people at 12 Intel that is pushing an investment in GO Corp. 13 We attempted to dissuade them from that 14 investment by seeking to find ways to meet 15 their objectives without this investment and by 16 explaining why we thought the investment would 17 be a bad idea. 18 In particular, we presented the 19 Windows H project to them. We didn't succeed 20 in convincing them not to invest, and they did 21 not appear very open-minded. 22 One appropriate follow-up is probably 23 for us to write a letter to Grove with a 24 follow-up phone call by Bill. 25 He then lists the people from Intel 2938 1 who attend, and the people from Microsoft who 2 include Mr. Raikes, Mr. Frink, and Carl Stork. 3 We told Intel that we think an 4 investment in GO Corp. would be a bad idea. 5 The points we made are: It is -- and there are 6 several of them -- one of which is it is an 7 anti-Microsoft move because it competes with 8 our OS and it weakens the Intel platform 9 standard. 10 Now, by this time, more than a year 11 after Mr. Frink is at GO, Microsoft has started 12 its own division to do handwriting. 13 Aymar asked a lot of questions about 14 application software and how users located 15 documents and files and things, how they 16 navigate through folders, et cetera. I think 17 he thinks of Windows as being too complicated. 18 I don't know if he has seen some demos 19 of GO software that look easier to use, but 20 that is my impression. 21 It goes on, here are two next sets -- 22 next steps. 23 One, see if we have some stylus tablet 24 technology sources we could introduce them to. 25 Bill G. give your input on e-mail. 2939 1 And, two, write a letter from Bill G. 2 to Grove and follow up with a phone call. I'll 3 draft a letter, send it out on e-mail for 4 comment tomorrow. 5 And the exhibit goes on with another 6 e-mail. This is a long exhibit. This is from 7 Byron B. to Stork and Raikes and Rick E., and 8 it is about a few personal impressions from the 9 meeting with Intel. 10 We did not convince them to not invest 11 in GO. He goes on to say, My read is the deal 12 is as much as done with GO, and, from their 13 point of view today's meeting was about 14 learning more about what is going on in the 15 notebook computer world and not about 16 reconsidering Intel's investment. 17 So this confirms that Mr. Kaplan's 18 impression about what was going on was correct, 19 as indicated by the fact that Microsoft 20 personnel got the same impression. The deal is 21 as good as done. 22 He goes on to say, When one of the 23 Intel guys tried the tablet, who admittedly had 24 bad writing, I was embarrassed by the results. 25 And this is the Microsoft prototype. 2940 1 And, of course, Mr. Kaplan will tell you he had 2 no idea that this was going on. He thinks he's 3 competing on the merits of his product. He's 4 unaware of what Microsoft is doing behind the 5 screens. 6 Then there is a whole series of 7 meetings and phone calls between high-level 8 Microsoft and high-level Intel people. 9 Here is Exhibit 310. And it is from 10 Mr. Stork, Carl Stork. July 17, 1990. To, 11 directly to Mr. Gates, with carbon copies to 12 Mr. Mhryvold, Mr. Maritz, and Mr. Ballmer. 13 And it says, There was another meeting 14 with Intel folks on our handheld and Windows H 15 software today. 16 He says, These guys are very impressed 17 with GO's software and with GO in general. 18 He says, we did not do a very good job 19 at today's meeting of coming across as really 20 prepared with a solid plan. I am certain that 21 they will take that as meaning we are at least 22 a year behind GO or something like that. In 23 fact, that's probably the key thing they will 24 use against us. 25 Microsoft asked why they're going to 2941 1 -- they are planning on investing in GO, and if 2 it is to encourage GO's system software, then, 3 one, how successful can GO be in a time frame 4 that really makes sense? They have three ISVs 5 and we have 3,000. They are 80 people. GO 6 isn't going to give you system software with 7 any support any time soon. We will crush them. 8 And he goes on to say, This is clearly 9 an anti-Microsoft move. 10 And this refers to Intel's investment 11 in the GO computer. 12 This episode also includes a letter 13 directly from Mr. Gates to Andy Grove, who is 14 the CEO of Intel. And it is dated June 28th, 15 1990. It's a lengthy letter. It is Exhibit 16 319. 17 And I'm just going to read some 18 portions of it to you. 19 Mr. Gates says to Mr. Grove, an Intel 20 investment in GO would send a strong message to 21 both OEMs and ISVs. 22 Intel's investment in GO will be seen 23 as an endorsement of GO's platform and system 24 software. This will be a very powerful effect 25 which you should not discount. 2942 1 In fact, it's almost certainly a 2 stronger effect than the value of the actual 3 money that GO receives. 4 That is exactly what Mr. Kaplan thinks 5 too. 6 I guess I've made it very clear that 7 we view an Intel investment in GO as an 8 anti-Microsoft move, both because GO competes 9 with our systems software and because we think 10 it will weaken the 386 PC standard. 11 And he concludes -- and this is very 12 difficult to read. He concludes, I am asking 13 you not to make any investment in GO 14 Corporation. 15 That's Mr. Gates' signature. 16 Just a little later, another executive 17 analyzes the whole GO versus Microsoft thing in 18 Exhibit 349. 19 This is from a man named Greg Whitten, 20 who is a software architect, dated July 31st to 21 Gates and many other people, including Brad 22 Silverberg, who is in the systems software part 23 of Microsoft. 24 Mr. Silverberg, as you will recall, we 25 talked about him with respect to DRI, and he is 2943 1 in charge of Windows and of MS-DOS. And he is 2 getting Mr. Whitten's analysis of the GO 3 machine. 4 The GO machine brings home the 5 following point in a big way. Once we have 6 implemented enough interesting data types and 7 viewers using our OO frameworks and 8 interfaces -- OO, object oriented -- frameworks 9 and interfaces, there is no need for DOS and 10 Windows as we know it. 11 What he is saying is that if this 12 comes to pass, DOS and Windows will no longer 13 be necessary to run a computer. 14 What do we have going for us? This is 15 Microsoft. One of the things is the huge ISV 16 support for Windows apps with huge -- with a 17 huge base. 18 And Judge Rosenberg talked to you 19 about that, the applications barrier to entry 20 in connection with the government case. 21 What do we have going against us? And 22 there's a list. 23 One is the higher cost due to larger 24 memory requirements. 25 Two is the compelling features of GO, 2944 1 UI, user interface, and software. 2 And three is very focused competitors. 3 We need a good economic model for their 4 businesses. 5 The financial bootstrapping process 6 for them is complicated and could be 7 interrupted by successfully using our 8 advantages above. 9 Mr. Gates responds on July 31st to the 10 GO threat. 11 He says, In reviewing some sketchy 12 stuff on the GO machine, it is clear that the 13 threat posed by GO is as much an integration 14 threat as a handwriting threat. 15 Integration, I believe the evidence 16 will show, means taking different types of data 17 from different applications, like pictures or 18 diagrams and text and putting them together in 19 one document. 20 By using an object-oriented approach, 21 they allow for searching, hypertext linking, an 22 index and table of contents across all data 23 types. 24 They allow new objects to be added 25 easily in their framework. Their shell is 2945 1 quite visual with folder tabs and pages. I 2 can't believe we don't have this as part of our 3 architecture when a real architecture would 4 allow for these things. Our handwriting group 5 should write up what they know. 6 The e-mails -- and there are more of 7 them -- show that Microsoft believes that GO is 8 a system software competitor and that if GO is 9 successful, then the disk operating system 10 which needs a disk to operate will no longer be 11 necessary. 12 If you eliminate the disk, which GO 13 does, you obviously need the need for a disk 14 operating system. 15 GO thinks -- while Microsoft is 16 sending these internal e-mails and Mr. Gates is 17 writing to Mr. Grove, Mr. Kaplan thinks things 18 are moving along nicely and with Intel, and 19 they're not. 20 Eventually, Microsoft does persuade 21 Intel not to make the kind of investment that 22 it had intended to make. It's reduced from 5 23 to 10 million to 2 million and there is no 24 public endorsement at all. 25 And this is a very heavy blow, 2946 1 Mr. Kaplan will tell you, to this start-up 2 company. 3 And Mr. Kaplan does not know what's 4 happened until he sees the documents that I 5 have shown to you in the course of the 6 litigation. 7 Then we have the violation by 8 Microsoft of the nondisclosure agreement. 9 A year after his visits with GO, Lloyd 10 Frink, a guy who goes to GO, is now in 11 Microsoft's newly created handwriting division, 12 and he writes a memo to senior executives. 13 There's a list of them. 14 Again I call your attention to 15 Mr. Silverberg, because we have seen him 16 before. We know that he is in the Windows 17 MS-DOS division. He's not in the applications 18 division at all. 19 And this is dated August 1, and it is, 20 as I said, from Mr. Frink, and the subject is 21 GO Corp. info. 22 And here's what Mr. Frink says a year 23 after he has visited GO. 24 He says, Attached is a packet of 25 information I have collected on GO. There are 2947 1 some of GO's very preliminary specs, a slide 2 show of theirs, two of my trip reports on GO, 3 and some press information. 4 Essentially, GO has been going out and 5 telling the world that you need a whole new 6 operating system and apps for portable 7 pen-based computers. People seem to bite on 8 this, especially when they see that IBM is a 9 strong backer of the GO OS, GOOSE. 10 Well, we know this isn't so. And the 11 best way to prove them wrong is to do our own 12 notebook app. 13 The big constraint is that we get it 14 done in a year. So this won't be the most 15 beautiful thing, but it should serve as a 16 stopgap measure until we do our Win 4 shell and 17 have all of our OO stuff in place, object 18 oriented. 19 When you turn on a GO computer, the 20 user sees something that looks like a notebook. 21 Besides the many benefits of being object 22 oriented, the thing which sets the GO notebook 23 apart is the ease of navigation. 24 But this metaphor has a lot of appeal, 25 especially compared to our program/file manager 2948 1 combination. I think we can whip something up 2 in a year that embodies some of these ideas. 3 I'll think about this in more detail 4 and write it down in the next few weeks. 5 I hope I told you that that is Exhibit 6 355. And it's a large exhibit because all of 7 the stuff that Mr. Frink attached when he sends 8 this memo to these executives is a part of 9 that. 10 And attached are pages of GO's 11 confidential information that Frink takes with 12 him when he -- from GO. That's the first page. 13 I think you can see that. 14 That's -- it's organized like a 15 notebook. It says table of contents, calendar, 16 and so on. You would just think it's a 17 notebook, but you push on the tab and you get 18 -- and that's what opens up. 19 Can we show the next page? 20 There are these subnotebooks. There's 21 a page of the notebook computer that has the 22 entry -- this is an entry about birds. And so 23 those are three -- there's a lot more pages 24 attached to this, a lot more of that 25 information. 2949 1 And he sends this to lots of people -- 2 you'll see the list -- in Microsoft. And this 3 is a key piece of GO's IP. 4 And this is one of the later pages. 5 Mr. Kaplan will explain some of this during his 6 testimony. But this -- I'm sure that you'll 7 understand the idea, and it is unlike anything 8 at this point -- at the point when this is done 9 that's on the market or that Microsoft has. 10 He, Mr. Frink, is not supposed to take 11 this off of GO premises under the NDA that I 12 showed you. He's not supposed to copy it and 13 he's not supposed to disclose it. Certainly 14 not supposed to be sending it all over 15 Microsoft, including to operating system people 16 like Silverberg and Gates. 17 Frink says that Microsoft must come up 18 with its stopgap/stop GO idea within a year, in 19 part because he has been talking to the GO 20 people. 21 And what happens here is that 22 Microsoft begins to create vaporware. 23 Product development usually includes 24 studies, specifications, development 25 prototypes, and then the final fully functional 2950 1 product. 2 What Mr. Frink suggests in this 3 memorandum that I showed you is that they skip 4 those steps and go directly to some type of a 5 prototype. 6 Mr. Frink does not tell GO that he has 7 kept its confidential documents. 8 Now, about a week after he sends these 9 out to all the people I showed you, less you 10 doubt that he, in fact, got these things from 11 GO, didn't get them off the Internet, there 12 wasn't one at the time, and he didn't cut them 13 out of newspapers. He got them when he went to 14 GO. He brought them out of GO. 15 Here's how we know. Because here is 16 Exhibit 359. And it is from Mr. Frink and to 17 Mr. Maples. And it says, I sent a memo to you 18 last week which had a bunch of info on GO Corp. 19 Turns out some of it was confidential and I was 20 not supposed to make copies. Could you please 21 return all of it to me so that I can destroy 22 it? 23 Again, under the agreement, he's 24 supposed to notify GO if the confidential 25 documents were released. Mr. Kaplan will tell 2951 1 you that did not happen. 2 We have another document from Mr. 3 Frink in which he suggests, again, and this is 4 443, Plaintiffs' Exhibit 443, in which he 5 suggests that Microsoft try again to get GO to 6 use Microsoft's operating system. 7 He sends it to Mr. Gates, 8 Mr. Slyngstad, Mr. Raikes, and Mark S. He 9 wants to also suggest to GO, again, that 10 Microsoft might be willing to do applications. 11 Here is Exhibit 443 from Mr. Frink, 12 October 31st, 1990. Approaching GO is the 13 subject. 14 We'd just try to be more open and 15 friendly and not ask for anything in return. 16 We'll say that our apps division will consider 17 writing apps for the GO machine. 18 It goes on to say, A last benefit of 19 taking this friendly approach is that we might 20 lessen the chances of them suing us for some 21 unknown reason right as they are about to go 22 under. 23 And it isn't only Microsoft directly 24 violating the NDAs that it has signed with GO. 25 It is also Microsoft encouraging others to 2952 1 violate their NDAs. 2 On August 29th, 1990, a Microsoft 3 employee gets information on GO from a company 4 called Softview. Here is Exhibit 370. 5 It says Phil Taylor, director of PC 6 platform at Softview, a forms company, is quite 7 eager to give us info on GO. 8 One of their developers has attended 9 two training sessions, April and June this 10 year. Phil has access to technical 11 documentation and will get more detailed 12 information. 13 I think he's being straightforward in 14 his description. He was flipping through the 15 papers while talking to me. 16 And at the bottom, So based on a 17 technical documentation dated April 24, 1990, 18 the GO machine has, and then he lists the 19 various things that he learns. 20 The current GO notepad has three 21 components, memory, screen, and pen. It does 22 offer an optional base station 23 module-recharger. Handwriting is cursive and 24 trainable. It does do multitasking, threads -- 25 perhaps preemptive multitasking. 2953 1 Phil will get hold of more manuals and 2 sort through them, in addition to talking to 3 the person who went through training, to get a 4 better feel of the user -- it's UI, user 5 interface. 6 I told him I'll contact him Monday to 7 give him time. Given that further information 8 is probably more technical, I think one of the 9 development team should be here when I talk to 10 him. Hope this information is useful. 11 So Microsoft is aware that Mr. Phil 12 Taylor is violating his NDA with GO, but takes 13 the information anyway. 14 Here is Exhibit 293 from -- this is 15 Exhibit 293 dated May 28, 1990, from Luis 16 Talavera, who is a software design engineer, 17 and he says -- this is GO and Momenta. 18 I met a friend that just came from 19 talking to GO and Momenta. Though she was 20 under nondisclosure, she said a couple of 21 interesting things, and then he says what they 22 are. 23 The documents that we have been able 24 to find show violations of NDAs. Again, 25 violations of the NDAs in some cases might not 2954 1 be anticompetitive. You have to take a look at 2 the effect of those violations. 3 Your Honor, might we have just a 4 brief -- 5 THE COURT: Ten-minute recess. 6 Remember the admonition previously given. 7 Leave your notebooks here. 8 Thank you. 9 (A recess was taken from 1:47 p.m. 10 to 2:04 p.m.) 11 THE CLERK: All rise. 12 THE COURT: You may continue. 13 MS. CONLIN: Thank you, Your Honor. 14 THE COURT: You're welcome. 