6139 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 XXIII 7 vs. ) ) 8 MICROSOFT CORPORATION, ) a Washington Corporation, ) 9 ) Defendant. ) 10 ----------------------------------------------- 11 The above-entitled matter came on for 12 trial before the Honorable Scott D. Rosenberg 13 and a jury commencing at 8 a.m., December 21, 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 6140 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, IA 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, MN 55415 (612) 339-2020 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6141 1 Defendant by: DAVID B. TULCHIN 2 SHARON L. NELLES Attorneys at Law 3 Sullivan & Cromwell, LLP 125 Broad Street 4 New York, NY 10004-2498 (212) 558-3749 5 STEPHEN A. TUGGY 6 Attorney at Law Heller Ehrman, LLP 7 333 South Hope Street Suite 3900 8 Los Angeles, CA 90071-3043 (213) 689-0200 9 BRENT B. GREEN 10 Attorney at Law Duncan, Green, Brown & 11 Langeness, PC Suite 380 12 400 Locust Street Des Moines, IA 50309 13 (515) 288-6440 14 15 16 17 18 19 20 21 22 23 24 25 6142 1 (The following record was made out of 2 the presence of the jury at 8 a.m.) 3 THE COURT: What are we discussing? 4 MR. CASHMAN: Good morning, Your 5 Honor. Michael Cashman for Plaintiffs. 6 I guess this morning we're discussing 7 exhibits that were referenced in the testimony 8 of Mr. Gates. 9 THE COURT: Okay. 10 MR. CASHMAN: And I believe that the 11 Plaintiffs and Microsoft have reached agreement 12 on most everything. 13 THE COURT: Good. 14 MR. CASHMAN: And it may depend on 15 what Mr. Tuggy says, but at the conclusion of 16 Mr. Gates' testimony, Ms. Conlin will move in 17 the exhibits. 18 And I have a chart of the exhibits 19 that will be moved in, and the parties have 20 agreed that from this chart and that charts 21 like it will be used for exhibits that are 22 moved in subsequently for most of the 23 witnesses. 24 THE COURT: Great. I appreciate that. 25 Thank you very much. Excellent. The Court 6143 1 likes charts. 2 MS. NELLES: And the Court is in good 3 hands because there's a lot of chart making. 4 THE COURT: I love charts. 5 MR. CASHMAN: Ms. Conlin will hand up 6 hard copies of the exhibits at the time she 7 offers them in to go with that chart. 8 I believe that Mr. Tuggy has an issue 9 to raise, and then I'm going to respond as 10 necessary. 11 MR. TUGGY: What we envision with this 12 chart is that it would be covered by a short 13 memo by you adopting these -- admitting the 14 exhibits as referenced in the chart. 15 And the only issue that it appears 16 that Plaintiffs and Microsoft may not see eye 17 to eye on so we wanted to make it clear our 18 position, and that is with respect to these 19 exhibits you had overruled Microsoft's 20 collateral estoppel objections sometime in 21 early December. 22 THE COURT: Yeah. 23 MR. TUGGY: Thereafter you issued a 24 ruling on December 7th on the proper use of 25 evidence in light of the collateral estoppel 6144 1 findings. And that ruling included the 2 proposition that evidence could not be used to 3 support or solely bolster findings of fact, but 4 it had to have alternate purposes. 5 And Microsoft's position is that your 6 December 7th ruling applies to these exhibits, 7 notwithstanding the fact that earlier you had 8 overruled specific collateral estoppel 9 objections to them. 10 THE COURT: Okay. 11 MR. TUGGY: The other item I wanted to 12 mention -- and this has to do I think more with 13 housekeeping. 14 Typically, when exhibits have hearsay, 15 are hearsay, or embedded hearsay and they are 16 admitted for that limited use, you state that 17 the parties have the right, at their request, 18 to receive an instruction related to that 19 nonhearsay use. 20 And we can put the statement you 21 typically use in the charts or if it's just as 22 easy, it can go on a form you create that goes 23 on top of these charts. 24 THE COURT: You want me to read that 25 when I -- 6145 1 MR. TUGGY: No. 2 MR. CASHMAN: Are you finished, 3 Mr. Tuggy? 4 MR. TUGGY: No. 5 The question is whether a party -- 6 when these are being admitted, Microsoft is not 7 requesting an instruction. 8 THE COURT: Okay. 9 MR. TUGGY: But Microsoft would like 10 the right to have an instruction. For example, 11 if at some later time the Plaintiffs use 12 something that's admitted only for a nonhearsay 13 use for its truth, then we would want an 14 instruction that it's admitted only for 15 nonhearsay. 16 THE COURT: I see what you're saying. 17 Okay. 18 MR. TUGGY: I think that's all I have. 19 THE COURT: This chart here, though, 20 has it admit -- does that mean -- 21 MR. CASHMAN: It means, Your Honor, 22 that the parties agree that the exhibit is 23 admitted once it's moved for admission. 24 THE COURT: Oh, okay. Good. Okay. 25 MR. CASHMAN: Let me just make a 6146 1 couple of comments. I'll go backwards from 2 where Mr. Tuggy started. 3 First, the nonhearsay use issue. 4 This may not be an issue, but just so 5 the record is clear, the Plaintiffs don't 6 believe that it's appropriate on the chart to 7 -- or elsewhere to say what the nonhearsay use 8 is for these exhibits because it will create 9 confusion. 10 These exhibits may be used with other 11 witnesses and there may be a nonhearsay use for 12 these particular nonhearsay -- pardon me, 13 embedded hearsay or hearsay documents with 14 different witnesses, which is why the 15 Plaintiffs believe it's not appropriate or 16 necessary to identify on the chart what the 17 specific nonhearsay use is because it would 18 create potentially quite a bit of confusion 19 later. 20 If Microsoft thinks there's a reason 21 on a particular exhibit to identify the 22 nonhearsay purpose, I think it's more 23 appropriate we just do that on the record 24 rather than putting it in a chart. 25 And that may not be an issue. It's 6147 1 not an issue here anyway I don't think on these 2 specific exhibits. 3 Secondly, I wanted to address for a 4 second Mr. Tuggy's comments about collateral 5 estoppel. 6 And, in particular, Plaintiffs note 7 that the objections were all overruled, and, by 8 necessity, the Plaintiffs submit, that means 9 that the Court has determined that these 10 exhibits, along with Mr. Gates' testimony, go 11 to issues other than solely bolstering the 12 findings of fact. 13 So the Plaintiffs believe that the 14 ruling of the Court on the Gates' exhibits and 15 the Gates' testimony on November 28th took care 16 of all the issues and is fully consistent with 17 the Court's oral order on December 7th. So 18 there is no issue as it relates to collateral 19 estoppel on these exhibits. 20 And I think the only other issue is 21 how to implement the admission. And, as I said 22 before, I think when Ms. Conlin makes the 23 motion for admission and the Court says 24 granted, I think that's all that has to be 25 done. I don't think there is a necessity for a 6148 1 memo, or, if there is, it would just be an 2 order attaching the chart. 3 Thank you. 4 THE COURT: I don't think Mr. Tuggy 5 was even proposing that. You weren't proposing 6 I make any comment. Just submit them or not; 7 right? 8 MR. TUGGY: Correct. 9 THE COURT: Okay. Anything else? 10 MR. CASHMAN: No, that's all, Your 11 Honor. 12 MR. TUGGY: This will only come up, I 13 think, with this set of exhibits, the ambiguity 14 relating to collateral estoppel. 15 So our request is that when the Court 16 enters the order admitting these exhibits with 17 a cover sheet that it state expressly that it 18 is subject to your December 7th order relating 19 to collateral estoppel so that there isn't any 20 ambiguity about whether these exhibits can be 21 used to support findings of fact. 22 In our view, that clarification is 23 useful and shouldn't be controversial. 24 THE COURT: So you want a written 25 ruling, then, on the admission of these rather 6149 1 than just on the record? 2 MR. TUGGY: The record is fine, and 3 then that could be stated then, or as you've 4 done with other witnesses where we've submitted 5 the rulings charts on testimony, it can be with 6 a cover memo admitting the exhibits, you know, 7 with whatever -- 8 THE COURT: Okay. So what you're 9 proposing then, if I hear this right, is once 10 Ms. Conlin offers these, I guess, at the end of 11 the Gates' deposition, I could just say denied 12 or admitted. And then later you want something 13 in writing as to what I did or something; is 14 that right? 15 MS. NELLES: Your Honor, I think what 16 we are proposing -- we didn't think it would be 17 controversial -- but when Ms. Conlin moved 18 these into evidence, we will say without 19 objection subject to the Court's December 7th 20 ruling. 21 THE COURT: Oh, okay. 22 MS. NELLES: And then Your Honor would 23 be free to grant it at that time if you so 24 chose. 25 And then what Mr. Tuggy would like is 6150 1 just some kind of notation so both parties have 2 that for the record. 3 MR. CASHMAN: Your Honor, Plaintiffs 4 oppose that because that's a conditional -- 5 they aren't really saying it's admitted without 6 objection because they are putting a condition 7 on it. 8 And the Plaintiffs submit that this 9 issue has already been taken care of by your 10 November 28th order where you overruled the 11 collateral estoppel objections and you stated 12 in your order for the reasons stated in 13 argument by the Plaintiffs. 14 And, in argument by the Plaintiffs, we 15 pointed out all of the reasons why the 16 testimony and the exhibits of Mr. Gates went 17 beyond just bolstering the findings of fact 18 from the government case. 19 So this has already been resolved and 20 it's not necessary to make it a conditional as 21 Ms. Nelles is suggesting. 22 THE COURT: Okay. Anything else? 23 MS. NELLES: No, Your Honor. 24 But just to be perfectly clear so that 25 -- I'm afraid perhaps Mr. Cashman is confused. 6151 1 When -- we have no objection to these 2 coming in with the Gates' deposition. You did 3 overrule the collateral estoppel objections. 4 However, now, once these exhibits are 5 in, they can be used with another witness. 6 They can be used in summation, and they have to 7 be used consistent with the Court's December 8 7th order and that's all we want to be clear 9 on. 10 Thank you. 11 MR. CASHMAN: Nothing further, Your 12 Honor. 13 THE COURT: Are you okay with that? 14 MR. CASHMAN: No, I think it's 15 unnecessary. 16 I mean, I think it's already clear 17 from what the Court has ordered that the 18 collateral estoppel objections are overruled 19 because these exhibits and their testimony go 20 to issues other than just bolstering the 21 findings and it's unnecessary to do anything 22 else. 23 THE COURT: Okay. Anything else? 24 MS. NELLES: No, Your Honor. Thank 25 you. 6152 1 THE COURT: Okay. 2 MR. CASHMAN: Nothing for the 3 Plaintiffs, Your Honor. 4 THE COURT: Thank you for narrowing it 5 down for me. I appreciate it. 6 MR. TUGGY: Thank you. 7 (A recess was taken from 8:11 a.m. 8 to 8:37 a.m.) 9 (The following record was made out of 10 the presence of the jury.) 11 THE COURT: The Court has considered 12 the preliminary instruction regarding 13 deposition testimony. I'm sorry it took me so 14 long to go through it, but I tried different 15 ways and looked at different combinations. 16 At this time the Court is going to 17 give a Preliminary Jury Instruction Number 19A, 18 deposition testimony. 19 It will state as follows: You are 20 instructed not to give any more or less weight 21 to deposition testimony solely because of when 22 the deposition was given. 23 The Court also has reviewed the motion 24 made yesterday in regard to the 3,760 exhibits 25 offered by the Plaintiffs. 6153 1 The Court finds that the Special 2 Master order left open for the trial court to 3 rule upon evidentiary objections. Based upon 4 relevancy, prejudice, confusion and waste of 5 time and set out in the Iowa Rules of Evidence 6 5.401, 5.402, and 5.403. Misunderstanding or 7 confusion between the parties at this time 8 notwithstanding, the Court intends to rule upon 9 the objections, if any, to the 3,760 exhibits 10 now offered by the Plaintiffs. 11 It is the Court's belief also, based 12 upon the pretrial Special Master order, that 13 the only objections that can be made to these 14 exhibits are those as set out in Iowa Rules of 15 Evidence 5.401, 5.402, and 5.403 as any other 16 objection based upon such matters as hearsay, 17 lack of foundation, and improper opinion were 18 either already made and ruled upon by the 19 Special Master and not appealed, ruled on by 20 the Special Master and appealed, waived or 21 withdrawn. 22 Therefore, the Court will begin to 23 rule upon the remaining proper objections to 24 the offered exhibits on January 12th, 2007. 25 The Jury will not be in session that 6154 1 day and the Court will so inform them. The 2 Court intends to rule on as many exhibits as 3 possible that day. Thereafter, each Friday 4 will be set aside to hear the objections to 5 these exhibits and rule upon them with a target 6 date for completion to be January 26, 2007. 7 If it appears that the process will 8 not be completed by January 26, 2007, the Court 9 will order additional days between January 12th 10 and January 26th, 2007, to review the exhibits 11 and objections thereto with the Jury not 12 present. 13 The exhibits will be objected and 14 ruled upon in the order in which they have been 15 presented to the Court as shown by the printed 16 list provided to the Court. 17 MS. NELLES: Your Honor, just for the 18 record, note my exception to Instruction 19A 19 not including reference to the testimony being 20 limited to the period at issue. 21 THE COURT: Okay. 22 MS. CONLIN: We have no objection to 23 the instruction as provided. 24 THE COURT: Very well. Anything else 25 before we bring in the Jury? 6155 1 MS. CONLIN: Well, Your Honor, at what 2 point does the Defendant have to make its 3 objections to the exhibits? 4 THE COURT: January 12th. 5 MS. CONLIN: Okay. Not until then? 6 THE COURT: They can wait until that 7 day and we are going to go right through. 8 MS. CONLIN: All right, Your Honor. 9 THE COURT: I have the list here, I 10 think. You've got the list; right? 11 MS. NELLES: I received the CD from 12 which we were able to create a list. 13 THE COURT: Did you get the hard copy 14 too? 15 MS. NELLES: I did not. 16 THE COURT: Do you want a copy of 17 this? 18 MS. NELLES: That would be very nice. 19 MS. CONLIN: Your Honor, are we just 20 taking the 12th off with the Jury? 21 THE COURT: And each Friday until the 22 26th. 23 MS. CONLIN: Okay. Here is a problem 24 for us, Your Honor. We have Mr. Alepin and 25 Mr. Constant coming -- Mr. Constant is from 6156 1 England. And if his testimony doesn't get -- 2 these two witnesses' testimony -- 3 THE COURT: Oh, if he's coming that 4 far, we'll get it done. I don't want to 5 interrupt his travel plans. Yeah, we'll do 6 that. It's no problem. But target start the 7 12th. 8 MS. CONLIN: Thank you, Your Honor. 9 THE COURT: As soon as Carrie comes, 10 I'll get you a copy of this. I thought you had 11 one. 12 MS. NELLES: I appreciate it, Your 13 Honor. 14 THE COURT: It just goes right in 15 order. I think it's -- yeah, it's even in 16 numerical order. 17 (The following record was made in the 18 presence of the jury at 8:42 a.m.) 19 THE CLERK: All rise. 20 THE COURT: Members of the jury, I 21 think Carrie already talked to you about trying 22 to extend some time. We are going to go with 23 that schedule then 8:30 to 3:00. We'll try to 24 limit the breaks to 10 minutes. 25 For the smokers, she's going to try to 6157 1 find an alternative for that, but no promises 2 on that. 3 And, also, I need to read to you an 4 instruction. You'll be given a copy of it to 5 put in your book at some time here when Carrie 6 gets a chance to make a copy. 7 Preliminary Instruction Number 19A. 8 Deposition testimony. 9 You are instructed not to give any 10 more or less weight to deposition testimony 11 solely because of when the deposition was 12 given. 13 And with that -- all right. You may 14 begin. 15 MS. CONLIN: Thank you, Your Honor. 16 There's about 40 to 45 more minutes of 17 Mr. Gates' deposition. 18 THE COURT: Okay. 19 (Whereupon, the following video was 20 played to the jury.) 21 Question: Let me ask you to look at a 22 document that's been previously marked as 23 Government Exhibit 398. 24 The first message here is one from 25 Brad Silverberg to you and others including 6158 1 Mr. Maritz and Mr. Allchin dated October 3, 2 1994, at 6:42 p.m. 3 Do you see that? 4 Answer: Say again. 5 Question: The first message here is a 6 message to you and others, including 7 Mr. Allchin and Mr. Maritz, from Mr. Silverberg 8 dated October 3, 1994, at 6:42 p.m.; correct? 9 Answer: It appears to be. 10 Question: And he references Marvel 11 and Capone. 12 Do you see that? 13 Answer: Yes. 14 Question: Marvel is a code word for 15 what became MSN; is that correct? 16 Answer: Not the way he uses it here. 17 Question: Oh, what does Marvel refer 18 to here? 19 Answer: Blackbird. 20 Question: So here Marvel refers to 21 Blackbird. 22 And what does Capone refer to? 23 Answer: I think an e-mail client that 24 was a feature of Windows. 25 Question: And it also refers to 6159 1 Chicago. 2 Answer: In the next sentence. 3 Question: Yes. The next sentence of 4 Mr. Silverberg's message to you. 5 What is Chicago, as you understand it 6 here? 7 Answer: The name for the project that 8 resulted eventually in the product Windows 95. 9 Question: And Mr. Silverberg writes 10 you and Mr. Maritz and others that there is no 11 one in the world outside of Microsoft who will 12 buy the argument that Marvel and Capone are, 13 quote, part of Chicago, close quote. 14 Answer: No, that's not -- 15 Question: That's not so? 16 Answer: No. 17 Question: Well, let me see. 18 He says, quote, I will jump in, dash, 19 yes, we have to take them out of Marvel and 20 Capone too. There is no one in the world 21 outside of Microsoft who will buy the argument 22 that they are, quote, part of Chicago, close 23 quote, so get the interfaces while others 24 don't. This is an impossible sale, close 25 quote. 6160 1 As you read this -- do you recall 2 receiving this? 3 Answer: No. 4 Question: Did you ever discuss it 5 with Mr. Silverberg? 6 Answer: I'm not sure. 7 Question: Did you ever discuss with 8 Mr. Silverberg or anyone else what he meant by 9 part of Chicago? 10 Answer: I'm not sure. It's clear -- 11 it's very clear that they're not referring to 12 what you asked about. 13 Question: All right, sir. 14 Let me ask you about the third message 15 down. That is a message from you dated October 16 3, 1994, at 5:18 p.m. 17 Do you see that? 18 Answer: Yes. 19 Question: You write in the first 20 line, it's time for a decision on ShellBrowser. 21 Do you see -- 22 Answer: IShellBrowser. 23 Question: IShellBrowser. 24 And in the third sentence you say, 25 it's hard to know how much actual market 6161 1 benefit iShellBrowser integration would bring. 2 Answer: Third paragraph? 3 Question: Third paragraph of your 4 message. 5 Answer: Not sentence. 6 Question: Third paragraph of your 7 message. 8 Answer: Right. 9 Question: First sentence. 10 Answer: Right. 11 Question: Quote, it's hard to know 12 how much actual market benefit iShellBrowser 13 integration would bring. 14 Do you see that? 15 Answer: I see it. 16 Question: Do you recall writing that 17 in or about October 1994? 18 Answer: I don't recall the specific 19 message. I recall the general issue about the 20 iShellBrowser APIs. 21 Question: The next paragraph, the 22 first line you talk about how Microsoft is in, 23 quote, a real struggle versus Notes. 24 Do you see that? 25 Answer: Yes. 6162 1 Question: What do you mean by Notes 2 when you say that Microsoft is in a real 3 struggle against Notes? 4 Answer: I mean Notes. 5 Question: Okay. Can you explain what 6 Notes is? 7 Answer: It's a product called Notes. 8 Question: Can you explain what Notes 9 is? 10 Answer: It's a product called Notes. 11 Question: Produced by whom, sir? 12 Answer: You can say Lotus or IBM or 13 there's actually the company who wrote it, I 14 forget their name. 15 Question: But, in any event, not 16 Microsoft; correct, sir? 17 Answer: That's right, not Microsoft. 18 Question: And is it true that 19 Microsoft in or about October of 1994 was in a 20 real struggle against Notes? 21 Answer: I think some people would say 22 yes and some people would say no. 23 Question: You said yes, though, 24 right? 25 Answer: Apparently in an e-mail in 6163 1 1994, I said we are in a real struggle versus 2 Notes. 3 Question: And in the next paragraph, 4 the fifth paragraph of your message, you say, 5 quote, I have decided that we should not 6 publish these extensions. We should wait until 7 we have a way to do a high level of integration 8 that will be harder for the likes of Notes, 9 WordPerfect to achieve, and which will give 10 Office a real advantage. 11 Do you see that? 12 Answer: Yes. 13 Question: Did that reflect your views 14 in October of 1994? 15 Answer: That sentence taken out of 16 context or the whole e-mail? 17 Question: That sentence in the 18 context of this e-mail. 19 Answer: I don't think you -- in the 20 context of the e-mail, I have no reason to 21 think that it didn't. 22 Question: What I'm asking again is, 23 fairly read in its entirety, does this message 24 from you reflect your views at the time that 25 you wrote it? 6164 1 Answer: If you're asking about the 2 whole message, I have no reason to think I 3 didn't write that message or that it didn't 4 reflect my thinking at the time. 5 I haven't actually read the whole 6 message, but I'll still say that. 7 Question: Okay. Let me ask you to 8 look at a document marked as Government Exhibit 9 399. 10 This purports to be a message from you 11 to Brad Silverberg with a copy to Paul Maritz 12 and others dated January 8, 1996. 13 Did you send this message, sir? 14 Answer: I don't remember it 15 specifically. 16 Do you want me to read it? 17 Question: If you need to to answer my 18 questions. 19 This is on a subject of Steve Case of 20 American Online; is that correct? 21 Answer: Yes. 22 Question: In the second paragraph, 23 you write that Mr. Case said that he viewed 24 Microsoft as technically behind Netscape, but 25 credible enough to do a very good job. 6165 1 Do you see that? 2 Answer: Uh-huh. 3 Question: Did Mr. Case tell you that? 4 Answer: With respect to IE 2, the 5 product we were shipping. But later they had a 6 chance to see the work we were doing and 7 changed that view. 8 Question: Is there a document that 9 you're aware of which reflects their changed 10 view? 11 Answer: Almost certainly. 12 Question: Have you seen that document 13 in the last six months? 14 Answer: No. 15 Question: Do you know who that 16 document was from? 17 Answer: Oh, I think -- I know there 18 were technical discussions subsequent to this 19 where AOL came away impressed with the 20 componentization work that we were doing and 21 how it was superior technically with what they 22 had seen anyplace else. 23 Question: My question right now is 24 not what AOL's view was. You told me that and 25 I asked you if there was a document that 6166 1 reflected that they changed their position? 2 Answer: Yes. So I should have gone 3 on to say that after they came out and saw that 4 technology, it's likely that somebody -- either 5 in e-mail -- recorded their impressions at that 6 time. 7 Question: Do you recall actually 8 seeing such a document, sir, ever? 9 Answer: I recall being told that they 10 were impressed that we had the best technology. 11 Question: Do you recall ever seeing a 12 document that reflected that? 13 Answer: I'm not sure if it was verbal 14 or e-mail, but I remember being told that after 15 they had come out and seen the componentization 16 technology as part of IE 3, they viewed it as 17 the best technology. 18 Question: When you say verbal there, 19 you mean oral, not written down in e-mail or 20 written memo form; is that correct? 21 Answer: Yes. 22 Question: Let me ask you to look at a 23 document previously marked as Government 24 Exhibit 400. 25 The second item here is a message from 6167 1 you to Steve Ballmer, Paul Maritz, Jim Allchin, 2 Christine Turner, on the subject of IBM dated 3 October 30, 1997; is that correct? 4 Answer: It appears to be. 5 Question: Did you send this message, 6 sir? 7 Answer: Let me look at it. 8 I don't remember specifically, but 9 this kind of topic was being discussed, so I 10 have no reason to doubt this is a piece of 11 e-mail I wrote. 12 Question: This relates to a 13 conversation you had with Gary Stimac; is that 14 correct? 15 Answer: Not strictly. 