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Iowa Update - Allchin 2004 email: I'd buy a Mac if I didn't work for MS
Saturday, December 09 2006 @ 04:51 PM EST

Here's the latest report from the Iowa antitrust litigation, Comes v. Microsoft, Inc., being held in Polk County District Court. (Here's an article from the Des Moines Register back in 2002 that explains what is unique about this case -- consumers are being allowed to sue Microsoft directly under Iowa's own state Competition Law, whereas in other states only OEMs had standing to sue, and the remedy sought is money, not vouchers.)

We have excerpts from transcripts of Thursday's and Friday's sessions, including a 2004 email from Jim Allchin to Steve Balmer and Bill Gates in which he says Microsoft had lost sight of what customers need and that he himself would buy a Mac, if he didn't work for Microsoft.

Lead Plaintiffs' attorney Roxanne Conlin also continued with her opening statement, providing the rest of the 9 examples of anticompetitive behavior, including information this time about Microsoft's EDGI program, used to compete against Linux, and she mentioned also Red Hat's difficulty getting OEM's to preinstall Linux. She also talked about Real Networks, who will be providing an executive to testify for the Plaintiffs, and told the jury that she will be showing that the same tactics used against Netscape are being used against Real. Next, she talked about the death of the BE Operating System. And finally, she discussed the subject of spoliation of evidence. Many of you will find it interesting to learn about Microsoft's email destruction policies. It seems Gates has a technical assistant whose duties include making sure that Gates' email is destroyed weekly.

UPDATE: Some media coverage, Dec. 11, 2006:

  • Eric Lai, ComputerWorld: Microsoft, through its public relations firm, Waggener Edstrom Worldwide Inc., was unable to comment on the Allchin e-mail immediately.

  • Iowa's WOI-TV: Conlin took six days to introduce her case to the seven men and five women on the jury. She claims Iowans are owed about 330 (m) million dollars. Microsoft lead attorney David Tulchin, of New York, says no one in Iowa has been harmed by anything Microsoft did. He said the company's high market share in software products is the result of good products and low prices and not anticompetitive conduct....Conlin is expected to begin presenting evidence ... with a 10-hour deposition of Microsoft Chairman Bill Gates videotaped in 1998.

  • PC Pro: Microsoft confirmed on Friday that both Gates and Ballmer will give evidence in person. 'Unlike plaintiffs, we do not believe that jurors would be confused by permitting Mr Gates and Mr Ballmer to provide all of their testimony at one time and explain the birth and development of Microsoft and the PC and software industries,' associate general counsel Rich Wallis said in a statement.

  • Sioux City Journal: She [Conlin] raised allegations Friday that Microsoft executives intentionally destroyed documents, a charge the company denies.

    Judge Scott Rosenberg ruled Friday that Conlin must show some proof of the allegation before she can raise the issue before the jury again....The lawsuit was originally filed in 2000, after federal antitrust actions against Microsoft were settled. The Iowa case is one of two remaining state antitrust cases against the Redmond, Wash.-based software manufacturer to make it to court. The other is in Mississippi.

  • Jim Allchin's blog: "Taken out of context, this comment could be confusing. Let me set the record straight: This email is nearly 3 years old, and I was being purposefully dramatic in order to drive home a point. The point being that we needed to change and change quickly. We did."


*****************************

Thursday, December 7

There were two Microsoft motions decided: First, could Microsoft compare the value of its software to non-software items? Microsoft wanted to suggest to the jury that its operating system, word processing, spreadsheet, and office suite software are “good values” when compared to other non-software products or services. Microsoft attorney Rich Wallis had mentioned to the press that Microsoft’s products are good values when compared to a tank of gas or dinner at a restaurant because the software lasts a long time.

Plaintiffs’ counsel, Richard Hagstrom, argued that the relevant issue is what the products at issue cost and non-software products are not “substitutes” for the software. Judge Rosenberg agreed and held evidence about comparisons with other non-software products is irrelevant and will not be allowed.

