8988 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 XXXIII 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 8:30 a.m., January 18, 14 2007, 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 8989 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 MICHAEL E. JACOBS 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 ROBERT J. GRALEWSKI, JR. 12 Attorney at Law Gergosian & Gralewski 13 550 West C Street Suite 1600 14 San Diego, CA 92101 (619) 230-0104 15 KENT WILLIAMS 16 Attorney at Law Williams Law Firm 17 1632 Homestead Trail Long Lake, MN 55356 18 (612) 940-4452 19 20 21 22 23 24 25 8990 1 Defendant by: DAVID B. TULCHIN 2 SHARON L. NELLES JOSEPH E. NEUHAUS 3 JEFFREY C. CHAPMAN Attorneys at Law 4 Sullivan & Cromwell, LLP 125 Broad Street 5 New York, NY 10004-2498 (212) 558-3749 6 HEIDI B. BRADLEY 7 Attorney at Law Heller Ehrman, LLP 8 333 South Hope Street Suite 3900 9 Los Angeles, CA 90071-3043 (213) 689-0200 10 BRENT B. GREEN 11 Attorney at Law Duncan, Green, Brown & 12 Langeness, PC Suite 380 13 400 Locust Street Des Moines, IA 50309 14 (515) 288-6440 15 16 17 18 19 20 21 22 23 24 25 8991 1 RICHARD J. WALLIS Attorney at Law 2 Microsoft Corporation One Microsoft Way 3 Redmond, WA 98052 (425) 882-8080 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8992 1 (The following record was made in the 2 presence of the jury at 8:32 a.m.) 3 THE COURT: If it gets too hot or too 4 cold, please let Carrie know. 5 Okay. You may continue. I believe 6 you're in cross. 7 MR. GREEN: Thank you, Your Honor. 8 Starting out on line 22 page 5322. 9 (Whereupon, the following deposition 10 was read to the jury.) 11 Question: Now, let's talk briefly 12 about OS/2. 13 In the early 1990s, IBM's OS/2 14 operating system was more expensive than 15 Microsoft's operating systems; is that correct? 16 Answer: Yes. 17 Question: And ZEos never licensed 18 OS/2 from IBM, did it? 19 Answer: I don't believe so. 20 Question: And you don't recall there 21 being much customer demand for OS/2 in the 22 early 1990s, correct? 23 Answer: Correct. 24 Question: Now, Mr. Apple, I think you 25 testified on direct examination about minimum 8993 1 commitments. 2 Do you recall that testimony? 3 Answer: Yes. 4 Question: And minimum commitments 5 were the way that Microsoft implemented its 6 volume pricing for software, correct? 7 Answer: They required a minimum 8 commitment from us. 9 Question: And the higher commitment 10 on an OEM, such as ZEos would make, the lower 11 royalty they received -- they had to pay for 12 the software, correct? 13 Answer: Yes. 14 Question: And such volume pricing was 15 common in the industry, correct? 16 Answer: Yes. 17 Question: And ZEos was the one that 18 selected the minimum commitment level that 19 appeared in ZEos's licensing agreement based on 20 ZEos's anticipated volume, correct? 21 Answer: Yes. We had no problem 22 committing volume to get good pricing. 23 Question: Mr. Apple, before we broke, 24 I asked you whether or not ZEos selected the 25 minimum commitment level set out in its license 8994 1 agreement based on ZEos's anticipated sales 2 volume; is that correct? 3 Answer: Yeah. 4 Question: And if you would turn, sir, 5 to Plaintiffs' Exhibit 4421, which is ZEos's 6 license agreement for MS-DOS 4.01 and 3.3 with 7 an effective date of January 1, 1990, and look 8 specifically, Mr. Apple, at page 20 of that 9 agreement. 10 Answer: Okay. 11 Question: Now, the columns of numbers 12 in the middle of the page set out there, do you 13 see where I am? 14 Answer: Yes. 15 Question: And does that represent the 16 quarterly minimum commitment payments that ZEos 17 owed Microsoft under this license agreement? 18 Answer: I believe so. 19 Question: And those quarterly 20 payments represented the royalty rate that ZEos 21 owed per system multiplied by ZEos's projected 22 volume during that quarter, correct? 23 Answer: At a minimum, that's correct. 24 Question: Now, ZEos system royalty 25 for MS-DOS 4.01 was $35, correct? I think that 8995 1 figure is on the next page, correct? 2 Answer: Yes. 3 Question: Is that correct? 4 Answer: I believe so. 5 Question: Now, these quarterly 6 payments here were not in addition to ZEos's 7 royalty payments, were they? 8 Answer: They were ZEos's royalty 9 payments. 10 Question: These quarterly minimum 11 commitment payments were, in fact, ZEos's 12 royalty payments to Microsoft, correct? 13 Answer: As a minimum, that's right. 14 Question: And if -- if ZEos estimated 15 -- if ZEos's projected volume turned out to be 16 exactly right to the unit, ZEos would owe no 17 additional royalty payments for that quarter, 18 correct? 19 Answer: If we wound up selling 20 $185,000 divided by 35, that number of units, 21 then 185 would be correct. 22 Question: And ZEos would not owe a 23 penny more under that unlikely scenario, 24 correct? 25 Answer: Correct. 8996 1 Question: Now, if ZEos sold more 2 units than it had projected, then ZEos would 3 owe an additional per-system royalty for the 4 additional units that ZEos sold beyond its 5 minimum commitments, correct? 6 Answer: That's correct. 7 Question: If ZEos ended up selling 8 less units than it projected, then ZEos could 9 roll its unused minimum commitment into the 10 next quarter, correct? 11 Answer: Yeah, but I believe what 12 happened was we would pay the minimum, because 13 it was the minimum we had to pay, but that 14 would be an allowance toward future payments 15 above and beyond the next 185. 16 Question: So if, for example, ZEos 17 sold only $175,000 worth of MS-DOS under its 18 license agreement, that unused $10,000 could be 19 rolled into the next quarter in the license 20 agreement, correct? 21 Answer: Yes, in the sense that we 22 could then sell $195,000 worth before we had to 23 pay. 24 Question: Before you had to pay an 25 additional amount -- 8997 1 Answer: Additional. 2 Question: -- beyond your minimum 3 commitments, correct? 4 Answer: Correct. 5 Question: And in December 1992, for 6 example, MS-DOS agreed to reduce ZEos's 7 quarterly minimum commitment payments for 8 several quarters to allow ZEos to recoup some 9 unused balances under its minimum commitments, 10 correct? 11 Answer: I'm not positive, but it 12 sounds familiar. 13 Question: Okay. Well, the unused 14 minimum commitments, were those referred to as 15 prepaid balances? 16 Answer: Probably. 17 Question: I don't think this document 18 is in evidence, so let me ask you a couple 19 questions, Mr. Apple. 20 Do you recognize this document? 21 Answer: I don't know that I've seen 22 it before. 23 Question: Does this document amend 24 ZEos's operating system license agreement with 25 Microsoft? 8998 1 Answer: I believe so. 2 Question: And the signature on behalf 3 of ZEos is Martyn Radliff. 4 Answer: Ratcliffe. 5 Question: Ratcliffe? 6 Answer: Yes. 7 Question: And who was Ms. Ratcliffe? 8 Answer: Mister. 9 Question: Who was Mr. Ratcliffe? 10 Answer: He was for a time the 11 president of the company. 12 Question: And do you recognize that 13 as his signature? 14 Answer: I wouldn't know. 15 Question: Now, if you look at the 16 paragraph numbered 1 now, does that refresh 17 your recollection that Microsoft, in December 18 1992, agreed to reduce ZEos's quarterly minimum 19 commitment payments for several quarters in 20 order to allow ZEos to recoup some of the 21 prepaid balances that it had? 22 Answer: That's what this says. I'm 23 not sure how involved I was at -- with this 24 particular letter, but, yes, that's what it -- 25 it says. 8999 1 Question: Well, the letter says that 2 Microsoft is reducing ZEos's minimum commitment 3 payments for, I believe, three-quarters? 4 Answer: For the current and next 5 quarters -- for -- yes, for three total 6 quarters. 7 Question: And the letter states that 8 Microsoft -- 9 Answer: Oh, I'm sorry. For two total 10 quarters. 11 Question: And the letter states that 12 Microsoft is reducing ZEos's quarterly minimum 13 commitment payments to allow ZEos to recoup 14 some prepaid balances, correct? 15 Answer: Yes. 16 Question: Now, one of ZEos's 17 marketing strategies was to target 18 sophisticated users; is that correct? 19 Answer: Yes. 20 Question: And to attract 21 sophisticated users, ZEos advertised very 22 heavily in computer trade magazines, such as PC 23 Magazine, PC World, PC Week and Infoworld; is 24 that correct? 25 Answer: Very heavily in the first 9000 1 two, sporadically in the second two. 2 Question: And were those publications 3 regarded as being widely read in the computer 4 industry at the time? 5 Answer: The first two were widely 6 read by individuals and small business people. 7 The latter two were widely read by IT 8 professionals, if you will. 9 Question: PC Week and Infoworld were 10 widely read by IT professionals, correct? 11 Answer: I believe so. Their 12 circulation was less than 200,000, you know, 13 out of the whole country, but that's still 14 significant. 15 Question: And they were also widely 16 read by people who worked, for example, at 17 software companies; isn't that true? 18 Answer: I presume so. 19 Question: Now, did you read PC 20 Magazine, PC World, PC Week and Infoworld while 21 you were at ZEos? 22 Answer: Occasionally. 23 Question: Now, in its advertisements, 24 ZEos promoted the fact that its products had 25 received favorable reviews and editorial awards 9001 1 from various publications; is that correct? 2 Answer: Yes, it is. 3 Question: And why did ZEos highlight 4 in its advertisements that it had received 5 favorable product reviews and had won editorial 6 awards? 7 Answer: Because, you know, it's one 8 thing to say to yourself that, hey, our product 9 is great, but it's even better if we could 10 quote an unbiased expert source like a 11 magazine's testing laboratory when they say 12 that our computer is great. 13 Question: In your experience, did 14 your customers rely on product reviews and 15 industry awards in helping to decide which 16 products to purchase? 17 Answer: I know that some did because 18 statistically we would see when we won an 19 award, for example, our sales would go up. 20 So I knew that some of those 21 incremental sales that I could track that came 22 in when -- when the award was given, that those 23 people were probably influenced by that award. 24 Question: Well, ZEos in its 25 advertisements commonly quoted from product 9002 1 reviews of its products and also a mention 2 awards that its products had won, correct? 3 Answer: Yes. 4 Question: And ZEos did that because 5 it thought it would be meaningful to ZEos's 6 potential customers, correct? 7 Answer: I -- yes, that we thought it 8 would give the favorable comments an air of 9 credibility coming from a neutral expert party 10 rather than us. 11 Question: And one of the reasons why 12 ZEos's notebook computers were so successful in 13 the early '90s was because they received 14 favorable reviews from leading publications; is 15 that correct? 16 Answer: I believe that was one of the 17 reasons. 18 Question: And ZEos's advertisements 19 were also emphasized that ZEos's computers use 20 only the best components; is that correct? 21 Answer: Yes. 22 Question: And ZEos noted in its 23 advertisements that it included Microsoft 24 operating system software with certain of its 25 computers, correct? 9003 1 Answer: Yes. 2 Question: Now, the price for ZEos's 3 computers in the early 1990s ranged from a low 4 of about eleven ninety-five -- $1,195 to a high 5 of about $3,995; is that correct? 6 Answer: Those would be advertised 7 configurations. When I spoke earlier about 8 choice, one of the things we had was a -- a 9 price list for our salespeople, and for 10 customers that -- that wanted it, that would 11 give a la carte options so that people could -- 12 they could, if they want, order a $20,000 13 computer. But probably the most expensive 14 preconfigured advertised product was about 15 $4,000. 16 Question: All right. So the -- is it 17 fair to say that the preconfigured computers 18 that ZEos advertised between, say, 1991 and 19 1994 ranged in price from about $1,200 to 20 $4,000? 21 Answer: With the possible exception 22 of some servers, but for desktop PCs, that's 23 about right. 24 Question: And the server computers 25 would be even more expensive, correct? 9004 1 Answer: Yes. 2 Question: And in pricing its PCs, at 3 least the PCs that appeared in its 4 advertisements, ZEos typically used price 5 points ending in 95, such as nineteen 6 ninety-five, twenty-two ninety-five, 7 thirty-three ninety-five, and so on; is that 8 correct? 9 Answer: Yes. 10 Question: And the use of such price 11 points was typical among computer 12 manufacturers, was it not? 13 Answer: I believe so. Sometimes a 14 45, $50 increments rather than hundred-dollar 15 increments. 16 Question: But the use of price points 17 generally was common among computer 18 manufacturers, correct? 19 Answer: Well, the use of price points 20 -- everybody had a price on their product. 21 Question: The use of common price 22 points such as a 99 or ending in a 99 or a 95 23 or a 50, that was common -- 24 Answer: Yeah. 25 Question: -- was it not? 9005 1 Answer: Yeah. 2 Question: And I think you testified 3 that the most computers that ZEos ever sold in 4 a year was somewhere between 50,000 and 100,000 5 computers? 6 Answer: No, I -- I -- what I meant 7 was, in the early '90s that was my estimate 8 about how many we might have been selling in a 9 year. If I -- I don't recall the most we ever 10 sold in a year. 11 Question: But, on average, in the 12 early '90s, it would have been between 50,000 13 and 100,000 computers a year? 14 Answer: That's my recollection. 15 Question: Now, how did that value 16 compare to larger OEMs, such as IBM or Compaq, 17 at the time? 18 Answer: Well, compared to larger 19 OEMs, that would be a smaller volume. 20 Question: Much smaller? 21 Answer: It depended on which OEM. 22 Question: Do you -- do you know, for 23 example, how many computers Compaq sold on 24 average in a given year in the early 1990s? 25 Answer: I do not. 9006 1 Question: Far in excess of a hundred 2 thousand dollars -- a hundred thousand units, 3 is that fair? 4 Answer: I would think so. 5 Question: Now, had you ever seen any 6 other computer manufacturer's license agreement 7 with Microsoft? 8 Answer: No. 9 Question: So you don't know what kind 10 of license other OEMs, such as Compaq or IBM, 11 may have had? 12 Answer: Well, in our request for the 13 kind of license that we wanted, we were told 14 that these are the only two options available. 15 We took that to mean available to our 16 competitors as well as to us. 17 Question: But you never saw one of 18 your competitor's license agreements; is that 19 correct? 20 Answer: Correct. 21 Question: And you don't know, for 22 example, what percentage of PCs in the United 23 States as a whole were sold under license 24 agreements with Microsoft that were 25 per-processor license agreements, say, in 1990, 9007 1 correct? 2 Answer: I -- I would -- I would 3 believe that any significant manufacturer 4 presented with the two alternatives we were 5 presented with would have chosen our 6 alternative, so I presume the vast majority. 7 Question: Well, Mr. Apple, we talked 8 before about there being possibly three 9 alternatives, per-copy, per-system, and 10 per-processor. 11 Do you recall that? 12 Answer: Yes. 13 Question: And you recall your 14 testifying that sitting now here in the 15 courtroom ten years later, you don't recall 16 specifically what the difference is between a 17 per-system license and a per-processor license, 18 correct? 19 Answer: That's correct. 20 Question: And you don't know whether 21 a number of other large OEMs may have had a 22 per-system license that operated differently 23 from your per-processor license, do you? 24 Answer: I do not, no. 25 Question: And you don't know, for 9008 1 example, what percentage of PCs were sold in 2 the U.S. in 1990 under a per-system license, do 3 you? 4 Answer: No. 5 Question: And you don't know what 6 percentage of computers were sold in the U.S. 7 in 1991 pursuant to a per-system license, do 8 you? 9 Answer: No. 10 Question: And if I asked you the same 11 question for 1992, your answer would be the 12 same, would it not? 13 Answer: Yes, it would. 14 Question: Now, Mr. Hagstrom asked you 15 a number of questions about computer mice, did 16 he not? 17 Answer: Yes. 18 Question: And in the early 1990s, 19 Microsoft was not the only company that made 20 the computer mice, was it? 21 Answer: No, it was not. 22 Question: Which other companies made 23 computer mice in the early 1990s? 24 Answer: Many. 25 Question: When you started at ZEos in 9009 1 1990, ZEos began purchasing computer mice from 2 Microsoft when it started installing Windows on 3 some of its systems, correct? 4 Answer: Yes. 5 Question: And if you'd look, sir, at 6 Plaintiffs' Exhibit 4437. 7 Answer: Yes. 8 Question: Is that the agreement 9 pursuant to which ZEos acquired mice from 10 Microsoft in 1990? 11 Answer: I believe so. 12 Question: And if you could look, 13 Mr. Apple, at page 17 of this document. 14 Answer: Yes. 15 Question: In 1990, what price did 16 ZEos pay Microsoft for computer mice? 17 Answer: $22.15. 18 Question: So that's $22.15 per unit 19 of computer mice, correct? 20 Answer: Yes. 21 Question: And ZEos wanted a lower 22 price for its computer mice, did it not? 23 Answer: Certainly. 24 Question: And Microsoft was very 25 interested in keeping ZEos's mouse business, 9010 1 wasn't it? 2 Answer: I would think so. 3 Question: And Microsoft expressed an 4 interest to you to discuss its -- Microsoft's 5 mouse pricing in an effort to keep ZEos's 6 Microsoft Windows business, correct? 7 Answer: Well, at what time are you 8 referring to? 9 Question: 1991, when this agreement 10 was about to expire. 11 Answer: I -- I remember speaking to 12 Microsoft about it when the Logitech issue came 13 up. I don't recall if that was exactly '91 or 14 if that's when you're referring to. 15 Question: Mr. Apple, I've handed you 16 what we've marked as Plaintiffs' Exhibit -- 17 what's been marked as Plaintiffs' Exhibit 4468. 18 Have you seen this document before? 19 Answer: I don't recall it, but I -- I 20 probably have. It's addressed to me. 21 Question: Is this document a letter 22 to you from Richard Choulnard at Microsoft 23 dated April 23, 1991? 24 Answer: Yes. 25 Question: And at the time was Richard 9011 1 Choulnard ZEos's -- ZEos's account manager at 2 Microsoft? 3 Answer: Yes. 4 Question: And does this letter 5 discuss ZEos's interest in new mouse pricing? 6 Answer: Well, it expresses 7 Microsoft's interest. 8 Question: Now, this letter is dated 9 April 23, 1991; is that correct? 10 Answer: Yes. 11 Question: And is that about when 12 ZEos's existing mouse agreement was expiring? 13 Answer: I don't recall. 14 Question: Well, the -- the agreement 15 was -- it has an effective date of May 22nd, 16 1990; is that correct? 17 Answer: I'm sorry, which -- which 18 exhibit was it? 19 Question: In the mouse agreement, 20 Plaintiffs' Exhibit 4437. 21 Answer: Effective date May 22nd, 22 1990. 23 Question: And it was a one-year 24 agreement, correct? 25 Answer: That's my recollection. 9012 1 Question: And this letter from 2 Mr. Choulnard is dated almost a year later, in 3 April of 1991; is that correct? 4 Answer: Yes. It looks like this 5 letter is dated approximately two months before 6 our agreement was to expire. 7 Question: And Mr. Choulnard writes in 8 that letter, in the first paragraph, I'm still 9 very interested in discussing new Microsoft -- 10 new mouse pricing with you. 11 Unfortunately, we seem to keep missing 12 each other. Since your mouse business is very 13 important to Microsoft, I would like to set up 14 a meeting this Friday, April 26, where I will 15 come out to ZEos with the mouse product 16 manager. 17 Do you see that? 18 Answer: Yes. 19 Question: And do you recall 20 representatives of Microsoft being very 21 interested in discussing with you your concerns 22 about Microsoft's mouse pricing in the spring 23 of 1991, before the existing contract was going 24 to expire? 25 Answer: I -- I honestly don't recall. 9013 1 Question: Now, we -- we looked before 2 under the prior contract ZEos's existing price 3 was $22.15; is that correct? 4 Answer: Yes. 5 Question: And you testified that the 6 price of the Logitech mouse was going to be $3 7 cheaper than Microsoft's existing price, 8 correct? 9 Answer: Well, I'm not sure that this 10 was the time period in which I was talking to 11 Logitech. It may have been a -- a contract 12 later. 13 Question: Oh, it may have been a 14 contract later? 15 Answer: Yes. 16 Question: Well, sir, isn't it true 17 that in response to your concerns about 18 Microsoft's mouse pricing, that Microsoft 19 reduced -- agreed to reduce its mouse prices by 20 $4.15 a unit? 21 Answer: I believe so. 22 Question: And that's why you stayed 23 with Microsoft for mouse business, correct? 24 Answer: We're -- I think we're 25 confusing different episodes. My recollection 9014 1 is that $22 was just flat out a lot of money 2 for a mouse, and we were concerned from -- they 3 wanted about $22 for a mouse. 4 I don't believe that this first 5 renewal is the time period in which I was 6 talking to Logitech. 7 My recollection is that I was talking 8 to Logitech when my -- my Microsoft price was 9 down to 18 or $17 and Logitech was offering 10 something more on the order of $14. 11 Question: Well, do you recall the 12 Microsoft representative with whom you met at 13 COMDEX? 14 Answer: I don't remember. 15 Question: And did you put anything in 16 writing about the meeting with COMDEX -- that 17 meeting at COMDEX? 18 Answer: I don't think so. 19 Question: And did either you or 20 Mr. Herrick send a letter to anyone at 21 Microsoft discussing what happened at that 22 supposed meeting at COMDEX? 23 Answer: I don't recall. I -- I 24 believe I got some correspondence from 25 Microsoft about the $5 that they announced to 9015 1 me at COMDEX. 2 Question: Do you have any document in 3 your possession that indicates that this 4 supposed meeting at COMDEX happened in 1992 and 5 this is not about 1991? 6 Answer: No. 7 Question: And is it possible that 8 Microsoft was -- had an existing price of 9 $22.15 per mouse, and Logitech came in with a 10 price that was $3 less, and ZEos ultimately 11 ended up staying with Microsoft because 12 Microsoft beat Logitech's mouse price by coming 13 in at $4.15 cheaper? Is it possible? 14 Answer: I don't think that's 15 possible. 16 Question: Would you have any 17 documents to rebut that? 18 Answer: No documents, just my memory. 19 Question: Okay. Well, you agree, 20 don't you, that Microsoft ultimately came in 21 with a mouse price of $18 that was $4.15 less 22 than Microsoft's existing price, correct? 23 Answer: Yes. 24 Question: Now, Mr. Hagstrom towards 25 the end of his direct asked you some questions 9016 1 about vaporware. 2 Do you recall that question? 3 Answer: Yes. 4 Question: And you mentioned an 5 operating system from Microsoft called Pen 6 Windows. 7 Do you recall that? 8 Answer: Yes. 9 Question: And Pen Windows actually 10 shipped, did it not? 11 Answer: I'm not sure. I thought it 12 didn't, but perhaps it did. 13 Question: And other software 14 companies other than Microsoft also 15 preannounced their products, do they not? 16 Answer: Yes. 17 Question: I mean, software companies 18 commonly announce the release of their products 19 well before its actually released, correct? 20 Answer: Absolutely. 21 Question: Lotus does that, correct? 22 Answer: Yes. 23 Question: IBM did that, correct? 24 Answer: Yes. 25 Question: WordPerfect did that, 9017 1 correct? 2 Answer: I believe that was common 3 practice. 4 Question: And it's also common in the 5 software industry that sometimes software 6 companies do not meet its -- their anticipated 7 release date and their product release is 8 actually delayed, correct? 9 Answer: Correct. 10 Question: And all of the companies 11 that I mentioned before, Lotus, IBM, 12 WordPerfect, sometimes they announce that a 13 product would be released on a certain date, 14 and then it turned out the release date slipped 15 and the product was released later than that, 16 correct? 17 Answer: That I have no way of 18 knowing. 19 Question: That commonly occurs in the 20 software industry, doesn't it? 21 Answer: If release dates aren't met, 22 I don't know if common is the right term, but 23 it's -- it's been known to happen. 24 (Whereupon, the deposition being read 25 to the jury adjourned.) 9018 1 MR. CASHMAN: Your Honor, may I have a 2 sidebar, please? 3 THE COURT: Yes. 4 (The following record was made out of 5 the presence of the jury at 8:59 a.m.) 6 THE COURT: Go ahead. 7 MR. CASHMAN: Your Honor, the reason 8 I've asked for a sidebar is because an issue 9 came up late last evening and I was only able 10 to confirm some facts this morning right before 11 court started, and this is what's going on. 12 During the testimony that Mr. Apple 13 gave in Minnesota, Mr. Pepperman, the examining 14 attorney for Microsoft, created a demonstrative 15 chart during the course of Mr. Apple's 16 testimony. 17 Microsoft did not designate that 18 demonstrative exhibit as an exhibit in the 19 process that we went through before the Special 20 Master where we were entitled to assert all of 21 our objections and such over the last many 22 months. 23 When we were preparing Mr. Apple's 24 testimony for reading here before the Court, 25 Microsoft did not advise Plaintiffs that they 9019 1 intended to use this demonstrative exhibit 2 until late last night was the first time that 3 we had notice that Microsoft intended to 4 display this demonstrative exhibit, which they 5 had in their possession obviously for two years 6 plus. 7 And they propose -- the reason I 8 stopped at this point is they propose to 9 display one of these demonstrative exhibits 10 beginning with the next testimony. 11 And, again, here again there's no 12 evidence in the record that the demonstrative 13 exhibit was displayed for the long period of 14 time that Microsoft is proposing to display it 15 and others now in Mr. Apple's 16 cross-examination. 17 So Plaintiffs object to the display of 18 these demonstrative exhibits because they were 19 never disclosed during the Special Master 20 process as was required. 21 I have a copy of these demonstrative 22 exhibits for the Court to look at. 23 These were just given to us last 24 night. 25 The first one is Defendant's 3755, and 9020 1 these handwritten notes were written in these 2 charts by Mr. Pepperman during the course of 3 Apple's cross-examination. 4 And there are subsequent exhibits that 5 Microsoft proposes to display, 3756, 3757, and 6 3758 and Plaintiffs oppose the display of any 7 and all four of these exhibits. 8 THE COURT: The figures that are in 9 here are based on the testimony of the witness? 10 MR. CASHMAN: I believe so, Your 11 Honor, but we haven't had enough time to verify 12 that that is all the case. 13 MR. GREEN: Your Honor, first of all, 14 this -- these have been designated in our cross 15 designation for a long period of time. 16 Number two, they were admitted in the 17 Gordon case. 18 Number three, all the figures on there 19 come off of exhibits which were admitted into 20 evidence in the Gordon case. In fact, many of 21 them were Plaintiffs' exhibits which they have 22 already referred to in the direct testimony 23 which they've read today. 24 It comes right from the transcript of 25 the Gordon case. We do not intend to offer 9021 1 them into evidence, but we do feel, such as Mr. 2 Alepin writing things up and that sort of 3 stuff, that they're perfectly legitimate 4 demonstrative evidence which they've been well 5 aware of ever since the Gordon case was tried 6 and ever since we've done our cross 7 designations. 8 They're right in the transcript. 9 They've always been here. They've had these 10 designations for a long, long time. 11 This should come of absolutely no 12 surprise to them. And we think that for the 13 purposes of a demonstrative evidence to -- 14 without them, it isn't going to make any sense, 15 what we've designated for a long, long time and 16 they've known about it. 17 I think the only thing that they -- 18 you know, I don't know what the issue is. 19 They've been here for a long time. And to say 20 that they just found out about this is pretty 21 unfounded. 22 MR. CASHMAN: Well, just as a matter 23 of correction, these were not admitted in the 24 Gordon case. They were not designated in this 25 case. 9022 1 The first time that we were advised 2 that Microsoft intended to use these 3 demonstratives was last night after 8 o'clock. 4 MR. GREEN: That's just not true, Your 5 Honor. 6 MR. CASHMAN: After 5 o'clock anyway. 7 THE COURT: When were they designated 8 before the -- were they designated? 9 MR. GREEN: Yeah. 10 THE COURT: The demonstrative exhibits 11 were designated? 12 MR. CASHMAN: They were not designated 13 in the Special Master process. 14 And as I advised the Court, that's 15 what I needed to confirm and why I didn't raise 16 it at 8 o'clock this morning. 17 I have confirmed that these were not 18 designated by Microsoft amongst the 10,000 19 exhibits that they did designate. 20 MR. GREEN: They're not designated as 21 an exhibit to be admitted, but they were 22 designated in what we designated as 23 cross-examination in the Apple trial testimony 24 in Gordon. 25 And they've known about that for -- I 9023 1 don't know how long ago those designations took 2 place, but it -- 3 MR. TULCHIN: If I could add this, 4 Your Honor -- 5 THE COURT: Why did you wait until 6 last night -- 7 MR. TULCHIN: Your Honor, we didn't 8 wait -- 9 THE COURT: Why did you bother to let 10 them know last night? 11 MR. GREEN: Maybe we shouldn't have. 12 I don't know. 13 THE COURT: The issue that enters in 14 my mind is if they're going to be admitted all 15 along, why would you even bother to let them 16 know? 17 MR. GREEN: Let me tell you why we did 18 that and then I'll let -- because we decided 19 that our guy -- they've been using their tech 20 guy Darin. 21 And we decided that it would be better 22 to use our guy Chris. And so we just let them 23 know when we were going to call them up. 24 That's what we did last night. 25 MR. CASHMAN: That's just not correct. 9024 1 I may be even to call up to my Treo, the E-mail 2 from Mr. Tuggy in which he acknowledges that 3 these were not designated before the Special 4 Master and he says, you know, his claim is that 5 this is a mistake by Microsoft that the 6 Plaintiffs should overlook essentially. And we 7 don't think that's right. 8 There are -- it's just not fair when 9 these were something that Microsoft knew and 10 should have known about all along. 11 And they didn't designate as part of 12 the process when we had over six phases of 13 document designations. 14 And the additional part of the problem 15 is, we got for the first time then last night 16 from Mr. Glass, an attorney from Microsoft, 17 their revised call-out sheet for where they 18 want to display particular exhibits. 19 And when they want to display one of 20 these demonstratives for -- well, it looks like 21 for 11 pages of testimony, when there's no 22 evidence in the transcript even that these 23 demonstratives were displayed for that period 24 of time. 25 So for the additional reason, it's 9025 1 prejudicial because there's no record of how 2 long these demonstratives were up and how they 3 were used. 4 The best that can be said is that Mr. 5 Pepperman wrote them down and created them 6 during the course of the testimony, but the 7 particulars are not reflected in the 8 transcript. 9 So, again, for that reason and the 10 reason that this wasn't disclosed during the 11 Special Master process, which we've been 12 through that many times now with the Court 13 about what the order required the parties to 14 do, Plaintiffs object to the display of these 15 exhibits. 16 THE COURT: Mr. Tulchin. 17 MR. TULCHIN: Yes. Thank you, Your 18 Honor. 19 I wonder if I could just say two 20 things. 21 The first is I was present in 22 Minnesota and I was present in the courtroom 23 during the examination of Mr. Apple, which was 24 conducted by my colleague Mr. Pepperman. 25 These charts that Mr. Cashman showed 9026 1 you are actually pictures of what Mr. Pepperman 2 drew on the board in the courtroom during the 3 cross-examination. 4 And as the Court will see, the 5 upcoming pages of the transcript are not 6 comprehensible without the numbers that Mr. 7 Pepperman actually drew on this board. 8 These pages have been designated for a 9 very long time and so the Plaintiffs 10 necessarily -- and without action, the 11 Plaintiffs didn't object to this testimony. 12 These are demonstrative exhibits, as 13 Mr. Cashman said. There was never any 14 requirement in this case that demonstratives be 15 put through the Special Master process. 16 The Plaintiffs didn't put their 17 demonstratives through the Special Master 18 process. 19 Indeed, we have an agreement that 20 demonstratives that will be used on direct must 21 be disclosed in advance, but not on cross. 22 So we wouldn't have disclosed 23 demonstratives in the Special Master process, 24 although the Plaintiffs, of course, knew 25 exactly what we were going to be doing in the 9027 1 transcript because we designated these pages. 2 And, again, the pages that you're 3 going to come to in a moment where Mr. Green 4 will be reading the cross and Mr. Gralewski the 5 answer don't make any sense without the numbers 6 that were on the board in Minnesota and that 7 these demonstratives are a picture of. 8 These are exhibits not for admission 9 into evidence. They're demonstratives used on 10 cross as demonstratives were used on direct and 11 cross by Mr. Alepin. 12 You know, no one gave us notice that 13 Mr. Alepin was going to go to the flip sheet on 14 direct and draw pictures. 15 He just did it. And I'm not 16 complaining about it. 17 But, here, they've actually had notice 18 because, again, if you see these pages, you 19 can't read them and understand the cross, which 20 is coming in without objection, unless you 21 actually see the numbers that were on the 22 charts. 23 So it's just a red herring to talk 24 about the Special Master process. That was to 25 be used for exhibits that a party was going to 9028 1 offer into evidence, not for demonstratives, 2 certainly not for demonstratives on cross, 3 which is what this is. 4 MR. CASHMAN: Your Honor, Mr. Tulchin 5 wasn't part of the Special Master process and 6 -- 7 MR. TULCHIN: That's not correct. 8 MR. CASHMAN: -- and I was extensively 9 involved in the Special Master process. 10 And this -- these exhibits fall into 11 what might be characterized as a different 12 category than what Mr. Tulchin is talking about 13 demonstratives where we have an agreement about 14 what happens now because these were created 15 long ago. 16 Microsoft knew about them. They knew 17 or should have known whether they intended to 18 use them. 19 And the whole point of the Special 20 Master process is for disclosure of exhibits 21 that the parties know about and that would be 22 used. 23 And I believe there are other 24 demonstrative exhibits that were disclosed in 25 that process so the parties could vet them with 9029 1 objections and argue about them. 2 With respect to whether Mr. Alepin's 3 testimony makes sense -- 4 MR. GREEN: Apple. 