3361 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 XIII 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 8:00 a.m., December 7, 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 3362 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 MICHAEL R. CASHMAN Attorneys at Law 8 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 9 500 Washington Avenue South Suite 4000 10 Minneapolis, Minnesota 55415 (612)339-2020 11 DOUGLAS J. ROVENS 12 Attorneys at Law Zelle, Hofmann, Voelbel, 13 Mason & Gette, LLP 550 South Hope Street 14 Suite 1600 Los Angeles, California 90071 15 (213)895-4150 16 ROBERT J. GRALEWSKI, JR. Attorney at Law 17 Gergosian & Gralewski 550 West C Street 18 Suite 1600 San Diego, CA 92101 19 (619) 230-0104 20 21 22 23 24 25 3363 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JOSEPH E. NEUHAUS Attorneys at Law 4 Sullivan & Cromwell, LLP 125 Broad Street 5 New York, New York 10004-2498 (212)558-3749 6 ROBERT A. ROSENFELD 7 Attorneys at Law Heller Ehrman, LLP 8 333 Bush Street San Francisco, California 94104 9 (415)772-6000 10 STEPHEN A. TUGGY HEIDI B. BRADLEY 11 Attorneys at Law Heller Ehrman, LLP 12 333 South Hope Street Suite 3900 13 Los Angeles, CA 90071-3043 (213) 689-0200 14 DANIEL S. SILVERMAN 15 Attorney at Law Heller Ehrman, LLP 16 4350 La Jolla Village Drive Seventh Floor 17 San Diego, CA 92122-1246 (858) 450-8400 18 19 20 21 22 23 24 25 3364 1 BRENT B. GREEN Attorney at Law 2 Duncan, Green, Brown & Langeness, PC 3 Suite 380 400 Locust Street 4 Des Moines, Iowa 50309 (515)288-6440 5 RICHARD J. WALLIS 6 STEVEN J. AESCHBACHER Attorneys at Law 7 Microsoft Corporation One Microsoft Way 8 Redmond, California 98052 (425)882-8080 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3365 1 (The following record was made out of 2 the presence of the jury.) 3 THE COURT: Good morning. 4 MR. CASHMAN: Good morning, Your 5 Honor. 6 MR. GRALEWSKI: Good morning, Your 7 Honor. 8 THE COURT: Okay. What are we working 9 on now? 10 MR. TUGGY: Well, Mr. Cashman sent me 11 an e-mail last night about some evidence that 12 Plaintiffs wanted to show in their opening 13 statements today. And, for most of it, we were 14 able to come to agreement. 15 There is one matter we'd like to bring 16 to your attention. 17 Plaintiffs seek to play the video of 18 testimony by Ms. Stefanie Reichel, a former 19 Microsoft employee. And if it pleases the 20 Court, I'd like to provide you with a copy of 21 the testimony they intend to play. 22 THE COURT: Okay. 23 MR. TUGGY: I apologize. This is in 24 minuscript form. It's rather small type. And 25 I have bracketed the testimony in what I have 3366 1 provided to you. 2 MR. CASHMAN: Since we are the 3 proponent, I think it would be appropriate if 4 -- 5 THE COURT: How did you find type this 6 small? 7 MR. CASHMAN: -- if we make our 8 proffer first, Mr. Tuggy. 9 MR. TUGGY: Mr. Cashman has just said 10 since they are the proponent of the evidence, 11 they'd like to make the proffer first and I'm 12 happy -- 13 THE COURT: Okay. Go ahead. 14 MR. CASHMAN: May it please the Court. 15 Mr. Tuggy has just handed up the transcript for 16 Stefanie Reichel. And the Court will see the 17 bracketed testimony which appears on pages 269, 18 270, and then again on 276. 19 And I will talk more particularly 20 about the testimony in a minute, but the first 21 reason why Plaintiffs believe they should be 22 permitted to use this in the opening statement 23 is, pursuant to their agreement -- the Court 24 will recall from the agreement which the 25 Plaintiffs showed to you yesterday, the parties 3367 1 do have an agreement which says that the 2 parties can use whatever evidence does not have 3 a sustained objection from the Special Master 4 or the Court or which has not been presented to 5 the Court and Special Master with a hearsay or 6 embedded hearsay or foundation objection. 7 The purpose of that agreement is so 8 that the parties could introduce and use -- I 9 should say use evidence such as this in their 10 opening statements without objection from the 11 opponent. 12 And the only issue being whether you 13 have a good faith belief that you are going to 14 be able to use it at trial. 15 And the Plaintiffs believe that they 16 do have such a good faith belief that this 17 evidence will be admissible at trial. 18 So, under the agreement, the 19 Plaintiffs are entitled to use this testimony 20 in their opening statement and request that it 21 be permitted on that basis. 22 Secondly, Microsoft has advised or has 23 undue prejudice claims to the bracketed 24 testimony. And let me provide a little 25 background for the Court. 3368 1 Stefanie Reichel was the account 2 manager for Microsoft Germany. And at the time 3 that -- at the time when she was providing this 4 testimony, I guess the time period she was 5 testifying about, she was the account manager 6 in Germany and she was the account manager for 7 Vobis, which was the largest OEM in Europe and 8 in Germany at that time. 9 And what's very important is what was 10 happening at the time that Ms. Reichel was the 11 Vobis account manager. She was there doing 12 that function from 1991, I believe, to 1994. 13 During that time period, the Federal 14 Trade Commission was conducting its antitrust 15 investigation of Microsoft for its sales and 16 marketing practices. And the FTC had been 17 doing that since 1990. 18 And, as part of those investigations, 19 Microsoft documents were being requested from 20 Microsoft employees. 21 And by 1992, the FTC was focusing on 22 Microsoft's contracts with its OEMs and whether 23 they obstructed sales to OEMs by competing 24 operating systems. 25 So the FTC antitrust investigation was 3369 1 not a secret. In fact, Miss Reichel's 2 superiors at Microsoft talked openly with her 3 about the investigation. 4 Furthermore, at the time this was all 5 going on, in Germany, Microsoft was conducting 6 an internal audit and documents were being 7 reviewed. And so officially there was a 8 corporatewide hold on the destruction of 9 documents at Microsoft. 10 And as we look at the testimony in 11 particular, you'll see that this testimony 12 concerns the spoliation issue and the fact that 13 electronic e-mails are being destroyed. 14 As we look further at the testimony, 15 you'll see that Miss Reichel refers to 16 Mr. Heuls, who is the director of OEM sales for 17 central Europe. 18 And I think that we look at the 19 testimony first on page 269, the question is 20 asked whether Ms. Reichel recalls Mr. Heuls or 21 anyone else suggesting that you should destroy 22 or erase certain kinds of records. And she 23 says he suggested I do that, yes. 24 So there's nothing unfairly 25 prejudicial about that given our spoliation 3370 1 claim and the context in which this important 2 evidence has been provided and how it will be 3 used. 4 Plaintiffs believe that the unduly 5 prejudicial claim for that first testimony has 6 no merit. 7 Then, we continue on to page 270, and 8 Ms. Reichel is asked, And did you destroy 9 certain documents? And then she says, yes, I 10 deleted -- I deleted e-mail, but I deleted 11 other e-mails too. 12 He says, I understand, but this was -- 13 you deleted specific e-mail in response to an 14 expressed concern by Mr. Heuls that he didn't 15 want certain documents around; correct? 16 Answer: Correct. 17 Question: And do you know whether Mr. 18 Heuls gave that instruction to others in the 19 Munich office? 20 Answer: I recall him telling the 21 group as a whole that we should make sure we 22 didn't have anything around, as you said, funny 23 stuff. 24 Now, again, Plaintiffs submit that 25 under the agreement, they're entitled to use 3371 1 this in their opening. 2 And, furthermore, that if it's 3 necessary to reach the undue prejudice 4 objection here, the probative value of the 5 destruction of evidence outweighs any 6 prejudicial effect. 7 Now, Mr. Tuggy is going to tell you 8 that Microsoft objects to the fact that 9 Plaintiffs are not planning to use in their 10 opening lines 2 and 3 on page 270. 11 And, again, this is opening statement, 12 and the Plaintiffs are entitled to use that 13 portion of the designated testimony which they 14 wish to display to the Jury. And there's 15 nothing unfair about the use of testimony as 16 we've indicated in the bracketed material. 17 Turning to page 276. It is the last 18 portion of the testimony that we wish to use in 19 the opening statement. 20 And here the question is, do you 21 recall Mr. Heuls ever saying something to the 22 effect that there are graveyards in East 23 Germany that no one knows about? 24 Yeah, I think I remember hearing make 25 a reference to that. 3372 1 Question: Do you recall him, then, 2 saying something to the effect that forensic 3 experts can restore information to computer 4 hard disks that have been deleted? 5 Answer: I know I've heard that said. 6 I just don't recall where. 7 Question: Do you remember Mr. Heuls 8 saying that in the same context as his remark 9 about the graveyards in East Germany? 10 Answer: Yes, I do recall him saying 11 something like that. 12 Plaintiffs submit that all of this 13 evidence, this testimony, is appropriate under 14 the agreement and that if we reach the 15 substance of the objection, their unfair 16 prejudice objection, that under the authority 17 in Iowa and Rule 5.403 that this evidence, the 18 probative value outweighs any prejudice claims 19 given that Plaintiffs' spoliation claim. 20 This evidence is not meant to simply 21 embarrass or inflame the Jury, but goes right 22 to the spoliation claim. 23 So it's not intended to unfairly 24 inflame or arouse hostility or sympathy, but, 25 rather, to underscore that Microsoft knew that 3373 1 there were -- they had internal audit going on 2 at the time and they knew that there were 3 government investigations looking for relevant 4 evidence, while at the same time Microsoft 5 executives were instructing people, such as 6 Ms. Reichel, to delete e-mails and, therefore, 7 destroy evidence. 8 So Plaintiffs request the right to use 9 this in opening statement without objection 10 from the Defendant. 11 Thank you. 12 MR. TUGGY: Your Honor, three times in 13 Mr. Cashman's argument, he stated that under 14 the parties' agreement when testimony such as 15 this has cleared the Special Master process and 16 the remaining objection is undue prejudice that 17 if a party has a good faith belief that during 18 trial the evidence will be admitted, that it 19 ought to be permissible for use in opening 20 statement. 21 That standard -- and in the agreement 22 it does have a good faith standard. It was 23 handed up to you -- ought to apply as a two-way 24 street. 25 Microsoft has 13 items of trade press, 3374 1 which it has precleared through the Special 2 Master. The Special Master has ruled that it 3 is being offered for a proper nonhearsay use, 4 and Plaintiffs object that it's unduly 5 prejudicial and they filed a motion with you 6 that it be excluded for use from opening 7 statements. 8 Microsoft has also gone to the Special 9 Master with testimony by certain executives, 10 one from -- former CEO of Apple, John Sculley, 11 and also an executive at WordPerfect named Pete 12 Peterson. 13 And we asked the Special Master to 14 rule on whether the testimony was admissible 15 for nonhearsay -- what was admissible testimony 16 could be used notwithstanding Plaintiffs' 17 hearsay objections. The Special Master 18 overruled the objections. 19 Plaintiffs object that it's unduly 20 prejudicial, and I just received an e-mail 21 either late last night or early this morning 22 that they plan to raise that with you. 23 If the Plaintiffs agree that this 24 standard ought to apply, the two-way street 25 will allow this evidence in on the theory that 3375 1 they have a good faith belief they can get it 2 admitted during trial and we will address its 3 admissibility through the designation process 4 that we've gone through other witnesses during 5 trial. 6 But the same models apply at this 7 point to the trade press and to the testimony 8 by Sculley and Peterson. 9 So if we're ready to do that now, then 10 let's just apply the agreement that way for 11 both sides and this material can be played. 12 MR. CASHMAN: Your Honor, Mr. Tuggy is 13 mixing apples and oranges. 14 That Plaintiffs -- as we will explain 15 this afternoon when the trade press motion is 16 argued and when the Sculley motion is argued, 17 there are other issues that pertain to those 18 matters. 19 And that's not what's on the table 20 here. And those matters don't concern just 21 claims of unfair prejudice. That concerns 22 plainly inadmissible evidence, and, 23 consequently, that's not the issue. 24 It's really a straightforward matter 25 of the inapplicability of the unfair prejudice 3376 1 objection to this particular testimony that we 2 are focused on here. 3 MR. TUGGY: Your Honor, I'd like to, 4 then, proceed to the merits of this testimony. 5 The first, I think, is rather easy and 6 that is the editing that's been done to the 7 testimony. 8 And that has to do with the testimony 9 designated at page 270. The question that was 10 asked at line 1 was, And did you destroy 11 certain documents? Plaintiffs' delete from the 12 testimony the answer, which is what do you mean 13 by destroy, though? 14 And then the next question, Well, 15 erased from your computer. And then they begin 16 the designation, again, at the answer to that 17 question which was, yeah, I deleted. I deleted 18 e-mail, but I deleted other e-mails too. 19 So what the Plaintiffs have done is 20 they've designated a question and then an 21 answer, not to that question, but to another. 22 It would be similar to if the question 23 were and did you kill your brother. 24 Answer: What do you mean by kill, 25 like he died in the car when I was driving it? 3377 1 Yes, when you had your accident, he died in the 2 car. Yes, he died in the car during the 3 accident. 4 It just has a totally different 5 meaning based on what was removed from the 6 actual testimony given. 7 If the Plaintiffs want to designate a 8 question and designate an answer to be played 9 for the Jury, they should be designating the 10 answer to the question. They shouldn't 11 designate an answer as if it were to a question 12 even though the answer was not to that 13 question. 14 Now, as to whether as a whole this 15 testimony ought to be played in the opening 16 statement, the question is not whether it is 17 ultimately admissible that we will be dealing 18 with during trial. 19 The question is ought this to be 20 played before the Jury, notwithstanding 21 Microsoft's objection that it's unduly 22 prejudicial. 23 And for the following reasons this 24 testimony ought not be played to the Jury, but 25 Plaintiffs ought to be required to establish 3378 1 its admissibility before it's shown to the Jury 2 at all. 3 This testimony involves conduct that 4 occurred in Germany in about the year 1992. 5 At that time, Plaintiffs are unable to 6 show -- it is their obligation and they have 7 not been able to show that in 1992, in Germany, 8 Microsoft had some sort of retention 9 obligation. 10 Plaintiffs reference an FTC antitrust 11 investigation that was occurring in the early 12 1990s. They are unable to point to any 13 requirement in connection with that 14 investigation that Microsoft retain e-mails in 15 Germany in 1992. 16 As has been briefed extensively 17 already, spoliation as an issue is incendiary. 18 Under the Iowa Supreme Court edicts 19 regarding the use of spoliation evidence, the 20 party propounding the evidence has a heavy 21 burden to show that it is relevant and it is 22 appropriate to put before the Jury. 23 At this point, as you can see from the 24 evidence that's being offered, especially 25 evidence relating to graveyards in East Germany 3379 1 that no one knows about, highly incendiary and 2 full of innuendo, very unclear as to what's 3 being referenced. 4 This testimony is going -- Plaintiffs 5 seek to play this testimony to inflame the Jury 6 without the foundation being laid that it is 7 admissible, that in Germany in 1992 there was 8 some sort of retention obligation that applied 9 to Ms. Reichel and Mr. Heuls. 10 And, further, they have not linked 11 this testimony to key evidence they say is 12 missing. Their exhibit list is full of e-mail 13 from Stefanie Reichel. 14 So without laying a proper foundation 15 for the use of this evidence, it is Microsoft's 16 position that Ms. Conlin may reference her 17 spoliation evidence to the extent you've 18 permitted it in her opening, but ought not to 19 be able to put up on-screen testimony that 20 lacks the foundation that this testimony lacks. 21 And, for those reasons, Microsoft 22 respectfully submits that the testimony offered 23 ought not to be shown at all to the Jury in the 24 opening. And to the extent that it is shown, 25 it should not be edited in the way that it's 3380 1 been edited. 2 And it ought -- and if it's going to 3 be permitted based on the agreement, it ought 4 to be a two-way street with Microsoft's trade 5 press. 6 That's all, Your Honor. 7 MR. CASHMAN: Your Honor, the editing 8 claim is a little bit of a misnomer because the 9 Plaintiffs have designated ultimately all of 10 the testimony. 11 What we're talking about is what 12 Ms. Conlin is going to focus on during opening, 13 and she's entitled to focus on the testimony 14 that she thinks is most relevant to her 15 arguments in opening. 16 So that, I submit, takes care of the 17 editing issue. 18 As far as the arguments that Mr. Tuggy 19 raised concerning the fact that this is a 20 German OEM, you'll recall that there was motion 21 in limine by Microsoft seeking to exclude 22 reference to conduct outside the United States. 23 And that motion was denied. 24 And we submit that this issue falls 25 within that very motion and that that argument 3381 1 should be rejected on that basis. 2 Lastly, Mr. Tuggy says that the East 3 German graveyard is highly incendiary. Well, 4 it's not. I mean, it's a fact in the case. 5 And just because the words are what they are, 6 when it's a fact that has been testified to by 7 a witness doesn't mean that it's highly 8 incendiary. She's just talking about facts and 9 what Microsoft executives said to her. 10 So that testimony is not unduly 11 prejudicial given the spoliation claim. And it 12 is the spoliation claim which gives it its 13 probative value that outweighs any alleged 14 prejudice from that comment. 15 So, for those reasons, the Plaintiffs, 16 again, request that they be given the green 17 light to use this testimony in opening 18 statement. 19 MR. TUGGY: I have nothing further, 20 Your Honor. 21 THE COURT: And you're going to link 22 this up somehow in your evidence in chief that 23 the spoliation claim was related to the four 24 elements that you need for spoliation in a way 25 -- you are going to link them? 3382 1 MR. CASHMAN: That is correct, Your 2 Honor. 3 THE COURT: That this event in 1992 4 had something to do with what's going on here 5 in Iowa -- 6 MR. CASHMAN: That is correct. 7 THE COURT: -- during the class 8 period? 9 MR. CASHMAN: That's our intent. 10 THE COURT: That's going to be 11 interesting. 12 MR. TUGGY: And, Your Honor, I think 13 to show it to the Jury, that should be done 14 now. 15 MR. CASHMAN: Well, Plaintiffs don't 16 believe that they're required to prove the 17 admissibility of this document to use it in 18 opening statement. 19 Obviously, we use it at our risk. 20 THE COURT: Well, the risk is not only 21 to you, it's also to the Defendant. To make a 22 claim that may not be admissible at trial, the 23 damage is already done. 24 MR. CASHMAN: Your Honor, Plaintiffs 25 believe that it will be admissible. 3383 1 THE COURT: Very well. 2 Anything else? 3 MR. TUGGY: Nothing further, Your 4 Honor. 5 THE COURT: I'll let you use 269 and 6 270, but 276 is too highly prejudicial to use. 7 It's beyond the pale. 8 MR. TUGGY: Your Honor, may I ask that 9 they be required to include the testimony or 10 the question they removed? 11 THE COURT: Yeah, line 2 will be 12 included on page 270. 13 MR. CASHMAN: So to -- if I understand 14 it, we may use it, but include the testimony at 15 line 2 on that page? 16 THE COURT: You may use lines 4 17 through 7 on 269, lines 1 through 15 on 270, 18 including line 2. You are not going to use 19 anything on 276. It's highly prejudicial at 20 this time. 21 MR. TUGGY: Thank you, Your Honor. 22 MR. CASHMAN: Thank you, Your Honor. 23 THE COURT: Let's -- well, nothing. 24 Next? 25 MR. GRALEWSKI: Your Honor, we have a 3384 1 very discrete issue in Rick Apple testimony 2 that I promised the Court I will be brief on. 3 THE COURT: Very well. 4 MR. SILVERMAN: Your Honor -- 5 THE COURT: Yeah. 6 MR. SILVERMAN: Okay. No, that's 7 fine. 8 MR. GRALEWSKI: Do you have the 9 transcript, Mr. Silverman? 10 MR. SILVERMAN: Yes, I do. 11 MR. GRALEWSKI: Your Honor, I'm going 12 to, if I may, present the Court with two 13 Plaintiffs' exhibits at issue. Mr. Silverman 14 will give you a transcript. 15 THE COURT: Thank you. 16 MR. GRALEWSKI: Last night after 17 court, Your Honor, we had intended to argue 18 this morning testimony regarding Richard 19 Freedman, a Microsoft employee. 20 Under exacting pressure from Mr. Tuggy 21 and Ms. Bradley, the Plaintiffs selected to 22 forego their appeals in exchange for some small 23 concessions on Microsoft's part, and we decided 24 to fill up the time this morning with Rick 25 Apple's testimony. 3385 1 Your Honor, this testimony is actual 2 trial testimony from the Gordon case in 3 Minnesota that occurred during that case two 4 and half years ago. 5 Rick Apple was a high-level employee 6 at an OEM in Minnesota. 7 Couple preliminary points, Your Honor. 8 When we were meeting and conferring on 9 this testimony, my proposal to Microsoft was 10 that because it was trial testimony on an issue 11 identical to this case, that these issues go 12 away. 13 All of this testimony that we are 14 proffering now came in in the Gordon case 15 without objection by Microsoft. 16 Mr. Tulchin was sitting at counsel 17 table while Mr. Apple was being examined in the 18 Gordon case. Ms. Nelles was there. Mr. 19 Pierson was there. Everybody you see here was 20 there in that case. 21 I sat at counsel table, and 22 Mr. Hagstrom examined the witness in the Gordon 23 case. 24 There are two issues on the 25 Plaintiffs' side, Your Honor. 3386 1 The first has to do with testimony at 2 pages 5253 through 5256. 3 And at this point I will be brief and 4 Your Honor will familiarize yourself, I'm sure, 5 with the testimony as I'm talking. 6 The issue here at page 5253 to 5256 is 7 that the witness is being examined about 8 Plaintiffs' Exhibit 4471, which I handed up, 9 Your Honor. 10 Now, last night when I was preparing 11 these arguments, I gave the two discrete issues 12 nicknames. The nickname for this issue, Your 13 Honor, is having your cake and eating it too. 14 Over the last several days' argument 15 about Mr. Williams, you've heard Mr. Tuggy tell 16 you you can't admit statements by OEMs because 17 they're not reliable. It's just Mr. Williams 18 repeating the statements of the OEMs. 19 Well, what we did, Your Honor, is we 20 subpoenaed in the Gordon case an OEM, and we 21 put him on the stand and we asked him about the 22 effect of Microsoft's per processor contracts. 23 This is a very important issue in the 24 case. It's understandable why Microsoft wants 25 to exclude this testimony. The testimony at 3387 1 5253 to 5256 is highly relevant, is very 2 helpful to the Jury, and explains why in 3 concise terms per processor contracts harmed 4 consumers. 5 Mr. Apple explains that as a result of 6 the per processor contracts, there was less 7 choice and higher prices. 8 So we submit that this testimony and 9 the associated document, which was admitted by 10 Mr. Pepperman, Mr. Tulchin's colleague, in the 11 Gordon case should come in. 12 THE COURT: Was this designated 13 testimony? 14 MR. GRALEWSKI: Absolutely. 15 THE COURT: Okay. 16 Mr. Silverman? 17 MR. SILVERMAN: Yeah, Your Honor. 18 A few minutes. 19 First, if we are going to use 20 nicknames, I think the appropriate nickname for 21 this exhibit and this testimony is you don't 22 get three bites at the apple, according to 23 Mr. Apple because what Mr. Gralewski did not 24 tell you is that this exhibit -- this very 25 exhibit we objected on grounds of hearsay, the 3388 1 Special Master sustained that objection. 2 Plaintiffs then appealed that ruling 3 to Your Honor, making the exact argument 4 they're making here today. And I brought with 5 me their brief, and Your Honor, over 6 Plaintiffs' argument and over their objection, 7 sustained the Special Master's ruling. 8 So to be perfectly frank, I do not 9 believe there's a proper procedural proffer 10 here or ability for Plaintiffs to reargue an 11 issue that's already been argued before, Your 12 Honor, which they lost. 13 And so the exhibit should definitely 14 come out, and the testimony we objected on 15 grounds that the testimony relating to an 16 inadmissible document comes out as well. 17 And the testimony at these three pages 18 all relates to this very exhibit and, 19 therefore, Plaintiffs shouldn't be able to get 20 the testimony in about an inadmissible exhibit, 21 so the testimony comes out as well. 22 So, I mean, it's a very -- on that 23 particular exhibit, it's very basic. The 24 issue's been litigated twice. They've lost it 25 twice. They shouldn't be able to reargue it 3389 1 before Your Honor a third time pressing the 2 same point they've pressed before. 3 MR. GRALEWSKI: May I respond, Your 4 Honor? 5 THE COURT: Yeah. 6 MR. GRALEWSKI: First of all, this is 7 the first time this testimony is being 8 presented to the Court. 9 To the extent Your Honor has ruled on 10 this document, as you know, the parties, 11 because of the volume of evidence, oftentimes 12 don't present or aren't able to present 13 everything having to do with the document. 14 To the extent Your Honor didn't have 15 the context and the testimony before you, I 16 make a motion at this point to reconsider your 17 ruling on PX 4471. 18 I will also note, Your Honor, with 19 respect to reliability, Mr. Pepperman in the 20 Gordon case cross-examined Mr. Apple for ten 21 full pages on this very document. 22 That testimony is at 5308, 10, to 23 5318, 18. 24 THE COURT: What is Mr. Apple's 25 relationship? Is he part of ZEos Financial? 3390 1 MR. GRALEWSKI: Yes, Your Honor. I 2 apologize for not fully explaining. 3 Mr. Apple was a high-level executive 4 at ZEos. There's foundational testimony at the 5 start of this chunk of testimony. 6 He worked very closely with 7 Mr. Herrick, I believe, who signed that letter, 8 and he testifies that he had direct 9 communication and was involved heavily in the 10 negotiations and issues concerning the per 11 processor contract. 12 And once that foundation was laid in 13 the Gordon case, Mr. Pepperman allowed this 14 document to come in without objection. 15 MR. TULCHIN: Your Honor, if I may. 16 The rules in the Gordon case clearly 17 were a little different than the rules here. 18 There's some evidence in Gordon that 19 was admitted that here has been excluded. 20 There was some evidence in Gordon that was 21 excluded that here has been admitted. 22 If the rule is that Mr. Gralewski can 23 argue this same point before the Special Master 24 and lose, appeal it and lose, and come back a 25 third time today to the Court with the same 3391 1 point that because the rules that Judge 2 Peterson used for admissibility in Gordon 3 should somehow govern, then we've thrown this 4 whole process, I think, into a state of chaos 5 because, clearly, that rule should work for 6 Microsoft as well. 7 And there's potentially -- I mean, a 8 ton of material where the rulings here are a 9 little bit different than the rulings in 10 Gordon. And I might just add that, of course, 11 there's no requirement that Minnesota law and 12 Iowa law on evidentiary matters be identical. 13 MR. GRALEWSKI: Your Honor, Mr. -- I'm 14 sorry, Judge Peterson didn't rule on this 15 document. Mr. Tulchin's colleague agreed to 16 admit it and then cross-examine the witness 17 later for ten full pages on the document. 18 MR. TULCHIN: My colleague was not 19 sitting as the Court, Your Honor. He didn't 20 admit it. 21 My colleague was subject to the rules 22 that Judge Peterson had set about evidence in 23 Minnesota. And apparently this fit within 24 those rules. 25 Here, according to Special Master 3392 1 McCormick and the Court on appeal, the Iowa 2 rule is different. 3 THE COURT: So you're appealing from 4 the appeal to me? 5 MR. GRALEWSKI: Your Honor, the 6 testimony has never been presented to Special 7 Master McCormick or Your Honor. 8 The testimony is being presented for 9 the first time now. The testimony concerns the 10 document. To the extent Your Honor didn't have 11 the benefit of the testimony and the full 12 context and the full understanding of who 13 Mr. Apple was when Your Honor ruled, I'm making 14 a motion for reconsideration on 4471. 15 MR. SILVERMAN: Your Honor, very 16 briefly. 17 THE COURT: How many more are we going 18 to have of these? 19 MR. GRALEWSKI: Your Honor, my 20 intention is to have very few. 21 THE COURT: Because otherwise the 22 Special Master system is now being relegated to 23 ridiculousness. 24 I mean, you are just -- now it's a 25 waste of time. 3393 1 MR. GRALEWSKI: I understand. 2 THE COURT: I'm going to review -- if 3 you are going to have me reconsider everything 4 the Special Master and I ruled on every time, 5 this is just -- you know, you guys shouldn't 6 even ask the Special Master. 7 You're making this ten times harder 8 than it is. That's just ridiculous. 9 I'm very, very upset about this 10 constant reconsideration, reconsideration of 11 rulings in a process that both parties have 12 agreed upon. 13 If you didn't like it, you shouldn't 14 have asked for it. I'm sorry. Now I signed an 15 order that you guys wanted me to sign. 16 So you say it's totally admissible to 17 talk about an exhibit that's been ruled by me 18 and the Special Master to be hearsay, it's okay 19 for Mr. Apple to talk about it in his 20 designated portions of testimony. Is that what 21 you're saying? 22 MR. GRALEWSKI: Not exactly, Your 23 Honor. 24 I'm saying that this exhibit is 25 admissible and is not hearsay and testimony 3394 1 about the document should be admitted. 2 THE COURT: Anything else on this? 3 MR. SILVERMAN: Very briefly, Your 4 Honor. 5 We echo your sentiment. There's a lot 6 of appeals we are trying to work through 7 because we are going to be here forever. 8 THE COURT: Let's just talk about 9 this, okay. 10 MR. SILVERMAN: Yeah. 11 Two quick points, Your Honor. 12 The testimony about the inadmissible 13 document literally walks through the exhibit 14 for a truth purpose. That's inappropriate. 15 The document is inadmissible. The 16 testimony should, likewise, be inadmissible. 17 Second, Mr. Gralewski, his motion for 18 reconsideration saying that there was no 19 opportunity to review the context of the 20 testimony with the exhibit. 21 They had the opportunity to do so with 22 the Special Master. They chose not to. 23 They had the opportunity to do so with 24 Your Honor. They chose not to. 25 Mr. Apple's credentials were set forth 3395 1 in the briefing. There's nothing new here. 2 The Special Master and Your Honor's 3 rulings should be affirmed for the third time 4 and the testimony should be excluded. 5 THE COURT: All right. Anything else 6 on this matter? 7 MR. GRALEWSKI: No, Your Honor. 8 THE COURT: It's denied. 9 What's the next one? 10 MR. GRALEWSKI: There's one issue we 11 could take up at the end. 12 THE COURT: Go ahead. 13 MR. GRALEWSKI: The last issue I 14 believe is Mr. Silverman's appeal of a trade 15 press issue so I'll allow him to proceed. 16 THE COURT: Mr. Silverman, has this 17 been excluded? 18 MR. SILVERMAN: No, Your Honor. 19 THE COURT: Did the Special Master 20 look at it? 21 MR. SILVERMAN: No. 22 THE COURT: Okay. Go ahead. 23 MR. SILVERMAN: It's Exhibit -- are we 24 talking about 1492A, Bob? 25 MR. GRALEWSKI: Yes. 3396 1 MR. SILVERMAN: If I may approach. 2 THE COURT: 1492? 3 MR. GRALEWSKI: This is a Defendant 4 exhibit, Your Honor. 5 THE COURT: Does this relate to this, 6 too, or is this a different one? This is 7 another portion of Apple? 8 MR. GRALEWSKI: It may. 9 MR. TUGGY: It's another portion of 10 Apple. 11 THE COURT: It is. Oh, okay. 12 MR. SILVERMAN: If I may approach, 13 Your Honor. 14 THE COURT: Yeah. 15 MR. SILVERMAN: This is Defendant's 16 1492A. 17 MR. GRALEWSKI: Your Honor, I 18 apologize. I understand the sensitivity of 19 moving -- 20 With your ruling on 4471 and the 21 related testimony, would it be appropriate to 22 ask the Court that Microsoft not be allowed to 23 designate their cross on the document that 24 we're not allowed to offer our affirmative 25 designations on? 3397 1 THE COURT: It seems reasonable to me. 2 You can't talk about it. It's either hearsay 3 for both or it's not hearsay at all. 4 MR. TUGGY: I agree, Your Honor. 5 THE COURT: Then it's out. 6 Next. 7 MR. GRALEWSKI: Thank you, Your Honor. 8 1492. 9 MR. SILVERMAN: Your Honor, 1492A, 10 Plaintiffs -- this is a -- well, it's an e-mail 11 that includes some trade press. 12 And there's some trade press from PC 13 Weekly, Infoworld, et cetera. 14 The witness, Mr. Apple, is 15 cross-examined by Microsoft's lawyer about this 16 exhibit. 17 And the questioning goes to the 18 credibility of the witness because his initial 19 questioning that he's asked about is as to 20 whether he's aware of any incompatibilities 21 with DR-DOS, and the witness claims he was not 22 aware of incompatibilities, and so 23 Mr. Pepperman, Microsoft's lawyer, proceeds to 24 show him this exhibit which clearly shows in 25 the trade press incompatibilities. 3398 1 And the witness is asked at 5319, 11 2 through 5320, 22, questioning about that very 3 exhibit, specifically he's asked about -- 4 THE COURT: Wait. Is this Apple, I'm 5 sorry? 6 MR. SILVERMAN: Yes, I'm sorry. This 7 is Apple. 8 THE COURT: Page 53 -- 9 MR. SILVERMAN: 5319, line 11. 10 THE COURT: All right. Sorry. Okay, 11 I got it. 12 MR. SILVERMAN: And the witness is 13 asked -- you'll see before 5319, 11. He's 14 asked questioning about awareness of 15 incompatibilities. And he says I'm not aware 16 of any incompatibilities. 17 So Mr. Pepperman then cross-examines 18 him, as he's proper to do, to impact or impugn 19 the witness' credibility, and he specifically 20 asks him about the Infoworld trade press on 21 September 16, 1991, which clearly talks about 22 the incompatibility. 23 And the witness says yes, it's the 24 biggest trade press magazine or trade press 25 weekly there is. We put advertisements in it. 3399 1 I read it periodically, and then he claims he 2 wasn't aware that there's a reference to the 3 incompatibility. 4 THE COURT: Okay. 5 MR. SILVERMAN: Microsoft is clearly 6 permitted in cross-examination for purposes at 7 minimum to impugn the witness' credibility to 8 ask about this trade press and its embedded 9 hearsay. 10 We're not offering to admit it through 11 Mr. Apple. We're simply using it for purposes 12 of context and specifically only to put on the 13 screen and to ask the witness questions 14 relating specifically to the trade press that 15 he's asked about in examination for purposes of 16 context. 17 And the parties have, through the meet 18 and confer process, discussed the issue of 19 context. 20 If the document is not going to be 21 admitted, but it's necessary to give context to 22 the testimony, then you can put it on the 23 screen so that the Jury understands what the 24 witness is looking at when he's testifying. 25 And that's all we want to do with this 3400 1 exhibit through this witness, is to put on the 2 screen the specific snippets in the trade press 3 to give context to the testimony. 4 And the testimony is clearly 5 admissible because, again, it's proper 6 cross-examination by Microsoft's attorney. 7 THE COURT: Snippets are all of the 8 highlighted portion? 9 MR. SILVERMAN: No, it's not all the 10 highlighted portions. 