We had a reporter there at the Novell v. Microsoft antitrust trial on Friday, and I gather it was quite a day. As you probably saw from the Salt Lake Tribune article we put in News Picks yesterday, the judge, U.S. District Judge J. Frederick Motz, had set aside five hours Friday to consider a Microsoft motion on whether to stop the trial now, on the alleged ground that Novell had failed to present a case. That kind of motion is typical after the plaintiff finishes presenting its case in most civil trials. What was different was that the judge took it seriously enough to even listen to extended oral argument. He does seem to have a Microsoft tilt, frankly.
By the way, Bill Gates is expected to testify on Monday. The trial is scheduled to continue on Monday, but the judge took the arguments on the Microsoft motion under advisement, and he could still rule to stop the trial if he wants to. And from all I've seen, he wants to. But if that happens, it won't be before Gates testifies. It seems Novell found a crucial bit of evidence that the judge was not expecting.
We at Groklaw continue to work on making the exhibits from the earlier
Comes v. Microsoft antitrust litigation accessible as text, and one has just been done that seems to dovetail with the current trial somewhat. I'd like to show it to you.
This is the judge who already ruled once for Microsoft on summary judgment, got overruled on appeal, and then decided to commute from the East Coast in Maryland to Utah, three-quarters of the way across the country, rather than let another judge handle this case after the appeals court ordered that it had to go to trial, which his order would have prevented. It's also the same judge who earlier in the trial told Novell, "We shouldn't be here and it's your fault."
The Salt Lake Tribune's Tom Harvey has the blow-by-blow, that includes this incredibly childish Microsoft bit:
Motz took under advisement arguments made Friday without the jury present on Microsoft’s motion to end the case at the halfway point after Novell finished presenting its witnesses and evidence.
That didn't quite make sense to me, in that either the judge took it under advisement, which means oral argument is finished, or it would continue on Monday. But our reporter fills in that bit. It's fascinating. It seems the judge almost shut it down, on the incredible grounds that unless then-Novell CEO Robert Frankenberg personally complained to Microsoft at the time about the API switcheroo in Windows 95, the other Novell employees that complained don't count and the trial was over. Tulchin, evidently, had told the court that Frankenberg never complained, and the judge believed him.
The five-hour hearing will be continued on Monday after Microsoft opens its defense, the judge said.
Gates is scheduled to testify Monday morning in the trial.
Tensions in the courtroom boiled over at the end of the Friday hearing when Jeffrey Johnson, the Washington, D.C., attorney who represents Provo-based Novell, asked who Microsoft’s first witnesses would be.
That prompted New York attorney David Tulchin, Microsoft’s lead trial attorney, to angrily tell Johnson he would not disclose that information because Novell attorneys had refused to do the same for Microsoft in the first half of the trial.
But lo and behold, up pops a Novell lawyer with the news that indeed there was such a high-level complaint. It wasn't in the record, because it was privileged, but if the judge would like to have it put in the record, they'd be more than happy to do so.
Hahahaha. Curses, I imagine the judge thinking, foiled again. Just kidding around. I have no idea what anyone is thinking, but it's hilarious no matter what he was actually thinking.
Here's our witness's report from Friday, part 1, by cpeterson, with part 2 still to arrive. There are some references made to cases, so I'll put links to them, or what I think they are, in the report:
Disclaimer: As you know from reading my reports in the past, I use quotation marks to show that something is being said, but I can't do word for word with precision, so I'm paraphrasing, as closely as I can manage, but this is not a transcript. I will do my best to be true to the spirit of the subject matter and to relate my experience of it. This isn't a battle between two lawyers, as I read this report. It's Novell having to paint a judge into a corner, so he can't do what he's apparently itching to do. That happens sometimes. I mean, what? He doesn't know about the baseball bat analogy? It's come up before specifically with respect to Microsoft, after all, yet he insists you can do whatever you feel like, even if you are a monopoly?
I'm going to start with the content of the slide that David Tulchin, representing Microsoft, ended on:
SEPARATE AND INDEPENDENT REASONS WHY JUDGEMENT SHOULD BE ENTERED FOR MICROSOFT:
When I arrived, Mr. Tulchin was using Intergraph v. Intel to illustrate the first point on the slide. (I didn't catch much of that, and now that I have read a summary bit of the case, I'm scratching my head and wishing I'd got in earlier.)