16 Question: Does it relate in part to 17 that? 18 Answer: Yes. 19 Question: And did Mr. Stimac tell you 20 that he was thinking about taking a job with 21 IBM? 22 Answer: I think he did. 23 Question: And did he tell you that 24 one of his concerns was whether IBM's 25 relationship with Microsoft would be a problem? 6168 1 Answer: I see that in the e-mail. I 2 don't remember it specifically. 3 Question: Do you remember people at 4 IBM being concerned about IBM's relationship 5 with Microsoft being a problem? 6 Answer: No. 7 Question: Do you remember Mr. Stimac 8 telling you that he was concerned about whether 9 IBM's relationship with Microsoft would be a 10 problem either here or -- or at any other time? 11 Answer: No, I don't remember that. 12 Question: In response to that you say 13 that you told him that the Java religion coming 14 out of the software group is a big problem. 15 Do you see that? 16 Answer: Uh-huh. 17 Question: Did you tell Mr. Stimac 18 that? 19 Answer: I don't remember telling him 20 that. 21 Question: Now, when you talk about 22 the Java religion coming out of the software 23 group, you're talking about IBM's software 24 group; correct, sir? 25 Answer: I'm not sure. 6169 1 Question: Well, this sentence 2 immediately follows Mr. Stimac purporting to be 3 concerned about whether IBM's relationship with 4 Microsoft would be a problem and immediately 5 precedes a sentence in which you say you told 6 him that IBM refused to big anything related to 7 Backoffice. 8 Answer: Yeah. That doesn't relate to 9 the IBM software group. 10 Question: But it relates to IBM; 11 correct, sir? 12 Answer: Yes. 13 Question: This whole paragraph 14 relates to IBM; correct, sir? 15 Answer: Primarily. 16 Question: So when you say that you 17 told Mr. Stimac that the Java religion coming 18 out of the software group is a big problem, do 19 you really have any doubt that you were talking 20 about IBM's software group? 21 Answer: Well, there was a lot of 22 joint work between IBM people and Sun's people 23 and other companies. 24 And so it's very hard to draw a line 25 between the IBM software groups and other 6170 1 people's software groups. 2 Question: Does that mean that it is 3 your testimony here under oath that when you 4 refer to the software group in this sentence, 5 you don't know whether you were talking about 6 the IBM software group? 7 Answer: I'm certainly talking about 8 software groups that IBM is at least a part of. 9 Question: You go on to say that they 10 continue to use their PCs to distribute things 11 against us. 12 Is the they that you are referring to 13 there IBM? 14 Answer: I think so. 15 Question: And is the us there 16 Microsoft? 17 Answer: I think so. 18 Question: And next sentence says you 19 told Mr. Stimac that they are dabbing in NCs in 20 a way we don't like. 21 Is the they there again IBM? 22 Answer: Apparently. I don't know 23 what dabbing is. 24 Question: I was going to ask you 25 that. 6171 1 The next paragraph you say, quote, 2 overall we will never have the same 3 relationship with IBM that we have with Compaq, 4 Dell, and even HP because of their software 5 ambitions. 6 I could deal with this just fine if 7 they weren't such rabid Java backers. 8 Now, when you refer in that sentence 9 to they as in I could deal with this just fine 10 if they weren't such rabid Java backers, you're 11 again talking about IBM; correct? 12 Answer: Parts of IBM. 13 It's important to distinguish 14 different groups in IBM. 15 Question: And the different groups in 16 IBM would include perhaps, among others, the 17 software group as one and the PC group as 18 another; correct? 19 Answer: That's right. 20 Question: At the end of that you say 21 that you are willing to take some risk in 22 improving the relationship and you think that 23 steps ought to be taken to approach them. 24 And you end by saying, quote, we 25 should position it as let's do some things that 6172 1 are good for both of us, but which require some 2 of the rhetoric to be lowered on both sides. 3 On their side, I mean, Java and NC. 4 And their side, you're talking about 5 IBM's side? 6 Answer: I think so. 7 Question: And what you're saying is 8 that you want a message conveyed to IBM that in 9 order to improve the relationship, you want 10 some of their rhetoric lowered on Java and NC? 11 Answer: No. 12 Question: No? 13 Did you want IBM to lower their 14 rhetoric on Java? 15 Answer: I actually explain in this 16 message that I thought the rhetoric was 17 actually hurting IBM itself, independent of 18 Microsoft. 19 Question: Did you think it was 20 hurting Microsoft? 21 Answer: I wasn't sure. In terms of 22 specifics, I wasn't sure. 23 Question: When you say that you could 24 deal with IBM's relationship just fine if IBM 25 wasn't such rabid Java backers, weren't you 6173 1 saying that you thought that IBM's rabid 2 backing of Java was bad for Microsoft? 3 Answer: I know at this time we 4 thought some of the claims around Java were 5 just plain false and weren't doing customers 6 any favors by leading them down a belief that 7 certain things were solved that were not 8 solved. 9 Question: My question, Mr. Gates, is 10 in October of 1997, did you believe that what 11 you refer to here as IBM's rabid backing of 12 Java was something that was hurting Microsoft? 13 Answer: I can't point to any 14 particular hurting that it was doing. We 15 didn't think it was accurate in terms of what 16 technically could be achieved with Java. 17 Question: Let me put the question 18 this way. 19 In or about October of 1997, did you 20 want to stop IBM from being what you refer to 21 here as a rabid Java backer? 22 Answer: We thought some of the 23 rabidness was hurting IBM as well as the 24 industry as a whole. 25 Question: Did you believe it was 6174 1 hurting Microsoft, or were you just doing this 2 as sort of a public spirited company to try to 3 help IBM from hurting itself? 4 Answer: I can't point to any 5 particular damage, but we certainly would have 6 preferred if the more extreme statements we 7 didn't think were true, if they weren't pushing 8 those forward. 9 Question: Mr. Gates, let me put it 10 this way. 11 In October of 1997, were you trying to 12 get IBM to reduce its public support for Java? 13 Answer: I say in here that under some 14 circumstance the rhetoric should be lowered on 15 both sides and that I think that's -- you know, 16 that makes sense in certain circumstances. 17 Question: I don't think you actually 18 say in certain circumstances, do you, sir? 19 You may have meant that, I'm not 20 saying you didn't mean it, I'm just saying 21 those words don't appear here, do they? 22 Answer: No. It's all about I am 23 willing to take some risk in improving the 24 relationship and think you should approach them 25 on steps for improvement. 6175 1 It's in that vein that I talk about 2 rhetoric being lowered on both sides. 3 Question: And then you go on to say 4 that you mean on IBM's side they lower the 5 rhetoric on Java and NC; correct? 6 Answer: The rhetoric. 7 Question: And by rhetoric, you were 8 talking about public rhetoric? 9 Answer: Definitely public rhetoric. 10 Question: And is it fair to say in 11 October of 1997 you were trying to get IBM to 12 reduce its public rhetoric in support of Java? 13 Answer: I don't know what you mean 14 trying. I talk about a circumstance in which 15 both sides would lower their rhetoric. 16 Question: You were offering to lower 17 your rhetoric if they would lower their 18 rhetoric; is that fair? 19 Isn't that what you say right here? 20 Answer: In the context -- this is 21 about improving the overall relationship, which 22 is not focused on the rhetoric. 23 It says in the context of that 24 improved relationship, I think both of us 25 should lower our rhetoric. 6176 1 Question: Indeed you say that the 2 improved relationship will, quote, require some 3 of the rhetoric to be lowered on both sides. 4 Answer: That's a statement about 5 human feelings that if our rhetoric is so high, 6 it will be hard for them to do their side of 7 improving the relationship and vice versa. 8 Question: You then go on to say on 9 their side, IBM's side, you mean Java and NC; 10 right, sir? 11 Answer: That's part of the rhetoric 12 I'm referring to. 13 Question: Part of their rhetoric? 14 Answer: Yes. 15 Question: That you wanted them to 16 lower; isn't that true? 17 Answer: No. 18 Question: Okay. Let me ask you to 19 look at Exhibit 401. 20 This is a message from you to 21 Mr. Ballmer and Mr. Chase with a copy to 22 Mr. Maritz and some other people also given 23 copies dated August 15, 1997, at 4:07 p.m. on 24 the subject of IBM and Netscape; correct? 25 Answer: Uh-huh. 6177 1 Question: And you type in here 2 importance, colon, high. 3 Answer: No. 4 Question: No? 5 Answer: No. I didn't type that. 6 Question: Who typed in high? 7 Answer: The computer. 8 Question: A computer. Why did the 9 computer type in high? 10 Answer: It's an attribute of the 11 e-mail. 12 Question: And who set the attribute 13 of the e-mail? 14 Answer: Usually the sender sets that 15 attribute. 16 Question: Who is the sender here, 17 Mr. Gates? 18 Answer: In this case, it appears I'm 19 the sender. 20 Question: Yes. And so you're the one 21 who set the high designation of importance; 22 right, sir? 23 Answer: It appears I did that. I 24 don't remember doing that specifically. 25 Question: Right. 6178 1 Now, did you send this message on or 2 about August 15, 1997? 3 Answer: I don't remember doing so. 4 Question: Now, you say that you had a 5 meeting with Jeff Papows; is that correct? 6 Answer: I did have a meeting with 7 Jeff Papows, yes. 8 Question: And the third paragraph 9 from the bottom you write, quote, he doesn't 10 want anything attributed to me or he will get 11 in trouble, but he says we can just refer to 12 all the rumors on the web about what kind of 13 deal is being done between Netscape and IBM, 14 close quote. 15 Do you see that? 16 Answer: I do. 17 Question: At this point, that is, in 18 or about August of 1997, were you aware prior 19 to your conversation with Mr. Papows, that 20 there was a prospect of a deal between Netscape 21 and IBM? 22 Answer: There had been rumors of 23 that, so, yes. 24 In fact, there had been deals. There 25 was rumors of a new deal. 6179 1 Question: Let me ask you to look next 2 at a document marked as Exhibit 402. 3 The second message on this exhibit is 4 a message from you to Mr. Ballmer and 5 Mr. Maritz dated August 4, 1997, at 5:17 p.m.; 6 correct? 7 Answer: It appears to be, yes. 8 Question: Did you send this, 9 Mr. Gates? 10 Answer: I don't remember sending it, 11 but I have no reason to think that I didn't. 12 Question: Okay. Let me ask you to 13 look at Exhibit 403. 14 This is a message dated February 16, 15 1998, from Laura Jennings to you and a number 16 of other people, including Mr. Allchin, 17 Mr. Ballmer, and Mr. Maritz. 18 Do you see that? 19 Answer: Yes. 20 Question: Did you receive this e-mail 21 in or about February of 1998, sir? 22 Answer: I don't remember receiving 23 it, but I have no reason to think that I 24 didn't. 25 Question: Let me take you down to the 6180 1 next to last paragraph on the first page. 2 The first sentence says, quote, one 3 potential concern, colon, Brad mentioned to me 4 late Friday that there may be new concerns 5 about our plan to make start a requirement for 6 being in the IE referral server, or at least 7 there may be timing issues related to your 8 appearance at Senator Hatch's hearings, close 9 quote. 10 Do you see that? 11 Answer: Yes. 12 Question: Do you recall a discussion 13 of this in or about February of 1998? 14 Answer: Not with Laura. But on the 15 general subject, yes. 16 Question: Did Microsoft, in fact, 17 make start, quote, a requirement for being in 18 the IE referral server, close quote? 19 Answer: No, I don't think we did. 20 Question: Why not? 21 Answer: I think the PR group thought 22 it would be controversial and we didn't see the 23 benefit as being worth having that controversy. 24 Question: Let me ask you to look at a 25 document that has been marked as Exhibit 404. 6181 1 The first message here is a message to 2 you and Mr. Ballmer with copies to other people 3 dated March 23, 1994, at 9:13 a.m. on the 4 subject of IBM helps Lotus. 5 Did you receive this message in or 6 about March of 1994, sir? 7 Answer: I don't know. 8 Question: The message begins by 9 describing how IBM is helping in the selling of 10 Notes. 11 Do you see that? 12 Answer: Yes. 13 Question: And at the end Mr. Kempin, 14 who is the author of this, says, quote, I am 15 unsure if we need to see this as an 16 organizational issue or an OEM issue. 17 Do you know what he means by that? 18 Answer: What's he talking about? 19 Question: Do you know what he is 20 talking about? 21 Answer: No. 22 Question: He then says, quote, I am 23 willing to do whatever it takes to kick them 24 out, but strongly believe we need a WW hit team 25 to attack IBM as a large account, whereby the 6182 1 OEM relationship should be used to apply some 2 pressure, close quote. 3 Do you see that? 4 Answer: Uh-huh. 5 Question: You have to say yes for the 6 record. 7 Answer: I see it. 8 Question: Do you know what Mr. Kempin 9 means when he writes to you about a WW hit 10 team? 11 Answer: He means a salesperson. 12 Question: If he means a salesperson, 13 why doesn't he say salesperson, sir? 14 Answer: It clearly means salesperson. 15 Question: Are salespeople within 16 Microsoft commonly referred to as WW hit teams? 17 Answer: If they're worldwide and if 18 they're trying to sell to somebody who is a 19 large account, you bet. 20 Question: And when your salespeople 21 go out to sell large accounts, are they 22 commonly referred to as needing a, quote, WW 23 hit team to attack IBM as a large account, 24 whereby the OEM relationship should be used to 25 apply some pressure, close quote? 6183 1 Answer: No. 2 Question: Did you say no? 3 Answer: I said no. 4 Question: Do you remember Mr. Kempin 5 telling you in March of 1994 that he was 6 proposing that the OEM relationship with IBM 7 should be used to apply some pressure to stop 8 IBM from promoting the sale of Notes? 9 Answer: No. 10 Question: Do you recall anyone ever 11 telling you that, sir? 12 Answer: No. 13 Question: Did you ever respond to 14 Mr. Kempin and tell him that, no, you didn't 15 think that Microsoft ought to apply OEM 16 pressure to IBM? 17 Answer: I don't understand your 18 question. 19 Question: Do you understand that 20 Mr. Kempin is here proposing to you that 21 Microsoft apply OEM pressure to IBM? 22 Answer: It doesn't say OEM pressure. 23 Question: I didn't say it said it, 24 sir. 25 It says he is proposing that the OEM 6184 1 relationship should be used to apply some 2 pressure on IBM; correct, sir? 3 Answer: You're asking me to read it? 4 Question: I'm asking you if that's 5 what you understand him to be saying. 6 Answer: What? 7 Question: That he is proposing that 8 the OEM relationship should be used by 9 Microsoft to apply some pressure on IBM. 10 Answer: No. I don't think he is 11 proposing anything. 12 Question: You don't think he is 13 proposing anything. 14 When he says that he strongly believes 15 that there needs to be, quote, a WW hit team to 16 attack IBM as a large account, whereby the OEM 17 relationship should be used to apply some 18 pressure, you don't think that he is suggesting 19 that Microsoft apply pressure on IBM? 20 Answer: I don't think he is making a 21 proposal. It is one of the things he mentions, 22 but it's not a proposal. 23 Question: Now, Mr. Kempin's message 24 was a response to a message from you to 25 Mr. Kempin and Mr. Ballmer dated March 20, 6185 1 1994, at 11:29 p.m.; correct? 2 Answer: It appears to be, yes. 3 Question: And you write him in the 4 first paragraph, quote, this is one topic I 5 really want to try to get to the bottom of. 6 Why does IBM help Lotus so much? Is there 7 anything we can do about this? Should it 8 become an issue in our global relationship with 9 IBM, close quote? 10 Did you send this message to 11 Mr. Kempin and Mr. Ballmer in March, 1994? 12 Answer: It appears I did. I mean, 13 that's part of the message I sent, it appears. 14 Question: Now, when Mr. Kempin 15 replied saying we need a WW hit team to attack 16 IBM as a large account, whereby the OEM 17 relationship should be used to apply some 18 pressure, did you understand him to be 19 responding to your questions? 20 Answer: I don't remember receiving 21 his mail. 22 Question: All right. I have no more 23 questions at this time. 24 (Whereupon playing of video 25 concluded.) 6186 1 MS. CONLIN: Your Honor, at this time, 2 Plaintiffs offer into evidence the exhibits. 3 May I approach, Your Honor? 4 THE COURT: Yes. 5 MS. CONLIN: The exhibits in 6 connection with Mr. Gates' deposition that 7 appear on this list, and I'm giving the Court 8 also the hard copies. 9 Those are the exhibits that Mr. Gates 10 discussed in his deposition. 11 THE COURT: Any objections? 12 MS. NELLES: Subject to the Court's 13 December 7, 2006 ruling and subject to 14 Microsoft receiving a copy, Microsoft has no 15 objection. 16 THE COURT: Very well. Plaintiffs' 17 Exhibits 2058, 2118, 2229, 2272, 2273, 2278, 18 2281, 2448, 2455, 2468, 2494, 2586, 2658, 2669, 19 2676, 2689, 2700, 2701, 2710, 2722, 2727, 2754, 20 2759, 2761, 2767, 2829, 2844, 2846, 2849, 2905, 21 3792, 3876, 4482, 4524, 4601, 5673, 5702, 5704, 22 5705, 5715, 5716, 5734, 5766, 5780, 5825, 5852, 23 5879, 5911, 6060, 6092, 6109, 6114, and 6195 24 are hereby admitted. 25 The objections -- there were no 6187 1 objections. 2 MS. NELLES: Subject to the Court's 3 December 7, 2006 ruling. 4 THE COURT: Very well. 5 Overruled. Admitted. 6 MS. NELLES: And receiving a set. 7 THE COURT: They are admitted. 8 Did you get a set? 9 MS. NELLES: I haven't received one in 10 the courtroom today, Your Honor. 11 THE COURT: Do you have an extra for 12 her? 13 MS. CONLIN: Not in the courtroom, 14 Your Honor. 15 THE COURT: Okay. We'll get one for 16 them. 17 Is this my copy or the court -- or the 18 official copy? 19 MS. CONLIN: Yes, Your Honor. 20 THE COURT: Okay. I will give it to 21 the court reporter. 22 Call your next. 23 MS. CONLIN: Your Honor, at this time, 24 the Plaintiffs would read into the record 25 certain of the conclusions of law and findings 6188 1 of fact, which are in the Jury's notebook, 2 jurors' notebooks beginning -- oh, yes, lights. 3 Let there be light -- beginning on page 0, the 4 second set of pagination under conclusions of 5 law. 6 Number 1, Microsoft illegally 7 monopolized the market for Intel-compatible PC 8 operating systems in violation of state and 9 federal antitrust laws including the Iowa 10 Competition Law. 11 Number 4. Microsoft maintained the 12 monopoly power in the operating systems 13 marketed by the following anticompetitive 14 conduct, i.e., conduct which caused harm to the 15 competitive process and thereby harm to 16 consumers. 17 Specifically Number 9. By agreeing to 18 release new versions of Office for the Apple 19 Macintosh in return for Apple's agreement to 20 preinstall Internet Explorer and make it the 21 default web browser on Apple's Macintosh 22 operating system. 23 Number 11. Deceiving Java developers 24 about the Windows specific nature of 25 Microsoft's Java developer tools. 6189 1 12. Coercing Intel to stop aiding Sun 2 in improving the Java technologies. 3 Finding of Fact 154 on page 29. 4 In conclusion, the preferences of 5 consumers and responsive behavior of software 6 -- 7 THE COURT: Sorry. 8 MS. CONLIN: In conclusion, the 9 preferences of consumers and the responsive 10 behavior of software firms demonstrate that web 11 browsers and operating systems are separate 12 products. 13 Also, on page 29, Finding of Fact 156. 14 Before it decided to blunt the threat 15 that Navigator posed to the applications 16 barrier to entry, Microsoft did not plan to 17 make it difficult or impossible for OEMs or 18 consumers to obtain Windows without obtaining 19 Internet Explorer. 20 In fact, the company's internal 21 correspondence and external communications 22 indicate that as late as the fall of 1994, 23 Microsoft was planning to include low-level 24 Internet plumbing such as TCP/IP stack, but not 25 a browser with Windows 95. 6190 1 Finding of Fact 157. 2 Microsoft subsequently decided to 3 develop a browser to run on Windows 95. As 4 late as June 1995, however, Microsoft had not 5 decided to bundle that browser with the 6 operating system. 7 The plan at that point, rather, was to 8 ship the browser in a separate frosting package 9 for which Microsoft intended to charge. 10 By April or May of that year, however, 11 Microsoft's top executives had identified 12 Netscape's browser as a potential threat to the 13 applications barrier to entry. 14 Throughout the spring, more and more 15 key executives came to the conclusion that 16 Microsoft's best prospect of quashing that 17 threat lay in maximizing the usage share of 18 Microsoft's browser at Navigator's expense. 19 The executives believed that the most 20 effective way of carrying out this strategy was 21 to ensure that every copy of Windows 95 carried 22 with it a copy of Microsoft's browser, then 23 code named O'Hare. 24 For example, two days after the June 25 21st, 1995 meeting between Microsoft and 6191 1 Netscape executives, Microsoft's John Ludwig 2 sent an e-mail to Paul Maritz and the other 3 senior executives involved in Microsoft's 4 browser effort. 5 Quote, obviously, Netscape does see us 6 as a client competitor, end quote, Ludwig 7 wrote. 8 Quote, we have to work extra hard to 9 get O'Hare on the OEM disks. 10 Finding of Fact 160 on page 31. 11 Microsoft's executives believed that 12 the incentives that its contractual 13 restrictions placed on OEMs would not be 14 sufficient in themselves to reverse the 15 direction of Navigator's usage share. 16 Consequently, in late 1995 or early 17 1996, Microsoft set out to bind Internet 18 Explorer more tightly to Windows 95 as a 19 technical matter. 20 The intent was to make it more 21 difficult for anyone, including systems 22 administrators and users, to remove Internet 23 Explorer from Windows 95 and to simultaneously 24 complicate the experience of using Navigator 25 with Windows 95. 6192 1 As Brad Chase wrote to his superiors 2 near the end of 1995, quote, we will bind the 3 shell to the Internet Explorer so that running 4 any other browser is a jolting experience. 5 Turning to page 15, Finding of Fact 6 90. 7 Microsoft knew that Netscape needed 8 certain critical and technical information and 9 assistance in order to complete its Windows 95 10 version of Navigator in time for the retail 11 release of Windows 95. 12 Indeed, Netscape executives had made a 13 point of requesting this information, 14 especially the so-called remote network access, 15 RNA, API at the June 21 meeting. 16 As was discussed above, the Microsoft 17 representatives at the meeting had responded 18 that the haste with which Netscape received the 19 desired technical information would depend on 20 whether Netscape entered the so-called, quote, 21 special relationship, end quote, with 22 Microsoft. 23 Specifically, Microsoft representative 24 Jay Allard had told Barksdale that the way in 25 which the two companies concluded the meeting 6193 1 would determine whether Netscape received the 2 RNA API immediately or in three months. 3 Finding of Fact 91. 4 Although Netscape declined the special 5 relationship with Microsoft, its executives 6 continued over the weeks following the June 7 21st meeting to plead for the RNA API. 8 Despite Netscape's persistence, 9 Microsoft did not release the API to Netscape 10 until late October, i.e., as Allard had warned 11 more than three months later. 12 The delay, in turn, forced Netscape to 13 postpone the release of its Windows 95 browser 14 until substantially after the release of 15 Windows 95 and Internet Explorer in August 16 1995. 17 As a result, Netscape was excluded for 18 most of the holiday selling season. 19 Finding of Fact 92. 20 Microsoft similarly withheld a 21 scripting tool that Netscape needed to make its 22 browser compatible with certain dial-up ISPs. 23 Microsoft had licensed the tool freely 24 to ISPs that wanted it and, in fact, had 25 cooperated with Netscape in drafting a license 6194 1 agreement that by mid-July 1996 needed only to 2 be signed by an authorized executive to go into 3 effect. 4 There the process halted, however. In 5 mid-August, a Microsoft representative informed 6 Netscape that senior executives at Microsoft 7 had decided to link the grant of the license to 8 the resolution of all open issues between the 9 companies. 10 Netscape never received a license to 11 the scripting tool, and, as a result, was 12 unable to do business with certain ISPs for a 13 time. 14 Finding of Fact 93. 