11 THE COURT: What portion are we 12 talking about? 13 MR. SILVERMAN: The specific portion 14 having to do with the Infoworld article on 15 September 16, 1991. I think it's the second 16 paragraph on the first page of the exhibit. 17 THE COURT: All right. Well, the 18 first page of the exhibit September 16th, 1991. 19 Do you want that first paragraph there or the 20 first and second? It starts getting Windows to 21 run. Do you see that? 22 MR. SILVERMAN: Getting Windows to 23 run, that's the area that he's being asked 24 about. 25 But specific -- it's the entire 3401 1 Infoworld section. He's specifically asked 2 about the first paragraph, but the whole 3 Infoworld piece is relevant to the questioning 4 because he's asked generally do you read 5 Infoworld and have you read this particular 6 article. 7 And so the specific piece is asked 8 about in the first paragraph. I think it makes 9 sense for context to put up both paragraphs 10 from Infoworld September '91. 11 THE COURT: Okay. 12 Response? 13 MR. GRALEWSKI: Yes, Your Honor. 14 This is through the backdoor is what 15 this argument is. 16 Talking about, Your Honor, ruling on 17 documents, the Special Master repeatedly 18 through the process has ruled that trade press 19 is inadmissible. Your Honor twice in Phase 1 20 and Phase 2 affirmed those rulings. 21 Mr. Pepperman in cross-examining 22 Mr. Apple never once asks him did you read this 23 article when it came out on September 9th, 24 1991. 25 All they want to do with this article 3402 1 is throw it up on the screen. It's rank 2 hearsay. They don't link the fact that 3 Mr. Apple ever read this particular article. 4 In fact, that question is never asked. 5 They just want to prejudice the Jury by showing 6 them rank hearsay; that it was reported in what 7 one Microsoft witness has called a gossip 8 column, that DR-DOS, suffered from 9 incompatibilities. 10 They shouldn't be allowed to display 11 hearsay to the Jury without linking it up with 12 the witness. 13 And so not only should the document, 14 Your Honor, not be shown, which the Special 15 Master has ruled that trade press is hearsay, 16 but the testimony about the document, where 17 there's no linking should be excluded, that's 18 5319, 8, through 5322, 21. 19 I mean, as you see, at the end of 20 5322, all the witness is doing is answering 21 Mr. Pepperman according to the article. He has 22 no personal knowledge about what's in the 23 article or what's reported. 24 THE COURT: Anything else? 25 MR. SILVERMAN: Briefly, Your Honor. 3403 1 Two points. 2 As a matter of compromise, we are 3 willing to not put the trade press on the 4 screen and just submit the testimony. 5 The testimony is proper 6 cross-examination, as well as the fact that it 7 does, in fact, impugn the witness' credibility 8 because he says he doesn't know about 9 incompatibility. 10 And yet it's very clear that he reads 11 the trade press, he's seen it, and the trade 12 press shows incompatibility. 13 At most, or at worst, it goes to the 14 weight of the evidence, but it's clearly proper 15 cross-examination. The testimony can come in. 16 Second of all, counsel has never 17 objected to the testimony on any of the grounds 18 that he's putting forth this morning, to the 19 Special Master or otherwise. 20 The only objection they ever raised 21 previously is having to do with an inadmissible 22 document. 23 Testimony having to do with an 24 inadmissible document. 25 We are not seeking to admit this 3404 1 document through this witness. So, therefore, 2 their objection on that ground falls away and 3 they have no other objections. 4 To object on grounds of hearsay today 5 and any other grounds is inappropriate because 6 they've never made those objections previously. 7 MR. GRALEWSKI: Very briefly, Your 8 Honor. 9 For the issue of credibility to be 10 relevant, we have a Gacke problem. 11 You have to believe the trade press is 12 true to believe that Mr. Apple's credibility is 13 compromised. 14 This is hearsay. It suffers from 15 Gacke, the Gacke issue, which is you have to 16 believe the trade press for this to be 17 relevant, and they shouldn't be allowed, even 18 if they are not going to put up on the screen 19 to allow the Jury to hear about ruled on trade 20 press without a linking. 21 THE COURT: Anything else? 22 MR. SILVERMAN: Nothing, Your Honor. 23 THE COURT: It's denied. 24 Any other issue? 25 MR. CASHMAN: Your Honor, one real 3405 1 quick issue. 2 Yesterday I said that I would tell you 3 this morning how much time we wanted to file 4 our brief in response to the collateral 5 estoppel brief filed yesterday by Microsoft. 6 And if it would be okay with the 7 Court, we request that we file that on Monday. 8 THE COURT: On the what issue? 9 MR. CASHMAN: Yesterday when Microsoft 10 provided their collateral estoppel. 11 THE COURT: Is this a pressing issue 12 that needs to be decided for this opening? 13 MR. CASHMAN: No, it's not an opening 14 issue, the collateral estoppel you will recall. 15 THE COURT: All right. 16 MR. CASHMAN: Is that okay with the 17 Court? 18 THE COURT: Any objection? 19 MR. TUGGY: No, Your Honor. 20 THE COURT: Very well. You may. 21 MR. CASHMAN: Thank you. 22 THE COURT: Mr. Silverman and 23 Mr. Gralewski? 24 MR. GRALEWSKI: Thank you, Your Honor. 25 THE COURT: Thank you. 3406 1 MR. SILVERMAN: Thank you. 2 THE COURT: You can repeat yourself, 3 Ms. Nelles. Go ahead. 4 MS. NELLES: Thank you, Your Honor. 5 I'm sorry. 6 THE CLERK: We have an issue and we 7 are working on it. 8 THE COURT: Just a minute. We are not 9 going to need them yet. 10 MS. NELLES: Thank you, Your Honor. 11 I think in the mix of people leaving, 12 you asked Mr. Cashman whether or not the 13 collateral estoppel issue is one that relates 14 to the opening statements. 15 And because he asked for some time to 16 put in another briefing on this, and 17 Mr. Cashman said no, it's not an opening issue. 18 In fact, it is an opening issue. It's 19 an issue that very much goes to our opening 20 statement and we do need some resolution on it. 21 It's been fully argued. 22 And I thought yesterday Your Honor had 23 suggested that you were going to rule on this 24 today, which -- and we would respectfully 25 request that we get this resolved as soon as 3407 1 possible. 2 THE COURT: Very well. 3 MR. CASHMAN: Your Honor, if I may. 4 Ms. Nelles wasn't in the courtroom 5 yesterday, I don't believe, when we discussed 6 this, but yesterday for the first time, and 7 without notice, the Plaintiffs were handed this 8 memorandum, Microsoft memorandum, concerning 9 the impact of collateral estoppel on 10 evidentiary issues. 11 I've read it. And nowhere does this 12 brief say we're seeking relief in relation to 13 opening statements or otherwise. 14 And, at the end of the day, I asked 15 the Court for permission to tell the Court 16 today how much time we'd like to provide a 17 response to this briefing. And all I was 18 requesting this morning is that we be given 19 until Monday to file our response to this. 20 And we can have any argument that's 21 necessary or appropriate following the 22 submission of that brief. 23 THE COURT: As I recall, you were 24 going to give me something today. 25 MR. CASHMAN: Well, we could look at 3408 1 the transcript. I asked for permission to 2 provide -- to tell you -- 3 THE COURT: I tell you what, I'm 4 finding it's an important issue and needs to be 5 decided now. How's that? That ends the 6 discussion. Okay? No brief Monday. This can 7 be decided now. 8 So get your authorities and at 9:30 we 9 are going to talk about it. 10 Recess till 9:30. 11 MS. NELLES: Thank you, Your Honor. 12 (Recess was taken from 8:52 a.m. to 13 9:42 a.m.) 14 THE COURT: Mr. Cashman, are you ready 15 to proceed? 16 MR. HAGSTROM: Your Honor, I'm going 17 to be handling this. 18 THE COURT: Okay. What do you got? 19 MR. HAGSTROM: First of all, I guess 20 I'd like to define the issue here. 21 As I -- 22 THE COURT: There's only one issue. 23 Can you present any further evidence when 24 you've used collateral estoppel offensively. 25 That's the issue. 3409 1 MR. HAGSTROM: Well, as Your Honor 2 indicated yesterday, what Ms. Conlin was doing 3 with regard to the opening statements, she 4 identified the finding of fact for the Jury, 5 read from that, and then the issue arose as to 6 whether or not she could interpret the finding 7 of fact. 8 Microsoft objected to that, and then 9 during the break, at 11 o'clock, we discussed 10 the fact that if there's going to be additional 11 evidence on a particular subject, that it would 12 be appropriate for her to so explain that; that 13 the finding of fact with the additional 14 evidence would show something like causation, 15 for instance, might go to the issue of damages, 16 might go to the issue of willful and flagrant. 17 And, for instance, Your Honor, in 18 colloquy with Ms. Conlin mentioned that several 19 times. 20 Like at 3198, you can state in your 21 opening statement the collaterally estopped 22 facts. In doing so, I would hope that you are 23 going to say that they will help with other 24 facts to prove another fact such as causation 25 or injury or something like that. 3410 1 And so it's my understanding that's 2 what the issue is here. 3 THE COURT: I just told you what the 4 issue was. Did you not hear me? 5 The issue at trial and the issue 6 before me right now is can you present any 7 additional supplementary evidence which already 8 has been established by the findings of fact? 9 In other words, if there's a finding 10 of fact. And on the board yesterday they had a 11 quotation that was exactly in the finding of 12 fact. Are you going to represent that 13 quotation again during the trial? 14 MR. HAGSTROM: It's not our intent to 15 do that. 16 THE COURT: Why did you put it on the 17 board? It seems like a waste of time. 18 MR. HAGSTROM: Well, as I understood, 19 what Ms. Conlin was doing was to try to put 20 certain of these facts in context. 21 When Microsoft raised the objection, 22 Ms. Conlin went through the opening to readjust 23 that issue so that that will not continue to 24 happen. 25 THE COURT: Okay. Now, do you intend 3411 1 to relitigate those facts which have already 2 been collaterally estopped by this Court? 3 MR. HAGSTROM: Absolutely not, Your 4 Honor. 5 THE COURT: So you are just going to 6 rely upon those facts; is that correct? 7 MR. HAGSTROM: Well, those facts and 8 other evidence to prove -- 9 THE COURT: Well, to your other 10 issues, yes. 11 But as to those facts and their 12 preclusive effect on those issues of the 13 government case, you're going to stay with 14 those; right? 15 MR. HAGSTROM: We're not intending to 16 relitigate those findings of fact. Obviously, 17 there is additional evidence since we brought a 18 motion for summary judgment, for instance, on 19 -- motion for partial summary judgment. 20 Your Honor denied that. Microsoft 21 denies liability. Microsoft denies damages. 22 Microsoft denies the willful and flagrant 23 issue. So there are a number of issues that 24 obviously need to be litigated. 25 Microsoft takes the issue that the 3412 1 government case only involved operating 2 systems. We believe that the facts can be used 3 for all purposes. And there's plenty of case 4 law on that because they are established facts 5 so they can be used for purposes of the 6 applications claims, but, those facts, with 7 other evidence, with testimony, prior 8 testimony, with live witnesses, with experts, 9 will be utilized by Plaintiffs to prove all of 10 their cause of action. 11 THE COURT: Will these -- 12 MR. HAGSTROM: But, again, we are not 13 intending to relitigate these facts. 14 As I stated, and I think as Ms. Conlin 15 made clear yesterday, the only issue or purpose 16 of pulling up some documents with regard to, 17 for instance, a quote, like I think one was the 18 Hewlett Packard letter, to put that particular 19 fact in context. 20 But that's not to say that letter may 21 not -- that's not to say that letter may not 22 have some purpose for some other issue in the 23 case. You know, I want to make that clear. 24 We're not going to relitigate the facts, 25 though. 3413 1 THE COURT: Okay. So now we are back 2 to square one. So you are going to bring in 3 all the evidence that supports those facts? 4 MR. HAGSTROM: No. Let me give you an 5 example. 6 There is a finding of fact that talks 7 about Bill Gates' Internet tidal wave 8 memorandum. There is a quote in one of the 9 findings of fact from that memorandum. It's a 10 lengthy memorandum. 11 There are also other quotes in that 12 memorandum, or statements in that memorandum, 13 that go to other issues in the case, such as 14 causation. 15 THE COURT: That were not quoted in 16 the findings of fact? 17 MR. HAGSTROM: Correct. 18 THE COURT: Okay. 19 MR. HAGSTROM: So I want to be clear, 20 so that with a document like that, we are 21 intending to use that because it has evidence 22 that can be used for another purpose. 23 THE COURT: All right, I understand 24 that. 25 MR. HAGSTROM: Okay. I mean, that's 3414 1 -- I mean, that's the way we intend to proceed. 2 THE COURT: All right. 3 MR. TULCHIN: We object to that, Your 4 Honor. It's on the same grounds that we've 5 discussed before. 6 And yesterday, from 12:00 to 2:30, 7 Ms. Conlin put up a great number of findings of 8 fact and also put up before the Jury a number 9 of documents that underlie those findings of 10 fact. 11 This memorandum that Mr. Hagstrom just 12 referred to was not one of those. But using 13 that as an example, when the Plaintiffs, in our 14 judgment, move for collateral estoppel on the 15 particular finding of fact that refers to that 16 document, I think they made their choice about 17 whether they can use that document in evidence 18 in this case. 19 Once collateral estoppel was granted 20 there, the underlying document ought not to be 21 used in evidence. 22 And the problem, Your Honor, again, as 23 we've discussed, is that the Plaintiffs, of 24 course, will say that all the documents 25 underlying the findings of fact can be used for 3415 1 another purpose. They will say that every 2 document goes to the question of willfulness. 3 They already have said that. 4 Ms. Conlin, when she was using those 5 documents yesterday, kept saying, well, this 6 goes to willfulness. But, of course, that 7 means that all the same conduct underlying the 8 government case comes back in purportedly for 9 another reason. 10 And to use the Gates memo about the 11 Internet tidal wave, if the Plaintiffs are 12 going to put that into evidence and have 13 witnesses, for instance, experts, make 14 arguments about what that means or what 15 consequence something in there has for 16 causation or willfulness, then, of course, 17 Mr. Gates must be free when he's here and on 18 the stand to talk about the same document and 19 what he meant as opposed to what an expert says 20 he meant about a particular portion of that 21 document. 22 And we do then go back to square one 23 where everything that happened in the 24 government case gets relitigated. 25 Of course, we oppose the motion for 3416 1 collateral estoppel partly for this reason. 2 But once the Court ruled and granted 3 that motion as to 146 findings, again, in our 4 judgment, the Plaintiffs have made their choice 5 and ought not to put back into evidence a great 6 deal of material that pertains to those 7 findings. 8 THE COURT: Well, that makes no sense 9 to me whatsoever. 10 You have a memorandum, and the Court 11 in DC quoted from one specific portion of it 12 and used it for a finding of fact, but did not 13 quote from other portions of it and did not use 14 it for any other finding of fact. 15 You're saying the fact that they used 16 one part of that exhibit collaterally estops 17 using any other part of that exhibit for any 18 other reason whatsoever? That makes no sense 19 to me at all. 20 MR. TULCHIN: No, Your Honor. With 21 all respect, what we do then is we get on a 22 very slippery slope. 23 That document which underlies a 24 particular finding of fact now comes into 25 evidence, presumably the entire document, and 3417 1 it will be difficult, if not impossible, to 2 segregate one piece of the document as being -- 3 unless the Court's ruling is that simply, the 4 only thing now that's covered by collateral 5 estoppel is what's quoted in the finding, but, 6 otherwise, the document and what it says and 7 what directions, for instance, it contains then 8 becomes the subject of litigation. 9 I mean, for example, Your Honor, the 10 Intel -- if we can back up one step. 11 Some of the findings that Ms. Conlin 12 was arguing to the Jury about yesterday 13 pertained to the Intel native signal processing 14 event where there are findings pertaining to 15 Microsoft's efforts to get Intel to stop 16 writing this NSP software. 17 And, of course, in the government 18 case, it was a hotly contested issue as to why 19 Microsoft sought to get Intel to stop writing 20 this software. I wasn't at the government 21 case, but, if I remember correctly, part of the 22 issue was that Microsoft believed that the NSP 23 software did not work well, did not function 24 well, and was not compatible with Microsoft's 25 software. 3418 1 So Judge Jackson ruled against 2 Microsoft on that issue and found that the 3 purpose for Microsoft seeking to put a stop to 4 this NSP was an anticompetitive purpose instead 5 of a business efficiency purpose. 6 Once those documents now go back in, 7 and Ms. Conlin showed portions of some of those 8 documents, there are other portions of those 9 documents that relate squarely to the 10 justification that Microsoft proposed in the 11 government case to Judge Jackson as to what was 12 really going on with Intel. 13 Now that the document is in evidence, 14 is it the Court's ruling that the Plaintiffs 15 have as a matter of law a document in evidence 16 about which no comment can be made, even if the 17 document contains exactly the justification 18 that Microsoft believed was correct, but Judge 19 Jackson once rejected? 20 The finding is one thing. We accept 21 that if there's a finding and the Court has 22 granted collateral estoppel, that's the end of 23 it. 24 But once the underlying document comes 25 in, it's no longer the end of it. The Jury has 3419 1 in front of it the full document, and 2 presumably one, then, can use it in evidence as 3 one could use any other document. 4 Now, Mr. Holley was addressing this 5 yesterday, and perhaps I jumped in, and I 6 shouldn't have, but that's the path we're going 7 down. 8 Every document that underlies the 9 findings could be said to pertain to some other 10 issue. Every one could be, because, of course, 11 here we have this issue of willful and flagrant 12 conduct, which was never an issue in the 13 government case. There was no request for 14 damages. It was an equitable enforcement case. 15 And, by definition, whether conduct 16 was willful and flagrant, in order to explore 17 that, one has to understand the entire 18 ramifications of that conduct. 19 So if that piece of evidence about 20 native signal processing comes in, it also has 21 in that e-mail or document evidence that we 22 could use on willfulness, on whether conduct 23 was willful or flagrant. Because, after all, 24 in the government case, Microsoft believed that 25 it had a pro-competitive justification for its 3420 1 conduct. 2 The Court ruled against us, but now if 3 the document comes back in, there is evidence 4 which we will say goes to show nonwillful 5 conduct. And we're back to square one where 6 everything gets litigated and the Plaintiffs 7 have the benefit of the 146 findings. 8 THE COURT: What if you have a 9 document, let's say, that says, just for an 10 extreme example, one document that says A stole 11 money from B and also says D stole money from 12 E? The findings of fact in the first case 13 found the first one, A stole money from B. 14 That's all they found. 15 Now, this case is did D steal money 16 from E. Are you saying the document can't come 17 in at all? 18 MR. TULCHIN: In that case, I don't 19 think you'd have collateral estoppel on the A 20 stole money from B. 21 THE COURT: That's right. Let's say 22 -- no. Let's say the first case found A stole 23 money from B. 24 MR. TULCHIN: Right. 25 THE COURT: So you can't relitigate 3421 1 that again? 2 MR. TULCHIN: Correct. 3 THE COURT: Now, you got -- they want 4 to bring in the whole document again or the 5 document where D stole money from E. 6 Are you saying they can't bring it in 7 for that purpose if that's an issue in this 8 case? 9 MR. TULCHIN: Well, here's what I'm 10 saying, Your Honor. 11 The Court could instruct the Jury in 12 that case that A stole money from B, that that 13 fact has been established and must be accepted 14 by the Jury and the parties in that case as an 15 established fact. 16 THE COURT: Okay. 17 MR. TULCHIN: The document could then 18 come in to show that D stole money from E or -- 19 I forget what your hypothetical was. 20 THE COURT: D, E, yeah. 21 MR. TULCHIN: Or what -- 22 THE COURT: D from E, yeah. 23 MR. TULCHIN: Whatever it was. 24 THE COURT: Whatever it was. 25 MR. TULCHIN: Here -- and, Your Honor, 3422 1 I just want to step back a bit. 2 I know the Court doesn't want any of 3 us to relitigate this thing from scratch. 4 But in this case, what we argued from 5 the outset is that the 12 acts that the DC 6 circuit found to be anticompetitive, which are 7 the conclusions that the Court has given the 8 Jury, that those be read to the Jury as 9 established facts. 10 And had that been the case -- that is, 11 we are back to your hypothetical -- if the 12 Court had simply told the Jury here are the 12 13 acts or 12 events or 12 types of Microsoft 14 conduct found to be anticompetitive, to violate 15 the Iowa Competition Law, then we wouldn't be 16 having this debate because the Plaintiffs 17 wouldn't have finding number -- I forget what 18 the number is about NSP, but 213, or whatever 19 the number was. 20 And they wouldn't be able both to get 21 the advantage of Judge Jackson's rather 22 ascorbic language in which he not only rejects 23 -- he doesn't refer to Microsoft's arguments in 24 the government case about native signal 25 processing. 3423 1 What he does is say in a very, I 2 think, rough tones and leaving no doubt, that 3 Microsoft's conduct there was, let's say, left 4 something to be desired. It was -- it was poor 5 conduct, and it was anticompetitive. 6 So by getting that finding, what we 7 say is that once they have that finding from 8 Judge Jackson, which is well more than simply 9 saying that Microsoft's conduct when it came to 10 native signal processing was anticompetitive. 11 They have these long paragraphs from 12 Judge Jackson. That by getting the benefit of 13 that, they ought not be able to get in the 14 underlying evidence. 15 And once Ms. Conlin has shown the Jury 16 a piece of that document, then I think I agree 17 with Your Honor, once that's in, surely the 18 Defendant must be able to refer to other pieces 19 of the same document. 20 So the argument we're making here is 21 that either the document comes in and then it's 22 open season -- and some of them have now been 23 shown to the Jury -- or none of that underlying 24 evidence, that is, the evidence that directly 25 underlies a particular finding, should come in 3424 1 at all. 2 And, frankly, Your Honor, I mean, we 3 can -- I think we can go with it either way. 4 That is, whichever way the Court rules is the 5 way the game will be played. 6 What the Plaintiffs have offered, and 7 what Mr. Cashman said yesterday, and I do think 8 -- I'm waiting for his authority. 9 What Mr. Cashman said yesterday is 10 that they can have it both ways. Mr. Cashman 11 said collateral estoppel is a one-way street, 12 and what the Plaintiffs were asking for is 13 permission from the Court to get the findings. 14 In this case, for example, the Intel NSP 15 findings, to use the underlying documents. 16 They may say it's for willfulness, 17 but, of course, everything goes to willfulness 18 and at the same time to bar Microsoft from 19 litigating any of the issues that pertain to 20 that finding. 21 And, of course, our position is that 22 can't be the outcome. 23 MR. HOLLEY: Your Honor, can I provide 24 one more specific example of why what happened 25 yesterday afternoon is a problem? 3425 1 Ms. Conlin referred to Finding of Fact 2 160 which says, consequently, in late 1995, or 3 early 1996, Microsoft set out to bind Internet 4 Explorer more tightly to Windows 95 as a 5 technical matter. 6 The intent was to make it more 7 difficult for anyone, including system 8 administrators and users, to remove Internet 9 Explorer from Windows 95 and to simultaneously 10 complicate the experience of using Navigator 11 with Windows 95. 12 As Brad Chase wrote to his superiors 13 near the end of 1995, quote, we will bind the 14 shell to the Internet Explorer so that running 15 any other browser is a jolting experience, 16 closed quote. 17 And instead of just relying on that 18 finding, she put up on the screen Plaintiffs' 19 Exhibit 4601. And I'd like to hand the Court, 20 with permission, a copy of Plaintiffs' Exhibit 21 4601. 22 Because if the issue is willfulness, 23 this document contains a lot of information 24 about Microsoft's good faith belief that there 25 was a pro-competitive benefit for including 3426 1 Internet Explorer in Windows, including the 2 concept of shell integration. 3 And what that meant was that you could 4 look at information on the Internet and look at 5 information on your local computer and you'd 6 have a common navigational method of doing 7 that. 8 If we're going to be accused of 9 engaging in willful and flagrant behavior and 10 in designing Windows in a way that had a purely 11 anticompetitive purpose, and they're going to 12 be entitled to introduce documents that 13 underlie Finding of Fact Number 160, how can it 14 be fair to prevent us from pointing out that 15 throughout that document, in the sections that 16 I've highlighted for the Court, Microsoft 17 describes the pro-consumer benefits of the 18 design of Windows that was chosen. 19 Either this finding of fact is binding 20 for all purposes, including the question of 21 willfulness, or we're going to go behind it. 22 And both sides are going to have to be able to 23 argue about whether or not this evidence 24 demonstrates willfulness. 25 THE COURT: As you pointed out, 3427 1 though, in earlier argument, the DC circuit 2 didn't find willfulness. 3 MR. HOLLEY: That's correct, Your 4 Honor. 5 THE COURT: So was the issue not 6 precluded? It's not collaterally estopped. 7 MR. HOLLEY: Okay. That is why in the 8 Setter case and in the in re: Aircraft disaster 9 at Stapleton Airport case, the Court says you 10 can't have it both ways. 11 If all this evidence about the 12 aircraft disaster in Denver was going to come 13 in whether Continental Airlines should be hit 14 with punitive damages, the Court said then we 15 are not going to have collateral estoppel. 16 But we do have collateral estoppel in 17 this case. And we accept the Court's decision 18 in that regard. And, as Mr. Tulchin says, we 19 are happy to play by the rules. 20 But, they can't have it both ways. 21 They elected collateral estoppel. They thought 22 they were going to gain a strategic advantage, 23 and now they have to live with the consequences 24 of that. 25 THE COURT: So you're saying if 3428 1 there's something in an exhibit that's already 2 been collaterally estopped, but there's another 3 portion in the exhibit that goes to another 4 issue, they can't use the whole exhibit? 5 MR. HOLLEY: But that's not what 6 Ms. Conlin was doing yesterday. That's a 7 different and interesting question, Your Honor. 8 But what she was doing yesterday was 9 engaging in a process that I regard as 10 bolstering. 11 She was saying there is a finding that 12 says X, and here is a piece of the document to 13 somehow, you know, increase the effect of that 14 document. She wasn't saying there's something 15 else in this exhibit that isn't addressed in 16 Finding 160. That's a very different thing. 17 And if Microsoft did something that 18 went to its willfullness, the finding of fact 19 has that effect. 20 The document doesn't make what 21 Microsoft did any more or less willful. But if 22 they're going to be able to introduce these 23 documents to argue that our behavior was 24 flagrant, then we've got to be allowed to look 25 at the portions of the document that show that 3429 1 we had a good faith reason to believe that what 2 we were doing was pro-competitive. 3 Otherwise we're fighting with, you 4 know, one and a half hands tied behind our 5 backs. I mean, they get to pile on and we have 6 to say nothing. 7 THE COURT: Anything else? 8 MR. HOLLEY: No, Your Honor. 9 THE COURT: Mr. Tulchin? 10 MR. TULCHIN: No, sir. 11 THE COURT: Mr. Hagstrom? 12 MR. HAGSTROM: Just briefly, Your 13 Honor. 14 I hear sort of a parade of horribles 15 type argument, but the findings of facts are 16 established in this case. 17 Microsoft is precluded from disputing 18 them. It's precluded from collaterally 19 attacking them. 20 This whole issue arose because of what 21 Mr. Holley has called bolstering. And there's 22 not going to be any more putting up documents, 23 you know, that have the quotations in them that 24 are in the same findings of fact. 25 But Your Honor is absolutely correct 3430 1 that when your example of A stole from B and D 2 from E, if there's some other fact in the 3 document that's for a purpose in this case, the 4 document, of course, must be used. 5 And to be clear, there was, you know, 6 a ton of evidence in the Department of Justice 7 case, and we had a pretrial procedures order in 8 this case that adopted discovery and so forth 9 from all of the related cases and the MDL. And 10 the MDL pulled in all of the discovery and 11 testimony from the DOJ case. 12 We've designated just a portion of the 13 DOJ case testimony and exhibits. So to the 14 extent there is something there that goes to an 15 issue other than, you know, these particular 16 findings, we intend to use it. And we believe 17 that that is entirely fair. 18 It's contemplated by the pretrial 19 procedures order. And, in fact, we didn't take 20 additional discovery because of that. 21 So it would be ludicrous to suggest 22 that we can't use that testimony or 23 documentation from the government case. 24 As I indicated, we're not going to be 25 challenging the findings. And Microsoft is 3431 1 precluded from challenging the findings. This 2 whole -- as I indicated, this whole issue came 3 up because of what Mr. Holley has termed 4 bolstering. 5 They objected. Your Honor made known 6 your ruling on that issue yesterday shortly 7 after 11 o'clock, and so that's just not going 8 to be going on. 9 MR. HOLLEY: Your Honor, briefly. 10 It continued all afternoon. And all 11 Ms. Conlin did differently in the afternoon 12 than what she did in the morning was to say 13 that this goes to the question of willfulness. 14 And, then, apparently that, in their 15 view, blows the door wide open to introducing 16 all of the evidence that underlies one of the 17 findings of fact because somehow, in their 18 view, that evidence goes to a different issue 19 in the case. 20 Well, if that's true, then it's hard 21 to understand what the purpose of collateral 22 estoppel is. It certainly isn't going to save 23 any judicial resources. 24 And if they're going to seek to 25 explain from additional evidence what the 3432 1 findings of fact really mean, then it isn't 2 fair for us to be precluded from offering the 3 same explanation if it goes to willfulness or 4 causation or some other issue in the case. 5 THE COURT: Anything else? 6 MR. HOLLEY: No, Your Honor. 7 THE COURT: Mr. Hagstrom? 8 MR. HAGSTROM: Your Honor, this is 9 offensive collateral estoppel. We were not a 10 party to the prior litigation. And based upon 11 the pretrial procedures orders, we're entitled 12 to use additional evidence. We are not 13 challenging the findings. 14 Microsoft is precluded from 15 challenging those findings. And to the extent 16 there is evidence that goes to another issue, 17 we intend to use it. But that does not open 18 the door to relitigation of the findings of 19 fact. 20 Thank you. 21 THE COURT: So do you intend to 22 continue to put up exhibits that have exact 23 quotations that are in the findings of fact? 24 MR. HAGSTROM: As I indicated earlier, 25 we do not intend to do that. 3433 1 MR. TULCHIN: If Mr. Hagstrom is 2 conceding that it shouldn't have been done, 3 Your Honor, then I just would request some 4 instruction to the Jury that they should ignore 5 or try to remove from their thinking each of 6 the documents they were shown yesterday. 7 THE COURT: Anything else? 8 MR. HAGSTROM: We object to such an 9 instruction. 10 THE COURT: Okay. 11 No further argument? 12 Okay. I'm going to find that the 13 facts that have been collaterally estopped are 14 so estopped. 15 The underlying evidence for those 16 findings cannot be used to support that finding 17 again. The underlying document or evidence may 18 be used to address a different fact which has 19 not been collaterally estopped, which is to be 20 determined by the fact finder, in this case the 21 jury, but not for the sole purpose of 22 bolstering a fact already established. It must 23 be used for a different reason. 24 When it's used for that reason, to 25 establish a different fact, such as -- I'm not 3434 1 even going to venture to guess -- the Defendant 2 may then defend against those portions of the 3 exhibit or evidence that are offered for other 4 purposes not established by the collaterally 5 estopped findings of fact. 6 MR. HAGSTROM: Thank you, Your Honor. 7 THE COURT: Mr. Tulchin, did you get 8 -- do you want me to reread that or did you get 9 it? 10 MR. TULCHIN: I think I have got it, 11 Your Honor. Thank you. 12 THE COURT: Okay. I can reread it if 13 you want. 14 Anything else before the Jury comes 15 back? I told them to come back at 10.30. Is 16 that all right? 17 MS. CONLIN: Sure. 18 THE COURT: Okay. So we'll wait until 19 they get back. We'll recess until then. 20 (A recess was taken from 10:13 a.m. 21 to 10:30 a.m.) 22 MR. HAGSTROM: Your Honor, I think 23 Microsoft handed up its objections and 24 exceptions. Can I just do that as well? 25 THE COURT: To what? 3435 1 MR. HAGSTROM: We served them and 2 filed them as well. 3 THE COURT: Oh, that. What did we do 4 with theirs? Did we file it? 5 MR. HAGSTROM: I think they were 6 handed up. 7 THE COURT: Did you guys file it? 8 MR. HOLLEY: I believe we did, Your 9 Honor. I hope that was all right. 10 MR. GREEN: Yeah. I gave a copy to 11 Carrie. 12 THE COURT: To file, okay. 13 MR. GREEN: We filed one and I gave a 14 copy to you. 15 THE COURT: You still know where the 16 clerk's office is, Chris? 17 MR. GREEN: Yeah. I keep wandering in 18 the criminal division. 19 THE COURT: For good reason. 20 MR. WALLIS: I'm glad you said that. 21 THE CLERK: All rise. 22 (The following record was made in the 23 presence of the jury at 10:31 a.m.) 24 THE COURT: Everyone else may be 25 seated. 3436 1 We are going to stay on the regular 2 schedule. I apologize for that. So I will 3 break at 11:00 as I told you. I apologize for 4 the break this morning. 5 Please don't blame the parties. If 6 you want to blame somebody, blame me. It was a 7 matter of law that the Court needed to take up 8 which only the parties, the attorneys, and the 9 Court could decide. 10 So please do not hold that against 11 anyone except me if you want to. 12 MS. CONLIN: May it please the Court. 13 Good morning. 14 You probably would like to know where 15 we are, so let me tell you. 16 I have a little bit more to discuss 17 with you about the findings of fact, and then, 18 as I indicated, we have -- I want to talk to 19 you about the applications. 20 And then there are three short stories 21 about Real and Be and Linux. 22 I have combined the Acer story that I 23 mentioned with the application story and cut a 24 whole bunch of it out. 25 And then we'll be talking a little bit 3437 1 about a concept called spoliation. So that's 2 where we are in terms of mine. 3 Then Mr. Hagstrom is going to talk to 4 you about the two other issues, which are 5 causation and damages. 