5 MR. CASHMAN: Pardon me, Mr. Apple's 6 testimony -- makes sense on this point, it's 7 not the Plaintiffs' fault that Mr. Pepperman 8 didn't make an adequate record. 9 So that is really a misnomer or red 10 herring, not the fact that these exhibits 11 should have been brought to our attention 12 before last night. 13 And so it's a simple matter, really, 14 Plaintiffs request that they not be displayed. 15 MR. GREEN: Your Honor, that doesn't 16 make any sense. 17 If you follow his logic, he would have 18 had to tell us every time Alepin got up and 19 drew his little charts on the flip chart about 20 that during the Special Master process. 21 Obviously, we weren't told. So it 22 just doesn't make any sense what he's talking 23 about because of the same sort of use of 24 demonstrative evidence. 25 THE COURT: Anything else on this? 9030 1 MR. CASHMAN: I think that's all, Your 2 Honor. 3 THE COURT: Mr. Tulchin, anything 4 else? 5 MR. TULCHIN: No, sir. 6 THE COURT: I'll allow you to use the 7 demonstratives, but they shouldn't be displayed 8 for any longer than necessary for the witness. 9 I think the Jury's entitled to a 10 clearer understanding of what the witness is 11 talking about. 12 So the objection is overruled. 13 MR. GREEN: Thank you, Your Honor. 14 MR. TULCHIN: Thank you. 15 MR. CASHMAN: Thank you, Your Honor. 16 (The following record was made in the 17 presence of the jury at 9:13 a.m.) 18 THE COURT: Excuse the delay. Sorry. 19 You may continue. 20 (Whereupon, the following deposition 21 was read to the jury.) 22 Question: Now, Mr. Apple, what I'd 23 like to do with you next is I'd like to go 24 through with you -- go through with you the 25 royalties that ZEos owed Microsoft under its 9031 1 various license agreements over time and plot 2 those royalties on this chart. 3 And I'd like to start, Mr. Apple, with 4 the royalty owed under Microsoft's Exhibit 4435 5 -- under Plaintiffs' Exhibit 4435. 6 Answer: Yes. 7 Question: Now, this was ZEos's 8 distribution agreement for packaged MS 9 products, correct? 10 Answer: MS-DOS, yes. Correct. 11 Question: I'm sorry. And this is the 12 agreement pursuant to which ZEos acquired 13 MS-DOS prior to its license agreement in 1990, 14 correct? 15 Answer: Correct. 16 Question: And what was the price for 17 packaged MS-DOS under this agreement? 18 Answer: $60. 19 Question: And what was the date of 20 that agreement? 21 Answer: April 2, 1989. 22 Question: Now, ZEos's next agreement 23 for MS-DOS is Plaintiffs' Exhibit 4421, 24 correct? 25 Answer: 4421 is DOS 3.3 and 4.0, yes. 9032 1 Question: And what is the date of 2 that agreement? 3 Answer: The effect date is January 1, 4 1990. 5 Question: And this is ZEos's first 6 license agreement for MS-DOS versions 4.01 and 7 3.3, correct? 8 Answer: I believe so, yes. 9 Question: And this is the license 10 agreement that went into effect when you joined 11 ZEos in January 1990, correct? 12 Answer: Yeah. I believe the 13 agreement hadn't been actually reached at that 14 point, but I believe it was put into place 15 retroactively. 16 Question: Retroactively to January 1, 17 1990, correct? 18 Answer: Correct. 19 Question: And by entering into this 20 license agreement with Microsoft, ZEos was able 21 to save a lot of money, was it not? 22 Answer: Yes. 23 Question: Now, what was ZEos's 24 royalty for MS-DOS 4.01 under the January 1990 25 license agreement? 9033 1 Answer: You don't have a page number, 2 do you? 3 Question: Yes, I do. Page 21. 4 Answer: $35. 5 Question: So for MS-DOS 4.01, ZEos 6 had a $25 savings by going from the packaged 7 DOS under the April 1989 agreement to a license 8 agreement under the January 1990 agreement, 9 correct? 10 Answer: Not exactly, no. The 11 packaged DOS was all in one solution that 12 included everything we needed. The MS-DOS 13 license we had additional cost of manuals and 14 disks and manufacturing time. 15 Question: Well, what did it cost ZEos 16 to manufacture a manual per manual? 17 Answer: Well, the manual and disk set 18 that we gave with DOS was probably 8 to $10. 19 Question: It cost ZEos for each unit 20 eight to $10 to manufacture -- to copy the 21 manual and the disk that went in the box? 22 Answer: I believe that's about right. 23 Question: You were given a copy of 24 the manual, were you not? 25 Answer: I'm sure we were. 9034 1 Question: And all you had to do is 2 make a copy of it and put it in a box, correct? 3 Answer: Yeah. It was a pretty thick 4 book. 5 Question: Well, did you go to Kinko's 6 to have it copied? Wasn't there a cheaper way 7 to do it? 8 Answer: No. We had it produced -- it 9 was a thick, perfect bound book, is my 10 recollection. 11 Question: Well, assuming that's the 12 case -- 13 Answer: Okay. 14 Question: -- how much did it cost 15 simply to download the operating system from 16 the master disk onto the machine as part of the 17 manufacturing process? 18 Answer: Oh, just -- just a few 19 minutes of time. 20 Question: And so that was -- costs in 21 the pennies, if that, correct? 22 Answer: That's correct. 23 Question: So you're saying your cost 24 of goods sold was 8 to $10 per unit? 25 Answer: Yeah. 9035 1 Question: But you were still saving 2 $25 -- you had a $25 royalty savings by going 3 from the packaged product to the licensed 4 product, correct? 5 Answer: That's right. 6 Question: So you were saving 15 to 7 $17 per copy by entering into a license 8 agreement with Microsoft, correct? 9 Answer: Per computer where the 10 customer wanted the DOS. The other difference 11 is we were paying the $35 on every computer, 12 only the $60 where the customer actually got 13 the product. 14 Question: I'm going to limit my 15 questions here to customers that actually 16 acquired Microsoft operating system software, 17 because, after all, that's who the Plaintiffs 18 are in this action. 19 Is that fair? 20 Answer: Well, close license 21 agreement, everybody required the software, 22 because we were required to put it on the 23 computer. 24 Question: But you weren't required to 25 put it on the computer. You owed a royalty 9036 1 whether or not you put it on a computer, but 2 you weren't required to put it on the computer, 3 were you? 4 Answer: My recollection is you're 5 correct, but I'm not so sure about that. 6 Question: Well, turn to the next page 7 of Plaintiffs' Exhibit 4421. Actually, page 8 23. And there's a reference there to MS-DOS 9 shell 1.0. 10 Do you see where I am? 11 Answer: Yes. 12 Question: And you testified that that 13 was a user interface that went with MS-DOS, 14 correct? 15 Answer: Correct. 16 Question: And under this license 17 agreement, did ZEos owe an additional royalty 18 for MS-DOS shell? 19 Answer: Yes. 20 Question: And was that royalty $2? 21 Answer: Correct. 22 Question: So if ZEos wanted to 23 install both MS-DOS 4.01 and Shell 1.0, the 24 royalty that ZEos owed was $37, correct? 25 Answer: Yes. 9037 1 Question: Now, if you would look, 2 sir, at page 25 of this license agreement. 3 Answer: Okay. 4 Question: And ZEos there had a 5 per-copy license for MS-DOS 3.3, correct? 6 Answer: Yes. 7 Question: And ZEos's royalty for 8 MS-DOS 3.3 was $37, correct? 9 Answer: Yes. 10 Question: I'd like to turn next to 11 Plaintiffs' Exhibit 4422. 12 Now, is Plaintiffs' Exhibit 4422 13 ZEos's license agreement for MS-DOS 4.01 and 14 Windows 3.0 dated June 1, 1990? 15 Answer: Correct. 16 Question: And that's six months after 17 the license agreement we just looked at, 18 Plaintiffs' Exhibit 4421? 19 Answer: That's right. 20 Question: And this agreement 21 superseded, or replaced Plaintiffs' Exhibit 22 4421; is that correct? 23 Answer: Yeah. It's actually five 24 months, and, yes. 25 Question: If you would turn to page 9038 1 21 of this agreement. 2 Answer: Yes. 3 Question: What is ZEos's total 4 royalty under this agreement for both MS-DOS 5 4.01 and Shell 1.0? 6 Answer: $29. 7 Question: So in five months, ZEos's 8 royalty for MS-DOS 4.01 and Shell 1.0 decreased 9 from $37 in January of 1990 to a total of $29 10 in June '90; is that correct? 11 Answer: Yes. 12 Question: And that's a savings of $8 13 per system, correct? 14 Answer: Yes. 15 Question: And if you'd look at page 16 23 of Plaintiffs' Exhibit 4422. 17 Answer: Yes. 18 Question: Does that page set out 19 ZEos's royalty for Windows 3.0 in June 1990? 20 Answer: Yes. 21 Question: And what is that royalty? 22 Answer: $25. 23 Question: I'd like you to turn next, 24 Mr. Apple, to Plaintiffs' Exhibit 4424. 25 Answer: Yes. 9039 1 Question: Now, is this an amendment 2 to the license agreement we were just looking 3 at, Plaintiffs' Exhibit 4422? 4 Answer: Yes. 5 Question: And this amendment gave 6 ZEos a license for MS-DOS 5.0; is that correct? 7 Answer: Yes. 8 Question: And the date of this 9 agreement is January 1991; is that correct? 10 Answer: Amendment. Yes. 11 MR. GREEN: I'm sorry. Amendment. 12 Question: And what was ZEos's royalty 13 for MS-DOS 5.0 in January 1991? 14 Answer: $29. 15 Question: Now, MS-DOS 5.0 was an 16 improvement over MS-DOS 4.01, was it not? 17 Answer: I don't know. 18 Question: Well, did you testify 19 earlier that customers were reluctant to obtain 20 MS-DOS 4.01? 21 Answer: DOS 4.0 was slow to catch on. 22 For -- for some number of months, customers 23 wanted 3.3. 24 Question: Well, did MS-DOS 5.0 25 contain additional features that MS-DOS 4.01 9040 1 did not? 2 Answer: I don't know. 3 Question: Do you remember whether 4 MS-DOS 5.0 was generally considered a 5 meaningful upgrade over MS-DOS 4.01? 6 Answer: I honestly don't remember the 7 difference between the two. 8 Question: Well, it's true, though, 9 isn't it, that ZEos's royalty did not increase 10 from MS-DOS 4.01 to MS-DOS 5.0, correct? 11 Answer: Well, it didn't, but the 12 other -- there's more going on than just 13 version changes. 14 Question: Well, I'm asking you, 15 looking at the royalty -- 16 Answer: Okay. 17 Question: -- the royalty that ZEos 18 owed per system did not increase from MS-DOS 19 4.01 in June 1990 to MS-DOS 5.0 in January '91; 20 is that correct? 21 Answer: Yes, it is. 22 Question: I'd like for you to look 23 next at Plaintiffs' Exhibit 4425. 24 Is this an amendment to ZEos's license 25 agreement dated January 1992? 9041 1 Answer: Yes, it is. 2 Question: And if you'd look at page 3 10 of Plaintiffs' Exhibit 4425 -- 4 Answer: Yes. 5 Question: -- what was ZEos's MS-DOS 6 5.0 royalty in January 1992? 7 Answer: $21. 8 Question: So in one year from January 9 1991 to January 1992, ZEos's royalty for MS-DOS 10 5.0 decreased by $8? 11 Answer: Per unit, that's right. 12 Question: I'd like you to look next 13 at Plaintiffs' Exhibit 4426. 14 Answer: Okay. 15 Question: Is this an amendment to 16 ZEos's license agreement with Microsoft dated 17 September of 1992? 18 Answer: Yes. 19 Question: And if you'd look at page 2 20 of this amendment, does this amendment give 21 ZEos the right to license Windows 3.1? 22 Answer: Yes. 23 Question: And what was ZEos's royalty 24 for Windows 3.1 in September 1992 under this 25 agreement? 9042 1 Answer: $25. 2 Question: Was Windows 3.1 considered 3 an improvement over Windows 3.0? 4 Answer: It was assumed to be. I 5 don't know the difference. 6 Question: Did ZEos's royalty change 7 at all from Windows 3.0 in June of 1990 to 8 Windows 3.1 in September 1992? 9 Answer: No. 10 Question: And, finally, I'd like you 11 to look at Plaintiffs' Exhibit 4428. 12 Answer: Yes, 4428. 13 Question: Now, is this an amendment 14 to ZEos's license agreement dated January 1993? 15 Answer: Yes. 16 Question: And if you look at page 12 17 of this amendment, does this amendment give 18 ZEos a license for MS-DOS 6.0? 19 Answer: Yes. 20 Question: And what was ZEos's royalty 21 for MS-DOS 6.0 in January 1993 under this 22 amendment? 23 Answer: $21. 24 Question: So, in other words -- I'll 25 withdraw. 9043 1 Was MS-DOS 6.0 considered an 2 improvement over MS-DOS 5.0? 3 Answer: I don't know. 4 Question: Well, it's true, though, 5 isn't it, that ZEos's MS-DOS royalty did not -- 6 did not increase from MS-DOS 5.0 in January 7 1992 to MS-DOS 6.0 in January of '93? 8 Answer: Well, the royalty per unit 9 did not increase, but we were -- our total 10 royalty payments increased substantially. 11 Question: Because you were selling 12 more machines, correct? 13 Answer: Yes, we were farther up the 14 volume scale. 15 Question: Well, it's volume-based 16 pricing. I'm just looking at your royalties 17 for MS-DOS. 18 Answer: Yes. 19 Question: And is it true that over 20 the three-year period we've been looking at, 21 January 1990 to January 1993, that ZEos's 22 MS-DOS royalties decreased by $16 from $37 to 23 $21; is that right? 24 Answer: Yes. 25 Question: And that's a decrease of 9044 1 about 43 percent, is it not? 2 Answer: Yeah. 3 Question: In other words, in this 4 three-year period, ZEos's royalty for MS-DOS 5 decreased by about 43 percent even though 6 Microsoft over that same period continued to 7 release new versions of its MS-DOS product, 8 correct? 9 Answer: Yes. 10 Question: All right. Mr. Apple, to 11 do the next part of this exercise, I'm going to 12 hand you this useful document that I created. 13 I hope you can read my handwriting. 14 Answer: Oh, yes. 15 Question: Now, Mr. Apple, what I'm 16 going to do next is I'm going to hand you some 17 copies of some advertisements in PC World -- 18 Answer: Okay. 19 Question: -- that were provided to me 20 by Plaintiffs' counsel in this action for 21 possible use with your testimony. 22 And the first one I'm handing you is a 23 PC World advertisement dated July 1991, which 24 I've marked for identification as Defendant's 25 Exhibit 3749. 9045 1 Answer: Thank you. 2 Question: And, Mr. Apple, what I'm 3 going to do is I'm going to try to identify 4 machines from these various advertisements that 5 came preinstalled standard with both MS-DOS and 6 Windows so that we have an apple-to-apple 7 comparison, pardon the pun. 8 Could you look, sir, at this 9 advertisement, and I believe it's the sixth 10 page. 11 Answer: All right. 12 Question: And let me know what the 13 advertised price for ZEos's 386SX computer was 14 in July 1991. 15 Answer: $2,295. 16 Question: And it's true, isn't it, 17 that in July 1991, the ZEos 386SX came 18 preinstalled with MS-DOS 4.01 and Windows 3.0? 19 Answer: It did for most customers. 20 Question: It did for most customers? 21 Answer: The advertisement -- I don't 22 offhand see DOS and Windows in the ad. 23 Question: Well, let me -- let me show 24 you another document that I've marked as 25 Defendant's Exhibit 3748. 9046 1 It's another advertisement, and ask 2 you to look at the third page of that document 3 and see if that refreshes your recollection 4 that some of ZEos's 386 computers came with 5 MS-DOS 4.01 and Windows 3.0 in July of '91, if 6 you look at the third page. 7 Answer: Yes. 8 Question: So at least some of ZEos's 9 386SX computers came with MS-DOS 4.01 and 10 Windows 3.0 in July of 1991, correct? 11 Answer: Oh, absolutely. 12 Question: And what was ZEos's royalty 13 for MS-DOS 4.01 in July 1991, if you look at 14 the chart? 15 Answer: For DOS 4.01? 16 Question: Yes. 17 Answer: In July of '91? 18 Question: Yes. 19 Answer: I'm not sure that was still a 20 product in July of '91. 21 Question: Well, we just were looking 22 at this advertisement, which is dated July 1991 23 and advertises MS-DOS 4.01 on it. 24 Answer: Okay. Well, the DOS 4.01 25 royalty was $37. 9047 1 Question: If you look beneath it in 2 the chart below -- 3 Answer: Or, I'm sorry, $29. 4 Question: And what was the Windows 5 3.0 royalty in July 1991? 6 Answer: $25. 7 Question: Now, during his opening 8 statements, one of the Plaintiffs' lawyers, 9 Mr. Crew, referred to the operating system as 10 the computer's brain, and that's why I have it 11 there. 12 But what I would like you to give me, 13 sir, for that column is the total of MS-DOS 14 4.01 and Windows 3.0. 15 Answer: With the hard goods or -- 16 Question: No. Just the total for the 17 royalties. 18 Answer: Royalties. $54. 19 Question: And that total royalty for 20 MS-DOS 4.01 and Windows 3.0 in July of 1991 21 represented about 2.4 percent of the purchase 22 price of the PC, correct? 23 Answer: Well, that's a little apples 24 and oranges. One is our cost, and the other is 25 our selling price. 9048 1 Question: What I'd like -- what I'm 2 comparing -- 3 Answer: Okay. 4 Question: -- it's my examination -- 5 Answer: Okay. 6 Question: Is the percentage that 7 ZEos's total operating system royalties 8 represented of the advertised purchase price of 9 your computer. 10 Answer: Exactly right. 11 Question: And that's 2.4 percent? 12 Answer: (Witness nods head.) 13 (Whereupon, the reading of the 14 deposition adjourned to the jury.) 15 MR. GREEN: You are nodding your head 16 affirmatively. 17 (Whereupon, the reading of the 18 deposition continued to the jury.) 19 Question: And, Mr. Apple, I'd like to 20 hand you another PC World advertisement 21 provided by Plaintiffs' counsel. This one for 22 January 1992. 23 Answer: Thank you. 24 Question: And I'd like you to look at 25 what I believe is the fourth page of this 9049 1 advertisement. 2 Answer: Okay. 3 Question: And I'm looking here for 4 packages of ZEos's 386SX-20 computer, which in 5 January 1992 were -- were advertised as coming 6 with both Windows and MS-DOS, and by my review, 7 that is Packages 3 and 4; correct? 8 Answer: Yes. 9 Question: And what is the price for 10 Package Number 3? 11 Answer: 19.95. 12 Question: And what is the price for 13 Package Number 4? 14 Answer: 22.95. 15 Question: And, Mr. Apple, just so the 16 -- the record is clear, the advertisement that 17 you're reading from I've had that marked as 18 Defendant's Exhibit 3750, correct? 19 Answer: Correct. 20 Question: And if you could look, sir, 21 at the chart that I gave you, what was ZEos's 22 MS-DOS 5.0 royalty in January 1992? 23 Answer: $21. 24 Question: And what was ZEos's Windows 25 3.0 royalty in January 1992? 9050 1 Answer: $25. 2 Question: And what was the total 3 royalty that ZEos paid per system for both 4 MS-DOS 5.0 and Windows 3.0 in January 1992? 5 Answer: $46. 6 Question: And that total royalty of 7 $46 represents 2 percent of the purchase price 8 of Package Number 4 of the ZEos 386SX-20, 9 correct? 10 Answer: Yes. 11 Question: And it represents 2.3 12 percent of the purchase price of the ZEos 13 386SX-20 Package Number 3, correct? 14 Answer: Correct. 15 Question: Plaintiffs -- counsel only 16 gave me three advertisements, so this is the 17 last one, July 1992. 18 Okay. I'm handing the witness an 19 advertisement dated July 1992 that I've marked 20 for identification as Defendant's Exhibit 3751. 21 Now, if you'd look, Mr. Apple, at page 22 4 of this advertisement. 23 Answer: Yes. 24 Question: And what I'm going to do, 25 actually, for simplicity's sake, is I'm going 9051 1 to focus only on ZEos's 486s. 2 And if you look at the ZEos 486s -- 3 well, first of all, is it true that for these 4 various computers, Packages 2, 3, and 4 came 5 with both MS-DOS 5.0 and Windows 3.1? 6 Answer: Yes. 7 Question: And if you look at the 8 table in the middle of the document, ZEos's 9 average advertised purchase price for a ZEos 10 486 computer for Packages 2 through 4 range 11 from $1,895 to $3,395? 12 Answer: Yeah. I don't -- I don't 13 know if I should explain these ads a little 14 bit, but these are -- because we custom built 15 everything, these were just recommended 16 starting points. 17 Question: I'm just asking about 18 the -- 19 Answer: Okay. 20 Question: -- the -- the standard 21 configurations that ZEos advertised -- or I 22 should say the configurations that ZEos 23 advertised. 24 Answer: Yes. 25 Question: And for Packages 2 through 9052 1 4, which included both Windows 3.1 and MS-DOS 2 5.0, the purchase prices advertised here for 3 ZEos 486 SX computers ranged from $1,895 to 4 $3,395, correct? 5 Answer: Correct. 6 Question: And what was ZEos's royalty 7 for MS-DOS 5.0 in July 1992? 8 Answer: $21. 9 Question: And what was ZEos's royalty 10 for Windows 3.1 in July 1992? 11 Answer: $25. 12 Question: And what was the total 13 royalty for both MS-DOS 5.0 and Windows 3.1 in 14 July 1992? 15 Answer: $46. 16 Question: And so that represents 17 between 1.4 percent and 2.4 percent of the 18 purchase price of the -- of the ZEos 486 19 computers advertised in July 1992 with both 20 MS-DOS 5.0 and Windows 3.1, correct? 21 Answer: For this high-end line, 22 correct. 23 Question: So to sum up, in the 24 one-year period we've been looking at between 25 July 1991 and July 1992, ZEos's combined 9053 1 royalty for MS-DOS and Windows, what 2 Plaintiffs' counsel has referred to as the 3 computer's brain, was between 1.4 percent and 4 2.4 percent of the total purchase price 5 advertised for ZEos's computers in these 6 advertisements, correct? 7 Answer: Yes. 8 MR. PEPPERMAN: I have no further 9 questions. 10 REDIRECT EXAMINATION 11 BY MR. HAGSTROM: 12 Q. Good morning, Mr. Apple. 13 I think in the series of questions 14 that Mr. Pepperman has asked you about these 15 advertisements, you mentioned that there's more 16 going on here. 17 Do you recall saying something like 18 that? 19 Answer: Yes. 20 Question: And what did you have in 21 mind when you said that? 22 Answer: Well -- well, the chart that 23 we constructed, one of the reasons the costs 24 were going down was not so much because of 25 version changes, in my opinion, but we were 9054 1 offering Microsoft quite a bit more as time 2 went on. 3 In 1989, for example, total company 4 sales for ZEos, the year before I got there, 5 was about $20 million. 6 Two years later, the total company 7 sales were about $200 million. So we were a 8 ten times bigger customer to Microsoft, and I 9 think that's a lot of what drove this, not 10 really the version changes. 11 Question: So was Mr. Pepperman 12 comparing apples and apples to use -- not to 13 use a pun? 14 Answer: Yeah, we certainly were not 15 the same customer in 1990 as we were in, say, 16 '92, '93. 17 Question: So I think you testified 18 earlier that there were volume discounts with 19 Microsoft? 20 Answer: Yes. Our understanding was 21 that if we could commit to more volume with 22 Microsoft, we could get better prices. And I 23 believe that's, in fact, what happened, a 24 better royalty rate on the -- this per -- 25 per-processor agreement that we had. 9055 1 Question: And as you went through 2 these contracts and amendments, were the 3 minimum commitments to Microsoft substantially 4 increasing? 5 Answer: I believe they were. 6 Question: Take a look at Exhibit 7 4425, Exhibit B, page 3. 8 Answer: Yes. 9 Question: Does it show that the 10 minimum commitment for that period was now up 11 to almost 2.6 million? 12 Answer: Correct. 13 Question: And in the prior 14 agreements, it was several hundred thousand 15 dollars less than that? 16 Answer: Yes. In fact, maybe almost 17 $2 million less than that. 18 Question: Now, in going through these 19 prices that Mr. Pepperman showed you from those 20 contracts and just setting aside the volume 21 pricing issue, what type of price tests were 22 you seeing in computer hardware components that 23 you were using in your machines? 24 Answer: From Intel, for example, a 25 microprocessor might be introduced with a cost 9056 1 to me of $400. 2 Within two years I might expect to see 3 that at $100 or maybe less, to the point where 4 it might even not be sold at all. 5 Question: So a 75 percent decrease 6 was not out of the question? 7 Answer: No, not at all. 8 Question: If you'll also take a look 9 at 4428, page 12. 10 Answer: Yes. 11 Question: What was the Windows price 12 per license, per-processor license? 13 Answer: 4428, page 12? 14 Question: Yes. 15 Answer: Is referring to DOS 6. 16 Question: Oh, I'm sorry. What was 17 the DOS 6 price? 18 Answer: $21. 19 Question: And do you know, have the 20 Windows prices stayed the same during this time 21 frame? 22 Answer: No. There was, actually, a 23 new version of Windows phased in somewhere in 24 this time frame that was more expensive than 25 Windows 3.1. 9057 1 Question: Based upon your experience, 2 actually considering the volume changes -- if 3 there had been no volume change, did you have 4 experience as to whether or not the Microsoft 5 pricing on the operating system software and 6 Windows combined was going up, staying 7 relatively the same, or going down? 8 Answer: Well, you know, it's -- in 9 January of '90 we were paying Microsoft $37 for 10 a fully functional computer. 11 Six months later it was $54. We saw 12 dramatic decreases in hardware price, never saw 13 a dramatic decrease in Microsoft pricing. In 14 fact, saw an increase on the next version of 15 Windows that -- that isn't on here. 16 Question: Now, early in his 17 examination, Mr. Pepperman was asking you about 18 whether or not ZEos actually licensed DR-DOS. 19 Do you recall that? 20 Answer: Yes. 21 Question: Was ZEos looking or 22 investigating DR-DOS as a potential alternative 23 at some point in time? 24 Answer: When I arrived in January of 25 '90, before this per-processor issue was -- was 9058 1 the only practical alternative, the company was 2 very interested in DR-DOS as not the primary 3 product, but as an alternative for those who 4 wanted to save a little bit of money. 5 Question: And after, I think the term 6 of the one letter we looked at used forced -- 7 Mr. Herrick used the word forced? 8 Answer: Yes. 9 Question: After Microsoft forced ZEos 10 into the per-processor license, was there any 11 reason to continue to look at licensing DR-DOS? 12 Answer: No. The only attraction to 13 us would have been as a lower-cost alternative. 14 By definition, it was impossible at 15 that point for DR-DOS to be a lower-cost 16 alternative. 17 Question: Do you recall Mr. Pepperman 18 asked you some questions about the mouse issue, 19 and I think in early -- in 1990, I think it 20 was, he showed you an example of where the 21 pricing went down by, I think it was $4.15. 22 Do you recall that? 23 Answer: Yes. 24 Question: But you didn't think it 25 related to the COMDEX issue; is that right? 9059 1 Answer: I didn't think so. I think 2 that was our -- our volume increasing. 3 Question: Now, with regard to mice, 4 didn't Mr. Pepperman ask whether, in fact, 5 there were many mice competitors? 6 Answer: They were. 7 Question: And what's the effect when 8 there are many competitors competing for a 9 company's business like yours? 10 Well, what's the effect of the 11 competition in mice? 12 Answer: The effect was to drive costs 13 down. In mice, in particular, costs went down 14 dramatically. 15 Question: Now, with regard to the 16 operating system, once you had the 17 per-processor licenses in place with Microsoft, 18 did you really have any competitive 19 alternatives to that? 20 Answer: The only chance for us to 21 sell another operating system was something 22 like Novell NetWare, where it served really a 23 pretty different purpose and -- and had a 24 different customer, different use, and was a 25 lot more money, anyway, so that the extra, you 9060 1 know, $54 that the customer was paying maybe 2 wasn't as painful to the customer because it 3 was a pretty painful purchase to begin with. 4 Question: Well, in your experience, 5 was price competition eliminated for OS 6 software as a result of long-term per-processor 7 license agreements like you had with Microsoft? 8 Answer: Yeah. It was -- it was 9 impossible -- Microsoft was the name brand. 10 That is the product most people wanted. But it 11 was impossible for a lesser-known company to 12 enter the market at a lower price, to enter the 13 OEM market. 14 Question: And Mr. Pepperman asked you 15 a question, and I think I have it quoted 16 precisely. 17 The customers who wanted Microsoft's 18 operating system software on their machines did 19 not receive higher prices as a result of ZEos's 20 agreements with Microsoft; isn't that correct? 21 And you answered, I believe so. 22 Based upon your experience with 23 dealing with mice and computer hardware, 24 including hardware and other computer 25 components, what was your experience when there 9061 1 was multiple competitors competing for your 2 business? 3 Answer: I answered the question, of 4 course, in the context of the reality that we 5 faced. My experience in those components where 6 we had competition, cost went down a lot 7 faster. 8 We talked earlier in the day about 9 Western Digital and CD and hard drive guys 10 coming in and trying to underbid each other. 11 That's what competition did in the business. 12 Question: The DR-DOS pricing for 13 operating system software, did you have an 14 understanding that that was higher, lower, the 15 same as Microsoft's operating system software? 16 Answer: My recollection and 17 assumption is that it would be low. 18 Question: Are you aware, did -- in 19 the releases of Microsoft's operating systems 20 that ZEos received, didn't Microsoft have to 21 fix bugs in its operating systems? 22 Answer: Certainly. Any -- any 23 complex piece of software like -- like an 24 operating system is -- is going to have bugs. 25 And, in fact, these days there's a built-in 9062 1 ability to go out on the Internet and -- and 2 get fixes. 3 Question: And Mr. Pepperman also 4 asked you about the free public domain 5 operating system software. 6 Do you recall that? 7 Answer: Yes. 8 Question: Could ZEos's customers 9 install that public domain software on their 10 systems after they purchased from you? 11 Answer: Yes. 12 Question: But if it was during the 13 time of the per-processor license agreement 14 between Microsoft and ZEos, what was the effect 15 of that? 16 Answer: Well, they would have been 17 paying for Microsoft software, but once they 18 had their computer, they could install anything 19 they wanted on it. 20 (Whereupon, the reading of the 21 deposition to the jury adjourned.) 22 THE COURT: Let's take a recess for 23 ten minutes. 24 Remember the admonition previously 25 given. 9063 1 Leave your notebooks here. 2 We'll be back in ten minutes. 3 Thank you. 4 (A recess was taken from 9:48 a.m. 5 to 10:01 a.m.) 6 (The following record was made out of 7 the presence of the jury.) 8 MR. CASHMAN: Before the Jury comes 9 in, Your Honor, maybe we should discuss this 10 question that came from the Juror Number 12 11 yesterday about whether Mark Chestnut is still 12 to this day an employee of Microsoft. My 13 understanding he is not. 14 MR. TULCHIN: Your Honor, like any 15 deposition testimony, it is what it is. And I 16 don't think an answer should be given to this 17 question because this was deposition testimony 18 of Mr. Chestnut. 19 Questions were asked at the time in 20 1998. There were lots of pieces of information 21 that one might imagine could be elicited from 22 Mr. Chestnut for the period covering the last 23 nine years, including where he's currently 24 employed, but it's just not the way this 25 process should work. 9064 1 THE COURT: Anything else? 2 MR. CASHMAN: Nothing on that, Your 3 Honor. 4 THE COURT: Okay. 5 MR. CASHMAN: I just -- before we 6 resume, I just want to hand up -- because we're 7 going to play the videotape deposition 8 testimony of Richard Freedman next, and I would 9 give the Court the transcript. 10 THE COURT: Will you finish 11 Chestnut -- or, I mean, Mr. Apple? 12 MR. CASHMAN: Mr. Apple, pardon me. 13 THE COURT: Will you finish Mr. Apple? 14 MR. TULCHIN: Pretty soon. 15 MS. NELLES: Very close. 16 THE COURT: Okay. I didn't know we 17 were that close. 18 MR. CASHMAN: And a copy for 19 Microsoft. And two copies for the court 20 reporter. 21 (The following record was made in the 22 presence of the jury at 10:04 a.m.) 23 THE COURT: You may continue, sir. 24 MR. CASHMAN: Thank you, Your Honor. 25 (Whereupon, the reading of the 9065 1 deposition continued to the jury.) 2 Question: Mr. Apple, would you take a 3 look at -- in your notebook, and I believe that 4 it's Plaintiffs' Exhibit 4470. 5 I presume that you did not receive a 6 copy of this e-mail when it was prepared in 7 1991; is that correct? 8 Answer: That's correct. 9 Question: And if you look, this 10 indicates that in November of 1991, Gregt, who 11 may be Greg Truex, who we've seen earlier today 12 in documents, and a man by the name of Ted 13 apparently visited ZEos during that time frame? 14 Answer: Yes. 15 Question: And do you recall a meeting 16 with them? 17 Answer: I -- I don't. 18 Question: Now, you mentioned the 19 COMDEX conference. 20 What is COMDEX? 21 Answer: COMDEX was, at the time, the 22 largest trade show for hardware and software 23 manufacturers. 24 Question: And what time of the year 25 is that usually held? 9066 1 Answer: It was in November. 2 Question: So it was sometime in the 3 time frame of this e-mail? 4 Answer: If it was this year, if it 5 was the year of '91. 6 Question: Okay. When you say if this 7 year, because you're not quite sure if the 8 Logitech issue came up in this year? 9 Answer: Correct. 10 Question: Okay. 11 If you take a look at the fourth 12 paragraph down, it starts with the word during. 13 Answer: Yes. 14 Question: During the last half a day, 15 we discussed with ZEos's Greg Herrick and Rick 16 Apple. 17 Do you see that? 18 Answer: Yes. 19 Question: And you see one of the 20 items is the expiring MS-mouse agreement? 21 Answer: Yes. 22 Question: Now, if we turn the page 23 and look at the second full paragraph, there's 24 a reference to expiring MS-mouse agreement. 25 Do you see that? 9067 1 Answer: Yes. 2 Question: Now, in that document, in 3 this paragraph it refers in the third sentence, 4 do you see that, Logitech has offered ZEos a 5 300 BPI mouse with the ZEos logo for $12? 6 Answer: Yeah. That's -- that's the 7 mouse. 8 Question: Okay. And Mr. Pepperman 9 was showing you an earlier contract that had 10 expired by this time that had a price of about 11 $24 in it? 12 Answer: Yeah, $22, that's right. 13 Question: And that -- the renewed 14 contract then went down to, what was it, do you 15 recall? 16 Answer: 18 -- 18 and change. 17 Question: So was the Logitech price 18 still cheaper than what Microsoft was selling 19 you similar mouses at? 20 Answer: Yes. 21 Question: But as a result of the 22 discussions that you had with Microsoft 23 concerning raising the operating system price, 24 were you able to take advantage of this -- were 25 you economically able to take advantage of this 9068 1 Logitech $12 price? 2 Answer: No. The -- the savings were 3 wiped out. 4 Question: How would you describe the 5 relationship between Microsoft and ZEos? 6 Answer: Tense. 7 Question: Can you explain that 8 further? 9 Answer: Well, as I explained earlier 10 in the day, we needed them to exist, yet we 11 were very uncomfortable with a lot of the 12 requirements for doing business with them. 13 The per-processor agreement, the whole 14 concept we didn't like; paying for product we 15 didn't ship, that customers didn't want. 16 This whole thing with the -- with the 17 mouse I thought was very heavy-handed. I had 18 never heard of a $5 savings that we were 19 getting by -- on Windows by including a 20 Microsoft mouse. 