- Even a monopolist has no duty to share its intellectual property with a competitor
- Novell's claim falls outside the narrow exception of Aspen Skiing
- Microsoft did not terminate a profitable relationship with Novell
- Withdrawal of the Namespace Extension API was not anticompetitive in any event
- There was no harm to competition in the PC Operating Systems market
- Novell was betting on Windows 95 -- not Cross Platform
- Novell's "Franchise Applications" theory is counterfactual
- Novell's middleware theory is contrary to -- and completely unsupported by -- the evidence
- Microsoft's technical justifications are valid as a matter of law
- There is insufficient evidence of causation
Then, on the second point, Aspen Skiing v. Aspen Highlands Skiing was the case that he used; saying that Microsoft did have valid business reasons for withdrawing the Namespace Extensions API, and therefore falls outside the reasoning which led to an anti-trust conviction in that case.
On the third main point, "no harm", Mr. Tulchin didn't go to precedents, but straight to the evidence - that the developers testifying for Novell had admitted to *wanting* to develop a product for Windows 95, which, he says, means they "had no intention of creating a competitive product." Then, that since QuattroPro was never completed, even the PerfectOffice suite - the "Franchise Application" - never really existed, and therefore no act of Microsoft could possibly harm it. The "Middleware Theory", that the PerfectOffice suite would become a cross-platform environment capable of hosting applications which would be independent of the underlying operating system, was belied by the fact that no testimony was given indicating that there were applications for WordPerfect which rivaled the quantity of applications which were available for Windows. In fact, says Mr. Tulchin, there were several persons who testified that such a group of applications did *not* exist. ("Counterfactual" is Mr. Tulchin's favorite word, it appears.)
We went to the ski slopes again with Mr. Tulchin on the next point - Christy Sports v. Deer Valley - which he used to point out that even in the face of harm to a competitor, a business making a justified decision does not incur liability. Thus, the fact that the Namespace Extension APIs were flawed, and could cause the operating system to crash, was sufficient to preclude their withdrawal from Novell being actionable.
And, finally, proof of causation: Mr. Tulchin returns to the idea that since Quattro Pro was never finished -- it couldn't have been, because most of the developers left -- that in and of itself is evidence that the actions of Microsoft were not the cause of Novell's problems. On the other hand, he says, the only evidence of causation Novell gave was in the "but-for" world damage estimates of Dr. Warren-Bolton and Dr. Noll. Those, he says, are not evidence, but conjecture, and cannot be sufficient to withstand a motion for summary judgement.
(That's my summary of Mr. Tulchin's summary of over two and a half hours of argument. Wish You Were Here.)
Then, going second, responding to the Rule 50 motion, Jeff Johnson took the podium for Novell.
Mr. Johnson started out with an apology, stating that since this was a motion for summary judgment, Novell had prepared its response on matters of law. But, since Mr. Tulchin spent so much of his time arguing the evidence, he would try to address that as well.
His ire was up.
He started out his statement with an analogy about what anti-trust law is about: he said it's not about who wins or who loses, but about who can play. He likened it to a sports venue, with six gates onto the playing field -- five of which are owned by Microsoft. The question, he says, is whether Microsoft can also control the sixth gate.
He started with stating that Novell's intent was to compete. He then went on to show, from the transcripts and visuals, the evidence in the record showing Novell's actions in trying to put together a workable, and quality, product.
His next point was that Novell didn't know that Microsoft would stop cooperating. They didn't know that Microsoft was going to turn away from the course they had stated when they "evangelized" the new APIs to Novell.
Judge Motz, who had been fairly chatty with Mr. Tulchin, here interrupted Mr. Johnson, asking where there was any evidence that Robert Frankenberg, Novell's CEO, had complained to Microsoft about being cut out from the APIs. Mr. Johnson responded with a showing that other Novell witness had, indeed, been in touch with Microsoft raising the issue, but that was waved off by the judge. No, he demanded, I don't mean some low-level developer. If you can't show me evidence that the CEO even cared to ask for a response from Microsoft, then... (shrug, 'nothing I can do' palms up).
Mr. Johnson insisted that this appeared to be a technical issue, and the technical people were the ones who were handling it. Judge Motz again interrupts, indicating that the absence of Frankenberg's response is fatal to Novell's case. [PJ: See what I mean about this judge?]
One of the other attorneys passed a note to Mr. Johnson, who then said that Mr. Frankenberg *did* contact Microsoft. "Show me", says Judge Motz. "If that evidence isn't in the record, this case is *over*." There was a short conference at Novell's table, then -- I believe it was Mr. Schmidtlien -- rose and stated that Frankenberg *did* get in touch with Microsoft but that the emails were not in the record, because they were written by Novell's counsel, addressed to Microsoft's counsel, and were specifically about anti-trust concerns; and, being privileged communications, Novell has never had reason to believe Judge Motz would want or allow them on the record. However, he continues, if the judge so wishes, Novell can produce them on Monday morning.