6 So I would expect that we may take 7 today and tomorrow and perhaps some part of 8 Monday as well for our opening statement. 9 As I indicated, this is a record- 10 breaking case in every way. And certainly the 11 length of the opening statements is unusual. 12 But the case is unusual and, you know, 13 the decade and a half or so that we are 14 covering and the number of products. 15 I hope you will find that when you 16 begin to hear the evidence, which we are also 17 going to try to present in the -- you know, in 18 the order that I'm doing this. 19 Now, I will tell you from experience 20 that that's not going to work out. You know, 21 people can come when they can come and there 22 will be problems. But hopefully this will give 23 you a framework through which to view the 24 evidence. 25 This, as the Court told you, is not 3438 1 the evidence. This is my attempt to help you 2 and guide you through the evidence when we get 3 to that, which I'm sure you're hoping will be 4 in this year. And so are we. 5 Yesterday, at the end of the day, 6 there was a little stopping with respect to 7 Apple. You will recall we discussed the threat 8 to cancel the Office, Mac Office by Microsoft. 9 And I had said something to which there was an 10 objection, and I wanted to return for a moment 11 to that issue. 12 This is Finding of Fact 344, and I had 13 indicated that if Microsoft would refuse to 14 produce Mac Office, that that would be the end 15 of Apple. 16 And, in fact, what the finding of fact 17 that's already been proven says is that had 18 Microsoft announced -- I'm sorry, let's start 19 at the beginning. 20 In 1997, Apple's business was in steep 21 decline, and many doubted that the company 22 would survive much longer. 23 And then there's another sentence in 24 the middle that I had eliminated because -- it 25 just explains why people thought they were in 3439 1 steep decline. 2 And then it says, had Microsoft 3 announced in the midst of this atmosphere that 4 it was ceasing to develop new versions of Mac 5 Office, a great number of ISVs, customers, 6 developers, and investors, would have 7 interpreted the announcement as Apple's death 8 notice. 9 I was beginning, then, to discuss with 10 you Java. 11 Java, as you will recall, is a system 12 of technologies designed to make 13 cross-platform, APIs available to developers. 14 Meaning that they'll run on all different 15 operating systems. 16 And Microsoft views the development of 17 cross-platform APIs as a threat to the 18 applications barrier to entry. 19 Finding of Fact 394 describes 20 Microsoft's efforts to neutralize Java. 21 One tactic is to create 22 incompatibilities in the Java Virtual Machine, 23 JVM, Java Virtual Machine. 24 To increase incompatibility between 25 Java applications written for Microsoft's 3440 1 Windows JVM, and other companies' JVMs, and to 2 make porting from Windows to other platforms 3 difficult, Microsoft designs its Java developer 4 tools, the things that ISVs use to write 5 applications. 6 Microsoft designs those tools to 7 encourage the applications developers to use 8 certain key words and compiler directives in 9 writing their applications that run properly 10 only on Microsoft's version of the Java runtime 11 for Windows. 12 And then Microsoft ships these 13 developer tools with these extensions turned on 14 and fails to warn developers that if they use 15 the Microsoft tools to create their Java 16 applications, those applications might not run 17 properly on any Java runtime except 18 Microsoft's. 19 This also makes porting, moving, those 20 particular applications from the Microsoft 21 Windows to another platform difficult, if not 22 impossible. 23 This is the path that Thomas Reardon 24 of Microsoft suggests in November of 1996. He 25 writes, we should just quietly grow J plus 3441 1 plus -- that's Microsoft's developer tools. We 2 should just quietly grow J plus plus share, and 3 assume that people will take more advantage of 4 our classes without ever realizing they are 5 building Win 32 only Java apps. 6 Microsoft refuses to alter its 7 developer tools until November of 1998 when a 8 court orders it to warn developers that 9 Microsoft Java extensions will most likely 10 cause incompatibilities with any non-Microsoft 11 platform. 12 The findings of fact and other 13 evidence will show that what has happened here 14 is Microsoft sends out its developer tools to 15 the ISVs, to the applications developers, so 16 they can write applications. 17 Those tools will build applications 18 that are run properly only on Windows. It 19 doesn't -- Microsoft doesn't tell developers 20 that. 21 And so the developers may think they 22 are writing cross-platform applications when, 23 in fact, by using the Microsoft developer 24 tools, they are building applications that run 25 properly only on the Windows platform. 3442 1 Finding of Fact 396 explains that 2 Microsoft also persuades ISVs to write 3 applications relying on its own version of the 4 Java runtime environment. 5 You will be hearing many different 6 types of Java. The JRE, the JVM, the Java 7 class libraries. And, again, experts will talk 8 with you about what all that means. But this 9 has to do with the Java runtime environments. 10 Microsoft persuades ISVs to write 11 applications relying on its version of the Java 12 runtime environment rather than Sun-compliant 13 ones by making large investments to develop a 14 high-performance JVM, a really good Java 15 Virtual Machine. 16 And that is attractive technically. 17 To stop Sun and Netscape from 18 improving the quality of their Java Virtual 19 Machine, Microsoft successfully pressures 20 Intel, the chip maker, not to share Intel's 21 work of developing a high-performance Java 22 Virtual Machine with Sun or Netscape, nor to 23 allow Sun or Netscape to bundle the Intel JVM 24 with Navigator. 25 As the finding of fact indicates, 3443 1 Gates himself is involved in this effort. 2 Finding of Fact 397 explains 3 Microsoft's decision to bundle its version of a 4 Java Virtual Machine with every copy of 5 Internet Explorer. And that Internet Explorer, 6 you will recall, is in this time frame bundled 7 with Windows, with the operating system. 8 By expending some of its monopoly 9 power to maximize Internet Explorer use at 10 Navigator's expense, Microsoft gives its Java 11 runtime environment the unique quality of 12 guaranteed enduring ubiquity, meaning present 13 everywhere, across the enormous Windows 14 installed base. 15 In Finding of Fact 397, also the Court 16 says, in part, due to the damage that 17 Microsoft's efforts have caused, Netscape 18 decides in 1998 that it cannot afford to bundle 19 up-to-date Java Virtual Machines with Navigator 20 and announces its decision starting with 21 Navigator version 5.0. 22 So the Sun Java Virtual Machine that 23 was bundled with the Navigator isn't going to 24 be bundled with the Navigator anymore, in part, 25 due to the damage Microsoft's efforts caused. 3444 1 In Finding of Fact 400, that explains 2 that Microsoft recognizes that the independent 3 software developers are one channel that can be 4 used to get JREs on the Windows PC. 5 So Microsoft persuades independent 6 software vendors to distribute Microsoft's 7 version of the Java runtime environment instead 8 of the Sun-compliant one. 9 In Finding of Fact 401, this talks 10 about first wave agreements. 11 In the first wave agreements, it signs 12 with dozens of ISVs in 1997 and 1998. 13 Microsoft conditions early Windows 98 betas. 14 You will recall we talked about the 15 importance of getting betas to make your -- 16 whatever the ISV is developing compatible with 17 Microsoft's Windows 98. 18 Microsoft conditions getting the early 19 Windows 98 betas technical information, and 20 Microsoft seals of approval on the ISVs 21 agreement to make Microsoft's Java Virtual 22 Machine the default Java Virtual Machine. And 23 by using Microsoft tools, a very large 24 percentage of these ISVs write applications 25 that will only run on Microsoft's Java Virtual 3445 1 Machine. 2 Therefore, first wave ISVs just don't 3 have any reason to distribute any Java Virtual 4 Machine with their applications other than the 5 Microsoft ones. 6 Those portions of the first wave 7 agreements have the sole purpose of increasing 8 the difficulty of porting applications between 9 Windows and other platforms. 10 The reason is -- the reason Microsoft 11 insists on this is to increase the difficulty 12 of moving applications from Microsoft's Java 13 Virtual Machine to any other Java Virtual 14 Machine. 15 Microsoft holds the independent 16 software vendors to those provisions until the 17 Court enjoins it -- until the Court makes it 18 stop in November of 1998. 19 In Finding of Fact 404, that explains 20 that Microsoft's efforts to lock developers, to 21 lock the ISVs into its Windows-specific Java 22 Virtual Machine include actions to discourage 23 developers from taking advantage of Java class 24 libraries, such as RMI. That is remote method 25 invocation. 3446 1 Again, don't worry about what that 2 means at this point in time. 3 In one example of Microsoft's effort 4 to stunt the growth of Java class libraries, 5 Microsoft threatens Intel that it will withhold 6 Windows operating system support for Intel 7 chips. 8 It also offers -- we got the carrot 9 and the stick here. It also offers to include 10 Intel technology right in Windows if Intel 11 stops helping Sun in developing Java classes 12 that would support innovative multimedia 13 functionality. 14 We believe that this finding of fact, 15 together with other evidence that we'll present 16 to you, will, again, show that Microsoft's 17 conduct in connection with these matters was 18 willful and flagrant. 19 In Finding of Fact 405, in November of 20 1995, Microsoft's Paul Maritz told a senior 21 Intel executive that Intel's -- making Intel's 22 multimedia software work best on Sun, on the 23 Sun's -- on Sun's Java is as hostile to 24 Microsoft as it would be to Intel for Microsoft 25 to support other processors, other 3447 1 microprocessors, other chips. 2 It takes until 1997 for Microsoft to 3 prevail on Intel to stop helping Sun's 4 development of those Java classes. 5 In Finding of Fact 406, the Court 6 talks about in February of 1997 AMD, which is 7 an Intel competitor, seeks Microsoft's support 8 for its 3 DX technology. 3 DX technology 9 provides sophisticated support for gaming, for 10 games that people play on their computers. 11 Mr. Allchin asks Gates if Microsoft 12 should support this 3 DX technology despite the 13 fact that Intel would oppose it. 14 And Gates says, if Intel has a real 15 problem with us supporting this, then they will 16 have to stop supporting Java multimedia the way 17 they are. I would gladly give up supporting 18 this if they would back off from their work on 19 Java, which is terrible for Intel. 20 Mr. Allchin responds, I'm positive 21 that we must do a direct attack on Sun, and 22 probably Oracle -- that's another company. 23 Between ourselves and our partners, we can 24 certainly hurt their -- certainly Sun's revenue 25 base. We need to get Intel to help us. Today 3448 1 they are not. 2 Two months later, Eric Engstrom, a 3 Microsoft executive with -- his responsibility 4 is the multimedia development. He wrote to his 5 superiors that one of Microsoft's goals was 6 getting, quote, Intel to stop helping Sun 7 create Java multimedia APIs, especially ones 8 that run well, that is, native implementations 9 on Windows. 10 Engstrom proposed achieving this goal 11 by offering Intel the following deal. 12 Microsoft would incorporate into the 13 Windows APIs any multimedia interfaces. I 14 mean, multimedia APIs that Intel didn't give to 15 Sun. 16 Engstrom's efforts apparently bore 17 fruit for he testified at the government trial 18 that Intel's architectural labs subsequently 19 stopped helping Sun to develop class libraries 20 that offer this cutting edge multimedia 21 support. 22 In Finding of Fact 407, to protect the 23 applications barrier to entry, Microsoft did 24 many things it would not otherwise have done. 25 In other words, they sought to protect 3449 1 the applications barrier to entry by these acts 2 which would otherwise not have made business 3 sense. 4 They increase the difficulty of 5 porting Java applications written to its, to 6 Microsoft's Java Virtual Machine. 7 They drastically limit the ability of 8 developers of these ISVs to write 9 cross-platform Java applications. 10 They try to limit Navigator's usage 11 share. 12 They induce ISVs to neither to use nor 13 distribute non-Microsoft Java across platform 14 Java and they impede the expansion of the Java 15 class libraries. 16 Microsoft is so dedicated to 17 protecting the applications barrier to entry 18 that it does these things, these things it 19 would otherwise not have done, even though that 20 results in fewer applications that can run on 21 Windows. 22 Microsoft has succeeded in greatly 23 impeding Java's progress with a series of 24 actions whose sole purpose and effect was to 25 protect the applications barrier to entry. 3450 1 And by protecting the applications 2 barrier to entry, Microsoft protects its 3 monopoly power in the operating systems. 4 409. Microsoft harms consumers with 5 the actions that it takes to protect the ABTE, 6 the applications barrier to entry, which I'm 7 now beginning to -- I've created my own acronym 8 for that, ABTE, applications barrier to entry. 9 Microsoft harms consumers with the 10 action that it takes to protect that 11 applications barrier to entry and that it takes 12 to protect its monopoly. 13 As I said, Mr. Hagstrom is going to 14 talk about causation. We believe that this 15 finding of fact, along with other evidence, 16 will prove that the actions that Microsoft took 17 to protect its applications barrier to entry 18 and to protect, therefore, its monopoly will 19 and did cause harm to Iowa consumers. 20 The harm to consumers is both 21 immediate and easily discernible as well as 22 less direct, but, nevertheless, serious and 23 far-reaching. 24 Microsoft's actions distort 25 competition. 3451 1 And then the Court goes on to explain 2 how consumers are harmed in paragraphs 410 and 3 411. 4 In paragraph 410, Microsoft forces 5 computer manufacturers to ignore consumer 6 demand for Windows that does not have a browser 7 incorporated in it. 8 Microsoft forces computer 9 manufacturers, OEMs, to ignore consumer 10 preferences for Navigator or else either ignore 11 consumer preferences for Navigator or it forces 12 them to take to browsers, and to browsers cost, 13 increase confusion, degraded system 14 performance, and restricted memory. 15 Microsoft also makes sure that 16 Internet Explorer launches, starts up in 17 certain circumstances even if Navigator is the 18 default and even if the consumer removes all 19 visible means of invoking Internet Explorer. 20 Even though that happens under some 21 circumstances, the Internet Explorer, rather 22 than the Navigator, will launch from Windows 23 98. 24 And that also creates confusion and 25 frustration for consumers and increases 3452 1 technical support costs for business customers. 2 Businesses and parents may not want a 3 browser with their operating system. And those 4 users that don't want a browser with their 5 operating system and on their desktop have to 6 remove the visible means of accessing Internet 7 Explorer. 8 Then they have to contend with the 9 fact that it launches anyway in some cases. 10 And if they need the new features that Windows 11 98 provides, they have a system that runs 12 slower and provides less memory than if it came 13 without a browser. 14 Microsoft constrains the freedom of 15 computer manufacturers, OEMs, to put programs 16 in the boot sequence that would make Windows 17 PCs more user friendly. 18 And Microsoft forces consumers who 19 want Navigator to pay a substantial price in 20 the form of downloading installations, 21 getting -- you know, going on the Internet and 22 downloading Navigator. 23 And that price that comes with 24 downloading installation causes confusion, 25 degraded system performance, and, again, 3453 1 diminished memory. 2 Finally -- and these are the things in 3 410. Finally, Microsoft pressures Intel to 4 drop the development of native signal 5 processing. You will recall we've talked about 6 that early on in these findings of fact. The 7 Court talked about native signal processing as 8 an advanced multimedia component of Intel's 9 microprocessors. 10 Intel pressures -- or Microsoft 11 pressures Intel to drop that, the development 12 of native signal processing, and that deprives 13 consumers of software innovation. 14 And the Court concludes, and it is 15 already established, that none of these actions 16 have any pro-competitive effect. Nothing that 17 Microsoft does in this connection have any -- 18 MR. TULCHIN: Object to the 19 interpretation, Your Honor. It's not what it 20 says. 21 THE COURT: Sustained. 22 MS. CONLIN: Well, what it says is 23 none of these actions have any pro-competitive 24 justificationses. 25 In 411, Microsoft harms consumers 3454 1 indirectly by unjustifiably distorting 2 competition. 3 What Microsoft did to Navigator, to 4 Netscape Navigator, hobbled innovation that 5 could have depressed the applications barrier 6 to entry enough for other firms to compete 7 effectively against Microsoft. And that 8 competition would contribute to consumer 9 choice, would contribute to innovation. 10 Microsoft's campaign against Navigator 11 also retarded the widespread acceptance of 12 Sun's Java implementation. And this campaign 13 impeded another form of innovation that could 14 have diminished the applications barrier to 15 entry. 16 And then I'm going to conclude this by 17 reading to you the Court's conclusion in 18 Finding of Fact 412. 19 Most harmful of all is the message 20 that Microsoft sends to every company that 21 could innovative in the computer industry. 22 Through its conduct towards Netscape, 23 IBM, Compaq, Intel, and others, Microsoft 24 demonstrates that it will use its enormous 25 market power and immense profits to harm any 3455 1 firm that pursues plans for products that could 2 compete against one of Microsoft's core 3 products. 4 Microsoft's success in hurting those 5 companies and stifling innovation stops 6 investment and technologies and businesses that 7 could threaten Microsoft. 8 The result is that some innovations 9 that would truly benefit consumers never happen 10 for the sole reason that they do not coincide 11 with Microsoft's self-interest. 12 All of the findings of fact that Judge 13 Rosenberg read to you and which are in your 14 notebooks are already proven. I have just 15 touched and summarized on some of them. There 16 is no contest anymore. That part of the case 17 is over. 18 And the conclusion is that Microsoft 19 engaged in illegal monopolization in the 20 operating system market for the years 1995, 21 1996, 1997, 1998, and 1999. 22 MR. TULCHIN: Your Honor, sorry to 23 interrupt. We object there too. The time 24 period is defined in the instructions as July 25 15th, 1995, until June 24th, 1999, not the full 3456 1 years '95 and '99. 2 MS. CONLIN: I'm sorry, Your Honor, 3 that is correct. 4 THE COURT: Sustained. 5 MS. CONLIN: That doesn't mean that 6 you're done for these periods. 7 What is left for you to decide during 8 those years is whether Iowa class members paid 9 more for Microsoft's operating system than they 10 would have paid if Microsoft had not broken 11 Iowa's competition law, and if so, how much. 12 And then with respect to applications 13 which we're going to talk about next, you need 14 to decide all three questions. 15 But for the years mid-'95 through 16 mid-'99, Microsoft has been determined to have 17 violated the Iowa Competition Law by 18 monopolizing the operating system market. 19 THE COURT: We'll take our break now. 20 MS. CONLIN: Okay. 21 THE COURT: Remember the admonition 22 previously given. 23 We'll see you at noon. Leave your 24 notebooks here. 25 Thank you. 3457 1 (A recess was taken from 11:01 a.m. 2 to 12:03 p.m.) 3 THE CLERK: All rise. 4 THE COURT: Everyone else may be 5 seated. 6 You may continue. 7 MS. CONLIN: Thank you, Your Honor. 8 I'm going to talk now -- good 9 afternoon -- about the applications case. 10 Word is Microsoft's version of the 11 word processor. And we say Microsoft 12 monopolized the market for word processors. 13 Excel is Microsoft's spreadsheet, and 14 we say Microsoft monopolized the market for 15 spreadsheets. 16 Microsoft's Office, a productivity 17 application, includes Word and Excel. There 18 are other Microsoft suite products, like Home 19 Essentials. And during some periods of time 20 also Works had applications at issue in it. 21 But I'm probably not going to refer to 22 those other two because the principle one -- 23 though, they're included. The principle things 24 about which we are concerned are Word, Excel, 25 and Office. 3458 1 As we have seen, and for the period 2 mid-1995 through mid-1999, it has been 3 established that Microsoft monopolized the 4 operating system market. 5 The evidence will show that in the 6 beginning of the '90s, Microsoft does not have 7 a monopoly in word processing software or 8 spreadsheet software. 9 Competitors that you will hear about, 10 like Lotus 1-2-3 and WordPerfect are the 11 category leaders in word processing and in 12 spreadsheets, and the market is a competitive 13 market. 14 By the beginning of the class period, 15 in May, the evidence will show that Microsoft 16 begins to gain monopoly power in the word 17 processing and in the spreadsheet software 18 markets. 19 How does this change occur? We will 20 prove Microsoft abuses its illegal monopoly 21 power in the operating system software market 22 to gain monopoly power, to leverage monopoly 23 power in the word processing and spreadsheet 24 software markets. 25 The evidence will show Microsoft acts 3459 1 in three main ways to gain -- to monopolize the 2 word processing and spreadsheet markets. 3 First, Microsoft exploits and 4 withholds technical advantages that arise from 5 its ownership of the operating system monopoly. 6 And it uses those technical advantages to harm 7 its competitors' applications. 8 By using its operating system monopoly 9 to harm competitors' applications, Microsoft 10 controls how those competitor applications 11 connect to the operating system and affects 12 what consumers can and cannot choose from in 13 the word processing and spreadsheet software 14 markets. 15 You have all probably noticed that 16 this courthouse is a little dry. You also 17 cannot control the temperature very much. 18 Second, Microsoft restrains 19 competition by using its monopoly in the 20 operating system to make exclusionary deals 21 with other companies. 22 By doing this, Microsoft is able to 23 prevent competitors' word processing and 24 spreadsheet products from reaching consumers. 25 To help you understand the 3460 1 relationship between operating system software, 2 word processing, and spreadsheet software, 3 remember when we talked about the operating 4 system as the sockets and the applications as 5 the plugs that need to connect with the socket 6 in order to work properly? 7 Control over the operating system 8 means control over the sockets which all 9 competitors' applications have to plug into in 10 order to work. 11 Microsoft realizes early on that its 12 illegal monopolization of the operating system 13 market would make it relatively easy to 14 monopolize the market for those applications 15 that needed access to the operating system in 16 order to compete. 17 In Plaintiffs' Exhibit 111, Bill Gates 18 himself recognizes this as far back as August 19 26 of 1989. 20 He says, I have been thinking hard 21 about anything we can do to promote Win -- 22 that's Windows -- 3 more heavily, not just for 23 Win 3's sake businesswise, but because of its 24 strategic importance for apps and our systems 25 strategy. 3461 1 It is clear, and the evidence will 2 show, from Microsoft's internal records that 3 Microsoft plans to leverage its operating 4 system monopoly into an applications monopoly. 5 A strategic planning report dated 6 April of 1990 to management explains, and this 7 is Plaintiffs' Exhibit 275. 8 The real strategic opportunity is 9 market preemption of the Windows platform in 10 terms of both creating the sockets as well as 11 taking possession of those sockets with our 12 Windows applications. 13 Microsoft recognizes that its 14 monopolization of the operating system market 15 gives it other advantages in the applications 16 market. 17 A Microsoft marketing strategy report 18 for 1993 recommends that Windows and Word, 19 Excel sales and marketing activities should be 20 aggressively linked. 21 The Windows Office launch in 1995, 22 which was internally described as Desktop 95 -- 23 this is Plaintiffs' Exhibit 2220 -- was -- it 24 is a huge -- well, let me read the first 25 sentence just for context. 3462 1 The Desktop 95 launch will be by far 2 the biggest launch ever done by Microsoft. It 3 is a huge and unique opportunity to create a 4 dramatic platform shift to a new dominant 5 operating system and to own the new platform 6 with our desktop applications. 7 Judge Rosenberg gave you an 8 instruction and gave you the standard for 9 leveraging. It is your Instruction Number 9. 10 Professor Mackie-Mason is one of the 11 experts that we will be calling. He is a 12 distinguished economist from the University of 13 Michigan. 14 And we spoke about Professor Noll, 15 Roger Noll, who is from Stanford and has many 16 years of experience in antitrust economics. 17 Both will talk to you about how 18 Microsoft's illegal monopoly in operating 19 systems makes -- is one of Microsoft's primary 20 advantages in the word processing and 21 spreadsheet software markets. 22 And Microsoft got these advantages, to 23 the extent that it did, by engaging in illegal 24 conduct to eliminate competition in the 25 operating system market. 3463 1 I hope that what we say is the 2 connection is clear. 3 The evidence will be that Microsoft 4 uses the same anticompetitive tactics that we 5 have discussed in the operating system to gain, 6 to monopolize the spreadsheet and word 7 processing market. 8 And here those tactics include unequal 9 treatment, deception and misinformation, tying, 10 bundling, threats and intimidation, 11 undocumented APIs, and exclusionary contracts. 12 I want to talk a little bit about the 13 relationship between the operating system and 14 the applications. 15 A good operating system can make it a 16 lot easier for applications vendors to write 17 good applications for it. And this, in turn, 18 benefits the operating system. 19 Typically, an operating system wants 20 as many applications as it can get for its 21 operating system because the more applications 22 that it gets, the more likely people are to buy 23 and use the operating system. 24 An operating system vendor can give 25 ISVs, independent software vendors, early 3464 1 versions of the next operating system, the 2 betas, so they can get started writing their 3 applications and they'll be ready when any new 4 operating system comes out. And they'll be 5 able to take advantage of whatever new features 6 are in the new operating system. 7 And that's in the best interest of 8 everyone involved; the applications, the 9 operating systems, and the people who use both. 10 But if an operating systems vendor 11 gets into the applications business, the 12 incentives for the operating system developer 13 can change. 14 Now, it is a competitor to the very 15 applications that it -- the applications 16 vendors that it wants to get to write for its 17 operating system. 18 ISVs -- this happened, of course, with 19 Microsoft. ISVs quickly recognized the 20 potential conflict with Microsoft in both the 21 operating system and the apps business, and 22 they worry about whether Microsoft is treating 23 its own applications developers the same as it 24 treats the independent software developers. 25 They're concerned with whether 3465 1 Microsoft is providing them in a timely manner 2 the same quality and kind of documentation that 3 Microsoft's internal applications developers 4 get. 5 They're concerned about whether or not 6 Microsoft's internal applications developers 7 are getting access to the operating system 8 source code when ISVs are not getting such 9 access. 10 They are concerned about whether 11 Microsoft's applications developers know about 12 new features, new functions, and what will be 13 in the operating system before the ISVs. 14 In order to calm just those kind of 15 fears, Microsoft executives go out and assure 16 independent software developers that there is a 17 barrier between the operating systems and the 18 applications divisions so that the applications 19 don't get any unfair advantages. 20 They call this barrier the separation 21 of church and state or the Chinese wall. 22 We talked a little bit about this when 23 we talked about the GO operating system, the 24 pen handwriting operating system. 25 In fact, in late '87 or early 1988, 3466 1 Steve Ballmer delivers a speech on systems 2 software to a group of developers in which he 3 addresses Microsoft's philosophy in regard to 4 treating ISVs fairly and promises that there is 5 a separation of church and state. 6 He says in Plaintiffs' Exhibit 8742, 7 as we move forward, Microsoft continues to 8 believe in the open-system philosophy. 9 When we say open-system software, we 10 are talking about software products that are 11 open in the sense that we document all of the 12 program attic interfaces. These are the -- 13 there are internal APIs. You'll hear a bit 14 about those. 15 They don't have to be documented. 16 They are used only by the operating system. 17 They're not important to ISVs, but program 18 particular interfaces. The things about 19 Mr. Ballmer is talking about in this speech, 20 those are the ones used for other programs. 21 For years, he says, Microsoft has 22 walked the line with our competitors in the 23 applications business who ask the question, are 24 you being really open? Is there really a 25 separation between your systems work and your 3467 1 applications work? 2 This really is an open platform, and 3 all third-party application developers have an 4 equal opportunity to do real exciting, great 5 applications. 6 And he says, there really is this 7 separation of church and state, meaning the 8 barrier between applications and the operating 9 system. 10 The problem is, that is not true. Our 11 evidence will show that is not true. That was 12 never true. And it's not true now. 13 That separation doesn't exist, and it 14 has never existed. 15 We've been talking about APIs, which I 16 use this to mean, but I don't think that that's 17 exactly what people who really know about these 18 things use as an example. 19 But APIs are the commonly used 20 functions or groups of functions provided by 21 the operating system. They're called 22 interfaces. 23 They're generally made available or 24 exposed so that these ISVs can program their 25 applications to use them. 3468 1 They're a great help to ISVs because 2 it means that they can focus on the special 3 features of their application rather than 4 spending time reinventing the wheel, so to 5 speak, by writing the same functions that 6 everybody else has to write. 7 For example, Windows manages the 8 windows. It provides you all kinds of APIs for 9 popping up the windows and controlling their 10 size and moving them around on the desktop and 11 so forth. 12 An applications developer, then, 13 doesn't have to write the thousands of lines of 14 code that it takes to manage the windows needed 15 to use -- needed to be used by that 16 application. 17 Instead, he can write one or two 18 lines, call that API, and then that API will do 19 those functions with the Windows. 20 There are thousands, many thousands of 21 APIs in Windows. Sometimes the API is 22 documented in a technical publication. Its 23 name, how it works, how it should be 24 implemented by applications developers. 25 The documentation for these APIs, 3469 1 along with the developer tools and the code 2 writing environment, are packaged together in 3 kits and sold to the independent software 4 developers so they can create applications for 5 the operating systems in a thing called the 6 SDK, software development kit. 7 SDK. That's the documentation for the 8 APIs, the developer tools, and the code writing 9 environment. 10 The developer is dependent on the 11 operating system vendor to adequately document 12 the APIs. If there are APIs which are not 13 documented, it's very difficult for the 14 developer to discover them, let alone use them 15 correctly. 16 I want to talk with you about 17 undocumented APIs, about the APIs that exist 18 that are external, that are programmatic, that 19 are used by Microsoft applications, but that 20 are not documented for use by independent 21 software vendors. 22 These undocumented calls sometimes 23 provide access to features of the system that 24 are better, that are more efficient than those 25 which Microsoft does document for ISVs. 3470 1 Sometimes Microsoft itself does not 2 use the APIs that are documented to do 3 particular things, to do those particular 4 things. 5 Instead, Microsoft uses an 6 undocumented API, not available to ISVs, to do 7 that particular function. 8 I want to look at some specific 9 examples. 10 On May 12th, 1989, Mike Dreyfus 11 e-mails, these are software developers. Mike 12 Dreyfus e-mails David Weiss about three APIs 13 asking whether they should be documented in the 14 Windows software development kit, the SDK. 15 He writes in Plaintiffs' Exhibit 104, 16 we would like to add to the SDK, software 17 development kit, a bit of sample code based on 18 Kraig C.'s reduced start-up code for the 19 spooler to allow people to get the memory 20 savings they can if they don't need any of the 21 C runtime start-up features. 22 And, remember, this is when memory is 23 very, very limited, and saving memory manages. 24 However, this will effectively 25 document a few things that have previously been 3471 1 hidden. The APIs, INITTASK, INITAPP, and 2 WAITEVENT, the register setup for entry into a 3 Windows program. 4 In response, Mr. Weiss writes back to 5 Mr. Dreyfus, and also to Mark Wallson, who is a 6 program manager and Bob, who we think is Bob 7 Gunderson. This is Plaintiffs' Exhibit 104. 8 Mr. Weiss says, does this mean that 9 the following functions are to be documented in 10 the reference manual? 11 And David Weiss responds, it means 12 they are not to be documented in the reference 13 manual. 14 As this exchange shows, Microsoft is 15 not documenting programmatic interfaces that 16 its applications are using to do certain tasks. 17 One example of an undocumented 18 programmatic interface is called define handle 19 table. These all have names. They all run 20 together. Define handle table is an 21 undocumented API. 22 Prior to the release of Windows 23 version 3.0, applications are limited to 640 24 kilobytes of memory, which even at the time is 25 a very severe limitation on what applications 3472 1 can do. 2 While the rest of the industry is 3 struggling to find ways around that 640 K 4 memory barrier, Microsoft, at the direction of 5 Mr. Gates, secretly develops define handle 6 table to allow Microsoft applications to get 7 around the memory limitation and perform much 8 faster. 9 This API is especially useful to 10 Excel, the spreadsheet, which frequently hits 11 that 640 K memory barrier. 12 The define handle table API would, of 13 course, be as much use to ISVs as it is to 14 Microsoft as it is to Excel. 15 Microsoft admits that this API is of 16 immense importance to itself. 17 On August 29, 1989, Jonathan Mark 18 writes to Mark Wallson about whether to 19 document this API called define handle table. 20 And this is Exhibit 141. 