21 And, suddenly, rather than being 22 competitive in mice, they found a way to make 23 the competitor's product more expensive. It 24 was -- it was -- we just didn't like the way 25 they treated us as a customer. 9069 1 Question: Now, I think Mr. Pepperman 2 was suggesting to you that, in fact, Microsoft 3 beat Logitech's price. 4 Do you recall that? 5 Answer: Yes. 6 Question: Did Microsoft beat 7 Logitech's price? 8 Answer: No. 9 Question: Did Mr. Pepperman or 10 anybody from Microsoft call you to discuss this 11 case? 12 Answer: No. 13 Question: Would you have been 14 available to talk to them if they had? 15 Answer: Yes. 16 Question: And I think you mentioned 17 five or six conversations with Plaintiffs' 18 attorneys. 19 Answer: Yes. 20 Question: Were -- well, can you 21 describe what probably five out of six of those 22 were? 23 Answer: Five out of six would have 24 been, I don't want to do this. I'm a busy guy, 25 and -- 9070 1 Question: And -- and ultimately you 2 were subpoenaed? 3 Answer: Correct. 4 (Whereupon, reading of the deposition 5 to the jury adjourned.) 6 MR. CASHMAN: No further questions for 7 redirect. 8 (Whereupon, reading of the deposition 9 to the jury continued.) 10 RECROSS-EXAMINATION 11 BY MR. PEPPERMAN: 12 Question: First, Mr. Apple, I'd like 13 you to take a look at Plaintiffs' Exhibit 4470, 14 which is the internal e-mail that Mr. Hagstrom 15 showed you. 16 Answer: Yes. 17 Question: Now, this is an internal 18 Microsoft e-mail, is it not? 19 Answer: It looks to be. 20 Question: And it's an e-mail from 21 Greg Truex reporting on a meeting he had with 22 -- a meeting he and Ted Hadem had out in ZEos 23 in St. Paul, correct? 24 Answer: Yes. 25 Question: So what we're dealing with 9071 1 here is an e-mail that was only circulated 2 within Microsoft, correct? 3 Answer: It wasn't circulated to me. 4 Question: And this was not something 5 on which you were copied or anyone at ZEos was 6 copied? 7 Answer: For sure not me. I assume 8 not others at ZEos. 9 Question: And it doesn't appear that 10 anyone outside of Microsoft was copied on this 11 e-mail, correct? 12 Answer: Kellyw and Ronh. I don't 13 know who they are. 14 Question: Ron Hasogie? Have you ever 15 met Mr. Hasogie? 16 Answer: I don't recall having met 17 him. 18 Question: And you'd agree this is an 19 internal Microsoft e-mail, correct? 20 Answer: I believe so, yes. 21 Question: And the Microsoft people 22 are talking candidly about the ZEos account, 23 are they not? 24 Answer: Yes. 25 Question: On the second page of this 9072 1 document where it talks about the expiring 2 MS-mouse agreement, is there any reference 3 there to proposing an additional charge for the 4 Windows device drivers if ZEos doesn't purchase 5 mice from Microsoft? 6 Answer: It says price is the key, but 7 it does not talk to other amounts. 8 Question: But there's no reference 9 here to an extra charge for mouse -- mice 10 device drivers, is there -- or mouse drivers, I 11 should say? 12 Answer: I don't see it. 13 Question: Now, Mr. Hagstrom asked you 14 about my -- my handwritten charts, and you 15 noted that part of the reason why ZEos's 16 royalties were declining was because of ZEos's 17 volume was going up, correct? 18 Answer: Yes. 19 Question: And you testified that as 20 ZEos's volume went up, ZEos's minimum 21 commitments increased also, correct? 22 Answer: Yes. 23 Question: Now, I just want to be 24 clear so the Jury doesn't misunderstand it, 25 those minimum commitment payments were not in 9073 1 addition to the royalty payments that ZEos made 2 to Microsoft, were they? 3 Answer: No. They were the royalty 4 payments. 5 Question: And what those minimum 6 commitment payments were -- were royalty rates 7 that I put on my chart multiplied by ZEos's 8 projected volume for any given quarter, 9 correct? 10 Answer: That's right. 11 Question: Now, Mr. Hagstrom asked you 12 some questions about demand for Microsoft 13 software. 14 Is it true that the demand for Windows 15 by customers increased over time in the 1990s? 16 Answer: I believe so. 17 Question: And by 1995, when Microsoft 18 released Windows 95, the demand for Windows was 19 much higher than it was in the early 1990s, 20 correct? 21 Answer: Well, by then we'd had five 22 years of virtually no competition. Certainly. 23 Question: And Windows 95 was 24 considered to be a great improvement over the 25 combination of MS-DOS 6.0 and Windows 3.1, 9074 1 correct? 2 Answer: In general, it -- it was a 3 new operating system. 4 Question: And customer demand for 5 Windows 95 enabled ZEos to sell more PCs, did 6 it not? 7 Answer: Well, my last active day at 8 ZEos was about a week after the Windows 95 9 launch. 10 Question: Well, the Windows 95 launch 11 was August 24, 1995. Does that sound correct? 12 Answer: Yes. 13 Question: And did you live, sir, in a 14 suburb of Minneapolis, correct? 15 Answer: Correct. 16 Question: At the time you worked in 17 St. Paul, is that true? 18 Answer: About half time in St. Paul 19 and the other half I would commute to Idaho. 20 Question: But you were in the 21 Minneapolis-St. Paul area, were you not? 22 Answer: Yes. 23 Question: And isn't it true that on 24 the night before Windows 95 was released, 25 customers in Minnesota lined up outside stores 9075 1 to get an opportunity to buy Windows 95 after 2 midnight? 3 Answer: I believe that's true. 4 (Whereupon, reading of the deposition 5 to the jury concluded.) 6 MR. GREEN: Nothing further, Your 7 Honor. 8 MR. CASHMAN: Your Honor, at this time 9 Plaintiffs have some exhibits to offer. 10 May I approach? 11 THE COURT: Yes. 12 MR. CASHMAN: I'm handing up to the 13 Court a hard copy of exhibits and two CDs. 14 THE COURT: Thank you. 15 MR. CASHMAN: Plaintiffs move for the 16 admission of Plaintiffs' Exhibits 4421, 4422, 17 4423, 4424, 4425, 4426, 4427, 4428, 4429, 4430, 18 4435, 4437, 4438, 4439, 4440, 4470A. 19 Plaintiffs respectfully move these 20 into evidence. 21 MR. GREEN: No objection, Your Honor. 22 THE COURT: Admitted. 23 MR. CASHMAN: Thank you, Your Honor. 24 MR. GREEN: Your Honor, at this time 25 Microsoft would like to move into evidence the 9076 1 following exhibits, which I will give copies to 2 everyone. 3 Plaintiffs' Exhibit 4431, Plaintiffs' 4 Exhibit 4468, Defendant's Exhibit 3748, 5 Defendant's Exhibit 3749, Defendant's Exhibit 6 3750, Defendant's Exhibit 3751, Defendant's 7 Exhibit 3747A. 8 THE COURT: Any objection? 9 MR. CASHMAN: No objection, Your 10 Honor. 11 THE COURT: They're all admitted. 12 May this witness step down? 13 MR. CASHMAN: Your Honor, the 14 Plaintiffs now wish to call Richard Freedman by 15 videotape deposition, which was taken in the 16 Caldera versus Microsoft action on August 4th, 17 1998. 18 THE COURT: Okay. 19 Could I have those exhibits there? 20 THE CLERK: Get the lights? 21 THE COURT: Yeah, please. 22 Okay. You may proceed. 23 (Whereupon, the following video was 24 played to the jury.) 25 Question: Good morning, Mr. Freedman. 9077 1 Thank you for appearing here for your 2 deposition today. 3 We have never met before today, have 4 we? 5 Answer: No, we haven't. 6 Question: I am representing the 7 plaintiff in a lawsuit, an antitrust lawsuit 8 against Microsoft Corporation, which I 9 understand is your former employer, correct? 10 Answer: That is correct. 11 Question: Now, I'm aware of at least 12 the two depositions you gave in the STAC 13 Electronics lawsuit that was brought against 14 Microsoft Corporation, correct? 15 Answer: That is correct. 16 Question: At least as far as you 17 know, Infoworld was out in front in the media 18 reporting that there were instances of data 19 loss associated with Microsoft's compression 20 technology in MS-DOS 6.0, correct? 21 Answer: Infoworld was certainly the 22 lead reporter. The accuracy of what they 23 reported is subject to some substantial amount 24 of doubt. 25 Question: As far as Microsoft is 9078 1 concerned, Microsoft disagreed with Infoworld's 2 assessment about the problems that it found to 3 be in MS-DOS 6.0, correct? 4 Answer: That is certainly my memory. 5 Microsoft did disagree. 6 Question: And subsequent to the 7 reports by Infoworld, Microsoft made the 8 decision to release, to develop and release 9 MS-DOS 6.2, correct? 10 Answer: Yes. Subsequent to those -- 11 in the time line, the decision to develop 12 MS-DOS 6.2 was after that reporting happened. 13 Question: MS-DOS 6.0 was released in 14 March 1993; is that correct? 15 Answer: That is my memory, yes. 16 Question: And MS-DOS 6.2 was 17 released, I have an indication, September 1994. 18 Does that sound correct or was it 19 earlier? 20 Answer: That doesn't sound right. 21 September of '94 sounds a year late. 22 Question: So September of '93? 23 Answer: Right, roughly. 24 Question: Now, in this class action 25 lawsuit, what brought -- 9079 1 Strike that. 2 When Microsoft made the decision to 3 release MS-DOS 6.2, it made some fixes to the 4 compression technology to address the concerns 5 that Infoworld had raised about the compression 6 technology in MS-DOS 6.0, correct? 7 Answer: No. No, actually that is 8 certainly not my recollection. Infoworld 9 didn't -- I'm not sure that Infoworld actually 10 found anything of particular use or note to 11 Microsoft. The major changes were actually 12 technology enhancements, not fixes. 13 Question: There was certainly a 14 widespread perception that MS-DOS 6.0 was not 15 safe, and, therefore, Microsoft needed to 16 release MS-DOS 6.2 so that you could allay 17 those fears and let end users feel safe when 18 using the MS-DOS 6.X products, correct? 19 Answer: Let me rephrase -- let me 20 rephrase my answer. 21 Question: Okay. 22 Answer: There was certainly a 23 perception in the market that there was -- that 24 there were problems with the product. 25 Whether the perceptions were grounded 9080 1 in reality or not is again of -- Microsoft -- I 2 shouldn't speak for Microsoft. 3 I would say that they weren't, but 4 perception is the most important -- it's the 5 most important determining factor, since what 6 people think and what is actually true aren't 7 necessarily connected, and what they believe is 8 more important. 9 And so one of the reasons MS-DOS 6.2 10 was released was to counter perceptions in the 11 market. 12 Question: And when 6.2 came out, 13 MS-DOS 6.2 came out, Microsoft made the 14 decision to charge for that upgrade product, 15 correct? 16 Would you like me to rephrase that? 17 Answer: No, I can answer that. 18 There is some truth to that and there 19 is some not truth to that. 20 The product was sold for a nominal 21 amount, is my memory. If a user wanted to buy 22 it in the store, I think it was $9 or $10, but 23 if they wanted, they could download it for free 24 from various locations. The Internet or 25 CompuServe or AOL, perhaps, I don't recall 9081 1 exactly. So the product was available for free 2 if the customer had a modem. 3 Question: But you believe that most 4 customers were not going to take the free route 5 because of the download time required, and 6 that, in fact, Microsoft would be making about 7 $10 per copy of 6.2, correct? 8 Answer: I'm not -- I don't remember 9 what I believed at the time. 10 I do recall that we sold more than 11 were downloaded, but that a significant number 12 were downloaded. 13 Question: Let me hand you what I have 14 marked as Exhibit 950, and this is an e-mail 15 that you wrote July 22, 1993, to Brad Chase, 16 Brad Silverberg and various persons under the 17 e-mail alias DOS marketing, and the subject is 18 Elroy, turning lemons into lemonade. 19 Now, Elroy was the code name for 20 MS-DOS 6.2, correct? 21 Answer: Yes, that is correct. 22 Question: Can you review your e-mail, 23 and I'm going to ask you some questions about 24 it? 25 Answer: Okay. 9082 1 Question: The first sentence states, 2 Elroy has the attributes of a classical MS OS 3 upgrade, which is that it provides a benefit, 4 safety, that is very compelling and universally 5 appealing to our existing mostly satisfied 6.0 6 installed base. 7 Does that refresh your recollection 8 that Elroy at least in part was designed to 9 allay safety concerns? 10 Answer: Yes, which is what I just 11 said, I believe. 12 Question: Okay. And in the second 13 paragraph you indicate that the cost for the 14 upgrade to 6.2 is going to be 9.95, correct? 15 Answer: Correct. 16 Question: And in the last paragraph 17 you state, we should still make the 6.0 to 6.2 18 update available for free on CIS and the MSDL 19 so we can take the high road. 20 But given the time needed to download 21 and the number of people comfortable with 22 modems, I don't think too many people will go 23 that route. 24 So you are indicating that your 25 perception was, in fact, that this was a 9083 1 revenue opportunity for Microsoft, correct? 2 Answer: Yes, that is correct. 3 Question: Can you tell me your 4 educational background please, college on? 5 Answer: I graduated from Yale 6 University, and I have -- 7 Question: What year? 8 Answer: I graduated from Yale as an 9 undergrad in 1986, and I graduated from the 10 Yale School of Management in 1990. 11 Question: From the School of 12 Management, is that an MBA that you received? 13 Answer: Essentially, yes. 14 Question: They have a different 15 initial for it? 16 Answer: Right. 17 Question: What was your undergraduate 18 degree in? 19 Answer: Computer science. 20 Question: Was there a focus to your 21 studies in the School of Management? 22 Answer: No, there wasn't. 23 Question: Just a business focus? 24 Answer: Correct. 25 Question: And I believe you had 9084 1 worked at Microsoft prior to completing your 2 work at the School of Management; is that 3 correct? 4 Answer: Yes, I did. 5 Question: Was that during the summer? 6 Answer: Yes, it was. 7 Question: When was that? 8 Answer: That was the summer of 1989. 9 Question: Was it just like a 10 three-month stint between classes? 11 Answer: Yes, it was. 12 Question: And what did you work on at 13 that time? 14 Answer: I worked on ROM DOS for the 15 summer. 16 Question: And then when you graduated 17 in 1990 from the School of Management, was that 18 in May or June of 1990? 19 Answer: Yes, it was. 20 Question: Did you immediately go to 21 Microsoft after that? 22 Answer: I started working for 23 Microsoft in August of 1990, full time. 24 Question: And what was your first 25 position there? 9085 1 Answer: I was a product manager on 2 MS-DOS. 3 Question: August 1990, so that was 4 for MS-DOS 5.0, correct? 5 Answer: That's correct. 6 Question: Is there more than one 7 product manager on MS-DOS 5.0? 8 Answer: At that time was there? 9 Question: Right. 10 Is that a job that one person has or 11 are there five people that are product managers 12 with different responsibilities? 13 Answer: Yes. It depends on the 14 product. When I started there, there were 15 three, three product managers. 16 Question: On MS-DOS? 17 Answer: On MS-DOS. 18 Question: And who were they? 19 Answer: I worked with Sergio Pineda, 20 and we both worked for Mark Chestnut. 21 Question: And subsequent to that, 22 Mark Chestnut was replaced by Brad Chase; is 23 that correct? 24 Answer: That is correct. 25 Question: That was approximately 9086 1 November 1990 that Brad Chase moved in to 2 replace Mark Chestnut? 3 Answer: That is correct. 4 Question: After MS-DOS 5.0 was 5 released, did you then become a product manager 6 for MS-DOS 6.0? 7 Answer: I was an MS-DOS product 8 manager, which means that I product managed 9 whatever product was being -- was in the market 10 or was going to be released. 11 So I eventually became a product 12 manager on MS-DOS 6. 13 Question: When did you leave 14 Microsoft? 15 Answer: I stopped working in December 16 of 1994. 17 Question: At that time were you still 18 a product manager for MS-DOS or had you moved 19 on to Windows 95? 20 Answer: When I left Microsoft, I was 21 a product manager on Windows 95. 22 Question: And when did you make that 23 transition from MS-DOS to Windows 95? 24 Answer: About -- I made that 25 transition about in December or January of 9087 1 1994, December of 1993 or January of 1994. 2 Question: And up until the time you 3 made that transition, you were managing the 4 MS-DOS products, correct? I just want to make 5 sure I have got all of your responsibilities. 6 You were with MS-DOS as a product 7 manager, and then Windows 95 as a product 8 manager? 9 Answer: Essentially, yes. 10 Question: What else? 11 Answer: I had done some special 12 project work in late 1993. 13 My direct line responsibility for 14 MS-DOS ended really in about the summer of 15 1993, sometime during the summer, when Tony 16 Audino came into the group. 17 Question: What were the special 18 projects that you did in late '93? 19 Answer: I worked on some product 20 planning for Windows 95. 21 Question: Did that involve 22 determining how to package and the different 23 products that could be released based on the 24 Windows 95 development effort? 25 Answer: I wasn't working on how to 9088 1 package Windows 95 into different operating 2 systems, if that is your question, no. 3 Question: Okay. Going back to August 4 of 1990, when you first started full time at 5 Microsoft, you indicated you were a product 6 manager for MS-DOS 5.0, correct? 7 Answer: That is correct. 8 Question: One of the goals of the 9 MS-DOS 5.0 team was to overcome the perception 10 that MS-DOS 4.01 was a buggy product, correct? 11 Answer: There was a perception that 12 MS-DOS 4 or PC DOS 4 was a substandard product. 13 And certainly one of the goals of MS-DOS 5 was 14 to overcome the negative perceptions about the 15 product. 16 Question: And PC DOS 4.0 was a 17 product that was developed and released by IBM, 18 correct? 19 Answer: That's before my time, but 20 that's certainly my understanding. 21 Question: And then Microsoft, based 22 on the fact that IBM's 4.0 wasn't well 23 received, did some additional work and released 24 MS-DOS 4.01, correct? 25 Answer: That sounds right. 9089 1 I actually don't know the exact 2 details of the product release cycle at that 3 time. 4 Question: But Microsoft's DOS 4.01 5 also had its own perception that it was a 6 product that had considerable bugs, 7 particularly like with networking, correct? 8 Answer: I don't remember. That is 9 certainly possible. 10 Part of the perception was that the 11 product took too much memory, which was one of 12 the negative perceptions. 13 Question: And that was something else 14 that Microsoft was trying to overcome, was to 15 not have to use as much memory to get an 16 enhanced version of MS-DOS? 17 Answer: Using less memory is a 18 customer benefit, that was certainly a goal of 19 Microsoft in developing MS-DOS 5. 20 Question: Let me hand you what I've 21 marked as Exhibit 951. This is a memo that you 22 wrote to Steve Ballmer, Brad Silverberg, Mark 23 Chestnut, Brad Chase and some others, and it's 24 about final DOS RUP prerelease corporate 25 accounts plan. 9090 1 And RUP is retail upgrade product; is 2 that correct? 3 Answer: That is correct. 4 Question: And can you review this 5 again, and as you do so, if you can try to -- 6 there is no date on this document, and as you 7 review it, if you can try to think about when 8 it might have been that you wrote this. 9 Answer: Okay. 10 Question: Now, this obviously was 11 written -- not obviously, but I'm assuming this 12 was written after August 1990, but sometime 13 before June of 1991 when 5.0 was released. 14 Answer: It must have been. 15 Question: Would you have written that 16 DOS 4.01 had network incompatibilities if that 17 were not true? 18 Answer: Actually, I'm not sure if I'm 19 referring to DOS 4.01 or if I'm referring to 20 DOS 4.00, which was IBM's product, if I 21 switched the two terms, if I meant one or the 22 other. I actually don't remember what this 23 refers to. 24 Question: So you might have been 25 meaning DOS 4.00, which is the IBM product, as 9091 1 opposed to the Microsoft DOS 4.01 product? 2 Answer: It's possible. 3 Question: Who are Steve Ballmer and 4 Brad Silverberg? 5 Answer: They are executives at 6 Microsoft. 7 Question: Very highly placed 8 executives; isn't that correct? 9 Answer: Yes, they are. 10 Question: Steve Ballmer is now, I 11 guess, within the past month, has been named 12 president of Microsoft, right? 13 Answer: That is my understanding. 14 Question: And Brad Silverberg at the 15 time was vice president in charge of developing 16 operating systems? 17 Answer: I don't remember exactly what 18 his title was, but he ran the Windows and 19 MS-DOS groups at the time. 20 Question: Do you think it likely when 21 you're writing a memo to Steve Ballmer and Brad 22 Silverberg that you would refer to bugs in a 23 Microsoft version of DOS as opposed to an IBM 24 version of DOS? 25 Answer: I don't know. I honestly 9092 1 don't know. 2 Question: Okay. In any event, you 3 are indicating that it is a hard time getting 4 these corporations to upgrade to a later DOS 5 version because of perceptions of problems with 6 DOS 4.X, let's just call it that, okay? 7 Answer: There was a difficulty in 8 getting corporations to upgrade, according to 9 this, because of perceptions of problems and 10 because also of a lack of compelling benefit. 11 Question: Right. It goes on to say, 12 although viewed as a do-nothing OS, 13 corporations buy DOS 3.3 because it is safe and 14 stable. 15 That is an accurate statement? 16 Answer: I think that is an accurate 17 statement. 18 Question: Okay. My recollection is 19 that Brad Silverberg had also started at 20 Microsoft in the summer of 1990, correct? 21 Answer: That is my memory, yes. 22 Question: Had he started just before 23 you got there? 24 Answer: I think he started, yes, 25 around the same time. 9093 1 Question: So that was in the summer 2 of 1990. 3 So at some point, let's say the fall 4 of 1990, the perception was that the 5 predominant MS-DOS products on the market, 6 which was Version 3.3, was a do-nothing 7 operating system, its only benefit was that it 8 was safe and stable, correct? 9 Answer: I can't speak for the whole 10 market. 11 Question: Was that Microsoft's 12 perception of the market? 13 Answer: That MS-DOS 3.3 was a 14 do-nothing operating system? 15 Question: Uh-huh. 16 Answer: I don't remember. In this 17 document I said it is, but I actually don't 18 remember. 19 Question: When you say viewed as a 20 do-nothing OS, I was assuming that was yours 21 and Microsoft's estimation of market perception 22 of MS-DOS 3.3. 23 Answer: Well, again, I can't speak 24 for the whole corporation. I wrote this memo, 25 and from reading this memo, that's what I 9094 1 wrote. It said although viewed as a do-nothing 2 operating system. I don't remember exactly 3 what I thought at the time. 4 Question: By the fall of 1990, users 5 were beginning to demand some enhancements to 6 DOS, to state it simply, I guess, to better 7 take advantage of advances in hardware, in 8 memory capabilities, correct? 9 Answer: I don't remember what users 10 were demanding. That would assume that there 11 was some piece of market research out there, 12 something that we had done, and perhaps there 13 is and perhaps there isn't. I don't remember 14 what users were demanding. 15 Question: You don't, okay. 16 What users were demanding was 17 certainly something you needed to be 18 investigating and familiarizing yourself with 19 as a product manager in charge of developing 20 subsequent versions of MS-DOS, correct? 21 Answer: Gauging user demands is part 22 of what you do as a product manager. 23 Question: And you don't recall 24 shortly after starting at Microsoft in August 25 of 1990 what end users were demanding for the 9095 1 next versions of MS-DOS, even though that was 2 your first responsibility that you were going 3 to have at this new corporation? 4 Answer: I don't remember what users 5 were demanding. 6 MS-DOS 5 was already specked and in 7 development when I started at Microsoft, so it 8 was sort of a moot point at that point because 9 the product was already in development. 10 Question: And DR-DOS 5.0 was already 11 released and shipping at that point, correct? 12 Answer: That's my memory, yes. 13 Question: And it is a fact that 14 DR-DOS 5.0 had benefits and capabilities that 15 were in advance of either MS-DOS 3.3 or MS-DOS 16 4.01, correct? 17 Answer: DR-DOS 5 had features that 18 were not in MS-DOS 3.3 and MS-DOS 4. 19 Question: The final sentence in that 20 paragraph states, to overcome the fear and 21 inertia in corporations, we must communicate 22 the message that the benefits in DOS 5.0 make 23 an overwhelming case for upgrading. 24 Down below, under the next heading, 25 tactics, Beta3 seed. The goal, seed 1200 DOS 9096 1 Beta3's into 50 percent of the Fortune 1500 and 2 50 large federal, state and local government 3 agencies. 4 And was that large -- well, first of 5 all, can you tell the Jury what you meant by 6 the term Beta3 seed? 7 Answer: My memory is that we had a 8 large beta plan for Beta3, and some portion of 9 those betas were going to be allocated to 10 corporate accounts. 11 Question: And not to be tricky, what 12 you mean by seed is just those are the accounts 13 that you want to make sure that a beta, most 14 recent beta of MS-DOS 5.0 went out to, correct? 15 Seeding a beta means picking who you are going 16 to send the beta to and then making sure it 17 gets sent to them, correct? 18 Answer: That is correct. 19 Question: And one of the reasons that 20 Microsoft wanted to seed the Fortune 1500 -- 50 21 percent of the Fortune 1500 and 50 large 22 federal, state and local government agencies 23 was to create interest and excitement in the 24 MS-DOS 5.0 release that was subsequently going 25 to be coming, correct? 9097 1 Answer: That's correct. 2 Question: Had Microsoft ever seeded 3 1200 betas, as far as you know, when getting 4 ready to release a DOS product before the fall 5 of 1990? 6 Answer: I don't know. I doubt it. I 7 don't know what the scope of the beta testing 8 was before MS-DOS 5. 9 Question: But you knew coming into 10 the summer of 1990 and into the fall of 1990, 11 that a very large and broad beta test for 12 MS-DOS 5.0 was needed quickly to make sure that 13 people waited for MS-DOS 5.0 and did not go to 14 DR-DOS 5.0? 15 Answer: No, that is not what I meant. 16 Question: As a product manager, I 17 think you just stated that your 18 responsibilities were more towards marketing as 19 opposed to the technical end of things, 20 correct? 21 Answer: That's correct. 22 Question: And so I think we can agree 23 at least that this large DOS beta seed was a 24 marketing tactic, not a technical tactic, 25 correct? 9098 1 Answer: No. No, that's not 2 necessarily true. 3 As I said before, there was a large 4 beta program and it had to be comprised of some 5 number of sites. And some components of those 6 beta test sites were corporate accounts, which 7 makes perfect sense. 8 Question: From a marketing 9 standpoint. 10 Answer: And from a technical 11 standpoint. 12 Question: But you don't address 13 anything about a technical standpoint in this, 14 do you? 15 Answer: Not in this document I don't, 16 no. 17 Question: And so you're simply 18 talking about trying to make sure -- I mean, 19 that's your job, you're trying to make sure as 20 many people as possible buy MS-DOS 5.0, right? 21 Answer: That was my job, yes. 22 Question: And by getting a large beta 23 seed out there, you thought you were ensuring 24 the success of MS-DOS 5.0 when it released, 25 correct? 9099 1 Answer: Certainly, the tactic was 2 designed to get the product seen and evaluated 3 in advance of the release of the product. 4 Question: And you don't know one way 5 or the other whether Microsoft had ever pursued 6 this tactic in the past prior to the 7 competitive DR-DOS product, right? 8 Answer: I don't know what marketing 9 beta tactics Microsoft used previous to this. 10 Windows 3.0 possibly used something 11 extremely similar to this. I don't remember. 12 And I don't know what was done previous to 13 that, on either operating system, Windows or 14 MS-DOS. 15 Question: When you started as an 16 MS-DOS product manager, did you review previous 17 history about what had been done from the 18 marketing standpoint with the MS-DOS product 19 line? 20 Answer: I don't remember. 21 Question: A lot of times when people 22 start and they have a new job, they sit down 23 and look at what their predecessors did, there 24 is sort of a reading file, here is how previous 25 people have done this job. 9100 1 You didn't get any orientation like 2 that, as far as you remember? 3 Answer: I don't recall. 4 Question: Do you recall that MS-DOS 5 5.0 was officially announced on June 6, 1991? 6 Answer: I thought it was June 11. 7 June 6? Perhaps it was. Early June. 8 Question: 1991? 9 Answer: Right. 10 Question: And when MS-DOS 5.0 came 11 out, there were immediately numerous reports of 12 severe incompatibilities with that product, 13 correct? 14 Answer: That's totally incorrect. 15 Actually, that is -- no, that's not correct. 16 (Whereupon, playing of the video 17 concluded.) 18 MR. CASHMAN: Your Honor, this would 19 be a good place to break. 20 THE COURT: Very well. 21 Ladies and gentlemen of the jury, take 22 your recess for the rest of the day due to a 23 memorial service that one of the jurors has to 24 attend. I'm not going to have you come back 25 until tomorrow at 8:30. 9101 1 Please remember the admonition 2 previously given. 3 You can leave your notebooks here. We 4 will collect them and they'll be safe. 5 And please drive carefully. 6 See you tomorrow. 7 (The following record was made out of 8 the presence of the jury.) 9 THE COURT: We are going to take a 10 recess until 12:30. 11 The reason is Tammy has to go to the 12 dentist. 13 MR. CASHMAN: Until 12:30? 14 THE COURT: 12:30. 15 (A recess was taken from 10:51 a.m. 16 to 12:30 p.m.) 17 (The following record was made out of 18 the presence of the jury.) 19 THE COURT: Okay. Is everybody ready? 20 MR. TULCHIN: Yes, sir. 21 MS. CONLIN: Yes, Your Honor. 22 THE COURT: Okay. First motion. 23 Defendant's motion for leave to 24 cross-examine Plaintiffs regarding previous 25 litigation relationships with class counsel, 9102 1 their personal computers, business interests, 2 and practices and purchases of non-Microsoft 3 software. 4 MR. TULCHIN: Thank you, Your Honor. 5 Good afternoon. 6 Your Honor, this is a motion that we 7 made after listening to Plaintiffs' counsel 8 during her voir dire and then to statements 9 made in opening -- in the opening statement 10 that the Plaintiffs delivered to the Jury. 11 And, of course, Your Honor, to back up 12 one step, Your Honor ruled on November 13th, 13 which was the first day set for our trial, on a 14 number of motions in limine. 15 And the Court granted a motion in 16 limine made by the Plaintiffs on the subjects 17 of the prelitigation relationships with 18 counsel, purchases by the named Plaintiffs of 19 hardware and non-Microsoft software, and, 20 thirdly, interests that the named Plaintiffs 21 have in Iowa businesses and the business 22 practices, particularly the business practices 23 of the Pizza Hut restaurants owned by Joe Comes 24 and business practices of Riley Paint. 25 And the basis for the Plaintiffs' 9103 1 motion in limine was relevance. 2 The argument made was that these 3 subjects are not relevant to any issue at 4 trial. 5 And though this motion was granted, as 6 I said, on November 13th, it was to our 7 surprise that the Plaintiffs shortly thereafter 8 turned around and tried to use the Court's 9 ruling on motions in limine in effect as a 10 sword against Microsoft. 11 I want to come to the Plaintiffs' 12 statements in just a moment. 13 I first want to say, though, two 14 things, Your Honor. 15 In their papers in opposition to our 16 motion, Plaintiffs say that Microsoft should 17 not have been surprised about some of the 18 subjects, some of the statements that were made 19 in voir dire and in the opening. 20 And, in particular, they say Microsoft 21 should not have been surprised because some of 22 these things appeared in expert reports of 23 Professor Netz and her husband, Professor 24 Mackie-Mason, that had been submitted in, I 25 believe, June of 2006. 9104 1 And this question of surprise, I 2 think, Your Honor, is a bit of a red herring. 3 It has nothing much to do with this motion. 4 Material in the expert reports, of 5 course, is not evidence that the Jury has yet 6 heard. It's not argument that anyone has 7 heard. And whether or not a particular 8 statement in an expert report ever gets 9 submitted to the Jury in that form or in some 10 other form, of course, remains to be seen. 11 So, of course, we knew what the 12 experts were saying. That's very different 13 than knowing what the Jury would be told or 14 what arguments would be made to the Jury by 15 counsel later on. 16 And the second point, sort of 17 preliminary point, if I may, Your Honor, is 18 that we think that this doctrine of opening the 19 door is well recognized. I don't think the 20 Plaintiffs argue about that. 21 We've cited a case at slide 12, Chris. 22 And, Your Honor, we've seen a lot of 23 material on the screen, and I thought it might 24 be helpful here to do some of this with the 25 Court in this argument as well. 9105 1 And the decision that we're quoting is 2 U.S. against Magallanez -- I hope I pronounce 3 that correctly -- 408 F. 3rd 672 at page 678 4 from the Tenth Circuit. 5 That quote is actually taken from 6 something that the Court was quoting in U.S. 7 against Chavez from the Tenth Circuit. 8 And it says, of course, it is widely 9 recognized that a party who raises a subject in 10 an opening statement opens the door to 11 admission of evidence on that same subject by 12 the opposing party. 13 I don't think that there's any dispute 14 that that is the law. It's the law not just in 15 the federal courts, but in Iowa as well. 16 And, indeed, the Plaintiffs in an 17 argument on a different motion on December 18, 18 slide 10, made the argument that Iowa authority 19 emphasizes the cross-examination on issues such 20 as credibility, bias, motive, et cetera, is 21 fundamental to a fair trial. 22 The subject matters at issue in our 23 motion, Your Honor, are at least in part 24 directly relevant to the question of bias and 25 interest in the case. And slide 11 contains 9106 1 quotations from three Iowa Supreme Court cases 2 which are exactly on point. 3 These cases recognize that 4 cross-examination properly should include 5 matters which pertain to a witness's 6 credibility, bias, or interest in the case. 7 I won't read them all, but there are 8 three decisions from the Supreme Court, 1980, 9 1971, and 1947, and there is no indication that 10 the law of Iowa has changed in any regard in 11 this respect. 12 It is always proper to test a 13 witness's credibility and possibly undue 14 interest. 15 And, of course, this particular 16 question is spot on, if I might, when it comes 17 to the class Plaintiffs, the named Plaintiffs' 18 relationship with the lawyers in this case. 19 As background, Your Honor, as I think 20 the Court has heard, the Jury hasn't, the Court 21 has, Ms. Larsen, for example, has been friends 22 with Ms. Conlin for 25 years, going back to 23 1982. 