15 MS. CONLIN: One of the things that 16 happens as GO tries to sell its product is the 17 PC manufacturers, hardware manufacturers, are 18 building -- instead of building the small 19 diskless computer, they're building computers 20 that will dual boot. You'll hear that also in 21 connection with Be. 22 But most handwriting hardware 23 manufacturers do not create systems just for 24 GO. They create computers that will also run 25 the Windows handwriting operating system that 2955 1 is promised. 2 They can run either system. That 3 means they have to have disks. They are 4 heavier. They're more fragile, and they don't 5 exploit some of the unique features of GO 6 PenPoint. 7 And Jerry, Mr. Kaplan, will tell you 8 that that defeats the purpose of the tablet. 9 GO is getting some OEMs to sign 10 contracts, but then he will tell you some 11 strange things occur. One is with respect to 12 NCR. 13 They sign the contract, but things 14 change. NCR puts out a catalog that Mr. Kaplan 15 sees. And if you -- and it says if you want a 16 Windows-type handwriting software on your NCR 17 machine, that will be free, but if you want 18 PenPoint, it will cost $50 or $75, he can't 19 remember which. 20 Mr. Kaplan calls, asks why this is 21 happening. They don't say. But it turns out 22 that Microsoft is talking with NCR, and here is 23 the document, one of the documents that shows 24 this. 25 It is Exhibit 454. It's from 2956 1 Mr. Slynstad. It's dated November 19th, 1990. 2 The subject is NCR and GO. 3 Based on several discussions with ISVs 4 and others at COMDEX, and meetings that NCR 5 stood us up on. I think we may be talking 6 about COMDEX. That's the Las Vegas meeting 7 where most computer interested people come -- 8 it looks very much like NCR is going to sign 9 with GO for their notebook PC. 10 We need to figure out how to change 11 their mind, if possible, it may be too late. 12 And if that can't be done, we need to reduce 13 the damage by getting them to also endorse Pen 14 Windows in some fashion as they have already 15 signed. 16 Exhibit 457 is from Pradeep Singh, who 17 is group project manager, and it's November 18 20th, 1990. Same subject matter, NCR and GO. 19 He says, it is very important to stop 20 NCR from committing to GO. They sound like 21 they already -- that they are already 22 committed. 23 The best strategy is to get NCR's 24 customers and have them tell NCR that Pen Win 25 is the way to go. 2957 1 And eventually they do that because 2 later we see that NCR is charging for Pen -- 3 for GO's product PenPoint, but not for 4 Microsoft's product. 5 The PC Forum is an industry event run 6 by a woman named Ester Dyson. It's for 7 computer executives, and several hundred people 8 attend. It's an annual event. There are 9 presentations. People do business. 10 For the March 1991 event, Ms. Dyson 11 asks Jerry Kaplan to do a demonstration of GO 12 PenPoint, and he does that. He does an 13 extended presentation. He shows how the 14 product actually works with this prototype. 15 His actions are projected onto a 16 screen from an overhead camera. People tell 17 him they love it. He concludes his 18 presentation and he sits down. 19 To his surprise, Mr. Raikes, from 20 Microsoft, one of the first people to visit GO, 21 and Mr. Frink, from Microsoft, the technical 22 person who visits GO quite a bit, get up after 23 him and show something called Pen Windows. 24 There are rumors in the late '90s that 25 Microsoft is going to do something with 2958 1 handwriting. Mr. Kaplan will tell you that he 2 heard the rumors. 3 He encourages his employees to 4 accelerate their effort to get the developer 5 version of PenPoint ready for this January 6 event. But he does not, and could not, have 7 anticipated what he is about to see, and he 8 will tell you about it. 9 Raikes and Frink start their 10 demonstration, and the demonstration consists 11 of Mr. Frink sitting at a table with a curtain 12 around the bottom with a flat tablet and a pen 13 attached to a wire, demonstrating how it would 14 look and how it would work. 15 Raikes gives the speech, the essence 16 of which is Microsoft has this technology too. 17 You don't need a new system. You can do this 18 with Windows. And what is up on the screen is 19 GO's basic concept. Key elements drawn from 20 the GO product. 21 But, more than that, Mr. Kaplan will 22 tell you that, in fact, the demonstration is 23 faked. The curtain conceals a desktop computer 24 hidden under the table, which is actually doing 25 the functions being demonstrated on the 2959 1 overhead screen. 2 There is no product that works that 3 Microsoft has, even though it demonstrates or 4 pretends to demonstrate such a product at this 5 important forum. 6 After the PC Forum, the market for GO 7 computers starts to stall. Mr. Kaplan will 8 tell you that he was not very surprised by that 9 after what had happened. 10 OEMs are waiting to see what Microsoft 11 does. And Microsoft uses its selling point of 12 compatibility with the desktop. 13 But Microsoft's product is heavier. 14 It has a shorter battery life. It's not as 15 durable, has these little disks, and the 16 applications that it uses are not designed for 17 the pen. They're designed for the desktop. 18 While Microsoft is out in the industry 19 talking about GO and pumping up its own 20 product, Microsoft saying, you know, GO is 21 inferior. Inside Microsoft, the picture is 22 quite different. 23 Nathan Mhryvold, who you've heard from 24 before. He's the tech guru at Microsoft during 25 this time. 2960 1 On May 26, 1991, he writes a lengthy 2 memo about GO. 3 This is Exhibit 746. And what he 4 concludes is, the reality is that if you 5 completely subtract the connection to Windows 6 apps. GO is way ahead of us, in my opinion. 7 That is not a message I would suggest 8 you communicate, and I don't think that many 9 people perceive that yet, fortunately, because 10 you have done good work. 11 I think I told you that he writes to 12 Gates and lots of others. 13 The good news is that we don't have to 14 subtract Windows out, and you can use the aura 15 of Windows to help in the other markets. 16 He goes on to say other things, but 17 also I just think Windows is your ace in the 18 hole. 19 Technically, we want to tie in to the 20 Windows world. This is what gives us the huge 21 strategic win. 22 So, inside Microsoft, they know that 23 GO is way ahead of us, but they can win, 24 nonetheless, by using Windows. 25 And the infamous blacklist that we 2961 1 talked about, the beta blacklist, does go right 2 at spot on the beta blacklist. 3 Exhibit 786 tells us, Mr. Silverberg 4 says on June 21st, 1991, speaking of GO, GO 5 should not be on DOS 5 or Win 3 beta lists. 6 Despite Microsoft's efforts, 7 Mr. Kaplan will tell you that GO is still 8 making progress. And Microsoft is aware of 9 that. And we know that because Mr. Slyngstad, 10 Greg Slyngstad, writes Mr. Gates and many 11 others on July 21st, 1991. 12 This is the year after Microsoft 13 persuades Intel not to make its full investment 14 and to withdraw its public support after 15 Microsoft has done the demonstration. 16 This is Exhibit 8599. And, as I said, 17 it's quite lengthy. I'm going to just read 18 some portions of it to you. 19 This memo highlights some of the 20 threats of PenPoint and warns that GO is making 21 progress on many fronts. And unless we take 22 them seriously, GO may emerge with a majority 23 of the Pen OS business. Now is the time to 24 stop them, not after it is clear we are losing. 25 I list several indications of GO's 2962 1 strengths and suggest some items that we need 2 to work on in order to weaken their position. 3 And then he lists GO marketing wins. 4 The press continues to favor GO. We 5 are making some progress, but the prevailing 6 anti-Microsoft attitude and the cool new 7 technology of PenPoint makes GO very appealing 8 to the press. Even those editors that believe 9 we will win want to see GO succeed. 10 GO has a focused sales organization. 11 Almost every major corporation we visit has 12 already had a visit from GO. 13 Many of these corporations complain 14 about the complexity of Windows and are open to 15 exploring an incompatible system. 16 GO is very good at convincing them 17 that PenPoint is amazingly easy to learn and 18 use. 19 ISVs claim they are doing their new 20 pen-oriented software first on PenPoint (Lotus, 21 Software Publishing, WordPerfect, as well as 22 many of the other startups.) Most OEMs will 23 make sure their system will run either OS. 24 Scalability, making bigger or smaller. 25 GO is pushing OEMs to build small form 2963 1 factor machines. We are claiming we will run 2 on these systems as well. 3 In theory, Windows should be scalable 4 to these small displays. Lloyd has begun 5 exploring this, and it is clear that it has 6 never been tested and full of flaws. 7 He has reported some of these to the 8 Windows team, but I wonder how much effort will 9 go into fixing the problems given the need to 10 ship 3.1 (the program manager and file manager 11 do not even use dialogue units based on the 12 system font, so they do not scale at all.) 13 Notebook user interface. The GO shell 14 is significantly easier to understand and use 15 than the Windows program manager and file 16 manager. 17 Instant on. The GO system allows you 18 to turn off the system and instantly returns to 19 where you left it when powered back up. Not 20 clear if this works on hard disk based systems. 21 Mr. Kaplan will tell you that was very 22 important. Like for these State Farm 23 adjusters, you turn it off to save the battery. 24 And then if you want to turn it back on, it 25 comes back on right away rather than you have 2964 1 to wait, you know, while it warms up. 2 He goes on to say Windows apps in 3 general work poorly with the pen. 4 Again, that is what Mr. Kaplan will 5 tell you he believed as well. 6 Screen rotation. They highlight their 7 ability to do screen rotation so the notebook 8 can be used in either portrait or landscape 9 mode. 10 I showed you that. We have a driver 11 under development. The portrait driver runs 12 very slowly. They support rotations during any 13 session. We must restart Windows. 14 What Mr. Kaplan says is, you know, 15 people are used to writing on a tablet that 16 goes like this, okay. And the desktop 17 operating system goes like this. 18 And in order for the Microsoft product 19 to be used this way, they have to -- it has to 20 be turned off and restarted. That's what 21 Mr. Slyngstad tells you. 22 PenPoint OO design allows for smaller 23 apps. 24 Connectivity. PenPoint offers 25 deferred I/O -- meaning input/output -- and 2965 1 auto connect to a network. 2 This means you write your e-mail. You 3 press send and it goes into the out box. 4 You're away, you know, you are writing your 5 e-mail. Then when you get back to the network 6 and you plug it in, the e-mails you wrote 7 automatically go. 8 At this time, this is a brand-new 9 idea. 10 True 32-bit preemptive multitasking. 11 That, Mr. Kaplan will tell you, makes 12 better, faster apps. 13 In summary, Mr. Slyngstad says, GO has 14 a technically superior solution if they deliver 15 as promised. They have been successful in 16 convincing a lot of people that the pen 17 requires all new apps and that Windows is too 18 complex and inappropriate for small form factor 19 machines. 20 The battle is no longer for OEMs, 21 although we are trying to find ways to stop 22 them. Most will offer both solutions. 23 That's the dual boot thing. 24 Poget, P-o-j-e-t, is a Japanese OEM 25 that is a subsidiary of Fujitsu, which is a big 2966 1 international OEM. 2 Initially, they show interest in 3 PenPoint. Then they back off and don't license 4 it. 5 Mr. Kaplan will say he does not know 6 what happened. And he doesn't know that it has 7 anything to do with Microsoft. 8 Here is Exhibit 1002. The first 9 e-mail and date is from Mr. Raikes, Jeff 10 Raikes, to Jochim Kempin and Richard Fade, and 11 the subject is Poget computers. October 1st, 12 '91. 13 Who is the account manager? I'm told 14 that they have decided to go with PenPoint for 15 a new pen computer. 16 Mr. Kempin, worldwide director of OEM 17 sales, writes the next day, They are part of 18 Fujitsu and have huge prepaids. I hope they 19 understand no mercy is an option for us. 20 Mr. Fade replies the next day, October 21 3rd. This is one of those that has two dates 22 on that, but they're not. One October 2nd, 23 one's October 3. 24 Rumors that Poget will license GO for 25 new systems. If this is their plan to offer 2967 1 competitive offering, we will not be interested 2 to give Poget any of their prepaids. 3 So Microsoft, according to this 4 document, is going to use its prepaid balances, 5 those PPBs that we have talked about, to get 6 them to back off their interest in the GO 7 computer and says, Mr. Kempin, the head of 8 worldwide sales, says no mercy is an option. 9 The evidence will be that Microsoft 10 uses its exclusionary licenses to eliminate 11 Poget from considering this new little device. 12 Compaq. At this time and at this time 13 Microsoft, again, the evidence will be, uses 14 its exclusionary licenses to defeat competition 15 from GO. 16 Jerry will tell you that he met many 17 times with Compaq and that Compaq was ready to 18 move to the GO, the PenPoint computer. 19 He met with -- there was a committee 20 at Compaq whose duty it was to evaluate 21 technology and make a recommendation to the 22 higher-ups about which technology would be best 23 for Compaq and why. 24 And he meets with those folks a couple 25 of times, and they begin to work toward a GO -- 2968 1 a piece of hardware that will run only the GO 2 software. 3 But one day out of the blue Compaq 4 calls Jerry Kaplan and tells him the deal is 5 off. They do not offer any explanation. He's 6 unable to get an explanation. It's just over. 7 GO is, of course -- Mr. Kaplan is 8 disappointed, and the financial consequences 9 are very bad. 10 GO does not know what happens until 11 Mr. Kaplan testifies and sees some of the 12 Compaq documents that I'm going to show you. 13 There was a committee set up to 14 carefully examine the aspects of the two 15 products, GO PenPoint and Microsoft Winpad, and 16 here is the Compaq PDA operating system 17 selection report. 18 This is January of 1993, and it's 19 Exhibit 1522. It's a bullet chart. As I say, 20 it's a lengthy, lengthy document. 21 And one of the conclusions is GO 22 offers Compaq the best opportunity to dominate 23 the PDA market at an acceptable level of risk. 24 The potential for Compaq to take a 25 position of sustained market leadership with GO 2969 1 far exceeds opportunities with Microsoft. 2 The GO solution appears to better meet 3 user needs as we can see them -- as we can see 4 them, meaning Compaq. Microsoft's not 5 invincible. 6 What that document says, what those 7 words say is the GO solution meets user's needs 8 better and Compaq's needs better. 9 Then the committee evaluates the two 10 products on a long list of factors and gives 11 points to each product based on those factors. 12 Do you have that, Darin? It's the 13 criteria evaluation for the -- there it is. 14 Criteria evaluation for PDA OS 15 providers. They list the criteria, the 16 weighting, and then they list the two products. 17 And you can see that Microsoft gets 77 18 points on return and 129 for GO, and the risk 19 is 50 for Microsoft and 101 for GO. 20 But despite the risks -- well, one of 21 the things Microsoft -- one of the things 22 Compaq says also, one of the things they try to 23 evaluate is do the benefits of the GO computer, 24 using the GO computer going against Microsoft 25 outweigh the risks. 2970 1 And they list many things under there, 2 including Microsoft retaliation and Microsoft 3 sabotage. 4 But despite those risks, in summary, 5 the choice is GO's PenPoint. 6 So Jerry is correct insofar as that 7 committee is concerned. The choice is GO's 8 PenPoint. 9 There's another long document, 1521, 10 that deals principally with the risks. 11 And the overview, how can Microsoft 12 negatively impact our core business? They talk 13 about the project, DOS, Windows, Pen Windows, 14 and they talk about the possible impact on DOS 15 6 availability, on the price Compaq pays to 16 Microsoft, on the timing, when it gets its 17 material impede desktop integration. 18 And then the price, timing, and field 19 sales for Windows NT and price for Windows for 20 work groups, and then it talks about all of the 21 other potential risks that Microsoft could 22 impose on Compaq that would negatively affect 23 Compaq's core business. 24 Potential reactions to a GO PDA 25 decision. 2971 1 Compaq says Microsoft sabotaged our 2 efforts to integrate the PDA with the desktop, 3 the desktop integration. When you bring that 4 back, you know, will it plug into and work with 5 the desktop. 6 How? Chicago would break our desktop 7 integration design and implementation. 8 Microsoft would withhold Chicago information 9 and SDK. That's the software development kit. 10 And the evidence will be that even a 11 short delay in getting information can be very 12 difficult to overcome for any of these OEMs. 13 And then industry compatibility 14 demands should risk -- should restrict extent 15 of breakage. 