Judge Motz makes a "stop" gesture with both hands -- "No, no, if they exist, then that's OK. I'll want to see them, but I applaud your not attempting to put privileged material into the record." (I'm holding a little bet with myself - I think Novell will at the least enter a motion to put those emails on the record, simply because during the above Mr. Tulchin had stood up and stated "There are no such emails - they don't exist." Then he quickly sat back down. Might Novell decide to make him object to the entry of the "non-existent" emails into the record?)
Mr. Johnson then attempted to resume his presentation about Microsoft's evangelism, and how it made Christy Sports v. Deer Valley inapposite, when he was again interrupted by Judge Motz asking, "Do you have any case where a defendant is required to share its intellectual property with a competitor?"
Mr. Johnson paused for a moment, then confided: "If Microsoft had come to us in '93, telling about the new APIs, and how wonderful they were, and how they were going to change everything, and then said '... and nyah, nyah, you can't have them', well, that would have been cold and venal and cruel, but it wouldn't have been actionable. They would have been within their rights to do that. But they didn't do that. They advised us -- pleaded with us -- demanded that we use the new APIs. That makes it different."
Judge Motz still seemed inclined to argue that there was nothing actionable about Microsoft doing whatever they want with their own intellectual property. Mr. Johnson said Novell isn't claiming they can't, and isn't claiming rights to Microsoft's IP. On the big screen then appears the appellate court's "baseball bat" analogy, and the Judge subsided for the moment.
I've got to get back to work - I will send part 2 of this cliff-hanger after a little while. There's more excitement to come!
Maybe there is nothing wrong with doing whatever you want with your own intellectual property in some alternate universe, but here in this one, as the U.S. Supreme Court wrote once on this exact subject, just because you own a baseball bat, that doesn't mean you can hit someone over the head with it. So there is a limit, even with IP.
[ Update 3: But deeper, can the judge find any cases showing that APIs *are* intellectual property? APIs are interoperability info, functional, not creative. Even in the Oracle v. Google litigation, with Oracle trying to insist that they are IP and hence protected by copyright, it's the arrangement of them that they are claiming might be covered by copyright, the interdependency with Java class libararies, and that there could be "creative elements", not that APIs in general are always protectable. And it offers no cases saying that APIs are protectable. Rather it argues against Google's case, Lotus v. Borland, which suggested that "even if code is expressive, it is unprotectable if it can be characterized as a 'method of operation'.” So I would turn the judge's question around.
I'd also point out that the EU Commission found Microsoft had abused its dominant position for refusing to share APIs with Samba, and they were forced to do so without royalties. And they did. There are rules for monopolists that don't apply to others, after all, precisely because they have the market sewn up. A refusal to share APIs thus makes middleware dead in the water, preventing competition in the market.
And how about this confession by Microsoft that APIs are not covered by copyright law? Yes. It's another exhibit from the Comes v. Microsoft collection, Exhibit 1796 [PDF], an internal Microsoft email from Paul Maritz to Brad Silverberg and Brad Chase, dated September 21, 1993:
We have a patent exchange agreement with IBM, and we have signed a side-letter with IBM that says for all time we consider the API's in our "operating systems" (past and future) to be not protectable under copyright law. Intriguing, is it not? - End Update]
And the Compaq exhibit I mentioned to you indicates to me, anyway, that the market knew very well that Microsoft played hard ball with competitors, particularly targeting Novell as a *competitor* at the time at issue, and that it was known that Microsoft would cut you off from early technical information that others got if you didn't play ball with Microsoft. I'll show it to you in a bit. I've read that there was even an Easter Egg in Word called "Squash Word Perfect Monster". Is Microsoft really pretending that it was not competing with WordPerfect back then?
This exhibit, #5572 [PDF] may refresh Microsoft's memory. It's a 3-page document entitled "Some Ideas on Exploiting Product Synergy in Word", by Mike Mathieu, Word Program Management, dated 7/1/93. The document comments on Microsoft's success in "steal[ing] significant market share away from WordPerfect", then suggests tighter integration with other programs or functions such as email and forms so that Word itself does not suffer the same fate as WordPerfect when faced with another competitor. The section "Hyper-integration with Excel and Office" on page 3 specifically suggests the possibility of using private interfaces. Obviously, WordPerfect was a competitor.
This exhibit [PDF] from 1997, reporting to Bill Gates on field tests of what to name the next Windows product, Windows 98 or Windows 5.0, includes this tidbit, that some reacted to the proposed name, Windows 5.0 by saying, it seemed
"backwards" - "why buy this when WordPerfect is already at 7.0"? So, the world still viewed WordPerfect and Windows' Word as competitors.