24 Joe Comes, the first named Plaintiff, 25 has been Ms. Conlin's son's best friend since 9107 1 high school. 2 And these are not necessarily subject 3 matters, Your Honor, that cause any prejudice 4 to anyone. We're not here to tell the Jury 5 that it's improper for Mr. Comes, for example, 6 to proceed as a Plaintiff in this case because 7 of the fact that his best friend is 8 Ms. Conlin's son. Nothing improper about it at 9 all. 10 But it does go to his interest in the 11 case and to bias and credibility. 12 And although the Court ruled for the 13 Plaintiffs on this subject matter, as I say, at 14 least in our view, Your Honor, shortly after 15 that ruling came down on November 13, 16 Plaintiffs' counsel, in effect, tried to use it 17 against us as a sword and thereby opened the 18 door to cross-examination on these relatively 19 simple and straightforward facts. 20 So slide 1 contains three statements 21 that Ms. Conlin made to the Jury panel, 22 including all 12 of the individuals who wound 23 up as jurors in our matter. 24 She said on November 16th, the class 25 representatives are just regular people who 9108 1 bought software. 2 Now, they may be regular, they may be 3 irregular, but the clear implication of saying 4 they're regular people is to imply that there 5 is no preexisting relationship which would -- 6 which might tend to make them willing to 7 participate for these lawyers in this lawsuit. 8 I think much worse than the first 9 statement about regular people was the second, 10 which came 30 pages later in the transcript 11 during voir dire, where counsel said, the four 12 people who sort of volunteered in a way for 13 this task are the people that we're going to be 14 calling probably and not anyone else. 15 And the idea that these are just 16 volunteers, I think, was a deliberate attempt 17 to plant the idea during voir dire that these 18 are people who somehow are performing a public 19 service. 20 Sort of like giving blood when the Red 21 Cross comes around. Many of us do that because 22 we volunteer to do something which we think 23 will make the world in a very small way a 24 better place. 25 And that seems to be the import of 9109 1 what counsel was suggesting. 2 These four people volunteered, they 3 stepped forward, to make the world a better 4 place. That's at least the implication, by 5 suing Microsoft. 6 Interestingly, on the same day, 30 7 pages further into the transcript, one of the 8 prospective jurors asked Ms. Conlin who brought 9 the lawsuit? Was it the people or was it your 10 law firm? 11 Ms. Conlin answered it was the people. 12 Now, the people, of course, might 13 imply it was the state of Iowa, the people of 14 the state of Iowa. It might imply there was 15 some mass movement on behalf of individuals 16 within Iowa to sue Microsoft for an overcharge 17 of several dollars per software product. 18 There are only four people, two 19 businesses and two individuals. And they're 20 not volunteers. They're participating because 21 of their preexisting relationship with 22 Ms. Conlin. 23 There's nothing wrong with that. We 24 don't say that there's any reason that the 25 jurors should treat this as if it was a 9110 1 monumental fact. 2 But it's the truth, they are not 3 volunteers. They're not regular people, and 4 it's not the people who brought the lawsuit. 5 It's Ms. Conlin's son's best friend and a good 6 friend of hers for 25 years, et cetera. 7 I think we can say outside the Jury 8 that the people who have the most to gain in 9 this lawsuit are the lawyers, not the 10 individual Plaintiffs. 11 But our motion here does not seek 12 permission, Your Honor, to raise that fact. 13 That's not what we're asking for at all. 14 All we're asking for is the right on 15 cross-examination to extract from the 16 individual Plaintiffs the truthful statements, 17 which are noncontroversial and have been 18 testified to in deposition by each of them, 19 about their relationship to Ms. Conlin. 20 Without that, Your Honor, I think the 21 only thing that will be left in the minds of 22 these 12 jurors is that the four individual 23 Plaintiffs are the people who volunteered. 24 They're just regular people seeking to, let's 25 say, advance the interests of justice, or at 9111 1 least that seems to be the implication that 2 Plaintiffs' counsel wants this jury to draw. 3 And as the Iowa Supreme Court has said 4 on numerous occasions, a witness's -- and here 5 it's not just a witness's -- it's a party's 6 bias or interest, is always properly the 7 subject of cross-examination. 8 As to the second subject, Your Honor, 9 again, shortly after the Court's ruling, but 10 now we're into opening statements, beginning on 11 December 1st, when the Plaintiffs began theirs, 12 Plaintiffs again told the Jury about purchases 13 of personal computers, about the declines and 14 increases of prices of personal computers, and 15 also told the Jury that their experts were 16 going to be comparing profit margins on 17 Microsoft software versus other kinds of 18 software, et cetera. 19 And if I can go through this, I'll try 20 to do it quickly, Your Honor. I know that 21 there are a number of motions that will be 22 argued after this one, and I don't want to 23 extend the day for the Court, of course. 24 But Slide Number 2 was a statement on 25 December 1st by Ms. Conlin in her opening. 9112 1 Microsoft's DOS monopoly permits it to 2 maintain a steady price, notwithstanding a 3 rapid decline in the price of other components. 4 Now, whether or not this is apples and 5 oranges, Your Honor, software versus hardware, 6 we think it is. 7 For example, the price of hardware 8 used to play music. You can look at CD 9 players. You can look at DVD players. The 10 price of the hardware has gone down over time. 11 The price of the software, that is the Faith 12 Hill album or recording has not gone down. The 13 price of software has stayed about the same. 14 In the music business, it may have 15 gone up a little bit. 16 So we don't think the analogy is 17 perfect, but the point on this motion, of 18 course, Your Honor, is not whether it's perfect 19 or imperfect. It's that the Plaintiffs have 20 told the Jury that this is a proper comparison. 21 The Plaintiffs themselves have 22 purchased hardware during this period. They 23 produced in discovery the receipts and the 24 prices. And we ought to be able to show the 25 Jury what they've paid for hardware given the 9113 1 statements made in opening. 2 Slide 3. 3 On December 11 -- and by this time, 4 Your Honor, I believe this is Mr. Hagstrom 5 during his portion of the opening for the 6 Plaintiffs. 7 And here Mr. Hagstrom, again, talks 8 about rates of return, not just for Microsoft 9 products, but for products of other successful 10 software companies. 11 He says, the list that Doctor Netz 12 uses includes 290 companies. 13 This is software, Your Honor, that 14 goes well, well beyond operating system 15 software. As the Court knows, there aren't 290 16 companies that make operating systems. Far 17 from it. 18 The Plaintiffs complain there should 19 be more. The list actually is relatively small 20 compared to the 290. 21 And then you see Mr. Hagstrom, as the 22 third quote on Slide Number 3, talking about a 23 company called VeriSign. They develop security 24 software. He talks about Oracle, Novell, Adobe 25 and many others. 9114 1 Well, these four Plaintiffs in this 2 case, Your Honor, have purchased software made 3 by companies other than Microsoft. They've 4 purchased software that is not operating system 5 software. 6 The Plaintiffs want to compare 7 Microsoft's prices and profit margin, margins 8 on operating systems with the prices and profit 9 margins of companies that make other kinds of 10 software. 11 And, again, this should open the door 12 to asking on cross-examination about the 13 purchases, purchases we already know about. 14 Again, this material was produced to us in 15 discovery. It was covered in depositions of 16 some or all of the four Plaintiffs. And it's 17 right on point with what the Plaintiffs argued 18 in their opening. 19 Slide 4 is more of Mr. Hagstrom saying 20 the same sort of thing. 21 Again, he's talking about profit 22 margin earned by Microsoft, comparing that to 23 profit margins of other successful -- sorry -- 24 other software firms' successful products. 25 It just seems that once the Plaintiffs 9115 1 tell the Jury that this information is relevant 2 to the issues in this case, that Microsoft 3 should be permitted on cross to get the actual 4 facts of what these Plaintiffs have purchased 5 in the market during the class period. We're 6 not straying from any period outside the class 7 period as defined in this case. 8 So Slide Number 5 is more. This 9 occurred on December 8th in the opening 10 statement by the Plaintiffs. 11 The first question is sort of a 12 rhetorical question, and the Plaintiffs told 13 the Jury we compared the prices of Microsoft's 14 operating systems and applications software to 15 other products. 16 And, yes, I think that's what the 17 Plaintiffs will do. We'd like to compare them 18 ourselves with the real world data of what 19 these four named Plaintiffs in this case did. 20 Ms. Conlin did say in her opening that 21 she didn't think she would be calling consumers 22 other than these four consumers. 23 It wasn't a promise, as she said 24 something like probably those would be the only 25 four. 9116 1 So these at least during the 2 Plaintiffs' case, during the Plaintiffs' case, 3 these are the only four consumers who actually 4 purchased software products that are the 5 subject of what the Plaintiffs themselves want 6 to explore with their experts. We just want 7 the right to bring up the facts about the real 8 world data of what these four Plaintiffs have 9 done. 10 And on this subject, Your Honor, I do 11 recall that on September 29th, in a brief that 12 the Plaintiffs submitted to the Court on a 13 different motion, they made the statement, 14 quote, Iowa law strongly favors telling the 15 Jury the truth. 16 That's all we're asking to do here. 17 And in this case, one of the four 18 named Plaintiffs actually purchased some 19 software made by a company that competes with 20 Microsoft, the Skeffington's Formal Wear 21 purchased WordPerfect -- something called 22 WordPerfect Productivity Pack. 23 This is a piece of software that 24 competes with software at issue in this case 25 sold by Microsoft. 9117 1 The Jury certainly should be permitted 2 to hear what Skeffington's -- that's the 3 business owned by Mary Jo Harty -- what 4 Skeffington's paid for the WordPerfect software 5 as compared to what Microsoft charged for the 6 competing software. 7 And, of course, Your Honor, there's no 8 secret here, the reason we're eager to get this 9 information to the Jury, particularly now that 10 the Plaintiffs have opened the door to it in 11 their opening statement, is because Microsoft 12 believes the comparisons of prices, comparing 13 Microsoft's prices with competing products, 14 comparing Microsoft's prices with prices for 15 other software, that those comparisons are 16 favorable to Microsoft. 17 They show that Microsoft has charged a 18 low price, and rather than overcharge 19 consumers, has charged fair and low prices for 20 the software at issue. 21 Plaintiffs may or may not agree with 22 that. I have a feeling they'll say that they 23 don't. And it's up to them, of course, to 24 bring to the Jury's attention whatever evidence 25 they have on the subject. 9118 1 But when it comes to the four named 2 Plaintiffs, we didn't choose them, Your Honor. 3 They were chosen by or came to Plaintiffs' 4 counsel. 5 When it comes to the four named 6 Plaintiffs, given what counsel for Plaintiffs 7 has said in the opening, it seems just hard to 8 believe that they would be permitted to testify 9 without any revelation of the truth of what 10 they actually paid for the software purchases 11 that they chose to make during the 12-year 12 period from May of '94 through June of 2006, 13 the class period. 14 Slide Number 6. 15 The Plaintiffs, of course, their 16 opening was first. I followed them. 17 They didn't tell me in advance what 18 they were going to say, and I didn't get a 19 chance to comment on it. 20 But they argued about network effects 21 and economies of scale, and I discussed both of 22 those concepts as well, Your Honor. 23 But, again, by injecting in the 24 opening networks effects and economies of 25 scale, they drew this comparison between 9119 1 operating systems on the one hand and other 2 software markets on the other. 3 Well, let me turn, Your Honor, to the 4 question of the business practices engaged in 5 by the Plaintiffs. 6 During the deposition of Joe Comes -- 7 Mr. Comes is not only the first named 8 Plaintiff -- but with other members of his 9 family, I believe his brother and his mother, 10 they own 100 percent of a business in Iowa that 11 operates and runs 13 Pizza Hut restaurants in 12 various locations throughout the state. 13 And if I remember correctly, Joe Comes 14 himself has a 49 percent interest in the 15 business that owns the 13 Pizza Hut 16 restaurants. 17 The Plaintiffs have told the Jury that 18 they intend to compare profit margins that 19 Microsoft makes on software with profit margins 20 made by other companies. 21 Mr. Comes testified in his deposition 22 that the -- 23 MS. CONLIN: Wait a minute, Your 24 Honor. This is also something that the Court 25 has indicated in the past would not be a matter 9120 1 of public record. The Court has specifically 2 ruled that information with respect to 3 Mr. Comes' businesses, which are not a party to 4 this lawsuit, would not become a matter of 5 public record. 6 MR. TULCHIN: I wasn't about to 7 mention the specific margins, Your Honor. All 8 I wanted to say was that Mr. Comes has 9 testified that the profit margins of Pizza Hut 10 restaurants; that is, the gross margin 11 comparing price to cost of goods sold is not 12 dissimilar to the gross margin when it comes to 13 software. 14 THE COURT: That's all right. 15 MR. TULCHIN: And that the margins, 16 the margins are high. 17 The margins that the Plaintiffs tend 18 -- I believe intend to tell the Jury about in 19 the software business are going to sound high, 20 Your Honor. They're going to sound like high 21 margins. 22 And the reason, again, is because it 23 costs almost nothing once the first copy is 24 made to make a second copy. 25 The cost of goods sold is extremely 9121 1 low. The disk, the manual, the packaging cost 2 very, very little. 3 And for most businesses, having gross 4 margins in the neighborhood of what software 5 companies do would be a dream that many 6 businesses wouldn't even dare to think about. 7 But there are businesses even outside 8 software where gross margins are high. 9 Mr. Comes runs one of them. And there 10 should be no reason at this point that the Jury 11 should not hear that. 12 There's nothing wrong with a high 13 gross profit margin. We claim, in fact, that 14 it's perfectly legitimate in our economic 15 system. It's called a free market. 16 But there are some types of 17 businesses, some types of industries that lend 18 themselves to high gross margins. Not just 19 software. 20 And Slides Number 7, 8, and 9 -- I'll 21 go through them quickly -- are statements again 22 made -- in each case these three were made by 23 Mr. Hagstrom on December 11 during the 24 Plaintiffs' opening. 25 Again, this was before the Jury had 9122 1 heard from me in Microsoft's opening. They 2 were the ones that raised this. And 3 Mr. Hagstrom, on December 11, talked about Home 4 Depot or Wal-Mart, and he said -- he made a 5 prediction, Microsoft is likely to suggest that 6 Microsoft's competitors are like the local 7 hardware store when a Home Depot moves in. 8 This is not something that I ever 9 suggested, but this is what Mr. Hagstrom 10 predicted. 11 So Microsoft will suggest, gee, it's 12 just rough-and-tumble competition. But the 13 evidence will show that is not the case. 14 What if Home Depot says to its 15 suppliers we buy, you know, 100,000 a month and 16 we're going to go to somebody else unless you 17 cut off supplying that other store. 18 Well, we just heard a lot of evidence 19 in the last few days about per processor 20 licenses. And the Plaintiffs have an argument 21 about why they say that's anticompetitive. 22 Of course, that's an argument the Jury 23 will evaluate at the end. 24 But it's not inconceivable that in 25 other businesses there are contracts to be an 9123 1 exclusive supplier. 2 For example, in the fast-food business 3 -- we're back to Mr. Comes -- we can show the 4 Jury that it's not uncommon for a fast-food 5 restaurant to gain financially by entering into 6 an exclusive with a supplier of soft drinks. 7 Just by way of example, Your Honor, 8 I'm not personalizing this to Mr. Comes, but 9 I'm sure all of us are familiar with the fact 10 that McDonald's normally is exclusively a 11 Coca-Cola outlet. You have no choice of soda 12 or pop in McDonald's. 13 Same is true for Burger King and 14 Kentucky Fried Chicken and Pizza Hut and the 13 15 Pizza Huts that Mr. Comes operates. 16 It is common practice to enter into an 17 exclusive contract and get a lower price by 18 doing so. That ought to be information 19 relevant to the Jury in considering the claims 20 of exclusionary conduct when it comes to per 21 processor licenses. 22 Slide Number 8 is more of Mr. Hagstrom 23 talking about Home Depot. And he says that -- 24 the question of discounts, volume licenses is 25 something that the Plaintiffs will show is 9124 1 exclusionary. The purpose is to try to 2 eliminate a competitor. It's not beneficial 3 for customers. 4 Well, I don't know whether the Jury 5 will accept that or not accept it, but we think 6 that this opens the door to some exploration on 7 our part -- again, this isn't an attack on what 8 any of the businesses run by these Plaintiffs 9 are doing, but some exploration of the 10 legitimate business practices that the 11 Plaintiffs themselves have entered into in 12 their own businesses, Skeffington's, Riley 13 Paint, and the businesses run by Joe Comes. 14 It ought not to make a difference in 15 the case of Mr. Comes, Your Honor, that his 16 business is not a plaintiff. He has testified 17 at deposition that he is the executive running 18 those businesses, along with his brother, and 19 so he is the person making business decisions 20 for these 13 Pizza Hut restaurants within the 21 state of Iowa. 22 The last slide, Your Honor, and I'll 23 be done in just a moment, is more of the same. 24 More about hypothetical business practices that 25 Mr. Hagstrom told the Jury about in his 9125 1 opening. 2 I just mention raising the prices to 3 the contractors if they were dealing with local 4 business. This is not unlike he says what 5 Microsoft did with per processor and per system 6 contracts. It's not unlike the analogy with 7 Home Depot. 8 Why did Microsoft do these things? 9 Again, it isn't to lower prices. It's to make 10 monopoly profits as a result of the 11 anticompetitive conduct. 12 That's what the Jury has heard. 13 That's the argument that has been made. 14 Again, we think the argument is 15 incorrect. But we want to have the right on 16 cross-examination to bring out what will be 17 just a little bit of information. 18 The cross-examination we're talking 19 about will be relatively short in length. A 20 little bit of information to tell the Jury 21 about real world business practices engaged in 22 by these very Plaintiffs. 23 Lastly, Your Honor, last point. 24 One of the motions that I believe is 25 on today is the Plaintiffs' motion to go back 9126 1 to the question of whether individual employees 2 of Microsoft have any interest or bias by 3 virtue of the fact that they own stock in 4 Microsoft, that they were awarded stock 5 options, that under certain benefit plans they 6 may have had some stock issued to them. 7 And in their papers, the Plaintiffs 8 argue the flip side of this coin, the coin that 9 I've been describing. 10 The Plaintiffs argue that they should 11 be allowed to inform the Jury that a particular 12 employee -- and I don't want to pick on anyone 13 in particular -- let's just say Smith. There 14 is an expert for the Plaintiffs named Smith. I 15 don't think there's any Microsoft witness named 16 Smith, at least not that I remember. 17 So the hypothetical employee named 18 Smith. And they want to argue that if 19 Mr. Smith or Miss Smith had a thousand shares 20 of stock or 10,000 shares of stock, that the 21 Jury should hear that because it explains 22 Smith's interest in engaging in illegal conduct 23 in order to have Microsoft acquire a monopoly, 24 and that would redowned to Smith's financial 25 benefit in the stock price. 9127 1 That's the motion they want to 2 reargue, a motion that the Court decided a 3 couple of months ago by limiting this inquiry 4 to stock worth a million dollars or more. 5 And that issue of stockholdings, Your 6 Honor, the argument about a witness' interest 7 is very, very attenuate. 8 In the most recent form 10K filed by 9 Microsoft, the shares of stock outstanding in 10 the company are reported to the Securities and 11 Exchange Commission to be 9 billion, 969 12 million plus. In other words, just a share -- 13 a few shares short of 10 billion shares. 14 Any given person's interest in the 15 company, other, of course, than somebody like 16 Mr. Gates, any given person's interest is 17 exceedingly small. 18 And yet here when it comes to this 19 motion, the one that I've been arguing, the 20 Plaintiffs take the position that an inquiry 21 into their interest or motivation in bringing a 22 lawsuit to begin with is off limits and it 23 somehow should be private. It should not be 24 exposed to the sunlight of this judicial 25 proceeding. 9128 1 And I think, Your Honor, that just has 2 it all wrong. 3 Certainly the Court's resolution of 4 the motion about stockholdings was to tell the 5 Jury enough so that the Jury would understand 6 that a given Smith, Mr. or Miss, had some 7 financial interest in the success of Microsoft. 8 As things stand right now, Microsoft 9 has been wholly precluded from showing the bias 10 and motivation for the commencement of this 11 lawsuit and the prosecution of the lawsuit by 12 these Plaintiffs. 13 Again, there's nothing that varies 14 about this in my view. The fact that the 15 Plaintiffs had a relationship with Ms. Conlin 16 doesn't mean they're bad people. It doesn't 17 mean in and of itself that they should lose. 18 It's just a fact that goes to 19 credibility, to bias, and to motivation, and 20 when in voir dire Ms. Conlin says that these 21 Plaintiffs are volunteers for this task, and 22 when she says it was the people who brought 23 this lawsuit, it seems to us that the door has 24 been opened to the inquiry that I've discussed. 25 Thank you, Your Honor. I hope I 9129 1 haven't taken too much time. 2 THE COURT: Thank you, sir. 3 Plaintiffs' response? 4 MS. CONLIN: Thank you, Your Honor. 5 I will address the Plaintiffs' motion 6 concerning the Defendant's witnesses' 7 stockholdings at the appropriate time, but let 8 me say that the named Plaintiffs' financial 9 interest in this lawsuit is identical to every 10 other class member. 11 They will get their allocate share 12 based on how much of the Defendant's products 13 they purchased. And they have not been and do 14 not expect to be paid for the time, in some 15 cases extremely substantial time, that they 16 have paid in connection -- that they have spent 17 in connection with their duties as class 18 representatives. So they are, in fact, 19 volunteers in that respect. 20 Certainly Microsoft can ask if the 21 Plaintiffs have any personal stake or financial 22 stake beyond what they would receive as an 23 ordinary class member. 24 It's also worthy of mentioning, Your 25 Honor, that 90 percent of what Mr. Tulchin 9130 1 argued to the Court does not appear anyplace in 2 the Defendant's motion papers. This is motion 3 practice by ambush, but I have to tell you, 4 Your Honor, I think we'll be able to respond. 5 Let me also say that Microsoft 6 seriously misrepresents what we said in both 7 voir dire and opening statement. 8 With respect to the class 9 representatives' status, Microsoft says to the 10 Court, and I quote from the brief, Plaintiffs' 11 counsel described Plaintiffs as regular people 12 who sort of volunteered for the task. That's 13 on page 2 of the brief. 14 In order to create that sentence, they 15 had to conflate 30 pages of transcript. 16 What actually happened, Your Honor, 17 was on page 463 I said, and as class 18 representatives, these people have a particular 19 role, and it's not to tell you about the 20 economics of the software industry and it's not 21 to talk to you about source code. They're just 22 regular people who bought software. 23 That's what I said on page 463. 24 I then asked what juror expectations 25 are, and get a reply from Ms. [redacted] confirming 9131 1 how pervasive the propaganda concerning class 2 actions has been. 3 Her concern, expressed in open court, 4 is that this is not a real lawsuit. 5 Skipping several pages and going to 6 page 493. As I said, Your Honor, 30 pages, 7 Prospective Juror [redacted] asks how come just 8 several people, and maybe not half a dozen or a 9 dozen or 50 or 100, that is in connection, Your 10 Honor, with who will testify. 11 I respond, you really want us to bring 12 50 or 100 just to say they bought the product? 13 There is just not so much they're able to help 14 you with in terms of learning, in terms of, you 15 know, what they can add to the situation, and 16 there are some rules about what you can do as 17 well. 18 And the four people who sort of 19 volunteered in a way for this task are the 20 people that we are going to be calling probably 21 and not anybody else, just to come and say we 22 bought the software and this is how much it 23 cost and this is when we did it. 24 So that is the basis on which the 25 Defendant suggests we have opened the door. 9132 1 The second phrase is what they rely on 2 to support their argument about the purchase of 3 hardware when I said, according to Microsoft in 4 describing Microsoft's ability to maintain a 5 steady price, Plaintiffs compared Microsoft's 6 operating system pricing to the, quote, rapid 7 decline in the price of other components of the 8 personal computer. 9 That is at page 3 of their brief. 10 Microsoft then provides in its 11 appendix at Section I two pages beginning at 12 2691. 13 I thought the Court might like to have 14 the pages before because what Microsoft fails 15 to tell the Court is that I'm quoting from an 16 exhibit. The exhibit is written by Joachim 17 Kempin, and he says what they are so concerned 18 about. 19 He says -- 20 THE COURT: What page is this of the 21 exhibit or of the transcript? 22 MS. CONLIN: Oh, I'm sorry, Your 23 Honor. I didn't -- the page number is not at 24 the top because I couldn't figure out how to 25 print just these pages, and the two pages on 9133 1 the top, Your Honor, are page 2690. 2 THE COURT: Okay. 3 MS. CONLIN: And I say, beginning at 4 line 21, Joachim Kempin, who's name I am 5 hopefully now pronouncing correctly, is someone 6 who you will hear quite a bit about. He is the 7 worldwide director of OEM sales for Microsoft. 8 He is the person in charge of selling to the 9 computer manufacturers, the OEMs. 10 He knows that despite Microsoft's lack 11 of innovation, Microsoft's DOS monopoly permits 12 it to maintain a steady price, notwithstanding 13 a rapid decline in the price of other 14 components of the personal computer. 15 I go on to quote from Plaintiffs' 16 Exhibit 2222. 17 On February 9th, 1990, Kempin tells us 18 that DOS monopoly prices are bucking the trend 19 of other computer components. 20 And then I go down to page 21 and I 21 quote from a document, from Exhibit s222. 22 Here is what he says, OEM 23 manufacturers are increasingly sensitive to 24 added costs. OEMs are pressuring us more and 25 more to accept the fact that operating system 9134 1 software needs to follow their economy of scale 2 model expressed in percentage of SRP per. 3 Today we are asking for two to three 4 times as much money for MS-DOS as we did five 5 years ago. 6 The Court may recall there are a 7 number of exhibits discussed in opening 8 statement that specifically talk about 9 Microsoft's ability to keep its prices high 10 while other prices are -- where the prices of 11 other components are rapidly declining. 12 Those are Microsoft's words, Your 13 Honor, not mine. 14 To justify their attempts to overcome 15 the Court's earlier ruling preventing the 16 Defendant from asking about the Plaintiffs' 17 business interests, they cite a few pages that 18 run from page 2603 to page 4112, none of which 19 has the slightest thing to do with the 20 Plaintiffs' business practices. 21 Finally, they cite Mr. Hagstrom's 22 discussion of expert testimony on price trends. 23 Price trends, Your Honor, rate of return and 24 wrap up by complaining that we mention choices. 25 They do not happen to mention that so does the 9135 1 Court in its instructions to the Jury. 2 With respect to the discussion of the 3 expert testimony, the very purpose of an 4 opening statement is to preview the testimony. 5 Microsoft made these very same 6 arguments, Your Honor, on the motion in limine, 7 and you rejected them and you should reject 8 them now. 9 The comparison -- what we were doing 10 in our opening statement was previewing expert 11 testimony using expert economists looking at 12 profit margins of companies, not looking at 13 individual software purchases. 14 This is Microsoft's ridiculous claim 15 that the Jury must decide if Microsoft software 16 was a good value. 17 I'm sure Your Honor will recall the 18 many, many discussions we have had about the 19 concept of good value. 20 The real question is whether 21 Microsoft's software price was higher than it 22 would have been absent Microsoft's illegal 23 conduct. 24 Microsoft's experts are certainly 25 capable of presenting evidence of Microsoft's 9136 1 business practices and any pro-competitive 2 justifications during Microsoft's case. 3 With respect to cross-examination, 4 Your Honor, while there is indeed broad range 5 permitted in cross-examination, it must be 6 relevant. 7 There is nothing improper about 8 friendship. I was glad to hear Mr. Tulchin say 9 that. So what is the point? 10 All my children's friends assume that 11 I am their lawyer for all purposes. Most 12 people, if they know a lawyer, when a legal 13 problem arises, they contact the lawyer they 14 know. There is -- that is very unremarkable. 15 My use of the word the people was, of 16 course, not something that Microsoft had 17 previously complained of, but the people in 18 this case were the four people that we were 19 talking about. 20 And, again, Your Honor, it must be 21 taken in the context of the voir dire. 22 These four people are participating 23 not because of any preexisting relationship. 24 And what Microsoft seeks to show is that the 25 people with the most to gain here are the 9137 1 lawyers. That's what they're trying to show. 2 And that is not a proper subject of evidence in 3 this lawsuit or as far as I know any other. 4 I wondered why Microsoft had, once 5 again, notified the press. And it is clear 6 that that was done by Microsoft in order to 7 feed the myth that class-action lawsuits are 8 improper and attorney-driven cases brought for 9 attorneys' fees. When, in fact, they are a 10 means for people with small claims to aggregate 11 them and take on the most powerful company in 12 the world. 13 Businesses like Microsoft have 14 poisoned the public view of these forms for 15 seeking redress by spending billions of dollars 16 to spread propaganda. Now they seek to collect 17 on their investment by improperly suggesting to 18 the Jury that the Plaintiffs are not real 19 Plaintiffs. 20 These people have spent dozens, and in 21 Mr. Comes' case, hundreds of hours working on 22 this matter. They take their duties to 23 represent the class very seriously. They are 24 committed to doing what is right for all class 25 members, and they have been active and 9138 1 effective in doing exactly that. 2 This is Microsoft's way to attack them 3 and the whole idea of class actions by seeking 4 to introduce manifestly, manifestly improper 5 testify. 6 I thought perhaps I would discuss the 7 law with the Court. Microsoft's argument was a 8 bit short on that. 9 This motion is, of course, Microsoft's 10 attempt to relitigate the class 11 representatives' conduct under the guise that 12 we have opened the door. 13 Microsoft's resistance to Plaintiffs' 14 motion in limine shows that Microsoft planned 15 from the beginning to make the same arguments 16 that it makes here; that if they could 17 manufacture a strained argument that Plaintiffs 18 somehow opened the door concerning such issues, 19 Microsoft would be able to introduce this 20 improper evidence. 21 The Court, however, already rejected 22 these exact arguments when it granted the 23 Plaintiffs' motion in limine in its entirety 24 before this case began. 25 Plaintiffs established in their motion 9139 1 in limine that even if class representative 2 conduct were somehow relevant, which it is not, 3 the evidence relating to these issues is 4 inadmissible because its probative value, if 5 any, is substantially outweighed by the fact 6 that such evidence would only cause unfair 7 prejudice to Plaintiffs, confuse the issue in 8 the minds of the jurors, mislead them as to the 9 purpose of this lawsuit, which I think is 10 Microsoft's whole point, and waste the limited 11 resources of the parties and this Court. 12 Microsoft has totally misapplied the 13 doctrine of opening the door. 14 Under Iowa law, the doctrine of 15 opening the door applies to circumstances in 16 which the evidence initially offered was 17 inadmissible, which is certainly not the case 18 here, and focused on whether equally 19 inadmissible evidence may be allowed in 20 rebuttal. 21 And I'm quoting from Iowa Practice, 7 22 Iowa Practice, Section 5.103, subsection 8 at 23 4. 24 A separate situation occurs where 25 issues are raised concerning the admissibility 9140 1 of evidence offered or the propriety of 2 measures taken to rebut admissible evidence. 3 These issues are more properly -- 4 appropriately analyzed in terms of impeachment, 5 rebuttal, and scope of cross-examination. 6 Although Microsoft takes issue with 7 this excerpt from the Iowa Practice Guide in 8 its reply, this excerpt demonstrates that Iowa 9 courts do not employ the type of expansive use 10 of opening the door that Microsoft seeks to 11 impose here. 12 The rationale for applying the 13 doctrine of opening the door is that when a 14 jury may draw an adverse inference from 15 evidence introduced by a party, the other party 16 may be permitted to explain or contradict such 17 evidence introduced by the first party because 18 the first party previously raised the issue. 