16 Judgment. How retaliatory would they 17 get? And there's this long list of questions 18 about how retaliatory Microsoft might get 19 against Compaq if Compaq went with the GO 20 machine. 21 Pricing advantages. Revenue from 22 updates. Access to early SDKs. Field sales 23 activities. Microsoft has 900 field 24 salespeople. And it goes on and on about the 25 retaliation that Microsoft could visit upon 2972 1 Compaq. 2 But still the committee selects GO. 3 Whatever the committee does, however, even 4 though they have selected GO as the product, 5 there are different views within Compaq. 6 And in spite of this review that you 7 have seen, and despite the fact that GO and 8 Compaq are already working together, executives 9 of Compaq say no to GO, and here is a document 10 that explains that. 11 Here is Exhibit 1536. It is a January 12 21, 1993, letter from Mr. Kempin to Lorie 13 Strong, who is the vice president of the PC 14 division. 15 It says, Dear Lorie: We are ready to 16 move forward as soon as possible with a new 17 master contract and we thank you in advance for 18 your attention regarding this proposal. 19 And then he attaches a proposed 20 strategic partnership between Microsoft and 21 Compaq. And one of the terms of the proposal 22 is OEM must offer both desktop, server, and 23 portables products and OEM must be focused and 24 committed to Microsoft software. 25 The expected result if Compaq enters 2973 1 into this strategic relationship is Compaq will 2 receive very attractive pricing over a long 3 term for current and future Microsoft system 4 products. 5 The aggressive pricing and joint 6 marketing funding will empower Compaq to 7 aggressively market these products to its 8 customer base. 9 And then Exhibit 1556, which was 10 shortly thereafter -- this is February 3rd, 11 1993. The negotiations have progressed and 12 this talks about most favored nations pricing. 13 Aggregate royalties charged Compaq for 14 any given number of units for MS-DOS. Enhanced 15 tools, Windows, and Windows for Workgroups and 16 successor/replacement products (core products) 17 will be at least 20 percent less than aggregate 18 royalties for core products charged any 19 non-strategic OEM under any agreement entered 20 into after the execution date of the new 21 MS/Compaq -- what does that say database -- 22 master agreement. 23 By February 22nd -- you know, this is 24 going on with the GO people, but by February 25 22nd, Microsoft and Compaq had entered into 2974 1 this new strategic partnership. And that 2 strategic partnership requires Compaq to 3 preload Microsoft exclusively with a 5, 5 4 percent exception. 5 And it gives Compaq the most favorable 6 prices, by far. 20 percent according to the 7 contract, in the industry. 8 So Jerry will tell you at this point 9 the avenues for success to GO seem closed. 10 And what they decide to do is go to a 11 different chip set. Go to build its products 12 on the AT&T chip, not the Intel chip, and that 13 chip is called Hobbitt. 14 It takes time and money and lots of 15 effort to move from the Intel chip to the 16 Hobbitt, and they devote their resources to 17 that. It takes about nine months. 18 AT&T makes an investment, but -- and 19 this little chip, this Hobbitt chip, also 20 permits GO to escape the heavier, the clunkier 21 system that OEMs build to accommodate 22 Microsoft's operating system along with GO. 23 The idea of this small Hobbitt-type 24 computer is two-fold. 25 One, to get on to a chip different 2975 1 than Intel. And by doing that not to be -- you 2 know, they're not in -- these two products are 3 not in the same market, but Microsoft perceives 4 GO as an operating system competitor. And, as 5 a result, GO believes by getting off the Intel 6 chip, that perception of Microsoft's will be 7 gone. 8 Mr. Karr and Mr. Kaplan expect smooth 9 sailing. Microsoft doesn't have a 10 Hobbitt-based computer, and GO doesn't think 11 Microsoft's licensing practices could possibly 12 affect this -- any OEMs because they are using 13 this different chip. That's not correct. 14 Mr. Silverberg, head of Microsoft's 15 operating systems division, meets with the top 16 executives of Toshiba, a large OEM, which wants 17 the Chicago Win 95 operating system, and are 18 designing their entire line to work with 19 Windows 95. 20 Exhibit 1744 -- 21 I'm almost done with this aspect of 22 it, Your Honor, and then I'll stop, if that's 23 all right. 24 Exhibit 1744, Tuesday, August 3rd, 25 1993, from Brad Silverberg to Paul Maritz. 2976 1 Subject: Toshiba. 2 Bottom line. They are very, very hot 3 to trot over Chicago and Winpad. They are 4 redesigning their entire line of PC to be great 5 Chicago machines and will depend on Chicago. 6 We had put some conditions on the 7 relationship as shipping Windows on all their 8 machines, finally signing the MS-DOS 6 9 contract, and not shipping Winpad competitors 10 like Hobbitt. 11 They have agreed to all, with the 12 asterisk that there is another division that is 13 currently committed to shipping Hobbitt in 14 Japan only, and they will try to get that 15 reversed. 16 Toshiba never does ship a Hobbitt 17 machine. And the evidence will show that 18 Microsoft has a role in that. 19 THE COURT: Ladies and gentlemen, 20 before we leave for the day, it's come to the 21 Court's attention that [Juror Name]. 22 [Juror Name]: Correct. 23 THE COURT: You provided me four pages 24 of a fax cover sheet and a letter from the 25 Attorney General's office stating that you are 2977 1 required to appear January 26, 2007, for a 2 trial as your expertise as a criminal 3 investigation laboratory technician for this 4 case. 5 Is that right? 6 [Juror Name]: That is correct. And 7 then also on January 29th as stated in the 8 letter. 9 THE COURT: Okay. Is that 10 consecutive, 26, 27, 28, 29th or just two days? 11 [Juror Name]: It's just two days. 12 The 26th, my understanding, is a Friday. And 13 prosecution feels that after all of the 14 evidence is presented, that one day will not be 15 enough for my testimony. That then defense 16 will need an additional day on Monday the 29th 17 to go through that further cross. 18 THE COURT: Okay. So at this time the 19 trial is still going? 20 [Juror Name]: That is correct. 21 THE COURT: At this time the trial is 22 still going? 23 [Juror Name]: That is correct. 24 THE COURT: If it does change, you 25 will let us know? 2978 1 [Juror Name]: Yes. 2 THE COURT: We will make 3 accommodations for you so you can testify at 4 that hearing. Okay? 5 [Juror Name]: Okay. Thank you very 6 much. 7 THE COURT: I will make copies or have 8 my court attendant make copies of this for 9 counsel indicating exactly what the problem is, 10 that you have been subpoenaed in your capacity 11 as a DCI criminal laboratory person. 12 Okay. 13 [Juror Name]: Thank you. 14 THE COURT: Ladies and Gentlemen of 15 the Jury, we'll dismiss you for the day. 16 Remember the admonition previously 17 given. Leave your notebooks up here and they 18 will be locked up. 19 See you at 8:30 tomorrow morning. I 20 mean, Wednesday morning. Wednesday morning. 21 You are off tomorrow. 22 (The following record was made out of 23 the presence of the jury at 2:35 p.m.) 24 THE COURT: Do you want to proceed 25 into some evidentiary matters; is that right? 2979 1 MR. GREEN: Your Honor, I have a 2 matter. I'd like to bring it up. And if I do 3 it, I want to do it first. I'd rather be here, 4 but I have a dental appointment at 3:30. 5 THE COURT: All right. 6 MR. GREEN: This involves a matter 7 that you've already ruled upon, Your Honor, on 8 11-20-06 in that, if you recall, we made a 9 motion for the written witness agreements that 10 Ms. Conlin claimed that she have with all of 11 her witnesses at a hearing on September 1, 12 2006. 13 Now, they've later made it clear that 14 they failed to retain some or all of these 15 witness agreements to which you referred. And 16 they've said that, in other cases, witness said 17 that he or she would come to trial months or 18 years ago and Plaintiffs' counsel saw no reason 19 to retain the e-mails. That was in their brief 20 they filed in resistance to the motion to 21 compel. 22 On October 19, 2006, Ms. Conlin also 23 stated in the hearing before the Court on that 24 motion, some of these witnesses on Plaintiffs' 25 initial list we literally used to come. 2980 1 There's no reason for me to retain it. I 2 suspect I did not. 3 We have asked, Microsoft has asked for 4 these witness agreements numerous times, Your 5 Honor. They were due on a document request 6 which was served more than three years ago. 7 They were served on the named Plaintiffs and 8 served generally to the Plaintiffs. 9 But we did not know that these witness 10 agreements existed until Ms. Conlin made her 11 statement before the Court on September 1 12 prompting after I wrote her a letter and asked 13 her to immediately produce copies of all those 14 agreements on September 5. 15 Then the Plaintiffs refused to produce 16 the documents, just flat-out refused, claiming 17 that they were all work product on September 18 7th and September 21. 19 And so we were forced to file our 20 motion October 11th. The Court ordered them. 21 The Court said the Court sustains Defendant's 22 motion to compel production by Plaintiffs' the 23 witness agreements. However, producing such 24 agreements from Plaintiffs may redact any work 25 product or privileged material contained 2981 1 therein. 2 Plaintiffs have failed to comply with 3 that order. We promptly reminded them of their 4 obligation to comply shortly after the order 5 was written in a letter from Ms. Nelles to Mr. 6 Reece on November 30th. 7 Plaintiffs, however, have said on 8 December 2nd that they are not going to look 9 for them for a couple weeks, that they're tied 10 up in opening statement matters, and we think 11 they should produce them now. 12 They've got this 80-person firm in 13 Minneapolis that's backing them up. They've 14 got a lot of people who can look for them. 15 And the reason we think they ought to 16 produce them now is because they have raised 17 spoliation in this case, and they have said 18 that they are going to argue it in their 19 opening statement. 20 It's clear that the Plaintiffs have 21 either not retained these documents and deleted 22 them, destroyed them, or whatever, but, in any 23 case, they're just flat-out not giving them to 24 us, and keep putting us off and say, well, 25 maybe in two weeks or whatever. 2982 1 This may become an issue for us in our 2 opening statement, is what we are going to say 3 about the Plaintiffs' actions, particularly in 4 view of their avowed statement that they are 5 going to raise spoliation in opening, and the 6 Court has allowed them, of course, to do that. 7 We don't think there's any reason why 8 they shouldn't be able to produce these to us 9 now. 10 We would like to have -- they have 11 sufficient time. There's no reason -- we 12 haven't had them long before this. We may need 13 to address this issue in our opening statement. 14 We'd like to have them now. 15 If they don't have them, we'd like the 16 Court to order that the Plaintiffs be precluded 17 from addressing spoliation unless and until, 18 one, Plaintiffs produce all written agreements 19 at issue here; and, two, provide Microsoft a 20 complete list of all such agreements that 21 Plaintiffs have destroyed or otherwise failed 22 to retain. 23 And so we wanted to raise that now, 24 Your Honor. And we did not file any formal 25 papers because you've already ordered them 2983 1 produced, but we want to bring to your 2 attention we think they should be produced now 3 or we should get the relief we asked for as 4 stated on the record. 5 Thank you, Your Honor. 6 THE COURT: Response? 7 MS. CONLIN: Yes, Your Honor. It has 8 not even been a week since the Court issued its 9 order. And we have been occupied in preparing 10 and presenting our opening statements. We have 11 every intention of complying with the Court's 12 order. 13 It is ironic that we have waited for 14 months, months, months, and months for 15 Microsoft to produce documents that the Court 16 has ordered produced. 17 We've had motions for sanctions, 18 multiple motions to compel, and it's not been a 19 week and we're right in the middle of opening 20 statements, and Microsoft suggests that we 21 should have gathered them up. 22 We did not gather them up because we 23 did not anticipate that we would need them. We 24 will do so. 25 But, Your Honor, it isn't a matter of 2984 1 -- we've got witness boxes, boxes of material 2 with respect to the witnesses that we're going 3 to call. 4 They will have to be examined page by 5 page in an effort to be sure of what's in 6 there. So all we're asking for is a reasonable 7 time. 8 Ordinarily, after the entry of a court 9 order, that would be 30 days. We expect to be 10 able to comply before that, but it's really 11 unfair to require of us that we start searching 12 through all of the witness files in the middle 13 of the opening statement while we are also, 14 Your Honor, as the Court knows, involved in 15 clearing exhibits and clearing testimony so 16 that the presentation can be made. And that's 17 what the staff is involved in doing. 18 We'd like to address the spoliation 19 issue and whether or not Microsoft can use this 20 in any way as evidence of spoliation on the 21 part of the Plaintiffs at another time, Your 22 Honor. 23 But we will -- we will, in fact, 24 certainly comply as quickly as possible with 25 the Court's ruling on the issue of these 2985 1 written agreements. 2 I will remind the Court, that when I 3 said what I said, which was that they have 4 agreed in writing, that was with respect to the 5 initial witness list and not the final witness 6 list, which I have also indicated includes the 7 names of people that we have been unable to 8 locate or we have not confirmed their 9 attendance. 10 And I have -- I believe I've provided 11 to Microsoft at this point those that I know 12 about on that list who are unlikely to be 13 attending so they won't have to do what they 14 said they wanted to do, which was not expend 15 effort on people who would not attend. 16 We would also like to have from 17 Microsoft that same information, that is to 18 say, who on your list is really coming or do 19 you really think is coming. And so that would 20 be -- turnabout is fair play. 21 But what I ask of the Court and what I 22 ask of Microsoft is a reasonable amount of time 23 to comply with the Court's order. 24 THE COURT: Anything else on this 25 issue? 2986 1 MR. GREEN: Yeah. Just shortly, Your 2 Honor. 3 You know, it seems strange that now we 4 got boxes and boxes of witnesses. 5 When it's September 1, Ms. Conlin 6 acted like she had these witness agreements at 7 the tip of her fingers and could get them to us 8 at any time when it served her purpose. 9 We've had this discovery out there for 10 three years. She should have had these 11 available. She certainly should have had them 12 available since September 1 when we asked for 13 -- when she said she had them and we asked for 14 them. 15 I think this issue needs to be 16 resolved now or Ms. Conlin be prevented from 17 getting into the spoliation issue at all until 18 we see, in fact, whether she is guilty of what 19 she claims and cannot prove that Microsoft is 20 guilty of. 21 And we think it should be now. 22 THE COURT: As I recall, the purpose 23 that you wanted these documents was just to 24 find out who's going to testify. 25 MR. GREEN: Well, yeah. And I think 2987 1 that if she -- if she doesn't have those and 2 she claims she has them, now the purpose is to 3 see if she's destroyed them. 4 THE COURT: Okay. Anything else? 5 MS. CONLIN: Your Honor, the witness 6 boxes have all the depositions in them. I 7 believe that that's apparent to the Court. 8 That's -- we need to go through -- 9 some of the witnesses have been deposed many 10 times. I'm only asking for a reasonable time 11 to comply with the Court's order. 12 THE COURT: Anything else? 13 MR. GREEN: I'm not going to say 14 anything more, Your Honor. I think you know my 15 views. 16 THE COURT: Plaintiffs will produce 17 the documents as soon as possible and report 18 within five days as to the progress. 19 MS. CONLIN: All right. Thank you, 20 Your Honor. 21 THE COURT: Anything else? 22 MR. GREEN: That's all I have on that. 23 We have other matters, I guess. 24 MS. CONLIN: Yeah, we do. 25 THE COURT: Evidentiary stuff, right? 2988 1 MS. CONLIN: Yes, Your Honor. 2 MR. TULCHIN: Also, Your Honor, I 3 don't know when you most -- think it would be 4 best to do this, but you will recall that we 5 had deferred by agreement the taking of formal 6 exceptions to the preliminary instructions. 7 And when we were doing this last 8 week -- I forget the day, I think it might have 9 been Wednesday -- we all agreed that we would 10 take exceptions, I think we said today, as if 11 they, the exceptions, had been taken before the 12 instructions. 13 THE COURT: Whenever you want to do 14 them is fine with me. 15 MR. TULCHIN: Mr. Holley's prepared to 16 do it today if the Court wants or whatever time 17 you think is best. 18 THE COURT: Any objection, 19 Mr. Hagstrom? 