4163 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 XVI 7 vs. ) ) 8 MICROSOFT CORPORATION, ) a Washington Corporation ,) 9 ) Defendant. ) 10 ----------------------------------------------- 11 The above-entitled matter came on for 12 trial before the Honorable Scott D. Rosenberg 13 and a jury commencing at 8 a.m., December 12, 14 2006, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 4164 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 RICHARD M. HAGSTROM 7 JAMES S. REECE MICHAEL R. CASHMAN 8 Attorneys at Law Zelle, Hofmann, Voelbel, 9 Mason & Gette, LLP 500 Washington Avenue South 10 Suite 4000 Minneapolis, MN 55415 11 (612) 339-2020 12 DOUGLAS J. ROVENS Attorney at Law 13 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 14 550 South Hope Street Suite 1600 15 Los Angeles, CA 90071 (213) 895-4150 16 ROBERT J. GRALEWSKI, JR. 17 Attorney at Law Gergosian & Gralewski 18 550 West C Street Suite 1600 19 San Diego, CA 92101 (619) 230-0104 20 KENT WILLIAMS 21 Attorney at Law Williams Law Firm 22 1632 Homestead Trail Long Lake, MN 55356 23 (612) 940-4452 24 25 4165 1 Defendant by: 2 DAVID B. TULCHIN STEVEN L. HOLLEY 3 SHARON L. NELLES JOSEPH E. NEUHAUS 4 JEFFREY C. CHAPMAN Attorneys at Law 5 Sullivan & Cromwell, LLP 125 Broad Street 6 New York, NY 10004-2498 (212) 558-3749 7 8 ROBERT A. ROSENFELD 9 Attorney at Law Heller Ehrman, LLP 10 333 Bush Street San Francisco, CA 94104 11 (415) 772-6000 12 STEPHEN A. TUGGY HEIDI B. BRADLEY 13 Attorneys at Law Heller Ehrman, LLP 14 333 South Hope Street Suite 3900 15 Los Angeles, CA 90071-3043 (213) 689-0200 16 BRENT B. GREEN 17 Attorney at Law Duncan, Green, Brown & 18 Langeness, PC Suite 380 19 400 Locust Street Des Moines, IA 50309 20 (515) 288-6440 21 RICHARD J. WALLIS STEVEN J. AESCHBACHER 22 Attorneys at Law Microsoft Corporation 23 One Microsoft Way Redmond, CA 98052 24 (425) 882-8080 25 4166 1 (The following record was made out of 2 the presence of the jury.) 3 THE COURT: You wanted to take up the 4 issue of reseller? 5 MR. GRALEWSKI: Yes, Your Honor. 6 THE COURT: Exhibits or depos? 7 MR. GRALEWSKI: Depositions. 8 Good morning, Your Honor. May I 9 approach? 10 THE COURT: Yes. 11 MR. GRALEWSKI: I have a copy of our 12 brief that we filed yesterday, I believe, and 13 I'm not sure that we'll need all the paper, but 14 copies of the depositions just in case. 15 THE COURT: Thank you. 16 MR. GRALEWSKI: Your Honor, let me 17 provide some context to this motion and briefly 18 explain or remind the Court what these 19 depositions are about and why the Plaintiffs 20 have a concern about certain portions of them 21 being used in Mr. Tulchin's opening statement. 22 The two deponents, Mr. Erickson and 23 Lowan, are people that own businesses within 24 the state of Iowa. 25 And the reseller name that we've given 4167 1 them basically simply means that their 2 businesses are ones in which they put computers 3 together and help people with computer 4 problems. 5 Both Mr. Erickson and Mr. Lowan also 6 purchased for their own personal use the 7 products that are subject to this lawsuit. 8 Mr. Erickson has not opted out of the 9 class. Mr. Lowan has opted out of the class. 10 So Mr. Erickson is a class member; Mr. Lowan is 11 no longer a class member. 12 When these depositions were taken, 13 Your Honor may recall that there was much 14 debate between the parties about whether 15 Microsoft could depose absent class members and 16 ask them questions about stability, quality, 17 security, value, innovation, and choice. 18 And, ultimately, on July 5, Your Honor 19 denied Microsoft's attempts to depose class 20 members to ask them those kinds of questions. 21 Now, in the process of that dispute 22 being worked out, Microsoft subpoenaed these 23 two individuals for deposition prior to your 24 Court's order, Your Honor's order. 25 By agreement of the parties, we 4168 1 decided to allow the depositions to go forward 2 because we received a communication from 3 Microsoft that said these depositions will 4 basically be limited to economic issues and 5 decertification issues. 6 What's been at issue in all of these 7 cases, and certainly in Iowa, is pass-through 8 and overcharge. 9 And so essentially there was a letter 10 agreement between the parties that the 11 depositions would be limited to those types of 12 questions. 13 Well, we showed up to take these 14 depositions in Cedar Falls in July, the end of 15 July, and after a few questions about 16 pass-through and overcharge, Microsoft asked 17 the balance of their questions about the issues 18 of stability, quality, security value, 19 innovation, and meaningful choice. 20 We -- I'm going to skip ahead a little 21 bit. 22 We made objections to the Special 23 Master. 24 The objections we're here to talk 25 about today are by agreement of the parties not 4169 1 objections that should have been brought to the 2 Special Master, by and large. 3 They are relevance and collateral 4 estoppel, and we'll get into those if we need 5 to. 6 The reason that this issue has now 7 reached a head is that on December 4th, about a 8 week ago, we received a communication from 9 Microsoft that added a chunk of testimony from 10 the Erickson deposition to their designations, 11 which by our agreement they had the right to 12 add lines. We certainly had the right to 13 object. 14 And the lines they wanted to add, they 15 said we may be using these in opening 16 statement. That was on December 4. 17 On December 6, that was two days 18 later, I sent an E-mail to Mr. Tuggy and 19 Mr. Chapman, and I gave them specific notice 20 that we intended to contest their use of 21 anything in Erickson and Lowan on this subject 22 in their opening statement. 23 We don't take issue with whether they 24 can use the economic testimony necessarily for 25 decertification purposes, but we did provide 4170 1 them notice on December 6 that we intended to 2 bring this up. 3 Now, we believe -- that's the 4 background of the dispute. 5 We believe that this motion can be 6 decided on a simple ground, and that is 7 hearsay. 8 These resellers both are Iowans under 9 the subpoena power of the Court. They're not 10 unavailable. And as a result, their 11 depositions are hearsay. 12 There are -- there is an argument that 13 Microsoft makes in its papers that I got this 14 morning. They're essentially arguing that we 15 waived that objection because we didn't make it 16 to the Special Master, and I want to respond to 17 that now as opposed to later. 18 We didn't make the objection to the 19 Special Master for a couple reasons. 20 One, we believe that unavailability -- 21 and this is in the Iowa Practice Guide on 22 Evidence. 23 Unavailability is a matter for the 24 Court under 5.104(a), and unavailability also 25 seems to revolve around whether the witness is 4171 1 unavailable or not at the time of the proffer 2 of the evidence. 3 So, in other words, someone could be 4 available or unavailable in June or August and 5 that situation could change in December. There 6 are a lot of moving parts in the trial. 7 Consistent with this understanding, 8 Your Honor, on December 3rd, I received a 9 communication from Microsoft adding in a global 10 hearsay objection to the deposition of Phil 11 Barrett. 12 They believe that because Mr. Barrett 13 was coming live to trial, that the prior 14 testimony became hearsay. 15 That situation was mooted when I told 16 them that Mr. Barrett is not able to come to 17 trial and won't be coming to trial, so that 18 objection fell away. 19 But the point of the matter is, Your 20 Honor, subsequent to the Special Master process 21 and at the time of trial is when Microsoft 22 decided that it was appropriate to lodge a 23 global hearsay objection on the availability 24 issue, and that's all we're doing now. 25 I don't want to reargue the sanctions 4172 1 motion, and I don't intend to, that the 2 Plaintiffs brought several months ago. 3 But if we also are talking about 4 waiver, which, of course, is an equitable 5 concept, I think we need to look at the 6 totality of the situation here. 7 And what is going on is that Microsoft 8 is attempting to use testimony that Your Honor 9 has already decided on July 5th is improper on 10 the issues that I discussed earlier; 11 innovation, choice, things of that nature. 12 I will tell you, and we'll get to this 13 maybe, that the chunk of testimony that they 14 added on December 4th, the question is from 15 Mr. Chapman to Mr. Erickson, Mr. Erickson, do 16 you agree with Finding of Fact 412? Which we 17 have collateral estoppel on. 18 He asks the witness, a lay witness, if 19 he agrees with Finding of Fact 412. 20 Now, not surprisingly, this is the 21 reason they've designated it. 22 Mr. Erickson says, I disagree with 23 Finding of Fact 412, and then he goes on to 24 explain why he disagrees with Finding of Fact 25 412. 4173 1 If we're going to talk about the 2 equities -- 3 THE COURT: Is that the portion they 4 want to offer? 5 MR. GRALEWSKI: That's the portion. 6 MR. TULCHIN: No, it's not, Your 7 Honor. 8 We're not using this in the opening 9 just to moot this and move this along. 10 THE COURT: Are you going to use it at 11 any time in the trial? 12 MR. TULCHIN: No. 13 THE COURT: Any time in the trial? 14 MR. TULCHIN: We're certainly not 15 using it in the opening which is the -- 16 THE COURT: I asked you a question. 17 Are you using it any time during trial? 18 MR. TULCHIN: I have no intention of 19 doing that. 20 THE COURT: Because you're not going 21 to. Denied. 22 You cannot attack the findings of 23 fact, period. 24 MR. TULCHIN: And we're not doing 25 that, Your Honor. 4174 1 THE COURT: Good. It's not going to 2 happen. Go ahead. 3 MR. TULCHIN: If that's the basis of 4 this motion, Your Honor, you know, it's just 5 not happening. It's not in my opening. I have 6 no intention of playing that. 7 THE COURT: Okay. Move on. 8 What's next? 9 MR. GRALEWSKI: Your Honor, at this 10 point, I think for efficiency, and I know that 11 it's our motion and we should proceed as we see 12 fit. 13 I have arguments to make, other 14 arguments with respect to collateral estoppel 15 and relevance, but I believe that the most 16 efficient way to deal with this is to look at 17 the hearsay issue. 18 If Your Honor rules in favor on the 19 hearsay issue, there's no reason to spend 20 another 15, 20 minutes on the other issues. 21 If you don't, then I think we should 22 look at the other ways in which the testimony 23 involves the findings and relevance issues. 24 THE COURT: Are you done with your 25 hearsay objection then? 4175 1 MR. GRALEWSKI: Pardon me? 2 THE COURT: Are you done with your 3 hearsay objection? 4 MR. GRALEWSKI: Yes, Your Honor. 5 Thank you. 6 THE COURT: Response? 7 MR. TUGGY: Yes, Your Honor. 8 May I approach with submission? 9 THE COURT: Yes. 10 MR. TUGGY: Thank you, Your Honor. 11 Microsoft's position on Plaintiffs' 12 motion relating to resellers is that Plaintiffs 13 serving me with this motion at 1:49 a.m. on the 14 day that Microsoft was to begin its opening 15 statements for the purpose of disrupting our 16 preparation for providing those opening 17 statements was inexcusable. 18 To understand why it was inexcusable 19 that this motion was filed or E-mailed to me at 20 1:49 a.m. requires that we take a look at the 21 context of the filing and the testimony at 22 issue, the reseller testimony at issue. 23 And in examining that context, we will 24 directly address the hearsay objection 25 Plaintiffs have just asserted. 4176 1 So by taking a look at the -- the way 2 this motion was submitted and our position that 3 it ought not to be heard because it's 4 inexcusably delayed. We'll also take a look at 5 this hearsay issue. 6 And if I may request as I go through 7 this argument, that if we have line by line 8 issues to go through, it seems to me we might 9 be able to address those this afternoon, but as 10 to these overarching issues whether this is 11 inexcusably delayed and ought not to be heard, 12 and then the substantive hearsay objection 13 they've asserted, I think we can have time to 14 address those this morning without creating an 15 inconvenience for the jury. 16 As for the context for this filing, 17 the submission I just provided to you is a 18 memorandum I prepared after I received the 19 filing yesterday that sets forth the history, 20 the relevant history of the objections and 21 designations and the Special Master's rulings 22 relating to the reseller deposition and also 23 separately relating to a second motion that 24 Plaintiffs E-mailed me relating to deposition 25 testimony by Mr. Sculley and Mr. Peterson. 4177 1 With respect to the reseller 2 depositions, Microsoft, under the Special 3 Master's scheduling order, designated the 4 reseller deposition testimony on August 4 of 5 this year. 6 The Plaintiffs had a two-week period 7 to review it under the Special Master's 8 scheduling order, and on August 18 the 9 Plaintiffs submitted their objections to the 10 testimony of Mr. Erickson and Mr. Lowan. 11 In the submission I provided to you 12 the Plaintiffs objections are in Tab 1, and in 13 Tab 1 the Plaintiffs list their objections to 14 the deposition, both global objections to the 15 deposition as a whole and individual objections 16 to lines of testimony. 17 And in this set of objections the 18 Plaintiffs asserted, the Plaintiffs did not 19 assert a hearsay objection to the deposition. 20 Then what occurred is on September 22, 21 under the Court's pretrial scheduling order, 22 the parties were required to submit motions in 23 limine, and the Plaintiffs and Microsoft 24 submitted various motions in limine. 25 The Plaintiffs did not submit a motion 4178 1 in limine to attempt to exclude the Erickson 2 and Lowan testimony either because they thought 3 it was unduly prejudicial or because it was 4 hearsay or for any other reason. That was just 5 not among their motions in limine. 6 On September 22, under the Court's 7 scheduling order, Microsoft submitted its list 8 of live witnesses, and because the Plaintiffs 9 hadn't asserted a hearsay objection to the 10 deposition testimony we had designated, 11 videotaped testimony we had designated of 12 Erickson and Lowan, those witnesses cannot 13 appear on our live witness list. 14 On October 10, Special Master ruled on 15 the Plaintiffs' line-by-line objections to the 16 testimony of Mr. Erickson and Mr. Lowan. 17 The Special Master's rulings are in 18 Tab 3 of the submission I provided to Your 19 Honor this morning, and it is -- it was a huge 20 amount of work for the Special Master to go 21 through the line-by-line objections, which 22 would, of course, have been unnecessary had 23 Plaintiffs asserted a global hearsay objection 24 back in -- on August 18, or even thereafter, 25 through a motion in limine. 4179 1 There was just no need for a 2 line-by-line review if it wasn't going to be 3 used at trial. 4 But the Plaintiffs submitted this to 5 the Special Master for ruling, and the Special 6 Master went through all this material and made 7 his rulings on it. 8 That was on October 10. 9 On November 29, the Special Master 10 ruled on the Plaintiffs' objection that when 11 Microsoft took these depositions, it was acting 12 beyond the scope of the parties' agreement on 13 the scope of the depositions, and what the 14 Special Master had before him was the 15 sanction papers, your ruling on that motion, 16 Mr. Neuhaus' letter, the arguments of the 17 parties. 18 And in Tab 5 of what I provided to you 19 is the Special Master's, Justice McCormick's 20 reasoned opinion on why it was these 21 depositions were not beyond the scope that 22 Microsoft was permitted to ask at that time. 23 The Plaintiffs have said they're not 24 appealing the Special Master's rulings, and so 25 presumably this ruling is not being appealed, 4180 1 even though it was argued at some level by 2 Mr. Gralewski in his argument. 3 So the Special Master ruled on all the 4 line-by-line designations on October 10 because 5 that was when the parties had submitted those 6 matters for him for ruling, but waited till 7 November 29 for this last issue because he was 8 waiting for Your Honor's ruling on the 9 sanctions motion and a report by the parties on 10 the status of that ruling. 11 So that's why that occurred on 12 November 29. 13 Now, on December 4, as Mr. Gralewski 14 said, Microsoft made a small set of additional 15 designations, including one additional one for 16 Erickson which is not at issue for the opening, 17 and as discussed earlier, it's not going to be 18 at issue for this trial. 19 On December 6, in an E-mail which is 20 attached here, the Plaintiffs E-mailed me 21 telling me that they intended to file a motion 22 relating to the resellers and that on December 23 7th or 8th, I would receive the briefing. 24 So December 7th passed, December 8th, 25 December 9th, December 10th. I received 4181 1 nothing and assumed that either nothing was 2 going to happen or -- I actually just had no 3 idea where the Plaintiffs were with this until 4 from an airport on Sunday night while I was 5 readying myself for bed I received a call from 6 Mr. Gralewski saying later that night I would 7 be receiving briefing for a hearing they wanted 8 before our opening statement. 9 And at the time Mr. Gralewski 10 predicted for me that Mr. Hagstrom would be 11 finishing the following day, and they wanted it 12 heard the following day before our openings 13 began. 14 I informed Mr. Gralewski that this was 15 late; that I was not agreeing to a hearing on 16 Monday morning or any hearing at all. 17 And Mr. Gralewski, when he sent to me 18 the briefing at 1:49 a.m., sent an E-mail with 19 it, and in the E-mail Mr. Gralewski said, as we 20 discussed tonight, we will not argue this issue 21 tomorrow morning, but Plaintiffs do wish to 22 have these matters decided before David starts 23 his opening, as Microsoft probably does too. 24 Kindly let me know when you would like 25 to argue this motion. 4182 1 Okay, so that's the history of the 2 submission of the filing that you have. 3 And now as you take a look at this 4 history and the hearsay objection that 5 Plaintiffs did not assert on August 18, 6 Plaintiffs' argument ought to remind us of what 7 occurred with respect to the Department of 8 Justice testimony by Mr. Gates. 9 If the Court will recall, with respect 10 to that testimony, back in April 2006, 11 Microsoft did not assert a hearsay objection 12 because in April 2006 when the Plaintiffs 13 designated that testimony, Mr. Gates was 14 residing in the state of Washington, not within 15 the subpoena power of this Court, and Microsoft 16 did not assert a hearsay objection at that 17 time. 18 In November of 2006, Microsoft -- the 19 Plaintiffs obtained an order from the Court 20 that since Mr. Gates was coming in Microsoft's 21 case in chief, he would be ordered to appear in 22 the Plaintiffs' case in chief, and Microsoft at 23 that time asserted a hearsay objection because 24 he was available. 25 The Plaintiffs must have submitted at 4183 1 least three letter briefs to this Court arguing 2 vociferously that Microsoft had waived its 3 hearsay objection because it didn't assert the 4 hearsay objection in April 2006. 5 The Plaintiffs' argument was the mere 6 possibility that Mr. Gates might be available 7 trigger an obligation on the part of Microsoft 8 to assert a hearsay objection back in April 9 2006. 10 Contrast that with Mr. Erickson and 11 Mr. Lowan. 12 Mr. Erickson resides in Cedar Falls, 13 Iowa. Mr. Lowan resides in Waterloo, Iowa. 14 At the time their depositions were 15 taken, and for every moment thereafter, the 16 Plaintiffs knew these individuals were within 17 the subpoena power of the Court. 18 There is, of course, an outside chance 19 that at the time of trial one of them might be 20 unavailable, sickness. It's just hard to 21 predict. 22 But certainly when comparing the 23 probability that they would be available for 24 use at trial, Gates and Erickson and Lowan, 25 it's quite clear that Plaintiffs should have 4184 1 asserted their hearsay objection on August 18, 2 2006, if they really intended that these 3 witnesses should not appear by videotape 4 deposition. 5 And their failure to do -- and then to 6 require the Special Master and Microsoft to 7 work through all the individual objections on 8 the -- on those witnesses in reliance on the 9 fact that they hadn't asserted a hearsay 10 objection, for Microsoft to submit a witness 11 list on reliance on the fact that the 12 Plaintiffs had not asserted a hearsay 13 objection, and now without any notice to 14 Microsoft at 11:49 a.m. on the date the 15 openings were to begin, I'm told they're going 16 to add a hearsay objection. 17 That's just late, and it's 18 inappropriate. It's improper. It's a sharp 19 business practice. 20 If they're going to submit motions 21 like this, they need to give me some time. I 22 will bend over backward for them to make -- to 23 do the work, but this is just late. It's 24 inappropriate. 25 So the Plaintiffs have waived their 4185 1 hearsay objection because they didn't assert 2 it. 3 Now, alternatively, in the event this 4 Court is inclined to allow Plaintiffs to add 5 the hearsay objection, it seems to me that in 6 fairness several things ought to happen. 7 First, Microsoft ought to be permitted 8 to add these witnesses to its witness list, 9 live witness list. 10 Second, Microsoft ought to be 11 given permission by this Court to contact 12 Mr. Erickson regarding testifying at this 13 trial, notwithstanding the fact that he has not 14 opted out of Plaintiffs' class. 15 And third, Microsoft ought to be 16 permitted to show the prior testimony 17 nonetheless in opening statements because we 18 have a good faith reason to believe that those 19 statements will be testimony offered at trial, 20 whether by videotape or live. 21 The final point I'd like to make, Your 22 Honor, is that the Special Master has ruled on 23 the exact issues the Plaintiffs are presenting 24 to this Court. 