19 And quoting from United States versus 20 Collicott, only if the evidence by one party 21 needs to be met or explained away by the other 22 side does its mere introduction provide 23 independent warrant for the introduction of 24 other evidence. 25 It just doesn't apply here, Your 9141 1 Honor. It just doesn't apply here. 2 The justification raised by Microsoft 3 are statements by counsel explaining what the 4 experts, not class representatives, will 5 testify about. 6 And while Microsoft discounts this, 7 Your Honor, Microsoft knew what the experts 8 were going to testify about because they got 9 expert reports on June 2nd that talked about 10 price trends and rate of return and on what 11 basis those calculations were made. There's 12 nothing new as to the class representatives. 13 Plaintiffs have not introduced any 14 evidence such that Microsoft should be 15 permitted to cross-examine the Plaintiffs on 16 issues which the Court has already held to be 17 not relevant and prejudicial. 18 Even if the doctrine were to be 19 applied to admissible evidence, none of the 20 statements made by Plaintiffs' counsel either 21 during voir dire or opening statement have 22 opened the door. 23 Microsoft has made this argument, 24 these very arguments, and lost before. They 25 point to these snippets taken out of context of 9142 1 opening statement and voir dire. But nothing 2 about those comments is improper or 3 inappropriate. 4 This is simply an explanation of class 5 action procedure to a lay jury, and, of course, 6 as Microsoft kind of recognizes, perfectly 7 consistent with the Court's Instruction Number 8 2. 9 The relationship between the named 10 Plaintiffs and their counsel is only relevant 11 to the adequacy of the named Plaintiffs, which 12 Microsoft could have but failed to even bring 13 up in the class certification procedures. 14 There is no question but what these 15 class representatives are adequate. You, the 16 district court has held, and the Supreme Court 17 has affirmed that these are adequate 18 representatives. 19 Microsoft concedes that the rule 20 stated in Gocial, G-o-c-i-a-l, versus 21 Independence Blue Cross at 827 A. 2nd 1216, 22 1220 to 21, is the law in Iowa, but, 23 nevertheless, claims that it is inapplicable 24 without further explanation, except its 25 familiar refrain that they get to do it because 9143 1 it's cross-examination. 2 And the rule in Gocial is a class 3 representative -- the rule in Gocial is -- 4 rules plainly state that the Court must inquire 5 into the representative's conflict of interest 6 prior to certifying the class, not as a part of 7 cross-examination and not when the Court has 8 already ruled that such evidence is not 9 relevant and prejudicial to the Plaintiffs. 10 Microsoft's examination of any 11 relationship between the named Plaintiffs and 12 class counsel is calculated, expected, and 13 intended to improperly raise the inference that 14 this litigation is somehow not valid 15 litigation. 16 Plaintiffs' counsels' arguments are 17 consistent with your instructions. This is not 18 something that the Court should permit. 19 Microsoft should not be permitted to 20 leverage innocuous excerpts of voir dire and 21 opening into an adverse inference in its favor. 22 With respect to the purchase of 23 computer hardware or non-Microsoft software, 24 the focus of this case is Microsoft's illegal 25 conduct in Microsoft's market with respect to 9144 1 consumers and competitors. 2 The Plaintiffs' purchases of computer 3 hardware and non-Microsoft software are wholly 4 irrelevant to the Plaintiffs' claims, 5 particularly those purchases of products 6 outside operating systems and applications 7 markets for which Microsoft has illegally 8 maintained its monopoly. 9 However broad cross-examination is, it 10 does not permit the Defendant, or the 11 Plaintiffs for that matter, or any party, from 12 cross-examining on matters that are not 13 relevant to any issue in the case. 14 The Court has held this is just not 15 relevant to any issue in the case. 16 Microsoft in its reply states that 17 Plaintiffs' voluntarily raised inferences about 18 other companies' prices and margins that they 19 knew Microsoft was otherwise prohibited about 20 cross-examining them under the November 13th 21 ruling. 22 Microsoft misrepresents the Court's 23 ruling and also misses the point. The Court's 24 order prohibits Microsoft from referencing the 25 class representatives' conduct. 9145 1 It does not prevent Plaintiffs from 2 referencing economic comparisons drawn by their 3 experts with respect to other companies' prices 4 and margins as a part of a formula determining 5 rate of return, showing price trends, things 6 that are the subject of both our experts' and 7 Microsoft's experts' testimony. 8 Microsoft should not be allowed to 9 examine class representatives about their 10 business interests, practices, and experience. 11 This argument of Microsoft is based on 12 its representations that Plaintiffs' counsel 13 made a comparison between Microsoft and other 14 large business entities, like Wal-Mart or Home 15 Depot, for the limited purpose of illustrating 16 by analogy Microsoft's anticompetitive course 17 of conduct to facilitate juror understanding 18 and comparisons made by Plaintiffs' expert 19 Doctor Netz between Microsoft and other 20 software companies to determine the amount of 21 overcharge passed on. 22 This is the pass-through part, Your 23 Honor. Passed on to Iowa consumers because of 24 Microsoft's illegal course of conduct. 25 Plaintiffs' comparisons to Wal-Mart 9146 1 and Home Depot were made for the limited 2 purpose of illustrating by analogy for the Jury 3 the idea that Microsoft sustained its market 4 shares in these markets as a result of 5 anticompetitive exclusionary conduct. 6 These hypothetical illustrations made 7 to facilitate juror understanding of 8 Plaintiffs' claims do not entitle Microsoft to, 9 one, test whether the practices challenged by 10 the Plaintiffs are similar to accepted business 11 practices in other industries or markets, 12 including those in which Plaintiffs operate 13 their own businesses. That's one of the things 14 that Microsoft says they want to do with this 15 testimony. 16 Or, two, demonstrate at trial that the 17 challenged practices are widely used and 18 accepted by other businesses including those 19 owned or operated by the Plaintiffs. 20 And that is from the Defendant's 21 brief. 22 Microsoft unreasonably argues that the 23 mere mention of large business and entities 24 from other industries for the purpose of 25 illustrating Plaintiffs' claims opens the door 9147 1 to evidence regarding both whether the 2 challenged business practices occur in other 3 industries or the propriety of 4 cross-examination of Plaintiffs as to their own 5 business interests, practices, and experiences. 6 Again, Your Honor, this just misses 7 the point. Nowhere have Plaintiffs mentioned 8 the business practices of the class reps 9 because such information is wholly irrelevant 10 to the Plaintiffs' claim. 11 Microsoft is seeking to introduce 12 evidence that lacks any relationship to any 13 issue to which the Plaintiffs purportedly 14 opened the door or which is relevant in any way 15 to the issues in this case. 16 Comparisons about profit margins and 17 rate of returns conducted by the Plaintiffs' 18 experts were conducted as a part of a 19 well-accepted modeling process done well before 20 the motions in limine to determine the price 21 that would have prevailed in a competitive 22 marketplace but for Microsoft's anticompetitive 23 conduct. 24 The class representatives' profit 25 margins, if any, and rates of return of their 9148 1 businesses, which are wholly irrelevant to the 2 merits of this case, are not now reasonably in 3 play simply because Plaintiffs' economic 4 experts made comparisons using well-accepted 5 economic practices for the purpose of their 6 analysis. 7 Joe Comes' 13 Pizza Huts have nothing 8 to do with the merits of this case. 9 These issues have been litigated and 10 have no bearing on the merits of Plaintiffs' 11 claim under the Iowa Competition Law. 12 Denying Microsoft's requested relief 13 simply because it seeks to relitigate these 14 same issues with the meritless argument that 15 Plaintiffs opened the door will not be 16 prejudicial to Microsoft. It will, however, be 17 highly prejudicial to the Plaintiffs. 18 Your Honor, we were careful not to 19 open any doors. We did not voir dire on these 20 subjects, some of which are so volatile that 21 Microsoft perceives the need to secure press 22 coverage on them. Plaintiffs would be unfairly 23 prejudiced by a reversal of the Court's earlier 24 order. 25 Thank you, Your Honor. 9149 1 THE COURT: Response? 2 MR. TULCHIN: Yes, sir. 3 Ms. Conlin accuses us of trying to 4 secure press coverage and of notifying the 5 press. 6 It's ironic that this happens today, 7 Your Honor. Ms. Conlin was on television all 8 morning bragging about the fact that she was 9 going to tell authorities, the government, that 10 Microsoft wasn't complying with the final 11 judgment. 12 She has catered to and cultivated the 13 press and issued press releases on virtually a 14 daily basis. 15 But let me turn to the law, Your 16 Honor, because I think it's more important. 17 First of all, the adequacy of class 18 representative issue that counsel raised has 19 nothing to do with this. 20 We didn't argue as a matter of law 21 that Mr. Comes' relationship with Ms. Conlin's 22 son disqualified him as an adequate class 23 representative. 24 And the courts have ruled on class 25 certification. That is, of course, an entirely 9150 1 different subject than getting relevant facts 2 in front of the jury. 3 We're not precluded from 4 cross-examining these Plaintiffs merely because 5 they're adequate class representatives. 6 When it comes to bias or interest or 7 motivation, as the Iowa Supreme Court says, 8 those matters are always proper for 9 cross-examination. 10 And the three cases that I showed you, 11 Your Honor, have not been dealt with by 12 Ms. Conlin. 13 Secondly, Your Honor, as a matter of 14 law, the argument made about the doctrine -- 15 the open-the-door doctrine in Iowa is 16 incorrect. And we have pointed out on page 3 17 of our reply brief that the argument that the 18 Plaintiffs made and that Ms. Conlin has 19 repeated here today about Section 5.103:8 of 20 the Iowa practice series evidence treatise is 21 just wrong. 22 That section deals with the doctrine 23 of curative admissibility. Has nothing to do 24 with opening the door by making arguments in 25 opening statement. 9151 1 That section 5.103:8 talks about 2 curative admissibility principles and says 3 they're properly concerned only with the 4 situation in which a party is deemed to have 5 waived an objection by introducing inadmissible 6 evidence. 7 None of that happened here. This was 8 argument made to the Jury in opening and 9 statements made to the potential jurors in the 10 voir dire. 11 The opening-the-door doctrine is very 12 much alive and well and certainly applies here. 13 Now, Ms. Conlin says that the 14 statements were innocuous. 15 Just looking at slide 1 again -- and I 16 won't go on at length, Your Honor, but these 17 are the statements that the Plaintiffs made 18 just three days after this Court ruled on their 19 motion in limine. 20 Three days later, after the Court said 21 we couldn't inquire about relationships between 22 the class reps and counsel, Plaintiffs made 23 these three statements to the Jury panel. 24 And the clear implication here is that 25 these people have pure motives. Maybe they do, 9152 1 and maybe they will so testify, and maybe the 2 Jury will believe them. 3 But the genesis of their interest in 4 this case, their relationship with counsel is a 5 relevant fact that bears on exactly the 6 question of whether they are volunteers and 7 whether they are the people, as if this were, 8 you know, the French revolution and the masses 9 rising up against the oppressor. 10 That's the implication that Ms. Conlin 11 sought to have the Jury draw. All we ask is 12 for a chance to get the facts that go to that 13 very subject. 14 Ms. Conlin says, and I agree, 15 cross-examination has limits. The subject must 16 be relevant. There's no dispute about that. 17 Cross-examination is permitted to be 18 broad, but, of course, within the general 19 penumbra of what relevant evidence is in a 20 case. 21 But if Mr. Comes contacted Ms. Conlin, 22 or the other way around, because of his 23 friendship with Ms. Conlin's son, that indeed 24 bears on the voir dire statement that the 25 Plaintiffs have made previously. 9153 1 Likewise, when it comes to relevance, 2 it's a peculiar concept, I think, Your Honor, 3 that the Plaintiffs' experts and the lawyers 4 for the Plaintiffs have said this time and time 5 again, the experts can address subjects that no 6 one else can address, that no one else should 7 be qualified to address. 8 So Ms. Conlin says, well, the 9 Plaintiffs' experts will talk about software 10 products outside the markets at issue here; 11 software in other markets, not operating 12 systems, not applications. 13 And they will compare profit margins 14 of one company in a different business with 15 Microsoft. All software companies, but in very 16 different software markets. 17 And that it's relevant for the Jury to 18 hear about those comparisons because the 19 experts can introduce those notions to the 20 Jury. 21 But when the actual Plaintiffs in the 22 case, the four of them, have documents and 23 information in their possession on the same 24 subjects, their actual purchases of software 25 outside these markets, and even in the case of 9154 1 Mary Jo Harty of Skeffington's within the 2 markets, the WordPerfect software I discussed, 3 somehow, according to Plaintiffs, that should 4 be off limits. 5 And given what they said in the 6 opening about what their experts will do with 7 other markets, it seems to me that the door has 8 been opened to these very limited examinations 9 about the actual purchases that the Plaintiffs 10 have made of software outside the markets at 11 issue in the case. 12 Same principle should apply to 13 business practices. Having an exclusive 14 contract, whether it's in the software business 15 or the pizza business or the tuxedo business, 16 whatever. There's nothing wrong with it. It's 17 normal business conduct. 18 In evaluating whether conduct has been 19 exclusionary, this jury should be permitted to 20 hear about it in light of what Mr. Hagstrom 21 said on December 11th. 22 Thank you very much, Your Honor. I 23 appreciate your patience. 24 THE COURT: You're welcome. 25 MS. CONLIN: May I have just a moment, 9155 1 Your Honor? 2 THE COURT: Yeah, go ahead. 3 MS. CONLIN: Thank you, Your Honor. 4 I was home working this morning. I 5 was not on TV as far as I know because I was in 6 my pajamas. 7 My point, Your Honor, is that 8 Microsoft knows how seriously this issue could 9 damage our case. And they know it because 10 they, along with other habitual law violators, 11 caused it. 12 And now they seek to profit from this 13 sort of legal FUD, if you will. They seek to 14 raise the specter that they've created that 15 class actions are brought to benefit lawyers 16 only. That's what they want to do. 17 And that's what the Court prohibited 18 before, and I hope that the Court will prohibit 19 it again. 20 Because it is not proper. It is not 21 relevant. And it is so highly prejudicial to 22 the Plaintiffs, not because the Plaintiffs did 23 anything wrong, but because through the media 24 and other mechanisms, Microsoft and other 25 corporate miscreants have spread propaganda 9156 1 that class-action lawsuits are improper. 2 And now they seek to bring up the fact 3 that since -- for a long time my son has had a 4 friend. And when my friend has a legal problem 5 -- or when my son's friend, not just this one, 6 Your Honor, a whole bunch of them, and some of 7 them in the middle of the night from jail, they 8 call me. I would guess that that is true for 9 most lawyers, that the people that they know 10 are the people who call them. 11 There's nothing about that that should 12 raise an improper inference. But what 13 Microsoft seeks to do is use that innocuous 14 fact to raise an improper inference. 15 And with respect to what the experts 16 are going to say, not news, Your Honor. Not 17 news at all. And, in fact, if the Court looks 18 back to what Microsoft said in its motion -- in 19 its response to our motion in limine, it is 20 verbatim, virtually verbatim what Mr. Tulchin 21 is telling you today. 22 And all we did was preview that exact 23 testimony in our opening statements. That's 24 all we did. That cannot possibly open the door 25 even if the door could be opened. 9157 1 THE COURT: Mr. Tulchin, it's your 2 motion. You have the last word if you wish. 3 MR. TULCHIN: I said what I need to 4 say, Your Honor. I thank you again for your 5 patience. I know that there are a number of 6 motions coming. 7 THE COURT: We are going to take a 8 ten-minute recess, though. Thank you. 9 MS. CONLIN: Thank you, Your Honor. 10 (A recess was taken from 1:44 p.m. 11 to 1:58 p.m.) 12 THE COURT: Motion two. Plaintiffs' 13 motion to vacate or modify the order of 14 November 9th. 15 Who's arguing it? 16 MS. CONLIN: I am, Your Honor. 17 And further to the one we just did, 18 pages 522 through 24 put the people, the people 19 remark in context. 20 THE COURT: Of the transcript? 21 MS. CONLIN: Yes, Your Honor. 522 to 22 524, and the Court will see it's an exchange 23 with Ms. [redacted] in which ultimately she's 24 asking me was it one person or more than one, 25 and I say one person started it. 9158 1 So I'm not giving the impression that 2 Mr. Tulchin sought to tell the Court I was 3 giving. I'm talking about the people who 4 brought the lawsuit. 5 And with respect to our motion to 6 vacate or modify your November 9th order with 7 respect to the value of a witness's Microsoft 8 stock, on December 12th, Your Honor, Mr. 9 Tulchin referred to the amount of money paid to 10 two of Plaintiffs' experts, Professor Netz and 11 Mackie-Mason, over the course of several cases 12 against Microsoft. 13 What he said was the following: Many 14 of the experts have made something close to a 15 career in representing and working for lawyers 16 on lawsuits against Microsoft. And some of 17 them indeed have been paid very, very, very 18 handsomely for their work as experts on these 19 Microsoft cases. 20 Both Professor Netz and Professor 21 Mackie-Mason and their company, Applecon, 22 A-p-p-l-e-c-o-n, have been paid something more 23 than 3 million, I think by now probably more 24 than that, doing work for lawyers in cases 25 against Microsoft. 9159 1 We think that your Iowa common sense 2 should be brought to bear when evaluating 3 testimony from experts who have been paid to 4 that extent in these cases. 5 Plaintiffs, however, have been 6 prohibited from making such specific references 7 as a means of establishing bias or prejudice. 8 Now, why did Mr. Tulchin say such a 9 thing? He said such a thing because he wants 10 the Jury to believe that the fact that these 11 experts have been paid $3 million will color 12 their testimony. 13 Why do we want to introduce evidence 14 with respect to the Microsoft employees' stock 15 options? Because we want the Jury to know that 16 the people who testify on Microsoft's behalf 17 have made sometimes hundreds of millions or I 18 don't know if anybody's got a billion besides 19 Mr. Gates and Mr. Ballmer, but a whole big 20 bunch more than these experts could ever hope 21 to make, no matter what they do in the rest of 22 their lives. 23 Microsoft's reference to the more than 24 $3 million is particularly inappropriate since 25 Microsoft itself argued in its motion in limine 9160 1 relating to the net worth of Microsoft's 2 witnesses that a $1 million threshold is high 3 enough to impress jurors with the extent of the 4 witness's commitment to the fate of Microsoft 5 at the relevant time. 6 One million is a very large sum, but 7 limits the risk of disclosure presented by the 8 much larger sums that some employees possess. 9 Following Microsoft's motion, this 10 Court held that we could ask witnesses up to a 11 million. But it's unfairly prejudicial that 12 Microsoft's counsel is allowed to refer to the 13 specific amounts in excess of 1 million earned 14 by Plaintiffs' experts, not just in this case, 15 Your Honor, but over a period of many, many, 16 many years. 17 It happens that Applecon has developed 18 expertise. Other Plaintiffs paid for that 19 expertise, and, frankly, it's a lot less 20 expensive for us to go to people who have 21 already a significant background in this 22 enormously complex matter to seek their 23 expertise because they have already had an 24 opportunity to examine Microsoft's books and 25 records and the many millions of documents in 9161 1 this case. 2 Bias is bias, Your Honor. That's what 3 Mr. Tulchin sought to tell the Jury, was that 4 the $3 million would likely bias these experts. 5 What we seek to tell the Jury is 6 exactly the same thing and exactly the same way 7 with respect to the bias of Microsoft's 8 witnesses. 9 Microsoft incorrectly argues that its 10 reference to Plaintiffs' past earnings has 11 nothing to do -- Plaintiffs' experts' past 12 earnings has nothing to do with Plaintiffs' 13 desire to elicit information about the 14 Microsoft stockholdings of Microsoft's 15 witnesses. 16 But that's the same purpose for which 17 Microsoft's attorneys' argued to the Jury about 18 the $3 million. And I'm not sure that that's 19 the accurate figure, but whatever it is, it is. 20 In its opening statement, Microsoft 21 aggregated the earnings of Plaintiffs' expert 22 in this case and in those prior cases to argue 23 what? To argue that they were biased. 24 Plaintiffs are not complaining that 25 Microsoft may seek to introduce evidence of 9162 1 Plaintiffs' experts' present earnings from this 2 case. 3 Plaintiffs complain, however, that its 4 unfairly one-sided to allow Microsoft to 5 aggregate the past earnings of the Plaintiffs' 6 experts and make specific reference to earnings 7 in excess of 1 million when Plaintiffs can't 8 make similar reference to the stockholdings of 9 the Microsoft witnesses. 10 The comparison is inept because 11 Microsoft's implying that Plaintiffs' experts' 12 past earnings may be probative of present bias. 13 Likewise, Plaintiffs claim that 14 Microsoft's witnesses' stockholdings in 15 Microsoft amassed prior to this case are 16 probative of their own pro-Microsoft bias. 17 In both cases, Your Honor, there is no 18 direct financial link between the testimony 19 given in this case and the prior earnings of 20 the Plaintiffs' experts or the stockholdings of 21 Microsoft's witnesses. 22 Microsoft ignores this fact and 23 attempts to confuse the issue by claiming that 24 it's entitled to introduce evidence about 25 Plaintiffs' experts' fees in this case which 9163 1 show that there is a direct financial link 2 between Plaintiffs' expert earnings and their 3 alleged bias. 4 This argument is not relevant because 5 Microsoft did not refer only to Plaintiffs' 6 experts' earnings in this case, but focused on 7 their aggregated earnings in this case and in 8 the prior cases. 9 All cases cited by Microsoft in their 10 brief for the proposition that an expert's 11 earnings in a case may be the subject of 12 cross-examination are distinguishable on this 13 basis. 14 Those cases support the general rule 15 with which we do not disagree, that an expert's 16 fees are admissible as evidence of bias. 17 But it doesn't have anything to do 18 with our current motion, which is based on the 19 aggregation of earnings over a period of, I 20 think, a dozen or so years. I'm uncertain of 21 that, Your Honor, but over quite a long period 22 of time. 23 And, in any event, as I said, bias is 24 bias. Microsoft can't have it both ways. If 25 the earnings of an expert in several cases 9164 1 against Microsoft over a long period of time 2 are probative of a present bias, then the 3 stockholdings amassed by a Microsoft witness 4 over a long period of time are equally 5 probative of that person's biases. 6 Microsoft is abusing the Court's 7 ruling preventing Plaintiffs from admitting 8 evidence of its own witnesses' stockholdings in 9 excess of 1 million by making specific 10 references to the, quote, more than 3 million 11 earned by Plaintiffs' experts in the aggregated 12 cases. 13 Even though Microsoft previously 14 argued that $1 million was a lot of money and 15 that Plaintiffs need not specifically refer to 16 amounts in excess of that, they did. They did. 17 They referred to the 3 million. 18 It's not fair for Microsoft to shield 19 its own witnesses from specific inquiries about 20 the value of their Microsoft stock in excess of 21 a million and at the same time to make those 22 specific references to Plaintiffs' experts' 23 earnings in excess of 3 million. 24 Microsoft's protest that it would be 25 unfairly prejudicial to require its witnesses 9165 1 to answer specific questions about the value of 2 their stockholdings are unavailing in light of 3 its use of this accusation, in the way that Mr. 4 Tulchin said it, against Plaintiffs' experts. 5 Microsoft argues that -- what is that, 6 Your Honor? Do you hear that? 7 THE COURT: That's a high-pitched 8 sound, which is irritating. 9 MS. CONLIN: Yes. It sounds like some 10 kind of an alarm. Boy, we are just subject to 11 all kinds of interesting things in this 12 courtroom, aren't we? 13 THE COURT: There it stopped. 14 MS. CONLIN: What was it? 15 THE COURT: The heater, radiator. 16 MS. CONLIN: Okay. 17 Microsoft argues that the evidence of 18 its witnesses' stockholdings in excess of a 19 million would unfairly prejudice Microsoft 20 because it could suggest that the, quote, 21 damages sought by Plaintiffs are so trivial 22 from Microsoft that they need not be carefully 23 evaluated. 24 And Microsoft goes on to say the Jury 25 may award damages based solely on a perceived 9166 1 ability to pay. 2 That would require Your Honor to 3 assume that the Jury will violate your 4 instructions. I think that's not likely to 5 occur, Your Honor. 6 The Court will and has carefully 7 instructed the Jury on what they may consider 8 in terms of awarding damages, and Microsoft's 9 protests are overblown. 10 All we're seeking is to introduce this 11 evidence on credibility. And the case -- the 12 case cited by Microsoft dealt with a party's 13 attempt to suggest that the Defendant should 14 respond in damages because he's rich and the 15 Plaintiff is poor. We're not going anyplace 16 near that, Your Honor. We never would. That 17 concern just does not exist here. 18 Furthermore, Microsoft's attempt to 19 confuse the issue by arguing that there is no 20 comparable prejudice to Plaintiffs with regard 21 to hearing about the specific amount of 22 Plaintiffs' experts' earnings, and that is not 23 so. This is not the type of evidence 24 Plaintiffs object to here. 25 We've already suffered prejudice 9167 1 because Microsoft has sought to link the 2 experts' past earnings to their present bias. 3 It is inherently prejudicial for 4 Microsoft to bolster its allegations of bias 5 with such past earnings making specific 6 reference to amounts in excess of 3 million. 7 And I don't want to get stuck on the 3 8 million, Your Honor, because you will recall 9 that what Mr. Tulchin said was probably -- I 10 think by now probably more than that. So it 11 wasn't -- the 3 million was the amount that he 12 suggested, but then he added to that by the 13 probably more. 14 And yet we're precluded from asking 15 about the witnesses', Microsoft's witnesses' 16 Microsoft stockholdings. 17 We think that's unfair and we 18 respectfully request that the Court vacate its 19 November 9th ruling to the extent that it 20 limits Plaintiffs from inquiring about the 21 value of a witness' ownership of Microsoft 22 shares in excess of $1 million. 23 We believe that we should be permitted 24 to inquire and present evidence as to the 25 witnesses' entire portfolio based on 9168 1 Microsoft's stock. 2 And, Your Honor, I believe that you 3 have now our offer of proof with respect to 4 Mr. Chestnut. And that is -- that's all the 5 material that Microsoft has provided to us in 6 answer to Interrogatory 21, which the Court 7 will recall was the subject of two or three 8 motions to compel, and which I also should 9 mention to the Court we got additional 10 information just a couple of days ago upon 11 inquiry in answer to that interrogatory, 12 including for some quite prominent and 13 high-level Microsoft executives they, 14 Microsoft, until we asked, had not provided us 15 with that information. 16 In any event, Your Honor, what we have 17 in our offer of proof for Mr. Chestnut is the 18 material that Microsoft provided in answer to 19 Interrogatory 21. 20 And it is that material that we seek 21 to use to suggest bias, or at least present 22 evidence of potential bias against Microsoft. 23 Just as it seeks to present evidence 24 of potential bias against our experts with 25 respect to their earnings, we seek to present 9169 1 identical type of evidence against their, 2 Microsoft current and former employees based on 3 exactly the same concept. 4 It's appropriate evidence. We should 5 be permitted to do it. And now that Microsoft 6 has opened the door literally by its 7 accusations against our experts based on their 8 3 million plus, we think that the Court's order 9 cannot stand. 10 That's all, Your Honor. Thank you 11 very much. 12 THE COURT: Counsel? 13 MR. CHAPMAN: Thank you, Your Honor. 14 Jeff Chapman for Microsoft. 15 Let me deal with Ms. Conlin's second 16 point first, which is her offer of proof 17 concerning Mr. Chestnut. 18 Ms. Conlin has not explained how she 19 intends to use this offer of proof or what she 20 intends to do with it, but I would note that I 21 don't think Mr. Chestnut was asked at his 22 deposition how much stock he held. 23 And we believe it is entirely improper 24 to display to the Jury or otherwise refer to 25 stock Mr. Chestnut held when he was not asked 9170 1 those questions at the deposition because, of 2 course, we would not be able to respond in 3 kind. 4 I make that only as sort of a blanket 5 objection because I don't know how it was going 6 to be used. 7 THE COURT: What if the document is a 8 business record from Microsoft Corporation 9 itself? 10 MR. CHAPMAN: If it is a business 11 record admitted into evidence, then presumably 12 it could be at least referred to in the 13 closing. Otherwise -- 14 THE COURT: Why couldn't it be 15 offered? 16 MR. CHAPMAN: It could be offered into 17 evidence also, Your Honor. 18 But I don't know how this document was 19 intended to be used, but to the extent it was 20 going to be displayed to the Jury at the time 21 of the testimony, we would object to that. 22 THE COURT: That testimony is over. 23 MR. CHAPMAN: That's correct. 24 THE COURT: Is this a document that 25 you provided to them? 9171 1 MR. CHAPMAN: It's an interrogatory 2 response. It's part of an interrogatory 3 response. 4 THE COURT: When did you give it to 5 them? 6 MR. CHAPMAN: I believe -- this one 7 was given in October, Your Honor. 8 THE COURT: Okay. Go ahead. 9 MR. CHAPMAN: I'd also note that I 10 don't believe -- well, let me sort of address 11 the core issue, which is should the Court's 12 November 9th ruling be vacated. And the 13 answer, obviously, from Microsoft is no. 14 I think Ms. Conlin is engaging in a 15 very confused and inappropriate comparison 16 between the amount of Microsoft stock a witness 17 may have owned at the time of testimony or at 18 the time of deposition and the amount of expert 19 compensation. We think that they're very 20 different, Your Honor. 21 Ms. Conlin has said that enforcing the 22 Court's ruling would be unfair, but I don't see 23 any unfairness on the issue of expert 24 compensation. 25 Obviously, Ms. Conlin is able to 9172 1 cross-examine Microsoft's experts on whatever 2 subjects her experts are cross-examined on. 3 And there's no ruling of the Court that 4 otherwise limits that. 5 Employee stock is fundamentally 6 different than expert compensation, both as to 7 its probative value and as to its prejudicial 8 effect. 9 First, let's talk about probative 10 value. 11 The amount of money that an expert is 12 paid to sit in that witness chair and to do the 13 work that is necessary to sit in that witness 14 chair, which may have been done years ago, may 15 have been done in prior cases. 16 Again, that's why Ms. Conlin said she 17 went to particular experts, because they've 18 been doing this before, is the amount of money 19 that they're being compensated for their 20 testimony. They wouldn't testify without it, 21 and they wouldn't do that work without it. 22 And the prior work and the prior 23 engagements, Your Honor, are very important 24 because when you choose an expert, you look at 25 the work that they've done previously. 9173 1 If it is not satisfactory work, if it 2 is not work that is helpful to the Plaintiffs' 3 counsel to prove their case, you don't hire the 4 expert back. 5 So when they're sitting in that chair, 6 their past engagements are in issue and also 7 their future engagements because if you don't 8 do a good job in that witness chair, you are 9 simply not hired back. 10 The stockholdings, as the Court held 11 in its rulings, shows only that there is a 12 financial connection between Microsoft and the 13 witness. And they are allowed to establish 14 that subject to that $1 million limitation for 15 whatever it's worth. 16 But the possibility of that stock 17 having an influence on the testimony is just so 18 negligible. 19 Microsoft has a $200 billion market 20 capitalization. The value of a witness's stock 21 based on whether their testimony is good or bad 22 is not going to be influenced by this damages 23 verdict. 24 It's not going to cause a substantial 25 movement in the stock. But, you know, expert 9174 1 compensation, if they don't do a very good job 2 may not be hired back. 3 THE COURT: How do you know that? 4 MR. CHAPMAN: I think experience, Your 5 Honor. I'm not offering expert testimony in 6 the witness chair, but I think a witness -- the 7 size of a damages verdict, which is I think .2 8 percent of the market capitalization is 9 unlikely to have a material effect on the stock 10 price. 11 THE COURT: Then it's relative to what 12 the witness believes, isn't it? If a witness 13 believes that it's going to cost him a lot of 14 money, he doesn't know about your experts 15 necessarily. 16 MR. CHAPMAN: That's correct, Your 17 Honor. But I don't think any witnesses 18 testified to that. 19 THE COURT: And if that's his only 20 means or her only means of income, it becomes 21 more imperative, doesn't it? 22 MR. CHAPMAN: I agree with you, yes. 23 But I don't think any witness has testified to 24 that and I don't think any witness will. 25 THE COURT: But this is all relative. 