15 Other firms in the computer industry 16 have had encounters with Microsoft similar to 17 the experiences of Netscape described above. 18 These interactions demonstrate that it 19 is Microsoft's corporate practice to pressure 20 other firms to halt software development that 21 either shows the potential to weaken the 22 applications barrier to entry or competes 23 directly with Microsoft's most cherished 24 products. 25 Finding of Fact 94. 6195 1 At the time that Intel -- I'm sorry. 2 At the time that Microsoft was trying 3 to convince Netscape to stop developing 4 cross-platform APIs, it was trying to convince 5 Intel to halt the development of software that 6 presented developers with a set of operating 7 system independent interfaces. 8 95. Although Intel is engaged 9 principally in the design and manufacture of 10 microprocessors, it also develops some 11 software. 12 Intel's software development efforts 13 which take place at the Intel architecture 14 labs, IAL, are directed primarily at finding 15 useful ways to consume more microprocessors 16 cycles thereby stimulating demand for advanced 17 Intel microprocessors. 18 By early 1995, IAL was in the advanced 19 stages of developing software that would enable 20 Intel 80x86 microprocessors to carry out tasks 21 usually performed by separate ships known as 22 digital signal processors. 23 By enabling this migration, the 24 software called native signal processing 25 software, NSP, would endow Intel 6196 1 microprocessors with substantially enhanced 2 video and graphic performance. 3 Finding of Fact Number 100. 4 Microsoft began complaining to Intel 5 about its NSP software in intercompany 6 communications sent in the spring of 1995. 7 In May, Microsoft raised the profile 8 of its complaints by sending some of its senior 9 executives to Intel to discuss the latter's 10 incursion into Microsoft platform territory. 11 Returning from the May meeting, one 12 Microsoft employee urged his superiors to 13 refuse to allow Intel to offer platform level 14 software even if it meant that Intel could not 15 innovate as quickly as it would like. 16 If Intel wished to enable a new 17 function, the employee wrote, it's only, quote, 18 winning path, end quote, would be to convince 19 Microsoft to support the effort in its platform 20 software. 21 At any rate, quote, sometimes Intel 22 would have to accept the outcome that the time 23 isn't right for Microsoft, end quote. 24 In the first week of July Gates 25 himself met with Intel CEO Andrew Grove to 6197 1 discuss, among other things, NSP. 2 In a subsequent memorandum to senior 3 Microsoft executives, Gates reported that he 4 had tried to convince Grove to, quote -- 5 convince Grove, quote, to basically not ship 6 NSP, end quote. And, more generally, to reduce 7 the number of people working on software at 8 Intel. 9 Finding of Fact 101. 10 The development of an alternative 11 platform to challenge Windows was not the 12 primary objective of Intel's NSP efforts. 13 In fact, Intel was interested in 14 providing APIs and DDIs only to the extent the 15 effort was necessary to ensure the development 16 of applications and devices that would spark 17 demand for Intel's most advanced 18 microprocessors. 19 Understanding Intel's limited 20 ambitions, Microsoft hastened to assure Intel 21 that if it would stop promoting NSP interfaces, 22 Microsoft would accelerate its own work to 23 incorporate the functions of the NSP software 24 into Windows, thereby stimulating the 25 development of applications and devices that 6198 1 relied on the new capabilities of Intel's 2 microprocessors. 3 At the same time, Microsoft pressured 4 the major OEMs to not install NSP software on 5 their PCs until the software ceased to expose 6 APIs. 7 NSP software could not find its way 8 onto PCs without the cooperation of the OEMs. 9 So Intel realized that it had no choice but to 10 surrender the pace of software innovation to 11 Microsoft. 12 By the end of July 1995, Intel had 13 agreed to stop promoting its NSP software. 14 Microsoft subsequently incorporated 15 some of NSP's components into its operating 16 system products. 17 Even as late as the end of 1998, 18 though, Microsoft still had not implemented key 19 capabilities that Intel had been poised to 20 offer consumers in 1995. 21 Finding of Fact 102. 22 Microsoft was not content to merely 23 quash Intel's NSP software. At a second 24 meeting at Intel's headquarters on August 2nd, 25 1995, Gates told Grove that he had a 6199 1 fundamental problem with Intel using revenues 2 from its microprocessors business to fund the 3 development and distribution of free platform 4 developed software. 5 In fact, Gates said, Intel could not 6 count on Microsoft to support Intel's next 7 generation of microprocessors as long as Intel 8 was developing platform level software that 9 competed with Windows. 10 Intel's senior executives knew full 11 well that Intel would have difficulty selling 12 PC microprocessors if Microsoft stopped 13 cooperating in making them compatible with 14 Windows and if Microsoft stated to OEMs that it 15 did not support Intel's chips. 16 Faced with Gates' threat, Intel agreed 17 to stop developing platform level interfaces 18 that might draw support away from interfaces 19 exposed by Windows. 20 Finding of Fact 103. 21 OEMs represent the primary customer 22 for Intel's microprocessors. Since OEMs are 23 dependent on Microsoft for Windows, Microsoft 24 enjoys continuing leverage over Intel. 25 To illustrate, Gates was able to 6200 1 report to other senior Microsoft executives in 2 October 1995 that, quote, Intel feels we have 3 all the OEMs on hold with our NSP chill, end 4 quote. 5 He added, quote, this is good news 6 because it means OEMs are listening to us. 7 Andy Grove believes Intel is living up 8 to its part of the NSP bargain and that we 9 should let OEMs know that some of the new 10 software work Intel is doing is okay. 11 If Intel is not sticking totally to 12 its part of the deal, let me know. 13 This would be a good time, Your Honor. 14 THE COURT: Take a 10 -- 15 MR. TULCHIN: Is that the end of the 16 reading that Ms. Conlin intends to do, Your 17 Honor? 18 MS. CONLIN: It is not. 19 THE COURT: How many more do you have? 20 MS. CONLIN: 13, Your Honor. 21 THE COURT: Okay. We'll take a 22 10-minute recess. 23 Remember the admonition previously 24 given. We will see you in 10 minutes. You can 25 leave your notebooks here. 6201 1 (The following record was made out of 2 the presence of the jury at 9:44 a.m.) 3 THE COURT: Let the record reflect we 4 are outside the presence of the jury. 5 MR. TULCHIN: Thank you, Your Honor. 6 I will be brief, but I wanted to make 7 these points because I think they are 8 important. 9 First, of course, as the Court knows, 10 Microsoft objected when the Plaintiffs sought 11 collateral estoppel earlier this year after 12 remand from the Iowa Supreme Court. 13 Microsoft believed then, believes now, 14 that it was error for the Court to adopt the 15 146 findings which are in the Jury notebooks 16 and have been read to them. 17 Secondly, Your Honor, we believe that 18 the deposition of Mr. Gates has been used 19 improperly. 20 It's been used in violation of the 21 Court's December 7th order to bolster the 22 findings of fact and that the reading of the 23 findings that Ms. Conlin is now doing is also 24 being used improperly. 25 In effect, to bolster the claim that 6202 1 Mr. Gates' testimony was not accurate. 2 Thirdly, Your Honor, we believe it was 3 error to play Mr. Gates' videotape deposition 4 from the DOJ deposition at all. 5 The deposition should have been barred 6 because once collateral estoppel was granted, 7 Mr. Gates' testimony on the same issues that 8 are covered by the findings ought not to have 9 been permitted. 10 And, lastly, Your Honor, we think that 11 the reading of these findings -- and I know 12 that Preliminary Instruction Number 12 permits 13 lawyers to read the findings, but I think that 14 the instruction was in error in that regard. 15 But perhaps more relevantly here, that 16 the Plaintiffs ought not to be permitted at a 17 time of their choosing, without notice to 18 Microsoft, to read whatever findings they want 19 for the purpose of contradicting testimony that 20 was given. 21 And I just want to say this, Your 22 Honor, and I'm sorry for the repetition, but I 23 think it's important that we be on record on 24 this subject so that no one ever says there's 25 been any waiver. 6203 1 Mr. Gates was asked about a number of 2 subject matters during this long deposition 3 that was played for the Jury over the last, I 4 think, three days on issues that were contested 5 in the government case. 6 The Court in the government case, of 7 course, made very substantial and lengthy 8 findings, in some cases quite contrary to what 9 Mr. Gates had said in his deposition. 10 And what's really going on here is not 11 that the deposition is being played by the 12 Plaintiffs in order somehow to cover some other 13 issue outside the findings, the deposition was 14 played precisely so that Plaintiffs could now 15 read findings that contradict Mr. Gates' 16 statements at his deposition as if to try to 17 demonstrate to the Jury that Mr. Gates' 18 testimony was not honest or accurate. 19 And I think that's an error. It's a 20 misuse of collateral estoppel. The Plaintiffs 21 are not only bolstering the findings with the 22 deposition, but, in effect, they're using the 23 findings to injure the credibility of a witness 24 who will be here. 25 And, lastly, Your Honor, the 6204 1 deposition was hearsay in any event. 2 THE COURT: Thank you. 3 Any response? 4 MS. CONLIN: Yes. Well, Your Honor, 5 very briefly. 6 Certainly, this has been litigated and 7 litigated and litigated. 8 I am not sure that the Defendants even 9 made an objection to Instruction Number 12, 10 though I don't recall for sure. 11 And we believe that -- you know, the 12 Court's well aware of the reason we are 13 offering the testimony and the findings of fact 14 with respect that I'm reading at this point in 15 time are perfectly permissible under the 16 Court's instruction. 17 THE COURT: Anything else? 18 MR. TULCHIN: No, Your Honor. 19 THE COURT: I want to know each time 20 you intend to do that so we can make a record 21 on that. Okay? 22 MS. CONLIN: All right, Your Honor. 23 And I wonder if at the lunch hour we 24 have some further record we wish to make on the 25 issue of the exhibits and some suggestions that 6205 1 might make the process a little quicker, but I 2 don't want to take the time to do it. 3 THE COURT: Which exhibits, the ones I 4 admitted? 5 MS. CONLIN: Yeah, the 3,760. 6 THE COURT: Well, we'll do it at some 7 later time then. 8 MS. CONLIN: Okay. Well, I'd like to 9 do it at lunch if we could, Your Honor. 10 THE COURT: How long will it take? 11 MS. CONLIN: Well, not too long from 12 my standpoint. 13 MS. NELLES: Is it really necessary to 14 do this today, Your Honor? I have a lot of 15 people trying to make planes. 16 THE COURT: What's the nature of the 17 objection for the record? 18 MS. CONLIN: Well, Your Honor, I'll do 19 it now. 20 THE COURT: Okay. 21 MS. CONLIN: What we are concerned 22 about is Mr. Tuggy just called Mr. Gralewski 23 and said that work on prior testimony must stop 24 to address the exhibits. 25 This is precisely why the parties 6206 1 previously submitted all objections, so this 2 would not occur. 3 We suggest that Microsoft's submit -- 4 that, first of all, Your Honor, that you order 5 Microsoft to assert any objections by December 6 29th so that we have time to review, engage in 7 a meet and confer, yet again, and prepare our 8 responses for the hearing. 9 Your Honor, we now have witnesses 10 coming, and having spent over a year and 11 hundreds of thousands of dollars and hundreds 12 of thousands of hours on the Special Master 13 process, it almost appears to be starting over. 14 Microsoft made relevance and undue 15 prejudice objections to the exhibits, to many 16 exhibits. They're familiar with the exhibits 17 and should do at least the first half by 18 December 29th, but we think they can do all of 19 them and state the reasons for the objections 20 so that we can, in fact, engage in some meet 21 and confer. 22 We would also request that the Court 23 set a standard for making the objections as 24 follows. 25 First, Microsoft has the burden to 6207 1 establish and must state in writing why the 2 particular exhibit was not irrelevant or unduly 3 prejudicial before but it is now. 4 And, Your Honor, because we are so 5 concerned about maximizing trial time and 6 ending the case, you know, sometime in the year 7 2007, we are willing, if the Court is, to argue 8 the exhibits on Saturdays instead of Fridays, 9 or to have a late night or even two late nights 10 per week in order to get this task 11 accomplished. 12 It's a task, frankly, Your Honor, that 13 we did not anticipate, for which we have not 14 planned, and which will now interfere 15 substantially with our ability to get these 16 depositions in shape to play to the Jury in a 17 timely fashion. 18 So those are our suggestions, Your 19 Honor. 20 Your Honor, just so the record is 21 clear, none -- I'm sure that the Court is aware 22 of this, but, for the record, none of the 3,760 23 exhibits that are on the list provided to the 24 Court on December 15th had any relevancy 25 objections at the time, nor did they have any 6208 1 undue prejudice objections at the time, nor did 2 they have any objections of any kind on 3 December 15th. 4 THE COURT: Okay. Anything? 5 MS. NELLES: Briefly, Your Honor. 6 Microsoft is fully prepared to comply 7 with the Court's order as it was handed down 8 this morning. We are also fully prepared and 9 intend to work on the deposition testimony in 10 compliance with any orders and any agreements. 11 I think that should be sufficient. 12 And, of course, if the Court is inclined to 13 order us to work over the Christmas break and 14 have this done for Plaintiffs on the 29th, we 15 will do whatever the Court instructs. 16 But, as of today, we stand fully 17 prepared to comply with all the obligations in 18 conformance with the Court's current orders. 19 THE COURT: Anything else? 20 MS. CONLIN: Well, Your Honor, last 21 year at this time, roughly at this time, I did 22 2,500 exhibits all by myself from start to 23 finish in one week. 24 So it doesn't seem to me -- and that, 25 of course, was a first glance through. It 6209 1 wasn't easy, but in this case, of course, 2 Microsoft is already familiar with the 3 exhibits. 4 And I am reliably informed that 5 Mr. Tuggy has called Mr. Gralewski and said 6 that the depositions must stop. And it is 7 Mr. Tuggy and his team who have done both the 8 depositions and the exhibits in this case. 9 So all I can say to the Court is 10 that's what is reported to us. 11 THE COURT: What do you mean 12 depositions must stop? 13 MS. CONLIN: Your Honor, we have a 14 plan, also pursuant to an agreement, which 15 makes me, of course -- 16 THE COURT: Mr. Tuggy called 17 Mr. Gralewski and said -- 18 MS. CONLIN: Yes, Your Honor. Here's 19 what we have been doing. 20 THE COURT: He's objecting to you 21 playing any more depositions? 22 MS. CONLIN: No. Believe it or not, 23 Your Honor, before we ever get to you, the 24 depositions are worked through between the 25 parties. We submit them to Microsoft. 6210 1 THE COURT: I understand. 2 MS. CONLIN: They make their 3 objections. We have a little schedule going. 4 THE COURT: Okay. 5 MS. CONLIN: And according to 6 Mr. Gralewski, Mr. Tuggy says that schedule 7 must stop now while we do these exhibits. 8 Well, that just puts -- I mean, that's 9 very bad. That will make it impossible for us 10 to proceed with the trial in an orderly 11 fashion. 12 We were doing well. We were moving 13 along. And now -- that's why we want to get 14 this process, the exhibit process -- 15 THE COURT: And if that happens, 16 you'll start playing the deposition. If they 17 have objections, they better make them during 18 the trial. And I'll rule on them as you do it. 19 MS. CONLIN: All right, Your Honor. 20 THE COURT: I don't know how else to 21 do it. 22 MS. CONLIN: Well, we made a 23 suggestion here about deadlines and meet and 24 confers and some process that -- 25 THE COURT: I can't make them meet and 6211 1 confer with you if they don't want to. 2 MS. CONLIN: Well, I don't think 3 that's the issue, Your Honor. 4 What we seek principally is the 5 opportunity to know in advance of January 12th 6 what objections there will be to these 3,760 7 exhibits. 8 THE COURT: There's only three 9 possible. 10 MS. CONLIN: Yes, I know, Your Honor, 11 but certainly they cannot possibly be urging 12 all those three objections to each of these 13 3,760 exhibits. 14 THE COURT: I have no idea. 15 MS. CONLIN: That's why we suggest 16 they make them in advance, Your Honor, by 17 December 29th. 18 THE COURT: What I propose is on 19 January 12th is to go through them maybe on the 20 screen here and start with the first one and 21 ask what their objection is, if any, and go to 22 the next. 23 MS. CONLIN: Well, Your Honor -- 24 THE COURT: And I'll rule immediately. 25 MS. CONLIN: Having looked at these 6212 1 exhibits, every single one of these exhibits 2 myself, I can tell the Court without fear of 3 contradiction, that that process will take 4 weeks. 5 And that's why I think that we can do 6 it more efficiently by, you know, having some, 7 you know, some way of knowing what they're 8 going to object to and having any kind of a 9 meet and confer that they would participate in 10 and bringing to the Court only those exhibits 11 to which they do urge objections. 12 So that we will not have to go through 13 every single one of them. So we can just 14 devote our time to those for which objections 15 exist. 16 THE COURT: Well, I anticipate that it 17 will be like an exhibit comes up, Defendant 18 will say no objection for relevancy, and I'll 19 rule immediately. 20 MS. CONLIN: Well, what I'm saying to 21 the Court is I don't think that's going to be 22 necessary. I think we can save substantial 23 time if they'll let us know in advance which 24 ones they object to. 25 There's no need, Your Honor, to go 6213 1 through every single one of these 3,760 2 exhibits. It will literally take many, many 3 weeks to do that, I think. 4 And if there are -- let's just taking 5 a hypothetical. Let's say they only can think 6 up objections, because they couldn't before. 7 Remember, Your Honor, these are already clear. 8 But let's say they only have 100 9 exhibits to which they object. Then certainly 10 there's no reason to look at any but those 100. 11 That's why I just don't think that there's any 12 necessity for going through every one of these, 13 Your Honor. 14 But we do need to know in advance, and 15 that's why we suggest that by December 29th 16 they let us know what their objections are. 17 And then part of the process has been, 18 as I understand it, though I'm not a 19 participant, you know, some give and take 20 about, you know, why we think it might be 21 relevant or why it's not unduly prejudicial or 22 whatever, and sometimes there's agreement 23 reached and sometimes there is not. 24 But at least we could do that in 25 advance of coming to the Court in order to 6214 1 speed this process up. 2 We really have spent hundreds and 3 hundreds and hundreds of hours on this process 4 already, Your Honor. 5 THE COURT: Ms. Nelles? 6 MS. NELLES: Your Honor, I believe the 7 procedure that you have set up is a wise one. 8 I do not believe it will take weeks and weeks 9 and weeks. 10 And as we go through these objections 11 and determine -- or, excuse me, as we go 12 through these exhibits and determine that we 13 are not asserting any objections, we will 14 certainly let Plaintiffs know before the 12th, 15 so that -- to speed through this process. 16 THE COURT: All right. And any 17 exhibits that the Defendant knows before 18 January 12th that they're not going to object 19 to, please let them know before that date. 20 MS. NELLES: Absolutely, Your Honor. 21 MS. CONLIN: All right, Your Honor. 22 So do I understand that in advance of the 12th 23 the Defendant is going to let us know what 24 objections they are going to be lodging and 25 we'll just deal with those exhibits? 6215 1 All right. And also, Your Honor, can 2 you at least think about the Saturday or the 3 late nights rather than taking a trial day? 4 THE COURT: I'll see how it goes on 5 the 12th. If it goes slow, then I'll make some 6 adjustment. 7 MS. CONLIN: All right. Thank you, 8 Your Honor. 9 Wait a minute. 10 Is there a date certain by which the 11 Defendant will provide us with the objections? 12 MS. NELLES: Your Honor, as we 13 determine that we are not going to assert an 14 objection to any exhibit on their list, we will 15 let them know as we determine it and we will do 16 that all the way through to the 12th. 17 THE COURT: Okay. So you'll do it in 18 batches or something? 19 MS. NELLES: If we have them in 20 batches, I will certainly not hold them. 21 THE COURT: Okay. I want them 22 completed by the 10th at the latest. 23 MS. NELLES: Excuse me? 24 THE COURT: I want them completed by 25 the 10th at the latest. 6216 1 MS. NELLES: We'll do our best, Your 2 Honor. Absolutely. 3 MS. CONLIN: Thank you, Your Honor. 4 THE COURT: Oh, for the record, your 5 objection is overruled, Mr. Tulchin's 6 objection. 7 MS. CONLIN: Okay. 8 THE COURT: I think he wanted a 9 ruling. 10 Okay. Take five minutes. 11 (A recess was taken from 10:02 a.m. 12 to 10:11 a.m.) 13 (The following record was made in the 14 presence of the jury.) 15 THE CLERK: All rise. 16 THE COURT: Members of the jury, the 17 break was longer than expected because we took 18 up a matter that only I could decide so we were 19 working. 20 Please continue, ma'am. 21 MS. CONLIN: Thank you, Your Honor. 22 Turning to page 70 and Finding of Fact 23 Number 394. 24 In a further effort intended to 25 increase the incompatibility between Java 6217 1 applications written for its Windows JVM and 2 other Windows JVMs and to increase the 3 difficulty, according Java applications from 4 the Windows environment to other platforms, 5 Microsoft designed its Java developer tools to 6 encourage developers to write their Java 7 applications using certain key words and 8 compiler directives that could only be executed 9 properly by Microsoft's version of the Java 10 runtime environment for Windows. 11 Microsoft encouraged developers to use 12 these extensions by shipping its developer 13 tools with the extensions enabled by default 14 and by failing to warn developers that their 15 use would result in applications that might not 16 run properly with any runtime environment other 17 than Microsoft's. And that would be difficult 18 and perhaps impossible to port to JVMs running 19 on other platforms. 20 This action comported with the 21 suggestion that Microsoft's Thomas Reardon made 22 to his colleagues in November 1996. Quote, we 23 should just quietly grow J plus plus, bracket, 24 Microsoft developer's tools, end bracket, share 25 and assume that people will take more advantage 6218 1 of our classes without ever realizing they are 2 building Win 32 only Java X, end quote. 3 Microsoft refused to alter its 4 developer tools until November 1998 when a 5 court ordered it to disable its key words and 6 compiler directives by default and to warn 7 developers that using Microsoft's Java 8 extensions would likely cause incompatibilities 9 with non-Microsoft runtime environments. 10 Finding of Fact 396. 11 Determined to induce developers to 12 write Java applications that relied on its 13 version of the runtime environment for Windows 14 rather than on Sun-compliant ones, Microsoft 15 made a large investment of engineering 16 resources to develop a high performance Windows 17 JVM. 18 This made Microsoft's version of the 19 runtime environment attractive on its technical 20 merits. To hinder Sun and Netscape from 21 improving the quality of the Windows JVM 22 shipped with Navigator, Microsoft pressured 23 Intel, which was developing a high-performance 24 Windows compatible JVM, to not share its work 25 with either Sun or Netscape, much less allow 6219 1 Netscape to bundle the Intel JVM with 2 Navigator. 3 Gates was himself involved in this 4 effort. 5 During the August 2nd, 1995 meeting at 6 which he urged Intel to halt IAL's development 7 of platform level software Gates also announced 8 that Intel's cooperation with Sun and Netscape 9 to develop a Java runtime environment for 10 systems running on Intel's microprocessors was 11 one of the issues threatening to undermine 12 cooperation between Intel and Microsoft. 