25 The Plaintiffs are claiming we're 4186 1 submitting 403 objections, and those were not 2 addressed by the Special Master. 3 This is the nature of the Plaintiffs' 4 403 objection. 5 Mr. Erickson didn't have foundation to 6 make the statements that he made in his 7 deposition, and as a result, those statements 8 are irrelevant or unduly prejudicial. 9 Before the Special Master, every one 10 of the designations that is being put before 11 you this morning had a foundation objection 12 except one that's not going to be used in the 13 opening. Every one at issue. 14 Every one of those foundation 15 objections the Special Master overruled. 16 This is a wolf in sheep's clothing. 17 This is an appeal of the Special 18 Master's rulings. It is not some sort of 19 brand-new motion under 5.403. 20 And as we go through these 21 line-by-line, you'll be able to see comparing 22 the Special Master's -- what they submitted to 23 the Special Master. 24 And the Special Master's ruling with 25 what they're arguing here, that it's the same 4187 1 argument. They're simply appealing what they 2 already lost, which brings me to the final 3 point. 4 Unfortunately, and I'm hoping that all 5 the arguments the last few days about 6 agreements between the parties don't interfere 7 with our ability to have discussions with each 8 other, but I'd like to hand up to the Court an 9 agreement that is in writing and signed by me 10 and signed by Mr. Cashman. So there shouldn't 11 be any dispute about the nature of the 12 agreement or its terms. 13 This is a complicated agreement 14 covering three different subjects, and we 15 entered into this agreement because we wanted 16 to make it possible for openings to run 17 smoothly. 18 THE COURT: Is this the agreement 19 that's been argued over and over again and no 20 one can agree on? Everyone has different 21 interpretations? It's not worth the paper it's 22 written on? 23 MR. TUGGY: I don't think so, Your 24 Honor. 25 THE COURT: We argued about this 4188 1 agreement, I don't know how many times now, by 2 both parties, and no one even seems to care 3 about the darn agreement. 4 MR. GREEN: That's a different 5 agreement, Your Honor. 6 THE COURT: No, it's the same one, 7 November 29. 8 MR. TUGGY: Microsoft's position has 9 been after clearing all -- 10 THE COURT: I mean, everyone -- you 11 guys don't even care about the darn agreement. 12 I've had this before me -- 13 MR. TULCHIN: Your Honor, we've tried 14 to abide by it. 15 THE COURT: I'm sorry, I was talking. 16 Did I interrupt you? 17 MR. TULCHIN: No. I'm sorry, Your 18 Honor. 19 THE COURT: Go ahead, Mr. Tuggy. I 20 guess I'm not allowed to speak. Go ahead. 21 MR. TUGGY: I'm sorry, Your Honor. 22 THE COURT: Go ahead. 23 MR. TUGGY: Microsoft's position is 24 that it's precleared all of its testimony 25 through the Special Master and has a good faith 4189 1 basis for believing that it can use the 2 testimony in its opening statements and on that 3 basis requests that the Court affirm the 4 Special Master's rulings, deny the Plaintiffs' 5 motions, and permit Microsoft to use the 6 testimony at issue in its opening. 7 And if it please the Court, Microsoft 8 would be willing this afternoon, so as to not 9 inconvenience the jury, to go through these 10 line-by-line. 11 THE COURT: I thought you said they're 12 too late for their appeal. 13 MR. TUGGY: Yes. 14 My primary argument is that submitting 15 this when they did was inappropriate and 16 improper. They should have submitted it 17 earlier. 18 THE COURT: Was there a time limit 19 from the appeal for the Special Master's 20 ruling? 21 MR. TUGGY: No. 22 THE COURT: Okay. Anything else? 23 MR. TUGGY: Nothing further on those 24 arguments. 25 THE COURT: Okay. 4190 1 MR. GRALEWSKI: Trying to confine my 2 response just to the hearsay points, Your 3 Honor. 4 I can understand the reason that Your 5 Honor is troubled -- 6 THE COURT: I'm not troubled. I'm 7 frustrated. 8 MR. GRALEWSKI: Frustrated. 9 THE COURT: You guys enter these 10 agreements and no one even cares about them. 11 Don't even bother with them anymore, okay? 12 Just bring your motions to me. 13 These agreements are just worthless. 14 You guys find every way to reinterpret them, 15 both of you. It just drives me crazy. 16 You guys -- make your argument on the 17 hearsay. 18 MR. GRALEWSKI: With respect to the 19 objection, Your Honor, all the Plaintiffs are 20 doing is trying to not inconvenience the Court 21 by -- we certainly have the right to object, as 22 Mr. Tulchin did, during the opening. We're 23 trying to bring the objection beforehand. 24 The substance -- aside from the 25 hearsay, the substance of our brief or our 4191 1 motion is not to reargue foundation and 2 improper opinion that the Special Master has 3 ruled on. 4 As I pointed out, the primary issue 5 now, aside from the hearsay, is relevance and 6 collateral estoppel, and those aren't issues 7 that the parties understand were before the 8 Special Master. 9 In terms of the waiver argument, Your 10 Honor, what I can say -- I'm not going to 11 repeat the context that this is in, but we -- 12 the Plaintiffs honestly believe in light of the 13 Court's July 5th order -- I mean, Microsoft 14 sought permission to depose class members -- 15 this is a quote -- about their experience in 16 using Microsoft's software and also whether 17 they had choices in their software purchases, 18 whether they believe innovation has been 19 stifled, and whether they suffered security 20 breaches. And Your Honor denied that motion on 21 July 5th. 22 We honestly believe that they would 23 not be here now at trial attempting to put on 24 the screen testimony by class members about the 25 very issues that you told them they couldn't. 4192 1 And when we realized that, we decided to bring 2 the issue to Your Honor's attention. 3 THE COURT: Was my order entered after 4 or before the deposition? 5 MR. GRALEWSKI: The depositions 6 occurred ten days before -- approximately ten 7 days before the order when Microsoft's motion 8 was pending. 9 THE COURT: Anything else? 10 MR. TUGGY: May I speak to that very 11 briefly? 12 THE COURT: Sure. 13 MR. GRALEWSKI: I hope I'm correct 14 with that. 15 MR. TUGGY: In the course of the 16 deposition, as we can see if we went into the 17 line-by-line analysis, Microsoft preceded its 18 questions with in your capacity as a reseller. 19 These individuals were -- their 20 business was to work with their customers to 21 build computer systems for them, and Microsoft 22 was asking them in their capacity not as class 23 members and users, but in their capacity as 24 resellers, people who as a business put 25 together computer systems for their customers. 4193 1 The questions that are at issue. 2 This was, again as I mentioned, all 3 argued before the Special Master. The Special 4 Master had ruled in Microsoft's favor, and 5 apparently this is now an appeal of the Special 6 Master's ruling based on the argument 7 Mr. Gralewski just made. 8 Even though you don't have before you 9 Mr. Neuhaus' letter, all the argumentation that 10 was before the Special Master, it was just 11 thrown in now. 12 Microsoft respectfully requests the 13 Special Master's ruling in its favor on this 14 issue be affirmed. 15 THE COURT: You want that done -- both 16 parties want this issue done before you present 17 the evidence in opening or -- 18 MR. TULCHIN: Yes, Your Honor. 19 I mean, I had intended to refer to the 20 deposition testimony of at least one of these 21 two resellers in my opening and to play a 22 portion of it. Not any portion where there was 23 some question about a finding of fact. I 24 promise you that we are not intending to play 25 anything -- 4194 1 THE COURT: I just wanted to know if 2 you wanted me to decide all the appeal issues 3 now prior to your opening. 4 MR. TULCHIN: On this issue of these 5 two resellers, Your Honor, I guess it's the 6 Plaintiffs who want you to do that to try to 7 block me. So I guess what I'm saying is yes. 8 And, Your Honor, as long as I have the 9 floor, I do apologize for interrupting the 10 Court. I'm sorry. It wasn't intentional. 11 Part of this is frustration on my part about 12 these same agreements, which, you know, we're 13 struggling with. 14 THE COURT: Plaintiffs? 15 MR. GRALEWSKI: Let me -- allow me to 16 respond to the potential problem with 17 Mr. Tulchin saying that he doesn't intend to 18 refer to questions that deal with the findings 19 of fact. 20 On direct when Mr. Chapman is 21 questioning, for instance, Mr. Erickson, he 22 asks him a question like, for example, 23 Mr. Erickson, do you believe Microsoft has 24 stifled innovation? 25 And Mr. Erickson responds, I think 4195 1 Microsoft has made innovation possible, and 2 then goes on and on and talks about the basis 3 for his answer. 4 Now, in that snippet, okay, the jury 5 is not going to see any reference to any 6 finding of fact. But, of course, that question 7 and that answer directly undermines and attacks 8 in this instance Finding of Fact 412, which I 9 don't have the text right in front of me, but 10 it is directly on point with the issue of 11 innovation. 12 So if Mr. Tulchin is willing to forego 13 putting snippets on the screen that deal with 14 the issues of choice, there's another finding 15 of fact, for example, that says that consumers 16 did not have meaningful choice; that Linux was 17 not a viable option. 18 But yet Mr. Erickson is asked do you 19 think that consumers have choice, and he says, 20 oh, of course, they have all kinds of choices. 21 They could use Linux. I know somebody that 22 uses UNIX. They can go buy an Apple program. 23 So these questions don't directly talk 24 about the findings of fact, but they do seem to 25 undercut it. 4196 1 MR. TULCHIN: Your Honor, what's 2 missing there, if I may, is any reference to 3 the time period. 4 The findings of fact, as we all know, 5 go from July of '95 to June of '99. 6 The questions that were asked of 7 Mr. Erickson were in the present tense. 8 And I'm sure the Plaintiffs agree that 9 it's open to Microsoft to contest issues in 10 this case pertaining to a time period outside 11 the period that the findings of fact applied 12 to. 13 And so -- and I think that's what's 14 missing from Mr. Gralewski's point there. 15 MR. TUGGY: If I may add, Mr. Erickson 16 and Mr. Lowan did not become resellers until 17 after the year 2000, and that's clear in the 18 prior testimony designation. 19 MR. GRALEWSKI: Your Honor, I'm very 20 happy that Mr. Tulchin has brought up the 21 absence of a time period. That is really what 22 this is all about. 23 Now, we're not going to say that 24 there's collateral estoppel with respect to XP, 25 but just, for example, there are times that 4197 1 Mr. Chapman confines his questions to XP, and 2 then there are times when that restriction is 3 blown wide open. 4 For example, one question is -- this 5 is Mr. Chapman -- do you have a view as to 6 whether the Microsoft operating systems 7 software that you acquire for resale, whether 8 it's gotten better or whether it stayed the 9 same or whether it's gotten worse? 10 He answers that question. 11 And then the next question is even 12 more telling. The question simply is: As a 13 reseller of Microsoft's software, do you 14 believe that Microsoft has stifled innovation? 15 I mean, this directly contradicts the 16 findings of fact on innovation, and there's no 17 restriction on -- this is just with respect to 18 post-2002 or post-2000 or just with respect to 19 XP. 20 The question is: As a reseller of 21 Microsoft's software, do you believe that 22 Microsoft has stifled innovation? 23 That cannot go on the screen, Your 24 Honor. 25 MR. TUGGY: Your Honor, as I mentioned 4198 1 in the argument I just made, these individuals 2 are not resellers until after the year 2000. 3 They're being asked in connection with 4 your reselling activity, did Microsoft's 5 products improve? Were they stable during -- 6 you know, during this period, did Microsoft 7 stifle innovation? 8 Those are not matters that are covered 9 by the findings of fact. The findings of fact 10 do not have prospective application. Their 11 application is to time period at issue in the 12 DOJ case, and Microsoft cannot be precluded 13 from offering evidence of what occurred 14 thereafter. 15 Plaintiffs in their opening made many 16 references to evidence as to which Microsoft 17 has arguments why it ought not to be -- why 18 that evidence has been taken out of context or 19 not properly used, and the Plaintiffs are 20 really at this point making argument about the 21 evidence rather than whether the evidence is 22 accurate and not misleading. The evidence is 23 not misleading. 24 THE COURT: So what portion do you 25 want to put up in regard to that? 4199 1 MR. TULCHIN: I'd have to find it in 2 my outline, Your Honor. 3 I don't intend to address it -- I 4 believe today it won't come up. It comes up 5 later in the outline. 6 Again, I mean, in some ways the 7 Plaintiffs are arguing not about admissibility, 8 but about the weight of this testimony and 9 whether or not they have testimony that 10 counters anything that occurred over the last 11 six years. 12 But if it's -- if the Court wants me 13 to, I will at an appropriate time, maybe over 14 lunch, try to get the pages and lines that I've 15 proposed to play and provide that to the other 16 side and to the Court. 17 THE COURT: I thought -- I had the 18 impression this was something you were going to 19 bring up today, but it's not going to be today? 20 MR. TULCHIN: No, Your Honor, it's in 21 my outline a little bit later, and I'm quite 22 sure I won't reach it today. 23 THE COURT: You just need to get an 24 answer on the waiver argument and all that 25 today on the hearsay? 4200 1 MR. GRALEWSKI: I'm sorry, Your Honor? 2 THE COURT: You just need an answer on 3 the hearsay and the waiver argument right now? 4 MR. GRALEWSKI: The hearsay would moot 5 everything. If Your Honor finds against the 6 Plaintiffs with respect to hearsay, we would 7 still have the relevance on collateral estoppel 8 objections. 9 THE COURT: I've got you. So you're 10 looking for an answer on that right now? 11 MR. GRALEWSKI: That would -- 12 THE COURT: That's fine. I'm ready to 13 do that if that's what you want me to answer. 14 MR. TUGGY: If I may say, in the event 15 the Court were to allow Plaintiffs to instate a 16 hearsay objection at this point, my request 17 respectfully is that we again be permitted to 18 add these witnesses as live witnesses; we be 19 permitted to contact Mr. Erickson, 20 notwithstanding the fact that he's a class 21 member; and that third, we still be permitted 22 in opening to use the testimony because it's 23 what we expect them to testify about. 24 THE COURT: Anything else on this 25 issue? 4201 1 MR. GRALEWSKI: Plaintiffs would have 2 no objection to their adding the two witnesses 3 to their witness list after the fact. 4 We would have an objection, Your 5 Honor, to contacting class members or showing 6 testimony. 7 THE COURT: Very well. Anything else? 8 MR. TUGGY: Nothing further. 9 THE COURT: The Court finds that 10 pursuant to the prior orders of the Court and 11 the Special Master order that the hearsay 12 objection has been waived. 13 When do you want to go through it? 14 This afternoon or tomorrow, or what? 15 MR. TUGGY: This afternoon, Your 16 Honor. 17 THE COURT: We have Mr. Reece coming 18 this afternoon, too. So we have to take that 19 up first, I think. 20 MR. TUGGY: Perhaps 3 o'clock. 21 THE COURT: Okay. 22 MR. GRALEWSKI: Your Honor, there's 23 one other opening issue. 24 THE COURT: Go ahead. 25 MR. GRALEWSKI: We don't have to argue 4202 1 it now. 2 I made clear with Mr. Tuggy that our 3 only interest is having it argued before 4 Mr. Tulchin refers to this testimony, if indeed 5 he will. 6 And that relates to certain testimony 7 by Apple's former president and CEO, John 8 Sculley, and a couple pages of testimony from 9 Willard Peterson, a former WordPerfect 10 executive. 11 And again I know that it's 8:39. 12 Plaintiffs only request is that we 13 have an opportunity to be heard before the 14 testimony is used. 15 MR. TULCHIN: Your Honor, again, this 16 is very, very, very late. 17 The Plaintiffs knew in March 2004 when 18 I referred to this same testimony in my opening 19 in Minnesota and played it to the jury in 20 Minnesota, that Microsoft might very well wish 21 to refer to the testimony of Mr. Sculley who 22 was at one point the CEO of Apple, and of 23 Mr. Peterson, who was, I think, executive vice 24 president of WordPerfect, but he was the person 25 in charge of the WordPerfect product. 4203 1 They've known all this time that it 2 was going to be played probably in my opening 3 here. And I just want to do my opening. 4 To bring this up in the middle of the 5 opening this way, rather than having it 6 adjudicated long ago, is just an effort to 7 disrupt. 8 And Mr. Tuggy will correct me if I'm 9 wrong, but I do believe, did we do this with 10 the Special Master? We did. I thought we did. 11 They did object to the testimony of 12 Peterson and of Sculley during the Special 13 Master process, and the Special Master ruled on 14 all their objections. 15 And my intent is to comply with those 16 rulings. That is, I will only play things that 17 the Special Master said were admissible. 18 MR. GRALEWSKI: Your Honor, the 19 Plaintiffs, as the Defendants do, have the 20 right to appeal. No one's going to contest 21 that. 22 The Special Master ruled on -- we're 23 only talking four designations. 24 The Special Master ruled on those on 25 November 28. November 28. I alerted Mr. Tuggy 4204 1 on December 4 that we intended to appeal those 2 rulings. 3 I mean, we should be permitted to 4 raise the issue. 5 THE COURT: When do you plan on 6 playing that? Is that today? 7 MR. TULCHIN: It could well be, Your 8 Honor. I'd have to check my outline. If it's 9 today, it certainly won't be before lunch. 10 THE COURT: Okay. 11 MR. TULCHIN: But, Your Honor, I just 12 again -- I hear what Mr. Gralewski is saying. 13 We've gotten along very well with him, 14 and I don't want to be difficult about this, 15 but, yes, the Special Master ruled on November 16 28, and they knew that openings were starting 17 on December 1st, as they did, and one would 18 think that Mr. Gralewski would have raised this 19 appeal before the middle of my opening, or 20 maybe not the middle, but during the portion of 21 these proceedings when I'm giving my opening 22 statement. 23 I have this all ready to go, and I do 24 think in some part this is an effort to disrupt 25 us. 4205 1 THE COURT: How big a portion is it? 2 MR. GRALEWSKI: It's very small, Your 3 Honor. 4 And I just want to be clear, I'm not 5 -- I am not intending to interrupt Mr. Tulchin. 6 And to prove that, I told his colleagues, 7 Mr. Chapman and Mr. Tuggy, five or six days 8 before he was to start that we intended to 9 appeal Sculley and Peterson. 10 I think Your Honor knows that we're 11 entitled to do that, and we can deal with the 12 issue in 15 to 20 minutes. 13 THE COURT: All right. 14 Well, we'll take it up after lunch, 15 then, before the jury comes back in. I'll just 16 -- if it's that small, we should be able to 17 take care of it. 18 MR. GRALEWSKI: I should be able to 19 confine my arguments to about five or ten 20 minutes total. 21 THE COURT: Mr. Tuggy, can you be 22 ready to do that? 23 MR. TUGGY: Yes, Your Honor. 24 THE COURT: We'll take it up then. 25 Anything else? 4206 1 MR. WILLIAMS: Your Honor, there is 2 one additional matter that I'd like to bring to 3 the Court's attention, and this does directly 4 affect the opening, and it's something that we 5 need to get resolved before the opening 6 recommences. 7 If I could approach, Your Honor? 8 THE COURT: Yes. 9 MR. WILLIAMS: Your Honor, this is a 10 motion to prevent Microsoft from continuing to 11 challenge with its statements to the jury 12 certain of this Court's preliminary 13 instructions to the jury, as well as the 14 Court's conclusions of law and the matters that 15 were resolved in the government case, 16 specifically the determination that Microsoft 17 did monopolize the operating systems market in 18 the years 19 July 15, 1995, to June 24, 1999. 20 So far Your Honor has had the parties 21 tow the line very closely and not deviating 22 from the findings from the preliminary 23 instructions and the conclusions of law. And 24 this is often, I would point out, at 25 Microsoft's urging. 4207 1 But yesterday, within the first half 2 hour of his opening, Mr. Tulchin made several 3 remarks that were prejudicial to the 4 Plaintiffs. 5 Your Honor is, I'm sure -- I'm sure 6 Your Honor will recall that the jury was 7 instructed that it has been established that 8 Microsoft had a monopoly in the operating 9 systems market from July 15, 1995, through 10 June 24, 1999. 11 This is in Instruction No. 13, which 12 is appended to our motion, Your Honor. 13 And Your Honor also instructed the 14 jury that this monopoly was the result of 15 anticompetitive conduct and not by competition 16 on the price or quality of Microsoft's 17 products. 18 That was also in Instruction 13. 19 Furthermore, Conclusion of Law No. 4 20 sets forth the 12 different types of 21 anticompetitive conduct that caused Microsoft 22 to hold this monopoly. 23 Nevertheless, yesterday, in his 24 opening, Mr. Tulchin told the jury that 25 Microsoft's high market share in all three 4208 1 markets, including the operating systems 2 market, was the result of pro-competitive 3 conduct, using his words, good products at low 4 prices, beating the competition fair and square 5 on the merits. Clearly statements that 6 contradict Preliminary Instruction No. 13 and 7 Conclusion of Law No. 4. 8 And he didn't stop there, Your Honor. 9 He went on to say, the evidence will show there 10 was no anticompetitive conduct. A flat 11 statement that directly contradicts the 12 preliminary instructions. 