Next came an evidentiary motion, with Microsoft wanting to preclude the plaintiffs from introducing evidence that was used in the US antitrust trial. The basis for its position was that it is collaterally estopped from attacking that evidence in this trial, so it would be unfair to let the other side introduce it, while Microsoft has to keep silent because of Judge Rosenberg's ruling that Microsoft can't relitigate those facts.

Plaintiffs' co-counsel, Richard Hagstrom, argued that they are not relitigating that evidence; rather they intend to use some of the underlying evidence to prove *other issues* in this case, such as in proving their damages claims. The judge, over Microsoft’s objections, ruled that the plaintiffs may use the underlying evidence for any other purpose but may not use the evidence to relitigate or support the established facts from the government case. He also made clear that Microsoft may not dispute the estopped findings.

Friday, December 8, 2006

On Friday, December 8, 2006 Court began with the jury at 8:45 am. Co-counsel Roxanne Conlin for the Plaintiffs continued her opening statement, this time telling the stories of Real Networks, BE, Linux, and spoliation.

The Real Networks story involved how Microsoft achieved near universal distribution of its media player by bundling it with Windows and then using contractual restrictions to make it even more difficult for PC makers to pre-install or promote competing digital media players such as Real Networks’ software. Mr. Richards, from Real Networks, is scheduled to testify for the plaintiffs. Ms. Conlin stated in the conclusion of her Real story:

The evidence will show that Microsoft is protecting the ABTE, applications barrier to entry, by engaging in the same conduct toward Real that it engaged in toward Netscape and with the same results.

The Be Operating System was fully multi-threaded and multi-tasking with memory protection built from the ground up to do advanced audio visual editing. Microsoft refused to allow the OEM’s to pre-load BeOS, Conlin recounted, or to put an icon on the desktop or load the boot manager to permit switching between OS's. Even with the strong support of its partner, Intel, just like what happened with DR-DOS and OS/2, BE OS failed to break the lock Microsoft has on OEMs. In 2001, Be dissolved. Conlin told the jury:

So again, the evidence will be that a product that some consumers would have chosen is gone from the marketplace. A product that offered unique capabilities still not present, still not present on Windows, never really had a chance. And the evidence will be that consumers are deprived of choice and innovation because Microsoft breaks Iowa's Competition Law.

The story of Linux: One of the biggest vendors is Red Hat, Inc., Conlin related. Red Hat is increasingly popular on servers. But Red Hat also wants OEM’s to offer Red Hat Linux preinstalled on PC’s. Ms. Conlin brought the story up to the present by discussing Linux in the developing world and Microsoft strategies against it:

This brings us to the present. We will prove Microsoft still has monopoly power in the operating system market. Microsoft is still charging monopoly prices, and class members do not have the benefit that competitive markets bring, including greater variety, better quality.

Linux begins emerging as competition to Microsoft in developing countries where governments and schools have decided to make technology purchases, Conlin continued, representing a direct threat to Microsoft:

In December 2001, the PM, prime minister, made a suggestion at the cabinet meeting that the Malaysian government should evaluate Linux and open source as an alternative platform. It seemed that PM had been influenced by very strong Linux supporters that Microsoft has too much technology monopoly in the government IT....

Government and school projects started considering Linux as a viable option to Windows on the desktop. Government saw a savings of around 10 million from Windows by going to Linux.

Microsoft learns of these plans:

The government in Malaysia is looking at Linux and an Office Suite because Windows and Microsoft Office are too expensive. When it learns that the government is considering -- what the government is considering, Microsoft Malaysia escalates the issue all the way to Bill Gates.

Conlin recounted how Microsoft developed a program called EDGI (Education Government Incentive) to respond to Linux and fight low cost or no cost competitors in these developing areas, to keep Windows pre-installed and stop the shipping of naked machines (machines without an OS). Microsoft, Conlin related, has represented that this a charitable program but internal Microsoft documents reveal it was exclusively a way to prevent these developing countries from using Linux instead of Microsoft products.