21 He says, the question is, do you think 22 it's feasible to document define handle table 23 for ISV programmers to use? Define handle 24 table is an undocumented Windows call, which is 25 used by the apps division. It allows great 3473 1 speedups when using moveable memory. 2 And then he says how. I am not sure 3 about this since Microsoft's public position 4 has been that apps division programmers do not 5 have special hooks into Windows, when, in fact, 6 they do. 7 Therefore, it might be embarrassing to 8 document define handle table at this late stage 9 as part of a system for ISVs to use. 10 So we are not guessing about this. 11 This document tells you that Excel is using 12 what is undocumented, what ISVs do not have 13 access to, and they are using it to great 14 effect to speed up Excel and give it a 15 competitive advantage over the applications, 16 the spreadsheets of competitors. 17 Eventually, Microsoft does document 18 define handle table, but not until the release 19 of Windows 3.0 when the 640 K memory barrier is 20 not much of an issue anymore. 21 We believe that the evidence will show 22 that this is an intentional failure to document 23 a valuable function in Windows. And Microsoft 24 comes under intense criticism for the way it 25 manages the relationship between the operating 3474 1 systems division and the apps division. 2 Steve Ballmer orders developers to 3 document all of the undocumented calls in 4 Windows 3.0. 5 One of the developers assigned to the 6 project is Bob Gunderson. 7 On January 26, he sends an e-mail to 8 David Weiss, David Wolburn, Jody Snodgrass, 9 Phil Barrett, whose testimony you've seen, and 10 others, explaining the need for the project. 11 He writes in Plaintiffs' Exhibit 5408, 12 the title of which is e-mail re: Undocumented 13 or undoc API calls. 14 Lots of technical stuff in this and 15 lots of other e-mails, but I'm going to read 16 you what I think is important about this. 17 Windows group has been unwilling to 18 document APIs that are needed to create world 19 class applications or work with apps developers 20 to come up with documented work-arounds. 21 Here's the story from our side on the 22 list of undocumented, but currently used 23 Windows APIs. This list originated from the 24 porthole people, and that's the porthole binary 25 compatibility, and has been broken into the set 3475 1 of APIs that we will document for Win 3 and 2 those that will remain undocumented. 3 Apps that use any of the APIs that 4 remain undocumented should remove these calls 5 as soon as possible. This list only covers the 6 currently undocumented APIs that are in use by 7 our apps today. All currently unused and 8 undocumented APIs will remain undocumented. 9 So, as of November of 1991, Bob 10 Gunderson is saying that they are going to 11 document the Windows 3.0 APIs previously 12 undocumented if they're used by Windows 13 applications. 14 We will see whether or not that 15 happens. Indeed, we'll see whether or not that 16 ever happens. 17 He's saying there are currently such 18 things. There are undocumented API calls used 19 by Windows applications. 20 This also flies in the face of 21 Microsoft's claims that they make that these 22 undocumented APIs should not be used by ISVs 23 because they are unstable. 24 If they are unstable, certainly 25 Microsoft would not use them in their own 3476 1 applications. 2 Microsoft, in fact, uses them to gain 3 an advantage, which Microsoft does not want the 4 competition to have. Remember, this is an 5 advantage in the operating system. 6 Microsoft's use of undocumented 7 features in Windows and in Office by its own 8 applications developers continues today. 9 Even when Microsoft does decide to 10 document their APIs, they will sometimes make 11 the documentation so vague or bury it on 12 purpose so that it will not be found. 13 You may remember Cameron Mhryvold. He 14 is the head of the evangelism group. That 15 means that his job is to go out and get these 16 ISVs, talk them into taking advantage of 17 Windows, to write for Windows, to write for the 18 operating system, and so he -- that's his job. 19 And, of course, he will -- the 20 documents will express some of his frustration 21 about hearing from ISVs about the problems 22 created by Microsoft's applications use of 23 these undocumented APIs. 24 He suggests, however, one way to 25 handle this he suggests is to provide sort of 3477 1 perfunctory documentation of these APIs buried 2 among other materials to provide what he calls 3 air cover. So he can tell the ISVs that he's 4 talking to that they are, in fact, documented. 5 Here is Plaintiffs' Exhibit 1440 6 documenting word WFW -- Windows for work 7 groups -- documenting WFW calls. 8 This is from Mr. Mhryvold. Paul M., 9 Paul Maritz, thinks we have to document the 10 bullet and bandit stuff. Bullet is the code 11 name for Microsoft mail, and bandit is the code 12 name for schedule plus. 13 So Paul Ma thinks we have to document 14 the bullet and bandit stuff and Daniel P. has 15 committed. I do not know time frames, but, 16 clearly, there is a big exposure with guys like 17 Andrew Schulman running around. 18 Microsoft has attempted to justify 19 undocumented APIs by saying they're for 20 functions that are not really functions for the 21 applications to use, but they are internal. 22 They are those internal operating system 23 functions. 24 Cameron Mhryvold says that for these 25 two functions, bullet and bandit, Microsoft 3478 1 can't hide behind the defense of their 2 internals, but he does have another idea. 3 He says in, again, Plaintiffs' Exhibit 4 1440, we, unfortunately, cannot hide behind the 5 it's not an app, it's part of the system 6 defense for bullet and bandit. 7 Schulman took a part all of the 8 Windows shell apps in his book. We will, we 9 will be specifically tried for these 10 interfaces. Ideally, we should document 11 everything the bullet and bandit themselves 12 use. 13 Now, this may sound horrible, but, 14 one, we'll document, but we will not encourage. 15 And, in fact, we'll aggressively discourage any 16 use of these interfaces by ISVs, and won't be 17 talking about them; and, two, remember, we are 18 not going to stick this doc into a book or even 19 an SDK box. 20 It will be written up as a white paper 21 and inserted into the MSDN CD-ROM containing 22 hundreds of meg of other tech notes. Great big 23 bunch of other tech notes. It will be very low 24 profile, but it will provide enough air cover 25 for us to say they are documented. 3479 1 Brian Valentine responds. Still in 2 Exhibit 1440. All I can say is holy API, 3 Batman. I'm not kidding. We are talking about 4 literally 500 to 800 APIs here. No joke. All 5 of layers, all of MAPI, et cetera, and there is 6 virtually no documentation on these right now. 7 Paul Maritz, is this what we really 8 want to or perhaps want to do? It will not be 9 a white paper, but a very large white book. 10 White paper is a technical document 11 that usually describes how something works. 12 So 500 to 800 undocumented APIs used 13 by Microsoft applications to advantage, to 14 advantage -- give it an unfair advantage over 15 independent software developers. 16 Even though Microsoft makes an effort 17 to keep the undocumented APIs secret, they are 18 aware of the potential problems should ISVs 19 find out about them. 20 If Microsoft loses the support of 21 ISVs, it will not be able to protect the 22 applications barrier to entry. 23 It's the applications that protect the 24 application barrier to entry. And it is the 25 applications barrier to entry that protects 3480 1 Microsoft's operating system monopoly. 2 Another advantage, we believe an 3 unfair advantage, that Microsoft applications 4 developers has is access to the Windows source 5 code, the basic document, basic thing about 6 Windows. 7 And remember I told you, Steve Ballmer 8 said that applications shouldn't use 9 undocumented features. Well, where do they get 10 those undocumented features to use? They get 11 them from access to the source code. That's 12 how they know about them. 13 And Mr. Ballmer refuses to shut off 14 access to the Windows source code by the 15 applications developers. 16 Brad Silverberg gets in a debate about 17 the applications developers access to the 18 source code. He points this -- he talks about 19 this in a November 8 e-mail, November 8th, 20 1990. 21 This is Plaintiffs' Exhibit 5194. It 22 includes a lot of debate back and forth about 23 this issue of Windows source code. 24 Mr. Silverberg says, apps should 25 develop without access to sources, just like 3481 1 everyone else in the world. There are many, 2 many creative and innovative apps that don't 3 come from Microsoft. 4 Access to sources is essentially 5 irrelevant, and an invitation to building apps 6 that depend on undocumented internals. This is 7 a clear case of separation of church and state. 8 You may recall that, and I don't 9 remember if we've talked about this, but 10 Mr. Silverberg, who becomes the head of, you 11 know, the Windows and MS-DOS in about June of 12 1990 comes from Borland. Borland is an 13 applications developer. 14 This is November of 1990. He's only 15 been there a few months. And apparently he has 16 taken to heart what Microsoft says to ISVs. 17 He thinks at least as of this point 18 that there is a separation between church and 19 state, between the operating system developers 20 and the applications developers. 21 But Dave M. wants access to the 22 Windows source code, and he e-mails Steve 23 Ballmer about it. And this is in the same -- 24 this is November 7th. Dave M. writes to Brad 25 Silverberg and to Steve Ballmer. 3482 1 5194. Brad, after you and I talked 2 today, I received mail from Steve, Steve 3 Ballmer. He said he was in favor of getting 4 the message to apps folks that they must not 5 use undocumented features. 6 I then talked to Steve about the 7 policy of preventing access to the Windows 8 sources. He said he was not in favor of this 9 policy. 10 Please consider carefully the issue of 11 cutting off sources to the apps division. 12 Ballmer then sends a private e-mail. 13 You can see part of it up there. On November 8 14 to Silverberg, which says simply Windows 15 source, I hope you agree. 16 So what Ballmer wants to do is let the 17 apps group at Microsoft have access to the 18 source code, even though he's saying don't use 19 the undocumented APIs that you see by looking 20 at the source code. 21 We will prove that Microsoft 22 developers, however, go right on using 23 undocumented APIs that they discover through 24 their access to the source code. 25 Months later, April 29th, 1999, Bob 3483 1 Gunderson writes to Brad Silverberg, David 2 Cole, Phil Barrett, and others about some juicy 3 Windows APIs that remain undocumented. 4 This is Plaintiffs' Exhibit 709, the 5 title of which is re: More undocumented 6 Windows. 7 The question here is when are we going 8 to publish our shell APIs? To date, all the 9 juicy APIs needed to write a shell have been 10 undocumented. 11 You will also hear former Microsoft 12 executive Phil Barrett testify about how 13 Microsoft gave its own applications developers 14 the Word, Excel, and Office groups preferential 15 access to technical information about Windows, 16 including access to Windows source code. 17 Here is Mr. Barrett talking about this 18 issue. 19 (Whereupon the following video was 20 played to the jury.) 21 Question: Let me ask you this: Was 22 it an advantage for applications developers to 23 have access to Windows source code. 24 Answer: Absolutely, yes. 25 Question: And why is that? 3484 1 Answer: Well, as it pointed out in 2 this memo, which I completely agree with, 3 Windows is poorly documented in their 4 undocumented APIs, application program 5 interfaces, and there's behavior that is poorly 6 understood even by the Windows developers. 7 Question: Does access to Windows 8 source code provide applications developers 9 with a time advantage? Does it make it easier 10 or faster to develop an application if you have 11 that access? 12 Answer: Certainly time advantage and 13 efficiency advantage can be gotten by 14 understanding the internals of Windows. 15 (Whereupon, playing of video 16 concluded.) 17 MS. CONLIN: And Mr. Barrett admits 18 that Microsoft deliberately withheld this 19 information from competing independent software 20 vendors while favoring its own applications 21 developer. 22 He goes on to say: 23 (Whereupon, the following video was 24 played to the Jury.) 25 Question: Were some applications 3485 1 developers favored over others? 2 Answer: Certainly. 3 Question: Did Microsoft's own 4 application developers receive favored 5 treatment over independent software vendor 6 application developers? 7 Answer: Certainly. 8 (Whereupon, playing of video 9 concluded.) 10 MS. CONLIN: On August 16th of 1991 -- 11 this is almost a year after Ballmer tells the 12 application group not to use undocumented APIs, 13 and one day after telling Mr. Barrett to keep 14 track of undocumented calls -- Brad Silverberg 15 receives an e-mail from David DeSouza entitled 16 undocumented stuff used by apps groups. 17 This is August of 1991, in which 18 DeSouza lists a bunch more undocumented calls 19 that are still being used. 20 He writes in Plaintiffs' Exhibit 914, 21 from memory, since no single list of this stuff 22 exists till now, so this may be a bit 23 incomplete. 24 MS money. They make use of the 25 undocumented interface between listboxes and 3486 1 comboboxes. MS -- can you see that? MSmoney 2 looked at the source and now use our 3 undocumented messages. 4 Excel, Winword, and Cirrus. Excel is 5 at issue, Winword is at issue, although this is 6 before the class period. 7 He says, all these make use of the 8 undocumented endmenu (API) to get out of menu 9 mode. 10 Winword makes use of our internal 11 Windows prox for edit controls so that they can 12 cause that code segment to come into memory 13 before really creating the edit control. 14 Gave some performance improvements in 15 Win 2, but, for Win 3, since we resegmented, so 16 their stuff was screwed up. 17 Makes use of the app loader stuff 18 which was undocumented till recently. 19 Project makes use of the fact that 20 window handles are always even aligned. I 21 suppose they could have clued into this with 22 outsource, but caused us problems in 3.1 since 23 we wanted to change this. 24 And then Excel 3.0. Talks about the 25 MDI menu ring, and then says with respect to 3487 1 the Excel applications developers, they looked 2 at our source for deaf hook proc. We had an 3 incorrect comment and they took the comment to 4 be correct. So they have been calling our deaf 5 hook proc API with some parameters reversed. 6 You've heard a little bit about Andrew 7 Schulman, who will be one of our experts in 8 this case. 9 In 1992, he will tell you he wrote a 10 book. It's called Undocumented Windows, and it 11 talks in detail about several of the 12 undocumented APIs Microsoft has taken advantage 13 of. 14 Schulman's book causes a lot of 15 discussion within Microsoft, and Cameron 16 Mhryvold, head of the evangelism effort that 17 goes out and talks to these ISVs, writes to 18 Brad Silverberg, to David Cole, and Mike 19 Maples. 20 This is Plaintiffs' Exhibit 1410. 21 Subject is undocumented APIs used by MS apps. 22 He, that's Mr. Schulman, finds 11 23 undocumented functions in Excel. 24 And then he lists them. And 25 Mr. Schulman will talk to you about what he 3488 1 found. 2 Mr. Mhryvold goes on to say, Schulman 3 is incredibly thorough in his research and 4 talks in-depth about stuff like open tools and 5 individual technical articles by Petzold and 6 MSJ. So I don't think he is mistakenly saying 7 functions are undocumented. 8 As to why these weren't documented, I 9 cannot say. Brad or David Cole would know 10 better than I. I thought we docked everything 11 our apps used. Brad? David? 12 Mhryvold then compliments Schulman's 13 work and his attitude. 14 He says, Schulman's stuff is not by 15 itself inflammatory or MS bashing. It's 16 extremely detailed in its analysis and 17 discussion of the issue and, thus, gives plenty 18 of ammunition to those who are predisposed to 19 attack us. Schulman himself does not say we 20 are wrong or unfair. 21 Mr. Cameron Mhryvold makes public 22 statements about two ISVs about them being on 23 the level playing field with the Microsoft apps 24 division. He's out there trying to get these 25 ISVs to write Windows applications. 3489 1 Brad Silverberg writes back to 2 Mhryvold, Maples, and Maritz, in Plaintiffs' 3 Exhibit 1413. Again, the subject is undoc 4 APIs. 1413. 5 He says, we can doc the APIs we know 6 the apps group and other ISVs use. This is 7 good practice, though it's not as 8 straightforward as it appears since some of the 9 calls depend on context and an understanding of 10 the source. 11 Let me stop for a moment and tell you 12 that some ISVs, the independent software 13 developers, do somehow discover these undoc 14 APIs and some of them, the external people, are 15 using some of these undoc APIs. 16 Mr. Silverberg goes on to say, the 17 biggest advantage our apps group has is access 18 to the operating systems source. As long as 19 this continues, the issue will never go away. 20 In fact, Jim All -- that's Jim 21 Allchin -- has long been assuming that the apps 22 group did not have source access. He has been 23 telling ISVs this too. 24 When I told him yesterday that this 25 was not the case, he had that oh, shit look on 3490 1 his face. 2 You can see that there's a problem 3 here, cut off in the original document. So 4 something to, A, doc the APIs we know apps 5 group is using; and, B, give the apps group the 6 same access to source we give to other ISVs; 7 that is, in certain limited circumstances. If 8 we don't do B, the issue will never die. 9 With the exposure provided by Andrew 10 Schulman's book, Microsoft has to respond in 11 some fashion. 12 And one approach they take is to state 13 that using the undocumented APIs doesn't 14 actually help them out. A paper is prepared to 15 try to diffuse the issue. 16 Dennis Adler, a software person, 17 expresses his frustration with this. 18 This is Plaintiffs' Exhibit 1614. 19 Can you give us the date? Oh, you 20 did. April 7th, 1993. 21 Okay. We are now three, almost three 22 years after Steve Ballmer says we're not going 23 to use these undocumented APIs. 24 And now Microsoft is preparing this 25 white paper that is going to say, according to 3491 1 Mr. Adler, that really it doesn't help us. And 2 Mr. Adler, as you will see, is not impressed 3 with that argument. 4 He says, short and sweet -- or sour -- 5 I've read through most of the materials you 6 sent along, and they are awful. You never 7 address the issues Schulman addressed in his 8 mail. 9 You continue to say there was no 10 advantage to Microsoft in using these APIs. 11 Get real. You mean to tell me that the Word 12 and Excel teams put in a bunch of API calls 13 that they did not think would help them in a 14 particular area? I hope not. 15 He gives some examples there in the 16 middle. 17 By ignoring the very valid points 18 Schulman has raised, you make a sham of the 19 entire exercise of documenting the APIs now. 20 It comes across as a coverup, plain 21 and simple. In fact, you are saying that 22 Schulman is either confused or lying. That 23 does not seem to be the case to me. 24 I gave up reading the whole document, 25 as this tone of denial continues ad nauseum. 3492 1 Why not just document the APIs, 2 preface the document with some honest history 3 -- yes, we did use undocked APIs. Yes, we now 4 have a policy in place of not doing that, a 5 policy that was not in place previously, and 6 here is the documentation for these APIs that 7 we have utilized. 8 Stop trying to pretend that we did not 9 do this to gain a competitive advantage, 10 however slight. 11 If that is not why these programmers 12 used the undocked APIs in their code, then give 13 me a plausible explanation for why they did. 14 Truthful would be nice too. 15 The people -- that says the people, 16 PB, the people who read this document are not 17 stupid, and they would have to be to believe 18 what was written. I think this doc can do as 19 much or more harm as good as presently written. 20 Bill Miller responds to Mr. Adler's 21 concern in Plaintiffs' Exhibit 1614, the same 22 document. 23 He says, thanks for the input. 24 Unfortunately, this is a doc that reflects 25 management's view on the entire subject. 3493 1 Jeff's PR inherited the project. I 2 plan to kill it unless we, Bill G., Mike 3 Maples, are willing to acknowledge our 4 sloppiness. I don't believe that a piece like 5 this helps. 6 That's internal Microsoft admission 7 that they did this; that, in the opinion of 8 Mr. Adler, they did it to gain an advantage and 9 that trying to cover it up will not be an 10 effective defense for Microsoft to use against 11 the charge that they are gaining a competitive 12 advantage by using internals of the Microsoft 13 operating system that is a monopoly product. 14 Microsoft even went as far to directly 15 deny requests or suggestions to document 16 particular APIs. 17 Tom Evslin questioned the 18 documentation of Capone APIs. I did not make 19 this up. That is the code name. Capone APIs. 20 And Capone was the -- you know, this kind of 21 goes with Chicago. Capone was the e-mail 22 client to be included in Chicago, which was 23 Windows 95. 24 Evslin writes in Plaintiffs' Exhibit 25 1808 re: Integration with Chicago. Are you 3494 1 planning to publish them by Chicago release? 2 Ken is under the impression that you are. I'm 3 not sure we have to do this, but I have to know 4 very clearly whether we are or not. If we 5 don't, then no other client integrate with 6 Chicago as closely as Capone does. 7 Joe Bellfiore responds. 8 Bill is very aware -- that's very in 9 quotes -- of this as an issue, so you can bring 10 it up with him. 11 He may be instrumental in deciding 12 whether or not it's important for us to do the 13 work to make these palatable. 14 Jonathan Lazarus writes to Tom Evslin 15 re: Integration with Chicago. If we use them, 16 we have to publish them. 17 Evslin responds. We're still in 1808. 18 I went over this in some detail with 19 Bill yesterday, and he says, no, since Chicago 20 is -- I beg your pardon. 21 Since Capone is part of Chicago. If 22 you think this is wrong, you should talk to him 23 about it, see other mail from yesterday. The 24 Chicago guys own the APIs. As of now, there 25 are interfaces used in Capone which Chicago 3495 1 does not plan to publish. 2 Capone is the first e-mail exchange 3 client -- the first exchange e-mail client and 4 it's a precursor to Outlook. That went -- that 5 shipped as in box in Windows 95 to the over 200 6 or so million PC desktops. 7 Despite the discoveries made by 8 Schulman, Microsoft still makes use and takes 9 advantage of these undocumented APIs that no 10 other e-mail client can use to more effectively 11 integrate with Windows 95. 12 During the development of Windows 95, 13 Microsoft is so concerned about competitors 14 taking advantage of certain features of Windows 15 95 that they went so far as to release 16 documentation and then take it back. 17 And they took it back from ISVs, some 18 of whom were moving forward to implement that 19 then documented API. 20 Microsoft added features -- added a 21 feature to Windows 95 called the namespace -- 22 called namespace. This allowed applications to 23 add namespace extensions or virtual folders to 24 the Windows 95 shell. 25 Here are -- here are three examples of 3496 1 namespaces. The recycle bin, the control 2 panel, and the briefcase. 3 During the Windows 95 beta period, the 4 prerelease period, Microsoft begins to document 5 this feature to allow the external independent 6 software vendors to create their own namespace 7 extensions. 8 The documentation first appeared in 9 June of 1994. And it's sufficient to begin 10 work on namespace extensions, but it -- but not 11 substantial enough to finish. Not substantial 12 enough to create a complete namespace 13 extension. 14 Bill Gates learns that ISVs are taking 15 advantage of this documentation, the 16 documentation that they have put out there 17 that, as I said, permits the ISVs to begin to 18 implement namespaces. 19 Mr. Gates himself orders withdrawal, 20 withdrawal of the documentation until 21 Microsoft's own developers can gain an 22 insurmountable time advantage over competitors, 23 such as WordPerfect and Lotus. 24 The reason I know that is because that 25 is what Mr. Gates says in Plaintiffs' Exhibit 3497 1 2151. Re: Shell plans -- let's see, it says 2 shell plans-Ishellbrowser. 3 This is dated October 3rd, 1994. 4 Mr. Gates says, it's time for a 5 decision on Ishellbrowser. 6 I have decided -- this is a little 7 hard to read. Can you make that any bigger? 8 I have decided that we should not 9 publish these extensions. We should wait until 10 we have a way to do a high level of integration 11 that will be harder for the likes of Notes -- 12 that is Lotus Notes -- WordPerfect to achieve, 13 and which will give Office a real advantage. 14 Having the office team really think 15 through the information intensive scenarios and 16 be a demanding client of systems, the operating 17 system, is absolutely critical to our future 18 success. We can't compete with Lotus, 19 WordPerfect, Novell without this. 20 This document and others will prove 21 that Microsoft fears competition on the merit. 22 Mr. Gates specifically orders that this 23 documentation, this documentation, be pulled 24 back to give Office an advantage. 25 Mr. Gates' order is carried out, and 3498 1 subsequent software development kits do not 2 include the namespace documentation. But the 3 problem arises. 4 Microsoft cannot very well tell 5 developers what they've done and why they've 6 done it. They can't very well say we gave you 7 this and now we're taking it back so we can 8 give ourselves an advantage in Office. So it 9 gives them reasons that are not true. 10 In Plaintiffs' Exhibit 2383, this 11 says, we proactively notified ISVs, and lists 12 them: Stac, Symantec, Netsoft, Oracle, et 13 cetera, who were actively developing using 14 these interfaces, and told them that, one, the 15 functionality of running in an integrated 16 window was gone; and, two, they were strongly 17 discouraged from using the modified APIs at all 18 because of compatibility risks. 19 This caused significant changes in 20 many of their development plans, but they 21 understood and pushed forward. 22 Meanwhile, contrary to what they were 23 telling ISVs, competitive application 24 developers, like WordPerfect, Microsoft 25 continued to use these very interfaces, and did 3499 1 exactly what Mr. Gates required, and gave 2 Office an unfair advantage. 3 Here's an e-mail, and this is also 4 2383, from Scott Henson to Cameron Mhryvold 5 that comes about a year, about a year after. 6 This is just right before Chicago Windows 95 is 7 launched. 8 Henson to Mhryvold, August 8th, 1995, 9 re: Shell extension ability and ISVs. 10 This mail is intended to summarize 11 what I am seeing internally on this subject and 12 to voice a strong concern for our ISVs. 13 The problem is that approximately a 14 year ago we told ISVs that a set of interfaces 15 known as namespace extensions were no longer 16 going to be a part of the standard Win 32 API 17 set. They were moved to an unsupported or B 18 list. 19 As I mentioned, there is a lot of 20 internal development going on where various 21 groups are implementing these interfaces to 22 varying degrees. 23 This is the exact thing we told ISVs 24 they could and should not do. 25 In short, we have a product that will 3500 1 be sold in the very near future that will 2 implement interfaces that we told ISVs they 3 should not use because we would not be able to 4 support them moving forward. 5 In the meantime, we were developing a 6 product that did exactly that. I can't even 7 express how bad this is. We loose, loose -- 8 I'm sure he meant lose -- everything when we do 9 this. Credibility, trust, leverage, the works. 10 Mr. Silverberg dismisses Mr. Henson's 11 qualms stating -- and this is also 2383. This 12 is a couple of days later. 13 Windows can and will use the shell 14 extensions. The decision not to expose the 15 shell extension APIs was based on a set of 16 considerations which are no longer operable. 17 What does that mean? The answer is 18 engage original directive a year earlier. 19 Plaintiffs' Exhibit 2151. We should 20 wait. We should wait until we have a way to do 21 a high level of integration that will be harder 22 for the likes of Notes, WordPerfect to achieve, 23 and which will give Office a real advantage. 24 And you will -- this causes severe 25 harm to Lotus and to WordPerfect. WordPerfect 3501 1 employee Greg Richardson and WordPerfect 2 employee Adam Harrall are expected to be 3 witnesses. 4 Mr. Harrall -- they will estimate that 5 Microsoft's actions cost the ISVs between 7 and 6 11 and a half developer years. They will 7 explain to you exactly what this meant in terms 8 of WordPerfect. 9 Mr. Richardson and others from 10 WordPerfect will testify that when Microsoft 11 tells them to stop using these namespace 12 extensions, the shell extension information, 13 they try to create their own version based on 14 their best estimate, their best guess as to how 15 Windows 95 would actually work, what the socket 16 will look like. 17 They guess wrong. Their new versions 18 of WordPerfect and other products designed for 19 Windows 95 could not incorporate the benefits 20 of shell extensions, and they could not offer 21 to their customers the same features as 22 Microsoft Word and other Microsoft products. 23 And consumers who wanted to use 24 WordPerfect with Windows, who wanted a choice, 25 were harmed. 3502 1 One of Microsoft's experts may try to 2 convince you that the only loss that 3 WordPerfect and consumers -- well, that 4 WordPerfect suffers is the salary that they had 5 to pay for developers to do and undo this 6 extension. 7 But the real loss is in time to 8 market. That is a concept experts will explain 9 to you, but it's not one of the harder 10 concepts. 11 The idea is the quicker you get to 12 market after or if you get it at the same time 13 as a new operating system comes along, then the 14 more likely it is that you will -- your 15 application will be adopted. 16 That's a -- listen to the experts 17 explain it. That was not as complete an 18 explanation as they will give you. 19 But time to market is an advantage. 20 And in making a product with features 21 that consumers will want, features that take 22 advantage of Windows 95. 23 Mr. Gates knows that. He tells us 24 himself that that's why he orders that -- the D 25 documentation of namespace extensions. 3503 1 There is another undocumented API that 2 I want to talk about. Another example of 3 Microsoft giving unequal treatment to its 4 competitors and favoring its own applications 5 developers. 6 CPT, computer-based training. It's 7 called a CPT hook. This time Microsoft couples 8 its unequal treatment tactic with deception and 9 misinformation. 10 The CPT hook allows one application to 11 manipulate events, such as the keyboard or 12 mouse activity or Windows resizing in another 13 application to drive the other application. 14 It's used to teach a user what the 15 other application will do, what to expect from 16 it. 17 Microsoft begins to use the CPT hook 18 around 1988. It is not documented until April 19 of 1992 in the Windows 3.1 software development 20 kit. And the documentation inaccurately states 21 that the CPT hook wasn't available until 22 Windows 3.1. 23 You will also hear the WordPerfect 24 witnesses discuss their efforts, lengthy 25 efforts to get this information. 3504 1 Microsoft's tactics, once again, 2 prevent applications that compete from taking 3 advantage of a feature in Microsoft's monopoly 4 operating system. 5 Greg Richardson of WordPerfect worked 6 at Microsoft in the late '80s and the early 7 '90s. Now, he is at Novell WordPerfect, and he 8 was there in the mid-'90s during the namespace 9 extension problems. But he was at Microsoft in 10 the late '80s and the early '90s. 11 And he will tell you that Microsoft 12 never documented the CPT hook for Windows 3.0 13 even though it was used in Word and Excel. 14 And he knows this because he worked on 15 it. Because that's one of the things that he 16 did for Microsoft. 17 He'll also explain that he was there 18 when WordPerfect asked for documentation, asked 19 for information about the CPT hook, and when 20 Microsoft told WordPerfect it's not available. 21 Eventually, two years later, 22 WordPerfect does manage to get the information 23 from Microsoft. But during that time users who 24 want the choice of using WordPerfect instead of 25 Word on Windows 3.0 are harmed because 3505 1 Microsoft uses misinformation and unequal 2 treatment against WordPerfect. 3 OLE controls, O-L-E. We are 4 switching. We are now up into the mid '90s, 5 '95. 6 And we are going to talk about the 7 withholding of the OLE controls. O-L-E means 8 object, linking, and embedding. 9 These OLE controls are also sometimes 10 referred to as containers or you will also see 11 them referred to by their file extension, which 12 is OCX. 13 Microsoft starts promoting -- this is 14 a new advanced technology. And Microsoft 15 starts promoting it and publicizing it to get 16 developers excited about its release. 17 But long before that technology is 18 made available to others, Microsoft has 19 incorporated that into its own applications, 20 into Access database that's part of Office. 21 Some Microsoft employees recognize the 22 unfairness of these advantages and become 23 concerned about Microsoft's exposure to 24 criticisms of, once again, violated the church 25 -- the separation of church and state, the 3506 1 Chinese wall ideas. 2 On January 10th, Mary Engstrom, and 3 Ms. Engstrom is with Weggener Edstrom, the 4 outside PR firm. She sends mail to Don Trudeau 5 in response to an announcement about OCX 6 controls and access, and here's what she writes 7 in Plaintiffs' Exhibit 1990. 8 How exposed do you think we are in 9 shipping an OLE container before the CDX is 10 available? I'm a bit concerned about this. Do 11 we need to worry about church/state on this 12 one? 13 And that is January of 1994. 14 Nonetheless, Microsoft decides to go 15 ahead and release this version of Access with 16 the OCX technology. This favoritism towards 17 the app division harms other ISVs, one of which 18 is Lotus, Lotus 1-2-3, Lotus Notes. 19 Lotus needs to get the documentation. 20 They know OCX is coming, but they can't get it, 21 and they can't get it in time to incorporate it 22 in their applications. 23 You'll hear by deposition from a Lotus 24 employee, a senior guy named Noah Mendelsohn. 25 Mr. Mendelsohn's testimony is a bit difficult 3507 1 to understand. It's highly technical. But 2 you'll -- I'm sure you'll get the basics which 3 I'm going to tell you about. 4 On February 24th, Noah Mendelsohn of 5 Lotus resends a memo -- and the reason I say 6 resends is we don't have -- he first sends it 7 on November 9th of 1994, and then resends it on 8 February 24th of 1995. And he discusses 9 Microsoft's tactics concerning Microsoft OCX 10 support. Is the playing field level? 11 This is Plaintiffs' Exhibit 2246. 12 He begins by -- this is an internal 13 Lotus document, an internal Lotus memo. 14 OLE controls, which are implemented as 15 enhancements to OLE 2.0 are emerging as the key 16 component architecture for the Windows 17 operating system platform. 18 Microsoft has publicly committed, on 19 numerous occasions, to ensuring a fair 20 separation between the application and system 21 groups at Microsoft. 22 Specifically, they have promised to 23 provide equivalent operating system API support 24 and documentation to applications developers 25 working inside and outside Microsoft. 3508 1 I am concerned that these commitments 2 are not being met in the case of OCX, the OLE 3 containers, and that Lotus and other ISVs are 4 being put at an unfair competitive 5 disadvantage. 