And this 1991 email, Exhibit 5238 [PDF] clearly talks about competing with WordPerfect. This is just before Novell purchased the product, but come on, Microsoft. History can't be rewritten as easily as all that. Even Stalin ultimately failed.
Microsoft viewed WordPerfect as its competition as far back as I can find, and here's a 1989 memo to Bill Gates and others, Exhibit 138 [PDF], from "T1 Task Force", dated Aug. 10, 1989, "RE T1 1990 Situation Analysis": "Word 5 (as well as Word for Windows) could face a serious threat from WordPerfect 5.1 and WordPerfect/PM (rumored to ship in the T1/T2 timeframe).... It is critical to launch our new applications well. Although many of the apps will be new, all will face stiff competition from the market leaders in the character-based world -- especially Lotus and WordPerfect -- who will almost certainly be releasing new versions during this time period." WordPerfect in 1990 was a "market leader" in Microsoft's eyes.
This Microsoft marketing plan [PDF] for 1991 says: "WordPerfect is carried in 90% of the top indirect outlets. WinWord is carried in about 55%." When Novell bought the product in 1992, the following year, it didn't change it being a competitor. The question is, why did it lose market share? Novell says it was Microsoft dirty tricks, and Microsoft of course says there's no proof that was the reason, even if it happened. There were other plausible reasons. But back then, it says it stole market share from Novell.
Update: I have the next part of cpeterson's report:
Continuing onward, again, Mr. Johnson tries to resume his presentation. He attempts to describe the link between the Hood Canal retreat documents and the October '94 Bill Gates email ordering the withdrawal of the APIs, when Judge Motz interrupts again. He wants to go back and talk about Frankenberg some more.
I definitely will try to get the transcript for this day after it is available. I'm flabbergasted myself, if this is even half accurate, and our reporters have generally proven to be more than half accurate. But as always, we have to wait for the transcript to be absolutely sure. But if indeed it's accurate, obviously you can see why the US legal system has a system of appeals. It's precisely for moments like this. But I'd also point out this exhibit, #2057 [PDF], an email from Bill Gates in March of 1994, in which he wrote to "Executive Staff":
He asks to be shown some of Mr. Frankenberg's testimony, relating to QuattroPro. Frankenberg had been shown an email about the majority of the QuattroPro developers resigning. (This is, I believe, an email from 23 Dec 1995) He had agreed that had happened, but that it didn't matter, because as the email said, development of QuattroPro was "basically done".
"There's your proof right there," says Judge Motz. "Frankenberg says it was basically done, and that implies, *not* done." He went on to reprise Microsoft's argument about the non-existence of the software suite which could have been damaged by Microsoft actions.
No, says Johnson, that's not the case. The portion of QuattroPro which wasn't complete was the Shared Code portion, which depended on the Microsoft APIs. Everything else was done; the core engine was not being substantially changed from the prior version of the product. The delivery of WordPerfect never was dependent upon the delivery of QuattroPro; even the PerfectOffice suite product didn't necessarily depend on QP delivery because they had -- as some development team members had testified -- a backup plan to ship PerfectOffice with a coupon for QP whenever it did become ready.
Well, where is your evidence, Judge Motz wants to know, that WordPerfect was designed to run on something other that Win95? How can you claim this is about competition in the operating systems market, if you're not marketing another operating system? What is that other operating system?
Novell's lawyers appear, by this time, quite flabbergasted. This is all about a version designed *for* Win95, and the judge says that if Novell can't prove that it was designed for something other than Win95, the whole case gets tossed out? Exchange of glances, shrugs, dismayed head-shaking...
Novell puts up a chart showing the numerous different versions of WordPerfect: for Dos, for Win3, Win3.1, OS/2, Unix, etc.
But, says Judge Motz, those are *earlier* versions. The evidence all says you just wanted a Windows 95 product. The developers -- Harral, Richardson, Gibb -- all testified that they loved the new technology. They wanted to marry their new product to it. Show me the new operating system which was going to be competitive, or else I just have to assume that Windows 95 won the market because it had superior technology.
Again Mr. Johnson contradicts Judge Motz, saying that for one thing, the "middleware" capabilities of WordPerfect make it, itself, the OS-replacement; or at least, the thing that would make the OS choice unimportant. Besides, says Mr. Johnson, that isn't a point we have to prove, because it's already been ruled on.
"If I say you have to prove it," says Motz, "then you have to prove it."
"That's why we have a thing called 'the law of the case'," responds Johnson.
Judge Motz slams both palms down on the desk, then points his finger at Mr. Johnson. "DON'T talk to me about 'law of the case'," he says. "When I ruled the way I did, I didn't have the evidence from Gibb, or Harral, or Richardson. If I feel like the new evidence says I was wrong before, then I'll say I was wrong. If I think the new evidence says the appeals court was wrong, then I'll say they were wrong. I can be wrong, but I don't have to *stay* wrong."