Ms. Conlin read from an internal Microsoft document on when EDGI was to be used:

“It is essential, therefore, that we use this only in deals we would lose otherwise. Bottom line, do our best to show the great value of our software to these customers and ensure we get paid for it. Under no circumstances lose against Linux before ensuring we have used this program actively and in a smart way.”

Conlin continued:

So EDGI has the added benefit to the outside world as appearing to be based on Microsoft generosity, but in fact the program is intended only for use where Linux is a threat.

What is EDGI? EDGI... is both a process for responding to large competitive threats and a source of funding to level the playing field between Windows and Linux when a deal involves the purchase of new PCs.

What is EDGI? There is no mention of any charitable purchase. This is about beating Linux. And it is not even limited to developing countries, and squarely, directly, and only for defeating competitors in the guise of benevolence.

Conlin's last story was titled spoliation. It was about how Microsoft has destroyed many e-mails that could have been incriminating. She showed several pieces of evidence to the jury, regarding the company's email practices:

This is Plaintiffs' Exhibit 7361. This is the job description for Bill Gates' technical assistant, and it says, it is a corporate policy not to make a permanent record of Bill's works.

This task of making sure there is no permanent record of Mr. Gates' work is left to this technical assistant. The job duties of the technical assistant require him to delete E-mail files from Mr. Gates' computer weekly.

Conlin also presented additional evidence from internal memos between executives:

Top Microsoft executives Brian Valentine and Jim Allchin in January of 2000 issue the following order to employees to delete all E-mail from their computers after 30 days.

This is Plaintiffs' Exhibit 6704, January 22, 2000, from Brian Valentine, senior vice president Windows division. “But we should really be using wise E-mail retention practices of keeping nothing older than 30 days of old E-mail. I mean this. Purge every 30 days.”

He says, “I personally only keep 15 days.” And then he sends them out a property page so they know that. “Get rid of it. Don't store it in PSTs. Don't keep it around. Just get rid of it.” And he tells them how to do that automatically.

This directive is issued weeks after the finding of fact in the government case which refer to so many E-mails in support of anticompetitive acts by Microsoft.

Valentine's order requires employees to get rid of all E-mail after 30 days no matter where it is. And it is unequivocal. Mr. Allchin, who is group Vice President, Platforms Product Group, approves of Mr. Valentine's order and sends another follow-up E-mail on January 23, 2000. This is Plaintiffs' Exhibit also 6704. He says, “being even more hard core, this is not something you get to decide. This is company policy. Do not think this is something that only applies to a few people. Do not think it will be okay if I do this, it hasn't caused any problems so far. Do not archive your mail. Do not be foolish. 30 days.”

Just days after this, Iowa class members filed this lawsuit, February 18, 2000.

Conlin completed her opening statement at 12:50. Co-counsel Hagstrom began his part of the Plaintiffs' opening statement. Hagstrom first began with a quote from Nathan Myrhvold, “There is a huge value to a monopoly, and we have the position and skills that it makes sense for us to shoot for it.” Hagstrom continued, “'Huge value to a monopoly', think about what that means.” Hagstrom reviewed the specific ways Plaintiffs believe that Microsoft harmed Iowans. He emphasized that “competition is good, monopoly is bad”. A good example:

Exhibit 7264. Almost three years ago, on January 7, 2004, Jim Allchin, the senior executive at Microsoft, sent an E-mail to Microsoft's top two executives, Bill Gates and Steve Ballmer, and the subject was losing our way.

Mr. Allchin says, I'm not sure how the company lost sight of what matters to our customers, both business and home, the most, but in my view we lost our way. I think our teams lost sight of what bug-free means, what resilience means, what full scenarios mean, what security means, what performance means, how important current applications are, and really understanding what the most important problems our customers face are. I see lots of random features and some great vision, but that does not translate into great products. He goes on to say, I would buy a Mac today if I was not working at Microsoft.

Hagstrom explained that they have several economic experts that will testify that Microsoft caused willful harm to Iowa consumers. The jury was dismissed at 2:25 pm and Hagstrom will continue his opening statement for the Plaintiffs on Monday, December 11, 2006 at 8:30 am.


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