20 MR. HAGSTROM: Yeah. I don't have any 21 of that material with me. 22 THE COURT: Okay. Do you want to do 23 it tomorrow or Tuesday? I mean, Wednesday? 24 MR. HAGSTROM: Yeah, Wednesday is 25 fine. 2989 1 THE COURT: We can do it Wednesday. 2 Are you going to be here Wednesday, Mr. Holley? 3 MR. HOLLEY: I'm back for good, Your 4 Honor. 5 THE COURT: Okay. We'll do it 6 Wednesday. 7 Okay. What else? 8 MS. CONLIN: I also have one other 9 matter, Your Honor. I indicated that I thought 10 I had written that I thought I had complied 11 with the -- whatever I needed to do to get this 12 website. And here is the letter that I wrote 13 to the Court when Carrie indicated that's what 14 I needed to do. So that's what I did. 15 It's a November 2nd letter, and it 16 just says, you know, we want the website. I 17 think I wrote that, Your Honor, on the day that 18 you entered your order ordering that the 19 website be set up because we wanted do that. 20 So I don't know where we go from here, Your 21 Honor. 22 I'm told that it is a very simple 23 matter to set up a website, and what we would 24 perceive could go on the website would simply 25 be what the Court ordered to go on the website, 2990 1 and that would be the exhibits admitted. 2 And we can -- I'm told that a website 3 can be set up in a very short period of time 4 that would simply be a receptacle or a place, 5 you know, where people, members of the public 6 or others, could look at the public record in 7 this case, which would include the exhibits 8 which the Court has indicated we can do. 9 I think now it's just a matter of the 10 mechanics of it. And I'm not sure how to 11 resolve that. But I give that to the Court as 12 my request a month or so ago. 13 THE COURT: Well, through 14 communications from my court attendant and Beth 15 Baldwin, the Court Administrator, I guess I 16 have to do some things to get that going. I 17 will meet with her as soon as I can and get it 18 going. 19 MS. CONLIN: Okay. Your Honor, as I 20 said, we can -- we can do this. I'm sure there 21 must be some easy way to set this up that would 22 not be horrible for the Court or for the 23 parties. 24 And it really is just a matter of -- I 25 don't have a good idea of how to do it, but I 2991 1 certainly -- 2 THE COURT: Let me talk to her first 3 with permission of the parties, and then if 4 there's something that we need to talk with her 5 about, then I'll have her come down and we'll 6 all talk together. 7 MS. NELLES: Your Honor, that's fine. 8 My understanding was that the parties 9 were supposed to present a proposal for a 10 website and that no specific proposal was made. 11 I am happy to hear what your court 12 attendant and administrators were able to do. 13 I simply would ask that before anything is 14 launched, that the parties have an opportunity 15 to look at that, comment it, and make any 16 objections they may feel to either the 17 presentation or the materials that are 18 suggested should go on. 19 If it's simply going to be exhibits 20 admitted, which is what I believe Ms. Conlin 21 said, then I believe that is in conformance 22 with what Your Honor has ordered before. 23 Thank you. 24 MS. CONLIN: That's right. That's all 25 that the Court ordered. That's all that we 2992 1 have requested. That's all we need. 2 THE COURT: Okay. 3 MS. CONLIN: And so I don't -- do you 4 think I need to make any other proposal besides 5 that, Your Honor, or that's it? 6 THE COURT: Well, unless -- I need to 7 get some more information from Ms. Baldwin, I 8 guess. Let me find out from her what more we 9 need to do. Maybe I can have her come down 10 tomorrow morning and talk to us. 11 MS. CONLIN: Wednesday morning, Your 12 Honor? 13 THE COURT: Or Wednesday. Wednesday 14 morning. 15 MS. CONLIN: Okay. 16 THE COURT: And it looks like my trial 17 tomorrow is going to go all day. So don't plan 18 on being here at 2:30. 19 MS. CONLIN: Okay. 20 THE COURT: I don't think it's going 21 to happen. 22 MS. CONLIN: All right, Your Honor. 23 MR. GREEN: Your Honor? 24 THE COURT: Yes, sir. 25 MR. GREEN: I'm going to run and get 2993 1 drilled. I may not be able to talk tomorrow or 2 Wednesday, but I know you'll appreciate that. 3 THE COURT: I wish you good luck at 4 the dentist. 5 All right. Did you want to -- 6 MS. CONLIN: Okay. Evidentiary 7 matters. Is that where we are? 8 THE COURT: I don't know. Do you want 9 to go back to Williams stuff or what did you 10 guys want to do? 11 MR. GRALEWSKI: Yes, Your Honor, at 12 your convenience. 13 THE COURT: Is that okay with you 14 guys? 15 MS. CONLIN: We have two left over, 16 Your Honor. 17 THE COURT: Oh, those two exhibits 18 from this morning? 19 MS. CONLIN: Right. 20 THE COURT: Do you want to do those 21 real quick? 22 MS. CONLIN: Yes, if we could, Your 23 Honor. 24 They are 2348 and 2418. 25 THE COURT: Okay. I've got 2418 in 2994 1 front of me. 2 MS. CONLIN: All right. Your Honor. 3 Well, 2418, it's dated a little bit earlier, 4 but let me go with 2418 first. 5 2418 is from Mr. Gates dated 6 Wednesday, October 18th, to Mr. Silverberg and 7 others. And it has to do with Intel and the 8 meeting Mr. Gates has with Mr. Grove. 9 The part that we speak to interviews 10 or the like that I will talk about, Your Honor, 11 in the opening is down under Number 3. 12 It says, Paul. Intel feels we have 13 all the OEMs on hold with our NSP chill. 14 For example, they feel HP is unwilling 15 to do anything relative to MNX exportation and 16 so on, Your Honor, down to Intel -- Andy 17 believes Intel is living up to its part of the 18 NSP bargain and that we should let OEMs know 19 that some of the new software work Intel is 20 doing is okay. 21 And, Your Honor, we seek to introduce 22 both of these exhibits as part of my addressing 23 of the findings of fact. And for the purpose, 24 first of all, of showing that Intel and -- that 25 there are negotiations and things going on 2995 1 between the two which clearly fall within the 2 Iowa Supreme Court's McElroy decision. 3 These are -- right within these 4 documents, Mr. Gates says what Microsoft will 5 be doing after Intel. You know, I'm not making 6 this very clear. 7 Intel makes remarks to Mr. Gates that 8 is notice to Mr. Gates and they're concluded 9 within Mr. Gates' own e-mails. And then 10 Microsoft reacts, usually right within the same 11 thing, the same document, to what Intel is 12 telling Mr. Gates. 13 We believe that these documents are 14 clearly admissible and that they should be 15 admitted. And I should be able to refer to 16 them in my opening statement. 17 THE COURT: Mr. Tuggy? 18 MR. TUGGY: Yes, Your Honor. 19 THE COURT: Do you know which one we 20 are talking about? 21 MR. TUGGY: Yes. 22 THE COURT: I saw you trying to get in 23 your chair. 24 MR. TUGGY: I was. Thank you. 25 Well, maybe I spoke too quickly. Am I 2996 1 understanding we are talking about two? 2 THE COURT: Yeah, we got 2418 right 3 now. 4 MR. TUGGY: 2418 first? 5 THE COURT: Yeah. 6 MR. TUGGY: All right. Microsoft has 7 two objections to the use of this document in 8 opening. 9 The first is it's embedded hearsay 10 objection. And as with one of the ones we 11 discussed this morning, the Plaintiffs had 12 conceded the objection for the for truth 13 purpose. 14 And the question is whether under 15 McElroy and other authority there is a 16 nonhearsay use for the highlighted portion of 17 this exhibit. 18 As you may recall, McElroy was a 19 sexual harassment case where the Court said 20 that there are circumstances when an internal 21 investigative report submitted to management 22 might be relevant for a nonhearsay purpose when 23 management either reacted or didn't react to 24 that investigative report. 25 In this situation, Plaintiffs point to 2997 1 language in PX 2418, specifically where 2 Mr. Gates writes Paul, Intel feels we have all 3 the OEMs on hold with our NSP chill. 4 For example, they feel HP's unwilling 5 to do anything relative to MNX exploitation, et 6 cetera. And Plaintiffs say they are offering 7 this for a nonhearsay purpose of showing 8 Microsoft's subsequent conduct. 9 As is the case in McElroy and any 10 other case where a party seeks to offer 11 hearsay, prejudicial hearsay such as this, for 12 a nonhearsay purpose, that party carries the 13 burden of linking the hearsay to specific 14 subsequent conduct. 15 In other words, what conduct does she 16 contend Microsoft engaged in as a result of 17 this particular statement attributed to Intel 18 that is relevant in this action? And there has 19 been no linking of this hearsay to any 20 relevant, subsequent conduct by Microsoft. 21 The fact that Mr. Gates made 22 statements that are referenced in a finding of 23 fact is not subsequent conduct that resulted 24 from this particular hearsay. 25 Now, the second basis upon which 2998 1 Ms. Conlin stated she would like to use Exhibit 2 2418, in fact, the specific language here, is 3 that it's referenced in a finding of fact. 4 It is correct that this is referenced 5 in one of the findings of fact to which you've 6 given collateral estoppel effect and which was 7 read to the Jury at the beginning of the case. 8 It is Finding of Fact Number 100. And 9 in Finding of Fact Number 100 -- actually, it's 10 -- I'm sorry, it's Finding of Fact Number 103. 11 And in Finding of Fact Number 103, the 12 Court in the government case quotes the 13 specific language that Ms. Conlin would like to 14 show to the Jury from this document. 15 In the document you can see right 16 after the word Paul where it says, Intel feels 17 we have all the OEMs on hold with our NSP 18 chill. And in the Finding of Fact Number 103 19 that exact line is quoted, as is the -- well, 20 as is other language from this memorandum. 21 Microsoft's position on its collateral 22 estoppel objection, which we asserted to this 23 exhibit, is that its collateral estoppel 24 objection has two components. 25 The first component to the collateral 2999 1 estoppel objection is that under the collateral 2 estoppel doctrine, a party obtaining the 3 benefit of a finding to which collateral 4 estoppel effect has been given may not use 5 evidence that supports that specific finding 6 unless they can point to some other independent 7 use or the evidence that would be relevant. 8 Second, the second component of 9 Microsoft's collateral estoppel objection is 10 fundamentally based on Rule 5.403 of the rules 11 of evidence which states that on at least two 12 bases evidence ought to be excluded where it is 13 cumulative or where the evidence can result in 14 juror confusion. 15 Here, this is cumulative because the 16 finding of fact states the facts upon which 17 Ms. Conlin would like to make argument on 2418. 18 In other words, I'm not -- I'm not 19 seeing what stops her from showing Finding of 20 Fact 103 to the Jury and making her argument. 21 It's just cumulative to have this exhibit. 22 Second, the problem of jury confusion 23 under 5.403 is even more severe because the 24 Plaintiffs will have the finding of fact to 25 show the Jury. They will have Exhibit 2418, 3000 1 but Microsoft will be precluded from attempting 2 to admit any evidence contrary to 2418 or the 3 finding of fact lending the impression to the 4 Jury that there is no evidence that Microsoft 5 could possibly get that could rebut the Finding 6 of Fact Number 103 or, more specifically, 7 Plaintiffs' Exhibit 2418. 8 I submit that that danger of jury 9 confusion, that Microsoft has no evidence 10 contrary to the evidence that the Plaintiffs 11 are presenting simply because we're precluded 12 from admitting it, is a severe disability that 13 ought not to be visited on a party where the 14 Plaintiffs obtain the benefit of the purely 15 equitable doctrine. 16 It is not a doctrine founded in law. 17 It is a doctrine founded in equity, of 18 offensive collateral estoppel. 19 And, so for those two reasons, that 20 they have not linked their nonhearsay purpose 21 to specific relevant subsequent concept and, 22 second, under the collateral estoppel doctrine, 23 both because of the doctrine itself and Rule 24 5.403, Microsoft opposes the admission of this 25 highlighted portion for its truth in Exhibit 3001 1 2418, and the use of it in opening statement. 2 THE COURT: Anything else? 3 MS. CONLIN: Your Honor, Mr. Tuggy 4 says that the Plaintiffs have the burden of 5 limiting -- to link the statement in the 6 document to subsequent relevant conduct. That 7 is not what McElroy says. 8 McElroy says to explain subsequent 9 conduct. There are cases cited in McElroy. 10 The McElroy rule is not even particularly new 11 or unusual. And it has been used by the 12 Supreme Court to allow the admission of lots of 13 conduct. 14 As the Court is aware, there's been a 15 lot of debate about whether or not the hearsay 16 rule should, in fact, be advocated. And that 17 has not been decided. 18 But the Supreme Court has given the 19 courts and the parties some guidance on how 20 appropriately to use documents that might 21 otherwise be excluded on the basis of hearsay. 22 And all that Microsoft -- all that 23 McElroy holds is that such -- that documents 24 and testimony are admissible to explain 25 subsequent conduct to the additional imposition 3002 1 that Mr. Tuggy seeks to place on the Plaintiffs 2 just isn't in there. 3 And, Your Honor, the subsequent 4 comments by Mr. Gates are subsequent conduct. 5 He -- after this part that I read, Your Honor, 6 he tells the executives if Intel is not 7 sticking totally to its part of the deal, let 8 me know. And he goes on about what things will 9 be done. And that is subsequent conduct. 10 With respect to Microsoft's objection 11 on the basis of collateral estoppel, the Court 12 will recall the cases that say it is 13 permissible to put things into context. 14 And that is what this seeks to do, to 15 simply display a document which the Court in 16 the findings of fact -- from which the Court 17 quotes in the findings of fact. 18 Also, Your Honor, this is a document 19 that clearly shows intent, which we are under 20 an obligation to show under the Iowa law in 21 order to receive total damages. And this is 22 such a document. 23 I'm not sure what the Court is aware 24 of what's going on here, but what has happened 25 is Microsoft has told OEMs that they cannot or 3003 1 should not cooperate with Intel to load Intel's 2 software called native signal processing, which 3 is an advanced audio video piece of software 4 and that Microsoft is successful. 5 Microsoft does get the OEMs to back 6 away from Intel. And that's a part of the 7 findings of fact as well. 8 And we believe that this is clear 9 evidence of Microsoft's intent to violate 10 Iowa's competition law. 11 The objections that the -- what does 12 it say? I'm trying to read Mr. Cashman's 13 handwriting. 14 The two points that Mr. Tuggy brought 15 up, Your Honor, are points that were never 16 asserted before. 17 The two points, that this is 18 cumulative was not urged, has never been urged 19 before, nor has the issue of jury confusion. 20 I'm having some difficulty parsing 21 what Mr. Tuggy is saying about Microsoft's 22 evidence that would abrogate collateral 23 estoppel. 24 I'm sure that losing the case was a 25 severe disability, but the issue of juror 3004 1 confusion when he says that this indicates to 2 the Jury that Microsoft has no evidence is just 3 sort of difficult for me to understand. 4 The Court has told the Jury that this 5 -- in Finding of Fact 103, that this happened, 6 that Mr. Gates said these things. 7 All I seek to do is show the Jury that 8 the judge was not wrong; that, in fact, Bill 9 Gates did say these things. 10 THE COURT: Anything else? 11 MR. TUGGY: The new argument that 12 Ms. Conlin raised that I'd like briefly to 13 respond to is the notion that Microsoft has not 14 somehow raised this objection before. And 15 there are two easy responses to that. 16 First, we have asserted a collateral 17 estoppel objection to this exhibit. And in the 18 Special Master process, when we did that, we 19 called it collateral estoppel. 20 When the Plaintiffs did it, they 21 called it confusion of the issues, confusing 22 the Jury. 23 And in our meet and confer, I asked 24 them what does that objection mean. They said 25 it meant the collateral estoppel objection. 3005 1 We have an understanding that the 2 collateral estoppel objection consists of these 3 concepts. 4 And, second, under the Court's order 5 relating to what objections are to be asserted 6 when that order provided that objections based 7 on Rule 5.401 through 5.403 were ones to be 8 asserted at trial, and that's where we are. 9 So based on the fact that the linking 10 Ms. Conlin attempted to just provide still 11 doesn't link it to some relevant fact to this 12 case or subsequent conduct by Microsoft and the 13 collateral estoppel doctrine, we request that 14 this not be permitted to be shown in opening. 15 THE COURT: Very well. 16 Anything else? 17 MS. CONLIN: I wasn't part of the 18 discussions, Your Honor. 19 Mr. Cashman is here and that's not how 20 he understood the parties' agreement. 21 MR. CASHMAN: Your Honor, I did 22 participate in the Special Master process. 