The civility in the courtroom suffered after that point. (On a personal note, I was shaking pretty badly -- the stress on top of no lunch -- and couldn't make a legible note after that.) However, since the proceedings thence became less "legal argument" and more like the layman's definition of "argument", my feelings of guilt over not bringing you a more complete blow-by-blow account are somewhat assuaged.
I will just say that at a number of points, Mr. Johnson had both of his fists clenched in his hair in an attempt to contain himself; Judge Motz, when he wasn't speaking, mostly turned away, using his hands to cover his face, and often his ears.
And just one other comment on the matter: during the interplay about Mr. Frankenberg's testimony, Mr. Johnson had the transcript up on the big screen reading it. It turned out that the majority of the transcript's content was Judge Motz's comments and that he and Frankenberg did not see eye to eye.
Then, the judge told Mr. Johnson "I'm going to order you to stop there." Johnson replied, "I agree, your honor, there is no need to get into the unfortunate comments on the next page."
Later, there were a couple of references by both Johnson and the judge to "Mr. Frankenberg's testimony prior to the unfortunate comments".
To end - I'll see if I can clarify the ending of the day's proceedings: they're not done. Argument on the Rule 50 motion will continue Monday morning, and Judge Motz will (may?) defer ruling on the motion until the completion of those arguments. They don't expect to go much longer, so the jury will be asked to come in on Monday, although it is unknown what time they might be brought into the courtroom. It is still possible - not improbable, even - that Judge Motz may grant the motion, and release the jury.
I'd say everybody agreed on one thing, though -- next stop for this case is the 10th Circuit Court of Appeals. ("The home grounds of Aspen Skiing", as Mr. Johnson put it...)
Novell-Wordperfect-Quattro As you can see, Microsoft saw WordPerfect as competition for Windows across the board at the time, even if the judge does not yet see it that way. And I notice that part of Gates' proposed strategy was "recruitment at WordPerfect and Quattro Pro" to, presumably, weaken a competitor by causing losses of staff.
The merger of Novell-Wordperfect and acquisition of Quattro Pro by Novell changes our competitive framework substantially. The already intensely competitive software business has become even more competitive. Novell has adopted our strategy of having a broad product line and offering integration between products as a key benefit just as Lotus has through their acquisitions and Notes strategy. Its great to have people following our strategy as long as we execute a lot better than they do.
I don't see much chance of the acquisition falling apart. Unless Novell's stock price goes down quite a bit I can't see WordPerfect's owners changing their mind.
If Novell executes well they will be able to turn their Office suite into a serious contender which could force price and volume cuts in our Office business. The fading strength of WordPerfect and Quattro could be reversed. Quattro pro and WordPerfect will be integrated far better. Novell could do some strange pricing by bundling their Office suite with Netware like they have bundled DR-DOS.
The WordPerfect Office product will be integrated with Netware making it a far more serious contender in the workgroup business. We have always felt this is a strong product but WordPerfect did not do a good job selling it.
Novell will have a stronger global presence and a stronger customer presence. Quattro Pro investments can be increased. The Novell brand can become an umbrella for a wide range of activities.
Initiatives to promote anti-Microsoft platforms/API's/object models become easier to coordinate because fewer companies are involved. Novell itself will be able to set more standards for workgroup, document management, image systems and all of the 'services' they have been moving towards.
All of the people involved in this acquisition will be diverted for the next 6 months. Remember that WordPerfect is still adjusting to not having support as good as ours and their layoffs. Quattro pro developers are being excised from the barbarians world to a completely new company. Novell totally mismanaged the absorption of Digital Research in every way. Novell's leadership will be stretched incredibly thin by absorbing all of these pieces particularly with the succession plan unclear. Perhaps there is already a plan for who will run this company since its hard to believe they did this without one. Novell might raise the price of Quattro Pro. If Novell applies their financial models to Novell there will be a lot of layoffs coming. Novell and Lotus should become major rivals fighting over the non-Microsoft parts of the application business.