9175 1 It's not just because it's a small percentage 2 of what the company may or may not have. It 3 has nothing to do with what the witness may 4 perceive as being the possibilities for the 5 lawsuit. 6 MR. CHAPMAN: Well, I think, Your 7 Honor -- and perhaps I wasn't clear in the 8 point I was making. The witness would be 9 concerned if the value of their stock dropped, 10 and I think that most witnesses -- 11 THE COURT: Right. 12 MR. CHAPMAN: -- would know. And I 13 don't think it's really an issue of any great 14 controversy that a damages verdict, even in the 15 amount that the Plaintiffs are asking for, is 16 not going to have a material impact on a 17 company with $200 billion in market 18 capitalization. 19 THE COURT: How do you know that? 20 MR. CHAPMAN: Experience, Your Honor. 21 THE COURT: You've talked to a number 22 of employees and people who own stock in 23 Microsoft or other corporations. 24 Have they told you that they're not 25 concerned about what happens to the corporation 9176 1 they own stock in, whether it be General Motors 2 or Microsoft if they get hit with a lawsuit? 3 How do you explain, then, when a 4 market goes down, for instance, when a company 5 like GM or Kodak is indicted? The stock value 6 goes down, doesn't it? 7 MR. CHAPMAN: Yes. I think 8 indictments are very different, Your Honor. 9 Indictments can effectively put companies out 10 of business, particularly heavily regulated 11 ones. 12 THE COURT: Don't lawsuits have that 13 potential too? 14 MR. CHAPMAN: I don't think they have 15 that same potential, Your Honor. 16 THE COURT: So you've never 17 experienced or your experts that say they've 18 never noticed large lawsuits against 19 corporations have had the effect of having the 20 stock go down, is that what you're saying? 21 MR. CHAPMAN: No, that's not what I'm 22 saying. I'm saying in this particular -- 23 THE COURT: And that most witnesses or 24 employees that have stock would know that; that 25 a huge lawsuit in the millions and millions of 9177 1 dollars that's all over the press, they're not 2 going to be worried at all that their stock is 3 going to go down? 4 MR. CHAPMAN: Not when the damages 5 verdict is .2 percent of the market 6 capitalization, Your Honor. I don't think 7 anyone would say that. 8 THE COURT: And everyone knows that 9 it's .2 percent of the capitalization? 10 MR. CHAPMAN: Well, I found the market 11 capitalization figures on Yahoo this morning. 12 So I think that's also something -- 13 THE COURT: Every employee or every 14 stockholder in the corporation knows the 15 capitalization of the corporation they invest 16 in, is that what you're saying? 17 MR. CHAPMAN: I don't know that, Your 18 Honor. But I think that that's fairly common 19 knowledge. 20 And, again, if the Plaintiffs have 21 testimony that they tend to elicit that would 22 intend to indicate a unique sort of knowledge 23 of the markets and a unique concern about that, 24 then they can elicit that. 25 I'm simply trying to make the point 9178 1 that expert compensation and stock are a little 2 bit different. 3 THE COURT: I understand that point. 4 The point which I find it has to be 5 totally relative, an individual, in specific, 6 based upon the person sitting in a witness 7 chair is how that person perceives the effect. 8 MR. CHAPMAN: I certainly would agree 9 with you that if the witness perceived that 10 their stock would drop as a result of the 11 lawsuit, that would take -- 12 THE COURT: So that's a legitimate 13 question, isn't it? 14 MR. CHAPMAN: -- more probative -- 15 THE COURT: Couldn't you or the 16 Plaintiffs ask a particular witness do you 17 believe -- do you have fear for testifying in 18 this matter because your stock may go down in 19 price? 20 MR. CHAPMAN: Yes, I think that would 21 be a legitimate question and one not precluded 22 by the Court's order. 23 THE COURT: Okay. Go ahead. 24 MR. CHAPMAN: So that is my view on -- 25 or our position, if you will, on why the 9179 1 probative value of expert compensation and 2 witness stockholding is very different. 3 But sort of balanced against that is 4 the potential for prejudicial effect. 5 The Court's -- Judge Peterson's ruling 6 in Minnesota, which put the same $1 million 7 limitation that Your Honor put on was based on 8 the rationale that hearing those large sums, 9 the Jury would not evaluate damages carefully. 10 And that is perhaps not the rationale, 11 but certainly the same ruling that Your Honor 12 adopted. So this isn't something Microsoft is 13 saying. This is something that a judge has 14 said in another case. We're not making this 15 up. This is in the record. 16 And the prejudice is quite palpable, 17 Your Honor. Some of these witnesses, I think 18 Mr. Gates and Mr. Ballmer, own more stock than 19 the size of the damages verdict. 20 And the ability for the Plaintiffs to 21 try to make that connection, even if it's 22 implicit is very, very dangerous, because if 23 the Jury thinks, boy, Microsoft is just 24 throwing money around, they're loaded, look how 25 much stock they give their executives, a 9180 1 billion dollars, of course, a couple hundred 2 million dollars isn't going to hurt them a bit. 3 So I don't need to think about this 4 damages and causation analysis very carefully 5 because they can afford it. 6 It's the same thing that happens with 7 insurance coverage and other evidence as well. 8 And it's why that type of evidence is usually 9 dealt with very carefully. And that's exactly 10 what Your Honor has done. 11 There is no similar prejudice to the 12 Plaintiffs on expert compensation. 13 As much as I think this would be a 14 fair and appropriate outcome of this case, it 15 is not going to end with Professor Noll and 16 Mackie-Mason writing Microsoft a check. 17 So the amount of money that they 18 earned and the possibility that it might sort 19 of prejudice some position that the Plaintiffs 20 are taking, it's just not there. 21 But if the Plaintiffs have their way, 22 they want a verdict against Microsoft, and the 23 amount of money that the Plaintiffs think 24 Microsoft -- the Jury thinks Microsoft has may 25 very well cause the Jury to not make that 9181 1 evaluation in a careful and consistent manner. 2 THE COURT: Why do I have these 3 limitations anyhow on those other witnesses if 4 what you're saying -- even $30 million in 5 stock, which I have already ruled they can't 6 get into, that's not even 2 percent of the net 7 worth of the company, what difference does it 8 make? 9 MR. CHAPMAN: Well, that was the 10 argument that we made, Your Honor, back in 11 connection with our motion in limine, and the 12 motion was denied in part and granted in part. 13 We didn't think it was really 14 appropriate at all. 15 THE COURT: So you're saying it's okay 16 if they ask if it's over a million dollars a 17 person has? 18 MR. CHAPMAN: Pardon? 19 THE COURT: You're saying it's all 20 right if they ask a witness if it's over a 21 million dollars? 22 MR. CHAPMAN: No. Our view is just 23 that wealth and stockholdings just have no 24 relevance at all because of how limited they 25 might be in influencing a witness's testimony. 9182 1 And Your Honor, I think, took both 2 parties' position and struck a reasonable 3 balance. And we just think that that balance 4 should be maintained, particularly when the 5 only basis for doing it is a reference to 6 expert compensation, which is a totally 7 legitimate area of cross-examination, was made 8 in the opening statement without objection, and 9 no motion in limine was filed on that subject 10 despite the fact that I believe Mr. Tulchin 11 made a similar statement in the Minnesota case. 12 THE COURT: And you have no problem 13 with them asking your experts how much they 14 make; right? 15 MR. CHAPMAN: That's correct, Your 16 Honor. 17 THE COURT: All right. Anything else? 18 MR. CHAPMAN: No. 19 THE COURT: Reply? 20 MS. CONLIN: Thank you, Your Honor. 21 With respect to Mr. Chestnut and the 22 fact that he was not asked about his 23 stockholdings in his deposition -- first of 24 all, I'm not absolutely sure that's not true, 25 but I would remind the Court that Microsoft 9183 1 refused to permit its witnesses to answer such 2 a question. 3 So, frankly, whether it was asked or 4 not doesn't make a bit of difference here 5 because they were not permitting any witness to 6 answer the question. 7 It was posed many times. And every 8 time it was posed, Microsoft forbade the 9 witness from answering. 10 So that is really not relevant in the 11 Court's consideration here. 12 What we have provided to the Court by 13 way of offer of proof, which I do want to make 14 sure will be kept confidential, Your Honor, at 15 this point, because it is an offer of proof, 16 and it does deal with the private financial 17 interests of the witness, and unless and until 18 the Court permits it to be introduced, I think 19 it should be withheld from public view. 20 What that is, Your Honor, is 21 Microsoft's answer to an interrogatory that 22 says what do your employees hold. That's -- 23 you know, what have they ever held and that 24 sort of thing. 25 It's an admission, Your Honor. It's 9184 1 from Microsoft's records. Lord, we have no way 2 of knowing this. This is an admission of 3 Microsoft. It clearly can come into the 4 record. 5 What the Court's currently standing 6 order tells us is that while we may inquire 7 about a witness's stockholdings, we may only 8 inquire as to up to a million dollars. What we 9 seek is to be able to actually inquire and get 10 an answer that's completely accurate. 11 The financial interest of a witness, 12 any witness, lay or expert, is always a proper 13 subject of cross-examination. Always, always, 14 always. It's no different for an expert or a 15 lay witness. Often, of course, lay witnesses 16 do not have any financial interest whatsoever 17 in the outcome of a matter. But, in this case, 18 Microsoft's employees do. 19 And there are two things that we think 20 are important here. 21 One is they may currently hold stock. 22 If they currently hold stock, they may, in 23 fact, have a fear that the outcome of this case 24 will cause the market to go down. 25 Now, Mr. Chapman poo-poos that notion 9185 1 on his basis that whatever the outcome here, 2 it's just going to be a tiny fraction of what 3 Microsoft is worth. 4 What that ignores is exactly what the 5 Court was talking about. News moves the 6 market. We've all seen it. We all know it. 7 News of a verdict in this case, which could be 8 up -- I don't know, a billion dollars or so, 9 trebled, or more, would certainly or could 10 certainly have an impact on the market. 11 In addition to that, Your Honor, the 12 Court will recall that no other lawsuit has had 13 a class period up to June 30th of 2006. 14 The Court will also recall that this 15 is the only lawsuit that has gone to trial in 16 which all of the evidence is going to be 17 available to the public. 18 And those factors are certainly 19 material to a witness's consideration as to 20 whether or not his or her testimony will affect 21 his or her own stockholdings. 22 So it's just ridiculous to argue to 23 the contrary. Mr. Chapman says experience 24 teaches that because it will be a small 25 percentage of the market cap that it won't 9186 1 matter. 2 And experience teaches me something 3 entirely different, which is in watching the 4 stock market -- and I have to confess I don't 5 do that nearly as much since the dot com bubble 6 burst. Nonetheless, news moves the market. 7 Plus, Your Honor, the second aspect of 8 this is the past money that Microsoft's 9 employees got. 10 Now, what we have here, Your Honor, is 11 how many shares they had -- the big list is how 12 many shares they had, what the value of the 13 shares were, what they cashed in, and how much 14 actual cash money they got from cashing in 15 their shares. 16 And for some employees, Your Honor, it 17 goes on for pages. And so what Microsoft seeks 18 to show by the $3 million remark is that the 19 experts are beholding to the Plaintiffs -- 20 grateful, perhaps, for the opportunity to earn 21 $3 million over a long period of time. 22 What we seek to show is quite the 23 same. Are these witnesses who made hundreds of 24 millions of dollars on Microsoft likely to be 25 grateful to Microsoft? And how grateful they 9187 1 are would certainly depend on how much money 2 they had. 3 Only a million -- and I think this is 4 perhaps the first time in my life, Your Honor, 5 that I've ever used the words only a million -- 6 just doesn't cover it. Just does not clearly 7 say to the Jury what the nature and extent of 8 the witness's bias may be. 9 Judge Peterson may have doubted the 10 ability of that Minnesota jury to follow his 11 instructions. 12 Here in Iowa we know that juries do 13 follow instructions. And we have, at least I, 14 Your Honor, even though I have lost cases, have 15 no doubt whatsoever that Iowa juries listen 16 carefully and do the very best they can to 17 follow instructions. 18 And I assume that your experience has 19 been much the same. And certainly we have 20 every indication that this jury is taking their 21 duties extremely seriously. We have every 22 indication that they are following the Court's 23 instructions carefully. 24 All this made-up concern about how 25 they might use it for other purposes is just 9188 1 that. It's made-up concern based on a 2 fundamental distrust of the jury system. It's 3 not a distrust that I share. It's not a 4 distrust that the Plaintiffs share. 5 And to base a limit on our 6 cross-examination on the basis of distrusting 7 Iowa juries is just not what we think should be 8 done. 9 And, of course, Your Honor, we would 10 not have moved in limine to prevent Mr. Tulchin 11 from talking about what the Plaintiffs' experts 12 earn because it is a proper subject. It is 13 always a proper subject. Everybody knows that. 14 The only issue before the Court is 15 should you lift your cap. And that's what we 16 ask you to do, Your Honor, lift the cap, let us 17 prove what the real facts are with respect to 18 these individual Microsoft employees. 19 Let us prove what we would ordinarily 20 prove in an ordinary case where the money 21 involved would not be nearly so much because 22 that's what the law permits. 23 And I understand the Court's rationale 24 for imposing a limit, but then the Defendant 25 was not required and did not say, you know, 9189 1 over a million dollars. 2 And if they really thought that it 3 didn't matter, Your Honor, then they wouldn't 4 have given the $3 million number. They know 5 darn well that it matters, that there is a 6 difference in the mind of the jury in terms of 7 how much bias, depending on how much money. 8 So they have made I think the Court's 9 cap apply in a very unfair and prejudicial way 10 to the Plaintiffs, and we ask that the Court 11 lift it. 12 THE COURT: Anything else on this 13 issue? 14 Mr. Chapman? 15 MR. CHAPMAN: Nothing, Your Honor. 16 THE COURT: Okay. Move to the next 17 motion. Defendant's motion -- 18 MS. CONLIN: May I move to home? Back 19 to home? 20 THE COURT: What? 21 MS. CONLIN: May I move home? 22 THE COURT: Oh, I'm sorry. I'm sorry. 23 MS. CONLIN: That's all right, Your 24 Honor. I'm going to maybe stop by the TV 25 stations on the way home and see what I'm 9190 1 saying. 2 THE COURT: All right. It's 3 Defendant's motion. 4 Is it Mr. Neuhaus or Mr. Chapman. 5 MR. GREEN: Mr. Green. 6 THE COURT: Mr. Green. 7 MR. GREEN: I'll stay back in the 8 peanut seats here, Your Honor. 9 This motion you'll be happy to hear 10 should not be very controversial because I 11 think that, if I read the response by the 12 Plaintiffs correctly, what they're really 13 saying is they don't take a position. They 14 leave it up to your sound discretion. 15 This concerns in particular and more 16 generally late opt-outs. What I mean by that, 17 people who notified Plaintiffs' counsel after 18 the deadline of November 13th, 2006, that they 19 wished not to be members of the class. 20 We brought this particular motion on 21 behalf of a Mr. Moore. He is an over-the-road 22 truck driver, did not regularly check his mail. 23 On the day after the opt-out, he 24 called Ed Remsburg's firm and said that he 25 wanted to talk to somebody and persisted. He 9191 1 got ahold of Ed's paralegal, Ann Meyer. She 2 has an affidavit attached to our motion, and 3 said he had called the Plaintiffs' office, 4 Ms. Conlin's office to opt out and was told 5 that he was too late, and he was not happy 6 about that. 7 The advice given to him through 8 Ms. Meyer, upon Ed's advice, was fill your form 9 out and send it in, which he did as shown by 10 the papers that are filed. 11 We think that the Court does have 12 discretion. The manual for complex litigation, 13 which was cited in our papers said that the 14 Court may treat as effective a tardy election 15 to opt out. 16 And the standard for that which is 17 agreed to by the Plaintiffs in their papers is 18 excusable neglect, which, of course, has been 19 defined by our court under Iowa Rule of Civil 20 Procedure 1.433, 15, as neglect which might 21 have been an act of a reasonably prudent person 22 under the circumstances. 23 In other words, if you're in the 24 hospital or you're an on-the-road truck driver, 25 you don't check your mail regularly, that that 9192 1 was excusable neglect. 2 The Plaintiffs' response, Your Honor, 3 was that they take no position on whether 4 Mr. Moore should be opted out or not. 5 They admit that the standard is 6 excusable neglect and say that Moore's is a 7 late request and leave it up to Your Honor's 8 sound discretion as to whether you want to say 9 that Mr. Moore's actions as outlined in our 10 papers are effective to make him an opt out. 11 The other issue before you which goes 12 along with this, Your Honor, is other late 13 opt-outs, all of which were drawn to the 14 attention of the Court by the Plaintiffs' 15 supplemental response to our order declaring 16 that Michael Moore be -- actions effectuated an 17 opt-out, which was filed I think on January 18 2nd. We got notification of the late opt-outs 19 on January 4th. 20 There's a total list and it's an 21 exhibit to their supplemental papers, Your 22 Honor. I think the total list is about eight 23 or nine. 24 I would note that in some of them -- 25 one of them is a lady from, Michele Hudsell, 9193 1 Marshalltown. She was in the hospital when the 2 notification came in. She opted out and said I 3 hope this is not too late. 4 Another said that they did not even 5 get the notice until 11-27, which was, you 6 know, a couple weeks after the deadline, and 7 they opted out the same day they got the 8 notice. 9 And so what we're asking for, Your 10 Honor, is specifically that Mr. Moore's actions 11 be effectively regarded as an opt-out, even 12 though tardy, and that the Court in its 13 discretion declare the other listed late 14 opt-outs, which are in the pleadings filed by 15 the Plaintiffs on January 2nd, 2007, be also 16 declared as effective opt-outs for the purposes 17 of this litigation. 18 THE COURT: When you say you are doing 19 this on behalf of Mr. Moore -- 20 MR. GREEN: What? 21 THE COURT: I heard you say you are 22 doing this on behalf of Mr. Moore. Did he 23 contact you? 24 MR. GREEN: Yeah. He contacted Ed 25 Remsburg's office. 9194 1 THE COURT: All right. 2 MR. GREEN: And he spoke with the 3 assistant that he did not want -- he insisted 4 that he wanted to talk to someone. This was 5 the day after the deadline. He had just come 6 back into town, as I understand it. 7 THE COURT: Who else did he talk to? 8 MR. GREEN: What? 9 THE COURT: Who else did he talk to? 10 MR. GREEN: That's it. He didn't talk 11 to Ed. Ed told -- all he told her -- it's in 12 our papers -- was call him back and tell him -- 13 well, first of all, he called the Plaintiffs' 14 office, and they said you're too late. He was 15 very upset about it. 16 THE COURT: Okay. 17 MR. GREEN: And unsolicited by us. 18 You know, in fact, we didn't know 19 about it at all. And he -- according to Miss 20 Meyer, he would not get off the phone until he 21 talked to somebody, and so she talked to Ed. 22 Ed never called him back. He just 23 said call him back and tell him to fill this 24 form out and send it in. And that's what 25 happened, Your Honor. 9195 1 And the Plaintiffs don't have any 2 record of him contacting their office, but they 3 don't say -- deny that he contacted their 4 office. 5 THE COURT: Okay. 6 MR. GREEN: That's the only contact we 7 had. Obviously, we have not contacted any of 8 the other late opt-outs, Your Honor, because 9 until you decide that they're not a member of 10 the class, if you so decide, we are abiding by 11 your previous orders in that regard. 12 THE COURT: Okay. The reason I ask is 13 I thought I heard you say you are bringing this 14 on his behalf. 15 MR. GREEN: No. We're just -- not on 16 his behalf, although -- I maybe titled it, but 17 we are bringing it on our behalf that you asked 18 that his actions pursuant to the excusable 19 neglect standard be -- that you be allowed to 20 declare him as an effective, albeit tardy, 21 opt-out. 22 And I think the Plaintiffs agree in 23 their papers that you have full discretion to 24 do that for him and for the other opt-outs. 25 THE COURT: Does such a ruling have to 9196 1 be made upon an evidentiary record as to what 2 the excusable neglect is or do I just take the 3 word on the pleadings or affidavits? 4 MR. GREEN: Well, with Mr. Moore's 5 regard, we do have evidence of what the 6 excusable neglect is. 7 Good question with regard to the other 8 late opt-outs because now we have, and can 9 supplement if Your Honor would like, the 10 exclusion forms from those people. And, in a 11 couple instances, they do say what their 12 problem was. 13 One, a lady in the hospital, and, two, 14 the other person said they didn't get their 15 notice until late. 16 The other ones just filled their forms 17 out and sent them in. And that's all we have 18 in that regard, Your Honor. 19 THE COURT: Okay. 20 MR. GREEN: But if you want us to -- 21 we can supplement our pleadings and give you 22 the actual exclusion forms if you'd like. 23 THE COURT: Were those forms in the 24 Plaintiffs' filing of January 2nd? 25 MR. GREEN: No. They just provided a 9197 1 list. 2 THE COURT: They did, okay. 3 Yeah, I guess I'd like to see the 4 forms. 5 MR. GREEN: Okay. 6 THE COURT: If you have them. Do you 7 have them? 8 MR. GREEN: Yes, we have them, Your 9 Honor. The Plaintiffs sent them. 10 THE COURT: Give me a copy when you 11 get a chance and file them. 12 MR. GREEN: Okay. Thank you, Your 13 Honor. 14 THE COURT: Mr. Jacobs, you must be 15 doing this, or Mr. Williams? 16 MR. WILLIAMS: It would be me, Your 17 Honor. Kent Williams for the Plaintiffs. 18 Your Honor, I think the only objection 19 that we have with respect to Microsoft's 20 motion, certainly if Mr. Moore doesn't want to 21 be a part of this action, we have no objection 22 to Your Honor deciding whether, based on the 23 record, excusable neglect has been shown. 24 We do have some questions about the 25 record that's been made. 9198 1 In the past, my experience when 2 there's a late opt-out, the late opt-out will 3 submit an affidavit or something like that, 4 some sort of sworn record evidencing excusable 5 neglect and then the Court can make a 6 determination as to whether that showing has 7 been made. 8 Here, I don't want to fault Mr. Green 9 at all. I know that he's going on the record 10 that he has, but what we have is an affidavit 11 from a paralegal in one of the firms 12 representing Microsoft. 13 It's really a hearsay affidavit. 14 She's just recounting her recollection of what 15 she was told by Mr. Moore. 16 I don't really think that satisfies 17 the showing that's required. 18 But there's really a more fundamental 19 problem here, I think. And I think that that 20 is borne out by the fact that now Microsoft is 21 essentially trying to expand their motion to 22 cover all of the people who have submitted late 23 opt-outs. 24 And that is that Microsoft doesn't 25 represent these people. They are class members 9199 1 until Your Honor says that they are not. 2 And, again, in my experience, when 3 someone wants to ask the Court for permission 4 to opt out in an untimely manner, they have to 5 come to the Court and do that. They have to 6 make the evidentiary showing in order to do 7 that. 8 Because, otherwise, you get into a 9 situation where, you know, who knows, people 10 can come out of the woodwork. 11 Microsoft, they just sort of make an 12 aggregated motion, you know, periodically and 13 suggest that, well, here's a few more, let's 14 let them out too. 15 It's just a bad precedent to set, Your 16 Honor. We have a Defendant in a class action 17 purporting to act on behalf of individual class 18 members and get them out of the class. 19 So we think that the better practice 20 would be for Mr. Moore to make the showing 21 himself. And the other late opt-outs, if they 22 want to make a showing of excusable neglect, I 23 think they are required, as is the law, to make 24 that showing themselves and that Microsoft not 25 be allowed to volunteer on behalf of these 9200 1 individual class members to make that showing 2 for them. 3 Other than that, Your Honor, we do not 4 have any objection to what Mr. Moore or any of 5 the other late opt-outs making such a motion 6 and such a showing to Your Honor. 7 THE COURT: So you do or do not object 8 to Mr. Moore being -- 9 MR. WILLIAMS: Substantively, Your 10 Honor, we do not object. 11 THE COURT: All right. 12 MR. WILLIAMS: What we object to is 13 the procedure. 14 We do not want to set the kind of 15 precedent that we fear may be set by allowing 16 Microsoft to make this motion on behalf of 17 these people. 18 MR. GREEN: Your Honor, I'll just 19 briefly -- 20 THE COURT: Sure. Go ahead. 21 MR. GREEN: And I understand what 22 Mr. Williams is saying, and I appreciate that 23 he's giving a very honest response. 24 But the problem we have is how are we 25 supposed to -- I mean, we're damned if we do 9201 1 and we're damned if we don't. 2 If we contact the people, we'll be 3 violating the Court's order. So we can't get 4 ahold of Mr. Moore and -- or any of these other 5 people and say, you know, give the Court an 6 affidavit, and he might consider letting you 7 out. 8 And if we don't contact him, if you 9 used their fear of precedent setting, then 10 you've got people who really do want out who 11 can't show and, frankly, don't -- probably want 12 to go hire somebody to represent them to help 13 them get out. 14 So we just think that it is in your 15 sound discretion, and there are not that many 16 people coming out of the woodwork. 17 All of the names we got, we only got 18 from the Plaintiffs because otherwise we don't 19 know -- that's the only way we know about it, 20 is if they let us know. 21 And so that's why we just ask that the 22 Court in its sound discretion allow these 23 people to opt out because that's clearly what 24 they want to do. And we'll abide by your -- 25 obviously, your discretion in that regard, Your 9202 1 Honor. 2 THE COURT: All right. 3 MR. WILLIAMS: Your Honor, if I could 4 make just one statement just to fill out the 5 record there. 6 THE COURT: Sure. 7 MR. WILLIAMS: And I don't think it's 8 anything that Mr. Green is going to object to. 9 As the Court is, I'm sure, aware, 10 there are thousands and thousands of people who 11 have demonstrated their desire to participate 12 in this action, as evidenced by the paltry 13 number of opt-outs that we got at all. 14 And when it comes to late opt-outs, as 15 Mr. Green pointed out, I think it's what, 16 Chris, like six or eight or ten? 17 MR. GREEN: Yeah. I think it's eight 18 or nine. 19 MR. WILLIAMS: Something like that. 20 So, again, we're not trying to make a mountain 21 out of a molehill here. It's a small issue. 22 Again, it's just the precedent that 23 Microsoft -- 24 THE COURT: I appreciate it. And I 25 appreciate both sides of your candidness, and 9203 1 also I think Mr. Green's office and 2 Mr. Remsburg handled it the way he should have. 3 MR. GREEN: Thank you, Your Honor. 4 THE COURT: So I have -- you know, I 5 think everyone was ethical and above board 6 here. 7 So I will consider this and I'll do a 8 ruling on it. I can tell you right now I'm 9 probably going to let them opt out based on 10 your lack of substantive resistance. 11 I'll look at the other forms that have 12 been submitted. If I find it's sufficient from 13 those forms, then I maybe will let them opt out 14 too. 15 If I don't think it's sufficient, then 16 I will make some order, I guess, to send to 17 those people requiring more from them, more 18 information. I assume there's an address on 19 there for them and all that? 20 MR. GREEN: Yes, Your Honor, I believe 21 so. 22 THE COURT: Okay. 23 MR. GREEN: Well, you know, I want to 24 make sure -- they sent us the opt-out request. 25 I assume we have them all. Yeah. And when we 9204 1 have them, there are addresses on there. 2 THE COURT: There are, okay. 3 MR. WILLIAMS: Your Honor, can I just 4 make one request, that when you do rule, 5 whichever way you go, that you also include in 6 your ruling that this will be the procedure for 7 anybody else so that we don't have this process 8 from Microsoft? 9 THE COURT: Yeah. I'm going to set 10 out a procedure. 11 MR. WILLIAMS: Great. Thank you. 12 MR. GREEN: And I don't have any 13 problem with that, Your Honor. I think it's 14 good that we all know how to handle it. 15 THE COURT: I'll take a look at it and 16 see what I should do. 17 As far as Mr. Moore, though, I'll do 18 an order on him. 19 MR. GREEN: I'll give you these other 20 forms tomorrow morning, Your Honor, if that's 21 okay. 22 THE COURT: Okay. And I want to 23 commend both sides. Thank you very much. Very 24 professional the way you handled it. 25 MR. WILLIAMS: Thank you, Your Honor. 9205 1 THE COURT: Mr. Williams and 2 Mr. Green, good job. 3 MR. GREEN: Thank you, Your Honor. 4 THE COURT: All right. Move on. Mr. 5 Chapman is excited. 6 Plaintiffs' motion to compel. Are you 7 going to get to talk, Mr. Jacobs? 8 MR. JACOBS: I will get to talk. Very 9 exciting. 10 THE COURT: All right. Motion to 11 compel Defendant to produce documents 12 responsive to Plaintiffs' request for 13 production 30 to 41, 43, 45, 47 to 48, 14 Interrogatory Number 15. 15 MR. JACOBS: That's correct, Your 16 Honor. 17 Plaintiffs in this motion are moving 18 to compel Microsoft to produce discovery in 19 response to various requests for production of 20 documents and one interrogatory. 21 Now, these discovery requests all 22 relate to Microsoft's compliance with the 2002 23 final judgment in the government case, in the 24 United States versus Microsoft. This has been 25 an issue now that's come up before the Court on 9206 1 a couple of occasions here. 2 Back in December, on December 14th of 3 last year, Mr. Tulchin said in court that 4 Microsoft, quote, should be permitted to submit 5 evidence to the Jury that the conduct at issue 6 in the government case was prohibited beginning 7 November 12th, 2002. 8 THE COURT: Are you reading from the 9 transcript? 10 MR. JACOBS: Yes. 11 THE COURT: What page? 12 MR. JACOBS: It is -- it's Exhibit F 13 to our filing. I believe it's -- 14 THE COURT: Never mind. It's in your 15 filing? 16 MR. JACOBS: Yeah. 4939, 6 through 9. 17 THE COURT: That's all right. 18 MR. JACOBS: But it's Exhibit F in our 19 original filing. 20 THE COURT: Fine. 21 MR. JACOBS: And then Mr. Tulchin went 22 on to say at lines 18 through 19 of that same 23 exhibit that we intend to submit evidence of 24 what the company has done. 25 And there he's referring to changes 9207 1 made by Microsoft after the final judgment was 2 issued. 3 He went on to then explain -- this is 4 Exhibit 1 to Plaintiffs' reply brief -- that, 5 quote, the relevance is, Your Honor -- this is 6 the relevance, the conduct that Microsoft wants 7 to talk about here. 8 The relevance is, Your Honor, that the 9 Court has instructed the Jury about 12 10 conclusions of law and 146 findings, and said 11 that everyone is bound and that the Jury must 12 understand that Microsoft's conduct was 13 anticompetitive in this time frame. 14 We are entitled to inform the Jury 15 that the conduct stopped, that a final judgment 16 was entered prohibiting Microsoft from doing 17 the acts that were the subject of the 18 government case, end quote. 19 So what Microsoft here is saying, what 20 Mr. Tulchin was saying, is that Microsoft 21 should be allowed to say certain conduct was 22 essentially prohibited by the final judgment 23 and that Microsoft has no longer engaged in 24 this conduct. 25 The problem here, Your Honor, this 9208 1 entire episode, if you will, has some history 2 behind it. Because Microsoft's position on 3 December 14th of last year is directly contrary 4 to the position that Microsoft had taken in the 5 past in this case. 6 Plaintiffs had moved to compel 7 Microsoft to produce discovery in response to 8 these discovery requests back in July of 2004. 9 We moved to compel on these very same 10 -- these very same requests for production of 11 documents and this one interrogatory. We 12 brought that motion in July of 2004. 13 In September of '04, Microsoft, 14 contrary to what it is saying now, that how it 15 behaved after the final judgment, that that's 16 very relevant to this case. 17 Back in September of 2004 Microsoft 18 resisted our motion to compel, and said that -- 19 basically, that any information relating to 20 Microsoft's conduct under the 2002 final 21 judgment was irrelevant. 22 Microsoft characterized Plaintiffs' 23 discovery request as a fishing expedition that 24 was not relevant to the claims made by 25 Plaintiffs in this action. 9209 1 Now, on December 17th of '04, the 2 Court denied Plaintiffs' motion to compel based 3 on Microsoft's representation that the material 4 relating to Microsoft's conduct was not 5 relevant. 6 In fact, the Court adopted verbatim a 7 proposed ruling submitted by Microsoft which 8 stated, in part, that, quote, the 9 implementation of the consent decree provisions 10 has no particular relevance to the wrong-doing 11 alleged here. 12 So, essentially, we have Microsoft 13 stating, then, in December of 2004 that this 14 conduct is not relevant. 15 Now, at trial, once trial has begun, 16 Microsoft is saying we should be allowed to 17 talk about all of this stuff that Microsoft has 18 done to address the issues that were raised in 19 the government case to show that we're not 20 engaging in that conduct anymore. 21 And what we are seeking in these 22 particular discovery requests, Your Honor, was 23 whether or not Microsoft, in fact, is engaging 24 in the conduct that it's now saying it's not 25 engaging in. 9210 1 Now, you'll recall we have been able 2 to obtain some evidence that Microsoft is not, 3 in fact, doing what it should be doing under 4 the terms of the 2002 final judgment. 5 Mr. Schulman's examination of 6 Microsoft source code, among other things, we 7 think show that Microsoft, for instance, is not 8 documenting applications programming interfaces 9 that are used by Internet Explorer, Windows 10 Media Player, and the like, that should be 11 documented. 