23 And the simple fact is that Microsoft 24 never asserted a cumulative or confusion of 25 issues objection. They did assert collateral 3006 1 estoppel objections. 2 It's our view that the collateral 3 estoppel objections are without merit for the 4 reasons that I discuss in the arguments 5 relative to Mr. Gates' deposition earlier last 6 week, as amplified by Ms. Conlin in the context 7 of this specific exhibit that it's necessary 8 for context. 9 And Mr. Tuggy is just plain wrong in 10 suggesting that the cases require or impose 11 some kind of burden on the Plaintiffs to link 12 up an exhibit with a specific noncollateral 13 estoppel use. 14 The cases do not support that 15 proposition, in any event. To the contrary, 16 the cases say that even when a party such as 17 Microsoft has been collaterally estopped, the 18 party benefiting from that collateral estoppel, 19 in this case the Plaintiffs, are entitled to 20 use both the findings and the evidence that 21 supported those findings if it has another 22 purpose. 23 In this case, the simplest purpose to 24 provide context. So for all those reasons, 25 Microsoft's arguments should be rejected. 3007 1 THE COURT: Anything else? 2 MR. TUGGY: Nothing further, Your 3 Honor. 4 THE COURT: The Court has reviewed the 5 paragraph that the Plaintiffs wish to 6 introduce. 7 I find that the first sentence of 8 paragraph 3 is inadmissible. That the rest of 9 the paragraph is admissible. Therefore, it's 10 sustained in part and denied in part. 11 Proceed to 2348, please. 12 MS. CONLIN: Your Honor, 2348 falls 13 into some of the same categories. 14 The paragraph that we are interested 15 in is the one that begins, it's the -- Andy, 16 it's about the fifth one down, Your Honor. Do 17 you have 2348? 18 THE COURT: Yeah. Andy understood? 19 MS. CONLIN: Yeah. Andy said he 20 didn't know -- Andy said he did feel bad about 21 a few things. 22 First, he felt bad that the software 23 was focused on Windows 3.1 and not Windows 95 24 or NT. He says that was a mistake. 25 Second, he feels like the bad feelings 3008 1 between all the software groups at Intel and 2 Microsoft makes them reluctant to work with us 3 and even makes them hide what they are doing 4 since they think we will crush it. 5 Again, Your Honor, this is referred to 6 in the findings of fact. This is -- it's on 7 notice of what Microsoft believes that Grove is 8 doing and saying and why, Grove's expression of 9 Intel's feelings. It's offered on the issue of 10 intent, Microsoft's intent. 11 This is before the one we looked at, 12 Your Honor. This is July of 1995. It is also 13 before -- this cannot be viewed in a vacuum. 14 It has to be viewed with the other 15 things that Microsoft is doing to carry out its 16 intent to keep OEMs from cooperating with Intel 17 in loading this unique and innovative software 18 that Intel has created. 19 It is ultimately successful, as I 20 indicated to the Court. We think that this 21 document is admissible under McElroy on the 22 issue of intent and also on state of mind. 23 THE COURT: This is Andy again? 24 MS. CONLIN: Andy Grove is the CEO of 25 Intel, Your Honor. 3009 1 THE COURT: That's right. 2 MS. CONLIN: He's the guy that Gates 3 is directly meeting with on these issues. And 4 this is a report of the three hours he spent in 5 San Jose Wednesday night having dinner with 6 Andy Grove. This is a report that Mr. Gates 7 makes to his top executives on that meeting, 8 and its outcome. 9 THE COURT: Mr. Tuggy? 10 MR. TUGGY: Your Honor, on Plaintiffs' 11 Exhibit 2348, this is the exhibit that relates 12 directly to Finding of Fact Number 100. 13 I have a copy of the findings of fact 14 if that would be convenient for Your Honor in 15 this argument. May I hand it up? 16 THE COURT: Very well. 17 MR. CASHMAN: May I see it? 18 THE COURT: Do you have one for 19 yourself, Mr. Tuggy? 20 MR. TUGGY: Yes, I do. 21 Plaintiffs' Exhibit 2348 is described 22 specifically in Findings of Fact Number 100. 23 In the last sentence of that finding 24 of fact, Judge Jackson wrote, in the first week 25 of July, Gates himself met with Intel's CEO, 3010 1 Andrew Grove, to discuss, among other things, 2 NSP. 3 Pardon me, that's the -- and the memo, 4 2348, is drafted on July 7, 1995. 5 In a subsequent memorandum to senior 6 Microsoft executives, Gates reported that he 7 had tried to convince Grove, quote, to 8 basically not ship NSP, end quote, and more 9 generally to reduce the number of people 10 working on software at Intel. 11 This is different than the one we just 12 looked at because the language quoted in the 13 finding of fact is not language to which 14 Microsoft has asserted an embedded hearsay 15 objection. 16 The language quoted is, in fact, the 17 immediately preceding paragraph to the objected 18 to language. That's where Mr. Gates states we 19 are trying to convince them basically not to 20 ship NSP, which is what's quoted in the finding 21 of fact. 22 Instead, Plaintiffs seek to have 23 admitted evidence that embellishes on the 24 finding of fact. 25 They might -- I would give them credit 3011 1 because they'll probably argue that this 2 explains or provides context for the finding of 3 fact. 4 But what it actually does is provide 5 additional prejudicial evidence relating to the 6 finding of fact to which we can't respond. 7 During the trial of this case, we're 8 not going to be permitted, I presume, or 9 Plaintiffs will object if we attempt to ask 10 Mr. Gates to explain what he meant by the 11 things that were said in the fifth paragraph 12 that Plaintiffs want to read to the Jury. 13 This paragraph is part of a memo that 14 the Court in United States versus Microsoft 15 considered in coming to Finding of Fact Number 16 100. And that finding of fact is something 17 that's already been read to the Jury. 18 This additional information, for 19 example, the statement at the end of this 20 section where Mr. Gates writes that Andrew 21 Grove said that what Microsoft does makes them 22 hide what they are doing since they think we 23 will crush it. 24 Well, that statement by Andy Grove 25 about what Intel wants to do, hiding its work 3012 1 from Microsoft, is hearsay. And the Plaintiffs 2 have conceded that it's hearsay. 3 And the question is what is the 4 possible nonhearsay use of that statement? How 5 does that statement reflect, for example, 6 Microsoft's state of mind? It doesn't. 7 This is Andy Grove speaking. And to 8 the extent that Plaintiffs attempt -- 9 Plaintiffs can't attempt to offer it under 10 5.803(3) as state of mind evidence, an 11 exception to the hearsay rule because that 12 they've foregone in the Special Master process. 13 They've come here to argue that it's 14 nonhearsay. And, again, they have failed the 15 basic requirement of nonhearsay and that is to 16 link it to the subsequent conduct they are 17 trying to explain. 18 Ms. Conlin is correct that nonhearsay 19 can be admitted to explain subsequent conduct, 20 but there has to be some link between the 21 nonhearsay and the subsequent conduct that 22 you're trying to explain. 23 And there's just no subsequent conduct 24 here relating to the embedded hearsay that we 25 have objected to and the Plaintiffs have 3013 1 conceded is hearsay. 2 So, again, based on the fact that this 3 evidence is cumulative, it's unfair to have it 4 read to the Jury in light of the finding of 5 fact that's been entered. 6 Under the equitable collateral 7 estoppel doctrine and under the Rules of 8 Evidence, 5.403 specifically, and the fact that 9 the Plaintiffs have not linked this nonhearsay 10 use to relevant subsequent conduct by Microsoft 11 means that they have not carried the foundation 12 for the nonhearsay use that they have proposed 13 for this exhibit. 14 The exhibit, because it's hearsay, 15 should be excluded. They carry the burden of 16 providing a nonhearsay purpose that somehow can 17 deal with the prejudice that this evidence 18 would create. 19 By deal, I mean, it seems obvious to 20 me that they want to put this before the Jury 21 so the Jury thinks that Intel was hiding what 22 they were doing because they were worried that 23 Microsoft would crush it. That's why they want 24 it in front of the jury. That's prejudicial. 25 That's a for-truth use. 3014 1 The nonhearsay use, which is 2 subsequent conduct, is unlinked. And, without 3 that, it can't outweigh the prejudicial effect. 4 And Microsoft respectfully requests 5 that this not be permitted to be read to the 6 Jury. 7 MR. CASHMAN: Your Honor? 8 THE COURT: Mr. Cashman? 9 MR. CASHMAN: Okay. I'm going to 10 address Mr. Tuggy's comments in reverse. 11 First of all, his allegation that 12 there has to be proof of linking to subsequent 13 conduct. 14 I'm going to refer the Court back to 15 the McElroy case. 16 The McElroy case said, in relevant 17 part, it said furthermore -- quote, 18 furthermore, internal documents relied upon by 19 an employer in making employment decisions in a 20 discrimination case are generally not hearsay 21 because they can be relevant to explain the 22 employer's conduct. 23 The Court cited an Eighth Circuit 24 court case called Wolf versus Brown. 25 And the Wolf versus Brown case states, 3015 1 quote, in employment discrimination cases, 2 internal documents relied upon by the employer 3 in making employment decisions are not hearsay 4 as the term is defined in Federal Rule of 5 Evidence 801C, statements offered to prove the 6 truth of the matter asserted. 7 Rather -- and this is the important 8 part of the Wolf case -- such documents are 9 relevant and admissible because they help 10 explain or may help explain the employer's 11 conduct. 12 So both the McElroy case and the Wolf 13 case acknowledge implicitly that there does not 14 have to be proof of the subsequent conduct if 15 it is possible that the document might help 16 explain this employer's subsequent conduct. 17 THE COURT: What conduct are you 18 trying to explain here? Or help to explain? 19 MR. CASHMAN: The conduct -- the 20 subsequent conduct, I believe, is -- if you'll 21 give me one moment, Your Honor. 22 THE COURT: Sure. Take your time. 23 MR. CASHMAN: I'm trying to read 24 Ms. Conlin's notes. 25 But what I believe the conduct here is 3016 1 the conduct of Intel in response to this 2 information. 3 Mr. Tuggy alleged that the Plaintiffs 4 have to provide foundation for subsequent 5 conduct, and that's simply not in the McElroy 6 case or anywhere else. 7 And they've never asserted that before 8 in addition. 9 So the arguments that Mr. Tuggy has 10 made in relation to the alleged linking under 11 McElroy is illusionary requirement, it's an 12 illusion. It's not required by the law. 13 Next, he states that it's fair. And 14 now he keeps arguing that collateral estoppel 15 is an equitable doctrine. 16 And Microsoft, as I have explained 17 before, A, has misstated the cases which it has 18 cited to you which stand for a much narrower, 19 much different proposition than what they have 20 alleged. 21 There is no case which on different 22 issues precludes the party benefiting from 23 collateral estoppel from using the evidence if 24 it relates to other issues. 25 And that's particularly true when 3017 1 we're talking about, as here, a nonhearsay use 2 to explain subsequent conduct under McElroy. 3 Collateral estoppel simply does not 4 apply. 5 Microsoft is the party which is 6 collaterally estopped because they litigated 7 the issues for which collateral estoppel was 8 applied relevant to the government case. 9 Microsoft is not in a position to 10 benefit from collateral estoppel. They have it 11 fundamentally wrong in suggesting that they are 12 entitled to benefit from collateral estoppel. 13 They're not. 14 Because they litigated the government 15 -- I mean, operating systems liability in the 16 government case. And that's all that those 17 findings are about. 18 They don't get the benefit of trying 19 to turn those findings around on Plaintiffs. 20 The law does not permit that. 21 And when you look at the cases that 22 Microsoft cited in their brief, they don't 23 stand for the proposition they allege. 24 They stand for the real simple, basic, 25 narrow proposition that if the parties have 3018 1 litigated a specific issue, then perhaps 2 collateral estoppel would apply. But here the 3 Plaintiffs were not parties, and the issues are 4 different. 5 THE COURT: Okay. 6 MR. CASHMAN: So Microsoft's attempts 7 not only to take advantage inappropriately of 8 the collateral estoppel holdings against them, 9 but its suggestion that there's some kind of 10 linkage required, both those propositions are 11 wrong. 12 Lastly, Mr. Tuggy, again, argues 13 cumulative. And we went through this before. 14 I mean, this is an example of Microsoft wanting 15 to take the fifth, sixth, and seventh bite at 16 the apple. 17 And apparently they don't care when 18 the apple has already been eaten. They are 19 still going to be chomping away at it, but what 20 they've done here is argue cumulative, and they 21 never asserted that objection. 22 And how could a cumulative objection 23 possibly have any merit when we're talking 24 about opening statement when the evidence isn't 25 even in the record and when we're talking about 3019 1 a nonhearsay use where Ms. Conlin has explained 2 the purpose for this document, which is clearly 3 appropriate under the law. 4 So we suggest that Microsoft's 5 objections to this particular document should 6 be rejected. 7 THE COURT: I'm not clear on the 8 purpose. Are you trying to show that what Andy 9 in this document stated and what he felt came 10 true because, in fact, he thinks that they will 11 be crushed by Microsoft? Did that happen? 12 MR. CASHMAN: Well, Your Honor, as you 13 may know, I came in at the last minute on this. 14 THE COURT: Take your time and read 15 it. 16 MR. CASHMAN: No. Let me read it. 17 I think the objective that Ms. Conlin 18 wanted to establish is that it was noticed to 19 Microsoft of what Intel was thinking. 20 THE COURT: For what purpose? 21 MR. CASHMAN: I think it's the 22 sentence that says -- the last sentence in that 23 first highlighted there. 24 THE COURT: Right. 25 MR. CASHMAN: He says, Second, he 3020 1 feels that the bad feelings between all the 2 software groups at Intel and Microsoft makes 3 him reluctant to work with us, and even makes 4 them hide what they are doing since they think 5 we will crush it. 6 THE COURT: And this is not hearsay 7 why? 8 MR. CASHMAN: Because it's being 9 offered -- 10 THE COURT: To show what? What 11 subsequent conduct? That they were crushed? 12 MR. CASHMAN: Well, the conduct, the 13 subsequent conduct is indicated, I think, on 14 the second page, the last paragraph where it 15 says how we can leverage Intel's work. 16 THE COURT: I only have one page. Is 17 there a subsequent page? 18 MR. CASHMAN: That's how it 19 affected -- 20 THE COURT: Okay. I got the second 21 page. Where on the second page? 22 MR. CASHMAN: The last paragraph of 23 that e-mail, and, in particular, the last 24 phrase. 25 THE COURT: I will see Andy again. 3021 1 MR. CASHMAN: Open-minded view of how 2 we can leverage Intel's work. 3 THE COURT: Okay. 4 MR. TUGGY: Your Honor, the 5 Plaintiffs' statements regarding McElroy are 6 not correct. 7 The McElroy case has four requirements 8 for nonhearsay purpose of the type Plaintiffs 9 are suggesting. 10 The first is that the statement may be 11 offered simply to demonstrate it was made to 12 explain subsequent actions by the listener or 13 to show notice or knowledge of the listener. 14 So, in this situation, when 15 Mr. Cashman said that this was intended to show 16 subsequent conduct by Intel, that is exactly 17 the wrong answer because Intel is not the 18 listener. Intel is the declarant. 19 If what he's trying to say is that it 20 shows subsequent conduct or actions by 21 Microsoft, the one that he pointed to at the 22 very end of oral argument that they want to -- 23 that Gates had said that he's asking people 24 that have this open-minded view of how he can 25 leverage Intel's work, that really has nothing 3022 1 to do with the comments about Mr. Grove 2 thinking that Microsoft is going to crush it. 3 And, in addition, that is not relevant 4 to this case. They have no intention of 5 arguing that particular subsequent conduct 6 because, in fact, that's beneficial to 7 Microsoft, contrary to the findings of fact. 8 The second requirement in McElroy, 9 McElroy states, although a statement may be 10 purportedly offered for a nonhearsay purpose, 11 the district court must still determine if the 12 party's true purpose in offering the evidence 13 was, in fact, to prove his statement's truth, 14 which I submit that are what the Plaintiffs 15 really are doing here. 16 Third, McElroy says, furthermore, the 17 Court must find the statement relevant to the 18 purpose for which it is offered. And that's 19 the argument I just made. This is all linking 20 requirements. 21 And, lastly, the Court says, if the 22 evidence is admitted, the Court must limit its 23 scope to that needed to achieve its purpose. 24 Our argument here, Your Honor, is that 25 there has been no relevant nonhearsay purpose 3023 1 presented. 