13 By the spring of 1996, Intel had 14 developed a JVM designed to run while on 15 Intel-based systems while complying with Sun's 16 cross-platform standards. 17 Microsoft executives approached Intel 18 in April of that year and urged that Intel not 19 take any steps toward allowing Netscape to ship 20 this JVM with Navigator. 21 Finding of Fact 397. 22 By bundling its version of the Windows 23 JVM with every copy of Internet Explorer and 24 expending some of its surplus monopoly power to 25 maximize the usage of Internet Explorer at 6220 1 Navigator's expense, Microsoft endowed its Java 2 runtime environment with the unique attribute 3 of guaranteed enduring ubiquity across the 4 enormous Windows installed base. 5 As one internal Microsoft presentation 6 from January 1997 put it, the company's 7 response to cross-platform Java entailed, 8 quote, increased IE share, dash, integration 9 with Windows, end quote. 10 Partly as a result of the damage that 11 Microsoft's efforts against Navigator inflicted 12 on Netscape's business, Netscape decided in 13 1998 that it could no longer afford to do the 14 engineering work necessary to continue bundling 15 up-to-date JVMs with Navigator. 16 Consequently, it announced that 17 starting with version 5.0, Navigator would 18 cease to be a distribution vehicle for JVM's 19 compliant with Sun's standards. 20 Finding of Fact 400. 21 Recognizing ISVs as a channel through 22 which Java runtime environments that complied 23 with Sun's standards could find their way on to 24 Windows PC systems, Microsoft induced ISVs to 25 distribute Microsoft's version instead of a 6221 1 Sun-compliant one. 2 First, Microsoft made its JVM 3 available to ISVs separately from Internet 4 Explorer so that those uninterested in bundling 5 browsing software could nevertheless bundle 6 Microsoft's JVM. 7 Microsoft's David Cole revealed the 8 motivation for this step in a message he wrote 9 to Jim Allchin in July 1997. Quote, we agree 10 that we must allow ISVs to redistribute the 11 Java VM stand-alone without IE. 12 ISVs that do this are bound into 13 Windows because that's the only place that VM 14 works, and it keeps them away from Sun's APIs. 15 Finding of Fact 404. 16 As discussed above, Microsoft's effort 17 to lock developers into its Windows specific 18 Java implementation included actions designed 19 to discourage developers from taking advantage 20 of Java class libraries such as RMI. 21 Microsoft went further than that, 22 however. In pursuit of its goal of minimizing 23 the portability of Java applications, Microsoft 24 took steps to thwart the very creation of 25 cross-platform Java interfaces. 6222 1 The incorporation of greater 2 functionality into the Java class libraries 3 would have increased the portability of the 4 applications that relied on them while 5 simultaneously encouraging developers to use 6 Sun-compliant implementations of Java. 7 In one instance of this effort to 8 stunt the growth of the Java class libraries, 9 Microsoft used threats to withhold Windows' 10 operating system support from Intel's 11 microprocessors and offers to include Intel 12 technology in Windows in order to induce Intel 13 to stop aiding Sun in the development of Java 14 classes that would support innovative 15 multimedia functionality. 16 Finding of Fact 405. 17 In November 1995, Microsoft's Paul 18 Maritz told a senior Intel executive that 19 Intel's optimization of its multimedia software 20 for Sun's Java standards was as inimical to 21 Microsoft as Microsoft support for non-Intel 22 processors would be to Intel. 23 It was not until 1997, though, that 24 Microsoft prevailed upon Intel to not support 25 Sun's development of Java classes that would 6223 1 have allowed developers to include certain 2 multi media features in their Java applications 3 without sacrificing portability. 4 Finding of Fact 406. 5 In February 1997, one of Intel's 6 competitors called AMD solicited support from 7 Microsoft for its 3DX technology which provided 8 sophisticated multimedia support for games. 9 Microsoft's Allchin asked Gates 10 whether Microsoft should support 3DX despite 11 the fact that Intel would oppose it. 12 Gates responded, quote, if Intel has a 13 real problem with us supporting this, then they 14 will have to stop supporting Java multimedia 15 the way they are. I would gladly give up 16 supporting this if they would back off from 17 their work on Java which is terrible for Intel, 18 end quote. 19 Near the end of March, Allchin sent 20 another message to Gates and Maritz. And in it 21 he wrote, quote, I am positive that we must do 22 a direct attack on Sun and probably Oracle. 23 Between ourselves and our partners, we 24 can certainly hurt their, certainly Sun's 25 revenue base. We need to get Intel to help us. 6224 1 Today they are not. 2 Two months later, Eric Engstrom, a 3 Microsoft executive with responsibility for 4 multimedia development wrote to his superiors 5 that one of Microsoft's goal was getting, 6 quote, Intel to stop helping Sun create Java 7 multimedia APIs, especially ones that run well, 8 i.e., native implementations on Windows, end 9 quote. 10 Engstrom proposed achieving this goal 11 by offering Intel the following deal. 12 Microsoft would incorporate into the Windows 13 API set any multimedia interfaces that Intel 14 agreed to not help Sun incorporate into the 15 Java class libraries. 16 Engstrom's efforts apparently bore 17 fruit for he testified at trial that Intel's 18 IAL subsequently stopped helping Sun to develop 19 class libraries that offered cutting edge 20 multimedia support. 21 Turning to finding of fact 105. 22 MR. TULCHIN: Object to going out of 23 order, Your Honor. 24 THE COURT: Overruled. Continue. 25 MS. CONLIN: Thank you, Your Honor. 6225 1 105. 2 Page 20. 3 Beginning in the spring of 1997 and 4 continuing into the summer of 1998, Microsoft 5 tried to persuade Apple to stop producing a 6 Windows 95 version of its multimedia playback 7 software which presented developers of 8 multimedia content with alternatives to 9 Microsoft's multimedia APIs. 10 If Apple acceded to the proposal, 11 Microsoft executives said Microsoft would not 12 enter the authoring business and would instead 13 assist Apple in developing and selling tools 14 for developers writing multimedia content. 15 Just as Netscape would have been free 16 had it accepted Microsoft's proposal to market 17 a browser shell that would run on top of 18 Microsoft's Internet technologies, Apple would 19 have been permitted, without hindrance, to 20 market a media player that would run on top of 21 DirectX, but like the browser shell that 22 Microsoft contemplated as acceptable for 23 Netscape to develop, Apple's QuickTime shell 24 would not have exposed platform level APIs to 25 developers. 6226 1 Microsoft executives acknowledged to 2 Apple their doubts that a firm could make a 3 successful business out of marketing such a 4 shell. 5 Apple might find it profitable, 6 though, to continue developing multimedia 7 software for the Mac OS and that, the 8 executives from Microsoft assured Apple, would 9 not be objectionable. 10 As was the case with the Internet 11 technologies it was prepared to tolerate from 12 Netscape, Microsoft felt secure in the 13 conviction that developers would not be drawn 14 in large numbers to write for non-Microsoft 15 APIs exposed by platforms whose installed bases 16 were inconsequential in comparison with that of 17 Windows. 18 Turning to 343 on page 62. 19 By the summer of 1996, Apple was 20 already shipping Internet Explorer with the Mac 21 OS, but it was preinstalling Navigator as the 22 default browsing software. 23 After a meeting with Apple in June 24 1996, Gates wrote to some of his top 25 executives, quote, I have two key goals 6227 1 investing in the Apple relationship. 2 One, maintain our applications share 3 on the platform, and two, see if we can get 4 them to embrace Internet Explorer in some way, 5 end quote. 6 Later in the same message, Gates 7 expressed his desire that Apple, quote, agree 8 to immediately ship IE on all their systems as 9 the standard browser. 10 Finding of Fact 345. 11 Recognizing the importance of Mac 12 Office to Apple's survival, Microsoft 13 threatened to cancel the product unless Apple 14 compromised on a number of outstanding issues 15 between the companies. 16 One of these issues was the extent to 17 which Apple distributed and promoted Internet 18 Explorer as opposed to Navigator with the Mac 19 OS. 20 Finding of Fact 349. 21 A few days after the exchange with 22 Waldman, Gates informed those Microsoft 23 executives most closely involved in the 24 negotiations with Apple that the discussions, 25 quote, have not been going well at all, end 6228 1 quote. 2 One of the several reasons for this, 3 Gates wrote, was that, quote, Apple let us down 4 on the browser by making Netscape the standard 5 install, end quote. 6 Gates then reported that he had 7 already called Apple CEO who at the time was 8 Gil Amelio, to ask, quote, how we should 9 announce the cancellation of Mac Office. 10 Finding of Fact 355 on page 66. 11 Apple increased its distribution and 12 promotion of Internet Explorer not because of a 13 conviction that the quality of Microsoft's 14 product was superior to Navigator's, or that 15 consumer demand for it was greater, but rather 16 because of the in terrorem effect of the 17 prospect of the loss of Mac Office. 18 To be blunt, Microsoft threatened to 19 refuse to sell a profitable product to Apple, a 20 product in whose development Microsoft had 21 invested substantial resources and which was 22 virtually ready for shipment. 23 Not only would this ploy have wasted 24 some cost and substantial profit, it also would 25 have damaged Microsoft's good will among 6229 1 Apple's customers whom Microsoft had led to 2 expect a new version of Mac Office. 3 The predominant reason Microsoft was 4 prepared to make this sacrifice and the sole 5 reason that it required Apple to make Internet 6 Explorer its default browser and restricted 7 Apple's freedom to feature and promote 8 non-Microsoft browsing software was to protect 9 the applications barrier to entry. 10 More specifically, the requirements 11 and restrictions relating to browsing software 12 were intended to raise Internet Explorer's 13 usage share, to lower Navigator's share, and 14 more broadly demonstrate to important 15 observers, including customers, developers -- I 16 beg your pardon -- including consumer, 17 developers, industry participants, and 18 investors, that Navigator's success had 19 crested. 20 Had Microsoft's only interest in 21 developing the Mac OS version of Internet 22 Explorer been to enable organizational 23 customers using multiple PC operating system 24 products to standardize on one user interface 25 for web-browsing, Microsoft would not have 6230 1 extracted from Apple the commitment to make 2 Internet Explorer the default browser or impose 3 restrictions on its use and promotion of 4 Navigator. 5 And, finally, Your Honor, finding of 6 fact 132 at page 26. 7 In sum, from 1994 to 1997, Microsoft 8 consistently pressured IBM to reduce its 9 support for software products that competed 10 with Microsoft offerings and it used its 11 monopoly power in the market for 12 Intel-compatible PC operating systems to punish 13 IBM for its refusal to cooperate. 14 Whereas, in the case of Netscape, 15 Microsoft tried to induce a company to move its 16 business away from offering software that could 17 weaken the applications barrier to entry, 18 Microsoft's primary concern with IBM was to 19 reduce the firm's support for software products 20 that competed directly with Microsoft's most 21 profitable products; namely, Windows and 22 Office. 23 That being said, it must be noted that 24 one of the IBM products to which Microsoft 25 objected, Notes, was like Navigator in that it 6231 1 exposed middleware APIs. 2 In any event, Microsoft's interactions 3 with Netscape, IBM, Intel, Apple, and 4 RealNetworks all reveal Microsoft's business 5 strategy of directing its monopoly power toward 6 inducing other companies to abandon projects 7 that threaten Microsoft and toward punishing 8 those companies that resist. 9 Your Honor, at this time the 10 Plaintiffs would play the video deposition of 11 Richard Williams. 12 Your Honor, you have your copy? 13 THE COURT: Yes. 14 MS. CONLIN: Okay. Richard Williams 15 who -- which was taken on September 22nd, 1998, 16 in the case of Caldera versus Microsoft. 17 THE COURT: Proceed. 18 MS. CONLIN: Thank you, Your Honor. 19 And, Your Honor, this is about two hours and 12 20 minutes. 21 THE COURT: Okay. 22 (Whereupon, the following video was 23 played to the jury.) 24 Question: What is your current 25 employment? 6232 1 Answer: I'm chairman of the board of 2 Quokka Sports. 3 Question: How do you spell that? 4 Answer: Q-u-o-k-k-a. 5 Question: Where is that company 6 headquartered? 7 Answer: 525 Brannan Street in San 8 Francisco. 9 Question: What is the business of 10 Quokka Sports? 11 Answer: Quokka is a digital sports 12 media company. 13 Question: Does it sell products? 14 Answer: You could think of it as a 15 true media company in a new world context, in 16 that we focus only on sporting events and the 17 world of sports. 18 We started by doing what we call 19 blockbuster sporting events on the web; that 20 is, those events that are in the top ten in 21 terms of global TV audience -- those events 22 that are executed globally not just viewed 23 globally, and those events that are lengthy in 24 time -- multiple weeks to multiple months. 25 We treat everything as digital assets. 6233 1 Things that most sporting events use in the 2 conduction of the event, but then forget about 3 thereafter. 4 So not just video and audio, which we 5 do deal with as well, but telemetry, timing and 6 scoring data, athletic monitoring, position 7 sensing, motion capture, et cetera. 8 We capture all of that, package those 9 up, and then produce a complete production, and 10 distribute that via the most appropriate media, 11 whatever that media might be. So we're much 12 more than an Internet company would be. 13 Question: Following the completion of 14 your education, would you describe your 15 employment history? 16 Answer: I joined IBM straight out of 17 the University of Minnesota as a systems 18 engineer/applied science representative in 19 their St. Paul office in June of 1965, and 20 worked for IBM for a period of 22 years until I 21 left IBM in December of 1986. 22 Then I joined Digital Research on 23 January 5th of 1987 as president and chief 24 executive officer at the request of the board 25 of directors to assist them in turning the 6234 1 company around. 2 Then upon the sale of the Digital 3 Research to Novell in October of 1991, I became 4 executive vice president of worldwide sales for 5 Novell, and general manager of the Digital 6 Research systems group, or some such thing. 7 That title changed, then, three or 8 four months later to, I think, desktop systems 9 group or something like that, and then I 10 retired from Novell in May of 1992. 11 Question: What were your principal 12 duties as president of DRI? 13 I understand that you were president 14 of DRI over a three-and-a half year period 15 until it was acquired by Novell, and those 16 duties may have changed. 17 But you said -- I gathered from the 18 beginning it was to turn around the company. 19 Can you describe generally what your 20 responsibilities were? 21 Answer: You name it, I had 22 responsibility for it. 23 Digital Research was a company in 24 serious trouble. It was $11 million in debt 25 when I joined the company, and the banks had 6235 1 called the debt. We were seriously strapped, 2 and I did whatever I had to do, including 3 cleaning the toilets. 4 Question: What products were in the 5 DRI portfolio when you became CEO? 6 Answer: At the time I joined the 7 company? 8 Question: Yes. 9 Answer: Well, the company had a 10 history with CP/M, and that was still a 11 product, although it was not actively marketed, 12 but it was still a product we were taking 13 revenue from. 14 Concurrent DOS was probably the 15 primary revenue producer at the time, shipping 16 at that point in time in two or three different 17 forms. 18 Flex OS, the realtime multi-user 19 multi-tasking operating system, was already 20 becoming a significant business. 21 The GEM -- graphical environment 22 manager -- and a number of GEM applications; 23 word processors and such. 24 Those are certainly the primary 25 products. 6236 1 Question: Was the DR-DOS product 2 under development when you joined? 3 Answer: No, it was not. 4 Question: Were you involved in the 5 decision to develop the DR-DOS product? 6 Answer: Yes, I was. 7 Question: Do you recall how soon 8 after you joined DRI that that became a topic 9 of discussion? 10 Answer: Oh, within 30 days. 11 Certainly within 60 days. Probably within 30 12 days. 13 Question: Was the concept of that 14 product initiated by you or someone else in the 15 company? 16 Answer: The company had been 17 approached by people outside the company going 18 back at least six months before my joining to 19 develop such a product. 20 Question: Do you recall what the 21 genesis of the consideration of that product 22 development was? 23 Answer: I don't know what you mean by 24 that. 25 Question: I understand people had 6237 1 approached the company. What I'm trying to 2 understand is, was there someone in the company 3 that brought the idea to you and became sort of 4 its driving force? 5 Did you look at all the things the 6 company considered and direct people to look at 7 that, if you recall? Maybe it's some 8 combination of those things. 9 Answer: A variety of OEMs in 10 particular had come to the company beforehand 11 and said, we would like Digital Research to 12 develop a replacement for MS-DOS. We don't 13 like the situation that we're in with 14 Microsoft. We don't like -- we don't like that 15 situation at all. We'd like to have an 16 alternative. We believe that Digital Research 17 could provide that to do a better job for us. 18 That was the basic genesis of all of 19 that. 20 When I joined the company, my first 21 focus was to stabilize the company and to get 22 back to a revenue-producing role and gaining 23 revenue. 24 My second objective was to understand 25 all the variety of things that the company was 6238 1 doing, and to determine which of those we 2 should continue as they were, which of those we 3 should redirect, which of those we should 4 discontinue. 5 In that process I reviewed the 6 Concurrent DOS development, which at that point 7 in time was in our Hungerford development 8 laboratory. I refocused and sharpened the 9 focus of that development. And, of course, it 10 was from that genesis that the DR-DOS product 11 sprang. 12 Question: Would it be fair to say 13 that in considering the DR-DOS product, one of 14 the issues you had to deal with was that the 15 entry into the operating systems market was 16 difficult and risky? 17 Answer: Absolutely. 18 Well, let me rephrase that. 19 What I think you just stated was entry 20 into the operating systems market was difficult 21 and risky. We were already in the operating 22 systems market. 23 Digital Research was the originator of 24 the operating systems market for 25 microcomputers, and Digital Research had, even 6239 1 at that point in time, the best reputation in 2 terms of technology in the operating systems 3 marketplace. 4 Question: In contemplating entering 5 into the operating systems market with a 6 product like DR-DOS, which I understood was to 7 emulate MS-DOS, did you think or conclude or 8 believe that such an undertaking would be 9 difficult and risky? 10 Answer: Well, DR-DOS was never 11 intended to emulate MS-DOS. That was never the 12 objective of the product, that was never the 13 design of the product, and that was never our 14 stated focus of the product whatsoever. 15 The purpose of DR-DOS was to provide 16 an alternative to MS-DOS and PC-DOS to the 17 marketplace for people who wanted a better 18 product. 19 Question: Have you ever heard DR-DOS 20 referred to as a clone operating system? 21 Answer: Oh, sure, I have. 22 Question: Have you ever referred to 23 it as a clone operating system? 24 Answer: Never. 25 Question: Do you understand what 6240 1 people mean when they use the term clone to 2 describe the DR-DOS product? 3 Answer: Very well. 4 Question: What is your understanding 5 of what they mean? 6 Answer: I think it's part of the 7 misunderstanding of what the product is. 8 The definition of a clone is that you 9 have literally created an exact look-alike 10 product in every context; that it operates like 11 not just functions like, that it executes 12 internally like. That's not what DR-DOS was at 13 all. 14 Question: Was DR-DOS designed to be 15 compatible with all of the applications written 16 for MS-DOS? 17 Answer: DR-DOS was designed to be 18 compatible with the broad range of applications 19 then existing in the marketplace, and 20 anticipated in the marketplace, that would run 21 under MS-DOS or PC-DOS. 22 Question: Going back to my question, 23 did you regard entry of DR-DOS into this market 24 as a difficult and risky proposition? 25 Answer: Absolutely. 6241 1 Question: Did you regard it as an 2 expensive proposition? 3 Answer: Potentially. 4 Question: Why was that not a 5 challenge? 6 Answer: Well, literally the day that 7 I decided to do a product that became DR-DOS 8 was at the April announcement in Florida by IBM 9 and Microsoft of OS/2 and PS/2, and when Bill 10 Gates and Bill Lowe got up on the stage and 11 said DOS is dead, you customers have all these 12 series of requirements, and DOS is totally 13 unable to be enhanced to accomplish those 14 requirements, and what you need is -- what we 15 need to do is to move to a whole new 16 significant standard called OS/2, and the world 17 will move in that direction. 18 I said, these guys don't have a clue. 19 There is an opportunity, and I'll take it. 20 Question: As a matter of fact, I 21 gather Mr. Gates and his company, Microsoft, 22 didn't move through history as though DOS was 23 dead? 24 Answer: They sure did for a while. 25 At that point in time they had stopped 6242 1 all the development of MS-DOS. 2 If you take a look at the actual 3 release history of MS-DOS prior to the first 4 release of DR-DOS, initially there were a 5 series of releases like you would expect in an 6 active product, and then very few releases, and 7 then virtually no releases, and then all you're 8 doing is really adding in what Compaq had done 9 or what somebody else had done. 10 So it was a product that was no longer 11 under active consideration by Microsoft by the 12 point in time that we began development and 13 brought into the market DR-DOS. 14 Question: Would it be fair to say 15 that you don't know whether, at the time, 16 Microsoft actually had developers working on 17 MS-DOS? 18 Answer: That would be fair to say. 19 Question: As you looked forward, as 20 the CEO of DRI in 1988, and considered going 21 forward with the DR-DOS product, what did you 22 regard as the biggest risks to DRI with respect 23 to that potential product? 24 Answer: DR-DOS? 25 Question: Yes. 6243 1 Answer: The biggest risk? 2 I felt the biggest risk was that 3 Microsoft would come hell bent to destroy us. 4 Question: By competing? 5 Answer: Not necessarily by competing. 6 Question: Do you think there are 7 other risks that you took into account or 8 thought about at the time? 9 Answer: Absolutely. 10 Question: What was the risk 11 associated in that analysis that you saw? 12 Answer: I wasn't interested in doing 13 a clone. 14 The risk I saw in doing a clone was 15 that all you've really done is you reproduced 16 somebody else's product, good or bad. 17 You take all of the risks inherent 18 then with reproducing that other person's 19 product; both the business risk from market fit 20 and market requirement and feature market fit 21 and feature market requirements, as well as 22 potentially violating the company's copyright 23 of the product that you were cloning, none of 24 which I had any interest in. 25 Question: Was one of the challenges 6244 1 or risks that you thought the product faced the 2 risk of whether you could achieve adequate, if 3 not full, compatibility with the applications 4 that had been written for MS-DOS, PC-DOS? 5 Answer: Absolutely. 6 Question: What analysis did you have 7 done at DRI prior to releasing the first 8 version of DR-DOS to determine whether or not 9 you could achieve sufficient compatibility? 10 Answer: Specifically? 