6 Microsoft application developers have 7 been given earlier and more detailed access to 8 OCX specifications than we have had here at 9 Lotus. 10 The only OCX container sample code 11 that's available is, by Microsoft's own 12 description, incomplete and inadequate as a 13 guide to building production quality products. 14 Nonetheless, Microsoft is shipping 15 container implementations as part of their 16 Visual C plus plus access products. And we can 17 assume that other Microsoft containers will 18 follow soon. 19 Apparently, Mendelsohn's concerns are 20 of sufficient importance to get Microsoft's 21 attention, because on January 31 -- remember, I 22 said this is a resend. November 9th of 1994. 23 On January 31st, Microsoft evangelist 24 Sara Williams, her name is now Sara Spaulding, 25 meets with Noah Mendelsohn and other Lotus 3509 1 developers about these issues. 2 And on February 3rd, Mr. Mendelsohn, 3 February 3rd, '95, he sends an e-mail to many, 4 many other Lotus employees with the minutes of 5 that meeting. Again, this is a Lotus internal 6 document. It is Plaintiffs' Exhibit 2235. 7 He says, Sara Williams, an 8 OLE/OCX/Cairo evangelist in Microsoft -- 9 evangelist in Microsoft DRG -- that is 10 developer relations group -- visited with a 11 group of Lotus developers at Rogers Street -- 12 it's a Lotus place -- on Tuesday afternoon, 13 January 21 -- 31. Here are the minutes of our 14 meeting. 15 The purpose of the meeting was to 16 review Lotus' concerns regarding Microsoft's 17 fairness in supporting OCX development and to 18 answer other questions regarding OCX and OLE. 19 One of the questions that Lotus puts 20 to Sara Williams, Microsoft's evangelist -- in 21 fact, the primary topic of the meeting, is how 22 did Microsoft release products with the OCX 23 container technology in them when we, an 24 independent software developer, don't have what 25 we need to develop those applications. 3510 1 Williams, according to Mendelsohn, 2 agrees. 3 Again, Plaintiffs' Exhibit 2235. 4 Speaking only for herself, Sara 5 indicated that she shares many of these 6 concerns. She also said that Microsoft as a 7 whole does recognize that there is a problem 8 regarding support for ISVs using OCX. 9 The current situation with OCX is 10 inappropriate. I don't think that's Sara 11 talking. I think that's Mr. Mendelsohn 12 talking. 13 But Sara -- according to these 14 minutes, Sara acknowledged that the problems we 15 highlighted are real and that many of them do 16 trace to the fact that OCX development is done 17 in the tools group. 18 She promised to promptly review our 19 concerns with Doug Heinrich and other senior 20 managers at Microsoft. 21 But despite all these promises by 22 Williams, what Lotus doesn't know is that 23 documentation for OCX -- and the evidence will 24 be -- it was intentionally withheld four months 25 in order to give Access an advantage, a window 3511 1 in which it could be the only application using 2 this new technology. 3 Microsoft is giving its own 4 applications a leg up, and Lotus and other ISVs 5 are being harmed. 6 Even after the January meeting, 7 however, this stonewalling continues. And I 8 refer you back to the findings of fact about 9 what happened with Netscape and the RNA API 10 that they promised and promised and didn't 11 deliver for several months. 12 That's only -- that's what we believe 13 the evidence will show, is another example of 14 what's going on here with Lotus. 15 By the end of March 1995, Lotus is 16 still waiting. On March 27th, Noah Mendelsohn 17 contacts Williams. Again, that's Lotus' 18 Microsoft OCX evangelist. Practically begging 19 for help on this OCX technology. 20 He writes in Exhibit 2264, there were 21 a number of topics that came up during your 22 visit to the east in January, but which we 23 never completely resolved. 24 The most important of these, of 25 course, is the OCX support and documentation 3512 1 issue. You had indicated in a phone message in 2 early February that Doug Heinrich -- that's a 3 Microsoft employee -- had sent an e-mail on the 4 subject to Alex Morrow, a Lotus employee. 5 Alex never got the e-mail, but he sent 6 a follow-up query to Doug anyway. We received 7 no response. Is there anything we can do to 8 move ahead and get what we need to build 9 correct and complete OCX support in our 10 products? 11 Would this be a good time, Your Honor? 12 THE COURT: We'll take a 10-minute 13 recess. 14 Remember the admonition previously 15 given. Leave your notebooks here. 16 We'll come get you in about 10 17 minutes. 18 Thank you. 19 (A recess was taken from 1:20 p.m. 20 to 1:36 p.m.) 21 THE CLERK: All rise. 22 THE COURT: Everyone else may be 23 seated. Thank you. 24 You may proceed. 25 MS. CONLIN: Thank you, Your Honor. 3513 1 Members of the jury, I can talk a lot 2 faster than this. But the court reporter -- 3 see, that's why I don't. 4 We are -- I'm hoping we are going to 5 finish the apps, the applications case today. 6 More than a month later, in May of 7 1995, Williams has not yet provided the 8 documentation. 9 And on May 8th she writes Noah 10 Mendelsohn of Lotus, and responds to his 11 complaints about the quality of the 12 documentation and continues to promise support. 13 This is Plaintiffs' Exhibit 2311. 14 She says, Noah, I wanted to give you 15 an update on the issues that we discussed 16 during our phone call last week. 17 As I mentioned on the phone, there are 18 several other ISVs who have very successfully 19 implemented OLE control containers based solely 20 on Kraig Brocksmith's sample and accompanying 21 document. 22 In fact, I met another one last week. 23 So I find it difficult to understand why you 24 feel that you don't have all the information 25 that you need. 3514 1 A few weeks later, on May 26, 2 Mr. Mendelsohn still does not have his answers, 3 and he replies to Williams and explains to her 4 why what's been provided is not adequate. 5 This is also 2311. 6 As to why more OLE container reference 7 material is needed, I don't doubt that some 8 simple OCX containers can be built based on the 9 reference materials available, particularly if 10 you have access to VB, that's Visual Basic, 4.0 11 to use for comparison purposes and 12 compatibility testing. 13 On the other hand, there are numerous 14 details that Kraig doesn't even attempt to 15 cover for which the spec too is unclear. 16 So the issue is not that it's 17 impossible to write a container of any sort, 18 but that it's not possible to learn the details 19 required to correctly build sophisticated 20 containers that exploit the full range of 21 features suggested in the OCX spec. 22 And Lotus, of course, builds very 23 sophisticated applications, Lotus 1-2-3 and 24 others. 25 And Mendelsohn does take the time to 3515 1 explain to Williams why what Sara Williams sent 2 to him is not adequate. But others at 3 Microsoft know it is not adequate. 4 Williams appears to be talking about a 5 white paper or a technical specification that 6 Microsoft has written, but which is designed to 7 give competing ISVs just enough information to 8 placate them, but which Microsoft does not 9 believe will be enough information to build 10 sophisticated containers. 11 This is from an earlier period, 12 earlier in connection with a request from 13 another vendor, Borland. Microsoft lays out 14 its plan. And this is Plaintiffs' Exhibit 15 1990. 16 Darin, can you show us the date of 17 that? 18 1990 -- February 7th, 1994. And, 19 again, this is concerning Borland, which is a 20 tools developer. 21 And what Mr. Fallon says is they 22 decided to give him within 30 days a paper 23 written by one of the VC people that describes 24 the basic architecture. 25 They do not believe that Borland could 3516 1 achieve containership just from this document, 2 but it is remotely possible. 3 The longstanding plan has been and 4 continues to be to give Borland and Lotus, et 5 cetera, a design preview in March/April. 6 This means we will have a large window 7 of at least several months wherein Access is 8 the only database product supporting custom 9 controls. 10 We believe the evidence will be that 11 what's happened here is that Microsoft 12 programming languages people have developed 13 this new technology, this OCX, which provides 14 great advantages. 15 The technology is finished. It's 16 already incorporated into Access, but they are 17 purposely delaying the release of the 18 development kit and refusing to give adequate 19 documentation to other ISVs, Borland, Lotus, so 20 that Access can have that large window of at 21 least several months wherein it is the only 22 database product supporting the customs 23 controls. 24 One of -- end of OCX. 25 One of the things that Microsoft may 3517 1 say to you is that they are a changed company; 2 that all of this in the past, all that stuff 3 happened in the past. But that is not so. 4 And this is nowhere more apparent than 5 in connection with the use of undocumented 6 APIs. 7 Mr. Schulman will describe in detail 8 Microsoft's continued use of undocumented APIs 9 in Windows XP, currently on the market Windows 10 XP uses an undocumented -- well, I'm just going 11 to tell you about one -- line services APIs 12 which are used to manipulate text. 13 This set of undocumented APIs is used 14 by -- I'm sorry, Windows XP shipped with the 15 line services API, which are used to manipulate 16 text and used by Office, PowerPoint, Works, 17 Reader, and Internet Explorer. 18 Microsoft also shipped Windows XP with 19 direct UI, APIs which are used to create the 20 user interface development and are undocumented 21 APIs used by several Windows applications 22 including Office, Office 2003. There are more. 23 I will let Mr. Schulman explain them to you. 24 We believe the evidence will be that 25 the reason they do this -- the reason for these 3518 1 undocumented APIs is just what you've been told 2 in the documents. 3 They are for Microsoft to use to gain 4 an unfair competitive advantage. And that is 5 the -- that is the only reason. 6 And the benefit is to Microsoft. And 7 the benefit, we believe the evidence will be, 8 is to extend its monopolies to applications, to 9 monopolize the applications markets today. 10 I want to return for a moment to the 11 Chinese wall because another thing that may 12 happen is there may be a suggestion that there 13 isn't and never was and nobody ever said there 14 was a Chinese wall. 15 I have showed you documents in which 16 Microsoft high-level executives talk publicly, 17 including Mr. Ballmer, about the Chinese wall, 18 about the separation of church and state. 19 On March 18th, 1991, Mr. Mhryvold, 20 Cameron Mhryvold, and with the help of Weggener 21 Edstrom, hosts a meeting for ISVs and members 22 of the press, and at this meeting he repeats 23 the promises about Microsoft's Chinese wall. 24 On March 20th, there is a report of 25 the meeting. 3519 1 Phil M. writes in Plaintiffs' Exhibit 2 619. Meeting report for 3-18. Claire -- he's 3 writing to Claire Lematta of Weggener Edstrom. 4 Claire, here is the report for the meetings I 5 hosted for Cameron Mhryvold in San Francisco on 6 3-18. 7 The primary objectives for these 8 meetings: One, articulate and demonstrate 9 Microsoft's commitment to strong ISV 10 relationships. Key messages. Microsoft loves 11 ISVs. 12 And, two, the mission of Cam's group 13 is to promote the sale of systems software by 14 making sure that Microsoft systems are 15 supported with the widest number of 16 applications. 17 And then, six, it is in -- it's in 18 Microsoft's own best interest to make sure that 19 all the major applications support MS system 20 software. There is nothing to gain from giving 21 Microsoft apps an unfair advantage. The 22 Chinese wall is real. 23 And after she receives this, she 24 forwards it to Cameron Mhryvold, Jonathan 25 Lazarus, and Steve Ballmer on March 21st. 3520 1 MR. TULCHIN: Your Honor, I object to 2 the alteration of the evidence with that red 3 line. I know we've had these little tags here 4 that Plaintiffs' counsel puts in. 5 It's not part of the document, but I 6 think we are going too far to underscore 7 something that is not underscored in the actual 8 evidence. 9 THE COURT: Sustained. 10 MS. CONLIN: All right. And then, as 11 you know, that's not underscored in the actual 12 evidence. 13 On March 21st, Gates responds. I'm 14 sorry, I don't know -- somehow Mr. Gates learns 15 of this or there is a response about this 16 meeting on March 21st by Mr. Gates. 17 And what Mr. Gates says -- this is 18 March 21st, 1991. He says, there never was a 19 Chinese wall. Nobody said it. And not only 20 does early access to the operating system not 21 help applications, it's burdensome. 22 This is Plaintiffs' Exhibit 4385. 23 Who made a statement that any wall 24 exists between applications and systems? No 25 one from Microsoft ever did. 3521 1 Our competitors have trotted that out 2 as a strawman just to shoot it down. It seems 3 you have fallen for that. There isn't a wall 4 and we never said there was. 5 On the contrary, we try and work with 6 Microsoft applications and other people's 7 applications groups as closely as we can. 8 The willingness of our applications 9 groups to be early guinea pigs for flakey 10 systems software is a drain on them. 11 And I call your attention to this. 12 You have seen the documents that indicate that 13 Steve Ballmer and Cameron Mhryvold and Weggener 14 Edstrom are out there telling the ISVs the 15 Chinese wall is real, there is this separation 16 of church and state, and yet Mr. Gates in 1991 17 says nobody ever said that. Nobody from 18 Microsoft ever said that. 19 Apparently, there are people within 20 Microsoft who learn of Mr. Gates' position. 21 Doug K. on July 15th, 1991, e-mails 22 David Cole, Ballmer, Gates, and Silverberg and 23 demands access to the source code, and reminds 24 everybody of what Mr. Gates has said. 25 He writes in Plaintiffs' Exhibit 828. 3522 1 This is about something called COMDLGDLL 2 sources. 3 He's apparently an angry programmer. 4 This is pure and utter bullshit. As 5 Bill G. said at the latest apps division 6 meeting, the Chinese wall is a figment of the 7 media. Systems and apps are supposed to work 8 together. 9 We have a number of outstanding 10 COMMDLG bugs, more than half of Barney's total 11 -- half of Barney's total outstanding bugs. 12 If being able to look at the source 13 can help them, why won't you let us do it? If 14 you're so concerned about the fairness, let the 15 ISVs look too. 16 What are you afraid of? For that 17 matter, I think the apps should be able to look 18 at any Windows source. As a practical matter, 19 we do, whether you like it or not. 20 Having looked at a bunch of Windows 21 source, I've always wondered whether the real 22 reason you don't want people to see it is 23 because you're embarrassed by the quality of 24 it. 25 So let's get reasonable here. Give us 3523 1 the ability to look at COMMDLG sources. We'll 2 help you find and fix the bugs and we'll all be 3 better off. 4 So though Ballmer, Mhryvold, and the 5 PR people have personally publicly promised 6 again and again that there is this separation 7 of church and state and that it's real, it is 8 not, in fact, true and it is not -- and it's 9 never been true. 10 We believe the evidence will be that 11 Microsoft gets an unfair advantage by access to 12 these undocumented APIs, that it uses its 13 monopoly power within the operating system 14 against its applications software competitors. 15 Let's look now at Microsoft's second 16 tactic. 17 We will look at how Microsoft prevents 18 competitors' products from reaching consumers. 19 Microsoft is focused on using the 20 exclusionary contract terms, tactics, and 21 threats and intimidation. 22 As you know, the PC hardware part of 23 the industry is very competitive. Dell -- I'm 24 talking about Dell, Compaq, the hardware 25 part -- and they earn narrow profit margins. 3524 1 Microsoft, as a part of its effort to 2 monopolize the applications market, uses 3 threats and intimidation to get these hardware 4 manufacturers, the OEMs, not to load 5 competitive applications. 6 An increase in the price of Windows, 7 even a small one, is a direct threat to OEM 8 profitability. The profit margin is small. 9 And in the face of what the OEMs see 10 as a likely retribution by Microsoft in the 11 form of higher prices, in the form of delayed 12 technology information or delayed betas, most 13 OEMs are reluctant to distribute competing 14 office productivity products or applications 15 like WordPerfect, Lotus, Lotus and WordPerfect 16 both develop an office productivity suite. For 17 Lotus, it is Lotus SmartSuite and for Corel it 18 is WordPerfect. 19 In the latter half of the 1990s IBM -- 20 and this is from your findings of fact -- IBM 21 and Gateway are paying significantly more for 22 Windows than other OEMs like Compaq, Dell, and 23 HP. 24 This is Finding of Fact 130. 25 Faced with a choice between offering 3525 1 the non-Microsoft office productivity 2 applications and obtaining a Microsoft license 3 for the operating system on fair and equal 4 terms, most OEMs do what Microsoft wants them 5 to do. 6 IBM. IBM is a frequent target of 7 Microsoft's threats. You've heard about -- 8 we've covered this in the findings of fact. 9 But clear back in 1989, Bill Gates 10 himself writes a letter to IBM's president of 11 applications system division. 12 This is Plaintiffs' Exhibit 119. 13 I urge you -- and this also is before 14 IBM acquires Lotus. This is 1989. 15 I urge you not to market 1-2-3/G 16 because it would change our relationship and 17 send mixed messages about the openness of 18 Office Vision. If IBM markets 1-2-3/G, 19 Microsoft and IBM will be competitors in the 20 spreadsheet business. 21 IBM is one of the top ten OEMs and one 22 of Microsoft's largest customers, and we talked 23 about the findings of fact. 24 And one of them says from about '94 to 25 '97, Microsoft pressures IBM to decrease 3526 1 support for its own software products that 2 compete with Microsoft's. 3 The evidence is that Microsoft used 4 its monopoly power in the market for the 5 Intel-compatible PCs to punish IBM for its 6 refusal to cooperate. 7 And IBM's primary concern is what will 8 happen if we do not conform ourselves to 9 Microsoft's desires. 10 They do not, you will recall. 11 But without a license on favorable 12 terms for Windows, an OEM simply cannot 13 survive. 14 Microsoft directly controls the market 15 for applications by exercising its monopoly and 16 using its monopoly power over the operating 17 systems. 18 In 1997, Microsoft OEM account 19 representative Bengt Akerlind meets with Gary 20 Norris of IBM. Akerlind relays the message 21 from Bill Gates regarding IBM loading 22 SmartSuite. 23 This is Plaintiffs' Exhibit 3034. 24 Gates, why are we working with IBM 25 when they are doing these deals? Don't work 3527 1 with them. 2 You will also hear about OEMs who are 3 threatened when they really try to load 4 competing applications. 5 One is Acer. Acer is a large 6 international OEM. And the product manager for 7 Acer in the mid-'90s is a man named Ricardo 8 Correa, and he is expected to be a witness. 9 In the middle of '96, that's when he 10 joins Acer as the product manager. And his 11 responsibility is to choose and to load all the 12 desktop applications. 13 The first -- when he comes aboard, the 14 first thing he's directed to do is to try to 15 get the cost of applications down on the 16 desktop. 17 In late '96, shortly after he arrives, 18 the group of Acer employees responsible for the 19 Acer Aspire line, a particular type, gets 20 together and decides they'll release Acer 21 Aspire products with three things. 22 And one will be the SOHO, small office 23 home office line, and a gamer line for people 24 who like to play computer games, and then sort 25 of a general consumer line. 3528 1 And Ricardo Correa is the product 2 manager for all three of those lines. 3 He will tell you that during the mid- 4 1990s, things are not great in the hardware 5 industry and Acer is struggling with very high 6 PPBs. 7 As of January 1990 -- PPBs, you 8 remember the prepaid balances, the minimum 9 commitments they got. 10 PPB is in January of 1997 of 5.56 11 million. 12 Ricardo sets out to explore better 13 prices for better products, and he will also 14 tell you that early on in his career at Acer, 15 he's in a meeting with a man named Scott Van 16 Buren, who is a Microsoft account manager for 17 Acer. He works for Microsoft. 18 He handles the relationship at that 19 time between Microsoft and Acer. And Ricardo 20 was there, and he will tell you that he heard 21 Mr. Van Buren say we really don't consider you 22 a partner just because you buy the operating 23 system. Bill is not happy with you. 24 Part of the problem for Mr. Correa is 25 that Microsoft applications cost more than 3529 1 other applications, and Works, the Microsoft 2 product, for Works and Encarta, the cost is $8 3 per unit and that is even after deducting $7 a 4 unit from the PPB. 5 So the total cost of the Works Encarta 6 group is $15. Microsoft permits taking 7 off, 7 but it still costs $8 a unit. 8 And full-featured products like Lotus, 9 SmartSuite, and Corel's product cost much less, 10 and there are other problems in loading 11 Microsoft products. 12 He will tell you -- there are 13 documents to support -- that loading a 14 non-Microsoft product -- this is the cost of 15 the packaging and, you know, getting the thing 16 into the desktop -- the cost of non-Microsoft 17 applications is about 53 cents per unit. The 18 cost of Microsoft products is about 1.70 per 19 unit. And that's a big difference. 20 Acer also has to go through lots of 21 hoops to get the Microsoft products approved. 22 Ricardo under instructions from his 23 bosses begins to explore these other options 24 for some of Acer's Aspire computers, in 25 particular the SOHO, small office home office, 3530 1 business line. 2 Everyone agrees at Acer that Microsoft 3 is not going to be told about this. And even 4 people within Acer are not going to be told 5 that Microsoft or that Acer is going to create 6 a product that will, of course, have to have 7 the Microsoft operating system on it, but is 8 not going to go out the door with Microsoft 9 applications. 10 Ricardo Correa explores particularly 11 the Lotus SmartSuite product. Lotus SmartSuite 12 at this time -- we had it here yesterday, kind 13 of a heavy thing -- it had in it the Ami Pro 14 Word processor, full-featured word processor, a 15 full-featured database, freelance -- well, it 16 had Lotus 1-2-3. 17 It had freelance graphics. It had 18 Approach, which was a database manager, 19 organizer, screen cam, and smart center which 20 was a personal information manager. 21 In comparison -- and Lotus SmartSuite 22 competes with Microsoft's Office. 23 Works is sort of a stripped-down 24 partial version of a word processor, a 25 spreadsheet, and a database, and at this time 3531 1 it has some clip art and templates. 2 Mr. Correa wants consumers to have the 3 more complete Lotus SmartSuite for a fraction 4 of the cost. Lotus SmartSuite will -- it's 5 $3.50 per unit. No minimum commitment. No 6 obligations about packaging. 7 And that's what he chooses. He 8 chooses to load Lotus SmartSuite on the Acer 9 Aspire SOHO computer. 10 Lotus makes changes in the product at 11 Acer's request, and they're ready to go. 12 The testing is done. He will tell you 13 that it's stable and compatible with the other 14 applications and that they didn't test any 15 Microsoft products on this particular system. 16 They have the gold master. 17 Ricardo moves on to other things for 18 which he's responsible. And these other lines 19 are ones on which they are putting Microsoft 20 products. 21 He gets the contract from IBM. He 22 just puts it on his desk and goes on working. 23 Somehow in this time frame Microsoft 24 learns that Acer is planning to ship a product 25 that will load -- that will go out with Lotus 3532 1 SmartSuite. 2 Mr. Olstead, who is Ricardo's 3 supervisor at this time, calls and asks if 4 Ricardo has signed the contract with Lotus 5 that's on his desk. He has not, and that is 6 when Mr. Olstead says Microsoft has found out. 7 And, shortly thereafter a man who 8 Microsoft will, I believe, present you 9 testimony from, Mike Culver, comes to -- and 10 he's the VP of Acer USA. So he's above Ricardo 11 who answers to Olstead who answers to Culver. 12 He comes to the cubicle and tells him 13 don't sign the contract, wait. Ricardo calls 14 the Lotus guy who's a man named Sean Ahern at 15 home and calls Sean's boss at home. And we 16 believe that that call occurred about March 17 11th of 1997. 18 But the next morning Olstead and 19 Culver tell Ricardo to cancel that, not to sign 20 the contract. 21 And at this time Ricardo has the gold 22 master in production and has to turn the whole 23 line -- the engineers around. 24 Instead of the cheaper, more complete 25 Lotus SmartSuite, he puts Word, Money, and some 3533 1 off-the-shelf applications on that SOHO to get 2 it out the door. And to do that he has to 3 reengineer a new gold master. And Lotus is 4 out. Except for a small reseller line. 5 A few months after that, in October of 6 1997, Ricardo looks at the contract that Acer 7 has with Microsoft for applications and tells 8 Mr. DeWhitt that he thinks it's not good for 9 Acer. 10 This is Plaintiffs' Exhibit 6189 dated 11 Friday, October 24. And he does an analysis 12 that I'm not going to go through for you of why 13 he reaches this conclusion. 14 He says, so there you have it. No 15 matter how we look at it, it comes out nuts. 16 We do have an opt out in September '98. And if 17 we sell well, we could say go to hell. As 18 always, you know where I stand on this. 19 To buy our way out of Microsoft is 20 cheaper than to ease our way out on the dry 21 sandpaper surface. 22 Strategically, we need to look at all 23 the labor that we never count as a part of the 24 COGS, cost of goods sold, for Microsoft. 25 And as I mentioned, that's the 3534 1 additional cost for putting a Microsoft app 2 rather than the non-Microsoft app onto the 3 machine. He doesn't prevail. 4 In December of 1997, Acer signs a new 5 contract with Microsoft. 6 Then in 1998, right after the first of 7 the year, they try again. 8 This time Ricardo looks at Corel, and 9 Corel owns WordPerfect and QuatroPro, which is 10 spreadsheet and they compete with Word and 11 Excel. 12 Ricardo will tell you they're 13 cooperative, they're flexible. 14 In Plaintiffs' Exhibit 6301 -- this is 15 Friday, January 30th, 1998 -- he tells his then 16 boss Dean DeWhitt, who is also an engineer, 17 Corel has confirmed that they are willing to 18 consider creating separate component 19 applications. 20 So we could ship QuatroPro and 21 WordPerfect as separate applications or they 22 are willing to give us the complete suite and 23 include an easy to use tutorial CD at their 24 expense. 25 In Plaintiffs' Exhibit 6344, this is 3535 1 dated March of 1998, Steve Houck, who must be 2 the salesperson for the Corel -- I believe is 3 the salesperson for Corel, writes, as you 4 requested, I am providing you with pricing for 5 WordPerfect Suite 8. This is the whole suite. 6 We can honor a $2 royalty for 7 WordPerfect Suite 8 given our product is 8 bundled with the entire Aspire line in North 9 America for a period of 12 months. 10 But this does not go through either. 11 Acer and Microsoft have a joint 12 development -- a joint technology project in 13 the works and fears that Microsoft will punish 14 Acer if it goes with this deal and then -- and 15 so they do not. 16 So Corel, a much more complete 17 product, is not loaded on Acer Aspire. 18 Finally, poor Mr. Correa, there is an 19 event with World Book versus Encarta. This is 20 the encyclopedia product. And I tell you about 21 it only because it is sort of the end of the 22 line for Mr. Correa. Still trying to get the 23 cost down. 24 IBM now owns World Book in this period 25 of 1998 and offers World Book, the 3536 1 encyclopedia, for 1.50 per unit. Encarta costs 2 about 7. Acer decides to go with World Book on 3 the consumer line. 4 It's a huge savings. On Plaintiffs' 5 Exhibit 6146, this is August 14th of 1997 -- I 6 may have these out of order. 7 He says, we have negotiated a deal 8 with IBM. IBM has agreed to the following: 9 World Book 97 price at $1.50 worldwide, and any 10 business unit may upgrade to the 1998 version. 11 No minimum commitments. No upfront 12 payment. Business unit must agree to carry 13 World Book for one year, but it is not required 14 to be on all systems. And IBM will produce a 15 marketing piece. 16 Dean DeWhitt asks Ricardo is World 17 Book any good? Has it passed unit test yet, 18 and Ricardo responds, World Book has passed 19 testing. 20 Now, doing a gold master takes two or 21 three months. And that may be why I have this 22 here because they are starting the process of 23 doing the gold master to load the World Book on 24 the Acer Aspire. 25 Mr. DeWhitt goes to Microsoft for a 3537 1 meeting and comes back. Acer is almost up to 2 production again, and he comes back and tells 3 Ricardo Correa, it's off. You need to call 4 Sean Ahern -- again, the Lotus guy -- and tell 5 him we're not doing it. 6 He's not willing to do that. He is 7 not willing to call Mr. Ahern again and back 8 out of a deal. So he resigns. He just resigns 9 in mid-1998. 10 Acer tries to talk him out of it. But 11 he's gone. He's out of the industry. 12 Both Microsoft and Acer deny that any 13 of this happened. Michael Culver, who was 14 general manager of Acer America's consumer 15 division will tell you by deposition that 16 Mr. Correa is just a disgruntled employee, but 17 he will also admit that he was a very good 18 employee and that Acer tried to talk him into 19 staying. 20 Culver says that the reason that Lotus 21 was rejected was because there were problems 22 with Lotus. Ricardo will tell you this is 23 wrong. He's the one who did the testing. He's 24 in charge of it. 25 And he will tell you there are no 3538 1 problems with Lotus to account for the 2 cancellation of the contract. 3 Culver also in his testimony will tell 4 you that Microsoft never threatened him or 5 anyone else at Acer. Never pressured them 6 about what apps they were putting on the 7 computers. 8 But let me show you Exhibit 6141. 9 This is an August 27th, 1997 memo, 10 e-mail from -- I'm sorry. Yes, I think that's 11 -- that may not be the correct date. I'm going 12 to tell you why. 13 I've learned that some of these were 14 printed off on August 21st from someplace and 15 they have the correct date at the back, but at 16 some point along in here Mr. Van Buren is 17 replaced by Bob Chapman at Microsoft. And he's 18 writing to Mr. Culver himself and also to Rob 19 Olstead. 20 Mike/Rob he says. I need your answer 21 on the MS cash promotion by 4 o'clock today. 22 As we discussed, the deal is we will include 23 you if you agree to only consider Encarta for 24 the encyclopedia category on Aspire systems in 25 your next rev, revision, come June/July. 3539 1 Therefore, removing Infopedia. 2 Although the following quote is subject to 3 change, based on a volume of 250,000 to 300,000 4 units, I think we're looking at a royalty 5 around $6 with 1.50 recoupable against the 6 current prepaid balance, so net 4.50. 7 Obviously, how things go between 8 Microsoft and Acer America Corporation in the 9 next few months could have some small effect, 10 plus or minus. 11 He goes on to say, regardless of your 12 decision on the above, I plan to pursue 13 dramatic improvements in Microsoft's 14 relationship with AAC. 15 My understanding is it has suffered 16 over the last few years to everyone's 17 detriment. 18 For our part, I would prefer to take 19 this transition as an opportunity to wipe the 20 slate clean in an effort to move the 21 relationship forward. I tell you this because 22 if Acer does a SmartSuite bundle, all the great 23 things I have planned would surely suffer as a 24 result. 25 This is addressed to Mr. Culver 3540 1 himself. Mr. Chapman says that the price may 2 vary plus or minus, depending on the 3 relationship. And if Acer loads Lotus 4 SmartSuite, all the great things I have planned 5 would surely suffer as a result. 6 So while Ricardo Correa is at Acer, 7 they try three times to load non-Microsoft 8 applications and end up returning to Microsoft 9 to preserve the relationship. 10 We talked earlier today about -- 11 that's the end of Ricardo Correa. 12 We talked earlier today about 13 Microsoft's campaign against Netscape and Java. 14 And Judge Rosenberg told you about Microsoft's 15 illegal conduct from the government case. 16 He told you what Microsoft does to -- 17 did to Netscape and Java to make sure that 18 those technologies don't threaten the 19 applications barrier to entry and thereby 20 threaten Microsoft's monopoly. 21 Microsoft's campaign against Netscape 22 and Java is also geared to restricting 23 competition in the applications market. 24 Microsoft vice president Brad Chase 25 warns of the threat posed by Netscape to 3541 1 Microsoft's application dominance. 2 In an April 1997 memorandum entitled 3 preserving the desktop paradise -- it's not 4 very clear -- preserving the desktop paradise, 5 Chase cautions. This is Exhibit 3811. 6 Netscape's primary strategy has not 7 changed. They still want to obsolete Windows. 8 Our Office business is now in danger 9 too. Netscape is using their position with the 10 browser as a foothold onto the desktop to push 11 e-mail and collaboration as the new killer 12 applications. 13 Any Office Suite in the near future 14 will have to -- will have mail, e-mail as its 15 core component. 16 As e-mail use becomes more pervasive 17 in organizations, it will replace Word and, by 18 extension, Office as the most critical end user 19 app in organizations. That is already true at 20 many places like Microsoft. 21 Netscape is working hard to offer a 22 compelling application development platform 23 which, if successful, will greatly diminish 24 corporations' interests in our Office products. 25 In other words, if Netscape becomes 3542 1 the platform on which people will use e-mail 2 and other tools to collaborate, Microsoft 3 Office becomes less relevant. 4 He concludes, Mr. Chase concludes, in 5 summary, we must keep our focus on browser 6 share. This is central to the success of 7 Windows and central to the success of Office. 8 By focusing on IE today, we not only 9 secure the desktop and secure future Windows 10 sales, but also gain a user base that we can 11 upgrade to Outlook and then Office. 12 Now, let me remind you that the 13 findings of facts are, and the conclusions of 14 law are with respect to the operating system, 15 but the facts are the facts. 16 And the facts that were found, they're 17 already proven with respect to Netscape and 18 Java. And what Microsoft did to Netscape and 19 Java may be useful to you in determining 20 whether or not Microsoft intentionally 21 monopolized the Office, the applications 22 markets. 23 Without a license on favorable terms 24 for Windows, an OEM simply cannot survive. 25 For the period mid-'95 to mid-'99, 3543 1 that part is already proven. By using its 2 monopoly power over the operating system to 3 control the applications that OEMs preinstall, 4 Microsoft directly controls the markets for 5 applications. 6 Microsoft is going to bring you, I 7 think, an expert whose name is Kevin Murphy, 8 and he says -- he will tell you that 9 Microsoft's success in applications does not 10 depend on the use of undocumented APIs. 11 And there are several reasons he will 12 provide, and I want to talk to you about some 13 of them. 14 He will tell you, and you already 15 know, that Microsoft develops applications for 16 Mac Office, for the Macintosh for the Apple 17 products. And, of course, they don't have 18 source code for those. 19 So the implication is they don't 20 really need the source code in order to develop 21 applications. 