2 The real purpose of showing this to 3 the Jury is to expose the Jury to this to 4 accept it for its truth. And, for those 5 reasons, Microsoft respectfully requests that 6 this not be permitted to be shown to the Jury 7 for the reasons stated. 8 MR. CASHMAN: Your Honor, Mr. Tuggy is 9 right, I did misstate. When I said Intel's 10 conduct, subsequent conduct, I meant to say 11 Microsoft's subsequent conduct. 12 And what this shows, the highlighted 13 embedded hearsay shows, what Grove said and how 14 that explains Microsoft's subsequent conduct 15 with respect to its investing and interaction 16 with Intel. 17 And I think that's what the last 18 paragraph relates to here, how we can leverage 19 Intel's work, is how Microsoft is going to 20 interact with Intel in light of the information 21 that it has from what Grove said. 22 So we think this is particularly in 23 opening statement an appropriate nonhearsay use 24 and it should be permitted. 25 THE COURT: Anything else? 3024 1 MR. TUGGY: Nothing further, Your 2 Honor. 3 THE COURT: Anything else? 4 MR. CASHMAN: No, Your Honor. 5 THE COURT: I'm going to deny its use 6 and find that it is hearsay. And even though 7 it's purported to being offered for a 8 nonhearsay purpose, I still think it's being 9 offered for the truth of the matter asserted. 10 It's denied. 11 Any other issues on this before we go 12 to Williams? 13 MR. TUGGY: Nothing further from 14 Microsoft. 15 THE COURT: All right. Do you want to 16 take a short break? 17 MR. TUGGY: Yes. 18 MR. CASHMAN: Sure. 19 THE COURT: I would. 20 (A recess was taken from 3:29 p.m. 21 to 3:39 p.m.) 22 THE COURT: All right. Let me get my 23 notes here. I have them right on top. 24 And what I have, we stopped at -- I 25 have we stopped at 95, page 95. 3025 1 MR. GRALEWSKI: That's not what I 2 have. 3 THE COURT: No? 4 MR. GRALEWSKI: Oh, I'm sorry. That's 5 the one we are picking up on. 6 THE COURT: Picking up on 95. 7 MR. GRALEWSKI: Right. Right. 8 THE COURT: Okay. 9 Sir? 10 MR. GRALEWSKI: Your Honor, Bob 11 Gralewski for the Plaintiffs. 12 We are continuing our appeal of 13 Special Master's rulings on various 14 designations in the Richard Williams 15 transcript. 16 And as Your Honor indicated, we are 17 going to pick back up at page 95, lines 16 to 18 21. 19 THE COURT: Okay. 20 MR. GRALEWSKI: This, Your Honor, is 21 one of the ones in Williams that's not a 22 Callahan issue. This is a straight-up undue 23 prejudice issue. 24 Undue prejudice was not submitted to 25 the Special Master under the parties' agreement 3026 1 on the basis of the order. So this is the 2 first time you'll be asked to rule on this. 3 What the parties are doing are meeting 4 and conferring on undue prejudice, and, where 5 able, the parties are withdrawing. This is one 6 that Microsoft is pressing. 7 If Your Honor will look at page 95. 8 THE COURT: I'm right there. 9 MR. GRALEWSKI: Mr. Williams is being 10 asked a series of questions about DRI working 11 on a product to compete with Windows. And then 12 he's asked what do you think Microsoft would do 13 if they knew that. 14 And he says -- and I think this is the 15 part that Microsoft is objecting to -- that 16 they would be bombing Monterey, which is where 17 DRI was working. 18 Now, the Plaintiffs submit, Your 19 Honor, of course, the test is probative value 20 versus prejudicial effect. 21 The Plaintiffs submit here, Your 22 Honor, that this is highly probative evidence, 23 albeit prejudicial evidence, certainly, on the 24 issue of how Microsoft's own competitors 25 perceived Microsoft's practice and tactics. 3027 1 And, simply put, this testimony 2 clearly conveys just how flagrant and scary 3 Microsoft's tactics were. 4 Now, this is, Your Honor, somewhat -- 5 in the abstract, somewhat comical testimony, 6 but one of the issues we're going to need to 7 show as Plaintiffs in this case is how 8 Microsoft intimidated its competitors and its 9 customers through the fear of reprisal in 10 either competing as they saw fit or complying 11 with their wishes. 12 Microsoft's MO was to do whatever it 13 took to get companies to act in a certain way. 14 Here you have so much fear being 15 testified about that they are trying to control 16 another company and not creating a competing 17 product for Windows. 18 Watering down this testimony by 19 striking out the bombing testimony leaves 20 Plaintiffs handicapped in this case to 21 demonstrate Microsoft's wanton disregard for 22 the competitive process. 23 And as I was thinking about this 24 testimony, I was trying to come up with an 25 analogy -- and I'm not sure if this is a 3028 1 perfect analogy -- but what I thought is, Your 2 Honor, it would be almost like in a domestic 3 violence case prohibiting an abused spouse from 4 being able to testify that the offending spouse 5 -- she felt like the offending spouse was going 6 to blow up their house or something like that. 7 I mean, what we have here is a 8 competitor testifying that they felt fear and 9 felt intimidation by Microsoft. 10 Now, let's take the other side of 11 things. If you strike this testimony, we don't 12 get to show that the competitor felt or the 13 customer felt intimidated. 14 When Mr. Tulchin starts his opening, 15 and throughout their case when Mr. Gates sits 16 in that chair, it's almost like there's going 17 to be a harp playing in the background. And 18 the perception that Microsoft is -- I'm doing a 19 violin. 20 THE COURT: That's a rather small 21 harp, and you are playing it with a bow. 22 MR. GRALEWSKI: I meant like this, 23 Your Honor. 24 They are going to try to make the Jury 25 think that they are the nicest company in the 3029 1 world. Their software changes people's lives. 2 It makes people's lives better. 3 So they are going to get to put in all 4 of that evidence. And we are not going to get 5 to show -- in order to prove our trebled 6 damages claim or to be able to show intent, we 7 are not going to be able to show that, the way 8 that Microsoft's people competing with them 9 perceived them. 10 I guess -- 11 THE COURT: Is this going to be read 12 in the record or is this going to be televised? 13 MR. GRALEWSKI: It will be a video, 14 Your Honor. 15 The Jury will get to see the demeanor 16 of the witness. 17 And the last thing I want to say -- 18 oh, there's another point, Your Honor. 19 This testimony is not in a vacuum. It 20 bolsters other testimony that will be played. 21 I'm sure we'll be talking about this later, but 22 there are other witnesses that testify, for 23 example, that getting a visit from a Microsoft 24 salesperson was like getting visited by the 25 Mafia or like getting visited by Don Corleone. 3030 1 Again, these are, in a vacuum, 2 somewhat light comments, but they are truly the 3 way that Microsoft created a perception in 4 people that they better comply or else they 5 faced reprisal. 6 The Plaintiffs would, Your Honor, be 7 willing -- we did not designate line 22 at page 8 95. We'd be willing to designate 95, 22 to 96, 9 11. 10 And it's here that Microsoft's lawyer 11 asks Mr. Williams, you know, basically trying 12 to get at whether he was exaggerating or not, 13 and he says, no, but then he does go on to 14 articulate that in this industry they often 15 speak in militaristic terms. 16 And so those additional 10 or 15 lines 17 could ameliorate any prejudice that Microsoft 18 believes it has. 19 Thank you, Your Honor. 20 MR. TUGGY: Your Honor, the test is 21 whether the prejudicial effect outweighs the 22 probative value of the evidence. 23 This line of questioning has to do 24 with whether Digital Research kept a project 25 called Cutlass secret and why. 3031 1 Just by way of background, 2 Mr. Williams was the president of Digital 3 Research, hated Microsoft, filed multiple 4 declarations against Microsoft, some of which 5 have already been argued before you, with the 6 FTC. And in this deposition was asked whether 7 there was concern at his company about keeping 8 Cutlass secret. 9 The question was -- specifically at 10 line 11 was: Do you recall if there was 11 concern at the company about Microsoft finding 12 out that you were considering developing a 13 competing product to Windows? 14 And Digital Research had a project 15 called Cutlass where it was considering the 16 development of a Windows-type product that 17 would be integrated with the DR-DOS product. 18 Now, I think that the version of this 19 transcript that you have has highlighting. And 20 that indicates what the parties are going to be 21 playing on the video. 22 And what you can see from the 23 highlighting is Plaintiffs don't care at all 24 about whether the Cutlass project was kept 25 secret. That's not a relevant fact. It just 3032 1 has nothing to do with anything. 2 And so like if you look at the 3 highlighting that occurs before, there was 4 nothing highlighted about the Cutlass project 5 or why it was kept secret. 6 This is just -- this little block of 7 testimony that has no connection to something 8 relevant where the Plaintiffs want to put in 9 that statement by Richard Williams is highly 10 prejudicial toward Microsoft. 11 Now, what the Microsoft lawyer tried 12 to do after Williams' statement is to try to 13 cure it, to find out whether he was just 14 exaggerating and was trying to make a point, 15 but wasn't being literal, but, in fact, 16 Mr. Williams says that he meant that Microsoft 17 was going to bomb Monterey in a literal sense. 18 That's just an overstatement as to why 19 Caldera or its predecessor Digital Research was 20 keeping the Cutlass project secret, a fact 21 which is not relevant to this case. 22 So it's probative value, that is, why 23 Digital Research is keeping Cutlass a secret is 24 virtually none. I submit it's zero. 25 But the prejudicial effect of 3033 1 Mr. Williams' gratuitous comment is 2 significant. And Mr. Gralewski has explained 3 that probative value by saying that their 4 purpose in trying to admit this comment about 5 an irrelevant fact is to get the Jury to 6 believe that, in all contexts, Mr. Williams 7 considered Microsoft a company that would do 8 something such as bombing Monterey in a literal 9 sense. 10 And I think the testimony is, quite 11 frankly, crazy and it's highly prejudicial and, 12 under 5.403, ought to be excluded. 13 THE COURT: Is the project called 14 Saber or Cutlass? 15 MR. GRALEWSKI: Cutlass. 16 THE COURT: And the project, Cutlass 17 was to -- was a product that they wanted that 18 would have competed or would have been similar 19 to Windows? 20 MR. GRALEWSKI: That's right. It was 21 a graphic user interface that would have sat on 22 top of either DR-DOS or MS-DOS. 23 It's important to grasp this now for 24 all of us because there are other designations 25 that will deal with Cutlass. 3034 1 THE COURT: How come there's no -- 2 okay. Where's the -- I assume somewhere else 3 he talks about Cutlass? 4 MR. GRALEWSKI: Yeah. I believe 5 that's true, Your Honor. 6 MR. TUGGY: Well, in designated 7 testimony? 8 THE COURT: Yeah. Is there? 9 MR. GRALEWSKI: We're going to come up 10 to it, yeah. 11 MR. TUGGY: Okay. 12 THE COURT: Okay. So this has to do 13 -- what he's talking about in lines 11 through 14 21 is the Cutlass project? 15 MR. GRALEWSKI: Yes, sir. 16 THE COURT: And the concern that they 17 would have had had Microsoft found out that 18 they were developing this product, which you've 19 told me just now, is a product that would have 20 been similar to or would at least compete 21 against Windows; is that correct? 22 MR. GRALEWSKI: That's right. That's 23 right. Exactly. 24 THE COURT: All right. 25 Is there any real sense from looking 3035 1 at the videotape of Mr. Williams' deposition 2 that he literally believes that Microsoft has 3 the capability of bombing Monterey, California? 4 From anyone's observation? 5 MR. GRALEWSKI: My response to that, 6 Your Honor, would be that if he did actually 7 believe it -- I mean, Mr. Tuggy may say that 8 that's crazy. 9 I would submit, Your Honor, that if he 10 actually believed it, that goes directly to the 11 fear that these competitors felt. 12 Now, all of us sitting in the room can 13 wonder whether Microsoft can actually pull that 14 off, or they would. I'm not suggesting that 15 they would. 16 But this whole discussion here goes to 17 the weight that the Jury should give 18 Mr. Williams' testimony when they see it on the 19 screen. 20 I would submit it is highly probative 21 for the reasons I stated. And, as I said, the 22 testimony that follows this would or could 23 ameliorate that when he says that people in the 24 industry talk in militaristic metaphors. 25 That's at 96, line 8 through 11. 3036 1 MR. TUGGY: Your Honor, just a few 2 items. 3 First, I did look forward in the 4 testimony. And a ways down there's some 5 discussion of Cutlass. 6 THE COURT: Is there? 7 MR. TUGGY: Yes. It's not, however, a 8 discussion about whether it's supposed to be 9 kept secret. That's something that's just not 10 relevant to any fact in the case. 11 Second, Mr. Silverman -- and I don't 12 know whether you've met Mr. Silverman before. 13 He's a partner of mine at Heller Ehrman. He 14 will be arguing the Silverberg testimony, which 15 we hope to get to after Mr. Williams if we have 16 time. 17 THE COURT: You couldn't make it more 18 confusing, could you? 19 MR. TUGGY: No, Silverman and 20 Silverberg. 21 MR. GRALEWSKI: I didn't think of 22 that. 23 MR. TUGGY: And Mr. Silverberg, I 24 think, is the only person who watched the 25 video. Do you want to comment -- 3037 1 THE COURT: Do you have something for 2 counsel? 3 UNIDENTIFIED WOMAN: Yes, I do. 4 THE COURT: You can bring it to him. 5 MR. SILVERMAN: Yes, Your Honor. I 6 have actually seen the tape, Mr. Williams' tape 7 to observe, but not for this specific clip, but 8 generally to observe demeanor. And I've seen 9 this specific clip at issue. 10 And he does have a very serious tone. 11 First of all, he is -- and has animosity for 12 Microsoft. And, specifically, when you get to 13 this particular line of testimony, he has a 14 very serious tone and repeats himself in view 15 of the seriousness and belief, apparently, that 16 Microsoft is going to bomb Monterey. 17 You know, the comment that they need 18 this five or six lines of testimony, otherwise 19 they get no evidence in the trial whatsoever 20 about any alleged retaliatory or intimidating 21 conduct by Microsoft is ridiculous because 22 there's going to be a lot of testimony that we 23 did not object to that is going to come in to 24 show that. 25 So there's not going to be harps 3038 1 playing or violins playing when Mr. Gates or 2 others testify. There is going to be plenty of 3 testimony. They don't need this. It's 4 gratuitous and simply lacking of any probative 5 value. And it's clearly prejudicial. 6 THE COURT: The other side of the coin 7 is Microsoft, the Defendant, could use it to 8 its advantage to show this person's animosity 9 to contain his testimony. 10 MR. SILVERMAN: Well, I think we get 11 that from the rest of the testimony. You'll 12 see in the couple hours they play other than 13 just a 15-second clip. Plenty of animosity 14 that shouldn't impact his demeanor and 15 credibility, but this particular piece is 16 prejudicial. 17 MR. TUGGY: Although, in all honesty, 18 that's probably an argument we would make if 19 they were admitted. 20 THE COURT: Thanks, Mr. Tuggy. 21 Anything else on this one? 22 MR. GRALEWSKI: No, sir. 23 THE COURT: Well, I'm going to allow 24 it. I don't think it's that bad. Plus, I'm 25 going to state if you do play it, I want lines 3039 1 1 through 11 on page 96 because I think that 2 puts it in a better context. 3 He's talking in militaristic terms, 4 and that's what he does in this business. So I 5 think that actually lessens the impact of it 6 frankly. 7 MR. GRALEWSKI: Thank you, Your Honor. 8 THE COURT: I'll allow it. 9 101? 10 MR. GRALEWSKI: Yeah, 101 to 103. And 11 this is a big chunk of testimony I can 12 summarize for Your Honor. And the parties 13 actually have some agreement on this. 14 THE COURT: Really? 15 MR. GRALEWSKI: Just not all the way. 16 What happened at some period of time 17 in the early '90s -- I forget the exact date -- 18 Microsoft apparently approached DRI and offered 19 to buy them -- for them to enter in some sort 20 of licensing arrangement for DR-DOS. Maybe 21 that's more well put. 22 And the question that's asked -- 23 ultimately, that didn't come to fruition. And 24 the question that Microsoft's lawyer asks 25 Mr. Williams -- 3040 1 THE COURT: What line? 2 MR. GRALEWSKI: At line 19. Basically 3 did those negotiations that you were engaged in 4 with Microsoft, you know, take up any of your 5 time or prevent you from doing anything else 6 that you would otherwise have done. 7 And the witness answers and, in 8 answering the question, talks about the 9 negotiations that Mr. Williams had with 10 Mr. Ballmer. The Steve that's at the top of 11 102, line 4, the Steve referenced there is 12 Steve Ballmer. 13 So what the parties have agreed, Your 14 Honor -- and Mr. Tuggy will correct me if I'm 15 wrong -- but I believe that this is the case, 16 that all of the statements attributed to 17 Mr. Ballmer in this chunk of testimony come in 18 as admissions. 