11 Question: Yes. 12 Answer: I don't know. I don't recall 13 that. 14 We had a lot of discussions. That was 15 a part of the discussion as to whether to do a 16 clone or not. 17 I sincerely believe that if we did a 18 clone of MS-DOS or PC-DOS that we would not 19 achieve the broad range of compatibility with 20 the existing applications in the marketplace. 21 And my evidence for that was that 22 Microsoft had regularly abandoned prior 23 applications as they released a new product. 24 Our interest was in providing 25 compatibility across the broad range of 6245 1 applications and allow upward migration through 2 time. 3 Our interest was also in being able to 4 innovate and add additional functionality above 5 and beyond what was in existence in the 6 marketplace. 7 Question: Were you concerned that if 8 the product you offered was, on balance, 9 roughly equal to Microsoft, there wouldn't be a 10 compelling reason for OEMs or customers to 11 change? 12 Answer: Let me try to think back. 13 Certainly, what the OEMs were asking 14 of us -- what the OEMs were telling us -- is 15 that they would be perfectly happy if in terms 16 of the product, that we literally offered a 17 replacement product for MS-DOS. 18 Now, what I really believed, of 19 course, was that they were looking for more 20 than just an exact replacement, that they also 21 wanted a better company to deal with. 22 Question: In considering whether to 23 go forward with the DR-DOS product, did you 24 conclude or believe that you would need to 25 offer significantly better pricing for your 6246 1 product than was offered by Microsoft for 2 MS-DOS in order to be successful? 3 Answer: At the time that we were 4 considering offering the product, I did believe 5 that we needed to offer better pricing. 6 Question: Do you think that, while 7 you were the CEO of DRI, it ever reached the 8 minimum critical mass? 9 Answer: I believe it did. I believe 10 it did certainly between the introduction of 11 DR-DOS 5.0 and the introduction of DR-DOS 6.0. 12 In the context of normal market 13 environment, normal market conditions, I 14 believe that it had. 15 Based upon information that has been 16 provided to me since then, it was a different 17 situation. 18 Question: Do you recall what the 19 numbering of the first release of DR-DOS was? 20 Was it DR-DOS 3.3.1? 21 Answer: I believe that's correct. 22 Question: Was the lack of adequate 23 working capital an ongoing problem for DRI 24 while you were the CEO? 25 Answer: Absolutely. 6247 1 Question: What limitations did the 2 lack of adequate capital impose on you as the 3 CEO in trying to accomplish your goals for the 4 company? 5 Answer: Staffing, number one, that we 6 just talked about. 7 Advertising, marketing, the freedom to 8 take risks. 9 It's the perennial challenge of a 10 start-up or turnaround, unless when you start 11 the turnaround you are sitting with a billion 12 dollars in cash. We weren't. 13 Particularly with the case of Digital 14 Research, with the history of Digital Research, 15 raising money was a challenge, even through 16 this period of time, and then rebuilding the 17 credibility of the company, particularly in the 18 U.S. where they had floundered the most prior 19 to my getting there, was a challenge. 20 So those were significant challenges. 21 Question: Do you recall a challenge 22 or problem occurring in the 1989 time frame 23 when some of the Taiwanese manufacturers -- 24 clone manufacturers I think you referred to 25 them as -- were turning around and selling 6248 1 product back into Europe and undercutting your 2 sales efforts in Europe? 3 Answer: Yes, I do. 4 Question: Let me show you what's been 5 marked as Exhibit 1569. 6 This is a memorandum dated November 7 17, 1989, from Reinhard Grunder to Dieter 8 Giesbrecht. 9 Do you know Mr. Grunder? 10 Answer: I recognize the name. 11 Question: I assume the fact that -- 12 it's on Digital Research GMBH letterhead, so I 13 assume he was an employee of Digital Research 14 GMBH? 15 Answer: That would be my assumption. 16 You want me to read the letter so I 17 can give you a better perspective of who he 18 was? 19 Question: I'm just going to call your 20 attention to the two places. 21 The beginning begins, Dieter, I know 22 you need real information regarding our DR-DOS 23 market for your discussion with Dick Williams. 24 Now, this is four or five months after 25 the letter you just read, so it appears to be 6249 1 information he is giving Mr. Giesbrecht for 2 discussion with you. 3 If you'll look at paragraph 2 on the 4 first page, it reads, the market situation for 5 DR-DOS in Central Europe has become disastrous. 6 Our chances to sell DR-DOS with the 7 standard OEM pricing are getting smaller every 8 month. The reason for that is not Microsoft, 9 but the fight with our own company. The street 10 selling prices on original DR-DOS 3.4 are down 11 to U.S. $18 (German language). 12 The latest advertising shows 3.4 is in 13 German language for U.S. $39 (one off). And 14 then it's got handwritten in $20. 15 Our investigations show the sources 16 being Taiwan. Our contacts are not yet willing 17 to disclose their sources and refuse to buy the 18 product locally at a higher price and to commit 19 on volume. 20 Do you recall Mr. Giesbrecht 21 communicating these facts or events to you in a 22 meeting in 1989 or a communication? 23 Answer: I recall Dieter communicating 24 those types of situations, that type of a 25 problem, to me in that time frame, yes. 6250 1 Question: The next paragraph says, 2 all our efforts to close contracts at present 3 are in vain as after successful evaluation of 4 DR-DOS and intensive sales activities the 5 prospects take the product from the cheapest 6 source offering original DR-DOS as unbundled 7 and not customized product as very low prices 8 offered by Dick Dixon and company. 9 Let me have you go back to the letter 10 that you read your way through, Exhibit 949, or 11 I guess it's a memo to you from Dieter 12 Giesbrecht. 13 Answer: Right. 14 Question: Let me have you turn over, 15 just for a moment, two pages over to the page 16 that begins, this situation needs to be 17 changed. 18 Answer: Two pages over? 19 Question: Two pages over. Do you see 20 that? 21 Answer: Yes. 22 Question: This situation needs to be 23 changed, and it can only be changed by 24 tightening up the OEM license agreement. The 25 important changes in our license agreement are 6251 1 as follows. 2 Number one says, the OEM shall market 3 DR-DOS only bundled together with his specific 4 hardware. 5 Then the last sentence of that reads, 6 they also have to ship DR-DOS with each and 7 every hardware product. 8 Do you recall whether when 9 Mr. Giesbrecht says the important changes in 10 our license agreement are as follows, that was 11 a change that was implemented, or that was a 12 change that he was recommending be implemented? 13 Answer: There are two different 14 things there. 15 The OEM shall market DR-DOS only 16 bundled together with a specific hardware is 17 one. 18 That was a standard requirement of our 19 OEM agreement, that he was only allowed to 20 bundle DR-DOS or Concurrent DOS or Flex OS or 21 whatever it was with a specific identified -- I 22 can't remember the actual terminology we used 23 in the contract -- but the contracts were all 24 specific to a specific piece of hardware. 25 The license agreement was specified, 6252 1 as I recall, on only distributing our software 2 in conjunction with that hardware or with that 3 product. That was the concept of our OEM 4 licensing agreement. 5 What Dieter was saying there is that 6 that ought to be made very explicit, and it 7 ought to be enforced. That absolutely -- we 8 spent a lot of time trying to ensure that. 9 This memo was really specific to a 10 problem that we were having with certain 11 Taiwanese distributors and with 2001 at that 12 point in time, of distributing DR-DOS separate 13 from the -- I think we called it defined 14 computer system -- which was a violation of the 15 OEM agreement and caused most of the problems 16 that Dieter is referencing in his letter here. 17 Question: Can I just interrupt you 18 for a minute and ask you this question? 19 Answer: Certainly. 20 Question: Were those folks selling 21 DR-DOS as a separate product or were they 22 putting it on machines other than those 23 identified in their license agreement, or both? 24 I'm trying to make sure I understand 25 what the problem was. 6253 1 Answer: The problem was them selling 2 or distributing as a stand-alone product. 3 Question: Mr. Giesbrecht writes, at 4 the end user level DR-DOS is still a no-name 5 product and receives very low acceptance. 6 Do you, or did you at this point in 7 time, 1989, agree that DR-DOS was a no-name 8 product and received very low acceptance in the 9 marketplace, generally? 10 Answer: That was an inflammatory 11 statement on Dieter's part to get me to take 12 action. I don't recall if I agreed or 13 disagreed, but I clearly -- I questioned the 14 memo, and Dieter clearly was doing things in 15 the memo both to stay within the bounds of 16 propriety, as well as to enforce action. 17 What Dieter wanted to do was to really 18 build a unique brand and name for DR-DOS in the 19 marketplace, and he was absolutely right that 20 we should do that. 21 As to whether or not it was a no-name 22 product and receives very low acceptance, I 23 don't know. I honestly don't recall. That was 24 on a year after we began shipping DR-DOS as an 25 OEM product. This was well before we planned 6254 1 to put it into the retail channel. 2 MS. CONLIN: This is a good time, Your 3 Honor. 4 THE COURT: Very well. We'll take a 5 recess until 12 noon. 6 Remember the admonition. Leave your 7 notebooks here. 8 See you then. 9 (A recess was taken from 11 a.m. to 10 12:01 p.m.) 11 THE CLERK: All rise. 12 THE COURT: As soon as you get the 13 lights, you can start it. 14 (Whereupon, the following video 15 resumed playing to the jury.) 16 Question: Do you recall if DRI had a 17 beta of Windows 3.0? 18 Answer: Just one second. 19 Now, in regards to this last 20 paragraph, you were asking if I recall whether 21 there were betas of Windows 3.0. 22 Yes, there were. There were pretty 23 broad betas of Windows 3.0 as I recall. 24 Question: Did DRI have a copy of a 25 Windows 3.0 beta? 6255 1 Answer: I don't recall that 2 specifically. I know that in anticipation of 3 the release of Microsoft Windows 3.0 there was 4 very good cooperation between Digital Research 5 and Microsoft in providing compatibility of 6 DR-DOS, which was then 5.0, with Windows 3.0. 7 If I recall correctly, we may have 8 even had somebody that was invited to a beta 9 class in Seattle or Belleview or Redmond, 10 wherever they were at the time. 11 I seem to remember something in that 12 context. 13 I remark on it because the 14 relationship in regards to support of Windows 15 3.0 was in such marked contrast with the 16 relationship and support of 3.1, and that 3.0 17 seemed to me to be the way it ought to be. 18 Question: If you look at the middle 19 paragraph on page 1, it says, it would seem 20 that Microsoft are making a number of 21 significant moves at present with their Windows 22 product. 23 Of most importance to us is their 24 announcement of the withdrawal of the ISV 25 runtime license for Windows and the 6256 1 introduction of the Windows/3 product in 2 calendar year 1990. 3 I'd like to focus on the issue of -- 4 the issue of the withdrawal of the ISV runtime 5 license that is referred to there, and have you 6 turn over to the next page, which has a 7 conclusion about that. 8 You see where it says Windows/3 and 9 DR-DOS at the top of that page? The first 10 sentence under that says, as far as DRI is 11 concerned, the removal of runtime licensing 12 from the ISVs is bad news in the long term. 13 Although it will probably not mean 14 there will be no solution for DR-DOS users who 15 wish to run Windows/3 applications, they will 16 be disadvantaged when compared with MS-DOS 17 users who get support bundled. 18 Do you understand why that was the 19 effect of the removal of runtime licensing from 20 the ISVs? 21 That's less important to me than -- 22 Answer: I do remember that with 3.0 23 that Microsoft -- prior to 3.0, Microsoft 24 allowed an ISV -- that is, an application 25 developer prior -- to distribute the runtime of 6257 1 Windows with their application that allowed a 2 customer to run an ISV-supplied Windows 3 application without having a separate copy of 4 Windows, and that withdrawal of that runtime 5 license -- what that really meant was that for 6 the ISV to sell his product, the customer who 7 was going to buy his product also had to 8 acquire somehow a separate copy of Windows. 9 Question: Do you recall if there was 10 concern at the company about Microsoft finding 11 out that you were considering developing a 12 competing product to Windows? 13 Answer: Oh, absolutely. 14 Question: Why was that? 15 Answer: Microsoft was already trying 16 to put us out of business because we had a 17 product competitive with MS-DOS. 18 If they thought we were coming up with 19 a product to compete with them on Windows, I 20 -- I think they'd be bombing Monterey. 21 Question: I assume you are using that 22 in a figurative as opposed to literal sense? 23 Answer: I mean in a literal sense. 24 I've never competed with a more 25 aggressive competitor than Microsoft, and I've 6258 1 been in this business for nearly 40 years now. 2 Question: Well, the use of the 3 language bomb is what I was getting at. 4 Do people in this kind of business 5 tend to use militaristic metaphors? 6 Answer: I think in that context when 7 I think of Bill Gates. 8 Question: Do you recall a meeting in 9 December of 1988 with Mr. Ballmer in which a 10 discussion took place about the potential for 11 cross-licensing products between DRI and 12 Microsoft? 13 Answer: Yes, I do. 14 Question: Would you describe -- I 15 don't know all the details, but can you 16 describe your meetings with Mr. Ballmer on that 17 occasion? 18 Answer: Steve and I were there at an 19 IBM meeting, an IBM-hosted meeting. It might 20 have been an IBM introduction. I think it was 21 an IBM press meeting. 22 I'm trying to think of the name of the 23 -- in Herzler, England, in one of these stately 24 old mansions that IBM owned at the time there. 25 We both were there in support of IBM 6259 1 on OS/2, I believe. 2 One of my people, Tony -- I forget his 3 last name right now -- that had known Steve for 4 quite some time. I had never met him. He 5 introduced us. 6 It was the first time that Steve and I 7 had ever met each other. 8 One or the other of us suggested that 9 we ought to get together sometime. 10 Later in that meeting, I believe Steve 11 approached me and said, hey, let's go out 12 somewhere and talk. It was in the context of, 13 as I recall, let's just go talk, which I 14 certainly saw no harm to, but let's go talk 15 someplace where nobody can see us talking. 16 There were press people there and 17 other applications suppliers and system 18 software suppliers and everything else. 19 I can remember going up and down back 20 stairs and so forth trying to find a meeting 21 room, and meeting in some out-of-the-way place 22 for -- I think we had two different meetings, I 23 think it was two, maybe three meetings there, 24 because we were there for maybe two or three 25 days. 6260 1 The first meeting, Steve started with 2 wanting to know why we weren't more visible in 3 our marketing of DR-DOS, why we weren't really 4 doing aggressive marketing of DR-DOS. 5 I responded to him that I was focused 6 on niche markets that we didn't feel were of 7 interest to them, and I didn't want to do 8 anything that would put me in their line of 9 fire. 10 That was the context of the 11 discussion. 12 Question: At some point was a 13 concrete proposal made to you by someone on 14 behalf of Microsoft for a potential 15 cross-licensing arrangement? 16 Answer: Steve asked in that meeting, 17 would we be interested in -- and I guess what 18 was -- it might have been postured then or in a 19 subsequent meeting as cross-license. 20 In essence, it was a buyout of DRI, of 21 Digital Research, DR-DOS, and us then replacing 22 that with MS-DOS. 23 It was stated in that first meeting in 24 the context of would you be interested in. 25 At the end of that first meeting, as I 6261 1 recall, he asked -- he said, I'll go back and 2 check with Bill, and then let's talk further. 3 Then he grabbed me -- I think it was 4 the next day -- and said, let's go talk, and we 5 went out to talk. 6 He said, there is interest. 7 I think he might have sketched out a 8 potential proposal verbally in that discussion, 9 that second day. 10 Then he proposed that we get together 11 again shortly thereafter, after we got back to 12 the U.S. 13 As I recall, that was -- this meeting 14 with Steve was probably in December, and then 15 he was going to call me or I was to call him. 16 I don't recall which. One or the other, and we 17 did that as soon as we got back to the U.S., 18 like the following Monday. 19 There was a good deal of urgency on 20 his part of wanting to get together again. I 21 think the next time we could get together was 22 like a week or two later, which now put it into 23 January, because it was over the holidays. 24 The meeting was set up to take place 25 in Santa Clara, where we had a sales office. 6262 1 Our sales office was in Santa Clara just behind 2 the Great America Parkway. 3 Steve was personally going to be 4 there, and I believe he was going to bring one 5 or two other people with him. 6 I believe one of them was to be 7 Joachim Kempin, whom I had never met either. I 8 brought Stan McKee -- I think it was Stan McKee 9 -- with me. I'm pretty sure it was Stan McKee, 10 who was still my CFO. 11 Steve called and confirmed the meeting 12 a couple of days in advance, and again sketched 13 out the outlines of what I thought would be a 14 buyout of DR-DOS and a replacement of DR-DOS in 15 our sales kit with MS-DOS, and a carve-out of 16 specific markets that we could go after that 17 would be attractive to us, and to those that we 18 likely wouldn't be able to compete with. 19 When we showed up for the meeting, 20 Steve wasn't there. Steve didn't come. 21 And Kempin was there, and I can't 22 remember if he brought anybody else with him or 23 not. 24 I don't think he gave us anything. 25 I'm still trying to answer your 6263 1 question on a specific proposal. 2 I think what he outlined -- I think he 3 outlined verbally what you could call a 4 specific proposal, that, frankly, I was 5 offended by. 6 Question: You thought that the price 7 wasn't enough or the dollars weren't enough, 8 however you -- 9 Answer: His whole demeanor. His 10 whole demeanor from the start was to belittle 11 and demean the product, and to belittle and 12 demean our results with the product to date, 13 and the significance of this to Microsoft. 14 And then his offer was just 15 disparagingly low. 16 Question: And you rejected it? 17 Answer: I said thank you very much, 18 and got up and showed them the door. 19 Question: Did anything else come of 20 it, any further discussion? 21 Answer: That was the last discussion 22 we had in that context. 23 Question: Did those discussions 24 adversely impact DRI in any way? 25 Answer: I don't know the answer to 6264 1 that question. I don't even know how to answer 2 that question. So maybe could you rephrase? 3 Question: I don't know how to put it 4 more simply than that. 5 Did those discussions, and the fact 6 that there were discussions that went nowhere 7 and you rejected it, harm or injure DRI in any 8 way? 9 Were you delayed in anything you were 10 doing? Did you not do something as a result of 11 those discussions that you would have done? 12 Answer: We certainly took time on it. 13 I took time on it, my senior executives took 14 time on it, my board took time in considering 15 something that obviously went nowhere. 16 So you could say in that context that 17 it detracted us from what we should have been 18 doing. 19 What I believe from the outset was -- 20 what Steve indicated to me was that he was very 21 concerned about DR-DOS, and that he -- and then 22 he represented to me that he and Bill would 23 like to see it out of the market, and would be 24 willing to have us distribute MS-DOS instead. 25 And I was -- I stated of the things 6265 1 that DR-DOS does, one of our markets is 2 embedded markets. And MS-DOS wasn't ROMable. 3 DR-DOS was. 4 His response was, I don't care about 5 that market. You can have that. 6 So in the discussion I had with Steve, 7 he literally was going to let me continue to 8 use DR-DOS for that specific market. 9 He stated a concern about -- he was 10 afraid that DR-DOS would erode the 11 quote-unquote DOS standard, the MS-DOS 12 standard. 13 I never was quite sure what that 14 meant, but he wanted to replace an arsenal 15 DR-DOS with MS-DOS to avoid that, and I took 16 that to mean selling to the general commercial 17 marketplace. 18 He talked about an arrangement whereby 19 they would -- they would literally buy DR-DOS, 20 but he said it had to be done in such a way 21 that it looked like a licensing -- a technology 22 licensing agreement. 23 So he wanted it to be a 24 cross-licensing agreement. He said, 25 consequently, it's going to have to have an 6266 1 evaluation period -- maybe it was Kempin that 2 said that, one or the other -- a period of like 3 a 90-day evaluation period where you give us 4 your source code and let us evaluate it. And 5 there's no way in hell I'd ever do that. 6 It wasn't in the context. In 20 years 7 at IBM, I did a lot of licensing deals, and 8 this was nothing like any licensing discussion 9 I'd ever had before. It was more in the 10 context of a product buyout, and replace your 11 product with this product, and you can focus on 12 these markets and not those markets. 13 In that context, it certainly 14 detracted us for a period of time that we 15 should have been focusing on the business. But 16 I'm still trying to figure out how to answer 17 that question. 18 Our conclusion was that -- our 19 conclusion, quite honestly, was that it was an 20 improper proposal, and the lawyers within 21 Microsoft shot it down. 22 Question: Did DRI consider putting a 23 GUI, a graphical user interface, shell on 24 DR-DOS 5.0? 25 Answer: We did put a user shell on 6267 1 DR-DOS 5.0. 2 Question: That was ViewMax? 3 Answer: Yes. 4 Question: What happened to the 5 ViewMax feature? Was it, in the sense that -- 6 was it a successful component? 7 Answer: Yes, it was. 8 Question: It was to emulate in any 9 way the functionality of Windows? 10 Answer: No. 11 Question: Just sort of in recognition 12 that the market was moving towards graphical 13 user interfaces? 14 Answer: I believed, in general, the 15 market would move to graphical user interfaces. 16 Xerox and Parc had proven the benefit of that. 17 Apple had certainly proven the benefit of that. 18 Our own GEM products had proven the benefit of 19 that. OS/2 presentation manager. There were 20 things like Top View and Windows that all were 21 generating not only interest, but real 22 acceptance within the marketplace. 23 I had long viewed the command line 24 interface for DOS, whether it was MS-DOS, 25 PC-DOS, Concurrent DOS, or DR-DOS, as arcane. 6268 1 And I felt that we ought to be offering a much 2 more easy-to-use, direct kind of a product 3 offering, and ViewMax was a step in that 4 direction. 5 Question: Was there in the company, 6 in general, a focus or concern or ongoing 7 dialogue about whether there was a real need to 8 have a Windows competitive product, or was that 9 sort of kept in a kind of -- just discussion 10 among those working on the Cutlass feasibility 11 study? 12 Answer: Throughout that period of 13 time there was a very specific concern as to 14 whether or not we had to develop an alternative 15 to Windows in order to continue to be 16 competitive in the marketplace. 17 That was fostered by both strategies 18 that were clearly being employed by Microsoft 19 to prevent us from supporting Windows from an 20 operating system point of view, as well as from 21 requests by other companies in the industry to 22 develop an alternative for Windows. 23 Whether or not that was contained to 24 the Cutlass working group or whether there was 25 a broader concern within the company at that 6269 1 point in time, I don't recall. 2 Question: Did you at this time 3 believe that DRI must have a 4 Windows-competitive product for its long-term 5 survival? 