22 But Microsoft from the beginning works 23 hand in glove with Apple to create the very 24 first apps for the Macintosh for the Apple 25 platform, and has what's called the first mover 3544 1 advantage. 2 Murphy may also tell you that the 3 undocumented APIs don't really matter. 4 Microsoft provides lots of documents, lots of 5 APIs. And Microsoft does provide support for 6 some APIs and some ISVs some of the time. 7 But we believe the evidence will be 8 that it depends on whether the ISV competes, 9 like Lotus, with Microsoft's core products, 10 and, of course, whether they have consorted 11 with other Microsoft competitors. 12 And we believe the evidence will be 13 that it really depends on whether or not the 14 API in question provides an unfair competitive 15 advantage to Microsoft. 16 If it does, if that API does, then 17 Microsoft may keep it secret -- may keep that 18 API from competing applications vendors. 19 Microsoft admits sometimes that it's 20 using undocumented APIs. You've seen some of 21 the documents. But they also will say that 22 that doesn't really affect the ability of other 23 firms to compete. 24 But think back to the Excel, the early 25 Excel where they used undocumented APIs to make 3545 1 Excel run faster. And an application that runs 2 faster must certainly be more attractive, and 3 that's why we believe that they used those 4 undocumented APIs. 5 Mr. Murphy may also say it doesn't 6 make any difference to the market outcome. 7 That means even if we did use undocumented 8 APIs, they'd just all be the same. 9 I believe that you may hear that quite 10 a bit. Whatever we did, it would all be the 11 same anyway. We didn't -- it didn't make any 12 difference to the outcome. 13 One thing we can probably all agree on 14 is that the people who run Microsoft are very 15 smart. 16 So the evidence will show you that 17 Microsoft broke Iowa's competition law many 18 times and that the undocumented APIs provided 19 them with an unfair competitive advantage which 20 they exploited. 21 And we also point to the document I 22 showed you from Mr. Gates himself in which he 23 says we're going to take that namespace 24 documentation back so that the likes of Lotus 25 cannot compete. Give ourselves a headstart. 3546 1 Give ourselves an advantage. 2 Microsoft may also claim that what 3 we're saying is that -- they may claim that 4 it's under no duty to share its intellectual 5 property with competitors. 6 Microsoft may say that we say that 7 Microsoft should be required to share its 8 intellectual property with competitors. That 9 is not the issue. 10 Microsoft discloses information about 11 Windows selectively to gain unfair advantages 12 in the relevant markets. 13 But please -- intellectual property is 14 just like any other kind of property. Like 15 property that is physical, it cannot be used 16 for illegal purposes. 17 Just as you can't use a piece of 18 physical property like a baseball bat on a car 19 window that can give rise to liability. The 20 use of IP to bludgeon competitors may also give 21 rise to liability. 22 Nothing special about intellectual 23 property. 24 And when Microsoft says that it should 25 not have to share its intellectual property 3547 1 with competitors, we are not talking about 2 competitors. 3 We are talking about -- these are not 4 competitors to Windows. These are applications 5 developers. These are people who are trying to 6 develop applications for the Windows platform. 7 They are not competitors to the Windows 8 platform. 9 As our technical and industry experts 10 will tell you, Microsoft could provide the same 11 kinds of disclosures that it provides to its 12 own applications developers without losing 13 control over its intellectual property and 14 Windows. 15 The evidence will also be that 16 Microsoft does disclose its source code to 17 universities, corporate customers, even foreign 18 governments, China, Russia. 19 It does -- the evidence will be that 20 it simply does not make sense to refuse to make 21 fair and similar disclosures to applications 22 developers. 23 So they want -- so they can make their 24 products work better on Windows. 25 Microsoft now has a monopoly in word 3548 1 processing, in spreadsheets, and in office 2 productivity suites. 3 We believe the evidence will clearly 4 show that it got these new monopolies by 5 leveraging its old monopoly in operating 6 systems and by using threats, intimidation, 7 deception, misinformation, and undocumented 8 APIs. 9 The evidence will prove that Microsoft 10 has violated Iowa's competition law; that it 11 has deprived class members of choice and 12 innovation, and that it charges, overcharges 13 Iowa consumers in the applications market. 14 Your Honor, I'm happy to begin the 15 Real story for the five minutes we have left or 16 I'm happy to stop. 17 THE COURT: Why don't we start on that 18 tomorrow. Is that all right? 19 MS. CONLIN: All right. Thank you, 20 Your Honor. 21 THE COURT: Ladies and Gentlemen of 22 the Jury, since it is close to quitting time, 23 I'm not going to let her start and interrupt 24 her at that point. 25 So we'll start again at 8:30 a.m. 3549 1 tomorrow. 2 Remember the admonition previously 3 given. Leave your notebooks here. They will 4 be locked up again as always. 5 And we'll see you again tomorrow. 6 All rise. 7 We'll take a 10-minute break. 8 (A recess was taken from 2:25 p.m. 9 to 2:34 p.m.) 10 (The following record was made out 11 of the presence of the jury.) 12 THE COURT: Is this the trade press 13 issues? 14 MR. CASHMAN: Yes. 15 Good afternoon, Your Honor. 16 THE COURT: Afternoon. 17 Who is first then? 18 MR. CASHMAN: The Plaintiffs will go 19 first because, depending on how you look at it, 20 either we have a motion in limine or a motion 21 to preclude Microsoft from using 13 exhibits 22 that have been referred to as trade press in 23 its opening statements or, alternatively -- and 24 this is probably the way Microsoft will 25 characterize it -- as an appeal from certain 3550 1 Special Master rulings. 2 And, first, if I may approach the 3 Court, approach the bench, I have the exhibits 4 and some charts that should make this -- 5 THE COURT: Oh, great. Thank you very 6 much. 7 MR. CASHMAN: -- easier. 8 Before I get into the substance of my 9 argument, what I've handed you, I've divided 10 into two groups. 11 The one with the gold ruling -- a 12 sheet on the top of it, identifies eight 13 exhibits which have been referred to as product 14 reviews. 15 And I'll explain what the chart is 16 during the substance of my argument and then, 17 eventually, we'll get to these exhibits 18 individually. 19 And then the exhibits with the blue 20 chart on top of them, there are five there, 21 these are certain trade press articles relating 22 to the so-called -- at least Microsoft likes to 23 call it the head fake issue. 24 So that's the two categories of 25 exhibits that you have before you. 3551 1 And I will proceed now with my 2 argument. 3 As an initial matter, I want to make 4 sure that the Court understands that the 5 Special Master has decided on multiple 6 occasions now, and the Court has affirmed, that 7 all of these exhibits in both categories, both 8 product reviews and the head fake articles are 9 hearsay, and, therefore, they are not 10 admissible for their truth. 11 What we're here today to talk about is 12 nonhearsay uses. Microsoft is proffering these 13 13 exhibits or seeks to use them in their 14 opening statement for alleged nonhearsay 15 purposes. 16 The Special Master, as the Court 17 knows, we've had debate over whether the 18 Special Master had authority to reach any 19 nonhearsay issues relative to these 13 exhibits 20 or any other exhibits. The Court will recall 21 we discussed that last week. 22 The Special Master, over the 23 Plaintiffs' objections, concluded that he did 24 have the authority to determine whether an 25 alleged nonhearsay use was a viable nonhearsay 3552 1 use. 2 And in connection with these 13 3 exhibits, he concluded that the notice 4 nonhearsay use alleged with respect to the head 5 fake articles and the effect on the recipient 6 alleged nonhearsay use with respect to the 7 product reviews were appropriate nonhearsay 8 uses. And that's as far as his rulings went. 9 We didn't think he had the authority 10 to make those rulings, but they are what they 11 are. 12 And, regardless, Plaintiffs submit 13 that the Special Master's rulings were 14 incorrect for the reasons that we'll discuss 15 here today. 16 The Plaintiffs have searched Iowa law 17 very carefully and elsewhere, and we've been 18 unable to locate an Iowa case in which 19 newspaper articles or magazine articles were 20 actually allowed to be used for nonhearsay 21 purpose as alleged by Microsoft here. 22 There are cases in Iowa which discuss 23 these alleged nonhearsay uses, notice and 24 effect on the recipient, but, really, only one 25 or two that talk about it in the context of 3553 1 magazine or newspapers articles. And while 2 they set out certain standards in those cases, 3 in none of those instances was the nonhearsay 4 use permitted. 5 I think it's correct to say that in 6 all those instances, the Court recognized there 7 was a possibility under certain circumstances 8 that a nonhearsay use might exist, but in 9 almost all those cases, that, in fact -- the 10 articles, the content of the articles had to be 11 believed as true to make them relevant. And, 12 for that reason, they were, in fact, hearsay 13 and inadmissible for that purpose. 14 The cases in Iowa which we've cited in 15 our brief really lay out three tests that I 16 think are important for the purpose of these 17 exhibits. 18 And that yellow chart, which I've 19 handed up to the Court in connection with the 20 product reviews lays out those three tests in 21 relation to each one of these articles. 22 The first is -- and this is clear from 23 looking at all the cases in Iowa -- is was the 24 article read by the party against whom it is 25 being proffered. And in this case it would 3554 1 have to be by Iowa class members. 2 And that's a necessity, because if the 3 articles weren't read they wouldn't be 4 relevant. 5 So that's the first test. 6 And, as you can see, all of the 7 articles here fail because Microsoft has 8 provided no evidence at all that any of these 9 particular eight product reviews were read by 10 anybody. 11 Secondly, did the reader act on that 12 article? And, as I phrased it on the chart 13 here, did Iowa class members, the pertinent 14 people, did they act on those product reviews? 15 And, again, Microsoft has provided no 16 foundation, no evidence showing that any of 17 these eight product reviews were acted upon by 18 anybody in Iowa really. 19 So, again, for that reason, those 20 articles are irrelevant, and they can't be used 21 for a nonhearsay purpose if they are 22 irrelevant. 23 The third test, which is appropriate 24 here -- and as I phrased it on the chart -- 25 would Iowa class members have to believe as 3555 1 true? 2 That's the Gacke test that we've 3 talked about in our other meetings. Gacke laid 4 out the test that if the contents of the 5 article have to be believed as true -- to make 6 the article relevant for the alleged nonhearsay 7 purpose, if the contents have to be believed as 8 true, then it's not nonhearsay, but, rather, 9 inadmissible hearsay. 10 And we submit that all eight of these 11 articles have to be believed as true to make 12 them relevant. 13 And why is that? As we've explained 14 in our briefing, if the contents of those 15 articles, the product reviews of Microsoft 16 products, it's alleged that consumers bought 17 Microsoft products because they believed they 18 were of higher quality or better products as 19 alleged in these product reviews, these opinion 20 pieces, that would have to be believed as true 21 to make those articles relevant for any purpose 22 in this litigation. 23 And, for that reason, Gacke comes into 24 play and tells us that, in fact, this is 25 hearsay. 3556 1 Now, I'd like to look at some of these 2 tests a little bit more closely. 3 Microsoft is going to contend, and has 4 asserted, that it doesn't have to show that 5 these eight product reviews were read by 6 anybody or that they were relied on by anybody. 7 They are going to allege that all they 8 have to do is show that this information was 9 available to the marketplace. 10 And, for that proposition, they are 11 going to rely primarily on an Iowa case called 12 Fanning versus Mapco. That's a 1970 Iowa 13 Supreme Court decision. And they are going to 14 give, I submit, a pretty broad brush approach 15 to that decision. 16 But the particulars of the decision 17 are very important. 18 Fanning is a case in which a defendant 19 who was a farmer -- or, I should say, the 20 plaintiff was a farmer in Sac County, Iowa. 21 THE COURT: What's the cite? 22 MR. CASHMAN: The cite for Fanning is 23 -- I have a copy for the Court if you'd like me 24 to provide it for you. 25 THE COURT: Oh, good. Thank you. 3557 1 MR. CASHMAN: And I've actually 2 highlighted the relevant portions of the case 3 for the Court's benefit. 4 THE COURT: Thank you. 5 MR. CASHMAN: The cite for Fanning 6 versus Mapco is 181 N.W. 2d 190. 7 The facts of this case are very 8 important to understand for purposes of the 9 standard that we are going to be discussing. 10 In that case, Fanning was a farmer in 11 Sac County. And he attempted to introduce a 12 number of newspaper articles from Des Moines, 13 Algona, Dubuque, and Garner newspapers that 14 talked about the fact that anhydrous ammonia 15 was dangerous, and that the danger of anhydrous 16 ammonia had been widely publicized and that 17 this dangerous condition would have an adverse 18 impact on the value of his property. 19 This case was about the valuation of a 20 taking by Mapco to put a pipe for anhydrous 21 ammonia across his farm. And the dispute 22 started out with Mapco saying we only need six 23 inches to put our pipe in there, and the 24 farmer, Mr. Fanning, said but your easement is 25 for 50 feet. 3558 1 And there was a dispute about that and 2 then how to value the property that was going 3 to be taken. 4 And Fanning tried to prove the value 5 of his property by introducing these articles, 6 which he contended showed that anhydrous 7 ammonia was a dangerous condition and that it 8 would affect the value of his property. 9 The trial court in Fanning rejected 10 that evidence stating that it was inadmissible 11 hearsay. And the Iowa Supreme Court affirmed 12 that decision. The Iowa Supreme Court said, 13 yes, newspaper articles are generally hearsay. 14 The Iowa Supreme Court went a little 15 further, however, and they stated that we're 16 going to be remanding this case back down to 17 the trial court, but we're going to try to give 18 you some guidance so that this case doesn't 19 come back again. 20 And so they said in the decision that 21 the proponent of these newspaper articles, 22 Fanning, could try, could try to use them to 23 show that the fact that anhydrous ammonia was 24 dangerous was common knowledge in that small 25 community. 3559 1 And I'm sure the Court knows that Sac 2 County is a pretty underpopulated county. And, 3 in fact, I Googled Sac County and Sac City. 4 And, with the Court's permission, may I 5 approach? 6 THE COURT: You may. Thank you. 7 MR. CASHMAN: This shows that Sac 8 City, where this trial took place, is a small 9 community. All of Sac County in 1980, which is 10 ten years after the Fanning decision took 11 place, but the entire county had just 14,000 12 people in it. And the city, Sac City itself, 13 had just 3,000 people. 14 So we're talking about a small 15 community, very small community. 16 Now, the Court went on to say, then, 17 that Fanning could use these newspaper 18 articles, could try to use these newspaper 19 articles in an effort to show that if these 20 publications -- the four publications that I 21 mentioned earlier, were of general circulation 22 within that community, 3,000 people, sufficient 23 to justify the conclusion that the undeniable 24 fact that anhydrous ammonia is dangerous would 25 be common knowledge amongst those 3,000 people. 3560 1 So, they said in the case, in the 2 Fanning case, essentially that this is a very 3 high standard. 4 Basically, what they are saying -- 5 what the Iowa Supreme Court was saying, is that 6 the proof had to be such that you could 7 conclude that virtually everybody in the 8 community knew that a particular fact was of 9 common knowledge. Basically, that everybody 10 knew it. 11 And they could say that given the fact 12 that you're talking about an undeniable fact, 13 dangerous condition of anhydrous ammonia, and a 14 small community. 15 Now, Microsoft is going to try and 16 bend Fanning all out of proportion and it 17 doesn't fit here for several reasons. 18 First, in contrast to the situation in 19 Fanning, the fact that anhydrous ammonia is a 20 dangerous condition, which nobody would 21 dispute, the articles that Microsoft is 22 proffering here, to use in opening, these 23 product reviews are hand-picked, cherry-picked 24 articles that Microsoft's lawyers have picked 25 out of thousands, thousands of articles. 3561 1 So these are cherry-picked articles 2 that are just opinion pieces that contain 3 denumerable opinions by oftentimes unknown 4 authors who have a wide variety of different 5 types of opinions. That's wholly different 6 than a situation that was involved in the 7 Fanning case. 8 Moreover, Microsoft has not 9 established that any of these specific product 10 review publications were generally circulated 11 throughout the entire state of Iowa so as to 12 justify the conclusion that the information 13 contained in these specific eight articles was 14 common knowledge or should be common knowledge 15 amongst all Iowans, or, even more specifically, 16 all members of the Plaintiff classes here. 17 Because that's what Fanning requires, 18 the proof that the publications are such 19 general circulation that you can deem the class 20 members to have knowledge of these eight 21 specific articles. 22 And Microsoft does not have the proof. 23 And in this context, if I may 24 approach. 25 THE COURT: Yes. Thank you. 3562 1 MR. CASHMAN: I have a chart here 2 which identifies in the left-hand column all of 3 the publications in which these articles are 4 contained. 5 So you'll see in the first two columns 6 on the left, between those two we've got the 7 eight product reviews which are before you with 8 the yellow chart. And we have PC World and PC 9 Magazine. 10 PC World is the source of five of 11 these articles. 12 If you look through all of the 13 exhibits that Microsoft provided with its 14 briefing, they did not provide one shred of 15 evidence showing that PC World was circulated 16 anywhere in Iowa. They don't have any proof 17 about the circulation of PC World. 18 So not only have they failed to show 19 that it was circulated in Iowa, they failed to 20 provide any proof of its circulation. And they 21 certainly haven't proven that it was widely 22 circulated. 23 Now, we'll come back later to this 24 last column which Microsoft alleges that these 25 product reviews are influential, quote-unquote, 3563 1 and that's somehow a basis for their use, but 2 it's not. And I will explain that in a moment. 3 But, at the present time, it's 4 sufficient to point out that they haven't 5 provided any proof showing that these specific 6 articles had any influence whatever on anybody 7 in Iowa. 8 Now, what Microsoft is really 9 attempting to say is that just because Iowan, 10 an individual Iowan or a group of Iowans may 11 have subscribed to one of these publications, 12 or even these specific publications, that that 13 is sufficient in itself to justify the use of 14 these product reviews. 15 In essence, they're saying that's 16 enough for you to deem that all Iowans have 17 actual knowledge of the statements in those 18 magazines. And that's just not enough. 19 In this connection, Your Honor, I 20 refer the Court to a case from Wyoming, the 21 Supreme Court of Wyoming, which actually looked 22 pretty carefully at the Fanning case. 23 And if I may approach, I have a copy 24 for the Court. 25 THE COURT: Yes. 3564 1 MR. CASHMAN: And, again, I've 2 highlighted the pertinent portions of this 3 decision and also tagged them for the Court's 4 reference. 5 And here the case is called Canyon 6 View Ranch versus Basin Electric Power 7 Corporation, 628 Pacific 2nd 530. It's a 1981 8 case from the Supreme Court of Wyoming. 9 And here the Wyoming Supreme Court 10 goes through and looks a little bit at what 11 kind of proof would have to be provided to 12 satisfy the Fanning test. And they correctly 13 acknowledge that it's a pretty high burden. 14 I would submit a very high burden. 15 But the Court can see here that the Canyon View 16 Ranch case refused to allow the submission of 17 newspaper and magazine articles on the basis of 18 the Fanning test because, in part, the 19 foundational requirements to prove general 20 circulation sufficient to justify the 21 conclusion that virtually everybody in the 22 community knows about an undeniable fact, that 23 there wasn't sufficient foundational proof 24 here. 25 And, furthermore, they, in essence, 3565 1 recognize that the newspaper articles were 2 being offered for the truth rather than for a 3 nonhearsay purpose because to make them 4 relevant they had to be believed as true. 5 That's the same -- basically the same 6 test as Gacke. 7 So for that reason, they also said 8 these articles are inadmissible. 9 And, then, finally, another element 10 that I'm going to talk about in a moment, the 11 Court went on to say that these opinion pieces, 12 which is what these newspaper articles are, 13 magazine articles, have a lot of opinions in 14 them and there just isn't a solid basis for 15 letting in that kind of opinion-type evidence. 16 So they went on to say that the 17 submission of such articles on circumstances 18 such as this and the circumstances in the 19 Canyon View case were a lot closer to 20 admissibility than what we have here; that it 21 would be unfairly prejudicial, misleading, and 22 confusing to the Jury. 23 So Plaintiffs submit that the Canyon 24 View case provides some very helpful guidance 25 on the proper interpretation of the Fanning 3566 1 decision and that, under no circumstances, does 2 Microsoft's proffer of these eight articles 3 justify their use for the nonhearsay purpose. 4 In short, Microsoft has failed to 5 provide any proof as to who has read these 6 alleged magazines. 7 They've failed to provide any proof 8 that any action was taken on them. They've 9 failed to provide the foundational requirement 10 that these had wide general circulation 11 sufficient to deem everybody in Iowa as having 12 knowledge of the specific facts stated or 13 opinions stated in these cherry-picked 14 articles. 15 And then, as I've mentioned before, 16 they clearly -- these product reviews to be 17 relevant for the purpose that Microsoft 18 alleges, which is that -- its defense is that 19 people bought Microsoft products because they 20 were better, that means that they would have to 21 believe these articles. And, on that basis, 22 they're hearsay. 23 Now, I'd like to turn for a moment to 24 why these articles are -- Plaintiffs submit 25 that these objections that these articles are 3567 1 prejudicial, misleading, and would cause jury 2 confusion should also be sustained, and that is 3 that, as I mentioned, these are cherry-picked 4 opinion pieces. 5 And the cases which I have cited to 6 you already, several of them discuss both 7 Fanning and, in particular, Canyon View discuss 8 the fact that admission of evidence that is, in 9 fact, hearsay is prejudicial as a matter of 10 law. 11 And there's another Iowa Supreme Court 12 case called Rotman versus Hirsch, a case that 13 was cited by the Special Master and which 14 cited, I believe, the Fanning case for the 15 general proposition that newspaper articles are 16 sometimes admissible. 17 In that case -- again, the Rotman 18 case -- they both said these articles are, in 19 fact, hearsay. They shouldn't be admitted. 20 And, in particular, if you've got a 21 newspaper article that's got opinion in it, 22 it's prejudicial. 23 And I have a copy of the Rotman 24 decision for the Court to look at. 25 THE COURT: Thank you. Thank you, 3568 1 sir. 2 MR. CASHMAN: Rotman is cited at 199 3 N.W. 2d 53. It's a 1972 Iowa Supreme Court 4 case. 5 And here the Court concluded that 6 because there were opinions expressed in the 7 newspaper articles, that the admission of those 8 kind of opinions would be prejudicial. 9 Here, of course, on these product 10 reviews, we've got pages and pages of opinions 11 being expressed. 12 And in this context, I emphasize for 13 the Court -- and when you read through 14 Microsoft's papers, they fail to identify even 15 a specific statement in any one of these 16 articles that they wish to use. 17 They just say these articles, we 18 should be able to use them for nonhearsay 19 purpose. We want to show that they created 20 buzz. 21 Your Honor, buzz isn't enough to get 22 these product reviews admitted for any purpose. 23 That's not a legitimate nonhearsay purpose. 24 They have to meet the test in Fanning. 25 They also have to meet the test in Gacke. And 3569 1 they can't meet either one. 2 Now, we submit that these articles are 3 also prejudicial and misleading because the 4 Jury might give weight to these cherry-picked 5 product reviews. 6 And, in fact, we believe that's why 7 Microsoft wants to use them. Because they know 8 that the Jury, when these documents are flashed 9 up on the screen, is going to have a tendency 10 to believe them as true. 11 And, for that reason, their use would 12 be prejudicial, misleading, and confusing. 13 We also object because we believe the 14 Jury may view these articles as expressing 15 expert opinions. 16 And I believe that Microsoft will seek 17 to portray these people, these articles, as the 18 experts, independent experts. And they're not. 19 These people are not experts. 20 And at the very least, they are not 21 qualified as experts in this case. They should 22 not be allowed to display these because the 23 risk of the Jury viewing these as expert 24 opinions would be highly prejudicial, 25 misleading, and confusing. 3570 1 Now, Microsoft is going to tell you 2 over and over again, I suspect, that these 3 articles are widely read and that they're 4 authoritative. 5 And as I've explained under Fanning, 6 that's not the test for the use of this kind of 7 evidence. And it's not the test under Gacke. 8 In reality, the claim that these 9 articles are widely read and authoritative 10 underscores the fact that Microsoft wants the 11 Jury to believe these articles as true and 12 wants the Jury to believe these people are the 13 experts so that the Jury will believe them. 14 And this is prejudicial and 15 misleading. 16 Microsoft also has a couple of other 17 cases, which they will claim support their 18 notice to the market theory in relation to 19 these product reviews. And they are two cases 20 they cited in the brief, and I'd like to 21 address them for a moment. 22 One is called Grossman versus Waste 23 Management. That case was a securities case, a 24 fraud on the market case. 25 I don't know if Iowa has adopted the 3571 1 fraud on the market theory for securities 2 cases, but that kind of situation is wholly 3 different than what we're talking about here. 4 Why is that? 5 Well, a fraud on the market theory is 6 a legal theory. And, in those cases, there's a 7 legal presumption that the market price of 8 stock or the market price of the security 9 reflects all available public information. 10 And in the Grossman case, it was 11 alleged that certain information hadn't been 12 disclosed, but the Court said if it was -- if 13 it was public, that's all it takes for it to 14 have affected the market price. 15 And, consequently, that case is not 16 anything like this case. 17 And then the other matter, the other 18 case that they primarily rely on is a case 19 called Associated Randall Bank versus Griffin, 20 and they have a new case they cite in their 21 brief called Coin. Both of these cases are 22 inapposite because they're cases involving 23 standard of care. 24 The Associated Randall case is a 25 broker malpractice case. And the broker in 3572 1 that case testified that he read a certain 2 publication regularly, but that he didn't 3 remember a specific article. 4 And which if he had read it, it would 5 have provided him information that he 6 supposedly should have passed on to the 7 purchasers of the bonds that he was selling. 8 But the evidence was permitted not to 9 show notice to the market or notice to the 10 experts. It was simply admitted, a magazine 11 article, to show what the standard of care is. 12 It would be no different than a legal 13 malpractice case where a lawyer is deemed to be 14 knowledgeable about cases in the area of law 15 where he practices to set the standard of care. 16 And that's not even remotely similar 17 to the kind of product review articles that 18 we're talking about here that Microsoft has 19 cherry-picked and wants to use to say that the 20 buying public chose Microsoft products because 21 they were better. 22 The other case they cited -- Coin is 23 very similar because that was another standard 24 of care case where a hotel owner was alleged to 25 -- it was alleged he should have known -- knew 3573 1 or should have known that there was substantial 2 unrest outside his hotel, and that he should 3 have provided better security, then, for his 4 guests. 5 Again, the standard of care case. 6 That has nothing to do with the present 7 circumstances. 8 So we submit that Microsoft should not 9 be permitted in its opening statement to talk 10 about or display these eight product reviews. 11 Now, turning to the head fake -- 12 so-called head fake articles. 13 Those have the blue chart on top of 14 it. 15 These articles all suffer from the 16 same types of defects that I discussed in 17 connection with the product reviews. 18 Microsoft contends that these articles 19 are relevant to show notice. And they are 20 going to characterize the head fake theory as 21 Plaintiffs claiming that Microsoft was 22 deceiving software developers about developing 23 for Windows, writing for Windows. And that's 24 not an accurate description of the issue. 25 The evidence shows, and will show, 3574 1 that the so-called head fake theory is that 2 Microsoft was not forthcoming in disclosing its 3 lack of commitment to OS/2, and so that they 4 just weren't clear about their commitment to 5 OS/2. 6 Now, why is that an issue? The 7 articles here that Microsoft seeks to proffer 8 in the main contain quotes that purport to say 9 develop for Windows, develop for Windows, 10 develop for Windows. And that's not the issue. 11 Nobody has denied that Microsoft would 12 say develop for Windows. What the issue was, 13 on the head fake theory is, that they didn't 14 make it clear that they were not committed to 15 OS/2 development. 16 And so they've got that issue. You've 17 got the fact that Microsoft has failed to 18 demonstrate that any particular individual read 19 these specific articles. 20 You've got the failure to show that 21 these articles made any difference. And then 22 also you've got the Gacke issue, which is that 23 in order for those articles to have any 24 relevance in the case, they would -- somebody 25 would have to believe what the person was 3575 1 saying. 2 Because if you didn't believe it, 3 again it wouldn't make any difference. 4 So, for all the tests -- under all the 5 tests that I discussed earlier, these articles 6 are not admissible as nonhearsay. 7 In fact, they are hearsay. So either 8 they're irrelevant or else they're hearsay and 9 can't be used. 10 Now, when we get to the discussion 11 about the actual merits of this so-called head 12 fake theory, the issue is really an expert 13 issue. 14 And so however those articles are 15 used, I submit, is an issue that would get 16 battled out between the experts. 17 And that's an issue for a later point 18 in the trial. It's not right or appropriate to 19 be displaying those exhibits during opening 20 statement for all the reasons I discussed. 21 And it can be hashed out, if 22 necessary, when the experts, if that issue is 23 part of their opinions, if that arises. 24 Lastly, I won't repeat the arguments 25 on the prejudicial, misleading, and confusing 3576 1 claims, but those issues pertain equally to the 2 head fake articles just as they did to the 3 product review articles. 4 And with that, Your Honor, before we 5 turn to look at these documents individually as 6 necessary, I think it would be appropriate for 7 Microsoft to respond in the main and then we 8 can go through these exhibits on an individual 9 basis if we need to. 10 THE COURT: If they wish. Do you want 11 to do that? 12 MR. NEUHAUS: I do think -- I think it 13 makes sense because I don't think -- I think it 14 makes sense to deal with this with the 15 arguments he's advanced on the question. 16 I don't think that it makes -- it will 17 be necessary to go through but we can do that. 18 I'm going to show you examples just as he has 19 as well. So I would like to go forward. 20 Your Honor, I would like to hand up a 21 bundle of documents that I'm going to be 22 looking at. 23 It's two documents, two sets of 24 documents. One is the November 29, 2006 25 agreements that the parties have entered into 3577 1 about the use of documents in opening 2 statements. 3 And the second are some documents I'll 4 refer to on the merits of the subjects 5 Mr. Cashman has referred to. 6 I guess I'd start with the November 29 7 agreements that Mr. Cashman had referred you to 8 several times in the last couple of days about 9 the use of evidence in opening statements, 10 which is what this motion is about. 11 And the parties agree that any 12 evidence that was designated in an exhibit or 13 prior testimony disclosure to the other party 14 that was made at least 48 hours in advance of 15 that party's opening statements, and these 16 documents have been designated for since at 17 least March and were also designated in the 18 Gordon case, may be used in opening statements 19 if the proponent of the evidence believes in 20 good faith that it will be admitted for the 21 purpose that the evidence is used in the 22 opening. 23 And the purpose that we wish to use 24 this for is the nonhearsay purpose. And, as 25 Mr. Cashman has conceded, we have put these 3578 1 properly before the -- well, he conceded that 2 we put them before the Special Master. And 3 Your Honor has found the Special Master had 4 authority to make those rulings. 5 You said, as we cited in our papers, 6 that those rulings he made on nonhearsay use 7 were fine. 8 And the first item, Your Honor, that 9 I've attached behind Tab 1 is the Special 10 Master's -- Special Master McCormick's ruling 11 on these 13 articles. 12 It is well established that newspaper 13 articles are admissible for a nonhearsay 14 purpose of showing notice to the market or to 15 demonstrate something that was common knowledge 16 in the community. 17 There's no requirement, as Mr. Cashman 18 has argued, that you have to show that all 19 participants in the market or the community, or 20 any one participant, actually read the article 21 in question. 22 Rather, Iowa law is clear, the Fanning 23 case is the authority, as well as Special 24 Master McCormick's holding, which I'll say to 25 you and cite the cases that he cites that you 3579 1 need to show the publication was widely read, 2 widely circulated in the relevant community, 3 which we have shown here. 4 So if you look at the Special Master's 5 ruling, because he addressed this in some 6 detail all of the arguments that Mr. Cashman 7 said were made before him. 8 In fact, they submitted the same brief 9 to him that they have submitted to you. And in 10 the highlighted portion on the second page, 11 Special Master McCormick said, Microsoft has 12 offered evidence that the publications were 13 widely circulated and were widely read by 14 developers of software. 