13 And the full extent of the remarks are 14 set forth in our motion, Your Honor. 15 But he went on and said, but even 16 still, that conduct, even if you believe it 17 took place, and we'll show you does not explain 18 Microsoft's high market share. 19 And when we come to the key issue of 20 causation, causation, we'll talk a lot about 21 it, the question of how you explain Microsoft's 22 success. Is it true good business decisions, 23 good products, low prices? Or is it because 24 Plaintiffs say of anticompetitive conduct? 25 When we get to that, you will see 4209 1 Microsoft's success in every case is 2 attributable to pro-competitive conduct. 3 Now, Your Honor, these blanket 4 generalizations like this which sweep in 5 products for which we have collateral estoppel 6 and blurs that distinction is prejudicial to 7 the Plaintiffs because it contradicts the 8 specific findings and the specific 9 determinations that were made in the government 10 case. 11 And, Your Honor, if I may approach one 12 more time, we do set forth in our motion the 13 pertinent parts of the D. C. Circuit's 14 decision. I've flagged it. I will give a copy 15 to opposing counsel, as well. 16 But if you turn to the tabbed page, 17 Your Honor, the Court of Appeals for the D. C. 18 Circuit said, in short, causation affords 19 Microsoft no defense to liability for its 20 unlawful actions undertaken to maintain its 21 monopoly in the operating systems market. 22 So clearly these statements that were 23 made to the jury yesterday contradict that, 24 contradict the preliminary instructions and the 25 conclusion of law that I've recounted for Your 4210 1 Honor. 2 So in order to cure this, we need 3 several things. 4 First, we need you to order Microsoft 5 to stop contending that its so-called success 6 in the operating systems market for the time 7 period in question from July 15, 1995, to 8 June 24, 1999, was a result of anything but 9 anticompetitive conduct because that is what 10 Preliminary Instruction No. 13 says. 11 We further request that you order them 12 to stop contending that there was no 13 anticompetitive conduct. 14 Again, Preliminary Instruction No. 13 15 and Conclusion of Law 4 both make it very clear 16 that there was anticompetitive conduct. 17 Furthermore, Your Honor, we ask that 18 you instruct the jury that Microsoft must 19 accept that from July 15, 1994, to June 24, 20 1999, that Microsoft illegally monopolized the 21 operating systems market through 22 anticompetitive conduct and that Microsoft's 23 pro-competitive justifications were considered 24 and rejected in the government case, and that 25 this was affirmed on appeal and that Microsoft 4211 1 is not allowed to challenge this. 2 Because, Your Honor, we all know, and 3 Microsoft has made this point repeatedly, that 4 the jury is going to get confused if the 5 parties deviate from these very clear 6 instructions, and that's what's happened. 7 Now, Microsoft can argue about 8 applications. They can argue about and present 9 evidence on and dispute whether they 10 monopolized the market outside the time period 11 in question, but if they're going to bring in 12 pro-competitive justifications, they told us 13 yesterday that that's one of the central 14 defenses that they intend to put on in this 15 case, they have to make the distinction between 16 the products in the markets that are open to 17 dispute and those that are not. 18 If they keep blurring the line, the 19 jury is going to get totally confused. 20 Thank you, Your Honor. 21 THE COURT: Thank you. Response? 22 MR. TULCHIN: Yes, sir. 23 Your Honor, a couple of very important 24 points, if I may. 25 First, and most obviously, the 4212 1 Plaintiffs made no objection to any of these 2 statements when they were made. They made no 3 objection yesterday at all. 4 And I think Microsoft was held 5 properly to the standard during Plaintiffs' 6 opening of objecting at the time, or as the 7 Court at one point during the opening 8 mentioned, that if an objection is not made, 9 then it's waived. 10 On the merits, Your Honor, this 11 comment that I made to the jury yesterday is 12 exactly in line with the Court's instruction, 13 and it's interesting that Mr. Williams is the 14 person making this argument. 15 First, Your Honor, the high market 16 share that Microsoft had is not the result of 17 any anticompetitive conduct that was litigated 18 or determined in the government case. 19 As the Court knows, Microsoft's market 20 share in the operating system market, its 21 success, was above 90 percent before the time 22 period of the government case at all. 23 And so when I said to the jury that 24 it's Microsoft's contention that its high 25 market shares in all three of these markets has 4213 1 not been the result of anticompetitive conduct, 2 of course, that is our contention and it's open 3 for us to say so. 4 As the Court will also remember, 5 Professor Noll, the Plaintiffs' own expert, has 6 testified, and I think we've mentioned this in 7 the past, that Microsoft had a monopoly in the 8 1980s -- he said going back to '86 and '87. 9 That's as far back as he looked. 10 And that Professor Noll has said that 11 he makes no contention that Microsoft did 12 anything unlawful to obtain its monopoly in the 13 operating system market back at that time. 14 So the point here made to the jury is 15 exactly consistent with that and with the 16 findings of the government case. 17 Preliminary Instruction No. 13, this 18 Court's instruction, says you are further 19 instructed that Microsoft maintained that 20 monopoly power during the period of July '95 to 21 June '99. 22 And I do intend to go back to that in 23 my opening and tell the jury that, but our 24 contention that our success -- our high market 25 share is not attributable to any 4214 1 anticompetitive conduct is exactly what 2 Mr. Williams himself told the Court in October. 3 And I think Your Honor will remember 4 that on October 16 and October 17, both, 5 Mr. Williams made this exact distinction, and 6 he said that Plaintiffs do not contend in this 7 case that Microsoft acquired its monopoly in 8 operating systems unlawfully. 9 Indeed, Your Honor, the evidence will 10 be, I think from both sides, that Microsoft's 11 market share before the time period of the 12 government case was over 90 percent. And again 13 even going back to the mid to late '80s, it was 14 very, very high. 15 So I don't -- I think my comments are 16 consistent with what is open to us to contest; 17 that is, that high market shares were the 18 result of pro-competitive versus 19 anticompetitive conduct. 20 During this introduction, which is 21 only partially reproduced in the brief that I 22 was just handed, the Plaintiffs selectively 23 quote from a couple of comments. 24 I will talk about the government case, 25 and I think I will tell them exactly the sort 4215 1 of thing that is completely in accord with the 2 government -- with the Court's instructions 3 about the government case. 4 These comments, I believe, are in 5 accord, as well. 6 Furthermore, Your Honor, you will 7 recall that during the Plaintiffs' opening, 8 Ms. Conlin went behind the findings and pulled 9 out documents that were directly underlying 10 particular findings to argue about willfulness. 11 She said that the same evidence there goes to 12 willfulness. 13 Now, I don't think anything I said 14 here directly pertains to willfulness, but I 15 just wanted to make the point that, of course, 16 the Court ruled on that, and its ruling applies 17 to both sides. That one can go to facts 18 underlying the government case if the party 19 citing those facts believes that those same 20 facts go to the question of willfulness. 21 So, Your Honor, the monopoly existed 22 before '95. Mr. Williams himself has made the 23 same point to this Court that I was making to 24 the jury yesterday. 25 Thank you, Your Honor. 4216 1 MR. WILLIAMS: Your Honor, if I could 2 briefly respond. 3 I believe I stated in my argument 4 today that we agree that Microsoft is free to 5 dispute its conduct outside the time period for 6 which we've been given collateral estoppel. 7 There's no question about that. 8 The problem, Your Honor, is that in 9 making these remarks he didn't make that 10 distinction. 11 You can see from the parts that we 12 quoted, and, yes, they are excerpted because 13 they're the relevant parts. They've done that. 14 That's been the practice. 15 There's no requirement that we put 16 Mr. Tulchin's -- the transcript of his entire 17 argument in front of Your Honor to make this 18 point. 19 The context is clear. It's clear what 20 he said. And it's clear that it's incorrect. 21 Because for a large part of the time 22 period in question in this case, they have been 23 collaterally estopped by Your Honor's 24 instructions and by Your Honor's rulings from 25 taking these positions. 4217 1 It doesn't matter, Your Honor, whether 2 the monopoly position was an acquisition or a 3 maintenance. It doesn't matter. It's 4 monopolization, Your Honor. That's what -- but 5 that is exactly what they are contradicting 6 with this statement. 7 I mean, Your Honor, he said the 8 evidence will show there was no anticompetitive 9 conduct. It's a flat statement. It doesn't 10 make the distinctions that he so eloquently 11 made for Your Honor today. He didn't make 12 those distinctions to the jury. 13 That's what we're complaining about. 14 That's the problem. 15 When he said, the question of how you 16 explain Microsoft's success, is it through good 17 business decisions, good products, low prices? 18 Well, Your Honor, for the time period 19 July 15, 1994, to June 24, 1999, we know the 20 answer. The jury's been given the answer. 21 The answer is it was a result of 22 anticompetitive conduct. 23 It's not just what Plaintiffs say; 24 it's what Your Honor has said. And that's the 25 problem. That's what's confusing to the jury. 4218 1 That's why we need Your Honor to give 2 the admonition that we're asking for and to 3 correct what is clearly a misstatement to the 4 jury. 5 THE COURT: Anything else? 6 MR. TULCHIN: Just very briefly, Your 7 Honor. 8 It's not a misstatement. I didn't 9 refer specifically to any particular time 10 period. What I said was that it's our 11 contention that Microsoft's success is the 12 result of pro-competitive conduct, it's high 13 market shares. 14 And again I think it's open for us to 15 contend that. I haven't contradicted the 16 Court's instruction, and I'm going to go and 17 remind the jury of it when I get there, that's 18 contained in Instruction No. 13 when talking 19 about that time period. 20 THE COURT: Well, this one sentence 21 says the evidence will show there was no 22 anticompetitive conduct. 23 MR. TULCHIN: Yes. And that was in 24 the context, Your Honor, of saying that it's 25 Microsoft's -- that it's Microsoft's contention 4219 1 that its success, its high market share did not 2 result from anticompetitive conduct. 3 Taking that one sentence out of that 4 context I think removes the meaning that I gave 5 to it. 6 Your Honor, this was just handed to me 7 now. This objection was not made yesterday at 8 any time. 9 But I do believe that in the context 10 of what I was describing to the jury, this was 11 completely accurate. 12 MR. WILLIAMS: Your Honor, if I could 13 point out again, the first part of the remarks 14 say in all three of these markets. 15 And just prior to that time Mr. 16 Tulchin had put up on the screen pricing charts 17 showing the three markets at issue, one of 18 which included the operating systems market, 19 and it had the years in question, the 1994 to 20 1999 time period. 21 So it's clearly something that's 22 misleading. 23 Furthermore, Your Honor, in the second 24 part that we quoted, the last sentence says, 25 again, Microsoft's success in every case. 4220 1 He's making these broad statements. 2 They're unlimited. And they need to be 3 limited, Your Honor. That's the problem. 4 We do not intend to challenge their 5 right to dispute the matters that we don't have 6 collateral estoppel on. 7 The problem is, we have to make the 8 distinctions, they have to make the 9 distinctions, Your Honor. And we ask that you 10 hold them to the same standard that we have 11 been held to. 12 And then one final matter, Your Honor, 13 in terms of objections and objections at the 14 time. 15 I'm sure the Court can recall times 16 when they came forward the next day after 17 remarks were made and raised objections. 18 I recall one instance in particular 19 when Ms. Nelles challenged some statements that 20 Ms. Conlin made about the so-called fairness of 21 Microsoft's prices. 22 Everybody's trying to do their best 23 here to make the objections, to try to be as 24 nondisrputive as possible, Your Honor. 25 I'm sure we can do a better job on 4221 1 objecting, and I'm sure we'll try, but this is 2 a matter that we're raising now, and we want it 3 addressed before Mr. Tulchin commences his 4 opening again. 5 THE COURT: Anything else? 6 MR. TULCHIN: No, sir. 7 MR. WILLIAMS: Not from us, Your 8 Honor. 9 THE COURT: The statements appear to 10 be broad covering the time period of the 11 collaterally estopped time, and that needs to 12 be distinguished. 13 I'm not going to allow evidence to 14 contradict the collaterally estopped findings 15 of fact, so the Defendant's opening remarks and 16 evidence must be for the proper time period as 17 shown by the collaterally estopped facts. 18 No evidence or argument will be 19 allowed challenging the collaterally estopped 20 findings of fact at all. So you got to make a 21 distinction. It's too broad. 22 MR. WILLIAMS: Thank you, Your Honor. 23 THE COURT: Anything else? 24 MR. WILLIAMS: Not from us, Your 25 Honor. 4222 1 THE COURT: Anything else? 2 MR. TUGGY: Nothing further. 3 THE COURT: Get the jury, please. 4 (The following record was made in the 5 presence of the jury.) 6 THE COURT: Ladies and Gentlemen of 7 the jury, I apologize for the 35-minute delay. 8 There was an issue that the Court needed to 9 take up with only the parties and the 10 attorneys. 11 Once again, do not blame any of the 12 parties or the attorneys. If you want to blame 13 someone, blame me. 14 Mr. Tulchin will continue with his 15 opening. 16 MR. TULCHIN: Thank you, Your Honor. 17 Good morning everybody. 18 Shall I proceed, Your Honor? 19 THE COURT: One juror wanted to use a 20 spiral notebook. Is that all right? 21 MR. TULCHIN: Sure. 22 THE COURT: Instead of the paper I 23 provided. My paper wasn't good enough. 24 MR. TULCHIN: Ladies and gentlemen, 25 good morning. 4223 1 When we broke for the day yesterday, I 2 think I had begun to tell you a little bit 3 about the founding of Microsoft in the 1970s. 4 I showed you this old slide rule from 5 back then, which people used to use to make 6 scientific calculations. 7 And we were talking a little bit about 8 the work that Microsoft and Bill Gates was 9 doing at the time to improve the basic 10 programming language. 11 And as I think you heard from the 12 Plaintiffs, in 1980, IBM, having heard about 13 Microsoft's success with the improvements it 14 made to the basic programming language, came to 15 Mr. Gates, to Microsoft, to ask it to write an 16 operating system for the very first IBM PC, the 17 first IBM personal computer, which wound up 18 coming out on the market in 1981. 19 Of course, this was a different 20 assignment, if you will, than what Microsoft 21 had done before. This was now a task of 22 providing IBM with an operating system. 23 And I know you may remember the 24 Plaintiffs mentioning during their opening 25 towards the outset that before IBM went to 4224 1 Microsoft, IBM actually went to Digital 2 Research, DRI, to Gary Kildall at DRI. But as 3 the Plaintiffs told you, DRI did not get the 4 deal done. 5 And you might say that this was the 6 biggest opportunity at the very beginning of 7 the age of personal computers. And you know 8 who did get the deal done. It was Microsoft. 9 No one in this case will say that 10 there's anything anticompetitive or in any way 11 wrongful about Microsoft landing that first 12 deal with IBM. 13 It was a great opportunity. One might 14 attribute it to good work or hard work by Bill 15 Gates up until then. 16 One might attribute it to luck. Luck, 17 of course, is always an element in life. 18 But whatever it was, it was a great 19 opportunity for Bill Gates. DRI missed the 20 boat there. 21 And I'll tell you a little bit later 22 about another very important boat that DRI 23 missed later. 24 I think you may already know that was 25 the move, the really very important move in the 4225 1 marketplace years later from character-based 2 computing to the GUI, the graphical user 3 interface. 4 We'll come to that story a little bit 5 later. 6 I want to take just a moment now when 7 we're talking now about 1980 and '81 and the 8 contract that Microsoft landed with IBM to just 9 tell you a little bit about what an operating 10 system is. 11 It is, in effect, like the brain and 12 the central nervous system of a computer. 13 In the same way that your brain gives 14 instructions to parts of the body, an operating 15 system gives instructions to internal parts of 16 the computer, things like the microprocessor, 17 which is very often made by Intel, or the hard 18 drive or the memory. 19 It also gives instructions, the 20 operating system does, to peripheral devices 21 that are plugged into the PC; printers, 22 monitors, modems. 23 And it gives instructions to what 24 we've all called applications, other software 25 programs that are installed on the computer. 4226 1 Those can include things like word 2 processors, spreadsheets. You've heard a lot 3 about those and you will. Applications can be 4 computer games. They can be E-mail type 5 programs, et cetera. 6 And the operating system besides 7 giving instructions to these other devices also 8 make sure that everything works together well; 9 that the components the peripheral devices and 10 the applications function well together. 11 And just one simple example. 12 We're all used to these days clicking 13 on the print button to print a document, for 14 example, or even a piece of E-mail. And the 15 operating system when you click on the print 16 button will convey that instruction from the 17 mouse or the keyboard to the microprocessor and 18 then to the word processing program, and the 19 information is then delivered from the word 20 processing program to the printer. 21 And all of this takes place in a 22 second or less. It's very often very, very, 23 very prompt. But it really is a complex series 24 of tasks which requires interaction among all 25 these devices. And it's, obviously, something 4227 1 that we all take for granted as very simple to 2 do. 3 But that's just one of the many, many 4 things that an operating system will do. 5 Now, going back to 1980 to the history 6 of Microsoft. 7 Designing an operating system for the 8 initial -- the very first IBM PC, was really a 9 very much more difficult and complex task than 10 writing programming languages, which is what 11 Microsoft had done before. 12 And at the time Mr. Gates received the 13 request from IBM to work on an operating 14 system, Microsoft went out and licensed what 15 was called QDOS, quick and dirty operating 16 system, from a company called Seattle Computer. 17 And Microsoft, Mr. Gates and others, 18 worked around the clock, really, to improve and 19 alter QDOS and adapt it specifically to the 20 personal computer that IBM was planning to come 21 out with. 22 In fact, although the Plaintiffs said 23 in their opening that MS-DOS, the operating 24 system that Microsoft eventually licensed to 25 IBM, that MS-DOS was nothing more than a clone 4228 1 of DRI's CP/M operating system, and Microsoft 2 thinks that the evidence will show otherwise 3 that a man named Tim Paterson of Seattle 4 Computing had hugely improved CP/M from what 5 DRI had originally used. 6 When Microsoft entered into the deal 7 with IBM, I think it's worth noting that -- if 8 we can see the next slide, please. 9 This is 111. 10 This is the original 1980 contract 11 between IBM and Microsoft. 12 And one of the things that Mr. Gates 13 managed to do in this contract, which turned 14 out to be an awfully good decision, was to 15 license MS-DOS to IBM on a nonexclusive basis. 16 It's Section 8 of the contract. 17 And what that means, of course, is 18 that Microsoft retained, if you will, ownership 19 of MS-DOS. 20 It didn't sell the whole program to 21 IBM. IBM could use it in all of its PCs. But 22 Microsoft retained the right to license the 23 same operating system to other manufacturers of 24 personal computers. 25 And as it turned out, and as many of 4229 1 you may already know, shortly after IBM came 2 out with its PC in 1981, a number of other 3 companies, we've called them OEMs, original 4 equipment manufacturers, a number of other 5 companies came out with their own PCs for a 6 number of years in the 1980s. They were often 7 referred to as IBM clones. 8 And Microsoft very often successfully 9 was able to license the same operating system, 10 MS-DOS, to these other computer manufacturers; 11 companies like Hewlett-Packard, Compaq, and 12 Tandy that came out with PCs in the early 13 1980s. 14 So if you will, right at the dawn of 15 the personal computer age, what's occurring is 16 that MS-DOS, the Microsoft operating system, is 17 quickly becoming the standard operating system 18 used on almost a great majority of the PCs that 19 are sold in this country and elsewhere. 20 And what happens, of course, then, is 21 that as MS-DOS becomes very popular and used by 22 many OEMs on their PCs, including IBM, of 23 course, software developers, people who develop 24 applications, and we've often referred to those 25 as ISVs -- I know all this lingo can be a 4230 1 little confusing. 