6 Answer: At some point in time -- I 7 don't know if it was at this point in time -- 8 but there was a point in time when I became 9 convinced that we had to have an alternative to 10 Windows to compete long term in the 11 marketplace, from an operating system supplier 12 point of view. 13 I believe that specifically, because I 14 believe that Microsoft was going to do 15 everything they could to exclude us from 16 supporting that Windows environment. 17 Question: Did you ever contemplate in 18 this time period that the Windows product 19 itself either was or would become an integrated 20 operating system? 21 Answer: In this period of time, I did 22 not consider Windows to be an operating system, 23 number one. 24 If you go back to my deposition to the 25 Federal Trade Commission, or at least one of 6270 1 those depositions, you'll find that I made that 2 point very explicit. 3 Windows was not an operating system. 4 Windows was an add-on to an operating system 5 that relied upon DOS. In fact, I believe even 6 to this day it relies on a DOS kernel 7 underneath for its functionality, so it's not 8 an operating system. It wasn't then, and I 9 don't believe it is today. 10 Question: At this point in time, did 11 you consider in any fashion the prospect of 12 possibility that evolution of Windows as a 13 product would ultimately lead it to become an 14 integrated operating system? 15 Answer: At various points in time 16 Microsoft indicated that they were going to 17 integrate DOS and Windows, and that that would 18 be the only way it would be available. 19 At various points in time they 20 indicated that it was not going to be. 21 At various points in time they 22 indicated that it would be integrated, but both 23 variants would be available. 24 If you go down those three legs, in 25 the event that Windows became a generally 6271 1 accepted and a market-demanded product, and 2 support for Windows applications became 3 demanded by the marketplace or accepted as a 4 corporate standard, and if you go down the leg 5 that says that Windows was available only 6 integrated with MS-DOS, that would have been a 7 serious competitive threat to our DR-DOS 8 product offering. In that context, that would 9 have been very serious for us. 10 So, yes, we absolutely worried about 11 that, and that was the whole reason -- the 12 primary reason for us ever considering a 13 Cutlass project was that Microsoft would 14 integrate the two and foreclose us from even 15 supporting Windows applications out there. 16 At that point in time, I don't believe 17 that Windows was a generally accepted corporate 18 standard, although it was -- beginning with the 19 Windows 3.0 product, it was beginning to 20 achieve a good level of market acceptance. 21 Question: Is it fair to say that it 22 built up, and then Windows 3.1 was really the 23 product that sort of became their home run kind 24 of product? 25 Answer: I think it's fair to say that 6272 1 Windows 95 was the home run product. Somewhere 2 between there, it absolutely got to that 3 critical mass. 4 I believe that in terms of time 5 context, at the time that we announced the 6 merger with Novell, Windows absolutely was not 7 a corporate standard. 8 By the time I left Novell, I believe 9 Windows was a corporate standard, or was 10 rapidly becoming a corporate standard. 11 Does that help? 12 Question: It's useful. 13 Did you or others at DRI regard the 14 period between the release by DRI of DR-DOS 5.0 15 and the release by Microsoft of its -- of 16 MS-DOS 5.0 as a window of opportunity for DRI? 17 Answer: We believe that DR-DOS 5.0 18 was an absolute breakthrough product. 19 I think I oftentimes characterized it 20 as the first extended DOS product. 21 We believed that DR-DOS 5.0 should 22 give us a dramatic market advantage, and should 23 open up a window of opportunity that we ought 24 to be able to reap enormous commercial success 25 from. 6273 1 Does that answer your question? 2 Question: It answers part of it. 3 Answer: Okay. 4 Question: Did you believe that that 5 window of opportunity would not last, either in 6 part or in whole -- or it would last only in 7 part until Microsoft released MS-DOS 5.0? 8 Answer: In anticipation of the 9 release of DR-DOS 5.0, like any other product, 10 I believed that our window of opportunity would 11 exist from the time that we released that 12 functionality until somebody else released 13 equivalent functionality. And I believe that 14 that was our window of opportunity, and I 15 believe that that window of opportunity was at 16 least a year in length. 17 Again, what actually happened was that 18 Microsoft took actions to try to preclude that 19 window from ever opening. 20 Question: Are you aware of DRI having 21 any betas of Microsoft products, either Windows 22 or DOS, ever in its possession, as to which 23 Microsoft had not given its permission or 24 authorized DRI to have them? 25 Answer: I don't know the answer to 6274 1 that question. 2 Question: When you say you don't 3 know, does that mean that to the best of your 4 knowledge, your recollection, you have no 5 knowledge of such a thing? 6 Answer: Yes, that is what that means. 7 Question: When I asked you the 8 question about having a beta in your 9 possession, does that mean that you don't know 10 whether it was authorized or not, or you don't 11 know that you had such a beta at all? 12 Answer: I know that we had access to 13 an MS-DOS 5.0 -- what was reputed to be an 14 MS-DOS 5.0 beta. 15 I say reputed to be because I can't 16 give you any particulars on it. I just don't 17 know. 18 I honestly do not know, or do not 19 recall, at least, what that access was; that 20 is, whether we ever had it inside the company, 21 or how that was provided to us. 22 I apologize for not being more 23 specific than that. 24 We had a lot of customers who, of 25 course, were also customers of Microsoft, many 6275 1 of whom would prefer -- would give us 2 information or ask us questions on it or run 3 tests on their own and provide that to us. And 4 I don't know how -- I just don't recall where 5 in this it might be. 6 Also, as we got -- as we got late into 7 the period, prior to -- shortly prior to the 8 actual shipment of MS-DOS 5.0, there were a lot 9 of betas out there. I think it was 7,000, or 10 in excess of that. Maybe 10,000. There were a 11 lot of betas out there. 12 Everybody and his brother that we were 13 dealing with had betas, so I would be amazed if 14 we didn't have a variety of sources of 15 information of that. 16 Question: Let me show you what's been 17 marked as Exhibit 734. 18 This is a document, a DRI document, 19 that sets out a program for penetrating the 20 reseller channel with DR-DOS and developing 21 compelling reasons to buy DR-DOS according to 22 its terms. 23 Looking at this document, does that 24 refresh your recollection? 25 Answer: I do recall this document. I 6276 1 do recall Steamroller. 2 Question: Do you recall who at DRI 3 was responsible for the Steamroller project? 4 Answer: For the project or for 5 creating this document? Might be one in the 6 same. 7 I believe this was created by a 8 combination of Frank Bailinson, Dave Valentino, 9 and Dave VanDaele, and probably people working 10 with them, and probably Greg Ewald. Probably 11 those four people. I'm guessing. But 12 certainly it included Valentino, VanDaele, and 13 Bailinson. 14 Question: Do you recall what your 15 understanding was of the purpose of this 16 project or effort? 17 Answer: I may not recall it all 18 entirely without really going through it, but 19 this was focused on taking DR-DOS retail. 20 It's the first time we would have done 21 that with an operating system. 22 It was intended to be a complete 23 marketing sales, even a support program 24 associated with that. 25 Question: If you turn to the fourth 6277 1 page back, which is the executive summary -- 2 Answer: Yes. 3 Question: If you look under key 4 objectives, to the first full paragraph -- 5 Answer: Right. 6 Question: -- it lists A, B, C, and 7 then the paragraph says, this plan proposes an 8 aggressive promotion to increase penetration in 9 the worldwide installed DOS market through the 10 reseller channel before MS-DOS 5.0 is available 11 and until future DR-DOS versions are available. 12 Do you recall that being the proposal 13 of this plan? 14 Answer: Yes. 15 As I recall, I think we had taken 16 DR-DOS retail in the U.S. sometime in the 17 second half of 1990. 18 When we announced -- when I literally 19 announced DR-DOS 5.0 in the U.S., I indicated 20 -- one of the questions that I got from the 21 press was whether or not we would have a retail 22 program, and I indicated at that point in time 23 that, yes, we would. 24 I think it was maybe three or four 25 months later we began retail shipments. I 6278 1 don't recall the exact date. 2 So I suspect at this point in time we 3 were already in the retail channel, and that 4 what this then was intended to do was to take 5 the experience we had gained and the success we 6 gained in that retail channel, to significantly 7 increase that, and to turn that into a very key 8 market for us. 9 Somewhere during 1990, I would guess 10 it was, was when we concluded that there was -- 11 there should be a substantial long-term 12 business opportunity for Digital Research for 13 the DR-DOS and subsequent or successor 14 products. 15 Question: If you look down three -- 16 to the third paragraph, text paragraph, one 17 this page -- 18 Answer: The target audience 19 paragraph? 20 Question: That's the one below it. 21 It says, this plan is a proactive 22 strategy to usurp the press attention/market 23 demand of the MS-DOS 5.0 product and create the 24 platform for Digital Research to position 25 itself as an innovative marketer, as well as 6279 1 the technical leader. The announcement of 2 MS-DOS 5.0 is expected on April 1, 1991. 3 Do you recall one of the parts of the 4 plan was to have a proactive strategy to usurp 5 the press attention to MS-DOS 5.0 right before 6 it was to be released? 7 Answer: This was written when? 8 Question: I think the date of it is 9 -- 10 Answer: January 23rd, 1991. 11 That's hardly just before, and it 12 would be hard to usurp the press attention on 13 MS-DOS 5.0 just before it was announced since 14 there had been press attention on MS-DOS 5.0 15 since the Microsoft folks called the press back 16 in the last week of April of 1990. 17 So it would have been impossible to 18 usurp it. I can understand why the guys would 19 phrase it that way, but that's an objective you 20 couldn't accomplish if you tried. 21 Question: Do you think that was 22 something they were trying with Steamroller? 23 Answer: What they wanted to do was 24 get significant attention to Digital Research 25 product on its own merits, and to come above 6280 1 the noise level associated with Microsoft's 2 products, or anticipated products. 3 Question: Do you think there is 4 anything wrong with a strategy to try to usurp 5 a competitor's press attention from another 6 competitor? 7 Answer: It depends on who you are, it 8 depends on when, and depends on how you do it. 9 It depends upon the relative position of those 10 two companies. 11 Remember, I was at IBM for 22 years, 12 and I know the effect that a big guy can have 13 on a little guy. I know that a little guy, no 14 matter how hard he tries, no matter what words 15 he uses, probably isn't going to have much 16 effect upon a big guy. 17 Question: Was there anything wrong, 18 in your view, in DRI trying to usurp press 19 attention from the MS-DOS 5.0 product? 20 Answer: Absolutely not. 21 Question: Do you recall whether, in 22 your view, the Steamroller project was 23 successful or not? 24 Answer: Yes, I believe it was 25 successful. 6281 1 Question: Tell me again what you 2 understood to be its goals. 3 Answer: Well, its goals were to 4 significantly increase our penetration of the 5 retail marketplace with DR-DOS. 6 Actually, it had a multitude of goals, 7 and it didn't achieve all of those goals, but I 8 would say, broad scale, it was a successful 9 program. 10 Question: Do you recall at some 11 point, after receipt of the Cutlass memorandum, 12 working with your management team to develop an 13 alternate Windows strategy that didn't include 14 developing a competitive alternate product? 15 Answer: Yes. 16 Question: Do you recall what that 17 strategy was? 18 Answer: There were -- I guess the 19 answer is yes and no, in that I don't think it 20 was one specific line of -- one specific 21 straight line strategy that we concluded out of 22 that. 23 There were a variety of strategies 24 that I felt were more attractive than creating 25 from the ground up, or from whatever base we 6282 1 wanted to start with, an alternative product to 2 Microsoft Windows. We went off in pursuit of 3 those. 4 Question: Was one of the alternate 5 strategies looking for strategic alliances with 6 large companies that could help you in those 7 areas? 8 Answer: Absolutely. 9 Question: Was Lotus one of the 10 companies that you had such discussions with? 11 Answer: Well, we had discussions with 12 Lotus going back much earlier than this. 13 Lotus was interested in us developing 14 the Cutlass product, or what we called the 15 Cutlass. Lotus was very interested in 16 developing alternatives to Windows, because 17 they be in that position ever again. He wanted 18 to have an alternative, and he was willing to 19 pay dearly for that alternative, and hence he 20 verbally stated to me. 21 Question: Did discussions take place 22 between the two companies about the possibility 23 of doing such a development? 24 Answer: I certainly had discussions 25 with one or more Lotus executives, and I 6283 1 suspect that others within my organization had 2 discussions with Lotus. I don't know if you 3 would characterize them as formally as you just 4 did. 5 Question: I don't mean to 6 characterize them one way or the other. 7 The question I really want to ask is, 8 did anything ever come of those discussions in 9 terms of formalized effort? 10 Answer: Well, that was one of the 11 reasons that we embarked upon the Cutlass 12 study. 13 Question: After the Cutlass study was 14 concluded, were there further discussions with 15 Lotus on that subject? 16 Answer: I don't recall specifically 17 on that subject. May have been, but I don't 18 recall specifically. There certainly were 19 further discussions with Lotus. 20 Question: Was something as formalized 21 as a strategic alliance ever reached with 22 Lotus? 23 Answer: There certainly was an 24 attempt to. I don't recall if we ever codified 25 it into a quote-unquote strategic alliance, but 6284 1 there was certainly an intent to do so. And 2 there were very good working relationships 3 between the companies. 4 Question: Let me show you what's been 5 marked as Exhibit 535, which appears to be a 6 memo from Debbie O'Connell to you dated April 7 10th, 1991, reporting on a Lotus meeting March 8 26th, 1991, which is a few weeks or a month 9 after the Cutlass report. 10 Answer: You're bringing back a lot of 11 things to me. 12 In fact, I had put Debbie in the 13 position of manager of that strategic 14 relationship. 15 Question: She reports on meetings in 16 this memorandum, and the first one she reports 17 on is a meeting with Jeff Beir. 18 In the second paragraph of her report 19 on the meeting with Jeff Beir, about halfway 20 down, she talks about the reservations he had 21 about such a strategic alliance. 22 Question. In that paragraph five 23 lines down, it says, however, his reservations 24 were that there is a potential that end users 25 could resist changing their operating systems. 6285 1 They would not want to reconfigure their 2 machines and chance any screwups. 3 He felt uncomfortable even if DR-DOS 4 installation was an option from the Lotus menu 5 with information in the box describing the 6 benefits of using DR-DOS with Lotus 1-2-3. 7 Do you recall whether those concerns 8 were overcome and some sort of a strategic 9 alliance ultimately was achieved with Lotus? 10 Answer: Well, there absolutely was -- 11 I guess you could call it a strategic alliance 12 -- achieved between Digital Research and Lotus. 13 We cooperated on a number of product 14 efforts, bundling. We bundled one of their 15 products with one of ours, as I recall. 16 We did some joint marketing and some 17 joint sales activities. And I think all of 18 those you would characterize in the context of 19 a strategic alliance. 20 We worked very carefully together to 21 ensure mutual compatibility of our products, 22 and customer support of our products. 23 Question: Do you recall at some point 24 that HP and Lotus had a joint machine -- 25 jointly issued a PC that you sought to become 6286 1 the operating system for? 2 Answer: Yes. 3 Question: Do you recall whether you 4 were successful in that effort? 5 Answer: We were not. 6 Question: Do you know why? 7 Answer: I didn't at the time. Since 8 then I've been given information that I think 9 helps explain it. 10 Question: What information were you 11 given? 12 Answer: Let me see if I can remember 13 now. 14 As I recall, the machine in question 15 was a palmtop-type device, like that 16 (indicating). 17 I'm trying to think of the name of the 18 developer that was responsible for it. 19 I can remember having multiple 20 meetings with them where they wanted the ROMed 21 version -- they wanted -- DR-DOS was ROMable, 22 and they wanted a ROMed implementation of 23 DR-DOS to run such a device. 24 Question: There is a reference to 25 that in here, so maybe the easier thing would 6287 1 be to read it and see. If you turn over to 2 page 3 -- 3 Answer: Okay. 4 Question: -- in the bottom paragraph 5 it says, a note of interest. Leon let us know 6 why DR-DOS was ultimately not not selected as 7 the OS on the joint HP-Lotus machine. 8 They were seriously considering 9 DR-DOS, and did implement it and test it on the 10 HP product at Corvalis. 11 However, in the end they felt they 12 needed the brand recognition of MS-DOS on this 13 product. 14 DRI had basically told HP to name 15 their price in order to get the business, and 16 that was in our favor at one time. 17 However, Microsoft met our terms by 18 allowing HP to name their terms, so it became 19 the prudent choice for HP as it then met all 20 their needs. 21 At the time, the technical advantages 22 of DR-DOS did not outweigh the marketing 23 advantages of MS-DOS. 24 Do you recall learning all or part of 25 that? 6288 1 Answer: Yes, I do. 2 Question: Does that essentially -- do 3 you have any recollection that is different as 4 to what you were told than that? 5 Answer: As related to that particular 6 device, no. 7 Question: There came a time -- 8 Answer: That didn't end HP's 9 evaluation of the product, and it certainly 10 didn't end our attempts to sell DR-DOS. 11 This is in April of '91. 12 Question: Was there a time when it 13 was perceived that Microsoft and IBM had a, 14 quote, divorce, close quote, at least in your 15 perception? 16 Answer: There certainly were times 17 when it was well understood that they were 18 going through a messy divorce. And I think 19 there was a point in time when IBM executives 20 told me that the divorce was finally done. 21 Question: Was that point in time seen 22 as an opportunity by DRI to try to persuade or 23 see if they could otherwise sell IBM on using 24 DR-DOS as its underlying operating system? 25 Answer: I'm sure that it did. 6289 1 Question: I know from my deposition 2 of Mr. Maysonave that there came a point in 3 time after he was hired, a month or two after 4 he was hired, when he became quite fully 5 engaged in such discussions with IBM. 6 Answer: He ended up being dedicated 7 to the IBM relationship, yes. 8 Question: Were discussions with IBM, 9 prior to his being hired, at the same level of 10 effort and involvement as they were once he got 11 involved? 12 Answer: Certainly not in terms of the 13 same level of effort and involvement. 14 I had high-level discussions 15 periodically with IBM. I knew them. 16 IBM throughout that period of time was 17 always the ultimate customer. 18 Question: From Mr. Maysonave's 19 deposition it appears that there was quite a 20 lot of discussion and communication and 21 information being shared back and forth during 22 the period he was dedicated to that. 23 I'm trying to understand whether that 24 was kind of a step up from where things had 25 been in the period. 6290 1 Answer: Oh, absolutely it was. 2 Absolutely it was. 3 Question: Do you know what it was 4 that precipitated there being that heightened 5 level of dialogue between the two companies? 6 Answer: I think it was a number of 7 things, not at least of which was 8 Mr. Maysonave. 9 He was a very, very competent 10 individual, and he did a superb job in 11 developing the IBM relationship. That's very, 12 very important. 13 Secondly, by that point in time we had 14 a very, very viable product offering in DR-DOS. 15 It was perceived by IBM to be very viable, and 16 viable for them as well. 17 Thirdly, I believe the Microsoft 18 relationship had gotten just so problematic for 19 IBM that they desperately wanted out of it and 20 wanted an alternative. 21 Fourthly, I think they were at a point 22 in those discussions whereby they could 23 entertain an alternative. 24 One of the challenges that I always 25 had -- that we always had -- at Digital 6291 1 Research that we never quite understood well, 2 until well after the fact, was why we couldn't 3 penetrate these big OEMs. 4 You asked the question earlier did you 5 ever really get that top-tier guy? You know, I 6 think the characteristic of an entrepreneur and 7 the people that do things at Digital Research 8 is the supreme belief in ourselves to be able 9 to accomplish whatever we set out to 10 accomplish, and the extraordinary frustration 11 we had when we had a better product, better 12 offering, better terms and conditions, better 13 price, better perception in the marketplace, a 14 totally accommodating relationship towards our 15 customers, and a total inability to get these 16 guys to sit down and entertain a serious 17 proposal. 18 Question: Was that a frustration you 19 had with IBM? 20 Answer: You bet it was. 21 Question: During the period 1991-1992 22 -- you used the phrase earlier, and I've 23 forgotten what it was, but it was something 24 like IBM was the account. 25 Answer: IBM was still the largest PC 6292 1 manufacturer in the world. 2 Question: Did you spend more time and 3 effort as a company trying to bring about a 4 relationship with IBM than you did with any 5 other OEM? 6 Answer: That's hard to say. 7 Certainly in regards to DR-DOS, that would be 8 true. 9 Question: I'm sort of working through 10 this chronologically. And before I explore 11 further the work Mr. Maysonave did on IBM, I'd 12 like you to look at Exhibit 736. 13 This is a document authored by Steve 14 Tucker, and it shows Mr. Maysonave in 15 attendance. So chronologically I think we 16 could assume this was after he was hired. They 17 are his notes from an executive staff meeting 18 that took place over three days in Monterey. 19 You are shown as copied on these notes. 20 Second and third bullet points, that 21 Coopers & Lybrand have apparently been retained 22 by the company to assist in discussions with 23 the board and potential investors on the value 24 of the company. 25 By this point in time, were you 6293 1 looking for either additional investors or a 2 merger partner of some kind? 3 Answer: By this point in time, I was 4 looking for a significant partner. That could 5 have included a merger. 6 Question: The fourth bullet point 7 down says, DW -- I assume that to be you -- 8 stated that despite all the work that has been 9 done over the past few years by way of 10 refinancing, et cetera, we have never achieved 11 adequate capitalization. 12 Also, we continue to have resource 13 constraints that limit our ability to do all of 14 the things we would like to do. 15 Do you recall stating that, or words 16 to that effect? 17 Answer: Yes, I do. 18 Question: How did those resource 19 constraints limit what you were doing with the 20 DR-DOS product? 21 Answer: Well, those resource 22 constraints constrained anything of a 23 significant context that we wanted to do. 24 When you are constrained by capital or 25 constrained by available cash resources, you 6294 1 don't have the ability to make the big bet, to 2 make the big expenditures that might produce 3 significant results unless you have reasonable 4 confidence that you are not going to be 5 disrupted in the process. 6 The specific thing that caused me to 7 conclude by that point in time that we had to 8 have a significant partner was the third we 9 talked about earlier; the way in which 10 Microsoft introduced their DOS 5.0 product to 11 the marketplace. 