Novell has never had a technical agenda that its products are designed around. Novell will have to come up with some kind of database strategy - the license to Paradox only covers the short term. What automation language will they pursue? Will they divert themselves doing applications for Unixware? What will their approach be to other platforms like Mac, Os/2 and Taligent? Will they try and do Quattro on Mac to have an Office product there? Novell will have even more development sites although their Utah operations are near to WordPerfect's
Borland becomes a pure competitor to the products in our Developer division. The $145M eliminates their cash problem- However their scale is reduced and they will have to adjust their worldwide infrastructure. The database front end business is becoming increasingly competitive with Lotus, Powersoft, Oracle and many others coming up with great products. Xbase is becoming less important. The innovation in Paradox has been surprisingly modest. The boundaries between 4GL, Case, Database and Language products are disappearing. 1 think we will be able to do some great things integrating Excel and Access that Borland cannot. I doubt that Borland will be a major force in interpretive languages which will become more important if we innovate appropriately. Borland has the overhand of the 1 million free Paradox licenses they granted to Novell-Wordperfect. Its interesting that the lawsuit liability was not transferred. I wonder if Lotus will make any claims against the Quattro Pro that is now shipping.
The imperative of winning in the short term with Microsoft Mail and Windows NT is raised substantially by this new development. NT has be to viewed as a major success or Novell will thwart our Workgroup efforts. We should consider increasing our sales investment in these 2 products including buying the installed base of remaining mail companies. How does Davinci view this development? We need to take a harder look at product, acquisition and sales efforts to gain scale in Mail/Workgroup. We need a plan for recruitment at WordPerfect and Quattro Pro. Every group in the company should consider what they can do in the next 6 months including proposals that involve more investment.
And here's a Steve Ballmer memo from 1994 on the same topic, Exhibit 9598 [PDF], the part about Novell:
Microsoft Memo As you can clearly see, Ballmer viewed WordPerfect as a serious threat, expected it to be integrated with Novell's other offerings and mentions the desktop, making Novell a bigger threat with WordPerfect and QP than Novell had been prior to the purchases, making Novell able to compete on "more fronts", and he urged the troops to aggressively fight back. So much for Judge Motz's theory.
To: FY95 WWSMM Attendees
From: Steve Ballmer
Date: April 4, 1994
Re: FY95 Planning Memo
We need to be more aggressive in our marketing and sales efforts. We cannot be complacent and reactive. We need to attack our competitor's weaknesses and force them to react to us. We must take initiative, make smart, fast decisions and act. We must gain and maintain leadership through decisive aggressive action. We will focus on three things...
*The WordPerfect merger and the acquisition of Quattro Pro broadens Novell's line to compete with us on more fronts. They will move to integrate their Office apps better and try to develop synergy with their server offerings. They face tough challenges pulling it together but the combination makes Novell a more serious threat than ever.
* The Netware installed base and authorized reseller network continues to be their stronghold. They will continue to invest to meet us head on in the enterprise with Netware 4.0, Appware, Unixware.
* Their business model is highly leveraged, they will likely extend this model to there desktop business.
*They still have plenty of cash for acquisitions, Investment in R&D.
* We will take the offensive with NT and server apps, we will go after and convert their loyal CNE base, we will take advantage of the merger by launching an aggressive switching campaign.
Oh. One more thing. If Judge Motz believes that Microsoft beat out WordPerfect by being better software, he should probably read this exhibit, #9560, another email from Ballmer in 1995, detailing all the complaints and feedback on the Windows 95 product. - End update.]
The exhibit I wanted to highlight, though, is Exhibit 1521, a 1993 slide presentation by Compaq, which was considering how badly Microsoft would retaliate if it didn't go along with a proposed deal, and two items stand out:
1) Compaq perceived that Microsoft wanted it to be "monogamous" and have no dealings with Novell; and Since that is in the ballpark of what Novell currently is claiming in the litigation against Microsoft over WordPerfect, except what they are claiming is even worse, namely that Microsoft induced Novell to use the APIs and then did a switcheroo that left Novell with its pants down -- while Microsoft is asserting that any last minute changes or delays were business-related, not anticompetitive conduct, I thought I'd show it to you. It seems at least one other company at the relevant time expected retaliation from Microsoft more or less of the type Novell
2), it believed that if it didn't go along, one of the retaliations would be getting cut off from early information about Microsoft products and deliberate incompatibility, as per what Microsoft did to DR DOS.
Here is the Exhibit from 1993 as text:
Microsoft Meeting Preparation
Portable and Software Marketing
Need to Know
[Ed: stamped Highly confidential; Compaq008059]
- Strategic alternatives
- What is at risk?
- How can Microsoft negatively impact our core
- Choosing Microsoft does not guarantee success
- What we believe Microsoft wants
- What we want from Microsoft
- Our interests
- PDA position
- Relationship position
|H/W leadership +
S/W development +
H/W and S/W
New software revenue stream
Market industry leadership
|H/W leadership +
OEM leadership (vs. Industry)
S/W revenue upgrade business
What is at risk?
- What really are the risks of using alternative
systems in parts of our business?
- Where are we today?