12 But the discovery requests that we 13 were seeking -- this was essentially 14 Mr. Schulman going through a lot of material 15 that has been produced and having to do just a 16 tremendous amount of his own examination of the 17 source code and other material without any help 18 essentially from discovery in this case other 19 than the source code. 20 So it was tremendously difficult for 21 Plaintiffs to even obtain what we obtained. 22 So we have no idea what else is out 23 there and no idea what else might be out there 24 because Microsoft has refused to produce that 25 discovery. 9211 1 So, basically, what we think is that 2 Microsoft -- we need to go back and revisit in 3 light of what Microsoft is saying now, in 4 December of 2006, we need to go back and 5 revisit that court ruling that was based 6 earlier on Microsoft's representation that this 7 discovery was not relevant. 8 Now, Microsoft in its resistance 9 argues that the Court's December 17th, 2004 10 ruling was made under the third amended 11 petition in this case. 12 And Microsoft's position is, well, the 13 third amended petition didn't contain some of 14 these allegations the fourth amended petition 15 included. And somehow the fourth amended 16 petition changed everything in this case, made 17 all the stuff relevant that hadn't been 18 relevant before. 19 So, therefore -- I'm not sure what the 20 therefore is. Somehow now we're not entitled 21 to this discovery. 22 The couple of problems with 23 Microsoft's arguments. 24 First problem is that Microsoft 25 essentially concedes that all of this material 9212 1 that we've been seeking is relevant under the 2 fourth amended petition. 3 And under Microsoft's discovery 4 obligations and its obligation to supplement 5 discovery, Microsoft should have been providing 6 us with this information when it, according to 7 its current position now, says it became 8 relevant, back when the fourth amended petition 9 was filed. 10 Microsoft never did that. And, of 11 course, the reason why Microsoft never did that 12 is because its current argument that somehow 13 the fourth amended petition changed everything 14 just is not how things actually played out. 15 All of this material, it's been our 16 position from day one, was relevant to this 17 case from the get-go. 18 The fourth amended petition simply 19 added some additional evidentiary allegations. 20 It didn't change the nature of this case, which 21 was the claim that Microsoft engaged in and 22 continues to engage in anticompetitive conduct. 23 That has always been the allegation 24 that we've made going back to the third amended 25 petition, the second amended petition, the 9213 1 first amended petition. It was a continuing 2 course of conduct. 3 What's interesting is Microsoft says 4 this material somehow became relevant under the 5 fourth amended petition. 6 But let's go back then and look at 7 Microsoft's response to some of these -- some 8 later discovery requests that we made. 9 After our initial discovery request, 10 after the discovery requests that are at issue 11 here now in this motion, we made some 12 additional -- we basically were banging our 13 heads on the wall trying to get some 14 information relevant to what we understood to 15 be very critical issues for us in this case, 16 which was Microsoft's conduct post-2002. 17 So we made some additional tailored 18 requests that don't even come close to covering 19 everything that we wanted to get under the 20 original discovery requests that are at issue 21 here. But we made some requests that Microsoft 22 said overlapped with those earlier discovery 23 requests. 24 Okay. And what's interesting about 25 this is Microsoft's position now in resisting 9214 1 our motion is that when these original 2 discovery requests were made, it was because 3 they were under the third amended petition, but 4 somehow things changed with the fourth amended 5 petition. 6 We made these additional discovery 7 requests that I'll discuss right now with Your 8 Honor after the fourth amended petition was 9 filed. 10 And here's what Microsoft's response 11 has always been. It's that -- here's their 12 response to Request Number 170 for instance. 13 Request Number 170 deals with a particular API 14 that Microsoft didn't document that we think 15 Microsoft should have documented under the 16 final judgment. 17 Microsoft says, well, that's basically 18 cumulative of an earlier discovery request that 19 was made. Microsoft's objection was that this 20 request, quote -- this is at, oh, Exhibit 5 to 21 our reply memorandum. 22 That, quote, this request is 23 cumulative and duplicative of requests 24 propounded in this action to which Plaintiffs 25 have already unsuccessfully sought to compel a 9215 1 response. 2 See order denying Plaintiffs' motion 3 to compel discovery December 17th, 2004, 4 denying a request to compel a response to inter 5 alia requests relating to Microsoft's 6 implementation of provisions of the November 7 2002 consent decree. 8 So even after the fourth amended 9 petition was filed, Your Honor, we continued to 10 try to get information relating to Microsoft's 11 compliance with the final judgment. 12 And, in some limited instances, we 13 were successful in finally getting some 14 limited, very, very limited subset of 15 information that we were seeking. 16 But now all of a sudden Microsoft 17 comes out and says in opening all of this 18 information, all of our conduct after 2002 with 19 request to the final judgment is relevant, and, 20 in fact, Mr. Tulchin says we want to be able to 21 discuss all of that with the Jury and that 22 having earlier denied Plaintiffs the 23 opportunity to seek discovery on these matters 24 would be manifestly unfair to Plaintiffs. 25 It's basically allowing Microsoft to 9216 1 bring in their fact witnesses, the people who 2 have been working at Microsoft, to come in and 3 say all of these things about what Microsoft 4 has been doing without having provided 5 Plaintiffs any opportunity whatsoever to 6 conduct discovery on these issues. 7 And that is just plainly unfair, Your 8 Honor. 9 So what we are doing is asking that 10 the Court go back and basically allow us, now 11 that Microsoft has said these compliance with 12 the consent decree is squarely at issue, to go 13 back and order Microsoft to produce the 14 material that it should have produced back in 15 December of 2004, now that it has essentially 16 put all this stuff back at issue now in 17 December of 2006. 18 And also that the Court order 19 Microsoft to tell us in that interim time 20 period what, if anything, has been destroyed by 21 Microsoft in terms of -- with their document 22 retention policies and whatnot. 23 Because we should have had this 24 material back in '04. And now we have a lapse 25 of two years where we don't know what -- not 9217 1 only what we don't have, but what -- even if we 2 got material from Microsoft now, what is no 3 longer there. 4 So we think in all of these instances 5 that in order to level the playing field here, 6 so to speak, that we ought to be allowed to 7 conduct discovery on those issues. 8 THE COURT: Thank you, Mr. Jacobs. 9 MR. NEUHAUS: It's me. 10 THE COURT: It's you, Mr. Neuhaus. 11 MR. NEUHAUS: It is. 12 THE COURT: Did you flip a coin over 13 there, Mr. Chapman? 14 MR. CHAPMAN: Yes. I'm not going to 15 tell you who won. 16 MR. NEUHAUS: I was pleased to take 17 this one. 18 THE COURT: Mr. Chapman doesn't like 19 to get questioned by me. 20 MR. NEUHAUS: I'd like to make three 21 overarching points if I might, Your Honor, in 22 response to Mr. Jacobs' presentation. 23 THE COURT: Okay. 24 MR. NEUHAUS: The first point is that 25 Plaintiffs were not denied discovery about 9218 1 post-2002 conduct addressed in the consent 2 decree. 3 The discoveries that they are trying 4 to resurrect now was initially denied in 5 December of '04 because -- and it's very 6 specific and I'm going to show you this in a 7 moment -- there were no allegations in the 8 third amended complaint that concerned any 9 relevant conduct after 1998. No specific 10 allegations. 11 And, on that basis, Judge Reis denied 12 discovery. 13 After December 2004, Plaintiffs, A, 14 did get discovery from a lot of the other 15 cases, and filed a fourth amended petition that 16 expanded the case to cover the period up to the 17 present. And, thereafter, they obtained 18 unlimited discovery on the post-2002 period. 19 As shown by the example Mr. Jacobs 20 just cited, there we did produce documents in 21 response to 170. We ultimately agreed to that. 22 And the other objections were 23 litigated before Your Honor and we were 24 compelled to respond on a number of these 25 requests post-2002. 9219 1 So the concept that this December '04 2 ruling really restricted them through the last 3 two years is poppycock. It's just not true. 4 The second thing, it is also not true 5 to suggest that the Plaintiffs did not know 6 until we offered or wanted to refer to the 2002 7 consent decree in opening that the post-2002 8 conduct would be addressed in this case. 9 That's also just not true. 10 This was -- both sides' experts 11 discussed post-2002 conduct at great length. 12 Both parties have marked a great deal of 13 evidence post-2002 in the long exhibit process 14 before the Special Master and that you're 15 seeing now. And there's been deposition 16 testimony and the like. 17 So the concept that suddenly they 18 realized that post-2002 conduct was going to be 19 at issue in this case is crazy too. 20 And, finally, Your Honor, and most 21 fundamentally in a sense, is discovery is 22 closed. It closed seven months ago, July 23 '02 -- six months ago. July 2nd of '06 and it 24 should not be reopened in the middle of trial. 25 It would be extremely distracting, 9220 1 extremely burdensome. These are very broad and 2 sweeping requests, quite overbroad, which is 3 another reason why they shouldn't be pursued at 4 this stage. 5 Plaintiffs have since then pursued 6 more targeted discovery post-2002 and that's 7 what's been compelled to be answered, much of 8 it subsets of the material that they're not 9 seeking to -- the discovery they are not 10 seeking to pursue. 11 So let me start with that first point. 12 But those are the three points I want to make. 13 I have some documents I'm going to 14 refer to here which I will hand up and so we 15 can walk through it a little bit because this 16 is, Your Honor, a very important motion. 17 If it were to be granted, it would 18 just throw a huge distraction and burden in the 19 middle of trial, which would be extraordinarily 20 unfair. 21 So, Your Honor, to begin with, the 22 December 2004 order which they say denied them 23 the discovery that they're seeking now was 24 based very much on the allegations of the third 25 amended petition, which was then the operative 9221 1 petition. 2 The third amended petition had 3 allegations that were almost entirely related 4 to conduct prior to 1999. It was essentially 5 the claims that had been alleged in the 6 Minnesota case. 7 There had been massive amounts of 8 discovery in the government case and in the MDL 9 and California cases about the allegations in 10 that complaint. The classes had been certified 11 based on the allegations in that petition, the 12 third amended petition, and Judge Reis refused 13 to permit the Plaintiffs just to expand 14 discovery without any specific allegations 15 going forward after the 2001, after the 16 allegations in the third amended petition. 17 And so if you'll look, Your Honor, at 18 the first tab of what I've handed up, you'll 19 see that she denied the requests in each case 20 because there weren't specific allegations in 21 the third amended petition relating to that 22 conduct. 23 So that if you look at page 9, in the 24 language I've highlighted -- and the entire 25 opinion is in the record. I'm just trying to 9222 1 give you the things I want to focus your 2 attention on. 3 The third amended petition filed in 4 February of 2003 has 240 paragraphs alleging an 5 array of conduct relating to the alleged 6 operating system, word processing and 7 spreadsheet markets except for four paragraphs 8 not relevant to any of the present discovery 9 requests. The specific instances of wrongful 10 conduct allegedly occurred prior to 1999. 11 The discovery request at issue related 12 to conduct that is said to have occurred after 13 late 2001 often in other software markets. 14 And she goes on, a plaintiff cannot 15 obtain unlimited discovery of a defendant's 16 conduct by merely alleging that the defendant 17 is violating a broad prohibition such as that 18 contained in the Iowa Competition Law. 19 And she describes some of the history 20 of the case and then says, in these 21 circumstances it is reasonable to tie discovery 22 to the allegations of a properly filed 23 complaint. 24 And so as she goes through each of the 25 requests that's now at issue, she looks to see 9223 1 whether there's any specific allegations in the 2 third amended petition that supported or that 3 related to those discovery requests, finds that 4 lacking, and denies them on that basis. 5 After this order, as I said, Your 6 Honor, two things occurred, of significance on 7 this motion. 8 One is Your Honor ordered in July of 9 2005 -- this is December of '04 -- Your Honor 10 ordered Microsoft to produce millions of pages 11 of documents that had been produced in prior 12 cases brought by competitors against Microsoft. 13 The millions of pages that we 14 produced -- I think it was in excess of 20 15 million pages -- included hundreds of thousands 16 of pages of documents relating to post-November 17 2002 conduct. Including, incidentally, tens of 18 thousands of pages -- we've done a search -- 19 that specifically used the term consent decree 20 on the issues of compliance with the consent 21 decree. 22 For example, there were 170,000 pages 23 of documents produced in the Sun case dated 24 after November 12th of 2002, the date of the 25 consent decree. 9224 1 45,000 pages produced in other 2 competitor cases. So a huge amount of 3 discovery came out -- was produced as a result 4 of Your Honor's July 2005 order relating to all 5 sorts of issues that overlapped with this 6 discovery. 7 Then Plaintiffs in September of 2005 8 also then sought to serve a fourth amended 9 petition. That was granted in February of 10 2006. 11 And that petition contained numerous 12 specific allegations relating to post-2002 13 conduct. And in our papers, we have walked 14 through that. 15 I won't take the trouble to do that 16 now, but they all, including numerous 17 allegations that relate to the precise subjects 18 of the discovery, albeit the discovery that 19 they are now seeking to enforce is very, very 20 overbroad, the topics addressed therein are 21 addressed in the fourth amended petition, 22 including middleware platforms, exclusionary 23 license terms, and the marketing development 24 agreement funds in the licenses and other 25 topics and undocumented APIs. 9225 1 Then beginning in late 2005, Your 2 Honor, Plaintiffs obtained virtually unlimited 3 discovery regarding post-2002 conduct. 4 In many cases, Plaintiffs served 5 discovery that covered the same information 6 that was sought in the October 2003 requests 7 that are now at issue on this motion. 8 In each of these cases, Microsoft 9 produced the documents requested. In some 10 cases, because of agreement. In some cases, 11 because it was litigated before Your Honor and 12 we were ordered to respond. 13 This discovery in some cases is 14 narrower than what they are now seeking to 15 produce, which is appropriate. 16 They had obtained huge amounts of 17 discovery from the competitor cases and they -- 18 we thought they should, and they did -- review 19 that and target their discovery at things that 20 were at issue in the case rather than a 21 sweeping request that sometimes were propounded 22 in October of 2003. 23 If I might ask, Your Honor, just to 24 give you an example or two of how they obtained 25 the discovery that they're now seeking to sort 9226 1 of repropound in slightly different format and 2 make us go back and do searches on slightly 3 different parameters from what we've already 4 done. 5 Let me ask you to take a look at Tab 2 6 where I've collected related discovery 7 requests. 8 First is the discovery request that 9 was propounded in October 2003, that they now 10 seek to require us to respond to. 11 And if you look at Number 48, that's 12 one of the ones at issue here, they ask for 13 each covered OEM we were to provide all 14 documents relating to licenses, including 15 applicable royalties for any version of these 16 various products from 2000 to the present. 17 And the request was specifically to 18 include marketing development, allowances, or 19 other arrangements. 20 And if you'd turn over, you will see 21 that there is an interrogatory that essentially 22 seeks similar information; that we were to list 23 for each covered OEM, as that term is used in 24 the DOJ settlement, from December 2001 to the 25 present for each covered OEM, indicate the 9227 1 licensing fee. And you'll see down there in 2 part C any applicable marketing development 3 allowances. 4 This was what was denied because it 5 didn't relate to specific allegations in the 6 third amended petition, which was restricted to 7 conduct prior to 1999. 8 Then, Your Honor, in September of '05, 9 Plaintiffs served a Request for Production 10 Number 95, and that sought all documents 11 concerning payments or allowances to OEMs by 12 Microsoft from August 2000 to the present for 13 any purpose however characterized. 14 This is a very sweeping request. 15 What Microsoft responded, we didn't 16 object that this was improper. We responded 17 that we would agree to produce -- and this is 18 two pages later is our response. 19 And the highlighted language at the 20 bottom says, in the period from 2000 to 2004 21 that is addressed by this request, the 10 22 largest OEM accounts accounted for 98 percent 23 of Microsoft sales to OEMs, or 99 percent, and 24 that we would search for responsive documents 25 with respect to those OEMs. 9228 1 This was an extremely burdensome 2 search. Plaintiffs did not object to this. 3 This was agreed to. We went forward. 4 We produced -- Request Number 95 is 5 notorious at Microsoft for the amount of work 6 it took to gather this material by the people 7 in-house who were doing that. 8 We did produce a huge amount of 9 material in response to that request, which is 10 essentially the same as the request that was 11 originally provided. 12 The limitation was just to not have us 13 chase down every last, you know, small OEM, but 14 to deal with those that accounted for 98, 99 15 percent of sales. 16 Moreover, Your Honor, Plaintiffs then 17 came back in their seventh set of production 18 requests and essentially asked a very similar 19 question. Request for Production Number 165 20 asks us to update to the present all licenses, 21 amendments, and agreements between Microsoft 22 and every OEM listed in a different subset of 23 OEMs. 24 Because it was a different subset from 25 what we just finished searching, we did object, 9229 1 Your Honor, and, Your Honor, we litigated this. 2 You can -- next behind Tab 2 is our 3 objection or our concern, which was that it 4 completely overlapped what we just finished 5 doing. 6 We litigated this, and Your Honor 7 found that with respect to Request Number 165, 8 the one I was just pointing to, the Court finds 9 that this request has been complied with. 10 However, any updates to this material 11 shall be turned over to the Plaintiffs as it 12 becomes available. 13 And, Your Honor, the last document 14 behind Tab 2, which relates to this specific 15 set of requests, is our letter providing the 16 update that Your Honor ordered. 17 And that included -- and you'll see 18 I've highlighted the Bates numbers -- more than 19 10,000 pages of updated license agreements and 20 materials relating to the market development 21 funds. 22 So my point, Your Honor, is Plaintiffs 23 have not been denied discovery post-2002. 24 They've gotten ample discovery post-2002 in 25 areas, the one that overlaps just about 9230 1 entirely with the prior discovery. 2 They've tried -- they asked us to do 3 it again, and Your Honor said, look, we had 4 complied, but that we had to update, and we did 5 update. 6 Your Honor, if I could, because it 7 illustrates a slightly different way in which 8 they've gotten really boundless discovery, I 9 want to take you behind Tab 3 to another 10 example of how they have obtained all the 11 discovery that they wanted during discovery 12 post-2002 in the period after the fourth 13 amended petition was amended -- was filed and 14 after Your Honor's rulings in July of 2005. 15 And I'll try to walk through this 16 somewhat quickly. 17 This is the -- the third one is the 18 one that Mr. Jacobs referred to. 19 Request Number 32 and 33 seek 20 documents relating to certain forms of 21 undocumented APIs or rather -- let me start 22 again. 23 The decision to document certain APIs 24 pursuant to the DOJ settlement. 25 This was what was denied in 2004 9231 1 because there weren't allegations in the third 2 amended petition on the point. 3 In 2006, after the fourth amended 4 petition, Plaintiffs came back and requested 5 again that we identify all documents describing 6 or identifying Active X controls or 7 undocumented interfaces in Internet Explorer 8 used by Microsoft's Java Virtual Machine. 9 These do overlap with the material in 10 the earlier requests because it is, once again, 11 undocumented Active X controls, which is what 12 Number 32 was about. And it deals with 13 undocumented interfaces in middleware, which is 14 what Number 33 was about. 15 We objected to these requests 16 primarily on the grounds that the subject 17 matters had been the subject of extensive 18 discovery in the MDL case and in the competitor 19 cases, all of which went through at least 2002 20 and that the product referred to in particular 21 with respect to Number 168 had been phased out 22 by that time. 23 This was litigated before Your Honor. 24 There was a motion to compel. And Your Honor 25 ordered us to respond to 167, 168, and we did 9232 1 so. 2 And that's the last piece of paper 3 behind Tab 3. 4 Tab 4 is another collection that, 5 again, illustrates -- and this one is the one 6 that Mr. Jacobs highlighted -- an occasion in 7 which, once again, Plaintiffs sought broad 8 discovery in a request in 2003, appropriately 9 narrowed that discovery in 2006, and that's 10 Request Number 170 behind Tab 4, which seeks a 11 subset of the materials sought by Tab 3 -- 12 sorry, by Request Number 30. 13 Microsoft objected, as Mr. Jacobs 14 said. Among the objections was that this 15 duplicated the prior -- the 2004, the discovery 16 that had been denied in 2004, but, ultimately, 17 we reached an agreement with Plaintiffs to 18 produce the documents in response to 170 which 19 an agreement that Plaintiffs referred to in 20 their papers -- I'm sorry, an agreement that I 21 report in my letter at the back of Tab 4. If 22 you'll look at the back of Tab 4, Request 23 Number 169 and 170, which was after negotiation 24 with Mr. Jacobs. 25 I wrote to confirm our discussions. 9233 1 Mike explained that Request Number 169, which 2 sought all documents relating to Geoff Chappell 3 was related to Request Number 170, which seeks 4 documents relating to the decision to document 5 a particular set of APIs that Chappell had 6 discussed on his website. 7 Mike said that Plaintiffs would be 8 willing to forego Request 169 if Microsoft 9 would be willing to produce documents in 10 response to Request 170. 11 Microsoft agrees to this and will 12 collect and introduce documents responsive to 13 Request 170 from responsible personnel. 14 So, once again, Your Honor, Plaintiffs 15 did not -- were not denied discovery post-2002, 16 and at the back of that tab -- and I belabor 17 this too much -- is Plaintiffs' report to Your 18 Honor in reply brief on the motion that we had 19 reached agreement on that point. 20 So there is -- as I said, we produced 21 tens of thousands of pages of documents of 22 discovery in this case that were dated after 23 November 2002. We've done a search on those as 24 well. 41,000 of those pages refer to the 25 consent decree. That's almost certainly the 9234 1 2002 consent decree because the earlier consent 2 decree, which we discussed in our next motion, 3 had by that time expired. 4 So there was no limitation on their 5 discovery after the fourth amended petition was 6 filed. And they have had ample discovery, both 7 from the competitor cases and from discovery in 8 this case. 9 The suggestion, Your Honor -- this is 10 my second point -- that they didn't know during 11 the period prior to this close of discovery or 12 the period up until December of 2006 when we 13 were in trial that Microsoft's conduct that is 14 referred to in the consent decree or that after 15 2002 would be raised at trial is completely 16 false. 17 As I said, and we put in our papers, 18 both parties marked numerous exhibits 19 concerning the consent decree. 20 On pages 11 and 13 of our brief are 21 numerous examples marked by both sides. It 22 specifically mentions the consent decree after 23 2002, marked as exhibits by both sides in this 24 case. 25 Plaintiffs have designated deposition 9235 1 testimony on that subject post-2002 conduct, in 2 particular, conduct directed by the consent 3 decree. And that is Microsoft's Exhibit 22, 4 which shows many pages of testimony by Mr. Fade 5 on that subject. 6 Plaintiffs never complained that they 7 were unable to take sufficient discovery on 8 this broad topic until during the period of 9 discovery, notwithstanding having brought many 10 motions to compel, seven of them prior to the 11 close of discovery. 12 Based on all this discovery, 13 Plaintiffs' experts opine at length about 14 post-2002 conduct addressed in the consent 15 decree. 16 And I have some examples in the 17 handups I just handed to Your Honor of their 18 experts. This is not just the source code 19 material. The source code material is 20 addressed in the supplemental expert report 21 that was served during trial. This is material 22 derived from discovery in the competitor cases 23 and in this case. 24 So, for example, Your Honor, 25 Mr. Schulman -- that's Tab 5 of what I've 9236 1 handed to you -- has a whole section, beginning 2 on page 49 of his expert report, entitled, 3 quote, even after the final judgment in United 4 States v. Microsoft, a large number of APIs 5 used by Microsoft middleware remain 6 undocumented, close quote. 7 And this section is not based on 8 source code analysis, but on numerous other 9 documents, both publicly available and 10 otherwise. 11 I've highlighted some of those in the 12 footnotes that are post-2002. And there are 13 other sections. I won't walk through them. 14 But they're there, and I've highlighted the 15 sections that show that this is post-2002. 16 Professor Noll, Plaintiffs I think 17 primary liability expert, addresses both 18 undocumented APIs, which is one of the subjects 19 of this discovery, and the marketing 20 development agreements, which as you've seen is 21 one of the subjects of this discovery, at 22 length as well post-2002. That's behind Tab 6. 23 Again, I've highlighted a few pages 24 that show that he's talking about post-2002 25 marketing development agreements, and some of 9237 1 the discovery that he relies on, which is 2 discovery produced in this case or the 3 competitor cases. 4 Behind that, Your Honor, in Tab 7 is a 5 backup report that Plaintiffs have provided to 6 us that Professor Noll relies upon that has 7 been produced to us as part of the expert 8 discovery. 9 It's focused largely on post-2002 10 marketing development agreements. 11 On page 11 of 16 of this document 12 behind Tab 7 is a section called post-CKK 13 consent decree MDP MDA. CKK refers to Judge 14 Kollar-Kottely, and it's a reference to this 15 consent decree that we're talking about. 16 And, again, Your Honor, you'll see 17 that I've highlighted the indications that this 18 is all post-2002 marketing development 19 agreements. And that much of the evidence that 20 they rely upon is both -- is post-2002 21 documents produced in the competitor cases. 22 You'll see that with a Bates number 23 MSCC. And in this case you'll see that with 24 Bates numbers MSPCAIA, which refers to the Iowa 25 case. 9238 1 Similarly, Your Honor, Professor 2 Mackie-Mason, another of their experts, 3 addresses post-consent decree compliance, or, 4 rather, conduct, by reference both to Professor 5 Noll and Schulman and to other materials. 6 And, finally, Your Honor, behind Tab 9 7 is Professor -- is Mr. Schulman's supplemental 8 report, which is based largely, but not 9 entirely, on source code that has been produced 10 in this litigation, but also addresses post- 11 consent decree compliance. 12 Behind Tab 10, Your Honor, is excerpts 13 from Professor Bennett's report, our expert, in 14 which he responds to these materials. This was 15 served, Your Honor, on August 4th, 2006. 16 And behind Tab 11 are excerpts from 17 Professor Murphy, our expert, his expert 18 report, again, addressing the same topics. 19 Moreover, Your Honor, Microsoft when 20 it moved in limine in September of this year to 21 bar references to settlements, we specifically 22 carved out references to the 2002 final 23 judgment. 24 And the Court's November 9th order 25 permits such references or said it would 9239 1 consider such references on a case-by-case 2 basis. 3 Plaintiffs also in their opening 4 referred -- before this supposedly 5 life-changing December 14 reference that 6 Mr. Jacobs relies upon, Ms. Conlin in her 7 opening referred repeatedly to post-2002 8 discovery that she intended to put her case on 9 about. 10 So that, for example, on page 3709 she 11 refers to undocumented APIs and says that 12 eventually documented some that she referred to 13 in 2003. 14 On page 3750, she begins a discussion 15 of marketing development agreements post-2002. 16 And if you'll see on page 3752, she says in 17 2002 Microsoft replaces MDAs with MDPs. 18 The current version of the MDP is 19 adopted in 2003. And the MDP, according to 20 Professor Noll, retains one of the 21 anticompetitive features of the MDA. These are 22 all the marketing development agreements or 23 marketing development programs that were the 24 subject of discovery and that are, again, the 25 subject of discovery they are seeking to compel 9240 1 today. 2 And in the following pages, she speaks 3 of other evidence, the deposition testimony of 4 Mr. Tiemann of RedHat. That deposition 5 testimony is all based on post-2002 conduct. 6 And similarly, on page 3754 in her 7 opening, Ms. Conlin on December 8th told the 8 Jury that the evidence will prove that 9 Microsoft has so distorted the markets that any 10 potential threat from Linux is blunted. This 11 brings us to the present. 12 So, Your Honor, the concept that there 13 has been a limitation on discovery post-2002 is 14 just unsupported by the record. 15 The concept that the Plaintiffs did 16 not know until December 14 that post-2002 17 conduct or conduct that is at issue in the 18 consent decree would be at issue in this case 19 is unsupported by the record. 20 The discovery did close it, Your 21 Honor, on July 2nd, 2006, pursuant to Your 22 Honor's order. 23 We are in the midst of trial. The 24 parties have completed their openings, and the 25 parties have designated almost all of their 9241 1 trial exhibits and testimony. 2 It should not be that discovery should 3 be reopened now. The December 2004 order on 4 which they rely has not restricted them in any 5 way from obtaining discovery on subjects at 6 issue in this trial and there is no basis for 7 granting this motion. 8 Thank you, Your Honor. 9 THE COURT: We'll take a recess. Give 10 my court reporter a break. 11 Ten minutes, please. 12 MR. CASHMAN: Your Honor, if I may 13 just ask one question. I thought that 14 Mr. Tuggy would be here in the event that we 15 got to argument on Dixon. That's not going to 16 happen obviously? 17 THE COURT: We've got another motion 18 after this. 19 MR. CASHMAN: Right. So I'm wondering 20 if we can do that at 8 o'clock before Court 21 picked up with Mr. Dixon? 22 THE COURT: Yeah, but we won't get 23 through it all, but go ahead. 24 8 o'clock is fine. 25 MR. CASHMAN: I'll inform Mr. Tuggy. 9242 1 THE COURT: Yeah. Well, check with 2 him to see if that's okay first. 3 MR. CASHMAN: Pardon me? 4 THE COURT: Check with him to see if 5 he has any objection, if he has a problem with 6 it. 7 MR. CASHMAN: Okay, Your Honor. 8 THE COURT: Do you have his number? 9 Do you have his phone number? 10 MR. CASHMAN: I'll contact him from my 11 office. 12 THE COURT: See what he says. 13 MR. CASHMAN: Okay. 14 THE COURT: All right. Let me know. 15 Ten minutes okay? 16 MR. NEUHAUS: Yes. 17 (A recess was taken from 3:36 p.m. 18 to 3:47 p.m.) 19 THE COURT: All right. You may 20 respond. 21 MR. JACOBS: Okay. Thank you, Your 22 Honor. 23 Microsoft's post-2002 conduct 24 generally is not the issue here. 25 We concede that Microsoft produced 9243 1 discovery, some of which dealt with post-2002 2 conduct. 3 What's at issue here are specific 4 discovery requests tailored to Microsoft's 5 conduct concerning compliance with the 2002 6 final judgment. That is what these discovery 7 requests that are at issue in this motion deal 8 with. 9 Now, Mr. Neuhaus says that the fourth 10 amended petition contained post-2002 conduct, 11 allegations relating to post-2002 conduct 12 relating to the precise subject of the 13 discovery at issue in this motion. 14 Now, the suggestion seems to be that 15 the conduct was not at issue before the fourth 16 amended petition was filed, but became relevant 17 after the fourth amended petition was filed. 18 Now, Your Honor will recall, I believe 19 last summer, summer of 2005, when Plaintiffs 20 brought the first motion -- their second, 21 excuse me, motion to compel relating to 22 production of the competitor case material, and 23 Microsoft made the same argument, then, that 24 it's trying to make now; that unless a petition 25 has specific factual allegations in it that are 9244 1 not subject of the lawsuit, and the Court 2 rejected that argument then and granted us 3 discovery with respect to all of the competitor 4 cases. 5 The fourth amended petition added 6 specific factual allegations after the fact 7 relating to issues that had been raised in the 8 competitor cases. But that did not mean that 9 this conduct was not at issue in this lawsuit. 