15 This is with respect to the head fake 16 theory. This is not a situation of attempting 17 to prove that a particular individual read the 18 articles, but only what information was 19 disseminated to developers. 20 This is the rule recognized in Fanning 21 versus Mapco, 181 N.W. 2d 190 at 197, 98, Iowa 22 1970. 23 The same rule is recognized in 24 Jacobson versus Benson Motors, Inc., 216 N.W. 25 396, 400, Iowa 1974. 3580 1 The purpose ordinarily is to establish 2 a inference that a party probably knew what was 3 generally known, and he goes on also to address 4 the product reviews and recognizes the use of 5 the product reviews to show the effect on 6 recipients of the information for a recognized 7 nonhearsay purpose and cites an Iowa Court of 8 Appeals decision. 9 You'll see he then agrees that each -- 10 all of the nonhearsay purposes for which -- I'm 11 sorry, all of the articles had the valid 12 nonhearsay purpose that he had identified. 13 As Mr. Cashman has said, Fanning 14 versus Mapco is the leading case here. It is 15 not limited, as they say in their papers, to 16 eminent domain cases. It is accepted and that 17 I believe Special Master McCormick, he cited 18 Jacobson, which relies on Fanning as well. 19 And Fanning does say, very clearly, he 20 handed you the case, that all that is required 21 to show the effect on a large community of news 22 like this or of newspaper articles is that the 23 publication was -- is one of general 24 circulation in the community. 25 I'll read it. Before such evidence 3581 1 may be received, it should appear the 2 publication is one of general circulation in 3 the community to justify the conclusion it is a 4 matter of common knowledge there. 5 Because the theory was there market 6 value and the effect of the articles on market 7 value. 8 And in the paragraph before that -- 9 this is on page 9 of the copy that Mr. Cashman 10 gave you -- they held that it is proper to show 11 the subject of danger or fear of danger was a 12 matter of common knowledge among those persons 13 from whom a purchaser for the property would 14 probably come. 15 So that's the Iowa Supreme Court, and 16 that is the standard that we invoke and that 17 Special Master McCormick applied. 18 Plaintiffs say that no other court has 19 ever admitted newspaper articles. These were 20 offered in the Gordon case. 21 And the articles, all the product 22 reviews that he's talking about, were held to 23 be admissible in the Gordon case. 24 The head fake articles were all 25 admissible subject in one case to us bringing a 3582 1 witness to testify that he, in fact, said what 2 was said there. 3 But the others were all admitted. So 4 there is certainly precedent for this in these 5 very circumstances. 6 Plaintiffs have themselves -- 7 Ms. Conlin has recognized that trade press is 8 admissible for the purpose of showing notice to 9 the broad community. 10 Ms. Conlin referred repeatedly in her 11 opening statement to -- in her opening 12 statement about FUD and vaporware. 13 She relied repeatedly on trade press 14 for their effect on the market, not on the 15 developer community and on the market as a 16 whole, not because of their -- not for their 17 truth. Exactly what we're trying to do here. 18 And if you look at Tab 2 of what I've 19 given you, I've provided you some of the 20 excerpts from Ms. Conlin's opening the other 21 day. This is on December 1st. I guess that 22 was Friday. 23 And she says in connection with -- 24 this is the vaporware theory. Microsoft, it 25 says on page 2724 of her opening, Microsoft 3583 1 preannounces MS 5.0 influential trade press. 2 We didn't insert the idea of influential, by 3 the way. She conceded and argued that these 4 publications are influential. And trade press 5 is like PC World. That was the one Mr. Cashman 6 just cited to you that said we did not provide 7 any evidence that PC World is an influential 8 trade press. 9 Infoworld, Computer World, she 10 specifically says, and trade press is like PC 11 World and Infoworld, Computer World, and then 12 she goes on to say about on April 30th, one 13 week after DR-DOS is announced, out comes 14 articles in influential trade press about 15 MS-DOS 5.0. 16 And on the next page, page 2725, she 17 says that one of these stories was picked up by 18 major weeklies in the U.S. and was a page 1 19 story in PC Week on page 4-30, and she's 20 quoting there. 21 And, again, PC Week is another 22 publication that we are relying on, PC Week and 23 PC World. 24 And she goes on to explain -- I think 25 in language that's very relevant to the product 3584 1 review part of this argument, she goes on to 2 explain exactly why it is that this trade press 3 is relevant. 4 She says on page 2722, the point of 5 vaporware is to freeze the market so users 6 don't buy the competitor's real product but 7 wait for a product that may or may not even 8 appear -- may or may not ever appear. 9 She has this idea that trade press 10 influences the entire market, freezes the 11 market, freezes consumers from buying the 12 product. 13 And exactly what we are doing here is 14 saying no, no, there's other trade press, 15 positive trade press that says Microsoft's 16 product is a good product, which could also 17 explain why it is that sales of Microsoft's 18 products continued and other products did not 19 have those kinds of sales. 20 And she says on page 2750, and it's 21 market perceptions that matter so much, you 22 know, what does -- how does the market perceive 23 a product, which is very much our point on the 24 product review point part of this argument. 25 I'll come back and deal with each of 3585 1 these points separately. 2 Her experts also rely on trade press 3 to prove, again, broad theories of -- broad 4 effect on the market. 5 I'm going to come to some of the 6 experts on the head fake, but also in 7 undocumented APIs here, as you saw today, on 8 the theory of this sort of Chinese wall, 9 Professor Noll relies on trade press in his 10 expert report. 11 And we are offering the newspaper 12 articles to show the effect on the market or 13 that something was common knowledge in the 14 relevant community. 15 And to do that, under Fanning and 16 under -- and as Ms. Conlin has used it in her 17 opening, it strikes me as opening the door to 18 our use of this, that as long as you show that 19 the articles are widely circulated in the 20 relevant community, they are admissible for 21 that limited purpose of showing notice to the 22 relevant community. 23 THE COURT: I ruled that she could 24 introduce trade press? 25 MR. NEUHAUS: You ruled that -- one of 3586 1 the articles that she had -- one of the things 2 she was citing was this article about Z-NIX 3 where Z-NIX -- there was a trade press article 4 in an e-mail. And this was one of the issues 5 debated with Mr. Cashman. 6 We said, look, as long as it's 7 understood that what we're dealing with is 8 trade press is admissible for a notice purpose, 9 this can come in and allowed it in. 10 And that was one where the Z-NIX 11 article was -- I think I have it in here. The 12 Z-NIX article was -- I'm sorry, an article 13 reported that Z-NIX had done compatible testing 14 of DR-DOS and Windows. 15 And she offered it to show that 16 Microsoft reacted to that. And Mr. Silverberg 17 said -- I don't remember the core word, but he 18 expressed disapproval of it and disagreement. 19 He reacted to that. 20 And so it's clear that she is using it 21 for notice, for notice purposes, not for the 22 truth, but for notice purposes. And that's 23 what we want to use this for too. 24 THE COURT: Was it your understanding 25 that what she talked about in her opening is 3587 1 going to be -- she's going to try to introduce 2 other trade press articles? 3 MR. NEUHAUS: It is my understanding, 4 at least this much, that she has articles -- 5 certainly at least in two places she's put 6 trade press articles quoted in Microsoft 7 e-mails, but quoted in full in Microsoft 8 e-mails, she's used trade press articles and 9 put them on the screen here. 10 I assume she wouldn't do that if she 11 didn't think she had a good basis for getting 12 it into evidence. 13 So, to that extent, yes. 14 Then, of course, her experts cite and 15 say -- I don't know whether she's going to 16 bring those in or not. 17 Their experts cite articles that she 18 says provided notice of statements by Microsoft 19 showing its commitment to OS/2, their side of 20 the head fake story. 21 THE COURT: And I've ruled all these 22 admissible? 23 MR. NEUHAUS: No. 24 THE COURT: I haven't ruled these 25 admissible? 3588 1 MR. NEUHAUS: Other than the Z-NIX 2 article, it's not come before you for the 3 nonhearsay purpose. 4 THE COURT: I also notice there's no 5 objection by Microsoft on this point during 6 opening, was there? 7 MR. NEUHAUS: I'm sorry? 8 THE COURT: I also noticed there was 9 no objection by Microsoft on opening. 10 MR. NEUHAUS: This was argued before 11 opening, Your Honor, and we had -- Mr. Tuggy 12 and Mr. Cashman. 13 THE COURT: This particular issue? 14 MR. NEUHAUS: The Z-NIX e-mail. And 15 as I said, Your Honor -- 16 THE COURT: Z-NIX e-mail wasn't 17 mentioned here. I'm talking about trade 18 articles. I don't see Z-NIX specifically 19 mentioned here. Do you? 20 MR. NEUHAUS: I'm sorry. Can you -- 21 THE COURT: In the transcript of the 22 opening statement that you gave me here, am I 23 missing it? But I don't see Z-NIX mentioned 24 here. 25 MR. NEUHAUS: Your Honor, the Z-NIX 3589 1 article is behind Tab 8 where she talks 2 about -- 3 THE COURT: I understand that. But I 4 don't see in the opening -- oh, in this case. 5 MR. NEUHAUS: Yeah, behind Tab 8. 6 THE COURT: Got you. I was looking at 7 the wrong one. 8 MR. NEUHAUS: So she did. You know, 9 it had been argued before opening about could 10 she get this in. 11 Mr. Tuggy came in and said, look, this 12 is for the purpose of effect on the reader, 13 which is a recognized use of trade press. 14 And I was going to show you in a 15 minute, but Tab 8 shows where she did that. 16 THE COURT: Okay. What's the 17 community we are talking about that you want to 18 show that these articles affected? What is the 19 community definition? 20 MR. NEUHAUS: There are two different 21 communities. In the case of the head fake 22 articles, it is the community of applications 23 developers. 24 And in that case, we go -- you know, 25 we can be much more specific also because their 3590 1 head fake articles -- their head fake 2 allegations go specifically -- they talk, their 3 experts talk and I expect they will be talking 4 as well about ISVs generally, but they also 5 talk about Lotus and WordPerfect in particular. 6 And in the case of the head fake 7 theory, we have testimony, which I'll come to 8 in just a moment, from both WordPerfect and 9 Lotus witnesses, very high and responsible 10 officials, who say that those trade press, 11 those publications, were widely read and 12 regularly reviewed. 13 In the case of WordPerfect, that they 14 would have known the very information that's in 15 these articles from reading the trade press. 16 We have evidence on that with respect to 17 developer community. 18 With respect to the product reviews, 19 there the effect is on what the Plaintiffs have 20 called a worldwide market for PC. 21 The point is not that Iowa consumers 22 increase their sales. The point is that that 23 accounted for the overall success, the sales 24 success of Microsoft. 25 The idea is not you've got to show 3591 1 that somebody in Dubuque, a class member in 2 Dubuque read this and, therefore, bought. 3 The point is that you're showing that 4 another basis, another -- an alternative 5 explanation for the success of Microsoft is 6 that it was well reviewed. 7 And I will come to this in a moment, 8 but the evidence here is overwhelming from 9 Microsoft and elsewhere, that product review 10 was a very important factor in sales success. 11 People were taking a lot of effort -- 12 applications generally, taking a lot of effort 13 at getting good product reviews. 14 And if you got the editor's choice 15 from PC Magazine, that was a big deal because 16 it meant more sales. 17 THE COURT: As an example, through 18 what witnesses would you be trying to get these 19 in? 20 MR. NEUHAUS: Well, Your Honor, I 21 mean, they will certainly come in through -- I 22 mean, they will certainly be used with experts 23 because our experts also will testify that 24 systematic study of product reviews correlates 25 -- will show that positive product reviews 3592 1 correlate with increased sales. 2 THE COURT: Then you'll want this to 3 be -- I'm sorry. Go ahead. 4 MR. TULCHIN: I just wanted to add one 5 thing to that, Your Honor. 6 The whole issue of causation; that is, 7 the Plaintiffs argue that there are allegations 8 of wrongdoing. Had it not been for this 9 wrongdoing, the market would look different. 10 And their experts on causation -- it's 11 the husband and wife team of Mackie-Mason and 12 Ness -- have a theory that were it not for this 13 wrongdoing -- and they say whether it's one 14 piece of wrongdoing or 20, it just doesn't 15 really matter. 16 Were it not for that, the market would 17 look different. There would be, for example, 18 five or seven operating system companies with 19 roughly equal market shares. 20 So just, hypothetically, there would 21 be five companies, each of which had 20 percent 22 of the market. And in that sort of a market, 23 prices would be lower. That's part of their 24 theory. That's how they get to damages. 25 And the point here, of course, is that 3593 1 on cross-examination, it will be necessary for 2 us to delve into this question of causation. 3 Would the result have been different 4 in a particular market had there not been, for 5 example -- just an example, the incident that 6 Ms. Conlin spent a great deal of time on today, 7 she said Ricardo Correa of Acer, a relatively 8 low-level guy, wanted to buy Lotus SmartSuite, 9 and people senior to him at Acer, an OEM, 10 overrode his desires and decided to go with 11 Microsoft. 12 Now, I don't know what was wrongful 13 about that, but let's say there's some 14 Microsoft wrongdoing that the Jury concludes is 15 anticompetitive. 16 Would that one sale of a relatively 17 small number of units have made any difference 18 in the marketplace when there is an 19 overwhelming demand for Microsoft products in 20 part, in part due to the fact that the market 21 is getting information from trade press, from 22 reviews that consistently -- 23 And, by the way, Mr. Cashman says we 24 cherry-picked these. They have experts who 25 have their own trade press that they are going 3594 1 to use. 2 But when there are many, many trade 3 press articles that recommend that people 4 choose Microsoft software, the reviewer is 5 saying this is better or this is easier to use 6 or we think it's a better value for consumers. 7 And that impact on the market goes 8 directly to this very important question of 9 causation. 10 If there were illegal acts, in the 11 worldwide market, because that's how you 12 remember Ms. Conlin said on the first day of 13 her opening to the Jury, that the market is the 14 worldwide market. 15 If there was an illegal act having to 16 do with Acer and Ricardo Correa, would that 17 have resulted in conditions in the overall 18 marketplace where there would have been 5, 20 19 percent equal competitors? That's their theory 20 on which all their damages rest. 21 Without that, of course, if Microsoft 22 would have retained a large portion of the 23 market, they can't come to any calculation of 24 damages using their model. 25 MR. CASHMAN: Your Honor? 3595 1 MR. TULCHIN: So this -- I'm sorry to 2 interrupt Mr. Neuhaus, but I was just trying to 3 answer the question how would this come in. 4 Among other things, on 5 cross-examination. 6 And, again, it's not the truth of what 7 the review says. It's the impact on the 8 market. 9 As Ms. Conlin said in her opening and 10 in other contexts, these articles in these 11 sorts of magazines are influential and move the 12 market. 13 She said that when it came to 14 vaporware. And this is just the flip side of 15 the same coin. 16 THE COURT: Well, to avoid any 17 prejudice and avoid the Jury thinking there was 18 truth to these statements, wouldn't it be 19 better if the experts or whoever testified 20 about the articles and their impact just stated 21 articles appeared in trade press, which were 22 positive toward Microsoft product such and such 23 and that probably influenced something? Why do 24 you have to go into the details? 25 MR. CASHMAN: Your Honor? 3596 1 MR. TULCHIN: Your Honor, if I may. 2 THE COURT: Just a moment. 3 MR. TULCHIN: If I may answer this 4 question, Your Honor. I think it was directed 5 at me. 6 MR. CASHMAN: Your Honor, I would have 7 to say I object. I object to Mr. Tulchin and 8 Mr. Neuhaus switching back and forth. And I 9 really don't even think that Mr. Tulchin is 10 addressing the topic directly. 11 You're exactly right that these 12 exhibits should not be permitted. That's our 13 motion. Not permit them to be used in the 14 opening. 15 And if their experts -- if these are 16 expert issues, which is everything that Mr. 17 Tulchin and Mr. Neuhaus are saying -- 18 MR. TULCHIN: No. 19 MR. CASHMAN: -- then let's fight it 20 out with the experts. 21 THE COURT: Okay. The objection is 22 overruled. 23 Continue. 24 MR. TULCHIN: Thank you, Your Honor. 25 I forgot where I was or what the 3597 1 Court's question was. 2 THE COURT: Do you want it read back? 3 MR. TULCHIN: Please. Sorry to do 4 this to you. 5 (Requested portion of the record 6 was read.) 7 MR. TULCHIN: Well, Your Honor, this 8 is an instance where I'm afraid the Plaintiffs 9 are predicting something about my opening, 10 again, that they can't -- I don't think they 11 can know anything about. 12 I fully intended my opening, assuming 13 we get past this point, to tell the Jury that 14 these articles are not going to come in for 15 their truth. 16 Unlike Ms. Conlin who did not make 17 this distinction, she offered this up without 18 making the distinction between a hearsay and a 19 nonhearsay purpose. She talked about the 20 vaporware trade press as if it were eligible 21 for admission on the truth. I intend to try to 22 get the Jury to understand the distinction. 23 But the reason that it's important 24 during the course of the trial to permit 25 Microsoft to go into some detail, to answer 3598 1 your question, is so that the Jury fully 2 understands that there were these articles. 3 It's not just that there were one or 4 two, but there were a wealth of articles which, 5 indeed, made a key difference in the outcome. 6 And these allegations that I think are 7 easy to make -- of wrongdoing. In order to get 8 to damages, the Plaintiffs are going to be 9 required to prove causation; that the overall 10 marketplace would have looked differently, 11 radically differently. 12 And their experts say that in order to 13 get to lower prices, you have to look at 14 marketplaces where the competitive conditions 15 are really quite different. 16 So the trade press articles -- and now 17 we're talking about the product reviews, not 18 the head fake, but they span a great number of 19 years. And I think they have a lot to say 20 about why it is that Microsoft continues to 21 this day to have very high market shares. And 22 this is long after any of this old, old conduct 23 that Ms. Conlin points to took place. 24 In other words, the conduct -- most of 25 her time she spent in 1988, 1990, 1992, and 3599 1 here many, many years later people continue to 2 buy these products at an overwhelmingly 3 successful rate in part, in part, and there are 4 other reasons, Your Honor -- 5 I don't want to tell the Plaintiffs 6 everything that we intend to say. But, in 7 part, because the marketplace has this 8 information consistently from reviewers. 9 And whether the reviewers are speaking 10 the truth or not is not the purpose for which 11 we're offering them. 12 But the marketplace has this 13 information about superiority. It explains, 14 for example, why some people will buy a Lexus 15 for $60,000 when you can get a very nice 16 Chevrolet for 25,000. 17 There is marketplace information from 18 reviewers that gives the overall impression of 19 superiority. 20 THE COURT: Does that go to the truth 21 of the matter? 22 MR. TULCHIN: No, Your Honor. It goes 23 to the causation point, the reasons for 24 Microsoft's success in a given market. It's 25 not for the truth. And I think I can draw that 3600 1 distinction with the Jury. 2 THE COURT: So the reasons are is 3 because they got such great media coverage, 4 that's why people bought it? 5 MR. TULCHIN: Well, I wouldn't put it 6 that way. 7 But, you know, the Special Master, who 8 heard all these same arguments from the 9 Plaintiffs, ruled in our favor on this trade 10 press issue precisely because of this notice 11 point, that the market has this information and 12 that clearly it is a reason, maybe one of many, 13 many, that might explain causation, high market 14 shares. 15 The Plaintiffs say it's Microsoft's 16 evil actions that drove others out of business, 17 although I ask you to wait for my opening 18 statement on the subject of whether others were 19 driven out of business, Your Honor. 20 I'm just adopting their allegations 21 for a moment. 22 The Plaintiffs say that it's 23 Microsoft's evil actions that drove people out 24 of business, and that's the explanation for the 25 high market share. 3601 1 This is an essential part of our 2 defense to show that the marketplace had 3 information about the superiority of these 4 products. 5 Why does Microsoft have 90 percent of 6 a certain market consistently over a number of 7 years? 8 THE COURT: Can't your witnesses say 9 that these articles did show a superiority and 10 not go into the details? 11 MR. TULCHIN: Your Honor, we were 12 hoping to avoid using the articles for their 13 truth, but using them for a proper nonhearsay 14 purpose, which is what the Special Master told 15 us we could do. 16 I mean, Mr. Cashman has made the 17 argument -- I've been here, I think, two or 18 three times when he argued that under the 19 parties' agreement, you can proceed in openings 20 without preclearing these exhibits if you have 21 a good faith basis for using them. 22 And Ms. Conlin went ahead on that 23 basis. She had a ruling about the Z-NIX 24 article, but she also went ahead and talked 25 about influential trade press when it came to 3602 1 vaporware. 2 Somehow the tables are always turned. 3 And when it comes to my opening, which I 4 haven't given a draft of to Plaintiffs, then, 5 although we have this agreement that I'm free 6 to go ahead and use these articles because 7 they've been cleared by the Special Master, 8 somehow in my opening the Plaintiffs, you know, 9 want to seek to block me from doing what our 10 agreement permits me to do. 11 And Mr. Cashman has argued this 12 agreement two or three times. How he can argue 13 both sides of this issue, I just don't know. 14 If this is a motion in limine, Your 15 Honor, if it's a motion in limine, it should 16 have been made months ago. 17 I did talk about this trade press in 18 March 2004 before Judge Peterson in the Gordon 19 case. And Ms. Conlin and Mr. Hagstrom were in 20 the courtroom. 21 I don't remember if Mr. Cashman was 22 there on the day in question during my opening 23 then. So they knew we did it in Minnesota. 24 They certainly knew we were going to do it 25 here. That's why they've made this motion. 3603 1 And their motion in limine, if it was 2 going to be made, should have been made months 3 ago. 4 Under our agreement, now I have a 5 right to proceed. 6 According to Mr. Cashman -- 7 MR. CASHMAN: Your Honor, may I 8 respond to -- 9 MR. NEUHAUS: No. Could I -- you 10 know, I don't think we finished our argument. 11 THE COURT: Go ahead. 12 MR. NEUHAUS: Can I continue? 13 I mean, I did want to -- you know, you 14 asked the question about what witnesses would 15 bring this in. 16 And, in addition to the experts, we do 17 expect to have marketing experts -- I mean, 18 marketing witnesses, Microsoft marketing 19 witnesses who will talk about this just as the 20 WordPerfect and Lotus marketing people talked 21 about it. 22 They'll come in and talk about how 23 important these articles are. And at that 24 point I expect we'll be able to offer them. 25 So I think we clearly have a good 3604 1 faith basis for getting them in. 2 But to tie our hands and say that we 3 can only offer the Jury our witnesses say-so 4 about what these reviews say seems to me 5 completely unfair particularly when, you know, 6 Ms. Conlin gets to go up there, flash on the 7 screen the actual -- and I presume will offer 8 the actual document and quote as Tab 8 shows, 9 quote from the Z-NIX thing. 10 We've been testing the two products 11 from top to bottom for a month now and 12 uncovered no incompatibilities said C. J. 13 D'Angelo, vice president of sales of Z-NIX. 14 And this is all purportedly to show 15 the effect on Brad Silverberg of seeing that 16 article. 17 Well, Brad Silverberg, by the way, had 18 to believe that to react. So, in that sense, 19 it is true that when you offer, you know, trade 20 press to the community, there is -- you know, 21 whenever you offer something for notice, in 22 some sense, there's a -- you know, the 23 recipient, in this case Brad Silverberg, has to 24 believe that that's true. 25 We're not offering it for that truth 3605 1 just as they purportedly were not offering this 2 to show that DR-DOS -- Z-NIX had tested DR-DOS 3 and Windows. 4 THE COURT: But you got to admit that 5 was for a specific purpose at a specific point 6 in time, reactions and actions of Brad 7 Silverberg. 8 The trade press as you are going to 9 use it in this case, as I understand so far, is 10 to just show that it was out there in the 11 community. 12 Whether it had a direct impact on any 13 individual or individuals, that's up to the 14 Jury to decide. 15 MR. NEUHAUS: Judge, two things. 16 THE COURT: Silverberg actually 17 reacted to it, number one. 18 Number two, I hate to keep bringing 19 this back, but you didn't object to it on her 20 opening. 21 MR. TULCHIN: I was complying with our 22 agreement, Your Honor. 23 THE COURT: I don't care if you were 24 complying or not. You didn't object. If you 25 had a problem with it that it went beyond the 3606 1 good faith thing, you should have objected to 2 it. 3 MR. NEUHAUS: Your Honor, we had an 4 argument about this beforehand that very 5 morning, and, you know, it was agreed, look, we 6 agree that trade press was admissible for a 7 nonhearsay purpose and you said it's 8 admissible. Then come back and object. But, 9 you know, she has got this theory -- 10 THE COURT: Well, if I ruled that way, 11 okay, I'll stand by it. 12 MR. NEUHAUS: No. And, in fairness, 13 we -- 14 THE COURT: I can't remember 15 everything. 16 MR. NEUHAUS: It's admissible for a 17 nonhearsay purpose. Trade press is for giving 18 notice. 19 But, Your Honor, in fairness, she has 20 a much, much broader theory. She has this 21 theory of froze the market, a FUD froze the 22 market. Vaporware froze the market. 23 And if she can argue that, I don't see 24 why -- why shouldn't we be allowed to get in -- 25 again, this is on product reviews. I want to 3607 1 come back to the head fake. 2 Product reviews that explain the 3 positive effect, just like a positive movie 4 review or a positive restaurant review will 5 drive up sales, so will a positive product 6 review like this. 7 And we will show that they happened as 8 to specific products at specific times. You 9 know, Microsoft at 1994, Excel and Word got the 10 editor's choice from PC Week. That's an 11 important fact that the Jury is entitled to 12 know about. 13 And there's no reason why we shouldn't 14 be allowed to show them that. 15 THE COURT: To know for the truth of 16 the matter asserted? 17 MR. NEUHAUS: I'm sorry? 18 THE COURT: To know for the truth of 19 the matter asserted. 20 MR. NEUHAUS: Not for the truth of the 21 matter asserted. 22 THE COURT: For what reason then? You 23 said the Jury should know that PC whatever 24 thought that this was a good product. 25 That sounds to me like for the truth 3608 1 of the matter asserted. It doesn't sound like 2 to me, which you just said, it's to show how 3 the effect on the marketplace. 4 MR. NEUHAUS: Not for the truth of the 5 product was a good product. 6 Just like in Fanning, it wasn't -- you 7 couldn't offer the news articles to prove that 8 those pipelines were dangerous. 9 You could offer the news articles to 10 show that -- to show the effect that those news 11 articles would have on the market price, the 12 market value of land. 13 The articles talk about the danger of 14 anhydrous ammonia pipelines. The issue was an 15 eminent domain case, the market value of an 16 easement across the farmer's land. 17 You are allowed to show -- if you show 18 that the articles have general circulation in 19 the community, you are allowed to show -- you 20 are allowed to offer those for the purpose of 21 showing the effect on market, on the market. 22 That's what we want to do here on the product 23 reviews. 24 If she's allowed to say this froze the 25 market, we should be allowed to say, no, there 3609 1 were other things the market knew about, such 2 as positive market product reviews that account 3 for Microsoft sales. 4 THE COURT: Okay. 5 MR. NEUHAUS: But I do want to talk 6 about the head fake and, you know, we could 7 walk through -- I can show you the testimony. 8 It's attached to our motion. 9 Eileen Rudden, who is Lotus' director 10 of spreadsheet marketing -- 11 THE COURT: What tab is that? 12 MR. NEUHAUS: That's the last tab. 13 THE COURT: Tab 10? 14 MR. NEUHAUS: A little bit out of 15 order here. 16 The last tab, and she's asked, when 17 you were the director of spreadsheet marketing 18 -- strike that. 19 How important were reviews during the 20 early 1990s to the success of the product in 21 the market? 22 Reviews in the trade press were very 23 important. And then she goes on to the next 24 page and explains why. The press and these 25 sources were people who spent a large amount of 3610 1 time with the products and evaluating products 2 and they valued and developed reputations and 3 so forth that the PC Week labs, for example, PC 4 Week -- they're the ones we are talking about 5 -- the people didn't spend time -- that PC Week 6 labs, for example, that the people who didn't 7 spend time evaluating products would trust 8 their judgment much the same way people trust 9 Walt Mossberg today in the Wall Street Journal. 10 And there's more of that testimony. 11 And, Your Honor, we presented in our 12 papers the expert testimony, the expert report 13 who did a systematic study of the product 14 reviews and linked them to sales, showed that 15 there was a correlation between the product 16 reviews and sales. 17 And we should be allowed to get before 18 the Jury what this document -- these documents 19 that have this effect. 20 I would like to turn back to the head 21 fake articles because I think the situation 22 needs to be more clearly explained on that as 23 well. 24 Their claim that their experts make is 25 that in the period from 1988 to 1991, Microsoft 3611 1 misled developers of non-Microsoft applications 2 by telling them, the non-Microsoft applications 3 developers, to develop for OS/2 rather than to 4 develop for Windows. 5 Now, Mr. Cashman said, well, no, 6 that's not quite it. All I can tell you is -- 7 I mean, he said, no, it's really that we showed 8 withdrawal of support from OS/2. 9 Sounds quite similar to me, but in 10 their expert reports, and we're entitled in our 11 opening to, I think, respond to what the 12 evidence that they have said they will put on. 13 They offer the view that application sales were 14 -- I'm sorry, that applications developers were 15 stalled and developed late for Windows. 16 That the reason WordPerfect and Excel 17 came out late with a version of their flagship 18 products for Windows was because Microsoft 19 misled them. Microsoft told them develop for 20 OS/2, don't develop for Windows. OS/2 is the 21 future, not Windows. 22 For that -- that's their claim. 23 That's what's in their expert report, in Roger 24 Noll's report in particular. 25 And for that -- to answer that, we 3612 1 want to show that there was widely available 2 trade press read by these developers, by Lotus 3 and WordPerfect, that said that Microsoft was 4 -- in which Microsoft is quoted as saying, I'll 5 give you Tab 3, if you would, which is a PC 6 Week article entitled Bill Gates answers 7 critics. 8 And the highlighting I really want to 9 focus your attention on, Your Honor, is the 10 second page. And Mr. Gates is quoted as saying 11 we have been very clear about what we're doing 12 and very clear about what we've told other 13 applications software developers, Gates said. 14 We told people, hey, the first thing 15 you should do is write for Microsoft Windows. 16 The next article behind Tab 4 of what 17 I gave you is another one. Again, that's 18 directly aimed, Your Honor, at their claim that 19 their developer, that WordPerfect, Lotus, and 20 many other developers, because they don't -- 21 their experts focus on WordPerfect and Lotus, 22 but they don't limit at all about that. 23 They talk about six -- you know, all 24 kinds of other developers of applications that 25 they were mislead, they were deceived into 3613 1 developing for Windows not for -- in developing 2 for OS/2, not for Windows. 3 And so in this second article entitled 4 Microsoft details broad applications, OS 5 strategy, Mr. Gates says at the bottom, at the 6 highlighted language, our direction is, within 7 the next 18 months, to have a whole family of 8 applications under Macintosh, OS/2, and Windows 9 said Microsoft chairman William Gates. Anybody 10 who's not doing what we're doing is crazy. 11 And it is our contention -- and we 12 believe we are entitled to show the Jury -- 13 that Microsoft's -- the developers were on 14 notice from articles like this, and others -- 15 there are five of these that we are talking 16 about in this motion, in which Microsoft said 17 develop for Windows, develop for Windows. This 18 is in February of 1989. 19 The other one is in November of 1989. 20 Right in the middle of the period that Roger 21 Noll, their expert, says we were misleading 22 developers into developing only for OS/2. 23 We've also offered testimony that 24 these articles, as I said to you a moment ago, 25 a few minutes ago -- actually, quite a while 3614 1 ago I think, just at the outset, that 2 developers had -- that developers relied and 3 read these publications very frequently. 4 And if you'll look at the next tab, 5 which is Tab 5, Pete Peterson, Peter Peterson, 6 he was executive vice president of WordPerfect. 7 He was a very high official there. 8 And we show him the article I just 9 showed you. I've marked as Exhibit 14 an 10 article dated February 27th, Microsoft details 11 broad -- the article is entitled Microsoft 12 details broad applications, OS strategy. It's 13 a PC Week article. 14 And we ask him what was PC Week. It 15 was another computer publication. Was it 16 widely read in the industry? Yes. Did you 17 read it on a regular basis? Yes. 18 And now in this article, an article 19 about Microsoft's applications and OS strategy, 20 do you see near the bottom of the first column 21 where it quotes Mr. Gates and says -- and it 22 says, and he quotes -- we quote just the 23 language I just read you. Is that information 24 that you likely would have been aware of in 25 February of 1989? Yes. And that's consistent 3615 1 with what I heard when he talked to me. 2 Lower down, was PC Week reporting that 3 according to Mr. Gates every company should be 4 pursuing a multiplatform strategy that included 5 OS/2 and Windows? That's what the article 6 says. And that's information that Microsoft 7 would have been aware of in February 1989? 