19 The only issue is whether 20 Mr. Williams' own statement comes in. 21 And, Your Honor, the way I've looked 22 at this, there's only one Williams statement. 23 So, really, the only issue, Your 24 Honor, is on page 102, line 8 to 12, where 25 Williams is basically quoting himself, which is 3041 1 hearsay within hearsay. And he says, and I was 2 -- I stated a concern to him, that section. 3 THE COURT: I see, yeah. 4 MR. GRALEWSKI: Okay. The nonhearsay 5 purpose, Your Honor, would be context under 6 Stan Ballmer's statements, because if you go 7 down to the end of that sentence, Williams 8 testifies his response was -- Mr. Ballmer, his 9 response was that, and then he quotes 10 Mr. Ballmer. 11 Our position, Your Honor, is without 12 Williams' quote there, quoting himself, that 13 you don't understand what the response is 14 about. 15 THE COURT: Where's his quote again? 16 MR. GRALEWSKI: I'm sorry, Your Honor. 17 The Williams quote or the one that's at issue 18 here, everything else should be clean. 19 The one thing at issue is 102, 8 to 20 12, where he says and I was -- I stated. 21 THE COURT: Okay, I got you. 22 MR. GRALEWSKI: Those two sentences 23 are Mr. Williams quoting himself. And then in 24 line 12 his response was that's Ballmer -- 25 Ballmer's response was blah, blah, blah. 3042 1 So, again, the position that you need 2 the Williams quote to understand the Ballmer 3 quote. 4 That would be the nonhearsay purpose 5 for context. 6 Thank you, Your Honor. 7 THE COURT: Mr. Tuggy. 8 MR. TUGGY: Yes. This will be quick. 9 To clarify what we agreed, which was 10 we weren't asserting a hearsay objection to the 11 statements by Mr. Ballmer. 12 It was not specifically the agreement 13 that they were admissions as Mr. Gralewski had 14 said. 15 With respect to lines 8 through 12, 16 that is the section to which we assert the 17 hearsay within hearsay objection. 18 The only part of lines 8 through 12, 19 which is needed for the context of 20 Mr. Ballmer's purported response would be the 21 line at 10 and 11, which says one of our 22 markets is embedded markets. 23 In other words, where Mr. Williams is 24 characterizing the various capabilities of 25 MS-DOS and DR-DOS with respect to -- in lines 9 3043 1 to 10, those capabilities are stated in a 2 general way. 3 In lines 11 to 12, those capabilities 4 are stated in terms of what is ROMable and what 5 is not, not a subject about which I have a 6 great deal of technical expertise. 7 But it seems to me that if what 8 Mr. Gralewski wants is context for the 9 statement by Mr. Ballmer, then all that should 10 go out except for the line 1 of our markets is 11 embedded markets. 12 THE COURT: Anything else on that one? 13 MR. GRALEWSKI: No, Your Honor. 14 THE COURT: Okay. Line 8 through 10, 15 the one sentence, and I was, I'm going to rule 16 as hearsay. It's out. 17 Starting one of our markets, that may 18 stay in. 19 Page 1889? 20 MR. GRALEWSKI: Yes, Your Honor. 21 Thank you. 22 We turn back to Callahan now. I 23 believe for the -- well, no. But almost the 24 remainder of the deposition. 25 As I stated, Your Honor, at the start 3044 1 of this, I forget when -- last week Monday, I 2 guess a week ago. 3 THE COURT: Yeah, a long time ago. 4 MR. GRALEWSKI: I told the Court that 5 the Callahan issue would come up over and over 6 again, especially in this DRI story and in 7 other stories as well. 8 And so I want to pause again and 9 revisit where we left off talking about the 10 legal discussion. 11 THE COURT: Okay. 12 MR. GRALEWSKI: I will do it very 13 quickly and then turn back to the line by line. 14 I have three cases, Your Honor, that 15 I've provided to Mr. Tuggy at the start of the 16 argument today I'd like to hand to Your Honor. 17 THE COURT: Okay. 18 MR. GRALEWSKI: One of the cases, Your 19 Honor, is the primary case that Microsoft 20 relies on on the other side of the coin to 21 Callahan. And there are two other cases that 22 I'll bring to Your Honor's attention. 23 THE COURT: Thank you very much. 24 MR. GRALEWSKI: Your Honor, the first 25 case there is the case of United States versus 3045 1 Nadine -- and just to reorient the Court, the 2 parties are debating the scope of Callahan and 3 the Plaintiffs believe that Callahan stands for 4 the proposition that, in an antitrust case, 5 statements of a customer as to his reasons for 6 dealing or not dealing with a supplier are 7 admissible for the limited purpose of proving 8 that customer's motive, but not as evidence of 9 the underlying facts or the truth of the 10 underlying facts. And we spent some time on 11 that. 12 If Your Honor will recall, Microsoft 13 spent a number of moments discussing with the 14 Court the trustworthiness issue that it 15 suggested was not addressed by Callahan. 16 And I will concede, Your Honor, that 17 Callahan is a thick case with nuances for 18 certain. And I suggested to the Court that the 19 trustworthiness issue was addressed by Callahan 20 in Footnote 11. 21 And I had a chance to go back, Your 22 Honor, and do a little bit more research. And 23 I believe that, indeed, the trustworthiness 24 issue is addressed in Callahan, again, in the 25 context of the antitrust case. 3046 1 And I would submit, Your Honor, that 2 the case stands for the proposition that the 3 actual identity -- and here in Footnote 11, 4 they were talking about the identity of the 5 declarant or the identity of the customer. 6 And the case held that it wasn't 7 important. They looked at trustworthiness. 8 And they said that the relevance of the 9 statements -- and this is in Footnote 11 in 10 Callahan. 11 But the relevance of the statements 12 depended only on the fact that the people were 13 the plaintiff's customers, not their particular 14 identity. 15 So with respect to trustworthiness, we 16 will submit the case holds that knowing the 17 specific identity of the declarant will not 18 make the statements more trustworthy. 19 Now, after we spent some time talking 20 about trustworthiness, the defendant, I would 21 submit, hung their hat on this United States 22 versus Nadine case, which is the first case 23 that I handed up. 24 THE COURT: Okay. 25 MR. GRALEWSKI: U.S. versus Nadine is 3047 1 about as inopposite a case I think could exist 2 in the context of what we're talking about 3 here. 4 As I represented to the Court and 5 argued to the Court last, this Callahan rule is 6 a special rule in the context of antitrust 7 cases when you're dealing with customers of 8 suppliers and whether those statements are 9 relevant or not. 10 Nadine, Your Honor, is a situation 11 where a gentleman in Minneapolis was arrested 12 for soliciting a minor on the Internet. 13 After he was arrested, he made a 14 statement to his friend that said, basically -- 15 and this is on page 4 of 8 in the upper 16 right-hand corner, Your Honor, the middle 17 paragraph in the right-hand column. 18 He basically made a statement after he 19 was arrested that he did not believe that she 20 was underage. Okay. And he wanted to admit 21 that statement that was made after he was 22 arrested for his state of mind at the time that 23 he was making those statements. 24 At bottom, Your Honor, they get in on 25 the next page to the crux of the issue with 3048 1 respect to state of mind. But, basically, 2 Nadine is looking at the statements of an 3 actual defendant in the case, a party in the 4 case. 5 So here you have a case about 6 statements by a defendant or party in the case. 7 Callahan is about statements by customers, 8 nonparties. 9 The reason that Nadine talked about 10 spontaneity being important is because the 11 greater the amount of time that would pass from 12 the occurrence to the statement, the defendant 13 could think of ways to exculpate himself. 14 Your Honor, in Callahan, and in the 15 situations we're dealing with here, the 16 customers, the Lotuses, the Ingram Micros that 17 we are going to be talking about, they may have 18 -- they may want to deal with Microsoft and not 19 want to deal with Microsoft, and want to deal 20 with DRI or not deal with DRI, but they have no 21 motive to exculpate themselves, which was at 22 the crux of the Nadine case, which is the case 23 that Microsoft submits, Your Honor, should rely 24 on in keeping out all of this antitrust 25 evidence. 3049 1 Now, I wonder, okay, if that's the 2 best they have, what kind of record is that? 3 There are two other cases, Your Honor, 4 that I have submitted with U.S. versus Nadine. 5 One is the Hydrolevel Corporation case from the 6 Second Circuit. Another is an unreported 7 decision from the Northern District of 8 Illinois, the American Bank Card Center case. 9 Both of these cases, Hydrolevel is an 10 antitrust case. American Bank Card is a 11 derivative of an antitrust case. It's a Lanham 12 Act case. 13 Both of these cases, Your Honor, are 14 on all fours, and both of these cases, like 15 Callahan, hold that statements of customers for 16 the purpose of notice are admissible. 17 Just quickly in Hydrolevel -- 18 THE COURT: Not all statements. This 19 statement says to their state of mind; right? 20 MR. GRALEWSKI: Well, exactly. 21 THE COURT: Tell me the state of mind 22 that's here on page 19. 23 MR. GRALEWSKI: We're talking back to 24 189? 25 THE COURT: Yes. 3050 1 MR. GRALEWSKI: Let me get back to 2 189. 3 What we have here, Your Honor, this is 4 189, 11, to 199, is testimony about Lotus, 5 which is a customer or a potential customer of 6 DRI backing efforts by DRI to come up with 7 Cutlass. This is the product we were talking 8 about earlier. Okay. 9 Now, first of all, most of this long 10 answer -- and, again, this is the first time we 11 are appealing the Special Master's decisions. 12 Most of this long answer is not even 13 hearsay. It's simply Mr. Williams' own 14 conclusions based on his interactions with Jim 15 Manzi of Lotus. He repeats several times they 16 felt, Manzi felt this, he felt this. Those 17 aren't hearsay statements. 18 The only hearsay statement, Your 19 Honor, is at 190, lines 7 to 9, where Williams 20 testifies he verbally stated to me that he was 21 willing to fund substantial development to get 22 out of that. 23 To answer Your Honor's question, to 24 the extent earlier statements are characterized 25 as hearsay, and certainly to the extent this is 3051 1 hearsay, it fits within the confines of 2 Callahan because it all relates to Lotus' 3 motive and then current state of mind in its 4 desire that an alternative to Windows was 5 created. 6 For example, these statements are not 7 going to be offered to prove -- you'll see at 8 the bottom of 189 it talks about Gates tricking 9 Lotus -- Lotus into developing for OS/2. This 10 goes to the head fake issue. 11 We're not going to offer the 12 statements that prove that Gates actually did 13 trick Lotus or that Manzi was actually willing 14 to fund Cutlass, which is at the top of 190. 15 They're only going to be offered to 16 explain Lotus' and Manzi's motive in helping to 17 create an alternative to Windows. 18 THE COURT: Thank you. 19 Mr. Tuggy? 20 MR. TUGGY: One wonders if I should 21 start with the cases. I'll start with where 22 the devil is in the details, in the testimony. 23 First, to characterize Lotus as a 24 customer like those in Callahan is odd. 25 Lotus is an ISV. He's not a purchaser 3052 1 of software from Digital Research. And Lotus 2 has had conversations apparently with Digital 3 Research about whether Digital Research should 4 add a graphical user interface to its operating 5 system. 6 And Mr. Williams is reporting on why 7 it was Lotus was having those conversations 8 with Digital Research, and what he thought 9 Lotus's intentions were based upon what Lotus 10 said. 11 So in this set of testimony there are 12 -- it begins at 189, line 13, with Mr. Williams 13 stating we had these discussions with Lotus. 14 And then Mr. Williams purports to characterize 15 what Lotus was interested in doing. That 16 occurs through line 17. 17 Now, with respect to those, I wanted 18 to clarify the Special Master's ruling in the 19 chart you received. It says sustained 20 characterizations are not questions. I believe 21 the word he wrote was quotations. 22 Characterizations are not quotations of 23 statements. Not questions of statements. 24 THE COURT: All right. 25 MR. TUGGY: Which is important because 3053 1 what's happening in these first few lines is 2 that Mr. Williams is characterizing the 3 conversation he had with Lotus and Lotus' 4 interest at that time. 5 This is not -- he's not quoting Lotus 6 and then that statement is being offered to 7 prove Lotus' state of mind. He's 8 characterizing Lotus' state of mind and then 9 they are trying to offer that for its truth. 10 And the Special Master ruled that, in 11 that circumstance, there just isn't a state of 12 mind statement by Lotus that qualifies for 13 5.803(3). 14 Then what follows falls completely out 15 of the state of mind Callahan world because 16 what follows at line 18 are statements of fact 17 that Mr. Manzi was communicating to Richard 18 Williams or statements of belief in a fact. 19 And those statements are offered to prove that 20 that fact is true. 21 It's not state of mind evidence. It's 22 not evidence about what Lotus was intending to 23 do. It's not evidence stating Lotus' motive. 24 It's evidence stating what Lotus told Digital 25 Research, which is really rank hearsay. 3054 1 So these statements beginning at line 2 18, going through -- I'm sorry, page 189, line 3 18, through 189 line 5 is just Mr. Williams 4 recounting what it is Mr. Manzi told him about 5 matters not -- 6 THE COURT: You mean 190? 7 MR. TUGGY: I'm sorry, what did I say? 8 189, line 18 through 190, line 5. 9 Then, beginning at line 5 and going 10 through line 9, which is the end of this 11 section, Mr. Mr. Williams characterizes past 12 state of mind. 13 So Mr. Williams says, Mr. Manzi wanted 14 to have an alternative and he was willing to 15 pay dearly for that alternative. 16 So this is Mr. Williams characterizing 17 Mr. Manzi's past state of mind, which is not 18 what the hearsay exception permits to be 19 admitted, which is evidence of then existing 20 state of mind. 21 So in analyzing this long answer by 22 Mr. Williams, the only part that could be 23 characterized as state of mind evidence is the 24 first five lines. And that is just a 25 characterization by Mr. Williams, not the 3055 1 specific statements of Lotus and so can't be 2 used to show Lotus' state of mind. 3 The next set of lines from 189, line 4 18 to 189, line 5 is pure hearsay. It's not 5 statements of state of mind -- of state of mind 6 of Lotus. And then the last five lines is a 7 communication of past state of mind. 8 And, again, a characterization of 9 state of mind, not the statements by Lotus that 10 evidences state of mind. 11 So for those -- and, in addition, it's 12 not required for a statement to be hearsay for 13 it to be a direct quote. If a witness in 14 communicating about a conversation said I had 15 discussions with Mr. X and Mr. X felt that and 16 he's communicating what was being communicated 17 in that conversation, that qualifies for the 18 hearsay rule and is inadmissible as hearsay. 19 So this is hearsay within hearsay. It 20 doesn't qualify for a state of mind exception 21 for the reasons I explained, and really is not 22 a set of Callahan issues. 23 THE COURT: Could it be, besides state 24 of mind, motive on the part of Williams and DRI 25 to go forward with Cutlass? 3056 1 MR. TUGGY: If it's evidence that's 2 being offered -- if it were offered for that 3 purpose, it would be nonhearsay. I don't 4 believe the Plaintiffs are offering it for that 5 purpose. But that would be to explain 6 subsequent conduct which is -- 7 THE COURT: Okay. We are just talking 8 about the hearsay. All right. 9 Counsel? 10 MR. GRALEWSKI: Confining my response 11 to Mr. Tuggy's arguments and not repeating what 12 I said, I'll pick up on what Your Honor said. 13 To the extent we view this as DRI's 14 motive, one of the provisions of the state of 15 mind exception is design. 16 And there's actually another case in 17 this line of antitrust cases. I can give the 18 specific cite later. It's called Business 19 Electronics Corp. I'll just give it right now. 20 780 F. 2nd 1212. It's a Fifth Circuit case 21 from '86. 22 And that case holds, Your Honor, that 23 a party's design, in other words, their plans, 24 are certainly a relevant purpose under the 25 state of mind exception. 3057 1 So to the extent Your Honor used this 2 as DRI's designs on moving forward or not with 3 Cutlass, it would fall under the state of mind 4 exception. 5 Just two points, I believe, on what 6 Mr. Tuggy said, and I won't say anything else. 7 And if Mr. Tuggy wants to, he can, then you can 8 rule. 9 He started off by saying that it's odd 10 to characterize Lotus as a customer. 11 Lotus bought stuff from suppliers. So 12 I don't understand the comment. Certainly, if 13 Cutlass became a viable alternative to Windows, 14 Lotus could be buying that product from DRI. 15 With respect to the past -- 16 THE COURT: They were a prospective 17 customer of DRI, weren't they? 18 MR. GRALEWSKI: That's right. 