10 Iowa is a notice pleading state. So 11 this notion that the fourth amended petition 12 changed everything just is inconsistent with 13 Iowa law. 14 Nevertheless, let's take Microsoft's 15 argument at face value here. 16 If this conduct did suddenly become 17 relevant with the Plaintiffs' filing of the 18 fourth amended petition, Microsoft was 19 obligated under Iowa law, the Iowa rules, to 20 supplement its discovery, and it never did 21 that. 22 Microsoft has not supplemented its 23 discovery with respect to the specific 24 discovery requests that are at issue here. 25 Moreover, for Mr. Neuhaus to suggest 9245 1 that unlimited discovery was granted us on 2 post-2002 issues simply is not correct. 3 In each and every instance where we 4 tried to revisit issues that were raised in the 5 discovery requests that are now at issue, we 6 were faced with roadblocks. Microsoft would 7 object. 8 Microsoft would object based on the 9 December 2004 ruling from Judge Reis, and 10 Microsoft, to the extent that we did achieve -- 11 receive discovery, it was either after having 12 to then go back to meet and confer or in many 13 instances having to file motions to compel. 14 So this notion that it was just 15 unlimited discovery on these issues is simply 16 not correct. 17 Microsoft again, Mr. Neuhaus talks 18 about a lot of these discovery requests at 19 issue here that he wants to suggest that we 20 obtained discovery on these very issues in 21 later discovery requests. 22 But I'll note, Your Honor, Microsoft 23 talks about that in only a few instances. 24 With respect to Request Number 32, for 25 instance, the original request asks for 9246 1 information regarding Microsoft's decision 2 whether under the DOJ final judgment to 3 disclose methods exported from Active X 4 controls, OCXs or Com or D Com interfaces. 5 That was Request Number 32 that's at 6 issue here. 7 Our Request Number 167 requested 8 documents relating only to Active X controls. 9 So it was much more limited in scope. 10 And, again, to even get that 11 discovery, we were faced with Microsoft 12 objecting based on the December 2004 ruling 13 from Judge Reis. 14 Notwithstanding the fact that this 15 discovery was -- 167 was propounded after the 16 fourth amended petition was filed. 17 Discovery Request 33, same thing. We 18 have a much more limited discovery request 19 propounded after the fourth amended petition. 20 Discovery Request Number 34, same 21 thing. 22 And Discovery Request Number 48. 23 But what Microsoft does not talk about 24 are all of the instances where we have not been 25 able to obtain discovery on the specific 9247 1 issues. 2 Microsoft says nothing about Discovery 3 Request 31, for instance, about Microsoft's 4 decision whether under the DOJ final judgment 5 to disclose unnamed ordinal only interfaces 6 exported from Windows components. 7 Microsoft says nothing about material 8 requested in Request Numbers 35, 36, 37, 38, 9 39, 40, 41, 43, 45, or 47. 10 So, in other words, this blanket 11 assertion by Microsoft that we should be happy 12 because there has been discovery based on 13 post-2002 conduct ignores the fact that we set 14 out to seek information about specific 15 Microsoft conduct post-2002. 16 And we have not been able to obtain 17 the discovery that we have sought. 18 Now, whether or not there may be some 19 documents in the production set that our 20 experts have been able to rely upon that deal 21 with some of these issues is not the same as 22 saying that Microsoft has adequately responded 23 to these discovery requests. 24 It's basically our experts with one 25 hand tied behind their backs trying to make due 9248 1 with what they've been able to find in the 2 production. 3 But these discovery requests were 4 propounded for a reason. It's because we 5 believe they were important issues. 6 Now, Microsoft appears to believe 7 they're important issues, and we think we 8 should be given the benefit going forward of 9 obtaining this discovery. 10 And I think that's all I have on that, 11 Your Honor. 12 THE COURT: Thank you, sir. 13 MR. NEUHAUS: Your Honor, may I just 14 quickly make a couple of sentences? 15 THE COURT: You may make a brief 16 response. 17 Go ahead. 18 MR. NEUHAUS: Mr. Jacobs said that the 19 issue here is the discovery tailored to 20 compliance with the consent decree. 21 All of the discovery that I've 22 referred to, Your Honor, deals with conduct 23 addressed in the consent decree. 24 And, as I mentioned, many of the 25 documents that I referred to mentioned the 9249 1 consent decree specifically. 2 They say in each instance we tried to 3 -- we erected roadblocks, and that's just not 4 true. 5 I mean, Number 95, for example, was 6 answered by agreement almost entirely. 7 And the bottom line point is they got 8 what they wanted in discovery without 9 limitation during 2005, 2006. 10 Thank you, Your Honor. 11 THE COURT: Anything else on this one? 12 MR. JACOBS: No, Your Honor. 13 THE COURT: Very well. 14 Last motion I have on the list is 15 Plaintiffs' motion to allow Plaintiffs to refer 16 to the 1995 consent decree at trial to explain 17 why Defendant stopped using certain contract 18 terms. 19 Mr. Williams? 20 MR. WILLIAMS: Thank you, Your Honor. 21 Kent Williams, again, for the 22 Plaintiffs. 23 Your Honor, Plaintiffs allege and the 24 Jury has now heard testimony that Microsoft 25 used licensing provisions to foreclose 9250 1 competition in the applicable markets. 2 For example, the Jury's heard 3 testimony that Microsoft used per processor 4 licenses that required OEMs to pay Microsoft a 5 fee for every computer that the OEM shipped 6 regardless of whether that computer had MS-DOS, 7 some other operating system, or even no 8 operating system at all. 9 Here's another example. The Jury has 10 heard testimony that Microsoft used provisions 11 that imposed minimum requirements on OEMs that 12 locked the OEMs into Microsoft for a 13 significant period of time and had the effect 14 of locking out Microsoft's rivals. 15 Now, one response that Microsoft has 16 made to the Jury on this issue is that this 17 conduct that the Plaintiffs are complaining 18 about ended after 1994. 19 Microsoft has also told the Jury that 20 the line between what's competitive and what's 21 anticompetitive or what's permissible and 22 what's impermissible is often hazy and ill- 23 defined. 24 These comments to the Jury create the 25 impression that Microsoft stopped engaging in 9251 1 this conduct after 1994 because it engaged in 2 some self-evaluation of its licensing practices 3 and decided all by itself that, gee, we may be 4 skirting the line here, so we ought to stop. 5 In fact, Microsoft only stopped these 6 practices after Microsoft entered into a 7 stipulation with the federal government in 1994 8 which then was entered as a consent decree in 9 1995. 10 And those documents and that agreement 11 was what caused Microsoft to stop engaging in 12 that conduct. 13 Now, separately Microsoft has asked 14 for, and received over Plaintiffs' objection, 15 permission to show the Jury the 2002 consent 16 decree. 17 And Microsoft told Your Honor that the 18 reason they wanted to show that consent decree 19 to the Jury was to show the Jury that -- well, 20 show the Jury how the government action ended. 21 Plaintiffs want to show the Jury the 22 1994 stipulation, the 1995 consent decree to 23 show the Jury why Microsoft's restrictive 24 licensing practices ended, and show them that 25 it wasn't something that Microsoft did all on 9252 1 its own after discerning the hazy line that 2 they have referred to, but that they did it 3 because the government investigated them and 4 this investigation culminated in those 5 documents, in those agreements. 6 Now, Microsoft does not object 7 substantively to our showing the Jury the 1994 8 stipulation and 1995 consent decree. 9 They agree with us that this is 10 relevant information for the Jury and that this 11 should be shown to the Jury to explain why it 12 was that Microsoft stopped engaging in these 13 restrictive practices. 14 Of course, they disagree with us as to 15 whether or not they were restrictive. That's 16 my words. It's not Microsoft's. But they do 17 agree with us that this is a permissible reason 18 to show those documents to the Jury. 19 The only caveats that they put on that 20 are that that decree should be subject to the 21 same limitations that the 2002 consent decree 22 has placed on it; namely, that neither side can 23 argue or claim that Microsoft did or did not 24 comply with the provisions of the 1994 25 stipulation and 1995 consent decree. 9253 1 And we have no problem with that. 2 That puts it on an equal footing with the 3 limitations that have been placed on the 2002 4 consent decree. 5 But Microsoft wants something more. 6 They want an instruction to be given to the 7 Jury, the same instruction or substantially the 8 same instruction that was given by Judge 9 Peterson in the Gordon case. 10 And the language of that instruction 11 is recounted in Microsoft's opposition papers. 12 I will paraphrase or describe them to Your 13 Honor, but, essentially, what it does is 14 describes the consent decree, describes the 15 provisions of it, and describes the licensing 16 provisions that Microsoft was restrained from 17 engaging in. 18 And it notes that there was no 19 adjudication of any claims, that there was no 20 admission of liability by Microsoft, and then 21 it limits the topics on which the Jury can 22 consider the decree to -- and now I am quoting 23 -- evaluating Microsoft's intent and purpose 24 and the reasonableness of Microsoft's behavior 25 after July 15, 1994, close quote. 9254 1 And that was, of course, the date of 2 the stipulation. 3 We contend, Your Honor, that such an 4 instruction would be unnecessary and 5 prejudicial, and here's why. 6 First of all, the reason for the 7 instruction in the Gordon case was because 8 Judge Peterson barred any admission of either 9 the 2002 consent decree or the 1995 consent 10 decree. 11 That was the reason for the 12 instruction, because the Jury wasn't going to 13 have the document in front of it. So the Jury 14 needed to get the description of the terms that 15 are set forth in the consent decree. 16 In contrast, what we are asking for 17 and what Microsoft is not opposed, is actually 18 showing the Jury the 1995 consent decree, along 19 with the 1994 stipulation, so they can see for 20 themselves what the provisions were. 21 Just as they can see the provisions of 22 the 2002 consent decree. 23 Secondly, the limitations that were 24 imposed in the instruction that was given by 25 Judge Peterson are also unnecessary because, 9255 1 again, they are self-evident in the documents 2 themselves. 3 It's called a consent decree. It's 4 called a stipulation. 5 These are common, ordinary terms. 6 There is no admission of any liability. It's 7 clear from the documents themselves that these 8 were not an adjudication, that they were done 9 by agreement. 10 So, again, it's unnecessary to include 11 this language that Microsoft is insisting is 12 needed, language that may have been needed in 13 the Gordon case because, again, the Jury didn't 14 have the documents, but here they have the 15 documents themselves, they can see those things 16 for themselves. 17 We also contend, Your Honor, that 18 including that restrictive language would be 19 prejudicial. And the reason for that is 20 because the language that Judge Peterson ended 21 up with limited the Jury's consideration of the 22 '95 consent decree to some very specific 23 topics, but they don't include the topic or the 24 subject for which we're offering it, which is 25 to show why Microsoft ended these restrictive 9256 1 licensing provisions. 2 The very reason that Microsoft agrees 3 we can show it to the Jury. That isn't 4 included. 5 And Microsoft notes that it was 6 originally included in the instruction, but 7 that Judge Peterson carved it out, carved words 8 out that would have told the Jury you can 9 consider the 1995 consent decree for the 10 purpose of determining why Microsoft's conduct 11 ended. 12 That's not an exact quote, but that 13 was the import of the words that Judge Peterson 14 carved out. 15 Microsoft contends to Your Honor that 16 Judge Peterson carved those words out because 17 it would have been prejudicial to Microsoft. 18 But you'll note that Microsoft makes 19 no citation to a transcript, cites no law, 20 makes no argument in support of that assertion. 21 And, in fact, Judge Peterson didn't 22 carve it out for that reason. He didn't say it 23 was prejudicial. In fact, he agreed with us 24 that that was a valid reason to show the Jury. 25 His only point was it's obvious, it's 9257 1 obvious from the instruction that that's why 2 you want to show it to the Jury. 3 Well, with all due respect to Judge 4 Peterson, we don't think it's obvious. We 5 don't think it's obvious for a couple of 6 reasons. 7 First of all, if you give the Jury, as 8 Microsoft is proposing to, Your Honor, if you 9 give the Jury specific limited purposes to 10 consider the 1995 consent decree, but don't 11 include the purpose of considering or 12 determining why it was that Microsoft ended the 13 per processing licensing provisions and all the 14 other restrictive licensing provisions that are 15 set forth in that document, if you don't 16 include that as a purpose, then they're going 17 to be, at a minimum, confused, but they are 18 certainly not going to consider a purpose that 19 you're not giving them. 20 It's sort of under the old et unius 21 exclusio, if I'm doing the Latin right, but I'm 22 probably not. But it's the notion that if you 23 tell the Jury you can consider it only for 24 those purposes, they are not going to of their 25 own volition, being good jurors, following Your 9258 1 Honor's instructions, start grabbing for other 2 purposes that they might consider it for. 3 So it simply does not follow if you 4 don't give it this purpose to consider it for 5 they are going to somehow devine that they can 6 consider it for that purpose. It just doesn't 7 make any sense. 8 We also believe, Your Honor, that 9 having this instruction at all, certainly the 10 way Microsoft proposes it, but really any 11 instruction at all violates the symmetry, if 12 you will, between allowing them to consider the 13 2002 consent decree and allowing them to 14 consider the 1995 consent decree. 15 It's very clear to the Jury what the 16 2002 consent decree was. They can read it. 17 They can see for themselves. They don't need 18 an instruction from Your Honor as to what or 19 what it may not mean. 20 Now, that may change as the parties 21 refer to it and make comment on it. So I'm not 22 locking myself into that argument. But at this 23 point, in any event, there's no reason for an 24 instruction about it. 25 We submit to Your Honor, that until it 9259 1 becomes manifestly clear that there is a need 2 for an instruction, if somehow there's some 3 confusion as to what the '95 consent decree was 4 for or what it was about or what it culminated 5 from or anything like that, then maybe there 6 will be a need for such an instruction. 7 But at this point, given the evidence 8 as it stands, given the testimony that the Jury 9 has heard, given the argument that it has heard 10 from Microsoft's counsel, we submit to you that 11 at this point all you need to do is what the 12 parties agree on, and that is let us refer to 13 it, let us show it to the Jury, and let us use 14 it for the purpose of showing the Jury why 15 Microsoft ended the licensing practices that 16 we're complaining about. 17 Thank you. 18 THE COURT: On the 2002 decree, which 19 I allowed Microsoft to use, I remember I 20 redacted some pages and it had to do with, if 21 my memory serves me right, with the compliance 22 mechanisms and all that. 23 MR. NEUHAUS: Right. 24 THE COURT: But it stated -- I think 25 the part I left in was what parties agreed to 9260 1 do as far as -- 2 MR. NEUHAUS: Over the prohibitions. 3 THE COURT: The prohibitions, right. 4 Now I remember. I was just trying to remember. 5 I know I got it somewhere. 6 Are you done? 7 MR. WILLIAMS: I am done, Your Honor. 8 THE COURT: All right. 9 Mr. Neuhaus? 10 MR. NEUHAUS: There is no dispute 11 between the parties that the consent decree 12 should be allowed to be shown to the Jury and 13 referred to the Jury -- referred to by the 14 parties. 15 And the only question is the extent of 16 the -- the nature of the instruction that 17 should go along with the consent decree. 18 When this issue was very first raised 19 in a motion in limine regarding settlement 20 agreements that Microsoft brought, Plaintiffs 21 objected that they ought to be able to refer to 22 the '95 consent decree. 23 And at that time said that any 24 prejudice from referring to a consent decree 25 could be cured by an instruction; that the 9261 1 decree could not be used to establish 2 liability. 3 So, until this motion, it was common 4 ground that some kind of instruction was 5 needed, and I think it clearly is. 6 You have a consent decree that cannot 7 be used, under Iowa law and under federal law, 8 to establish that the conduct prohibited in the 9 decree was, in fact, unlawful, because it's a 10 consent decree. It's simply an agreement, a 11 compromise of a dispute. 12 Iowa law 408 and Rule of Evidence 408, 13 and federal law has a specific provision on 14 consent decrees that says that a consent decree 15 or a judgment before any testimony has been 16 taken is not prima facie evidence of a 17 violation. 18 It's not -- it's an exception to a 19 rule that says that a judgment normally is 20 prima facie evidence of a violation unless it's 21 a consent to judgment or decree entered before 22 testimony is taken. 23 So something is needed. 24 If I might hand up, Your Honor, the 25 instruction that we're talking about. This is 9262 1 in the papers. We've put it in -- 2 THE COURT: Is this the one used in 3 Gordon or you're proposing? 4 MR. NEUHAUS: That is the one used in 5 Gordon and that we are proposing. 6 THE COURT: Okay. 7 MR. NEUHAUS: So the point of this, 8 Your Honor -- 9 THE COURT: This says 1994. Was it in 10 '94? 11 MR. NEUHAUS: On July 14th -- 15th, 12 1994, Microsoft entered into the agreement. It 13 was ultimately after proceedings in DC entered 14 as a judgment in '95. 15 THE COURT: All right. 16 MR. NEUHAUS: So Microsoft agreed to 17 these terms on July 15, 1994. It was entered 18 as a judgment only the following year. 19 And this is the instruction that was 20 litigated, I mean, over a long, long argument, 21 some of which is excerpted in Plaintiffs' 22 papers. 23 In Gordon -- and this is where the 24 Court ended up, and we think it should be given 25 here -- the instruction basically does two 9263 1 things. 2 It describes the agreement in 3 accessible terms. It's a legal document. The 4 consent decree itself is attached to 5 Plaintiffs' papers. It's a complicated and 6 dense document, and this provides an overview 7 of it. 8 And the second thing it does is it 9 describes the circumstances of the agreement 10 and its effect. And crucially that the 11 agreement is not evidence, that the OEM 12 licensing provisions mentioned violated any 13 law. 14 It then says you may consider this 15 agreement in evaluating Microsoft's intent and 16 purpose and the reasonableness of Microsoft's 17 behavior after July 15, '94. 18 A very wide, open, broad statement for 19 why it's being placed before them if they can't 20 consider it, which is the critical part, that 21 they can't consider it as evidence of -- that 22 the provisions stated therein violated the law. 23 The reason why the agreement doesn't 24 specifically mention what Mr. Williams -- 25 sorry, the instruction doesn't specifically 9264 1 mention what Mr. Williams spoke about about the 2 Court -- that they can consider it in deciding 3 why Microsoft stopped using these provisions is 4 because, A, you know, what the Court says has 5 very special weight, and that would suggest to 6 the Jury -- and this was Judge Peterson's 7 reasoning and we think it makes sense -- that 8 you have these provisions, that an agreement 9 with the government, there's an implication 10 that they must have been illegal if we had to 11 agree with the government. 12 And that Microsoft -- if you tell the 13 Jury they can consider it in deciding why 14 Microsoft stopped using these provisions, 15 you're putting a sort of thumb on the scale, 16 and you're better off having a broad statement 17 of Microsoft's -- of the use to which it can be 18 put, namely, evaluating Microsoft's intent and 19 purpose, and the reasonableness of Microsoft's 20 behavior after it was entered into. 21 Mr. Williams' suggestion that Judge 22 Peterson didn't do that, that he did that 23 because he thought it wasn't necessary is based 24 on a very tiny little excerpt from the 25 transcript. 9265 1 If you read the whole transcript -- 2 and they have attached it -- you will see at 3 various points that Judge Peterson accepted and 4 -- the argument that we were making that I've 5 just summarized, which is that you should 6 not -- the Judge should not put his thumb on 7 the scale; that this language would suggest 8 that they -- quote, they must have stopped 9 because, you know, they were under pressure to; 10 that these were illegal. 11 That's at transcript 2029, the page 12 before the page that Mr. Williams is referring 13 to. 14 So it was for that purpose that he 15 took that language, specific language out and 16 left the general statement of the use to which 17 this can be put in the instruction, which is 18 what we think -- what we urge Your Honor to do 19 here as well. 20 As to the sort of parallelism with the 21 2002 decree, Your Honor has done very similar 22 -- given very similar instructions with respect 23 to the 2002 decree. 24 It is, of course, a very different 25 situation because there are so many findings of 9266 1 fact and conclusions of law that have been laid 2 before the Jury. They have a great deal of 3 background. All of that instructed by the 4 Court. 5 But the Court in its Preliminary 6 Instruction Number 12 described the 7 circumstances of the government action saying 8 United States Department of Justice and the 9 attorney generals of the state of Iowa and 18 10 other states filed lawsuits against Microsoft 11 in 1998 saying that Microsoft had violated the 12 federal antitrust laws known as the Sherman Act 13 and the antitrust laws of those states 14 including Iowa Competition Law. 15 This case concluded in the year 2002. 16 And several conclusions of law and facts were 17 established in that case regarding the conduct 18 of Microsoft in the market for operating 19 systems from July 15, 1995, until June 24, 20 1999. 21 So Your Honor has parallel to the 22 first paragraph given instructions that set the 23 context for a legal document that is being 24 placed before the Jury, and we think you should 25 do the same thing here. 9267 1 THE COURT: Was that Instruction 2 Number 12? 3 MR. NEUHAUS: That's Instruction 4 Number 12. 5 THE COURT: Okay. 6 MR. NEUHAUS: And Your Honor has also, 7 when the 2002 consent decree was put before the 8 Jury, Instruction Number 32, Your Honor gave 9 some instructions requested by the Plaintiffs, 10 this is what they asked for, on the effect of 11 that. 12 You told the Jury, you are instructed 13 that any reference to a consent decree, final 14 judgment, or court order in the government case 15 is not to be taken as conclusive, that any 16 alleged anticompetitive conduct by Microsoft 17 stopped before that time or after that time. 18 It is only offered to show what the Court did 19 in that case. 20 So there was an instruction as to how 21 they could use it. I mean, obviously, the 22 situation is somewhat different because we have 23 all the collaterally estopped findings in this 24 case, in the case of the 2002 decree. 25 In the case of the '95 or '94 decree, 9268 1 '94 agreement, the '95 judgment, what is needed 2 is an instruction that is critically important 3 that they can't take it as evidence that the 4 provisions that are barred in the agreement and 5 in the consent decree were illegal. 6 That seems to me is particularly 7 important in this case now, given that they 8 have the other decree before them as to which 9 we are collaterally estopped from disputing the 10 findings and conclusions, and giving them in 11 broad terms a statement as to what they can use 12 the agreement for, which is evaluating 13 Microsoft's intent and purpose and the 14 reasonableness of our conduct after it was 15 entered into. 16 So that's our submission, Your Honor, 17 that some instruction is needed. Plaintiffs 18 had previously conceded that. 19 I think it's clear that something is 20 needed. And we suggest that a brief 21 instruction along the lines that was given in 22 Gordon and that I've put before you is 23 appropriate. 24 THE COURT: Thank you. 25 Mr. Williams? 9269 1 MR. WILLIAMS: Thank you, Your Honor. 2 What Mr. Neuhaus is characterizing as 3 a concession by us was simply making a 4 statement that if there is any prejudice shown, 5 which would be their burden, then certainly the 6 practice would be to use some sort of 7 instruction, corrective or limiting or 8 otherwise, to cure that. 9 But, Your Honor, they haven't shown 10 any prejudice. 11 Mr. Neuhaus made the comment, and I 12 wrote it down because I happen to agree with 13 it, and that is that the Court's words have 14 special weight. And that's very true. 15 Instructions should not be given 16 lightly, Your Honor, because the Jury does 17 consider with considerable weight the words 18 that you use and the things that you tell them. 19 Here we have an instruction -- and I 20 thank counsel for providing a copy to Your 21 Honor so we can look at it. The first 22 paragraph is completely superfluous. 23 All of this is set forth in the 24 consent decree itself. 25 Now, Mr. Neuhaus tries to draw some 9270 1 sort of an analogy or a comparison to 2 Instruction Number 12, which he characterized 3 as being the same sort of instruction. 4 And, Your Honor, it wasn't. 5 Instruction Number 12 was simply a general 6 instruction describing the background of the 7 government action in setting up the fact that 8 there are numerous facts and conclusions of law 9 for which there is collateral estoppel effect 10 in this case. 11 At no time did Your Honor attempt to 12 characterize the provisions of the 2002 consent 13 decree. And there's no instruction that does 14 that. 15 This instruction, however, does 16 exactly that. We submit to you that it's 17 superfluous and it's unnecessary, and, if 18 anything, it will confuse the Jury. 19 Why can't they just read the consent 20 decree just as they did the 2002 consent decree 21 and draw their own conclusions, as they should 22 as jurors as to what it means and what it 23 required Microsoft to do? 24 THE COURT: How does it limit it, do 25 you think, the instruction? How does it limit 9271 1 the Jury from doing that? Doesn't the last 2 sentence allow the Jury to consider everything? 3 MR. WILLIAMS: That you may consider 4 this agreement? 5 THE COURT: Yes. 6 MR. WILLIAMS: No, Your Honor, it 7 doesn't. 8 And I do take issue with Mr. Neuhaus's 9 characterization of that as broad, because it 10 is not. 11 First of all, why should they 12 necessarily be limited to considering the 13 reasonableness of Microsoft's behavior after 14 July 15, 1994? 15 I don't think -- I think that that 16 language restricts them because, again, the 17 point of showing it to the Jury is to show them 18 why Microsoft ended its anticompetitive conduct 19 that it was engaging in before July 15, 1994. 20 So as written, it's confusing. It's 21 certainly confusing to me. Maybe I'm reading 22 it wrong. Maybe I'm misinterpreting it, but 23 that's how it reads to me. And that's the 24 context that I read it in. 25 Your Honor, adding superfluous 9272 1 language that isn't necessary creates this kind 2 of confusion. That's why we tread lightly with 3 instructions and go over them and over them and 4 don't use them unless they're absolutely 5 necessary. 6 The other two limitations in that 7 paragraph, again, are superfluous. They aren't 8 as offensive as the last sentence is to 9 Plaintiffs, but, again, we submit to you that 10 the terms of the consent decree itself make 11 that clear to the Jury. 12 However, Your Honor, if there were to 13 be some sort of a limiting instruction, we 14 submit to you that you should use the same sort 15 of instruction that you used with respect to 16 the 2002 consent decree, which we asked for and 17 received. 18 THE COURT: Was that Instruction 19 Number 32? 20 MR. WILLIAMS: Is it 32 or 36, Joe, I 21 can't remember the name of it? 22 MR. NEUHAUS: The one I read is 32. 23 MR. WILLIAMS: Was it 32? Yeah. 24 MR. NEUHAUS: There's another one 25 about not -- you know, that's the one. 9273 1 MR. WILLIAMS: 32. 2 MR. NEUHAUS: 32 is the one I read. 3 THE COURT: Is that the only one that 4 deals with the 2002 decree? 5 MR. NEUHAUS: I mean, because the -- 6 THE COURT: Let me grab them. 7 MR. WILLIAMS: That's the one that was 8 specific. 9 MR. NEUHAUS: That's the one I 10 referred to, Your Honor. 11 THE COURT: 32? 12 MR. NEUHAUS: Yeah. And there's also 13 the instruction, of course, that we can't talk 14 about, conduct being in compliance with the 15 consent decree. 16 MR. WILLIAMS: And we agree with that, 17 Your Honor, although that doesn't need to go in 18 an instruction. We just can't do it. 19 THE COURT: Let me look at that real 20 quick. 21 Okay. Anything else? 22 MR. WILLIAMS: That's all I have, Your 23 Honor. 24 THE COURT: Oh, okay. 25 MR. WILLIAMS: Except that we ask that 9274 1 the motion be granted. 2 I don't know if, to make the record 3 clear, we need to read all the language of 4 Instruction Number 32 into the record. 5 THE COURT: I'll take notice of it. 6 Is that all right? 7 MR. NEUHAUS: It's in the papers that 8 you have. 9 MR. WILLIAMS: It's in the papers. 10 THE COURT: I have it. It's very 11 short. 12 MR. NEUHAUS: You have it. 13 MR. WILLIAMS: That's what I thought. 14 THE COURT: Okay. Rather than give 15 another -- if I was to go along with your 16 request, there would be no need to give another 17 Instruction 32. It seems to cover all decrees, 18 doesn't it? 19 MR. WILLIAMS: Yes. 20 MR. NEUHAUS: Your Honor, the only 21 thing -- this is a consent decree that cannot 22 be taken as evidence that the license 23 provisions referred to in it are illegal. We 24 think that's absolutely critical. 25 And that you can't as a matter of law 9275 1 in Iowa and Iowa Rules of Evidence and federal 2 law that you can't take a consent decree 3 reached before testimony was given as evidence 4 of the conduct that's prohibited that we agreed 5 to stop. 6 THE COURT: Doesn't 32 say that, 7 though? 8 MR. NEUHAUS: All it says is that you 9 can't take it to be evidence that the conduct 10 stopped. 11 But my point is you can't take it as 12 evidence that the conduct referred to -- per 13 processor licenses at minimum commitments and 14 that licenses of more than a year are illegal, 15 that they violated any law. 16 That's the central point of Rule 408. 17 It's a consent decree. It's just an agreement. 18 It's a settlement. 19 MR. WILLIAMS: Well, Your Honor, my 20 response to that is the consent decree doesn't 21 say they did anything illegal. It's just an 22 agreement. It's a contract. 23 MR. NEUHAUS: It's a judgment, Your 24 Honor, entered by a court because that's what 25 happens when you enter into a settle agreement 9276 1 to settle the Justice Department's complaint, 2 you get a consent decree. 3 And I believe the Jury has to be told 4 that they can't take that as evidence that the 5 conduct prohibited was wrongful. 6 Especially in the context of this 7 case, Your Honor, where they have another 8 consent decree, another final judgment in which 9 all the conclusions of law they are told they 10 have to accept as binding. 11 So I think in this case in particular 12 it is absolutely essentially that we tell them 13 that they didn't violate -- 14 THE COURT: Well, 1995 was the consent 15 decree. 2002 was the judgment, right? 16 MR. NEUHAUS: 2002 was a consent 17 decree -- they're both final judgments. The 18 2002 was also the result of a settlement 19 between the Department of Justice. 20 THE COURT: Oh, after it was remanded? 21 MR. NEUHAUS: Yeah. After it was 22 remanded, they agreed on a remedy. And it's 23 often referred to, therefore, as a consent 24 decree because it was then entered in in 25 settlement of the remainder of that case. 9277 1 THE COURT: Oh, okay. 2 MR. WILLIAMS: Your Honor, though, 3 could I respond to the notion that the Jury is 4 going to be confused between the effect of the 5 2002 judgment and the 1995 consent decree? 6 The reason that that's collateral 7 estoppel in this case -- and I believe the Jury 8 knows this because it's been explained to 9 them -- isn't because of the 2002 judgment. 10 It's because of the conclusions of law 11 and findings of fact that were set forth by 12 Judge Jackson and were affirmed by the Court of 13 Appeals. That's the reason, Your Honor. It's 14 not because of the 2002 judgment. 15 So one does not follow from the other. 16 There's no reason to think the Jury is going to 17 be confused by the fact that they are bound to 18 follow certain findings and certain conclusions 19 by the 1995 consent decree. 20 MR. NEUHAUS: In fact, Your Honor, one 21 does follow from the other. The consent decree 22 and final judgment followed from the conclusion 23 of law. That's what ended the case and that's 24 what the Jury has been told. 25 MR. WILLIAMS: Your Honor, the 1995 9278 1 consent decree did not follow from the findings 2 of fact and conclusions of law. It proceeded 3 it temporally. There's no way it could have 4 followed. 5 MR. NEUHAUS: We are talking about the 6 2002 consent decree, Your Honor. 7 THE COURT: All right. Anything else 8 on this one? 9 MR. WILLIAMS: No, Your Honor. 10 THE COURT: Very well. Boy, you 11 finished right on time. 12 MR. JACOBS: I have a message from 13 Mr. Cashman. He spoke with Mr. Tuggy and Dixon 14 at 8 a.m. is fine with both of them if that is 15 okay with Your Honor. 16 THE COURT: Okay. 17 MR. NEUHAUS: Your Honor, the parties 18 agreed last night to hear these five motions, 19 and I don't think we ever told you that at 20 Plaintiffs' request we've agreed to postpone 21 the Laurence motion, which was the sixth one, 22 until Mr. Hagstrom gets back so it can be 23 argued. 24 THE COURT: From where? 25 MR. NEUHAUS: I don't know. 9279 1 MR. WILLIAMS: He's out of town. 2 And, Your Honor, if I could respond to 3 that. 4 I'm aware that Mr. Neuhaus was 5 informed that our plan was to have Mr. Hagstrom 6 cover that. That was our plan. It may still 7 be our plan. 8 I just don't want everybody to get 9 upset if next week I, for example, end up 10 arguing that motion. 11 I can tell Your Honor that I haven't 12 even looked at it, but it's a little bit up in 13 the air on our side as to who is going to argue 14 it. 15 And I appreciate counsel's 16 accommodation in that regard. 17 MR. NEUHAUS: They asked and we said 18 fine. 19 THE COURT: Anything else for the 20 record? 21 MR. WILLIAMS: No, Your Honor. 22 THE COURT: Very well. 23 The record is closed. 24 (Proceedings adjourned at 4:29 p.m.) 25 9280 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 18th 19 day of January, 2007. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25