2 ISV stands for independent software 3 vendors. And sometimes you'll hear that phrase 4 used; ISVs. Other times you'll see people 5 refer to these writers of applications as 6 developers, software developers. Sometimes 7 independent developers. 8 But those companies and individuals 9 who are writing applications back in the early 10 '80s start writing them to the Microsoft 11 operating system, MS-DOS. Because MS-DOS is on 12 so many of the PCs, people making applications 13 are writing them so that they work with -- they 14 fit well with Microsoft's operating system. 15 And, of course, Microsoft right then 16 at the -- in the early '80s does the same 17 thing. 18 It starts getting into the business of 19 writing applications, software applications, 20 that will run on Microsoft's own operating 21 system. That includes word processing 22 software, Microsoft Word, and spreadsheets, 23 Microsoft Excel. 24 As we'll get to before long, and I 25 think you may already have picked up on by now, 4231 1 during much of the 1980s, WordPerfect was the 2 number one word processing program, and Lotus 3 1-2-3 was the number one spreadsheet. 4 And you also, I think, understand that 5 MS-DOS at the time was a character-based 6 operating system. 7 I'll show you a little bit more about 8 this later on. 9 But with a character-based system, the 10 user was required to type a precise line of 11 text onto the keyboard so that the operating 12 system would execute your command. 13 What it required was for users in a 14 sense to memorize what they had to type into 15 the computer. And looking back on it now, I 16 think many people would say that it was not a 17 very user friendly system. 18 Mr. Gates right from the outset -- and 19 Mr. Gates will be here and testify in this 20 case, sitting right in that chair. 21 Mr. Gates right from the outset, the 22 early, early years of Microsoft, had a vision. 23 It sounds like something that anyone 24 could have thought of when you think of it now 25 because we take for granted what the world is 4232 1 like. 2 But he had a vision even back then of 3 a computer on every desk and a computer in 4 every home. 5 And the character-based system being 6 somewhat, let's say, unfriendly to the users 7 was not the system that was going to accomplish 8 that. 9 And you will recall that the 10 Plaintiffs in their opening talked about GUIs, 11 the graphical user interface, as revolutionary. 12 We'll come to the first one that Apple 13 came out with. And we agreed with that. The 14 GUIs were revolutionary. 15 The people making slide rules ten 16 years before or more, perhaps didn't realize 17 what was happening to them when companies like 18 Texas Instruments came out with hand-held 19 calculators that could do complex scientific 20 calculations. 21 The companies making slide rules may 22 not have seen that their days were numbered and 23 that the slide rule business was sort of going 24 the way of the horse and buggy business. 25 And in some ways perhaps, and we think 4233 1 the evidence will show in this case, that those 2 that were writing and making applications to 3 character-based systems did not see the power 4 of the GUIs. They did not see what was coming 5 next. 6 In fact, Microsoft and Bill Gates 7 began working on a GUI, a graphical user 8 interface, in 1983, after seeing similar ideas 9 from Xerox. 10 And the Plaintiffs talked about the 11 Xerox Parc GUI. 12 You didn't hear then that Xerox 13 started selling computers with a GUI very early 14 on, but the Xerox computers cost in the 15 neighborhood of $16,000 each, and you had to 16 actually ordinarily get three or more of them 17 to accomplish anything. 18 So it was a very, very expensive 19 system. 20 But Apple, of course, came out early 21 on with the GUI, and when Bill Gates saw it, he 22 was very excited about the possible 23 implications for this dream he had as a young, 24 young man of a -- of computer on every desktop 25 and in every home. 4234 1 In fact -- and this is Defendant's 2 Exhibit 1348. 3 You'll see a letter that Mr. Gates 4 wrote in 1985, July 8, 1985, to John Sculley. 5 John Sculley was then the chief executive 6 officer, the boss at Apple Computer. 7 And, of course, these are two separate 8 companies. 9 But Mr. Gates was so excited about the 10 idea of a GUI, that he urged Mr. Sculley, Apple 11 Computer, to make Apple's GUI a standard by 12 licensing it to other OEMs, other companies 13 that made PCs. 14 Mr. Gates writes in 1985, Apple must 15 make Macintosh a standard, but no personal 16 computer company, not even IBM, can create a 17 standard without independent support. 18 It's an interesting -- some 19 interesting ideas very early on in this Exhibit 20 1348. 21 The first idea, of course, is that -- 22 and let's see another part of this same 23 exhibit. 24 In a memorandum, which is attached to 25 the letter, there's a recommendation to Apple 4235 1 from Microsoft that Apple should license 2 Macintosh technology to three to five 3 significant manufacturers -- and the evidence 4 will show that that's referring to 5 manufacturers of computers -- for the 6 development of Mac compatibles. Sort of 7 similar to the IBM compatible that we talked 8 about. 9 And what Mr. Gates is recommending to 10 Apple is that Apple start licensing its 11 operating system and its GUI to other 12 companies. 13 Now, Apple never took that advice. 14 Apple retained a closed system where the Apple 15 Macintosh operating system is used only on 16 Apple computers. They did not take Mr. Gates' 17 advice. 18 But again what Mr. Gates was urging 19 here as part of this vision he had early on, 20 was to get the GUI out very broadly by asking 21 Apple to license its operating system to other 22 companies. 23 And going back to the previous excerpt 24 from the letter, you'll remember -- if we can 25 go back just one, Chris. 4236 1 You'll remember Mr. Gates saying no 2 personal computer company, not even IBM, can 3 create a standard without independent support, 4 support from ISVs, independent software 5 vendors. 6 And this idea that in order to be 7 successful with an operating system, you need 8 support from lots of other companies who will 9 write applications to your operating system is 10 an idea that we will come back to. It's an 11 important concept for this whole case. 12 So again, Mr. Gates early on had this 13 belief in the future of computers being the 14 GUI, the graphical user interface. 15 He had a belief that the GUI would 16 make computers easier to use for all of us and 17 that the GUI was the future of personal 18 computing. 19 Not everyone at the time shared that 20 belief. 21 Now, Windows 1.0, the first Microsoft 22 GUI, was released in the same year, 1985, later 23 on, November 1985. 24 And as the Plaintiffs mentioned, that 25 product was not very successful. 4237 1 Microsoft worked on a new version 2 called Windows 2.0, and that was released two 3 years later, in November 1987. 4 Again, Windows 2.0 was not very 5 successful. 6 At the time, we're speaking of 1987, 7 GUIs required more computing power and memory 8 than most computers had available at that time. 9 So in comparing Windows 2.0, for 10 instance, in 1987 with a character-based system 11 such as MS-DOS, Windows applications would run 12 more slowly on Windows than applications 13 written to MS-DOS would run at the time because 14 the GUIs required this extra amount of power 15 and memory. 16 So Windows 1.0 and 2.0 did not do very 17 well. As it turned out, they were not what 18 customers wanted -- then wanted. 19 Windows 3.0 was released in May 1990, 20 as we discussed yesterday, and Windows 3.0 -- 21 this is a picture of what the screen then 22 looked like. 23 You can see it's a graphical user 24 interface. 25 It looks a little outmoded to us in 4238 1 2006, but this is what it looked like in 1990. 2 And rather than giving commands, you 3 could just click on an icon and bring up an 4 application. 5 You could bring up, for instance, 6 something called Pack Rat, which I believe was 7 a game. 8 You could bring up Microsoft Word for 9 Windows on this particular computer. You could 10 bring up other accessories such as a calendar, 11 a calculator, et cetera. 12 And it's Windows 3.0 that the 13 Plaintiffs own expert, Professor Noll, referred 14 to as a revolutionary technological leap. 15 Now, what happened? What explains 16 this leap, and what became the huge popularity 17 of Windows 3.0? 18 First, by 1990, gradually over time, 19 PCs were becoming more and more powerful, 20 meaning that the average PC that was available 21 on the market was better able to run GUI 22 programs to run them faster than was previously 23 possible. 24 Second, and maybe more importantly, 25 there was an important innovation, invention in 4239 1 July 1988. 2 This was a discovery by a young 3 Microsoft programmer named David Weiss. I 4 believe at the time he was 22 or 23 years old 5 and just recently out of college. 6 And this David Weiss of Microsoft 7 discovered a way to allow Windows, the Windows 8 GUI, to access much more computer memory than 9 had been previously been possible. 10 And this was done by running Windows 11 in something called protected mode. You heard 12 about DPMI from the Plaintiffs. That stands 13 for DOS protected mode interface. So this is 14 all related. And we'll come to DPMI. 15 So the protected mode discovery that 16 David Weiss made in 1988 allowed Windows to run 17 much faster than was previously possible. 18 And the third thing to be said about 19 the success of Windows 3.0 is that Microsoft 20 had been working for years to develop its own 21 set of applications that ran on top of a GUI. 22 First, the Macintosh beginning in '85 23 and then Windows. 24 And these applications, Word and 25 Excel, worked very, very well written for 4240 1 Windows. Worked very, very well with Windows. 2 So by the time Windows 3.0 was 3 released in May of 1990, consumers had 4 available to it -- to them, excuse me, 5 applications that ran very well on Windows, 6 important applications like a word processor 7 and a spreadsheet. 8 I'm going to tell you a little bit 9 more about this story of Microsoft's efforts to 10 write applications for the GUI and the contrast 11 between what Microsoft was doing in those 12 years, around '85 to '90, and what other major 13 ISVs were doing. 14 They were stuck in that old sort of 15 slide rule world, the character-based world, 16 and missed this huge change in the market for 17 PCs and operating systems. 18 The Windows 3.0 operating system, 19 along with applications that were available for 20 it, not just from Microsoft, but applications 21 written by other ISVs as well, really changed 22 the nature of computing. Windows made 23 computers easier to use. 24 Prior to this time, for some people 25 using computers was almost like dealing with a 4241 1 foreign language. 2 And Windows 3.0, I think it's fair to 3 say, in many ways for many people provided a 4 way to translate, if you will, from that 5 strange foreign language of the character-based 6 system into something that all of us are 7 familiar with using. 8 Of course, Microsoft's innovation 9 didn't stop with David Weiss's invention of 10 protected mode, or discovery I should say. It 11 didn't stop with the release of Windows 3.0. 12 Each version, the evidence will show, 13 of Windows, each release of Windows was better 14 and better. 15 The product got faster. It had more 16 features, better features, and was always 17 priced at about the same. 18 And you saw a little bit of that 19 yesterday, and we'll talk more about prices 20 later on in my opening statement. 21 And with Windows 95, which, of course, 22 came out five years after Windows 3.0, 23 Microsoft for the first time integrated the 24 Windows GUI into DOS to form one integrated 25 operating system that made the operating system 4242 1 easier to install and easier to use. 2 And the evidence will be that in 3 August 1995, when Windows 95 was first 4 available for sale, people all around the 5 country stood in line outside retail stores 6 waiting for the store to open so that they 7 could get a copy of Windows 95. 8 That's how exciting it was at the 9 time, this new operating system. 10 And even after Windows 95, of course, 11 Microsoft will show you that it continued to 12 add features and functionality to its operating 13 systems, making them better and better. 14 And indeed over time, I think we can 15 say, as did the Plaintiffs, that Windows became 16 ubiquitous. Windows is pretty much everywhere. 17 Let's look at a little bit of a time 18 line. 19 This has a whole bunch of the 20 information that we've already talked about 21 going back to 1975 when Bill Gates and Paul 22 Allen improved the basic programming language 23 for the Altair 8800. 24 You see reference to the formal 25 partnership that Mr. Gates and Mr. Allen 4243 1 entered into in 1977. 2 In 1980 there's the contract with IBM. 3 And I know you heard the Plaintiffs, I think 4 last Friday morning, refer to the strength of 5 IBM. 6 In 1982, and I think I said to you a 7 moment ago that it was in the early '80s -- I 8 had forgotten the exact year. But in 1982, the 9 evidence will show Microsoft begins developing 10 applications for the Apple Macintosh operating 11 system. That is, writing applications to a 12 GUI, a graphical system, that was very early on 13 compared to other software developers. 14 And 1983, Microsoft begins doing work 15 on Windows 1.0, which eventually came out in 16 1985. You'll see November 1985. 17 In 1989 and 1990, this time chart has 18 reference to the release of other products Word 19 for Windows, the first version of Word written 20 to Windows, and then May, 1990, the 21 revolutionary technological leap of Windows 22 3.0. 23 So with that early history in mind, 24 and I'm going to come back and continue with 25 the history of the company later, but I want to 4244 1 stop here and go back and talk a little bit 2 about what this case is about and what the 3 issues are in this case. 4 As you know, and I will talk not too 5 long from now, a little bit later, I know it 6 will be today, a little bit more about the 7 government case. 8 And the government case -- in the 9 government case the courts determined that 10 Microsoft, in the operating system market, had 11 engaged in anticompetitive conduct for the 12 period you've heard about, July of 1995, 13 July 15 to June 24, 1999. 14 Of course, that is an accepted fact in 15 this case. 16 But we think the evidence will show 17 you that Microsoft's market share even in the 18 operating system business was very high even 19 before 1995. 20 In fact, we think that the Plaintiffs' 21 experts will agree with us that even in the mid 22 to late 1980s, Microsoft had a very high market 23 share in the operating system market, a market 24 share of 85 or 90 percent. 25 So that market share, we think the 4245 1 evidence will show; in fact, I think Professor 2 Noll will testify, that Microsoft's very high 3 market share in operating systems was not -- he 4 will not contend, Professor Noll even will not 5 contend that was not the result of 6 anticompetitive conduct. That Microsoft's high 7 market share, call it a monopoly share, was the 8 result of good business practices and the 9 original contract with IBM. 10 Some might say that Bill Gates was 11 just lucky that IBM came knocking on his door 12 in 1980. 13 Other people would say that DRI maybe 14 should have gotten that first contract when IBM 15 went to see Gary Kildall before going to see 16 Bill Gates. 17 But whether it was luck or whether it 18 was just Mr. Kildall's error in not signing a 19 deal, it was Microsoft, Bill Gates, that got 20 that contract. 21 And, of course, you know well that the 22 principal claim, the most important claim in 23 the case that the Plaintiffs make is that 24 Microsoft overcharged members of the class in 25 Iowa for its operating systems software and 4246 1 also for word processing software, Word, 2 spreadsheet software, that's Excel, and the 3 office suite, which Microsoft calls Office. 4 And the issues for you to decide with 5 respect to this claim for an overcharge -- 6 remember there's also this claim for security 7 vulnerabilities that I'll talk about a little 8 later -- the issues for you to decide is did 9 Microsoft engage in anticompetitive conduct? 10 And then there's causation, as you 11 know from the instructions. Did any 12 anticompetitive conduct result in overcharges? 13 And three, did Plaintiffs in Iowa 14 suffer actual injury? Did they pay prices 15 higher than they would have paid in the absence 16 of any anticompetitive conduct? 17 You know that for question number one, 18 you are bound to accept, and Microsoft accepts, 19 that the courts ruled in Washington, D.C., that 20 Microsoft did in the operating system market 21 only engage in anticompetitive conduct. 22 You also know, I think from the 23 Plaintiffs' opening, that the next questions -- 24 even there, even with respect to that one time 25 period in that one market, the next questions 4247 1 have to be addressed, as well. 2 Causation, did any anticompetitive 3 conduct result in overcharges? And then did 4 the Plaintiffs suffer actual injury? 5 That, of course, encompasses in some 6 measure the question of pass-through that the 7 Plaintiffs referred to. 8 If Microsoft overcharged anyone, and 9 we deny that it did, and we will show you 10 evidence that it didn't, but if it did, it 11 overcharged its direct purchasers. 12 And then there's a question of whether 13 or not that overcharge was paid in any measure 14 by the Plaintiffs. 15 And in this connection, I think you've 16 seen from the instructions that the Court has 17 given you that there's no instruction that Iowa 18 law regulates the price that a company can 19 charge in Iowa. 20 There's no regulation of price in this 21 context at all. 22 But as we have shown you, and we think 23 the evidence will show throughout this trial, 24 the cost of a Windows operating system -- and 25 I'm now referring to the consumer version 4248 1 because, as you know, you can buy either a 2 consumer version of Windows or what's called 3 Professional, like Windows XP Professional. 4 If you choose to get the -- let's say 5 the souped-up model, you can pay a little bit 6 more for more functionality. 7 But for the consumer version, the 8 price of Windows has stayed roughly around $50 9 throughout the entire class period. 10 We looked at a graph yesterday that 11 has all the data, not just a little sliver of 12 data, about Microsoft's prices for that 13 product, and I'm sure you noted during 14 Plaintiffs' opening statement that their 15 expert, Professor Netz, has calculated that the 16 overcharge she says for Microsoft Windows is 17 $42.49. 18 In other words, what the Plaintiffs 19 are advocating in this case is that a product 20 that may have cost $50 should have cost seven 21 and a half dollars. 22 And I think we will show you 23 throughout this trial in the evidence that we 24 have that the value of that product indeed is 25 very, very high and that there was no 4249 1 overcharge. 2 I want to point something out to you, 3 as well, from the findings of fact that Judge 4 Rosenberg read to you and that are in your 5 notebooks. 6 Software never expires. 7 So consumers who already have a 8 version of Windows with which they are content 9 are somewhat reluctant to incur the cost of 10 upgrading. 11 And then you'll see -- that's in 12 Finding 57. Both of these excerpts are from 13 Finding of Fact 57, which appears on page 9 of 14 the findings in your notebook. 15 And later on the Court says older 16 versions of Windows never wear out. 17 So unlike some other products that 18 we're used to buying, Windows lasts, in 19 essence, forever. 20 Now, you may choose to get a new 21 computer, to upgrade to a more modern computer 22 that gives you more functionality. You may 23 choose to do that. But, for instance, if you 24 have a copy of Windows 98 on a computer that 25 you've purchased some years ago, Windows never 4250 1 expires. It never wears out. 2 And that product that may have cost 3 you $50 is available for you to use 4 indefinitely into the future. 5 Obviously, a tube of toothpaste is 6 something that not only wears out, you're going 7 to use a little bit of it every day, and it 8 will last for only so long. 9 Most products that we buy, even 10 something as durable and important as an 11 automobile, well, we know they wear out. 12 Software does not. 13 So in considering the issues in this 14 case of an overcharge, I bring to your 15 attention from the findings of fact this 16 statement that software never expires, that 17 older versions of Windows never wear out. 18 And I also want to make the point to 19 you now, and something that we'll talk about in 20 a little more detail later, that during the 21 Plaintiffs' opening, they spoke of Microsoft's 22 increasing market power in the applications 23 markets, word processing and spreadsheet. 24 And we'll show you market share during 25 the opening and during the trial. 4251 1 But the implication that perhaps you 2 took from this picture of Microsoft increasing, 3 let's say, in word processing, there was a 4 period in the early '90s where Microsoft's 5 market share, around 1990, when Windows 3.0 6 came out, was very small, relatively speaking. 7 WordPerfect was much, much bigger. 8 And the market share after that 9 increased quite significantly. 10 Now, these bars here, if you will, are 11 actual figures of market share for Word over 12 the period '88 to '97. 13 And you can see that in 1990, the 14 market share was below 30 percent. If you go 15 back to '89, it was somewhere between 10 and 20 16 percent, I believe, for Word. 17 Once Windows 3.0 came out, that 18 revolutionary technological leap, and for 19 reasons that we'll come to, Microsoft's market 20 share in word processing increased 21 significantly year after year. 22 Sorry, Mr. Green, if I -- I'll just 23 reach over you. 24 In 1992, you see the market share is 25 up to close to 40 percent. And in '93, market 4252 1 share is now over 60. By '97, it's built up to 2 close to 90 percent for Microsoft Word. 3 Now, those blue dots, if you will, 4 those are not real data. I want you to 5 understand, we put those blue dots there to 6 make the following point. 