19 THE COURT: Go ahead. 20 MR. GRALEWSKI: With respect to the -- 21 and we've been talking about this, and these 22 are, you know, difficult things to grapple 23 with, but several times Mr. Tuggy has attempted 24 to make the distinction of past statements. 25 And I'm left to wonder how possibly 3058 1 under Mr. Tuggy's analysis a statement would be 2 spontaneous enough or current enough. 3 I'm trying to think of in the context 4 of the Callahan case. Would the customer have 5 to be in the big guy's shop buying a six-pack 6 and for him to say at that moment that he pays 7 the money, I would have -- hey, I don't know if 8 you can hear me, but I would have bought my 9 beer from you, but he's got lower prices. Is 10 that the distinction? I would submit that 11 that's ridiculous. 12 In the Callahan case, for example, 13 Ms. Kapres, K-a-p-r-e-s, Your Honor may recall, 14 the testimony was she testified -- she's one of 15 the Plaintiffs -- that she had quite a few 16 customers come into her and say they wanted the 17 same deal, lower prices from me, or they were 18 just going to buy their beer from Beer World. 19 These seem to be -- to me to be 20 conclusions drawn by the customers in the past. 21 And the Court really didn't focus on the 22 contemporaneousness component or the 23 spontaneity of the statements as much as in 24 this unique antitrust environment. They were 25 statements by customers that went to prove 3059 1 their motive. 2 MR. TUGGY: Your Honor, on the point 3 about state of mind, the argument that -- I'm 4 sorry, that it was Digital Research's state of 5 mind, there's two problems with that. 6 First, there are no statements here of 7 Digital Research's state of mind. Mr. Williams 8 is not saying this was our state of mind, this 9 was my plan, this was my motive as a result of 10 these comments by Lotus. 11 Second, ultimately Digital Research 12 decided against developing Cutlass because it 13 was too expensive and because it took too much 14 manpower to write a graphical user interface. 15 And, in that context, where Lotus is 16 encouraging Digital Research to do this 17 project, it's not relevant that Lotus 18 encouraged Digital Research to do it to Digital 19 Research's state of mind when what Digital 20 Research did was not develop for Cutlass. 21 There's just a complete disconnect between what 22 Lotus is said to have said and what Digital 23 Research did. 24 The reason why the Plaintiffs want 25 this evidence is because Mr. Manzi told 3060 1 Mr. Williams, purportedly, that, quote, he felt 2 that Gates and Lotus and Microsoft and IBM had 3 literally tricked him into dedicating his 4 primary development stream to OS/2. 5 That's just a head fake theory 6 statement. That's what they want to offer it 7 for, so the Jury will hear it. 8 It's not to promote the Lotus state of 9 mind. It's not to prove DRI's state of mind. 10 It's just to prove that -- to offer that for 11 the truth, which is nothing other than a 12 statement of belief -- or the truth of that 13 belief is true. 14 As for spontaneous statements, as, for 15 example, Mr. Williams testified Lotus said we 16 want to help you develop Cutlass. That is a 17 then existing state of mind. That quote is not 18 here. That statement is not in here. 19 And, as a result, this is not state of 20 mind evidence and not to be admitted. 21 So Microsoft respectfully submits that 22 the Special Master's ruling should be affirmed. 23 THE COURT: Anything else on this? 24 MR. GRALEWSKI: Only that -- this is a 25 very limited point. Hydrolevel Corporation, 3061 1 that case that I handed up, Your Honor, deals 2 with potential customers and found that even 3 with respect to potential customers, the 4 evidence was admissible. That's at -- the jump 5 cite is 128. 6 THE COURT: Thank you. 7 Anything else, Mr. Tuggy, on this? 8 MR. TUGGY: Nothing further, Your 9 Honor. 10 THE COURT: The Court is going to rule 11 that lines -- on page 189, 11 through 17, 12 stopping at Lotus was very interested in 13 developing alternatives to Windows, that's 14 admissible. 15 Beyond that, because they -- starting 16 because they, and on to the next page, up 17 through and including line 5, is not 18 admissible. It's hearsay. 19 Starting at line 5, he wanted to have 20 an alternative and was willing to pay dearly 21 for that alternative, up to that point is 22 admissible. 23 After that and, hence, he verbally 24 stated is not admissible. 25 Anything else on that one? 3062 1 MR. GRALEWSKI: Thank you, Your Honor. 2 THE COURT: All right. Do you want to 3 do one more. Then we'll quit for the day? 4 MR. TUGGY: Yes, Your Honor. 5 MR. GRALEWSKI: Absolutely. 6 It happens to be that the next one, 7 Your Honor, I was going to take as a bunch, 8 starting at 218, 5, and ending at 222, 17, 9 because I believe they're related. 10 THE COURT: Okay. 11 MR. GRALEWSKI: If that's acceptable. 12 THE COURT: Sure. 13 Page 218? 14 MR. GRALEWSKI: I'm sure Microsoft 15 would echo this sentiment. I don't envy the 16 position you find yourself in being presented 17 with this complicated stuff pretty cold and 18 trying to quickly figure it out. 19 I've been dealing with Williams for 20 months. And when I turn to this again to 21 refresh my memory, I had to go back several 22 pages to figure out what was going on here. 23 THE COURT: Does that cause you trauma 24 too? 25 MR. GRALEWSKI: It does. It does. 3063 1 THE COURT: I know some good 2 counselors. 3 MR. GRALEWSKI: Let me go back prior 4 to 218 and attempt to put this in context for 5 Your Honor. 6 THE COURT: Okay. 7 MR. GRALEWSKI: This relates to -- 8 this testimony relates to a preannouncement 9 strategy that Microsoft had for Windows 3.0. 10 And, basically, what's going on here, 11 as is discussed in the prior pages that are 12 designated and that are clean, I believe, is 13 that Microsoft told all the OEMs that there was 14 going -- they were going to be coming out with 15 Windows 3.0 and there was going to be 16 significant demand for Windows 3.0. 17 Now, Windows 3.0 wasn't released yet. 18 But Microsoft started to hype it with the OEMs. 19 And what they also did was they told the OEMs 20 that they were going to be put on what they 21 called allocation. 22 And Microsoft also told them that 23 before you get more of this product -- Windows 24 3.0, when it eventually comes out, before you 25 get more, you're going to need to sell out 3064 1 what's been allocated to you. 2 So they're basically creating hype -- 3 creating this hype in the market that the OEMs 4 are really going to have to focus their 5 efforts, all of their efforts, on selling this 6 Windows 3.0 when it comes out. 7 And I keep saying Windows 3.0 -- 8 THE COURT: I think it's 5.0. 9 MR. GRALEWSKI: Yeah. I'm sorry. 10 It's -- I think Windows 3.0 was the prior item 11 at issue where they had done this. And what's 12 going on here is this testimony is about 13 MS-DOS, which is competing with DR-DOS. I'm 14 confusing myself. 15 But, hopefully, I'll get through this. 16 THE COURT: DR-DOS 5.0. 17 MR. GRALEWSKI: If not, Mr. Tuggy will 18 correct me. 19 So, anyway, as I said, Your Honor, 20 they created this hype. You can only get more 21 product if you sell out your existing Microsoft 22 stuff. 23 And Microsoft also told the OEMs that 24 they -- that all of the OEMs staff needed to be 25 dedicated to moving the Microsoft products off 3065 1 the shelf. 2 So with this background, we come to 3 the testimony at issue. And Plaintiffs' 4 position is we have another situation that's 5 very similar to Callahan. 6 All of the testimony -- and just for 7 the record, Your Honor, I'll give it. It's 8 218, 5 to 220, 2; 220, 13 to 25; 221, 5 to 222, 9 5, and 222, 6 to 17. Those are the cites that 10 we are -- those are the designations that we 11 are appealing. 12 All of the testimony at issue is 13 specifically tied to particular OEMs, even 14 though it doesn't need to be. And is 15 admissible to show the OEMs' motives in not 16 doing business with DRI because like in 17 Callahan, the actions -- because of the actions 18 of DRI's major competitor. 19 For example, at page 218, 16 to 17, 20 basically we have Ingram Micro telling DRI that 21 they're not going to be selling DRI's products 22 as a result of what Microsoft is doing. 23 Also, at 219, 9 to 15, what he said 24 was none of them -- let me see if I can 25 understand my notes here. I apologize. 3066 1 What's going on at 219, 9 to 15, 2 specifically, was in the past, I believe, 3 Ingram Micro was able to take market share away 4 from other OEMs because they had dedicated all 5 their resources to selling the Microsoft 6 product. 7 And what Ingram Micro is saying here 8 is that none of the OEMs are going to get 9 caught in that situation, again, where they 10 lose market share because they're not focusing 11 on the Microsoft products. 12 So then further, 221, 16 to 21, Chip 13 Lacy, he's with Ingram, the OEM, tells 14 Mr. Williams Microsoft's efforts here are so 15 extensive. 16 So at bottom, Your Honor, this whole 17 entire chunk of testimony explains, like in 18 Callahan, explains the OEMs' motives for not 19 doing business with DRI and, instead, choosing 20 to go to Microsoft and sell the Microsoft 21 products. 22 THE COURT: All right. Mr. Tuggy? 23 MR. TUGGY: Yes, Your Honor. 24 There are actually two levels of 25 hearsay. And at page 218, lines 5 and 6, the 3067 1 witness -- as you can tell, it's in the middle 2 of a long answer. And what he says is that 3 then comes to this. That then comes to this 4 paragraph 152. 5 So the question is, what is he talking 6 about, paragraph 152. What he's talking about 7 is a declaration that he wrote for the Federal 8 Trade Commission. And I'd like to hand up a 9 copy. I have a copy also for Plaintiffs, so 10 that you can see what paragraph 152 says, what 11 it's about. 12 THE COURT: This is what again? 13 MR. TUGGY: This is Mr. Williams' FTC 14 declaration. 15 THE COURT: His FTC declaration, okay. 16 MR. TUGGY: This is a document -- as a 17 reminder, that is one to which we asserted a 18 global hearsay objection because it's ex parte 19 testimony. 20 And the Special Master sustained it. 21 And that issue has been briefed and argued and 22 is pending before you. 23 And what Mr. Williams is describing in 24 paragraph 152 is not conversations that he had 25 personally, but conversations that, quote, our 3068 1 salespeople had. That's described near the end 2 of paragraph 152. 3 And in his answer, he described -- he 4 identifies those salespeople as Dave VanDaele 5 and Dave Valentino -- that's on lines 12 and 6 13. And that's also described in the excerpt 7 at 220. 8 I say all of this to say that on lines 9 5 to 21, there's two levels of hearsay. 10 Mr. Williams is reporting what Mr. VanDaele, 11 Mr. Valentino, and other salespeople reported 12 to him. 13 And there's no hearsay exception that 14 applies to the reports made by these low-level 15 salespeople to Mr. Williams. 16 Second, even if that level of hearsay 17 were satisfied, the statements being made by 18 these salespeople describing their 19 conversations with Ingram Micro and Softsell 20 and others are not statements of state of mind. 21 They are just statements of facts believed for 22 the purpose of proving those facts. 23 For example, at lines 19 and 20 is 24 don't spend any money you don't absolutely have 25 to. Sit out the storm, however long that is. 3069 1 We don't have the resources, on line 15, to do 2 it anymore. And because of what is coming from 3 your major competitor, you are going to get 4 smoked. 5 Those are not statements of the state 6 of mind of these companies. It's just 7 statements of fact that are being offered for 8 their truth. 9 Now, then, at lines 22 through -- I'm 10 sorry, page 218, line 22 through page 219, line 11 22, Mr. Williams is describing a conversation 12 he had with Chip Lacy. So this doesn't have 13 those two levels of hearsay. 14 But, in this conversation, there's no 15 statements of state of mind of Mr. Lacy or of 16 Ingram Micro. These are all statements of 17 prior facts, facts believed. 18 And just because someone says a 19 statement of fact that might explain what 20 motive they had, that's not the state of mind 21 exception. 22 State of mind exception is a statement 23 of a state of mind that is admitted for its 24 truth. And that statement doesn't exist here. 25 And that is why the Special Master in 3070 1 his ruling said only we aren't going to do it 2 is state of mind. That statement occurs at 3 page 218, line 15. 4 All right. So that statement is state 5 of mind and could be admitted except that it's 6 that second level of hearsay. It's salespeople 7 reporting it to Mr. Williams. 8 And if this Court were declined to 9 admit it, then there would probably be a little 10 bit more we'd have to put in there to provide 11 context for it. But it certainly wouldn't be 12 all this prejudicial material Plaintiffs want 13 to offer into evidence. 14 And, then, the conclusion of this 15 section, I think the last section that 16 Mr. Gralewski was arguing should be dealt with 17 together, is just more discussion about 18 Mr. Williams -- what was reported to 19 Mr. Williams by Mr. VanDaele and Mr. Valentino. 20 So those, again, are just two levels 21 of hearsay. And the first level hasn't been 22 satisfied. And, as to the second level, there 23 aren't statements of mind. 24 So while this is a long passage, the 25 Special Master was correct, that the only state 3071 1 of mind evidence in it is that particular 2 statement. Otherwise, the entire section is 3 hearsay and ought to be excluded. 4 Microsoft respectfully requests that 5 the Special Master's ruling, to that effect, be 6 sustained. 7 THE COURT: You have the last word, 8 sir. 9 MR. GRALEWSKI: Confining, again, just 10 to the items that Mr. Tuggy raised. 11 Two items, Your Honor. 12 On the issue of hearsay within 13 hearsay, I refer you to the American Bank Card 14 Center case. Plaintiffs submit that the 15 fundamental issue in these cases are these 16 statements of customers. 17 In the American Bank Card case, at the 18 third page of the opinion, the third printed 19 page of the opinion, lower left-hand corner, 20 what we have here is the plaintiff submits a 21 declaration by the president of a sales 22 organization, which is hearsay, okay. 23 And, in the declaration, he reports 24 that his sales representatives told him 25 something. Okay. I don't need to read the 3072 1 whole paragraph. 2 But this paragraph here, which is star 3 four that starts, However, ABC has produced the 4 declaration of Richard Wactlar, W-a-c-t-l-a-r, 5 addresses Mr. Tuggy's issue directly. 6 The second thing, Your Honor, to the 7 extent Your Honor believes there is a hearsay 8 within hearsay problem, the way to handle this 9 is to turn to McElroy and the other cases like 10 McElroy. 11 All of this testimony, all of it, from 12 the start of it at 218, 5, to the end of it at 13 222, 17, can be offered to explain subsequent 14 conduct, what subsequent conduct, Your Honor, 15 to explain the subsequent conduct of Ingram and 16 other OEMs in not purchasing DRI instead 17 favoring Microsoft products. 18 THE COURT: Anything else on that? 19 MR. TUGGY: Nothing, Your Honor. 20 THE COURT: Very well. 21 I will look at that. I'll do a ruling 22 on Wednesday when we meet and then we'll move 23 on to the next one at that time. 24 Is 8 o'clock Wednesday okay? 25 MR. GRALEWSKI: Perfect. 3073 1 THE COURT: Mr. Tuggy, is that all 2 right? 3 MR. TUGGY: 8 o'clock Wednesday? Yes, 4 Your Honor. 5 MR. GRALEWSKI: 8:00 to 8:30. 6 THE COURT: Yeah. Might as well get 7 something done. 8 MR. TUGGY: The only reason I 9 hesitated was there is a trade press motion 10 that we were going to try to hear at the end of 11 the day Tuesday, but, because of your trial, we 12 probably won't be done. And perhaps that would 13 be a higher priority because that relates to 14 option. 15 THE COURT: Let's take that up. 16 MR. CASHMAN: I think that won't be 17 possible to handle in half an hour, however, so 18 it might be possible to do on Wednesday after 19 court. 20 MR. TUGGY: That probably is right. 21 THE COURT: Is that okay? Okay. You 22 guys have a great night. 23 MR. TUGGY: Thank you. 24 MR. GRALEWSKI: Thank you, Your Honor. 25 THE COURT: Take care. 3074 1 (Proceedings adjourned at 4:39 p.m.) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3075 1 CERTIFICATE TO TRANSCRIPT 2 The undersigned, Official Court 3 Reporters in and for the Fifth Judicial 4 District of Iowa, which embraces the County of 5 Polk, hereby certifies: 6 That she acted as such reporter in the 7 above-entitled cause in the District Court of 8 Iowa, for Polk County, before the Judge stated 9 in the title page attached to this transcript, 10 and took down in shorthand the proceedings had 11 at said time and place. 12 That the foregoing pages of typed 13 written matter is a full, true and complete 14 transcript of said shorthand notes so taken by 15 her in said cause, and that said transcript 16 contains all of the proceedings had at the 17 times therein shown. 18 Dated at Des Moines, Iowa, this 19 day of , 2006. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25