- Microsoft does not value or give credit for our
- Microsoft does not really want us developing
- Our field efforts are loosely coupled
- We have had access to source code (DOS, OS/2,
- We have had some early information on Microsoft
- On average, we have not received advantageous
time to market advantage
How can Microsoft negatively impact our
|DOS, Windows, PenWindows||DOS 6
availability, price, timing|
|PDA OS ||Impede desktop
|Windows/NT ||Price, timing,
|Windows for Workgroups
vs. NetWare Lite
|Peripherals (printers) ||Windows
|Ease of use ||Timing, access
|Chicago ||Access to
information, timing, price|
|Mobile Windows ||Access to
information, timing, price|
Potential Reactions to GO PDA Decision
- Sabotage our efforts to integrate PDA with the desktop
- Chicago would break our desktop integration design
- Microsoft would withhold Chicago information and
- Industry compatibility demands should restrict
- We would have to fix our desktop integration
- Existing example: Novell's DR DOS
- Risk is manageable
Potential Reaction for Ease of Use
- Ease of use (plug 'n' play) to be a major focus of
- Microsoft plan
- Working on specification now
- First mention to public at March hardware OEM
- Considered to be an IHV/OEM issue only
- Limited number of companies involved until about
then begin courting IHVs and OEMs
- Draft of "rules of engagement" with Compaq being
until relationship issues are clarified (per Carl
- Compaq ability to differentiate in this area
- Access to relevant information and Chicago
- Our ideas flow into the industry at large
Judgment: How retaliatory would they get?
- Pricing advantage
- Revenue from updates
- Access to early SDKs
- Field sales activities (Microsoft has ~900 field sales
- Support and training
- Inclusion in advertising
- Tone toward Compaq in press and with customers
- Selection and elevation of other OEMs as leaders
- Make integration relations even more strained than
- Access to source code, modification ownership
- Microsoft directional information and plans
Selecting Microsoft is not a guarantee
- Cases where Microsoft has not been successful
- Lan Manager
- PostScript printer business
- Cases where Microsoft has been successful despite
- Analysis: Microsoft has had great difficulty attacking
entrenched competitors, except:
- When they have been able to change the rules
- Or, create a significant market discontinuity
What we think Microsoft wants from Compaq
- Compaq stops doing operating system software
- Compaq stops doing operating system value add
bug fixes, utilities that are OS enhancements)
- Microsoft is the sole operating system vendor for
desktops and portables
- Compaq pushes all Microsoft systems products
- Marketing messages that Microsoft is the best
- Use our volume to move the market in their
- We want Microsoft to stop helping our competitors
- Microsoft preferential treatment when we invest
- Intellectual property protection
- We want to be able to differentiate our products via
- We want legitimate pricing, based on volume, with no
- Consistent with industry trends (declining
- More reward for volume
- Less reward for absolute commitment
- We want a balanced relationship
- We can't do everything Microsoft wants
- We can't be monogamous unless they are willing to
Our recommended PDA position
- Option 1
- Compaq and Microsoft jointly define and solely
new WinPad APIs to support Compaq's CDK on an
- Compaq receives the greater of 9 months or to the
release time in market exclusivity
- Compaq participates in the revenue stream when the
distributed to the industry by Microsoft
- Microsoft sells WinPad only through OEMs
- Compaq's license fee to be 10% below any other OEM
long as its unit volume is in the "top two"
- Option 2
- Create a new PDA company to share equally in the
development ot the PDA market
Our recommended relationship position
- Ready access to Microsoft executives by Doug, Gary and
- Terms and conditions similar to the recent
proposal with a
royalty of $28 for DOS 6, Windows 3.1, Windows for
Workgroups and Windows/NT
- We will agree not to ship DR DOS
- Fair treatment from MSKK, particularly with regard to
- Balanced relationship
- Recognition that Compaq CAN add value
- Due credit for that value
- Recognition that we can commit to do something,
but it is very
hard to accept exclusions (litmus test)
- We reserve the right to maintain a relationship
- We have two strategic alternatives
- Differentiation through both hardware and software
- Differentiation through hardware only
- How much we really have at stake is debatable
- There are opportunities for Microsoft to impact
- There are opportunities for Microsoft to sabotage
efforts over time
- What we want from Microsoft
- Our interests
- PDA position
- Relationship position
Would you like to know how it turned out? Compaq, despite saying internally that it would have to tell Microsoft it had to retain its relationship with Novell and so couldn't be "monogamous", eventually caved and promised to do just that, thus shutting WordPerfect out:
Update 4: Someone reminded me that there is a letter from Robert Frankenberg to Bill Gates complaining about Novell being blocked from information, dated August of 1995, that is in the record, which is what the judge was demanding. I guess he forgot about it, but the many eyes of Groklaw pay off once again. You can find it on this page of exhibits, which we paid a small fortune for. Thank you, everyone who contributed. It's Exhibit 16 [PDF], attached, believe it or not, to a Microsoft cross motion for summary judgment, which the judge presumably read since he ruled in Microsoft's favor on the motion. Duh. Here's how it reads:
PLAINTIFF'S EXHIBIT 1658
Comes v. Microsoft
May 14, 1993
Mr. Bill Gates
One Microsoft Way
Redmond, Washington 98052-6399
Thank you for your letter dated April 21st. I, too, am
excited about our
increasing opportunities to work together, in particular,
our latest agreement
to jointly attack the hand-held market.