7 The Plaintiffs spoke about the 8 increasing market share of Word as if you might 9 expect -- that is, Microsoft gathered this 10 power in the market. Microsoft's Word got 11 stronger and stronger. Wouldn't you expect 12 that the price would go up? 13 These are all hypothetical, they're 14 not the real numbers. 15 Hypothetically in 1988, we show 16 Microsoft Word costing $100, and in '89 as its 17 share goes up, a little bit higher. 18 And by the time you get, for example, 19 to '93, hypothetically, we show the price at 20 over $150. 21 It may have been the impression that 22 you received that as Microsoft's power in the 23 market, its market share went up, and it did go 24 up, for reasons that I think you'll see at the 25 trial, you may have had the impression that as 4253 1 that market share went up, well, so would 2 prices. 3 Wouldn't you think Microsoft got more 4 and more power in the market? Now it's up to 5 by '93 or '4 over 60 percent of the market. 6 And you'll see in one of Judge 7 Rosenberg's instructions something to the 8 effect that a market share between 50 and 70 9 percent may be indicative of monopoly power. 10 But what really happened? 11 Those hypothetical prices are not the 12 real prices in the marketplace. I gave you a 13 preview of that yesterday. It's the same 14 slide. 15 What really happened is in that same 16 period as Microsoft's market share got 17 dramatically bigger, the prices went further 18 and further down. 19 This is the average price coming from 20 IDC, which is an independent company -- the 21 Plaintiffs referred to IDC in their opening. 22 And IDC gives us data through this 23 same period '88 through '97. 24 And you will see, this will be the 25 evidence at trial, these are the facts. That 4254 1 Microsoft's average revenue per license -- and 2 this counts all sales channels, all licenses, 3 went from 235 down to just over $50 for Word. 4 As the market share went up, the price got 5 lower and lower. 6 So we'll talk about the reasons for 7 Microsoft's success. 8 We'll talk about our belief that the 9 evidence will show you that Microsoft's success 10 in the word processing market, which is what 11 we're talking about now, is attributable to 12 good business practices, good products, and low 13 prices. Low prices. And those prices have 14 remained low throughout the class period. 15 So, in thinking about Microsoft's 16 success, I want to touch upon something that 17 the Plaintiffs touched upon a little bit as 18 well. 19 You'll remember the Plaintiffs saying 20 in their opening that we can all agree that the 21 people at Microsoft are smart people. And I 22 think we can also all agree that people at 23 Microsoft, let's say the executives who live in 24 this business world, are self-motivated people. 25 They're competitive people. They're the sort 4255 1 of people who sort of just go when they get to 2 work every day full steam ahead. 3 You could say that they're aggressive 4 people. You could say that they're driven and 5 that they're goal oriented. 6 And I think all those adjectives, all 7 those ways of describing the executives at 8 Microsoft are for many of them correct. 9 It's probably what you would expect in 10 a business like software, in a business where 11 there is lots of competition. 12 We can also say, and the evidence will 13 show, that many of the people at Microsoft, 14 yes, they are driven. They're driven in part 15 to work very hard to do the best they can with 16 the products that they're working on. 17 Many of them will work beyond, way, 18 way beyond what for many of us is a normal 19 business day. Sometimes 12, 14, 16 hours a 20 day, very often six or seven days a week. 21 I know during the Plaintiffs' opening 22 there was an awful lot to try to keep track of. 23 Some of you may have noted that those 24 E-mails that were being sent around were being 25 sent at sort of strange hours, some Saturdays 4256 1 and Sundays, some late in the evening or early 2 in the morning. 3 The Microsoft executives tend for the 4 most part to work very hard, to compete very 5 hard in an effort to innovate, make good 6 products, and, yes, sell their products to the 7 world. 8 And I want to show you our next slide, 9 which is about sort of what happens in a free 10 market country where people compete really 11 hard. 12 This is from the Court's Instruction 13 No. 8. It's on page 10 in your notebook. 14 You'll see the page 10 there. 15 You will, of course, be free to go 16 back and look at these instructions whenever. 17 And as the Court instructed, not all 18 behavior that injures competitors is 19 anticompetitive, and I think you by now 20 understand what I mean. 21 Coming out with a hand-held calculator 22 that replaced the slide rule, no doubt, 23 devastated the people who were using -- sorry, 24 who were making slide rules. 25 And there were people at the company 4257 1 that made this slide rule. This one happened 2 to be made in Japan. But there were two big 3 slide rule companies at the time in our 4 country. 5 The people who made slide rules may 6 have been thrown out of business. Some of them 7 may have been very unhappy about the nature of 8 competition in our society, but as the Court 9 instructed, not all behavior that injures a 10 competitor is anticompetitive. 11 And as you know, it is Microsoft's 12 belief that the evidence will show you that a 13 software company that was stuck in the 14 character-based world and didn't adapt did not 15 have the foresight that Bill Gates had to begin 16 making applications for the GUI, that those 17 companies were hurt. 18 Yes, their business was badly hurt 19 because they did not stay up with the times. 20 In the applications part of the case, 21 just by way of example, I know the Plaintiffs 22 pointed to some allegations, allegations they 23 have of anticompetitive conduct. 24 I think one of the more recent 25 examples of what the Plaintiffs said Microsoft 4258 1 had done wrong in the applications world, the 2 markets, was the alleged failure to give OLE, 3 OLE, which we usually pronounce OLE, and OCX 4 technology to Lotus in around 1994 and 1995. 5 And you'll remember, and I'm going to 6 come to it, some correspondence with Mr. 7 Mendelsohn of Lotus. 8 The question for you in that example, 9 and I think it's one of the more recent, is 10 one, was there anything anticompetitive about 11 what Microsoft did with its own technology, its 12 own inventions, OLE and OCX, in that exchange 13 with Mr. Mendelsohn. 14 But even if you think there was 15 something anticompetitive, and we think the 16 evidence will show you that Microsoft was fully 17 justified in not sharing its technology with a 18 competitor, but even if you thought Microsoft 19 had done something wrong, I remind you that 20 what happened in '94 or '95 in the spreadsheet 21 market, according to Plaintiffs, caused injury 22 to Iowa consumers in 2004 and 2005. 23 That somehow they say -- they say the 24 act was anticompetitive, but beyond that, they 25 say that caused the market to be different than 4259 1 it would have been. So different that prices 2 for spreadsheets would have been very, very 3 different ten years later. And we think the 4 evidence will show to the contrary. 5 Do we have Slide 27, is it? 6 Sorry, Chris, I guess I went out of 7 order. Thank you. 8 Here is in direct -- directly relevant 9 to the conversation we just had about OLE and 10 OCX and Mr. Mendelsohn of Lotus, here again are 11 the prices for Microsoft's spreadsheet, Excel, 12 over a lengthy period of time, 1988 through 13 2005. 14 And you'll see that the prices are 15 decreasing, not increasing, as Microsoft's 16 market share goes up. 17 We'll come back to more of that later. 18 I want to point out now that the 19 Plaintiffs said, oh, I guess probably a dozen 20 times or more, as the experts will tell you, or 21 sometimes they said as our experts will tell 22 you, and I think it's appropriate here to stop 23 for just a moment and talk a little bit about 24 experts. 25 We intend to show you that some of the 4260 1 Plaintiffs' experts have been working together 2 with each other for a substantial period of 3 time; that these experts' opinions depend on 4 the opinions offered by other Plaintiffs' 5 experts. 6 So, for example, Professor 7 Mackie-Mason may offer opinions that he will 8 acknowledge depend on your accepting other 9 opinions that Professor Noll may have offered. 10 And indeed these experts have not just 11 been working together with one another, but 12 they've been working together for a number of 13 years, in some cases five years, in some cases 14 more, on lawsuits against Microsoft. 15 Many of these experts have made 16 something close to a career in representing -- 17 in working for lawyers on lawsuits against 18 Microsoft, and some of them indeed have been 19 paid very, very, very handsomely for their work 20 as experts on these Microsoft cases. 21 I think the Plaintiffs mentioned 22 during their opening, the two experts, maybe 23 the two most important they have, Professor 24 Mackie-Mason and Professor Netz, are married to 25 one another. 4261 1 They also together own most of a 2 consulting firm called Applicon. Professor 3 Netz and Professor Mackie-Mason work together 4 and own the major share of Applicon. Nothing 5 wrong with that. Nothing wrong at all, of 6 course. 7 But Professor Netz and Professor 8 Mackie-Mason and their company, Applicon, have 9 been paid something more than $3 million, I 10 think by now probably more than that, doing 11 work for lawyers in cases against Microsoft. 12 We think that your Iowa common sense 13 should be brought to bear when evaluating 14 testimony from experts who have been paid to 15 that extent in these cases. 16 I also recall in the Plaintiffs' 17 opening the Plaintiffs saying that they may be 18 paying some of their fact witnesses, too. Some 19 of the people who will testify live here, who 20 will come to Des Moines from outside Iowa. 21 We don't contend that there's anything 22 unethical about reimbursing someone for their 23 expenses. On the contrary, not at all. 24 We're not contending that there's 25 anything wrong with reimbursing someone for his 4262 1 or her time in connection with their testimony, 2 but we do think the fact that a witness is 3 being paid for his or her time is something 4 that you will be entitled to consider as well. 5 I noted yesterday that many, many of 6 the depositions that you will see by videotape 7 from the Plaintiffs were taken years and years 8 ago. And that as a result, these witnesses, by 9 definition, could not be testifying in support 10 of a claim for an overcharge because the 11 government case involved no such claim. 12 And I went back last evening and took 13 a look at the list that Plaintiffs gave us of 14 the first nine videotapes that they plan on 15 playing. 16 I should say they're entitled to 17 change this list if they want to, it's just a 18 list for now. 19 But we looked at that, and eight of 20 those first nine depositions were taken in 21 1998, eight, almost nine years ago now. And 22 one, the other one, from 1993. 23 And in listening to these depositions, 24 we think you're fully entitled to ask yourself 25 whether any of the testimony deals directly 4263 1 with the question of whether or not anyone has 2 been overcharged or whether this testimony goes 3 back to the Court's instruction that we talked 4 about that not all behavior that injures 5 competitors is anticompetitive. 6 We do know that competitors who are 7 injured sometimes are unhappy about it. It may 8 be human nature to complain about it. But the 9 question of whether that testimony pertains to 10 the issue of an overcharge is something quite 11 different that we ask you to keep in mind 12 throughout this long period of listening to 13 videotapes. 14 Now, on the first day of Plaintiffs' 15 opening, they told you that -- and I'm quoting 16 -- the rules say that companies should compete 17 as vigorously as they can, do everything they 18 can to win. 19 We agree with that. 20 The Plaintiffs then went on and said 21 this: Quote, but the rules also say you have 22 to compete fairly. And if you don't, you have 23 to be held accountable. 24 And with that, I think it's 25 appropriate to look at the Court's Instruction 4264 1 8. 2 I invite you to look at the whole 3 thing. I'm going to show you a piece of it 4 that we think bears on this. 5 Judge Rosenberg provided you with a 6 clear instruction on how to evaluate whether or 7 not conduct is anticompetitive or whether it is 8 legitimate business conduct. 9 And you will see that there's nothing 10 in Instruction 8, and there's nothing in any 11 other instruction from Judge Rosenberg, that 12 deals with whether or not competition was fair. 13 The law as given you by the Court is 14 in Instruction 8 and elsewhere on how you make 15 this determination between legitimate business 16 conduct and anticompetitive conduct. 17 Fairness is not the issue. That was 18 not the instruction. 19 The Court instructed you that the law 20 in Iowa is that in determining whether 21 Microsoft's conduct was anticompetitive or 22 whether it was legitimate business conduct, you 23 should determine whether the conduct is 24 consistent with competition on the merits, 25 whether the conduct provides benefits to 4265 1 consumers, and whether the conduct would make 2 business sense apart from any effect it has on 3 excluding competition or harming competitors. 4 Now, that may be a mouthful. It's a 5 lot for me to say. But there's nothing in this 6 instruction about fairness. 7 And we talked yesterday about the 8 icons and the difference between allegations 9 and evidence. 10 I think it's also important to keep in 11 mind the law. It's given to you in Instruction 12 Number 8, which is entitled exclusionary or 13 anticompetitive conduct, and we ask you as 14 members of the jury to follow that law. 15 I also in that connection want to 16 direct you to Instruction No. 11, which we 17 think is also important. 18 It's on page 19 of the Court's 19 instructions. 20 Harm to Plaintiffs -- and I think 21 you've taken note of this before. You heard 22 the Court's instructions way back a couple 23 weeks ago. 24 For each of their claims, Plaintiffs 25 must establish that Microsoft's illegal conduct 4266 1 harmed them. 2 The Plaintiffs claim that they 3 suffered two types of harm. And I'm going to 4 leave out the two types just for the sake of my 5 voice. 6 And then there's the final sentence in 7 Instruction 11 -- I'm sorry, that's the whole 8 thing. 9 The Court then specifies the two types 10 of harms that the Plaintiffs claim to have 11 suffered. 12 And the point here that I bring back 13 to you is that even if there's anticompetitive 14 conduct that you consider, you must, as you 15 know, go on to consider the question of harm to 16 the Plaintiffs themselves. 17 One other thing that I want to make 18 sure I remind you of that again we think is 19 very important in your considering the issues 20 in this case is something that the Plaintiffs 21 said right at the outset of their opening way 22 back on December 1st, a couple Fridays ago. 23 And maybe we can show the two 24 statements that I bring to your attention. 25 Plaintiffs' counsel said on December 4267 1 1st, I want to stop for a moment and make sure 2 that I tell you as clearly as I can that Iowa 3 class members are not here to criticize 4 Microsoft for the popularity of its Windows 5 GUI, its GUI. 6 As we see things, that, in fact, is 7 what the Plaintiffs have done. 8 The Plaintiffs have not just 9 criticized Microsoft, but they seek hundreds of 10 millions of dollars in part as a result of 11 criticism they make for the popularity of 12 Windows. 13 Again, starting with 3.0 in May 1990, 14 Microsoft Windows indeed was very popular for 15 what we think the evidence will show is good 16 business reasons, pro-competitive conduct. 17 And then let's go on to the next 18 statement that followed almost immediately. 19 If Microsoft had simply sold a good 20 quality graphical user interface product at a 21 reasonable price, we'd be here applauding -- 22 well, actually we wouldn't even be here, but we 23 would be applauding Microsoft rather than suing 24 it. 25 When Plaintiffs' counsel made that 4268 1 statement on December 1st, I looked to see how 2 many of the Plaintiffs themselves were here, 3 and I was half expecting applause to break out. 4 I mean, I'm being a little sarcastic, 5 as you know, because this is a very serious 6 business. It's a serious lawsuit for both 7 sides. 8 It's a case important for Microsoft, 9 and it's a case where Microsoft very much hopes 10 that justice will be done by the 12 of you. 11 So I don't mean to be light-hearted, 12 but there was some statement by Plaintiffs 13 right at the beginning of their opening; if 14 Microsoft had simply sold a good quality GUI at 15 a reasonable price, we'd be here applauding. 16 Well, we think the evidence will show 17 that that's what Microsoft did and that in the 18 operating system market, Microsoft's product 19 has been very good, and the price has always 20 been reasonable. 21 Okay. One other pause here before 22 going to -- actually, two little pauses -- my 23 apologies -- before going to a different 24 subject. 25 Among the allegations that the 4269 1 Plaintiffs made in their opening was the 2 allegation that Microsoft had done something 3 wrongful when it bought or even made an offer 4 to buy another software company. 5 On December 8, that's last Friday, the 6 Plaintiffs said that Mr. Gates had given 7 approval at one point to a proposal to buy 8 another software company for $65 million in 9 connection with competition with RealNetworks 10 in the streaming media market. 11 Now, you may have picked up from the 12 document that was shown to you that Microsoft 13 never bought that other company. It was just a 14 proposal that Mr. Gates had approved. 15 But we think the evidence will show 16 that it's normal everyday business conduct for 17 one company to consider buying another, for one 18 company to -- sometimes a big company to 19 consider buying a smaller company, and that 20 there's nothing anticompetitive about that kind 21 of normal conduct. 22 And I mentioned earlier that the 23 Plaintiffs themselves have not been often in 24 this courtroom thus far. I think you and I 25 will be throughout the trial. 4270 1 And in that connection, I want to say 2 that I'm predicting, and I don't know exactly 3 what the Plaintiffs themselves will say on the 4 witness stand, but I'm predicting that you are 5 not going to hear testimony from these four 6 Plaintiffs, Mr. Comes, Ms. Larsen, Riley Paint, 7 and Skeffington's, that you will not hear 8 testimony from them to the effect that they 9 think they suffered some terrible injury at 10 Microsoft's hands. 11 And we will ask them about security 12 claims, for instance, and whether or not 13 they've ever had security patches and whether 14 or not they've spent time installing security 15 patches. 16 You know the Plaintiffs' theory here. 17 I think they told it to you. That Microsoft 18 during the class period sent out 113 patches to 19 users of computers. 20 These are patches necessitated due to 21 the fact that some irresponsible and malicious 22 people send out viruses through the Internet. 23 Some of these people, at least those who have 24 been caught, are young kids. 25 And the theory that the Plaintiffs 4271 1 offered is that you, the jury, should award, as 2 they said, tens of millions of dollars to them 3 by virtue of the fact that Microsoft sent out 4 these patches. 5 The patches came from Microsoft free, 6 no charge. Nobody was charged anything by 7 Microsoft for a patch which you could use to 8 prevent any further security breaches, any 9 further viruses. 10 And the theory was that on average 11 people might spend three minutes installing a 12 patch and that their time should be valued at 13 some rate that Professor Gowrisankaran will 14 provide to you, and that if you add that all up 15 and do the multiplication, Microsoft should be 16 forced to pay, and I think in Professor 17 Gowrisankaran's report he says $49 million that 18 Microsoft should pay the Plaintiffs and the 19 class members in this case by virtue of the 20 fact that Microsoft sending out patches to help 21 users of computers caused those users of 22 computers to spend maybe three minutes 23 installing them. 24 And so I go back to the four 25 Plaintiffs themselves, and whether they will 4272 1 testify about any injury they suffered from 2 installing patches or for any other reason, and 3 I want to direct you now to one other 4 instruction from the Court. 5 It's Instruction No. 2 where the Court 6 tells you if you award damages, I will then 7 decide what the attorneys for the Plaintiffs 8 will receive for their work. 9 The attorneys would be paid separately 10 by Microsoft if you award damages in this case, 11 and any amounts would be based upon the 12 reasonable value of their work. 13 The Plaintiffs say that there are 14 hundreds of thousands of people in Iowa who are 15 members of the class. They say there were 16 something in the nature of around 7.5 million 17 licenses for the products at issue, Excel, 18 Word, Office, and Windows. 19 And we ask you to keep track during 20 the trial of how many of those class members 21 come into this courtroom and tell you that they 22 were hurt, they were injured by anything that 23 Microsoft has done. 24 Now, I want to then touch upon another 25 concept for you about monopoly. 