12 It was that single action -- not that 13 single action, but that culmative action and 14 the result of that -- that forced me to the 15 conclusion that for us to continue as a viable 16 entity, we had to have a significant partner, 17 and that we could not continue to exist as a 18 stand-alone entity in the face of a concerted 19 onslaught by Microsoft. 20 It was that onslaught that caused the 21 lack of available resources throughout that 22 period of time. 23 Question: Turn to page 3 -- and we're 24 just about to the point in time where I'll 25 point you, and we can talk about that issue a 6295 1 little more. 2 Answer: That's okay. 3 Question: Bottom of page 3 is a 4 bullet point that says DD -- I believe that's 5 Dick Dixon -- commented that accounts are not 6 queuing up to buy DRI products, and repeat buys 7 are not happening. 8 Do you know if you ever tracked, 9 either in the OEM channel or in the retail 10 channel, whether repeat buys were happening? 11 I guess I'm asking if that's a 12 qualitative assessment on his part or a 13 quantitative. 14 Answer: There was a period of time -- 15 I've tried to recall if it was then or when it 16 was -- where I'd ask that we look more 17 explicitly at sources of our revenues and 18 sources of our contracts, both at a point in 19 time as well as on a continuing basis; how much 20 of our revenues on a monthly or quarterly basis 21 were coming out of backlog, and how much from 22 new buys, and how much of those new buys were 23 for customers versus existing customers? 24 I don't recall if that's the time 25 frame or not, if that was in place by then. 6296 1 But Dixon certainly had the 2 wherewithal to do that analysis himself, 3 although he had a lot of customers. He had a 4 lot of customers in the Far East. He certainly 5 had the wherewithal. He was prone to do those 6 kind of analyses. 7 Question: There is a reference later 8 in this document to strategic partner 9 discussions going on with Novell at this point 10 in time. 11 Do you recall whether the discussions 12 with Novell about a merger had begun by this 13 point in time? 14 Answer: Yes, they had. 15 Question: Were you involved in those 16 discussions? 17 Answer: Personally. 18 Question: With Mr. Noorda? 19 Answer: Yes. 20 Question: Were the discussions 21 principally between the two of you? 22 Answer: The discussions were 23 principally between myself, Ray Noorda, and 24 Darryl Miller. 25 I'd have to go back and review to tell 6297 1 you whether it was more Ray than it was with 2 Darryl. 3 Question: Actually, in your 4 declaration, beginning at about paragraph 148 5 and going through about 163, is a discussion of 6 what happened to DRI sales of DR-DOS 5.0 in the 7 retail channel in the spring of 1991. 8 It reads, the most immediate impact on 9 DRI of these combined actions is that, as noted 10 before, our sales of DR-DOS 5.0 dropped 11 precipitously. 12 Financially, since DR-DOS 5.0 was our 13 leading product, this sudden loss in sales 14 volume had equally severe consequences. We had 15 been projecting a net profit of 1.8 million for 16 the quarter ending June 30th, 1991. 17 Not only did we not reach this goal, 18 but we actually suffered a loss of 1.27 19 million, a swing of over 2 million. 20 Is that how the loss of sales and 21 revenues that we've talked about earlier and 22 now identified took place? 23 Answer: Yes. 24 Question: As I understand -- as I've 25 read your declaration, I believe I understand 6298 1 that the action referred to, that you had in 2 mind to cause this, was Microsoft offering a 3 very low price on its MS-DOS 5.0 retail product 4 with some distributors, and flooding the 5 channel by having preannounced sales of MS-DOS 6 5.0. 7 Are those the actions that you have 8 reference to in this? 9 Answer: Those were two of the actions 10 I had reference to, not the totality of the 11 actions I had reference to. 12 Question: What factors or what 13 actions in the sentence at the first part of 14 paragraph 159 that says, the most immediate 15 impact on DRI of these combined actions was 16 that, as noted above, our sales of DR-DOS 5.0 17 dropped precipitously -- I think my question 18 was, what actions by Microsoft did you mean to 19 refer to with respect to the drop of DR-DOS 20 sales in the retail channel? 21 Answer: First was the preannouncement 22 of MS-DOS 5.0, and the continual feeding of the 23 marketplace with information, oftentimes 24 misleading information, in regard to that 25 product, its supposed functionality and 6299 1 features, pricing, and availability. That was 2 number one. 3 That began in April -- to the best of 4 my knowledge began in April of 1990, and 5 continued continuously right through the actual 6 shipment of MS-DOS 5.0 in -- when was it, March 7 or April of 1991? 8 Question: Yes. 9 Answer: And actually increased in 10 intensity during the summer of 1990 to the 11 point that we had analysts and writers that 12 were doing side-by-side comparisons of a real 13 shipping product that they had in their hands, 14 DR-DOS 5.0, against a paper mythical product, 15 MS-DOS 5.0, that they had never seen other than 16 somebody's paper description of it. 17 So that was number one, and that was 18 really significant. 19 Number two -- 20 Question: Can I just interrupt you 21 there for a minute? 22 Answer: Yes. 23 Question: I understood the time 24 period being addressed in paragraph 159 25 essentially to be the February, March, April, 6300 1 May time period of 1991. 2 Do you believe that announcements made 3 in that period by MS-DOS 5.0 of the product it 4 released in June of 1991 were wrongful? 5 Answer: The announcements that it 6 made in May of 1990? 7 Question: No. 8 Answer: April of 1990? 9 Question: March, April, May of 1991. 10 Answer: I'd have to go back and look 11 at those specifically. 12 Question: I'm talking about 13 essentially the three months before the product 14 was ultimately released. 15 Answer: I'm not trying to be 16 argumentative, and I apologize. 17 As they got closer and closer to the 18 actual shipment dates -- and I guess you're 19 right. It was more than a year after they 20 initially announced it. 21 As they got closer and closer to the 22 shipment dates, their stated claims began to 23 converge on what the actual product was. 24 So sometime prior to June I would 25 presume that their statements began to 6301 1 represent the actual product, rather than 2 things that never showed up in that time frame. 3 Question: So that's one action that 4 you think caused the retail sales of DR-DOS 5 that started up in around -- I think nine 6 months. 7 By the first quarter of 1991, you were 8 beginning to have some sales of -- retail sales 9 of DR-DOS 5.0. So I understand the first 10 action you are saying caused them to drop in 11 the first and second quarter of 1991 were the 12 preannouncements back in 1990? 13 Answer: No. The preannouncements in 14 1990 set the stage for everything else. 15 So it resulted in a slower rampup than 16 what we would have otherwise seen. 17 It took -- it took a long time for 18 that to wear off, because the market initially 19 believed those preannouncements that said it 20 was going to ship before the end of 1990. 21 Corporate does a three- to six-month 22 evaluation of a product before they do any 23 significant buys. 24 So if they're looking at evaluating a 25 product that we began shipping in June of 1990, 6302 1 and they believe that Microsoft is going to 2 have a comparable product in the marketplace by 3 December of 1990, they aren't as -- they aren't 4 going to be any near as rapid or as diligent in 5 the evaluation and decision process on that 6 Digital Research product until the Microsoft 7 product really comes to market. 8 Now, if they believed -- and in May, 9 June of 1990 -- that that product wasn't really 10 going to hit the market until June, they would 11 have bought. 12 So we were just beginning to see -- so 13 the marketplace by the January to March time 14 frame of 1991 had concluded that all of this 15 was a ruse, that it wasn't going to ship until 16 well after that, and there was still 17 speculation that it might ship in March, that 18 it might ship in June, and speculation that it 19 might ship beyond. So we were starting to get 20 the penetration we wanted earlier. 21 Question: I want to be clear that 22 what you are telling me as your first point is 23 that the cause for the drop of those sales -- 24 and you've got the graph I think on page 62 -- 25 Answer: Right. 6303 1 Question: -- that the drop shown 2 there that you're writing about, one of the 3 factors that caused that was the 4 preannouncement by MS-DOS in the spring of 5 1990. 6 Answer: One of the factors that made 7 their actions that occurred in the March, 8 April, May time frame so impactful was that 9 preannouncement. Absolutely right. 10 Question: And were their actions in 11 the March, April, May time period that made 12 that so impactful the fact that they were 13 actually on the verge of releasing MS-DOS 5.0? 14 Answer: Yes. 15 Question: Tell me what the next 16 factor is, or action. 17 Answer: The primary action then -- 18 the next primary action was the way in which 19 they brought it to market. 20 Question: Can you tell me what the 21 specifics are that you have in mind? 22 Answer: Yes. 23 They went to the distributors in the 24 April -- early May time frame and said, we are 25 about to begin shipping MS-DOS 5.0 and as 6304 1 you've seen from our recent product 2 introductions, you can anticipate you're going 3 to put a lot behind this product launch, and 4 you ought to anticipate extraordinary customer 5 demand for it. 6 And the recent product launch that 7 they referenced to Ingram Micro D and others, 8 and referenced to me by them, was the MS-DOS 9 3.0 launch a year previous. 10 MR. HILL: The Windows 3.0? 11 Answer: The Windows 3.0 launch that 12 they did in May of 1990. 13 So they said, we anticipate 14 significant demand. We don't believe we're 15 going to be able to meet that demand, so we're 16 going to have limited product availability. 17 So we automatically put all of you 18 distributors on allocation. Here is what your 19 allocation is, Softsell. Your allocation, 20 Corporatesoft, et cetera. 21 And, universally, if they believed -- 22 what they told me, if they believed they could 23 achieve the kind of levels of unit shipments 24 with MS-DOS 5.0 that they achieved with -- or 25 that Microsoft achieved with Windows 3.0, that 6305 1 allocation wouldn't be enough. 2 So Microsoft said, before you can get 3 additional product beyond that allocation, you 4 have to come back and prove to us that you have 5 sold out that allocation on a presold basis. 6 And this was more than a month after 7 -- before -- they were actually going to begin 8 shipping the product. 9 Secondly, what they did is they said, 10 we want you, through market development funds 11 that would be associated with this product 12 launch, to dedicate your in-house sales 13 personnel, as well as your out-house sales 14 personnel, to this product. 15 Take them off whatever else they are 16 doing, and we would like you to start those 17 actions at least -- I think it was like 30 days 18 before the actual availability of that product. 19 So, universally, they then shifted 20 their resources from selling DR-DOS. And all 21 of a sudden we began finding that retailers 22 would call in to the distributors requesting 23 DR-DOS. And the person on the phone would try 24 to shift that sale to MS-DOS instead, because 25 his incentives for selling MS-DOS were greater. 6306 1 Question: Do you recall which, if 2 any, distributors you specifically raised that 3 issue with? 4 Answer: I did with Ingram Micro D. 5 Question: Who there? 6 Answer: I can't remember all the 7 people. 8 Question: Do you recall any people? 9 Answer: Chip Lacy. 10 Question: Do you recall what Mr. Lacy 11 said about it to you? 12 Answer: He was upset, but he wasn't 13 surprised. 14 Question: You said there was one more 15 action that you wanted to reference. 16 Answer: There was an additional 17 action, which was Egghead Software. Egghead 18 Software by that point in time was a good 19 reseller of DR-DOS. Egghead Software called us 20 and told us they were no longer going to carry 21 our product. 22 Egghead came to market with the MS-DOS 23 product at a $39.95 price, which my 24 understanding is, it literally sopped up about 25 50 percent of the market demand for that retail 6307 1 product over that period of time. 2 MS. CONLIN: Oh, it goes on. 3 That's the paragraph 156 and 157. 4 Your Honor, this would be a good time 5 for us to take our afternoon break. 6 THE COURT: 10-minute recess. 7 Remember the admonition previously 8 given. 9 (A recess was taken from 1:09 p.m. 10 to 1:22 p.m.) 11 THE CLERK: All rise. 12 THE COURT: Please continue. 13 (Whereupon, the following video 14 resumed playing to the jury.) 15 Question: Do you recall being told by 16 any of the distributors that the reality for 17 what was happening in the market was that there 18 was customer demand for MS-DOS 5.0 and not 19 customer demand for DR-DOS 5.0? 20 Answer: Nobody specifically said that 21 to me, no. 22 Question: Was it reported by any of 23 your people that they were told that by 24 distributors? 25 Answer: I don't recall that. You've 6308 1 got a product that is at -- a Microsoft product 2 with Microsoft behind it. That generates 3 demand regardless of what the product is, and 4 regardless of the status of that product, or 5 regardless of its competitive advantages or 6 disadvantages to a smaller company's product. 7 I oftentimes had -- in specific answer 8 to your question -- I oftentimes had 9 particularly -- actually, both OEM and retail 10 distribution executives tell me -- outside the 11 company -- telling me that one of the things 12 that -- one of the real obstacles was this huge 13 machine behind Microsoft products, that the 14 volume of the products that they were moving 15 was such that an OEM could not ignore them, and 16 could not -- not take that into consideration, 17 and likewise, a distributor or a reseller could 18 not either. 19 Question: Let me show you, 20 Mr. Williams, what's been marked as Exhibit 21 1578. 22 It appears to be a memo to you from 23 Dave Valentino dated May 30, 1991. 24 Answer: Yes. 25 Question: It says, discussion topics 6309 1 for Ingram meeting. 2 Answer: Yes. 3 Question: Do you recall from time to 4 time having meetings with Ingram? 5 Answer: Absolutely. 6 Question: And Merisel? 7 Answer: Absolutely. 8 Question: Do you recall Mr. Valentino 9 reporting to you or giving you information in 10 advance of these meetings? 11 Answer: Oh, absolutely. 12 Question: If you look at the second 13 paragraph on the page 1 of this memorandum, it 14 says MS-DOS 5.0 impact. The first sentence 15 reads, as soon as IMD -- is that Ingram? 16 Answer: Ingram Micro D. 17 Question: -- and Merisel were allowed 18 by Microsoft to take back orders on MS-DOS 5.0, 19 we were literally blown out of the water. 20 Do you recall Mr. Valentino telling 21 you that Ingram and Merisel had reached a point 22 where Microsoft allowed them to take back 23 orders, and once that happened, you were blown 24 out of the water? 25 Answer: You are concentrating on the 6310 1 word allowed, and I'm not sure of the 2 significance of the word allowed in my 3 discussion with Valentino. 4 But he certainly indicated that once 5 that program was put in place by Microsoft with 6 Ingram Micro D and Merisel, that we were 7 literally blown out of the water. 8 Those words -- those words very likely 9 are the way he described it, and I do recall a 10 memo like this. 11 This was in anticipation of me going 12 down and meeting with two or three of their 13 vice presidents and Chip Lacy. 14 Question: It says, similar as above 15 expect, and then it says Merisel took a 16 wait-and-see attitude with us, but went crazy 17 with MS-DOS. Why are we second-class citizens? 18 Do you recall Merisel taking a 19 wait-and-see attitude with MS-DOS? 20 Answer: I don't recall. 21 Question: Again, this is 22 Mr. Valentino's phrase, they went crazy with 23 MS-DOS. I assume that meant that they became 24 very aggressive in the promotion of MS-DOS. 25 Answer: I presume that's what he 6311 1 meant. 2 Question: Did the impact of MS-DOS 3 5.0 in the retail channel and in the OEM 4 channel and the consequences for DRI accelerate 5 or motivate in any way DRI in its discussions 6 with Novell? 7 Answer: It precipitated those 8 discussions, from my perspective. 9 Question: Do you recall when was the 10 first time you had a conversation with 11 Mr. Noorda about such a merger? 12 Answer: The first time I had any 13 discussion with Mr. Noorda about the 14 possibility of a merger? 15 Question: Yes. 16 Answer: Okay. 17 It would probably have been in the 18 November 1990 time frame. 19 Question: Did the discussions proceed 20 along a course from that point? 21 I'm trying to ask, was that a 22 discussion that didn't go anywhere, but was 23 picked up later, or was that a start of the 24 progression of discussions? 25 Answer: It was the start of a 6312 1 progression of discussions that then were cut 2 short at the time for totally unknown reasons, 3 and then were restarted months later. 4 Question: Were they cut short by you 5 or by Mr. Noorda? 6 Answer: I believe they were cut short 7 by medical problems that beset Mr. Noorda, and 8 that's what he and Darryl told me later as 9 well. 10 Question: When he had his medical 11 problems, was there anyone else at Novell that 12 picked up the discussions, or did they wait for 13 him to get back? 14 Answer: Novell was Mr. Noorda. 15 Question: Do you know if the joint 16 venture with Unix was an alternative way for 17 Mr. Noorda to address the kind of issues he 18 talked with you about? 19 Answer: Well, I never completed -- 20 you asked why Ray Noorda was interested, and I 21 gave you the first reason. I never completed 22 everything that he had told me. 23 In the context of that first reason, 24 that certainly had something to do with it. 25 I don't think that was the primary 6313 1 reason for the discussions with the formation 2 of Univel, or the formation of Univel. 3 One of the things that Novell was 4 always really, really good about in that time 5 frame, or prior to that time frame, was this 6 working with both partners and competitors to 7 the benefit of the customer, and getting all 8 that software to work together. 9 That was one of the things that I 10 found very attractive about both working with 11 Novell and merging with Novell; that Ray really 12 looked out for, how the heck is this going to 13 work better from a customer point of view, and 14 put in place things that were really costly to 15 Novell to make that work. 16 So I really believed that he was very 17 sincere in all of those discussions he had with 18 Microsoft in really trying to get the client 19 and server to work together. 20 And I think he was genuinely -- I know 21 he was genuinely frustrated at not being able 22 to do that, and that that was a driving 23 motivation behind the merger. 24 It wasn't the only motivation, but it 25 certainly was a driving motivation. 6314 1 Question: Did you give any 2 projections to Novell, or other materials, 3 about DR-DOS's business as part of the 4 consideration before a merger offer was made? 5 Answer: Well, there never was a 6 serious offer made until that July time frame. 7 So, yes, we certainly did. 8 I don't recall specifically when we 9 did that, but we certainly did. 10 I don't recall if I did in that 11 November time frame, because that was just a 12 meeting or two in November, and then subsequent 13 phone calls. 14 We certainly did in the April, May 15 time frame -- April, May, June time frame -- 16 when I was able to reinitiate those 17 discussions. 18 Question: Did you ever prepare 19 something like a business plan for your product 20 that you gave to Novell in advance of the 21 merger for them to review and consider? 22 Answer: I certainly gave them access 23 to -- I perhaps gave them copies of what you 24 would probably consider to be business plan 25 documents or business projections. 6315 1 I don't recall specifically. I do 2 remember -- I do remember meetings late in that 3 process putting together a strategy review or a 4 business plan review that we presented to 5 Novell. I believe we did it up at Josh 6 Greenberg's office. 7 Question: Do you recall what the 8 format -- 9 MR. HILL: Josh Green. You said 10 Greenberg. 11 Question: Who is Josh Green? 12 Answer: He was our outside counsel at 13 the time. Wilson, Sonsini was our standard 14 outside law firm for securities matters, and 15 Wilson, Sonsini, of course, was the lead 16 outside legal counsel for Novell. And Pete 17 DiCorti and I didn't feel it was appropriate 18 that they represent both of us. 19 Question: Did a Windows strategy for 20 the merged companies ever become clear to you? 21 Answer: Oh, yes, absolutely. 22 Question: What was the Windows 23 strategy of the merged companies? 24 Answer: Number one was, to the very 25 best of our abilities, cooperate with Microsoft 6316 1 in that we believed that from our perspective, 2 Novell's perspective -- I certainly believed 3 that the best of all worlds would be for the 4 Windows product from Microsoft to be broadly 5 available, and available to Novell such that we 6 could fully support it. That was number one. 7 Number two, an alternative to that was 8 this -- what did you call it, Star Trek? 9 Question: Yes. 10 Answer: -- was the Star Trek thing 11 with Apple, which was to provide an alternative 12 to Windows that would satisfy the market's 13 desire for that, or an enhanced level of 14 functionality in a product that would be more 15 generally available. 16 Question: Did Novell ever develop an 17 overall business plan for the development of 18 DR-DOS as a product? 19 Answer: Yes, they did. 20 Question: Were you involved in the 21 development of that business plan? 22 Answer: I was very involved in the 23 development of that business plan up until my 24 departure. 25 Question: Based on your experience, 6317 1 did Novell implement the business plan that you 2 saw in a way that you had anticipated? 3 Answer: No. 4 Question: Have you ever heard any 5 present or former DRI employee say that Novell 6 management of DR-DOS essentially killed the 7 product or shelved it or buried it? 8 Answer: I said that. 9 At the time I believed that was true. 10 From subsequent events, subsequent knowledge 11 that I've gained, I've concluded that 12 regardless of what Novell did to manage or 13 mismanage DR-DOS, it probably would not have 14 had much effect. 15 Question: In attempting to integrate 16 into the company, did you find any 17 institutional difficulties or barriers to the 18 integration of two barriers? 19 Answer: The barrier I found was -- 20 Novell people are wonderful people. You live 21 up there, and you know them. 22 The workers, in particular. They are 23 wonderful people to work with. 24 So there were really no barriers 25 there, except through these time periods -- 6318 1 excuse me. 2 After Ray giving me the direction and 3 he and I agreeing to do this, he came around my 4 back and told those folks don't do that. 5 So there was clearly another agenda 6 running there, or another consideration there 7 that I wasn't privy to at the time. I never 8 found out what it was all about, which 9 disturbed me greatly, but that was the real 10 problem. 11 So I would -- I sent my folks off on 12 -- they found a product called Panther or 13 something, and a couple different products. 14 We all within Digital Research just 15 really believed in it, and the development team 16 within Novell really believed in it. And once 17 I headed up the sales team for Novell, the 18 sales team came to believe in it. Corporate 19 accounts believed in it. 20 So we were hell bent on doing it, and 21 we kept getting stopped. 22 Of course, subsequent events told me 23 the reason it was stopped was merger 24 discussions between Novell and Microsoft that 25 would preclude us from doing that integration 6319 1 until those discussions were over. 2 Question: When did you -- at what 3 point in time were you having the discussions 4 with the development team and the sales team 5 where you thought they got excited? 6 Answer: From the day we announced the 7 merger. 8 Darryl and I announced the merger on 9 July 27th or something like that, July 27th, 10 1991, and Darryl and I immediately set off on 11 an around-the-world tour visiting all the major 12 sales offices and development facilities for 13 Novell and Digital Research. 14 I mean, the merger was greeted with 15 universal applause in that process. 