We look forward to a development and marketing
establishes our implementation as the industry standard
ISHV support towards our platform. Your personal
support Compaq's effort to establish sustainable
differentiation is very
As you probably know, Lorie Strong is committed to
Digital Office Systems Announcement on June 9th and will
this successful in any way she can.
I am looking forward to our discussions planned for the
end of June in
Redmond on what other directions we can set for the
President & CEO
cc: Lorie Strong
April 21, 1993
Mr Eckhard Pfeiffer
Compaq Computer Corporation
20555 State Highway 249
Houston, Texas 77070
We are very pleased that Compaq has selected Microsoft as
the exclusive supplier of operating
system software for your hand-held computer products. This
new relationship extends the ties
between Compaq and Microsoft in very significant ways that
give us a great opportunity to work
together to develop this emerging market.
I want to give you my personal assurance that Microsoft is
committed to making this relationship
successful during the development phase, product launch
and into the future. In particular, I want
to reiterate our intent to support Compaq's efforts to
establish sustainable differentiation in your
product. Our development team will work closely with yours
to identify areas where we can
support your plans wherever possible. This includes making
sure that we try to incorporate
Compaq's feedback on our APIs and make any necessary
changes which would better support your
I appreciate the time you have personally invested in
establishing this relationship. I'm sure it will
prove rewarding for both companies.
cc: Paul Maritz
August 21, 1995 I've highlighted the part that matters in red, so in case the judge reads Groklaw, it won't whiz right by him again. There are other Microsoft exhibits on the list on that page that are relevant, such as Exhibit 7 and Exhibit 15 [PDF]. The latter is a letter in response to Frankenberg, in which of course Gates denies the allegations and claims Novell gets access to everything. But significantly, he references a meeting that January about the matter, so there was more than just a letter from Frankenberg complaining about it. Clearly Novell was unhappy with what Microsoft was doing, thought it was an antitrust matter, and did complain to Microsoft at the highest level at the time. Microsoft just didn't do anything to fix it. In fact, if you go through the Comes exhibits, you'll find several exhibits where various Microsoft employees made lists of who could have what, and Novell would be excluded. I know, because I helped type them up as text, so as I read the Gates letter, I was thinking something along the lines of pants on fire. Here's one example [PDF].
Mr. William H. Gates
Chaiman and CEO
One Microsoft Way
Redmond, WA 98052-6399
Thank you for your letter of July 20. I appreciate your responce to the issues that stand as barriers to a better relationship between Novell and Microsoft. These issues are not trivial to Novell. Most importantly, we do not want these issues to prevent the best integrated, fully functional, and supported networking solutions from reaching the customer.
We have carefully read your letter, and we want to pursue further the five topics you suggested ought to be discussed, which are:
(1) A Patent Cross-License;
Further, there are two antitrust issues that must be addressed. First, Novell continues to have a strong antitrust claim against Microsoft that it will not forsake simply because Microsoft refuses to acknowledge it. Second, the equal access issue must be addressed. Novell, as well as other applications companies, should be given access to Microsoft's operating system equal to that of your applications developeers. There are still five or six bugs that Microsoft has refused to fix which would allow Wordperfect to run smoothly with Windows95. We will have Dave Miller send a specific list to Bob Kruger. The result of the lack of equal access costs Novell, and others, months to release products that are Windows95 compatible. These issues that need to be a major topic of discussion in our meeting.
(2) A Windows 95 and Windows NT Client License that will allow Microsoft to continue its development of NCP-compatible software;
(3) An acknowledgment from Novell of Microsoft's ability to use NCPs;
(4) Finalizing the Mutual Beta Product Exchange Agreement; and
(5) Completion of the Mutual Customeer Support Agreement.
Novell is eager to resolve these issues. Our hope is that both companies can work together to provide the absolute best integrated customer solutions. These barrier issues must be removed. I would like to arrange a meeting with you to discuss these issues in-depth. Will you please let me know which dates will be best for you.
Robert J. Frankenberg
Chairman and CEO
cc: David Bradford, Duff Thomson