4273 1 And I'm going here to be agreeing with 2 some of what the Plaintiffs told you in their 3 opening. 4 As you know from the Court's 5 instructions, this is Instruction No. 7, the 6 mere possession of monopoly power, if lawfully 7 acquired and maintained, does not violate the 8 antitrust laws. 9 Well, sports isn't always a perfect 10 metaphor or analogy for business. 11 These analogies are usually quite 12 imperfect, but Ohio State is 12 and zero. They 13 went out on the field every game and they tried 14 to win. 15 And in business, as in sports, it's 16 okay to try to win. As the Court instructed, 17 the mere possession of monopoly power, if 18 lawfully acquired and maintained, does not 19 violate the antitrust laws. 20 And the Plaintiffs agreed with that in 21 their opening. They told you it isn't illegal 22 to be tough. It isn't illegal to be ruthless. 23 It isn't illegal to be aggressive. 24 We agree with all that. 25 And yes, some of the E-mails at 4274 1 Microsoft contain language which is aggressive. 2 You might find it even more than that. 3 None of those things are illegal, as 4 the Plaintiffs' lawyer said herself. 5 It isn't illegal to be tough or 6 ruthless or aggressive. 7 And as Plaintiffs also said, and we'll 8 put this one up for you, the rules say that 9 companies should compete as vigorously as they 10 can. 11 Now I'm back to Ohio State, if you 12 will. You know, get out there and do 13 everything you can and win. 14 Do everything they can to win, make 15 the best, the most innovative, the most 16 creative products, get the best sales force, 17 and try to win on the merits. 18 In other words, when you're competing 19 in business, to use another sort of metaphor, 20 your foot is not on the brake. You're driving 21 down the road with your pedal to the metal, as 22 they say. Your foot is down hard on the 23 accelerator. 24 The rules say that you should compete 25 as vigorously as you can, to go as fast down 4275 1 that road as you can, as long as it's 2 legitimate business conduct. 3 And I want to turn to PX, Plaintiffs' 4 Exhibit 2588, which the Plaintiffs showed you 5 during their opening. 6 This is a 1996 E-mail from Richard 7 Fade, December '96. And the Plaintiffs showed 8 you this one excerpt. 9 This is Mr. Fade at Microsoft, and 10 he's talking about Office, and he says, we won. 11 Microsoft Office is the dominant desktop 12 productivity suite. We have come from single 13 digit market share to over 85 percent market 14 share. 15 And by now, you know that I will tell 16 you that Microsoft will show you evidence that 17 winning in office suites, coming from a very 18 low market share to a very high one, was 19 exactly what Microsoft should have been trying 20 to do. 21 It was legitimate. And we think the 22 evidence will show that it won because it made, 23 as the Plaintiffs said in their opening, the 24 best, the most innovative, the most creative 25 products. 4276 1 And I want to show you another piece 2 of PX 2588, which actually comes from the next 3 page of that document, the same memo by 4 Mr. Fade. 5 There's a lot here. I don't want to 6 spend too much time with it. 7 But Mr. Fade of Microsoft, and I think 8 he can be forgiven a little bit for patting 9 himself on the back, but he explains here in 10 part why Microsoft won. 11 We see the principles of success in 12 two dimensions, product and process. 13 First, the success of Office is built 14 on principles of product. Customer-focused 15 innovation, integration, and best of breed. 16 When we started on Office, it was said 17 no one could create a product that was both the 18 best integrated and the best at individual 19 product capabilities. 20 It has been hard work, but we have 21 proven it can be done. 22 He goes on to talk about the feature 23 designs being consistently the very best in the 24 industry. Functionality that hits home with 25 the user. Implementations that are the most 4277 1 robust, with the right depth and usefulness. 2 Well, on that one, we know the 3 Plaintiffs won't agree, that they will attempt 4 to convince you that Microsoft won for other 5 reasons. 6 But as I say, it will be Microsoft's 7 evidence at the trial, and you'll need to be 8 patient and wait through lots of videotape 9 depositions before we get our chance, but it 10 will be our evidence that Microsoft's success 11 with Office, for example, is attributable to 12 good hard competition, legitimate business 13 practices. 14 And in connection with the Plaintiffs' 15 contention that consumers have not had choices, 16 I think you remember that perhaps it was last 17 Friday or Monday morning, yesterday morning, 18 Plaintiffs saying consumers haven't had 19 choices. So, of course, Microsoft has its high 20 share. There just aren't any other choices. 21 I want to show you three tables from 22 Professor Noll's expert report. 23 Experts for both sides in this case 24 submit written reports that are then exchanged 25 with one another, and these tables are pulled 4278 1 directly from what Plaintiffs' expert Professor 2 Noll has said on the subject of choice. 3 Let's look first at operating systems. 4 In his report, and I'm quoting 5 Professor Noll, he says, alternatives to 6 Microsoft products have existed and continue to 7 exist in each product category. 8 And here's operating system, and 9 here's what he says. 10 Of course he has Microsoft. He talks 11 about IBM, Novell, et cetera, et cetera. We 12 won't go through all of these in any detail. 13 I do want to point out that in the 14 second column of what the Plaintiffs' own 15 expert tells you are operating systems 16 available to consumers, choices that you have, 17 he has six, I think it is, different kinds of 18 Linux. 19 And you heard a little bit from the 20 Plaintiffs about Linux during their opening. 21 On the subject of choice, when it comes to 22 Linux, you see most of these have been 23 available from the late '90s through the 24 present. 25 One of these companies that sells 4279 1 Linux I believe went out of business or stopped 2 selling Linux in 2002. The others go right to 3 the present. 4 Linux is an operating system, the 5 evidence will show, that anyone can get for 6 free, for nothing. There's no charge if you 7 download it from the Internet. 8 Now, you can also, if you choose, buy 9 Linux from these companies. These companies 10 will provide support so if you have a problem 11 or a question, you have someone to call. 12 If you download Linux for free, of 13 course, you have no one to call, maybe your 14 next-door neighbor or friend. 15 But each of these companies is out in 16 the marketplace selling Linux. 17 And the evidence will show this. The 18 IBM PC company that you heard about -- actually 19 IBM in 2005, during the class period, sold its 20 PC company to Lenovo, L-e-n-o-v-o. 21 And Lenovo offers SuSE Linux -- that's 22 the second Linux company -- on PCs that think 23 top -- sorry, I'm saying this wrong. 24 ThinkPad laptop computers that Lenovo 25 sells, and they preinstall SuSE Linux on those 4280 1 PCs. 2 Wal-Mart in 2006, in the class period, 3 sells a PC made by Microtel, which comes 4 preinstalled with Linux, a Linux operating 5 system. 6 In 1999, Dell Computer, which recently 7 has been the largest PC company in the world, 8 beginning in '99 Dell sold a PC -- a Dell PC 9 with Linux preinstalled. 10 The evidence will be that Dell stopped 11 selling PCs with Linux about two years later, 12 in 2001. 13 The reason? Maybe you can guess. 14 What Dell said the reason was was slow demand. 15 People weren't buying Dell computers with Linux 16 on it. People were buying Dells with Windows 17 on it. 18 And we think the explanation for 19 Microsoft's success lies there. 20 And in connection with Linux, I want 21 to show you Finding of Fact 50. This was one 22 of the findings that the Court read to you. 23 It's page 5 in your notebook. Where the Court 24 refers to the fact that in 1999, this is 25 because you know the findings were issues in 4281 1 1999, Linux has between 10 and 15 million 2 users. 3 Now most of those were on servers, not 4 PCs. That's what the finding says. 5 They use Linux to run servers, not 6 PCs. 7 But the point, of course, as to choice 8 is that Linux certainly was out there. 9 And then let's look at what Professor 10 Noll says about word processing software and 11 choice. 12 Again, is there choice? 13 This is the Plaintiffs' expert in his 14 report identifying a number of word processing 15 systems that have been out in the market that 16 consumers can choose over the period 1988 to 17 2006. 18 I won't spend a lot of your time on 19 this. I just want you to note that, for 20 example, Sun Star Office Writer has been on the 21 market continuously from 1995 to the present. 22 There are other word processors that 23 you see throughout here; Lotus, Ami/Pro, 24 Ami/Word Pro has been available from '88 to 25 2006. 4282 1 Now, to be clear about what Professor 2 Noll is saying, Ami/Pro was a word processing 3 program, and is, that has been available 4 through this whole period. 5 Lotus didn't own it until much more 6 recently. It was not owned by Lotus through 7 this whole period. 8 But Professor Noll puts together this 9 list. You see WordPerfect, owned now by Corel, 10 also available throughout the entire period. 11 So that leaves spreadsheets. 12 Let's see what Plaintiffs' experts say 13 about choice in spreadsheets. 14 Again, there are other products, 15 probably most importantly Lotus 1-2-3, 16 available on the market. Some have been more 17 recent. Some have come and gone, which is 18 normal competition in most lines of business. 19 But on the subject of choice, when the 20 Plaintiffs tell you that people have had no 21 choice about software, their own expert 22 identifies a number of different choices that 23 have been available. 24 Okay. Let's go to a different subject 25 area. 4283 1 This is an area that is important, we 2 think, to your understanding of the evidence at 3 trial. 4 Experts on both sides will talk about 5 the characteristics of the software markets, 6 what makes software markets in some cases, in 7 some respects, a little different from markets 8 for other products. 9 And we think this is important for you 10 as the jury to understand. 11 The Plaintiffs, I think at some length 12 in the latter part of their opening statement, 13 told you, I think for an hour or more, what 14 Microsoft would say on these subjects. 15 Well, now you're going to hear what 16 Microsoft does say, not what they predicted. 17 These characteristics of software 18 markets are particularly important, and we 19 think the evidence from experts on both sides 20 will confirm this. 21 In thinking about the question of 22 causation, was there any anticompetitive 23 conduct that caused any injury, that caused any 24 class member to pay higher prices than he or 25 she would have paid had that conduct not taken 4284 1 place? That key question of causation. 2 And there are going to be three topics 3 that I talk about under this heading of 4 characteristics of software markets; economies 5 of scale, network effects, and experience 6 effects. 7 They're all important. They'll take a 8 little while, and I'm going to start with the 9 first one, economies of scale. 10 There are some products -- there are 11 some products where the cost of making the 12 first copy can be almost the entire cost that 13 the company has to incur in selling that 14 product at all. 15 Now, let me back up for a moment. 16 We're talking about first copy cost. 17 I'm losing part of my audience in the back on 18 this one. That's okay. 19 First copy cost. 20 And here's an example. This is a CD. 21 Faith Hill Fireflies. It's a pretty popular 22 CD. 23 To make this CD, there is a cost. 24 Faith Hill has to undergo years of practice, 25 among other things. 4285 1 There are other costs associated with 2 making this. She has to go in the studio and 3 cut the album. There are people to be hired to 4 design the album. There are people to be hired 5 to produce this plastic case which I can't 6 open. There's the artwork, the printing, and 7 there are other costs. 8 For the most part -- and I'll come to 9 software just in a moment. 10 For the most part, the first copy cost 11 is pretty much everything because the cost of 12 making another CD, once the album has been cut, 13 it's sort of in the can, she's done in the 14 recording studio, each one of these songs she 15 may have sung 10, 12, 20 times before she did 16 it just the way she wanted to put it on this 17 album. 18 But once this first CD is made, her 19 costs of producing this album are pretty much 20 done. 21 It does cost something to make another 22 CD, but very, very little. This actual disk 23 itself costs almost nothing, and the plastic 24 and the packaging, also once they're designed, 25 each copy, each second, third, fourth million 4286 1 copy, each one costs very, very little. 2 And in software, it's even more true. 3 Take, for instance, an operating system. 4 And I'm going to use just a 5 hypothetical number. 6 We'll talk about the actual R and D, 7 Microsoft's actual expenses, research and 8 development, later in my opening. 9 But hypothetically, it may cost, let's 10 say, $500 million to have lots of software 11 developers write the source code and test it 12 and make sure everything is perfect to get the 13 first copy of your operating system. 14 And it may very well cost more than 15 500 million. Sometimes it does. 16 But we're going to start with this 17 example. 18 Once that first copy of Windows or 19 some operating system has been made, all these 20 software developers at Microsoft, or at another 21 company, have been employed, it may be for 22 years, working on a new system, writing code, 23 testing it, making sure that it works with all 24 the applications that are out there and with 25 printers and other devices. 4287 1 The next copy costs really almost 2 nothing because in the case of an operating 3 system, as Plaintiffs said to you, most of the 4 time, the distribution cost of an operating 5 system is close to zero because you give a 6 master disk to an OEM like Dell, or let's say 7 Hewlett-Packard, and they just install each 8 copy successively in their PCs. 9 So to get the sense of the economics 10 of this sort of industry where there are 11 economies of scale, here's an example. 12 Again, a company has spent $500 13 million developing the operating system. If 14 you sell 5 million units, copies, of your 15 operating system, to get back that expense, 16 your R and D expense, you'd have to charge $100 17 dollars per copy if you're selling 5 million. 18 Now, if you're more successful, if 19 your product is out there more widely and you 20 sell 25 million copies, because it costs close 21 to nothing for the second, third, fourth, up to 22 25 million, you have no additional costs. So 23 you can charge $20 per copy and recover that 24 initial $500 million expense. 25 Experts from both sides will tell you 4288 1 that one of the characteristics of a software 2 market is economies of scale, and they will 3 refer to the first copy cost. 4 Professor Noll, as our experts, has 5 recognized that as the number of users of a 6 product goes up, the average cost to the 7 company declines very sharply. 8 In other words, high volume in 9 software may lead to low prices. 10 Now, let's contrast this first copy 11 cost situation to most other products. 12 Let's think about automobiles, and 13 let's say a Ford F150 truck. My number may not 14 be perfect, but I think you can get an F150 for 15 23,000 or $25,000, something in there. 16 Ford Motor Company, of course, has a 17 big up-front cost, R and D. They have to 18 design the car and test it, and there are 19 thousands of parts in it. 20 But once they're done with that, 21 unlike a software company, they also have huge 22 costs with every other copy. 23 Once the first one is made, to build 24 the second one costs a lot of money in steel, 25 in water pumps, in transmissions, and all of 4289 1 these thousands of parts which Ford has to buy 2 or make. And, of course, they have to pay for 3 the labor and the healthcare costs and the 4 retirement costs of the people who make them. 5 So hypothetically, if it costs Ford 6 $20,000 to make each copy of the F150, each 7 truck, they can't reduce their price below 8 $20,000. If they do, they'll be losing money 9 on each sale. 10 So yes, they have an up-front cost, R 11 and D, a first copy cost, but to build a car or 12 to make a tube of toothpaste, each one costs 13 some amount of money. 14 In software, and to some extent in 15 recorded music, the real, and basically almost 16 only cost, is with the first copy. So as 17 volume goes up, in our example, you can reduce 18 your prices quite significantly and still 19 recover all your R and D. 20 Again, for an operating system, the 21 same system costing $500 million to build, the 22 more you sell, the less you can charge. Unlike 23 the truck, where if you drop your price too 24 much, you're not going to pay for the steel you 25 have to buy and the brakes and the tires, et 4290 1 cetera. 2 So that's the concept of economies of 3 sale. 4 Sorry to get into this dense economic 5 stuff, but it's something we have to do. It 6 will come out during the trial. 7 Secondly, we've -- I've referred to 8 network effects, and the Plaintiffs did as well 9 -- oh, let me stop on economies of scale for a 10 minute because I meant to say one other thing 11 about Faith Hill. 12 I understand that she and Tim McGraw 13 were here this summer in July and played at the 14 Wells Fargo Arena. 15 And you can think about first copy 16 costs there, too, because for Faith Hill and 17 Tim McGraw, the cost of playing at the arena, 18 if one person comes or 17,000 come, their cost 19 is the same. They rent the arena. They have 20 to set up. They have to pay their band 21 members. 22 So if Faith Hill and Tim McGraw just 23 hypothetically charge $50 per ticket to come 24 see them in concert, if they're at the Wells 25 Fargo Arena and they have 17,000 people there, 4291 1 the revenue they would get would be $850,000 no 2 matter what their cost was. 3 If they played somewhere in Des Moines 4 where the seating capacity was, let's say, 5 1,000 people, not 17,000, to get the same 6 revenue, they'd have to charge $850. 7 Now the math may be getting a little 8 obtuse here, but the point again is this, when 9 you're dealing with a business where first copy 10 costs are almost everything, the cost of 11 setting up a concert and renting the materials, 12 it doesn't matter how many people come, the 13 more you sell the lower your price can be. 14 In a $1,000 -- sorry -- 1,000-person 15 seating capacity arena, you'd have to charge 16 much, much more to get the same revenue than at 17 the Wells Fargo Arena with 17,000 people there. 18 Okay. Let's go to network effects. 19 Network effects are circumstances 20 where the value of a product to one person, one 21 user of that product is affected by the number 22 of other people who use the same product. 23 Now, if I happen to use Crest 24 toothpaste, I don't care who uses Crest or 25 Colgate or some other brand, it makes no 4292 1 difference to me, but as the Plaintiffs 2 partially explained to you, when you're dealing 3 with a product that has network effects -- 4 let's talk about the telephone, they did 5 briefly. 6 The more people who use the telephone, 7 the better it is for me, if I have one. The 8 more valuable a phone is for me. Because after 9 all, it's more people I can call. More people 10 with whom I can communicate. 11 And there are some goods that you can 12 refer to, some products as network goods, 13 network products, products that has -- have 14 network effects. 15 The telephone example is an example of 16 what economists would call direct network 17 effects. The more people who use a phone, the 18 more people with whom you can communicate. 19 Fax machines, when fax machines were 20 first coming into offices, some of you may be 21 old enough to remember this, I do, there were 22 only a limited number of people to whom you can 23 send a fax because not everybody had faxes. 24 That made the fax machine okay, but the value 25 of the machine actually increased to each user 4293 1 as more and more companies got fax machines. 2 When they became ubiquitous, and 3 almost every business in America has one, some 4 people have them in their home even, the fax 5 machines became more valuable to each of us. 6 There's also something called indirect 7 network effects. 8 I hope this isn't getting too 9 complicated, but this can be explained this 10 way: The value of a product may depend on what 11 other products are out there that work with it. 12 Now, you can think about Beta Max 13 against VHS back in the days before there were 14 compact disks, and everybody had or many people 15 had VCRs. 16 There was a time when they had these 17 two formats, VHS and Beta. They were competing 18 against one another. It may well be that many 19 people thought that the Beta format in some 20 ways was better. 21 But as more people began using VHS, 22 the economists will tell you that what happened 23 is that more movies began being, to use a 24 software term, written; that is made, for VHS. 25 And if you had a Beta machine, and the movie 4294 1 you wanted was made only for VHS, your machine 2 lost value to you because you didn't have a 3 full range of movies that worked on your 4 machine. 5 The same thing is often true with 6 software. That is, if you have an operating 7 system for which there are very few 8 applications written, your operating system is 9 not as desirable to you. 10 If you have, for instance, Windows, 11 and you know that there are many, many good 12 applications written for Windows, you may 13 prefer Windows precisely for that reason. 14 So to take, let's say, the last four 15 years. We showed some material about the 16 companies that sell Linux as an operating 17 system. 