16 Then later on Ray joined us for some 17 of those meetings, and we met with customers, 18 and the customers were ecstatic for the reasons 19 I stated earlier, and really wanted that 20 integration. 21 The customers were -- the Novell 22 customers were requesting DR-DOS. The Digital 23 Research customers were requesting NetWare, and 24 they wanted that to be supplied through their 25 existing salesmen or under their existing 6320 1 supply agreements and all of those things. 2 Question: Do you recall specific 3 instances of OEMs, as a result of this visit, 4 ordering DR-DOS, or agreeing to a DR-DOS 5 license as part of that effort? 6 Answer: As a part of which effort? 7 Question: I understood you to say 8 that when you made these visits, the Novell 9 customers were ecstatic and ordered DR-DOS. 10 Answer: No. They wanted it, see, but 11 remember now, almost immediately after the 12 announcement of the merger, Ray came to me and 13 said, Dick, keep them separate. You run your 14 business and I'll run my business, and we'll 15 come back together on October 28th. 16 We came together October 28th. I 17 became executive of worldwide sales for Novell 18 and general manager of the Digital Research 19 systems group, and I set off on that mission 20 again. 21 Beforehand, the customer universally 22 said, give me the product. Give me the 23 product. Well, we're two companies. You have 24 to get this one from Novell. 25 We did do a deal of bundling NetWare 6321 1 Lite with DR-DOS that I think might have been 2 available during that period of time through 3 us, but that was about it. 4 And then from October 28th on the 5 customers universally said, give us the 6 product. Let us write a single contract. 7 Include it over here. 8 And the sales force -- all of which 9 reported to me now -- both of which reported to 10 me now -- let me write that contract. Let's 11 just do it together. 12 I can remember a specific instance 13 with Dell where the Novell OEM sales guy 14 working with the DRI OEM salespeople -- Michael 15 Dell and his whole team put together a proposal 16 whereby Dell was willing to license DR-DOS, and 17 wanted to license it across a broad range of 18 his products. 19 He had a basic problem in that he had 20 a per processor license agreement with 21 Microsoft that said he was going to pay 22 Microsoft for every processor of a given type 23 that he shipped, no matter whether he shipped 24 the product or not. 25 So he had a pricing challenge, but I 6322 1 was perfectly willing at that point in time, in 2 order to penetrate Dell, to do a zero price 3 deal. 4 Question: Did a zero price deal ever 5 get done with Dell? 6 Answer: I don't believe it ever did. 7 Question: Did you offer zero price 8 deals to other OEMs? 9 Answer: I don't recall off the top of 10 my head, but I would have been willing to, for 11 an OEM such as Dell, in order to gain that 12 major OEM that you and I talked about earlier. 13 Question: And I gather from your 14 earlier testimony that during this period you 15 were not able to get a major OEM to license 16 DR-DOS? 17 Answer: That's right. 18 Question: Let me show you what's been 19 marked as Exhibit 1579, which is a memo to you 20 from Wayne Johnson dated March 14th, 1991, on 21 state of technical support. 22 He begins, attached are the latest 23 technical support stats. Of urgent concern is 24 DR-DOS support, and then down at the bottom it 25 begins GPOS technical support. 6323 1 That would be DR-DOS technical 2 support; correct? 3 Answer: Right. 4 Question: It says, this group has 5 experienced a steady increase of the average 6 daily rate of calls since the release of DR-DOS 7 5.0. 8 They passed the burnout level for the 9 first time in January, as you can see. 10 February was even worse. Brad Kerth's memo is 11 indicative of the climate of staff morale. The 12 quality of our support in GPOS has declined to 13 an unacceptable level, and so forth and so on. 14 Do you recall that being brought to 15 your attention in about that time frame? 16 Answer: I absolutely do. 17 Question: Do you recall that that 18 problem persisted at DRI up through the time of 19 the merger? 20 Answer: It persisted at various 21 levels. It wasn't always constant at that 22 level. We added staff rather aggressively in 23 the time frame of this memo. And, of course, 24 that was part of the purpose of this memo. 25 I don't recall if I requested the 6324 1 analysis that led to this or not. 2 Wayne was a very responsible guy, and 3 he came to me, and I absolutely wanted that as 4 a key staff item to review. 5 We did add staff from that, and I 6 brought the level of support paying down, and 7 then, of course, as the product succeeded more, 8 it rose, and it was a continual challenge. 9 Question: Let me show you what's been 10 marked as Exhibit 424. 11 This is a memo of May 7th, two months 12 later. 13 It's not signed. It's to Dave 14 VanDaele, copy to you. Again, status of GPOS 15 technical support. 16 It shows -- if you look at the second 17 paragraph, it talks about a call load 18 increasing monthly. 19 The second paragraph says, other 20 factors to consider are the abandon call rate, 21 which is people who get tired of waiting for 22 customer support and get simply hang up. 23 The following are statistics for March 24 and April, and it shows for technical support 25 in March, 1,783 abandoned calls, and April 6325 1 2,451, and a similar increase for customer 2 service. 3 Two paragraphs down from there it 4 says, we are plagued every day with lots of 5 angry customers saying they are tired of 6 waiting in queue, and as a result want to 7 return the product. 8 Some of these people are so irate they 9 refuse to tell you the problem they were 10 experiencing. 11 As a result, the DR-DOS returns have 12 increased. 13 Do you recall -- over on the next page 14 in the third paragraph down that begins, this 15 company. 16 Do you see that? 17 Answer: Yes. 18 Question: This company has a bad 19 reputation of support, and we need to improve 20 our image on this area if we are to be 21 considered a serious contender against 22 Microsoft. 23 Between Sue Nageotte and myself, we 24 receive 15 irate individuals a day. 25 Do you recall hearing, again, that 6326 1 this was a growing problem in this time period? 2 Answer: Yes, I do. 3 Question: Was the fact that DRI 4 either had or was getting a bad reputation of 5 support of concern to you? 6 Answer: Absolutely. 7 Question: Did that situation improve 8 after the merger, if you recall? 9 Answer: Yes. It very definitely did. 10 Question: Let me show you what's been 11 marked as Exhibit 1392. 12 This is a memo from Jody Clifton to 13 you that provides the statistics for technical 14 support through October 25th, 1991. 15 If you look over on page 2, it has -- 16 there is a request for staffing people, which 17 she, I think, repeats, and it lists an increase 18 in abandoned calls. 19 The last two paragraphs read, the 20 above statistics mean that people are handling 21 more than they should be, and I'm seeing 22 burnout at an all-time high. 23 When callers do get someone, they 24 waste the first five to ten minutes saying they 25 were on hold for 30 minutes and cannot even get 6327 1 in for days or weeks. 2 As a result of this incredible work 3 load, morale is down. Peer to peer fighting is 4 occurring on a daily basis. We need to take 5 immediate action and hire more people. 6 Do you remember in the October time 7 period this being a continuing concern and a 8 request from Jody Clifton to hire more people? 9 Answer: Yes, I do. 10 Jody was very responsible -- is a very 11 responsible individual as well. 12 I should clarify this a little bit in 13 that during that time frame from -- what was 14 that first memo? March? 15 Question: Yes. 16 Answer: -- March through October, we 17 had, in fact, increased staffing. 18 We also went through the introduction 19 -- we also, throughout that period of time, 20 went through the introduction of DR-DOS, which 21 dramatically increased our volumes, and then 22 through the merger discussions wherein we 23 exchanged detailed financial information with 24 Novell. 25 So one of the things -- as well as 6328 1 then in anticipation of the merger, one of the 2 things we didn't want to do in that July 3 through October time frame was to add staff in 4 Monterey that might be redundant after the 5 merger, and that compounded Jody's problem. 6 Question: Do you recall hiring a 7 company called American Transtech to take 8 messages for technical support as an attempt to 9 solve this? 10 Answer: I don't recall that. 11 Question: Let me show you one last 12 memo, Mr. Williams. 13 This is Exhibit 433, a memo to you 14 from Jody Clifton dated November 19th, 1991, 15 which says, this is what is happening to date 16 regarding the technical support overload 17 problem. 18 One, we hired a company called 19 American Transtech in Florida to take messages 20 for technical support by having the eighth line 21 roll over to this number in Florida when all 22 the lines were busy. 23 They started this on Thursday 24 afternoon. I'm getting complaints from 25 customers about having the answering service 6329 1 take messages. I get anywhere from three to 2 five a day, in addition to the other irate 3 individuals I already receive. 4 What they are complaining about mainly 5 is not that someone is taking a message, but 6 they're told no one will return their call for 7 three to four days. 8 And then over on page 2, at the bottom 9 it says, we need to solve this problem as soon 10 as possible. We are losing a large market 11 share, and right now we are Microsoft's biggest 12 endorser. The majority of all the irate 13 individuals I speak with say they're going back 14 to Microsoft because at least they provide 15 support. 16 Do you recall hearing that from Jody? 17 Answer: No, I don't, and candidly 18 never saw this. 19 In the time frame, I had appointed 20 Pete DiCorti chief operating officer for the 21 Digital Research systems group, whatever you 22 call it. 23 At that time I was so involved with 24 the overall worldwide sales of Novell and 25 traveling between Provo and San Jose like we 6330 1 talked about earlier, as well as on a global 2 basis, that Pete and Joe were really running 3 this entity. So I couldn't be responsive to 4 you on that, but Pete or Joe would be. 5 Question: Do you recall on your last 6 day at Novell having a conversation with Jody 7 Clifton in which she said to you -- in which 8 you said to her you were right, we should have 9 hired more people in technical support? 10 Answer: I don't recall that. 11 Question: I gather from our earlier 12 questions today it would be fair to say that in 13 terms of the total product, technical support 14 is one element which, if this was happening, 15 would be harmful to the offering a superior 16 product to MS-DOS? 17 Answer: There's no question about 18 that. 19 In fairness, in that time frame, 20 throughout most of that time frame, I believe 21 our customer support was equal to or better 22 than Microsoft's for those products. 23 Certainly, Microsoft has dramatically 24 improved their customer support since then. I 25 give them full credit for that. 6331 1 I also -- although I don't recall this 2 thing with Jody Clifton -- in retrospect, just 3 in the context of the people impact, I would 4 have spent more on customer support even at the 5 risk of the financials. 6 Question: Do you recall having any 7 discussions with Mr. DiCorti about DRI using a 8 per processor license agreement to fight 9 piracy? 10 Answer: It's not inconceivable that 11 we would have had such a discussion. 12 I don't believe a per processor 13 license agreement dissuades piracy to any 14 significant extent, however, and we didn't 15 employ them -- from my perspective we didn't 16 employ them to do such. We did other things 17 instead. 18 Answering your -- completing the 19 answer to an earlier question of where would it 20 be reasonable for an OEM to have a license 21 agreement with us on one processor range and 22 Microsoft on another processor range -- I think 23 that was the gist of where you were going. 24 Question: I was asking if they could 25 conceivably have a per processor license that 6332 1 did that. 2 Answer: I certainly thought it was 3 conceivably possible. I don't recall that we 4 ever achieved that. 5 And when we got into the detailed 6 discussions with Samsung and Hyundai and 7 others, particularly in Korea, they ended up 8 coming back to us saying can't do it. 9 Question: Did you ever see any 10 written documentation from Microsoft to that 11 effect from the Koreans? 12 Answer: I honestly don't recall. 13 Question: For purposes of the 14 deposition, what I'm trying to understand is 15 whether you have personal knowledge or if what 16 you know about that subject was told to you by 17 others. 18 Answer: Well, I had had senior 19 executives from Samsung, Hyundai, and Trigem 20 tell me that to my face. 21 Question: But I guess the question is 22 -- 23 Answer: That's personal knowledge, I 24 think. 25 Question: Personal knowledge means 6333 1 did you ever see documents -- as I'm using it 2 means, did you ever see documents from 3 Microsoft setting out those requirements -- 4 ever see the licenses themselves or ever hear 5 from Microsoft executives that those were the 6 terms of the agreements? 7 Answer: I heard from a former 8 Microsoft executive that those were the terms. 9 Question: Are you aware of any 10 instance in which Microsoft intentionally made 11 Windows incompatible with DR-DOS? 12 Answer: Yes, I am. 13 Question: What instances are you 14 aware of? 15 Answer: There are beta versions of 16 Windows 3.1. 17 Question: Can you tell me 18 specifically what incompatibilities you think 19 were intentionally introduced into the Windows 20 beta by Microsoft? 21 Answer: There were two forms of 22 incompatibilities that they caused to exist. 23 One was by their refusal to provide us 24 access to the driver that would allow 25 implementation of DR-DOS with their unique 6334 1 memory management scheme within Windows 3.1, 2 which they, in fact, had provided us on 3.0. I 3 think it was called a VXE driver, which they 4 did, in fact, provide to other Windows 5 competitive products. 6 We weren't a Windows competitive 7 product, but they provided it to Quarterdeck 8 and others, either directly or through the beta 9 program. 10 They refused to provide that to us, 11 and that created some of what you would call 12 incompatibilities between the then-current 13 DR-DOS products and the beta of Windows 3.1. 14 Secondly, they, of course, like 15 anybody went through a series of beta releases, 16 and in one of their beta releases, all of a 17 sudden -- it might have been a first one or the 18 second or a later one -- all of a sudden a 19 message appeared whenever the user installed 20 DR-DOS with Windows 3.1. 21 Question: Other than those two -- 22 Answer: And then in a subsequent 23 release, in addition to the message, it 24 wouldn't allow you to load Windows on top of 25 DR-DOS. 6335 1 It required you to install Windows 3.1 2 on MS-DOS, and then replace MS-DOS with DR-DOS 3 in order to get it to run. 4 And then in a subsequent release, it 5 just flat out crashed the system and gave you 6 no work around -- allowed you to work around. 7 Question: Did you personally perform 8 those -- run those operations, or were those 9 reported to you by others? 10 Answer: They were reported to me by 11 others, and I observed those operations and 12 those actions literally over the shoulder of 13 somebody doing it. So I did personally observe 14 it. 15 Question: You testified that at one 16 point either Microsoft simply didn't send you a 17 Windows 3.1 beta or the driver associated with 18 it, or you asked and were refused. We talked 19 about that a minute ago. 20 Answer: We did talk about that a 21 minute ago. 22 Question: Did you disclose at the 23 time you asked Microsoft for a copy of the 24 Windows 3.1 beta that you were exploring the 25 development of a competing product in the 6336 1 Cutlass project? 2 Answer: No, I did not. 3 Question: Do you think if you had, 4 that Microsoft would have regarded that as a 5 relevant piece of information to be given in 6 connection with the request for a Windows 3.1 7 beta? 8 Answer: In the context of my request, 9 it was immaterial, in that Microsoft refused 10 our requests for any access to the VXE driver 11 that they were, in fact, giving to competitors 12 of Windows. 13 So since they were giving it to 14 then-existent competitors, and obviously future 15 competitors of Windows, it shouldn't matter 16 whether or not we should become a Windows 17 competitor. So it didn't appear to me to be 18 relevant, number one. 19 Number two, in my discussions with 20 Mike Holman, I was willing to take the VXE 21 driver or the Windows driver under any 22 circumstances that he dictated, under any 23 conditions, any requirements, limitations, you 24 name it, that he would dictate, and 25 consequently he could have created inside DRI 6337 1 or outside DRI any environment that would have 2 given him absolute assurance that he would 3 never be susceptible to loss as a result of 4 that. 5 Question: Did you disclose to 6 Microsoft that you and Novell were considering 7 or looking at the Star Trek project with Apple 8 at the time you made the request for a beta 9 product, the Windows 3.1 beta? 10 Answer: I don't know if that was even 11 coincident. But, no, I did not. 12 Question: Do you know if Novell 13 received a copy of the Windows 3.1 beta? 14 Answer: They received multiple copies 15 of the Windows 3.1 beta. 16 You have to remember that 3.1 beta was 17 paper to the world. I think there were some 18 35,000 individual recipients of the 3.1 -- 19 official recipients of the 3.1 beta -- and 20 since there were at least three betas, that 21 means at least 100,000 copies of it were out 22 there, probably more. 23 There were multiple copies that were 24 distributed to Novell under their beta 25 agreement, initially having no conditions that 6338 1 would have limited access to that -- of the 2 beta to Digital Research or former Digital 3 Research employees. 4 MS. CONLIN: That concludes 5 Mr. Williams' deposition, Your Honor. 6 And at this time Plaintiffs would 7 offer the exhibits, Plaintiffs' exhibits, used 8 in connection with that. I've given the Court 9 both a hard copy and a disk as well as a 10 rulings chart. 11 MR. GREEN: Your Honor, subject to the 12 December 7th, 2006 ruling, and I guess we have 13 copies of them, Microsoft has no objection. 14 THE COURT: They are admitted. 15 MR. GREEN: And, Your Honor, the 16 Defendants would like to offer Exhibit -- 17 Defendant's Exhibit 131 and 1561, which were 18 referred to in the deposition. 19 THE COURT: 131 and 1561? 20 MR. GREEN: That's right, sir. And I 21 have copies for everybody. 22 THE COURT: Any objection? 23 MS. CONLIN: No, Your Honor. 24 THE COURT: The following exhibits 25 are, therefore, admitted. 6339 1 Plaintiffs' Exhibits 5071, 5224A, 2 5247, 5259, 5267A, 5275, 5284, 5406, 5415, 3 Defendant's Exhibits 131 and 1561. 4 All are admitted. 5 MS. CONLIN: Thank you, Your Honor. 6 MR. GREEN: Thank you, Your Honor. 7 THE COURT: At this time rather than 8 start another deposition, is it okay to dismiss 9 the Jury early? 10 MS. CONLIN: Yes, Your Honor. 11 MR. GREEN: Yes, Your Honor. 12 THE COURT: Members of the jury, I'm 13 going to dismiss you for a lengthy break. 14 Please remember the admonition that 15 was given to you. 16 We will meet back again on January 17 4th, 2007, 8:30 a.m. 18 We will start a new schedule with the 19 day ending at 3 p.m., same time period for 20 lunch, two 10-minute breaks, one in the 21 morning, one in the afternoon. 22 I'm sure I'm speaking for everyone 23 here that the parties, attorneys, court staff, 24 and myself want to wish you all a very joyous 25 holiday break, Merry Christmas, and a happy and 6340 1 healthy new year, and I'll see you in January. 2 All rise. 3 (The following record was made out of 4 the presence of the jury at 2:03 p.m.) 5 THE COURT: I don't think there's any 6 other business. 7 MS. CONLIN: We do have one, Your 8 Honor. 9 THE COURT: I was wrong. 10 MS. CONLIN: Ms. Nelles has very often 11 objected to anything that I say to the Jury 12 that I do not preclear with Microsoft. Yet Mr. 13 Tulchin has a tendency to speak directly to the 14 Jury on numerous occasions without seeking 15 anybody's preclearance. 16 It seems to me as though the rules 17 ought to apply equally, whatever they may be, 18 and I'm happy to go either way, but I'm really 19 hoping that we can set up some kind of a system 20 that applies to both -- to all the attorneys. 21 THE COURT: Well, I think what she was 22 talking about was making any comments about the 23 evidence or anything, but I have no problem 24 with a rule where we shouldn't talk to the 25 jurors, so that's fine. 6341 1 MS. CONLIN: All right, Your Honor. 2 MR. TULCHIN: I think the record 3 should reflect, Your Honor, the only thing that 4 happened was that I just said happy holidays, 5 and, for that, if that's a problem, I apologize 6 to all. I didn't think it would be. 7 MS. CONLIN: That's not, however, the 8 only time that that has occurred. There have 9 been numerous offhand remarks and comments. 10 And as I said, Your Honor, it doesn't 11 matter as long as it applies equally to both 12 sides. 13 THE COURT: Well, we should try to 14 limit them, I guess. 15 MS. CONLIN: All right, Your Honor. 16 THE COURT: So that the Jury remains 17 impartial and unbiased. 18 Anything else? 19 MS. CONLIN: Yes, Your Honor. 20 With respect to the issue of the 21 website. The Plaintiffs take the position that 22 the transcripts -- the transcripts of these 23 proceedings are a matter of public record, that 24 exhibits offered and admitted into evidence 25 once admitted and videos once played are 6342 1 matters of public record. 2 Microsoft is issuing and posting 3 information and materials concerning this 4 matter very widely. 5 The Plaintiffs propose to build their 6 own website and post the transcript, daily 7 transcript, the videos after they are played, 8 the exhibits after they are admitted on it, 9 unless the Court orders otherwise. 10 We believe both the First and the 11 Fourteenth Amendment to the United States 12 Constitution permits this, as well as Iowa's 13 open courts and freedom of information laws and 14 rules. 15 However, we wouldn't want to do that, 16 Your Honor, without telling the Court and 17 Microsoft our plans and so we do that now. 18 THE COURT: Is this in lieu of any 19 court website which has yet to be put out? 20 MS. CONLIN: We've kind of lost hope 21 about that, Your Honor. 22 THE COURT: I'm supposed to meet with 23 Beth Baldwin tomorrow on that. 24 MS. CONLIN: All right. Well, we 25 believe that the Court -- I think the Court 6343 1 website can go forward or should go forward in 2 whatever way that it can, but we have looked 3 into the issue of a separate website accessible 4 in various ways that would have not just 5 exhibits, but also the transcripts and videos. 6 THE COURT: Okay. Anything else? 7 MS. CONLIN: No, Your Honor, not from 8 us. 9 THE COURT: Any response? 10 MR. TULCHIN: Yes, Your Honor. 11 This is being raised for the first 12 time on Thursday, December 21st, after the Jury 13 has been excused for the holidays. 14 I would very much like to have Ms. 15 Nelles address this, and I would hope that we 16 could do that on the 4th of January, 2007, and 17 that in the meantime this be deferred until 18 then. 19 We had no notice that Ms. Conlin 20 intended to raise this subject. 21 THE COURT: We'll address it on the 22 4th. 23 In the meantime, I will meet with 24 Ms. Baldwin. I will send you e-mails or 25 updates to both parties on what my conversation 6344 1 is with her as far as what the Court 2 administration, the information service, ISIS, 3 is able to do on that. 4 MS. CONLIN: Okay, Your Honor. 5 THE COURT: So I'm supposed to meet 6 with her tomorrow. I don't know what time, but 7 we do have a meeting. 8 Anything else? 9 MR. TULCHIN: Not from us, Your Honor. 10 MS. CONLIN: Not from us. 11 THE COURT: In that case then, I want 12 to wish the attorneys, all their staff, 13 parties, and everyone a very joyous, restful 14 holiday and vacation and Merry Christmas and 15 sincerely wish all of a happy, healthy new 16 year. 17 MS. CONLIN: Thank you, Your Honor. 18 MR. TULCHIN: Same to you, Your Honor. 19 Thank you very much. Hope you enjoy the 20 holidays. 21 THE COURT: I will try. 22 MR. HAGSTROM: Same to you, Your 23 Honor. Thank you. 24 (Proceedings adjourned at 2:08 p.m.) 25 6345 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 21st 19 day of December, 2006. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25