8 Answer: That's information that we 9 would have been aware of. 10 We also have testimony from Lotus 11 witnesses -- there's more here, but I won't go 12 on with Mr. Peterson -- from Lotus witnesses 13 who are also asked about the publications we 14 are offering here. In this case, it's 15 Infoworld. This is behind Tab 7. 16 Was Infoworld widely read at Lotus? 17 Answer: Yes. 18 And the same would be true of PC Week. 19 THE COURT: Tab 7? 20 MR. NEUHAUS: Sorry. Tab 6. 21 THE COURT: Okay. 22 MR. NEUHAUS: I apologize. 23 THE COURT: David Reed. 24 MR. NEUHAUS: David Reed. David Reed 25 was the vice president of research and 3616 1 development at Lotus. 2 And he's asked: 3 Question: Was Infoworld widely read 4 at Lotus? 5 The answer was yes. 6 And the same would be true of PC Week? 7 Yes. 8 And that would include both management 9 and lower level people? 10 Yes. 11 And we have this from others as well 12 and as to other publications. 13 And the point is, that under Fanning 14 versus Mapco, we need to show that these 15 articles, these publications, were widely 16 circulated in the relevant community. 17 The relevant community for purposes of 18 the head fake is the applications developer 19 community. We've done that and we've done it 20 with respect to the particular applications 21 developers and with the most -- you know, the 22 responsible senior officials of the 23 applications product at issue that they widely 24 read -- they regularly read the publications at 25 issue. 3617 1 That, Your Honor, should be enough to 2 offer these articles, again, not for the truth 3 but for, as Judge -- as Special Master 4 McCormick said, not for the truth, but for the 5 purpose of showing that they were on notice of 6 contrary information, that is, Plaintiffs say 7 that Microsoft had deceived them by telling 8 them to develop for OS/2 or by saying that 9 Microsoft's direction was behind OS/2. 10 That allegation that the developers 11 were deceived puts the reasonableness of their 12 reliance at issue. It puts at issue all the 13 information that they had available to them. 14 As Special Master McCormick put it, 15 just before the highlighted section I read to 16 you earlier -- this is, again, at Tab 1 -- he 17 said on this question of establishing that they 18 were on notice, the proffered nonhearsay 19 purpose of the stories quoting Microsoft's 20 executives is to show that software developers 21 were on notice that Microsoft executives were 22 reported to be promoting Windows and that 23 software developers should be writing 24 applications for it. 25 Establishing notice is a 3618 1 well-established nonhearsay purpose and is 2 served by the exhibits regardless of whether 3 the quoted statements were made and regardless 4 of whether they were true. 5 We should be allowed to put before the 6 Jury articles that show that the developer 7 community, in general, and Lotus, WordPerfect, 8 in particular, regularly read publications that 9 reported that Microsoft was urging people to 10 develop for Windows. 11 And because that undermines and makes 12 less likely the Plaintiffs' theory that these 13 developers were deceived by other information 14 that Plaintiffs say they got saying that our 15 direction was OS/2. 16 For the Plaintiffs' purpose, their 17 expert relies, cites -- and I've put that 18 behind a tab as well. That's at Tab 7 I 19 mistakenly referred you to. Their experts 20 relied on trade press. 21 If you look at Tab 7, you'll have 22 Roger Noll's report, and then behind it are 23 various trade press articles that they rely on. 24 One of them, on page 154, at the top, 25 Mr. Noll says to counter these speculations and 3619 1 keep the charade alive -- this is their 2 deception theory -- Steve Ballmer publicly 3 pledged the opposite, that is, the opposite of 4 an earlier article. 5 Our commitment to OS/2 could not be 6 stronger. We have more people working on OS/2 7 than anything else. 8 And they cite an article, a trade 9 press article. It's this one with the Bates 10 stamp X 501976, which is a trade press article, 11 an article distributed by one of these 12 specialized companies Forester Research. 13 And so they are relying on for their 14 theory, their head fake theory -- among other 15 things, they are relying on this and they are 16 relying on reports that Gates told me this or 17 that. We should be allowed to put before the 18 Jury the articles that show otherwise. And 19 this is not for the truth. It's for a 20 nonhearsay use. 21 I just wanted to look at some of the 22 things that Mr. Cashman said today. 23 As to the articles -- I mean, sorry, 24 the cases that Mr. Cashman referred to, the 25 ones he handed up, Rotman, they were offered 3620 1 for the truth in the trial court below. 2 Fanning, as I recall, was offered for 3 the truth in the trial court below, and it says 4 when it goes back, it was remanded for another 5 reason, it can be offered not for the truth if 6 you show general circulation. 7 I believe that's right. In any case, 8 that's clearly what the Supreme Court said as 9 to the remand. 10 As to the cases regarding Grossman and 11 Associated Randall, I think it's called, which 12 involved the standard of care and whether a 13 broker reasonably relied on other information, 14 those are cited in our papers for precisely 15 this head fake theory, which is that we are 16 entitled to show in order to show that somebody 17 who claims to have been deceived was not; that 18 other information was available to that person. 19 THE COURT: Fanning says the 20 Plaintiffs do not offer them as proof of the 21 truth of the events recited, but to show that 22 the danger of such installations -- 23 MR. NEUHAUS: I apologize, Your Honor, 24 you're right. It was not offered not for the 25 truth below. The Court said you have to prove 3621 1 that they are offered. 2 On remand when you retry this, it is 3 being retried for another purpose, because of 4 two different theories of what the Plaintiffs 5 -- of what easement was at issue, you have to 6 retry it again. 7 And then in giving instructions to the 8 Court below, they say here's how you do this 9 right. You get information that says -- you 10 get evidence that the publication is one of 11 general circulation in the community, then you 12 can offer and admit it. 13 THE COURT: Anything else? 14 MR. NEUHAUS: Just one second, Your 15 Honor. I just want to make sure I've covered 16 the points that Mr. Cashman raised. 17 I think I have, Your Honor. 18 I just want to sort of to summarize 19 here. On the head fake, the theory is they use 20 trade press as well as other information that 21 they say misled developers as to Microsoft's 22 intentions. 23 We have articles that report that 24 Microsoft's executives gave contrary 25 information that these very developers relied 3622 1 on. 2 And on the product reviews, they 3 relied on the freeze the market theory. We 4 ought to be able to rely on other influences on 5 the market, not for their truth, but for their 6 influence on the market. 7 Thank you, Your Honor. 8 THE COURT: Mr. Cashman, tell me why 9 you enter into these agreements on the use of 10 evidence in opening statements and then we 11 ignore them? 12 MR. CASHMAN: Your Honor, the 13 agreement was entered into after we had already 14 filed our motion and after Microsoft had 15 already filed their request with the Special 16 Master for preapproval. 17 The agreement does not, and did not 18 apply -- and when Mr. Tuggy and I executed 19 this, we both agreed and understood that we had 20 this trade press motion on file with the Court 21 and that Microsoft had its motion on file with 22 the Special Master. 23 And, actually, we followed exactly the 24 right procedure, just as we discussed with the 25 Court this morning. 3623 1 We brought the exhibit to your 2 attention this morning regarding the German 3 graveyard testimony. And Microsoft had the 4 objection to the undue prejudice objection 5 there, even though arguably we could have used 6 it, and we proceeded to address the merits. 7 The agreement is not applicable to 8 this situation where either party believes they 9 have something that they want to clear in 10 advance. That's exactly what we've been doing. 11 And as it relates specifically to the 12 trade press motion, both parties understood 13 that was already on file and wouldn't be 14 affected by this agreement. 15 MR. TULCHIN: It says that nowhere, 16 Your Honor. And it's just amazing that 17 Mr. Cashman could assert that. The agreement 18 is plain on its face. 19 MR. CASHMAN: Well, Mr. Tulchin, I 20 don't appreciate the interruption. 21 But he wasn't there when we signed 22 this deal. And even if he had been, the facts 23 speak for themselves about when this motion was 24 filed and when Microsoft's petition before the 25 Special Master was filed on November 14th, 3624 1 which is attached as the exhibit to our papers. 2 And you will see in the papers, in Mr. 3 Tulchin's letter to the Special Master, he 4 specifically asked for the Special Master to 5 rule on the admissibility of these exhibits for 6 his opening statement. 7 So it was never intended that the 8 agreement would apply to these trade press 9 exhibits. 10 Next, Your Honor, I would like to 11 address specifically Mr. Neuhaus and Mr. 12 Tulchin's comments about the Special Master's 13 decision. 14 And there's a couple of important 15 points. 16 First of all, the Special Master in 17 the attachment that Mr. Neuhaus provided, he 18 cites Jacobson versus Benson Motors. I've got 19 a copy of that case for the Court. 20 And unlike what the Special Master, 21 and apparently Microsoft, seem to be suggesting 22 here, in Jacobson versus Benson Motors, they 23 refused to permit the admission of the article. 24 In the Fanning case, contrary to 25 Microsoft's suggestion, the newspaper articles 3625 1 were never permitted even under the standards 2 articulated by the Court there. 3 And then moving on -- 4 THE COURT: I'm sorry. In Fanning 5 they were not admitted? 6 MR. CASHMAN: The newspaper articles 7 were not permitted in the Fanning case. 8 THE COURT: Sure, they were. 9 MR. CASHMAN: They were not. 10 And with the Court's permission, I'm 11 going to hand up a copy of the Jacobson versus 12 Benson Motors case. 13 THE COURT: The Court permitted them 14 for a limited purpose. 15 MR. CASHMAN: No. The Court -- what 16 happened in Fanning, Your Honor, is that the 17 Court on appeal, the Supreme Court, said that 18 it's inadmissible hearsay. 19 THE COURT: I know, but -- 20 MR. CASHMAN: But, on retrial, you can 21 attempt to lay the foundation under this 22 standard. 23 THE COURT: I thought you were trying 24 to say the trial court did not admit it. 25 MR. CASHMAN: The trial court was 3626 1 reversed. 2 THE COURT: But the trial court did 3 admit it; right? 4 MR. CASHMAN: The trial court was 5 reversed by the Supreme Court. That was wrong. 6 The Supreme Court said that was wrong. 7 THE COURT: I understand that. But 8 the trial court admitted them for a limited 9 purpose. It was reversed. 10 MR. CASHMAN: No. I think maybe we're 11 just miscommunicating. 12 The trial court initially allowed 13 them, and it wasn't clear whether they were 14 admitted in the first instance for their truth 15 or not for their truth. 16 And the Supreme Court said they're 17 hearsay, they were improperly admitted, and 18 that if you wish to try and to have them 19 admitted for a nonhearsay purpose, you have to 20 lay this foundation. 21 THE COURT: I understand, but there 22 wouldn't have been appeal had they not been 23 admitted by the trial court. 24 MR. CASHMAN: They were admitted, but 25 I believe -- 3627 1 THE COURT: That's the point I was 2 making. 3 Go ahead. 4 MR. CASHMAN: The Special Master, on 5 page 2 of his report -- 6 THE COURT: Okay. 7 MR. CASHMAN: -- also says when he's 8 talking about product reviews, product reviews 9 are proffered for nonhearsay purpose to show 10 effect on the recipient of the information. 11 Here, as I've pointed out before, 12 Microsoft has failed to provide any evidence at 13 all of effect on the recipient of these product 14 reviews. Simply no proof. 15 And I'm going to come back to that a 16 little bit later, but this emphasizes both 17 Microsoft's lack of proof, lack of evidence on 18 this point. 19 And it also underscores the fact that 20 this -- the Special Master was only stating the 21 general proposition that nonhearsay use can be 22 to show effect on the recipient. 23 He wasn't saying and could not have 24 said because he didn't have the authority to 25 say that these are admissible because there was 3628 1 an effect on the recipient. 2 So the characterization that Microsoft 3 has given to the Special Master's ruling is 4 incorrect. 5 As far as the statements or comments 6 by Ms. Conlin, in opening statements, 7 significantly she did not display trade press. 8 She did not talk about trade press. 9 The sole exception was the exhibit 10 that we talked about before from Mr. Silverberg 11 which we cleared with the Court in advance 12 because that is a very specific situation, as 13 the Court recognized, where Mr. Silverberg was 14 reacting contemporaneously with something that 15 he read. 16 So the first element has been 17 satisfied. He read it. He acted on it. And 18 it didn't matter. 19 The third element, it didn't matter 20 whether he believed the information to be true 21 or not. His reaction is what was being 22 offered. 23 So that's an actual notice situation. 24 That was approved by the Court. That was 25 proper. 3629 1 Ms. Conlin in all other instances did 2 not display any trade press, did not talk about 3 the contents of trade press. Rather, as Mr. 4 Neuhaus and Mr. Tulchin have implicitly 5 conceded, what she was talking about is 6 Microsoft conduct, Microsoft anticompetitive 7 conduct in the way that they conducted 8 themselves towards trade press. 9 The fact that she uses words like 10 important isn't the key issue here. The fact 11 is she didn't show trade press, which is all 12 that we're asking in this motion that Microsoft 13 not be allowed to display or talk about the 14 contents of trade press. And, in particular, 15 these 13 during opening statements. 16 Mr. Neuhaus or Mr. Tulchin, I forget 17 which now, tried to make a point with the Court 18 on the Gordon case. And Mr. Tulchin this 19 morning emphasized at length, the Court will 20 recall, that the rules are different here than 21 they were in the Gordon case. That's Mr. 22 Tulchin's own words. So that point falls by 23 the wayside. Can't have it both ways. 24 The next point that I believe Mr. 25 Neuhaus made before Mr. Tulchin interrupted 3630 1 him, was that the experts rely on trade press. 2 Well, experts, of course, are entitled 3 to rely on hearsay and whatnot. And that 4 actually underscores the point that I made 5 before that the Jury will very likely confuse 6 trade press displayed during an opening 7 statement as being true. 8 And it would be prejudicial and 9 confusing and misleading, but it is a proper 10 thing for experts to look at. And we can fight 11 out whether and when any of that trade press 12 should come through or what fashion it would 13 come through in expert testimony. 14 Now, there were a lot of comments that 15 went back and forth about product reviews and 16 the head fake articles. And with respect to 17 the -- well, I guess I'll address the head fake 18 articles first. 19 There's no evidence in the record 20 that's been supplied by Microsoft that these 21 specific articles were read and relied on by 22 independent software developers. 23 Just because you read a magazine, if 24 you happen to read a magazine, doesn't mean 25 that you read the issue in which the particular 3631 1 article appears. And it doesn't mean that you 2 read the article, every article in the edition 3 that you are reading. 4 And the cases are clear that for the 5 notice issue, you've got to read it, you have 6 to act on it. And they haven't provided that 7 proof. 8 The product reviews, the same thing. 9 They haven't showed that anybody received it, 10 that anybody did anything with them. 11 Mr. Tulchin went on at length about 12 causation, and he said the market would look 13 different. And that has nothing to do with 14 trade press. They simply have no proof of the 15 impact on the market from trade press. 16 You'll note that they haven't 17 provided, because they don't have, they don't 18 have a market study to show what the impact of 19 trade press was. They could have done that, 20 but they didn't do it. 21 And they're just trying to make a huge 22 leap to cover that chasm in their case by 23 tossing hearsay, trade press, cherry-picked 24 trade press, and it shouldn't be permitted. 25 If it were to be permitted -- and I'm 3632 1 sure the Court wouldn't want this because there 2 are lots of other articles out there that are 3 completely opposite of the cherry-picked 4 articles they want to use. And this isn't a 5 case about battle of the trade press. So that 6 should be precluded. 7 Mr. Neuhaus, I think it was, made the 8 comment that one of our experts, Roger Noll, I 9 guess it's at Tab 7, was relying on trade 10 press. 11 And as an initial matter, again, I 12 think that underscores that the proper -- 13 particularly in the head fake issue, but also 14 product reviews, the proper arena to resolve 15 the head fake issues is through the experts, 16 not in opening statement when you're talking 17 about both the documents that are hearsay and 18 that lack the foundational requirements set 19 forth by the cases. 20 But as you'll see, I guess it's in the 21 papers that they submitted with their brief, 22 the Noll report indicates that it's Microsoft's 23 commitment to OS/2 which created the problem, 24 not their representations to the market about 25 whether or not to write for Windows. 3633 1 It's Microsoft's conduct, in general, 2 with respect to its commitment to OS/2. And 3 that's the subject of what Mr. Noll is talking 4 about here, not that there were 5 misrepresentations about whether to write for 6 Windows or not. 7 So, again, that's a misdirected 8 argument. And the real issue is whether it 9 should be permitted in opening, and it's really 10 a subject for expert testimony. 11 Now, turning to some of the deposition 12 excerpts that were provided by Microsoft, it's 13 a clever -- really kind of a clever coverup. 14 If you'll look at the first -- I was 15 referring to the exhibits that they attached to 16 their briefing. And now they've renumbered 17 them on what Mr. Neuhaus handed up, but let's 18 look first at the testimony they provided from 19 Pete Peterson. 20 I think in the stuff that Mr. Neuhaus 21 handed up that's at Number -- 22 THE COURT: 5. 23 MR. CASHMAN: Number 5. 24 THE COURT: I think so. 25 MR. CASHMAN: Yes, Number 5. 3634 1 THE COURT: Is that right? 2 MR. CASHMAN: Mr. Peterson nowhere 3 here says that he read the specific article 4 that's in issue. 5 You'll note that they completely 6 neglect to answer the key linking question. 7 And they also fail to ask him if he 8 took any action in response because -- and, of 9 course, they wouldn't ask him that question 10 because they wouldn't ask him if he read the 11 article. 12 What they've done, instead, is just 13 say is PC Week widely read in the industry. 14 And he says yes. Well, that's not the test 15 under Fanning anyway. So it doesn't matter if 16 it's widely read or not. 17 So the testimony they provided from 18 Pete Peterson doesn't support their 19 contentions. 20 Next, they provide testimony from 21 David Reed. This is on the head fake issue 22 again. 23 And all they ask him is whether 24 Infoworld and PC Week were widely read. They 25 don't ask him whether he read a specific 3635 1 article. They don't ask him whether a 2 decision-maker at Lotus read that specific 3 article. They don't ask him what action was 4 taken in response to that specific article. 5 They don't even ask him about any of 6 the Defendant exhibits that they proffered with 7 their head fake theory. 8 In fact, I think -- I don't think any 9 of the Defendant's exhibits that they proffer 10 -- well, maybe one was published in Infoworld, 11 but they don't even ask him about that. 12 Next, at least in their papers, they 13 provided testimony from Robert Kohn, who was at 14 Borland software. 15 And, again, they've failed to ask the 16 company linking questions. They don't ask Mr. 17 Kohn whether he read any of the articles. They 18 don't ask Mr. Kohn if he relied on any of the 19 articles. They don't ask Mr. Kohn if he did 20 anything in response to the articles. 21 They don't ask Mr. Kohn if it was -- 22 that specific article, any of the specific 23 articles at issue here were read by a 24 decision-maker at Borland. 25 So, again, they failed to make those 3636 1 causal links on that head fake information. 2 Next, this is Exhibit 16 to the papers 3 that they supplied to the Court, and it's not 4 in the batch that Mr. Neuhaus handed up to you, 5 but in their efforts to prove -- and I use that 6 term loosely, Your Honor -- that product 7 reviews are widely read, they provide a little 8 snippet of testimony from an individual named 9 Bill Machrone, M-a-c-h-r-o-n-e, who testified 10 at least that he was the editor in chief of PC 11 Magazine from 1983 to 1991. And Mr. Machrone 12 says that the circulation of PC Magazine was 13 500 to 700,000 copies in 1987. 14 But if you'll look at the product 15 reviews which they proffered, Your Honor -- and 16 that's the yellow chart, supplemented by the 17 white chart I gave you -- PC Magazine only 18 published three of the eight product reviews 19 that they want to proffer here. The other five 20 were published by PC World. 21 And nowhere in Microsoft's papers have 22 they provided any evidence whatsoever about PC 23 World. 24 So I would submit there's zero 25 evidence in the record for the five articles 3637 1 published by PC World and insufficient evidence 2 in the record about the circulation of PC 3 Magazine. 4 Certainly, there's no proof in the 5 record at all that PC Magazine was circulated 6 anywhere in Iowa, let alone to Iowa class 7 members. 8 Next, Microsoft Exhibit 17 to their 9 briefing, they provide some testimony from an 10 individual named Said Mohammadioun, a Microsoft 11 employee. And in that article or in that 12 testimony they show Mr. Mohammadioun an article 13 from a publication called Computer Reseller 14 News. 15 Now, again, they've failed to ask 16 Mr. Mohammadioun -- in that case they did ask 17 Mr. Mohammadioun if he read the article, and he 18 said, no, I don't remember it. So they don't 19 have the foundation. 20 Furthermore, Mr. Mohammadioun -- and I 21 need to correct myself. I wasn't a Microsoft 22 employee, but Mr. Mohammadioun testifies that 23 Computer Reseller News was not a leading 24 publication in the industry. It was a 25 publication, but not even a leading 3638 1 publication. 2 So they have one of their head fake 3 articles, Your Honor, is something published by 4 Computer Reseller News. That's DX -- I think 5 it's DX -- I think it's DX 305. 6 THE COURT: 305, okay. 7 MR. CASHMAN: And they have -- they 8 have fundamentally failed to provide any 9 foundation for that. 10 Next, on their briefing, Exhibit 21, 11 they provide testimony from Lewis Levin, who is 12 a Microsoft group manager for graphics business 13 unit in 1989 and 1990. 14 And this is an effort by Microsoft to 15 support their contention that product reviews 16 are, quote, important. 17 So they ask Mr. Levin, and he says 18 these articles, you know, product reviews were 19 important. And he says more important than we 20 think of them today, and he says they were 21 publications that did extensive reviews and 22 most buyers who care consulted these things 23 heavily. 24 So here we've got a guy that's saying 25 that right off the bat, he's saying that a 3639 1 very -- even in his opinion, they have a narrow 2 group of people who would be relying on product 3 reviews allegedly, i.e., people who really 4 cared. 5 And, of course, that was supposition 6 on his part, nothing more than just 7 speculation. 8 But he certainly doesn't provide the 9 foundation to say that there was circulation of 10 these reviews to Iowans and, much less, class 11 members. 12 And another important point about that 13 kind of testimony, Mr. Levin says it was hugely 14 important to Microsoft to have these product 15 reviews. And that's not the point. 16 It doesn't matter whether it's 17 important to Microsoft. What matters is 18 whether Iowans, and, more specifically, the 19 members of this class, read these articles, 20 whether they relied on them, and whether they 21 had to believe them as true. 22 So Mr. Levin provides absolutely no 23 foundation for their contentions. 24 Then their Exhibit 22, they supply 25 testimony from Eileen Rudden, who is Lotus 3640 1 director of spreadsheet marketing. And, again, 2 they try to use Miss Rudden's testimony to 3 support their product review foundation. 4 And it doesn't work. She says that 5 trade press reviews were very important, again, 6 to Lotus, to Lotus. And that's not the 7 standard. 8 But she makes another important point 9 in the testimony that I'm sure Microsoft didn't 10 intend Your Honor to focus on. 11 And she says the press and 12 influencers, that's what she calls the people 13 who write these press reviews, the influencers, 14 were people who spent a large amount of time 15 with products and evaluating products. 16 And then she was asked whether Lotus, 17 quote, worked with reviewers to try to make 18 sure that you would get the best possible 19 review for Lotus products, and she answered by 20 stating, quote, product managers of individual 21 spreadsheets certainly worked very hard with 22 reviewers to get the best showing for the 23 product. 24 So this testimony that Microsoft has 25 supplied not only fails to support their 3641 1 foundational claims, but it shows yet another 2 reason, which I've talked about before, why the 3 trade press is inadmissible. 4 And that is because it's nothing more 5 than opinion that is subject to manipulation. 6 And that's what Microsoft and Lotus and all 7 these companies were doing, is trying to 8 manipulate what would be in those product 9 reviews. 10 So Miss Rudden doesn't supply any 11 support for their claim. 12 Now, next we have Mr. Neuhaus' claim 13 that we have an expert who is going to come and 14 say that sales were influenced by these product 15 reviews. 16 And in their papers that they supplied 17 to the Court, they include an excerpt from 18 their purported -- an excerpt from their 19 purported expert, Kevin Murphy. 20 And Mr. Murphy doesn't say that he's 21 going to be doing what Microsoft or what Mr. 22 Neuhaus just alleged. 23 He states only that -- I have it 24 quoted here. He reviewed trade press product 25 reviews and, quote, that although the trade 3642 1 press was not unanimous in its judgments of 2 relative quality, Microsoft products were 3 usually ranked highest with the strongest lead 4 in suites category. 5 That became an increasingly important 6 vehicle for distributing word processing and 7 spreadsheet application during the class 8 period. 9 And then he says elsewhere that 10 positive reviews are correlated with greater 11 sales of software applications. 12 So Mr. Murphy didn't do a study. 13 As I mentioned a moment ago, they've 14 not provided any survey to support their 15 claims, and their expert hasn't done it. 16 But if he is going to do it, that's 17 the right time for the use of trade press, is 18 to fight it out there, not to use it in opening 19 statement. 20 Then lastly I'd like to point the 21 Court back for one moment to Mr. Machrone's 22 testimony, because this is what Microsoft seems 23 to really be hanging its hat on, when 24 Mr. Machrone says, you know, PC Magazine is 25 circulated, has 500 to 700,000 circulation. 3643 1 Unwittingly, Mr. Machrone was asked 2 whether PC Magazine ever undertook or 3 commissioned any studies to see how influential 4 its editor's choice or its reviews were in the 5 minds of the buying public or subscribers, and 6 he said no. No. 7 So Microsoft has utterly failed to 8 satisfy the foundational requirements even 9 under their articulation of Fanning, which we 10 submit is an incorrect reading of the case as 11 indicated by my earlier comments and as 12 supplemented by the Canyon View Ranch case. 13 And that, Your Honor, concludes my 14 general comments, and perhaps it would be 15 appropriate to go through these one by one 16 then. 17 THE COURT: We'll have to go through 18 them tomorrow. 19 MR. CASHMAN: Okay. Thank you, Your 20 Honor. 21 THE COURT: 8 o'clock. 22 MR. TULCHIN: Your Honor, we may have 23 another issue tomorrow just to provide notice 24 to all if I may. 25 I think it was eight or nine days ago 3644 1 that the Court issued orders requiring the 2 Plaintiffs to provide for us the written 3 agreements that they have with their witnesses 4 that Ms. Conlin spoke about in September. 5 And there was a second order, which 6 I'm now referring to, requiring the Plaintiffs 7 to provide us with materials that their experts 8 read or reviewed. 9 And your order eight or nine days ago, 10 I believe, was actually the second motion we 11 had to get the same material. There had been a 12 previous motion and an order of the Court 13 requiring the Plaintiffs to provide that to us. 14 They didn't do it. We had to go back to the 15 Court for a second order. We've received that 16 now. 17 And we're still having trouble with 18 the Plaintiffs. They say it will be weeks from 19 now before they can gather this material. They 20 don't want to provide it to us until during the 21 Christmas break when we'll all be gone for a 22 couple weeks at the best. 23 And we're going to be put in a 24 position where trial will be back in session in 25 January. If there's material in there that 3645 1 would provide us with good reason to resume the 2 deposition of an expert, you know, we'd like to 3 see that sooner rather than later. 4 So far we haven't been able to get any 5 commitment from the Plaintiffs that they'll 6 comply either with the second order. 7 THE COURT: So, what, are you making a 8 motion for a rule to show cause? 9 MR. TULCHIN: Well, perhaps we should, 10 Your Honor, and seek some sanction. I just 11 wanted to try to bring this to the Court's 12 attention in the hope that we could get the 13 Plaintiffs to agree to comply. 14 But maybe -- maybe the thing to do is 15 for us to provide papers. 16 THE COURT: Well, they know my order. 17 If they don't comply, then they either get 18 sanctioned or rule to show cause. 19 MR. TULCHIN: Thank you, Your Honor. 20 MR. HAGSTROM: Your Honor, I can very 21 quickly respond to that. 22 Mr. Reece and Mr. Jurata have been 23 communicating. And it's my understanding that 24 they have tentatively agreed on us trying to 25 get any additional materials before -- just 3646 1 before the end of our session the 21st I think 2 it is. So they've had written communications 3 and verbal communications. 4 THE COURT: Who has, Reece and who? 5 MR. HAGSTROM: Jim Reece and Jay 6 Jurata from Heller Ehrman. 7 THE COURT: Who's Jay Jurata? 8 MR. TULCHIN: I'm unaware of that, 9 Your Honor. They haven't reached an agreement. 10 I'll visit it again, Your Honor, tonight. 11 MR. HAGSTROM: And just so Your Honor 12 knows, at least three of our experts have been 13 out of the country on other matters. They have 14 been in and out of the country, so we are 15 checking with them. 16 We've already advised Microsoft. We 17 are hoping to put on one expert next week, but 18 I understand Mr. Tulchin is likely going all 19 week with his opening. So -- 20 MR. TULCHIN: I never said that. 21 MR. HAGSTROM: Pardon? 22 MR. TULCHIN: I don't know where that 23 information comes from. I mean, the Plaintiffs 24 went last week Friday, most of this week, I 25 guess, all day tomorrow. 3647 1 I don't know where Mr. Hagstrom gets 2 the idea of how long my opening will be. I've 3 never provided that information to them because 4 no one's ever asked me. 5 But to go back to this subject if I 6 may, Your Honor -- 7 MR. HAGSTROM: In any event, Your 8 Honor, if I can please finish, Mr. Tulchin, the 9 expert that we were contemplating bringing next 10 week, Mr. Alepin. 11 So it will probably be the following 12 week and we've already advised Microsoft, we've 13 checked with him. And there are no additional 14 responsive documents. 15 So, you know, we're in the process. 16 He's one of the people. He's been over in 17 Europe. He's back. We've checked with him. I 18 personally talked with him. 19 We're following up, again, with him 20 just to make sure because we want to -- 21 obviously, if he's going to be on next week, if 22 there is anything else to get it to Microsoft. 23 So that's the current status. 24 MR. TULCHIN: The only point, Your 25 Honor, if I may. I didn't mean to get into a 3648 1 long debate about this and I'm sorry to keep 2 the Court here past 4:30. 3 But we did have a prior order. One 4 would have thought that Counsel for Plaintiffs 5 would have collected these documents from their 6 experts when the Court issued its first order 7 telling them to turn them over. And we had to 8 go back. 9 We have a whole litigation there with 10 briefing and argument. There's a second order 11 out there. And this is part of the problem. 12 Mr. Hagstrom says, well, we can't get 13 these documents, people are traveling. And, of 14 course, whenever the Plaintiffs want something 15 from us, including scheduling witnesses and so 16 on, it's always, you know, it's got to be done 17 immediately. 18 And we just think that there's a court 19 order out there. They ought to comply with it, 20 and we shouldn't have to be told it will be 21 weeks from now before people finish up their 22 traveling. They should comply. 23 MR. HAGSTROM: As I just stated, Your 24 Honor, we're working on it. This more recent 25 order, I think -- I wasn't at the argument, but 3649 1 based upon the more recent order, it appears 2 that it is different than what the prior order 3 stated. 4 And it also is different than what the 5 parties had stipulated to. So that is the 6 reason we are going back to the experts to see 7 if there is any additional material. 8 As to timeliness, let me just give you 9 an example. In July of 2005, Microsoft was 10 ordered to produce a lot of materials from the 11 competitor cases. 12 We were still receiving those 13 materials in bits and pieces through September 14 or October of this year. And for Mr. Tulchin 15 to suggest we're dragging our feet is rather 16 ludicrous. 17 We spent months getting source code 18 and we don't even know if they've still got all 19 of the source code. 20 But the long and the short of it is, 21 Your Honor, we are going back again to check 22 with them based upon your most recent order. 23 THE COURT: Well, I hope you do it 24 expeditiously. It's better -- it would be good 25 if you are. 3650 1 MR. HAGSTROM: Right. Well, as I 2 indicated, I understood Mr. Reece spoke with 3 Mr. Jurata and they were talking about the end 4 of the week right before Christmas. 5 THE COURT: Who is this Mr. Jurata 6 again? 7 MR. TULCHIN: Mr. Jurata is on our 8 side, Your Honor. 9 THE COURT: Oh, okay. 10 MR. TULCHIN: I know they talked 11 today. They did not reach an agreement. 12 I know that Mr. Reece, Mr. Hagstrom's 13 colleague, proposed that it would be several 14 weeks from now. 15 And I was told that we responded, and 16 I think quite appropriately, that we're not 17 satisfied with that. 18 We've been -- I mean, apparently 19 Mr. Hagstrom is going to want us to make a 20 third motion directed to the same point and 21 reargue the whole thing again. 22 THE COURT: Well, it's not going to be 23 reargued again. The only motion that possibly 24 will be would be a rule to show cause or 25 sanctions. I've ruled. So you got to comply. 3651 1 Anything else? 2 MR. TULCHIN: No, sir. 3 THE COURT: All right. See you 4 tomorrow. 5 (Proceedings adjourned at 4:45 6 p.m.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3652 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 7th day of December, 2006. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25