18 Perhaps, and there will be evidence 19 about this, perhaps one reason people have not 20 chosen Linux for their own PC is that there 21 aren't as many applications written to the 22 Linux operating system as there are to Windows. 23 To use what an economist might say, 24 we're into the question of indirect network 25 effects. How valuable would Linux be to you if 4295 1 the right applications weren't available to run 2 on it? 3 So, we'll come back to this and during 4 the course of the trial, you'll hear about it, 5 but economies of scale, first copy costs, are 6 important in thinking about prices of software. 7 And you'll remember that the 8 Plaintiffs' experts will have models in which 9 they talk about their but-for world, this world 10 that they say would have existed in the absence 11 of the acts which the Plaintiffs say were 12 anticompetitive. 13 They will come here with a world that 14 they will say had much more competition in the 15 sense of more companies with approximately 16 equal market shares. 17 So just to take an example 18 hypothetically, in word processing, you know 19 that Word has a high market share. 20 If you had a world where there were 21 five companies each with 20 percent of the 22 market, and you think about the R and D costs 23 for each of those five companies in building 24 their own word processing, and how much they'd 25 have to charge to recapture, to recover their 4296 1 R and D, would prices be higher or lower in the 2 world that the Plaintiffs say, the but-for 3 world, should have existed? 4 Your Honor, I want to get to my third 5 category, but I see the time, and perhaps this 6 is a good time to break. 7 THE COURT: Yes. Ladies and Gentlemen 8 of the jury, we'll take our break till noon. 9 Remember the admonition previously 10 given. You can leave your notebooks here. 11 All rise. 12 (A recess was taken from 10:56 a.m. 13 to 11:20 a.m.) 14 (The following record was made out of 15 the presence of the jury.) 16 THE COURT: Which ones are we doing 17 again? 18 MR. GRALEWSKI: Special Master appeal 19 on Sculley and Peterson Special Master 20 designations. 21 THE COURT: Do I have any documents? 22 MR. GRALEWSKI: May I approach? 23 THE COURT: Mr. Tuggy is on the other 24 side on this? 25 MR. TUGGY: Yes. 4297 1 MR. GRALEWSKI: Your Honor, I have an 2 extra copy of our brief, too, but I'm not going 3 to give that to you unless you want it. I 4 don't want to inundate you with paper. 5 What I have is the testimony at issue 6 for Mr. Sculley highlighted. Also two cases 7 that we'll be discussing, those are also 8 highlighted. And I have copies of all of this 9 material for Mr. Tuggy as well. 10 The cases, Your Honor, Microsoft has 11 been given previous notice of those cases. 12 They're cited in our brief. 13 THE COURT: Okay. 14 MR. GRALEWSKI: Your Honor, if I may 15 proceed. 16 THE COURT: Sure. 17 MR. GRALEWSKI: The Sculley appeal, 18 which is related to three discrete blocks of 19 testimony, rises or falls on a legal question, 20 and that legal question is whether the Special 21 Master was correct when he overruled our 22 improper opinion objections on the basis that 23 the testimony at issue goes to weight and not 24 admissibility. 25 And as Plaintiffs will demonstrate in 4298 1 the next five or ten minutes, we hope, whether 2 a witness may offer lay opinion is a 3 preliminary determination for the Court, and 4 that's what the cases hold that I will walk the 5 Court through in a second. 6 But before I do that, I want to stop 7 and put the deposition testimony and the issue 8 in context. 9 THE COURT: Okay. 10 MR. GRALEWSKI: John Sculley was the 11 former CEO and president of Apple Computer. 12 Now, the testimony at issue, these 13 three discrete blocks of testimony concern -- 14 we can look at them individually, but they all 15 address the same thing, and that is assertions 16 by Mr. Sculley that Microsoft was the kind of 17 monopolist that kept its prices low, okay. 18 The Plaintiffs argued to the Special 19 Master that this was improper opinion under the 20 rule for two reasons. 21 Now, of course, the Court knows that 22 opinion testimony must be based on the witness' 23 own perception, okay. 24 We pointed out to the Special Master 25 concrete evidence that showed that Mr. Sculley 4299 1 could not, could not have known and could not 2 have personally perceived what Microsoft's 3 prices were, and these are the two -- these 4 were the two reasons we gave. 5 Number one, and this is critically 6 important and fundamental, Microsoft's OEM 7 contracts where the prices are listed are by 8 their terms secret and confidential. 9 There are terms, uniform terms in all 10 of Microsoft's OEM contracts that prohibit OEMs 11 from disclosing the prices that Microsoft is 12 charging them. 13 And there's going to be evidence 14 presented on the screen by various OEMs talking 15 about these terms and the fact that they have 16 to keep the contracts secret. 17 So, number one, Mr. Sculley, okay, not 18 an OEM who is purchasing operating systems 19 software from Microsoft cannot possibly know 20 what the prices are that Microsoft is charging 21 to other OEMs. So he can't personally know 22 that Microsoft is keeping prices low. 23 The second, and also very important 24 issue, in fact, that we presented is that 25 Mr. Sculley was pushed out as president and CEO 4300 1 of Apple in -- and this is important -- 1993. 2 There is testimony in his deposition 3 that demonstrates that he was no longer in the 4 market as of 1993. 5 Now, why is that significant? That is 6 a full year before the damages period starts in 7 our case. 8 So here you have somebody who is 9 attempting to say I knew what Microsoft's 10 prices were, or you have a situation where he 11 couldn't know because of the contracts, and he 12 wasn't even in the industry after the damages 13 period began. 14 THE COURT: Where did he go after 15 that? 16 MR. GRALEWSKI: I believe the 17 testimony is that he worked for a wireless 18 company or a networking company for about six 19 months, and then he began an investment company 20 with his two brothers called Sculley Partners 21 or something like that. 22 He testifies in the deposition that 23 while that investment company made investments 24 in software companies, he was on the periphery 25 of the industry. That's a quote. 4301 1 Secondly, under the improper opinion 2 rule, Your Honor, and this is an and test. 3 It's in the conjunctive. 4 So not only do you have to satisfy the 5 prong that says the knowledge has to be based 6 on your own personal perception, but it also 7 has to be helpful determination of a fact and 8 issue. 9 And we would submit, Your Honor, and 10 we argued this to the Special Master, that the 11 issue in the case, and we've talked a lot about 12 fair value and fair price and things like that, 13 the issue in the case is not whether or not 14 Microsoft's prices are low. 15 The issue in the case is whether or 16 not they would have been lower but for their 17 illegal conduct. 18 So whether Mr. Sculley opines that he 19 thinks off the top of his head that the prices 20 are low or not really isn't helpful to a 21 determination of a fact in issue. 22 Now, we made these arguments to the 23 Special Master. Microsoft countered those 24 arguments. Never did they bring up in their 25 papers that these arguments went to weight and 4302 1 not admissibility. 2 On the 28th or 29th of November, when 3 we received the Special Master's order, he did 4 not reject our arguments. 5 He simply overruled our objections and 6 simply wrote, overruled, objection goes to 7 weight. 8 And, Your Honor, we believe that that 9 was legal error. 10 The two cases that I've presented you, 11 and I have -- as I said, they are in our brief. 12 They were presented to Microsoft in advance of 13 the argument. 14 The two cases demonstrate and hold 15 that these are preliminary determinations for 16 the Court to decide before it goes to the jury. 17 The first case is the case of Randolph 18 v. Collectramatic, C-o-l-l-e-c-t-r-a-m-a-t-i-c. 19 It's a case that involves a pressure 20 cooker, which is fitting to be talking about 21 now, given that we all seem to be in a pressure 22 cooker. 23 This case, as Your Honor will note on 24 the page that I've turned to and highlighted, 25 states, the question of whether or not a lay 4303 1 witness is qualified to testify as to any 2 matter of opinion is a preliminary 3 determination within the sound discretion of 4 the trial court. 5 The case goes on to discuss whether or 6 not in this situation it was error to preclude 7 the plaintiff from offering lay opinion. 8 The Court in this case ruled that it 9 was not error to preclude in the first instance 10 the lay opinion because there were no concrete 11 facts presented by the plaintiff to establish 12 that he had personal knowledge of what he was 13 talking about. 14 And here to go back just for a second, 15 Your Honor, I will remind the Court that we 16 have presented concrete facts that have been 17 uncontested that the OEM contracts are secret 18 by their terms and that Mr. Sculley was out of 19 the industry by '93. 20 Now, in response Microsoft argues 21 that, in I believe conclusionary terms, that he 22 has the ability to know this simply because he 23 was the CEO of Apple. And Apple thought about 24 competing with Microsoft back in the early 25 '90s. 4304 1 I would submit, Your Honor, that 2 that's not enough. That doesn't satisfy the 3 test that they need to meet before this 4 evidence can be presented to the jury. 5 The second case, Your Honor, from 6 another circuit is United States versus Rea, 7 R-e-a. 8 Again, I've highlighted and flagged 9 some of that opinion for Your Honor. 10 Starting at page star 1215, you'll 11 note that it discusses Rule 701, the Federal 12 Court counterpart, and talks about the two 13 prongs of that rule being express preconditions 14 to admission. 15 It doesn't talk about weight, it talks 16 about preconditions to admission. 17 Later on in that long paragraph it 18 talks about reasons why something that doesn't 19 satisfy those conditions would prevent 20 admission or exclusion. 21 And then, Your Honor, if you would be 22 so kind to turn the page. 23 In the right-hand column on page star 24 1216, the Court holds the questions of whether 25 the proffered opinion is rationally based on 4305 1 the witness' knowledge and whether it will be 2 helpful are like all preconditions to the 3 admissibility of evidence, determinations to be 4 made by the trial judge. 5 These cases, Your Honor, are crystal 6 clear that the Special Master erred when he 7 found that the Sculley testimony is admissible 8 because it goes to weight rather than 9 admissibility. 10 Thank you, Your Honor. 11 THE COURT: Thank you. 12 Mr. Tuggy? 13 MR. TUGGY: Yes, Your Honor. 14 If I may approach with two documents. 15 One is a compendium of document I may 16 refer to in argument. The other is a fifth 17 document that I didn't have time to add to 18 that. 19 Your Honor, I also have with me the 20 Special Master's ruling chart, which is similar 21 to the charts we have provided you with respect 22 to prior testimony designations. 23 And if I may, I could provide this 24 chart for you so that you could include your 25 rulings because we've added a column to the 4306 1 chart for the Court's rulings in the same way 2 you have done on prior testimony designations 3 on these individual lines. 4 THE COURT: Okay. 5 MR. TUGGY: First designation at issue 6 is the Sculley designation at the bottom of 7 that page, and the Special Master's ruling 8 appears on the page after that. 9 Plaintiffs have described for you John 10 Sculley as the president and CEO of Apple, who 11 was, as Mr. Gralewski described it, someone who 12 was, quote, pushed out, end quote, of Apple in 13 1993. 14 According to the testimony, Mr. 15 Sculley was the president and CEO of Apple from 16 1983 to 1993. 17 In addition, in his testimony, 18 Mr. Sculley testified that Microsoft and Apple, 19 during the period he was president and CEO of 20 Apple, were competitors with respect to in this 21 market, and Mr. Sculley also testified 22 significantly that Apple, quote, constantly, 23 end quote, considered the viability of a 24 strategy to enter the market for 25 Intel-compatible PCs. 4307 1 And one of the projects he describes 2 in his testimony -- this is at page one -- 3 pages 136 and 137 of his testimony -- is a 4 project called Star Trek, which was a joint 5 project between Apple and Novell to build a 6 competitor to Windows, possibly to enter the 7 Intel-compatible PC market. 8 And what I provided to you was 9 Defendant's Exhibit 2575, which is a product 10 proposal. 11 We have, of course, other records 12 relating to this project, but this describes 13 generally what the project was, and this 14 exhibit is free of objections due to Special 15 Master process. 16 So the important fact relating to 17 Sculley's activities and Apple's activities is 18 that he was president and CEO from 1983 to 19 1993, and during that time, Apple competed 20 against Microsoft and Apple considered entering 21 the Intel-compatible PC market. 22 Now, the arguments that Mr. Gralewski 23 made regarding whether the testimony by 24 Mr. Sculley ought to be admitted were first 25 Mr. Sculley's testifying about prices, and 4308 1 Mr. Sculley can't know about prices because 2 Microsoft's contracts with OEMs, and they 3 submit information about -- I think some 4 testimony by Joachim Kempin, Microsoft's 5 agreements with OEMs are confidential, and 6 that's the only information they have, and that 7 the evidence they've presented relating to what 8 Mr. Sculley may or may not know about the 9 pricing of Microsoft's software. 10 Now, there are two important 11 distinctions that have to be made when 12 considering this evidence. 13 The first is that the evidence they 14 provided relates to the operating system sales. 15 Those were done through OEMs. 16 Application sales were primarily done 17 on a retail basis, and they -- none of the 18 evidence they have relates to that, and that's 19 important, for example, because the first set 20 of testimony they cite relates to Microsoft's 21 pricing in the applications market, not 22 Microsoft's pricing in the operating systems 23 market. 24 With respect to Mr. Sculley's then 25 position at the company and what he understood 4309 1 or knew about pricing, first, it is 2 inconceivable that Mr. Sculley would not have 3 alternate sources of information about pricing 4 other than to read Microsoft contracts. 5 Now just as an example, one of the 6 witnesses Plaintiffs intend to offer by way of 7 prior testimony in this case is a witness named 8 Richard Dixon, who was an employee of Digital 9 Research. 10 And they are designating Mr. Dixon to 11 testify with respect to Microsoft's pricing and 12 other related practices regarding sales in the 13 Far East region. 14 And what I've done is attached as 15 Tab D to the information I provided to you 16 excerpts from the deposition of Richard Dixon. 17 And at page 293 of his deposition, 18 Mr. Dixon is describing a meeting he had with a 19 potential customer of Digital Research called 20 Hyundai, and the question was asked: Who was 21 it at Hyundai that was describing for you what 22 Microsoft had offered to them? 23 In the packet I gave you this is Tab 24 D, and I've bracketed the testimony. 25 And this is on the first page of the 4310 1 testimony I've provided. 2 Who was it at Hyundai that was 3 describing for you what Microsoft had offered 4 to them? 5 Answer: I think it was Y. H. Lee, 6 Doctor Lee. 7 Did he ever show you any Microsoft 8 documents or was all this verbally through 9 Mr. Lee? 10 Answer: I sit down with him, and he 11 was referring to a Microsoft document, and gave 12 me information about that, and I wrote it down 13 in my notes and relayed it here. 14 Then on page 294, line 19, Mr. Dixon 15 continues about the same conversation. 16 Question: What did you do in 17 response? What was your -- 18 Answer: And he, according to this, he 19 showed me the DR-DOS pricing as it compared to 20 the MS-DOS pricing that he understood from 21 Microsoft. 22 This is just one example of why it 23 cannot be argued that simply because under an 24 agreement the agreement is confidential between 25 the parties who made it. 4311 1 That it can, therefore, be concluded 2 as a matter of law to exclude testimony that no 3 one else could know what was in that agreement 4 except the parties to it. 5 This is an example of an OEM agreement 6 where -- or proposal where the Microsoft is -- 7 where the Digital Research as a competitor is 8 learning about Microsoft's pricing. 9 There are many ways competitors learn 10 about their competitors' pricing. 11 There are pricing studies that can be 12 done internally. There are -- there's research 13 that can be done, salespeople that can be 14 talked to. 15 Mr. Sculley's position at the company 16 was, in part, responsibility for marketing. 17 This was an area of expertise, and as a CEO of 18 Apple, and in acquiring the information that he 19 would in that position, there is no reason to 20 believe he would not have information 21 concerning what one of his competitors' pricing 22 -- pricing strategies and prices are for the 23 products against which Mr. Sculley competes. 24 Now, the question that was asked at 25 the deposition was asked by the Plaintiffs' 4312 1 lawyer, and Mr. Sculley responded with the 2 response that Plaintiffs seek to exclude. 3 At the deposition Plaintiffs did 4 nothing following up on their questions to 5 suggest that Mr. Sculley did not have the 6 foundation to ask the question that they asked 7 of him. They were just expecting a different 8 answer. 9 And Microsoft seeks to designate this 10 testimony and use it at this trial because 11 Mr. Sculley was in a position to know about 12 Microsoft's pricing. 13 And based on the information I've 14 provided here, it's clear that there are many 15 sources of information, even if there is a 16 confidential agreement in which the pricing 17 information is recorded. 18 The second argument Plaintiffs make -- 19 first argument they make is you can't have 20 foundation because Microsoft had an agreement 21 that kept its prices confidential. 22 The second argument Plaintiffs make is 23 that Mr. Sculley left in 1993, and there 24 therefore his lay opinion is not relevant since 25 it's before the damages period. 4313 1 But as the Court knows, the Plaintiffs 2 have been living in the period 1989 through 3 1992 in their opening statement. 4 It is the period -- it is the key 5 period of competition in this case for both 6 operating systems and applications. It's the 7 period of competition with DR-DOS. It's the 8 period of competition with WordPerfect. It's 9 the period of competition with Lotus. 10 It's the period when Microsoft went 11 from lower market share to the market share it 12 obtained prior to the time that Mr. Sculley 13 left in 1993. 14 So it is incorrect to say that somehow 15 this evidence is not helpful to the jury 16 because it pertains to a period that is before 17 the damages period. 18 The important fact is that it pertains 19 to the period of competition that the 20 Plaintiffs have put at issue in this case. 21 So the first designation that 22 Plaintiffs contest is at page 134, lines 13 23 through page 135, line 5. 24 And the Special Master's ruling is on 25 page 3 and 4 of the rulings chart I provided to 4314 1 the Court. 2 And as you can see from the rulings 3 chart, the arguments Plaintiffs made before 4 Justice McCormick and Microsoft's responses are 5 the same that you're hearing here about the OEM 6 agreement and about Microsoft's evidence from 7 the Sculley deposition and elsewhere of 8 Mr. Sculley's foundation to respond to 9 questions about pricing. 10 And the testimony -- the question 11 asked by the Plaintiffs' lawyer was: 12 Question: If Microsoft were charging 13 monopoly prices for application software, would 14 that be a good thing for consumers? 15 Now, Mr. Sculley, to his credit, 16 disclaims Plaintiffs' use of the word monopoly 17 prices. 18 Mr. Sculley says, I don't know what 19 you mean by monopoly price. Monopoly price can 20 be high or low. If the price is low, I would 21 say that would be good for consumers. 22 Question: What about if the monopoly 23 price were high? 24 Answer: That wouldn't be good for 25 consumers. And I think one of the unusual 4315 1 characteristics of this situation is that in my 2 opinion, without being a lawyer, Microsoft 3 appears to have a monopoly, but it's not a 4 monopoly where they raise the prices. It's a 5 monopoly where they've used it to keep the 6 prices low. 7 That's the testimony Plaintiffs object 8 to. 9 Their objection that he does not have 10 information sufficient to communicate to the 11 jury about the pricing of applications, which 12 is public and which they're sold in stores, not 13 only seldom, it's particularly during this time 14 period through OEMs, is clear. 15 And it certainly only goes to the 16 weight of the evidence, as Justice McCormick 17 said, if Plaintiffs' argument is that somehow 18 because of the existence of an OEM agreement he 19 couldn't know this information about price. 20 Plaintiffs' final argument is that the 21 issue whether price is low is not for this 22 case. 23 This case is only a question on 24 comparing the prices between what was actually 25 charged and what would have been charged in a 4316 1 competitive situation. 2 In this testimony, Plaintiffs in 3 making that argument are taking the issue of 4 pricing to a level of abstraction, to remove it 5 completely from the province of lay testimony 6 and setting it only in the lap of expert 7 testimony. 8 Mr. Sculley's testimony here, which is 9 his lay opinion, establishes -- is evidence of 10 the fact that Microsoft when charging prices, 11 even in its position of market power, kept its 12 prices low. 13 And that rebuts Plaintiffs' claim that 14 Microsoft has used its position to charge 15 consumers high prices, and that's what this 16 case is about. 17 Microsoft is permitted to provide 18 evidence that during this period it kept its 19 prices low. 20 And Mr. Sculley, actually an industry 21 luminary, who Plaintiffs do not want the jury 22 to see, has provided this lay opinion with 23 foundation, and it ought to be admitted. 24 Microsoft respectfully requests that 25 the Special Master's ruling be affirmed and 4317 1 that Plaintiffs can make these arguments 2 they've made now to the jury because they go to 3 the weight of the evidence, not its 4 admissibility. 5 THE COURT: Other than the fact that 6 he was a CEO of Apple, what's his foundation? 7 MR. TUGGY: His foundation is that he 8 -- Apple was a competitor with Microsoft, and 9 the applications arena -- 10 THE COURT: How would he know about 11 their pricing inside internally? 12 MR. TUGGY: How would he know about 13 what Microsoft charged? 14 THE COURT: How would he know what 15 Microsoft's executives do internally as far as 16 their pricing, what decisions they make, what 17 access they have, what information they have on 18 markets, on their products cost, on their costs 19 internally? 20 MR. TUGGY: He knows -- 21 THE COURT: Would he have that 22 information? 23 MR. TUGGY: He knows what Microsoft 24 charges -- 25 THE COURT: I have no problem with 4318 1 that. 2 MR. TUGGY: -- for its products. 3 THE COURT: How would he know the 4 background and the foundation of it to know 5 this part here: Microsoft appears to have a 6 monopoly, but it's not a monopoly where they 7 raise prices; it's a monopoly where they use it 8 to keep the prices low. 9 Wouldn't you have to have some basis 10 from internal knowledge about the workings of 11 Microsoft to know that? 12 MR. TUGGY: No, because what he's 13 doing, Your Honor, is he is communicating 14 information about prices as compared to what 15 competitors might charge for similar products. 16 When he's saying Microsoft is keeping 17 its prices low, it's low in comparison to what 18 else is being charged for software that would 19 be similar. 20 That's the way that this testimony has 21 to be read. 22 He's not testifying that he knows 23 Microsoft's profit margins that he -- that 24 Microsoft when selling its software was selling 25 it at an amount that resulted in low profit 4319 1 margins. 2 What he's saying is that these prices 3 that Microsoft charges are low, and they're low 4 -- in the context of the testimony, what he is 5 testifying about is the prices of those 6 products in comparison to competition, not what 7 Microsoft's internal decision-making might be 8 about pricing. 9 THE COURT: So based upon what you're 10 arguing here, you could take anyone off the 11 street who buys software and just have the same 12 opinion? All he has to do is compare prices 13 off the shelf at Best Buy and give the same 14 opinion? 15 MR. TUGGY: The difference for -- in 16 the applications arena at issue here is that 17 Mr. Sculley's company competed with Microsoft, 18 and he was particularly well-situated to 19 understand Microsoft's pricing from a macro 20 perspective. 21 Taking someone off the street who can 22 go into a store and compare the costs of Lotus 23 1-2-3 with Excel is -- well, that would be 24 admissible, too, but that's not what Mr. 25 Sculley is doing. 4320 1 Mr. Sculley is speaking in broader 2 terms because as the chief executive officer of 3 one of Microsoft's primary competitors during 4 this period, this is the type of information he 5 should be expected to know. 6 And the Plaintiffs are free in their 7 case to present evidence and to argue that the 8 jury ought to disregard this testimony because 9 Mr. Sculley, according to Plaintiffs, doesn't 10 have sufficient information to be able to state 11 conclusively this type of information. 12 The showing they've made here is not 13 enough to -- 14 THE COURT: I don't see any foundation 15 for his opinion. He just gives an opinion. 16 Gives no foundation, no background, nothing. 17 Doesn't compare the prices at his 18 company. Doesn't compare other prices for 19 other software companies at all. 20 It's just a blatant opinion that, as 21 far as I'm concerned, he can bring the CEO of 22 General Motors in and say the same thing. 23 MR. TUGGY: Your Honor, the 24 deposition, which is 150 pages long, is full of 25 Mr. Sculley testifying about what Apple did, 4321 1 what his role was at Apple, how Apple competed 2 with Microsoft. 3 The information about price in the 4 market in which he competed is information that 5 one can reasonably infer from his position at 6 the company and the nature of Apple's 7 competition with Microsoft, he ought to know. 8 For the chief executive officer, an 9 industry luminary who took Apple from its 10 beginnings to prominence, not to know what his 11 primary competitor was charging by way of 12 prices is -- is wrong. It's incorrect. 13 THE COURT: Is the opinion as to 14 whether or not it's a monopoly a legal one or 15 factual? 16 MR. TUGGY: Where a witness states an 17 -- where a witness states that a person has a 18 monopoly because that person has 85 percent 19 market share and the power to control prices, 20 that testimony is either expert opinion or 21 legal opinion, and that's not what is happening 22 here. 23 Mr. Sculley is using the word monopoly 24 and actually disclaims it in part in this 25 section -- not to define what the term means, 4322 1 but to respond to the question by the 2 Plaintiffs' lawyer. 3 Now, I have provided to you in the 4 materials I've given you two examples of 5 testimony the Plaintiffs designated where the 6 witnesses use monopoly in the same way, and the 7 Special Master overruled our objection to 8 testimony with that term in it, and we have not 9 appealed that ruling. 10 And the reason why we provided that to 11 you, and also to the Special Master, is to 12 indicate that there is consistency through the 13 rulings by Justice McCormick that where a 14 witness is using the word monopoly in a 15 colloquial business sense, not attempting to 16 define the term in the legal sense, that 17 witness is not stating an improper opinion. 18 And I think in this particular slice 19 of testimony where Mr. Sculley says, I don't 20 know what you mean by, quote, monopoly price, 21 end quote, he is actually doing what he can to 22 cure the question. 23 He's not rendering an opinion whether 24 this is a monopoly. He's saying Microsoft -- 25 if you say Microsoft has a monopoly, well, in 4323 1 my experience as a chief competitor of 2 Microsoft during the relevant period, Microsoft 3 kept its prices low. 4 THE COURT: He gives a qualification, 5 but he goes on and makes the answer. Plus he 6 says that it's not a monopoly where they raise 7 the prices; it's a monopoly where they've used 8 it to keep the prices low. 9 It seems like an opinion and 10 conclusion based upon some knowledge of 11 monopoly. 12 MR. TUGGY: From the context of this 13 question, he's saying -- his answer was: I 14 don't know what you mean by monopoly price. 15 Monopoly price can be high or low. 16 And then the question -- follow-up 17 question by the Plaintiffs' lawyer: What about 18 if the monopoly price were high? 19 Then Mr. Sculley is just responding to 20 what the Plaintiffs have asked and what his 21 layperson's understanding of what a monopoly 22 would be. 23 And he says: In my opinion, without 24 being a lawyer, Microsoft appears to have a 25 monopoly, but it's not a monopoly where they 4324 1 raise the prices. 2 So this is lay opinion, not legal 3 opinion, by a business person stating in 4 business person's language how one might 5 discuss a company like Microsoft with its 6 presence in the market from Mr. Sculley's 7 perspective. 8 THE COURT: What about these cases 9 that says that the person who offers the 10 opinion has to give some objective basis for 11 it? 12 MR. TUGGY: In this deposition, the -- 13 as I've indicated, he has provided information 14 stating his role at the company and the 15 company's competitive relationship with 16 Microsoft from which a trier of fact can 17 justifiably infer he ought to know about what 18 his primary competitor does about pricing. 19 THE COURT: It's really not a lay 20 opinion; it's an expert opinion as a person in 21 the industry. 22 MR. TUGGY: But it's based on his 23 personal knowledge. 24 It's based on what Mr. Sculley 25 understood and experienced as the president and 4325 1 CEO. It's not the testimony of an expert, 2 someone who studies the industry and then 3 testifies as an expert in that capacity. It's 4 really his lay opinion. 5 THE COURT: What time frame is he 6 giving this opinion? I've heard he resigned in 7 1993. 8 MR. TUGGY: The -- 9 THE COURT: This is done in 2002. 10 What knowledge did he have in 2002? 11 MR. TUGGY: The testimony that he's 12 giving and Microsoft is offering this testimony 13 for the period during which he was the chief 14 executive officer of Apple in a competitive 15 relationship with Microsoft and -- 16 THE COURT: Where is the qualification 17 for that in this? 18 MR. TUGGY: Well, the qualification is 19 simply in the testimony which we have 20 designated to be played before the jury on the 21 period when he had that relationship with 22 Apple, the 1983 to 1993 period. 23 And again, it does bear emphasizing 24 that this was a question posed by the 25 Plaintiffs. They were hoping for a different 4326 1 answer, but they didn't qualify the question 2 that they asked with a time period. 3 And it wouldn't have been necessary to 4 qualify all the questions in this examination 5 with the time period because that was 6 established so clearly early on. 7 THE COURT: Anything else? 8 MR. TUGGY: Nothing further on this 9 one, Your Honor. 10 THE COURT: Response? 11 MR. GRALEWSKI: Your Honor, I think 12 you hit the nail on the head many times. 13 Referring to the Rea case, at the 14 bottom of star 15 the Court finds when a 15 witness has not identified the objective basis 16 for his opinion, the proffered opinion 17 obviously falls completely -- fails completely 18 to meet the requirements of 701. 19 And here's the reason. 20 First, because there's no way for the 21 Court to assess whether it is rationally based 22 on the witness' perceptions. And here's the 23 real issue right now for opening. 24 Second, because the opinion does not 25 help the jury but only tells it in conclusory 4327 1 fashion what it should find. 2 And here we have a situation where 3 there are no concrete facts that they're going 4 to see or that are anywhere in the deposition. 5 As Mr. Tulchin stated this morning, 6 we've been arguing about this for two and a 7 half years, I guess, and still Mr. Tuggy, with 8 all due respect, only falls back on the fact 9 that he should know this because he's the 10 president of Apple. 11 That is not what the pressure cooker 12 case says you need to do. 13 Pressure cooker case, and the Rea 14 case, puts the burden on the person proffering 15 the evidence to demonstrate concrete facts that 16 establish this is something within the witness' 17 personal knowledge. 18 They haven't done that, Your Honor. 19 They cite to the Dixon testimony. 20 The Dixon testimony is completely 21 irrelevant to this question. 22 If the question was whether Mr. Dixon 23 had knowledge about what Microsoft's prices 24 are, that would be one thing. 25 There's no concrete facts to show or 4328 1 establish that Sculley knows what Microsoft's 2 prices were. 3 It was a creative argument by 4 Mr. Tuggy about he could go look at stuff on 5 the shelves. 6 They can't honestly want the jury to 7 believe that the majority of applications 8 software was purchased by OEMs on the shelf. 9 Certainly Microsoft sold applications 10 software to OEMs, and that's what we're talking 11 about. 12 There's no evidence, there's no 13 concrete evidence in the deposition that was 14 noticed and taken by Mr. Tulchin's colleague, 15 and Mr. Tulchin was sitting at the table, 16 there's no evidence in the record that Mr. 17 Sculley ever reviewed any pricing studies; that 18 he had any discussions with salespeople at 19 Apple. 20 These are all things that under the 21 cases they need to do to lay foundation for 22 this opinion testimony to be proper. 23 Now, stepping back for a second and 24 going back to the 35,000-foot level, what's 25 critically important, Your Honor, is that, as 4329 1 you recognize, Mr. Sculley was the CEO and left 2 at 1993, a year before the damages period. 3 So even if this Star Trek proposal was 4 something they were contemplating, and even if 5 he had talked to salespeople or looked at 6 damages -- pricing studies, which there's no 7 evidence of, even if he had done that, it's 8 irrelevant to the question now because we're 9 talking about whether prices were low or high 10 or whether there was anticompetitive conduct or 11 whether there were damages from 1994 on, not 12 the time when Mr. Sculley was the CEO. 13 Now, Mr. Tuggy twice used the word 14 luminary, and I think that's telling. 15 The real reason they want to put 16 Mr. Sculley up on the screen is for the jury to 17 be wowed and awed by Mr. Sculley's statement 18 that, oh, Microsoft kept their prices low. 19 Your Honor, you are right. This is 20 properly expert testimony. 21 An expert needs to compare different 22 products, look at pricing studies. 23 We shouldn't be forced to let the jury 24 see a luminary opine about something that there 25 are no concrete facts in the record to show 4330 1 that he knows about. 2 That's all, Your Honor. 3 MR. TUGGY: Your Honor, just to 4 conclude from Microsoft's position. 5 This testimony is by the chief 6 executive officer and president of one of 7 Microsoft's chief competitors who has testified 8 that Apple competed with Microsoft in these 9 arenas, and it can reasonably be inferred from 10 that that Mr. Sculley would know about the 11 pricing behavior of his primary competitor. 12 And Plaintiffs have presented no 13 evidence at this point that that information 14 was somehow screened from Mr. Sculley, that it 15 would have been unavailable to him, because the 16 only evidence they presented was a 17 confidentiality provision in Microsoft OEM 18 agreements which Microsoft has shown with other 19 evidence did not preclude parties from talking 20 about price. 21 And there is no evidence that Mr. 22 Sculley would not have known these things, and 23 one could expect that he would based on his 24 position at the company. 25 And the cases that the Plaintiffs have 4331 1 offered you do not involve the chief executive 2 officer of a company in the position that Apple 3 was in, one of the leading software companies 4 in the world, testifying about the pricing 5 behavior of his primary competitor, another 6 leading software company in the world. 7 The cases he presents do not present 8 that fact situation. They do not present a 9 question of what inference can be drawn based 10 on that. 11 And it is quite clear from the 12 testimony Mr. Sculley gives, it is 13 unhesitating, there is no indication whatsoever 14 that he's guessing. 15 Mr. Sculley has had his battles with 16 Microsoft in the past. There's no indication 17 that he's somehow biased towards Microsoft; 18 that that's what's occurring here. 19 This is the Plaintiffs' question. It 20 is a fair inference from his position at the 21 company and the nature of competition between 22 Microsoft and Apple that this is the type of 23 thing he would know. 24 The Special Master was correct. The 25 issue Plaintiffs are bringing up goes to the 4332 1 weight of his testimony, not whether it is 2 altogether inadmissible. 3 THE COURT: Anything else? 4 MR. GRALEWSKI: Your Honor, only that 5 I would say that they've got the burden 6 backwards; that inferences and expectations 7 made by Mr. Tuggy right now are not enough. 8 They need to demonstrate concrete 9 facts showing that Mr. Sculley has the 10 foundation, and they haven't done that. That's 11 because they can't do it. 12 We have, even though it's not our 13 burden, put in concrete facts showing that the 14 OEM contracts are secret and was out of the 15 industry. 16 And this testimony at page 130 should 17 be -- I forget the exact situation, what page 18 numbers we're talking about. 19 That should be excluded, and the 20 testimony and the subsequent pages should be 21 excluded for the same reasons. 22 THE COURT: Mr. Tuggy, just to make 23 sure I'm clear, he's talking about the prices, 24 the final prices or the prices OEMs are charged 25 by Microsoft? 4333 1 MR. TUGGY: He's talking generally, 2 but it's the prices that are being charged to 3 the market for the Microsoft software. 4 THE COURT: So whether OEMs or 5 consumer goes and buys off the shelf? 6 MR. TUGGY: Correct. 7 MR. TULCHIN: And at the time, Your 8 Honor, most applications were not sold through 9 OEMs. And I think that's been true for most of 10 this period, but certainly it wasn't at the 11 time. 12 THE COURT: And when you present this 13 to the jury, are you going to present just this 14 portion? 15 MR. TULCHIN: Your Honor, I actually 16 have a number of places -- again, I don't know 17 that the Plaintiffs are entitled to a 18 preview -- but a number of places where I have 19 excerpts from Mr. Sculley's deposition to tell 20 the jury about in my opening. 21 There are many places where they've 22 not objected, so that can't be a problem, but I 23 do intend to use this, as well, this piece. 24 THE COURT: What I want to get 25 straight is when they get past openings and get 4334 1 to Mr. Sculley's designations, I assume that's 2 coming in by designation? 3 MR. TULCHIN: Yes. 4 THE COURT: Is there going to be other 5 passages which show the foundation for this 6 opinion for the time period you've talked about 7 and you've told me about that? 8 MR. TUGGY: Yes. 9 MR. TULCHIN: Yes, Your Honor, I think 10 there will be. 11 And just to -- Mr. -- I can't resist 12 responding to something Mr. Gralewski said. He 13 said I was present during the deposition, which 14 I was. 15 The question was asked of the 16 Plaintiffs -- and they didn't move to strike 17 the answer for lack of foundation. 18 The examining lawyer elicited this 19 testimony from Mr. Sculley and then did nothing 20 to try to show some lack of foundation. 21 So this was not on a question that my 22 colleague asked at the deposition; it came from 23 the Plaintiffs. 24 And ordinarily, at least I understand 25 if you elicit testimony of that sort and you 4335 1 neither move to strike nor inquire about the 2 basis, then seems to me you've waived that 3 objection. 4 There is testimony throughout at least 5 some of the first 100 pages about Mr. Sculley's 6 background and the basis for his industry 7 knowledge. 8 MR. GRALEWSKI: Your Honor, if I may 9 respond. 10 THE COURT: Okay. 11 MR. GRALEWSKI: Again, we've been 12 debating this for two and a half years. 13 If they have foundation -- and Your 14 Honor is right on all fours and right on point 15 here. 16 If they have foundation, where is it? 17 There aren't the concrete facts that 18 are necessary. 19 I submit that it would be highly 20 prejudicial to allow this testimony this 21 afternoon to be thrown up on the screen simply 22 by Mr. Tulchin promising that, quote, I think 23 there will be. 24 They should know this testimony right 25 now. They should be required before this 4336 1 testimony goes up on the screen to show you 2 where under the cases the concrete facts are. 3 MR. TULCHIN: Those cases, Your Honor, 4 did not involve a situation, as I understand 5 it, where the other side, Mr. Gralewski's 6 colleague, elicited this testimony at a 7 deposition. 8 It was their question. They got the 9 answer. No one said I move to strike. No one 10 examined the witness about his foundation. 11 We assumed at the time -- one could 12 only assume that the Plaintiffs who had 13 examined understood that the foundation was 14 already laid. Otherwise, it was up to them, 15 since they asked the question, to go back to 16 Mr. Sculley and find out what the basis was if 17 they weren't satisfied. 18 So, I mean, Mr. Gralewski is right in 19 a narrow sense that there isn't testimony prior 20 to this enumerating a great deal of Mr. 21 Sculley's exposure to price studies. 22 But he did -- he was the CEO, the boss 23 of Apple for ten years, and it has to be that 24 Apple and its competitors both are aware of 25 what each other is doing in the marketplace. I 4337 1 mean, that's his job. 2 THE COURT: Is this what you intend to 3 put up this afternoon? 4 MR. TULCHIN: It's not coming up this 5 afternoon, Your Honor. 6 There are unobjected portions of 7 Mr. Sculley that might, but this portion will 8 not be today. 9 THE COURT: Is there any other 10 portions in this Peterson or Sculley that's 11 going to be this afternoon that I need to look 12 at? 13 I'd like to take time to look at this 14 particular issue. 15 MR. WILLIAMS: Your Honor, since we're 16 tag teaming here, I would just point out that 17 my understanding of the rules of depositions in 18 the convention is that all objections except 19 form are reserved. 20 I don't know what rule or convention 21 Mr. Tulchin is referring to that requires a 22 questioner to state for the record I move to 23 strike. 24 I know that some questioners do that, 25 but I see that it's, frankly, gratuitous if the 4338 1 convention is as I've stated. 2 MR. TUGGY: Your Honor, I have a 3 couple suggestions. 4 One is we reconvene as we had planned 5 to do around 3 o'clock for Mr. Erickson and 6 Mr. Lowan and discuss this particular 7 designation further. 8 But there is one designation that may 9 possibly be played this afternoon which we 10 think is governed by your trade press ruling in 11 Peterson. And perhaps if we can just quickly 12 deal with that and not keep the jury waiting 13 any longer. 14 THE COURT: Where is it? 15 MR. GRALEWSKI: Right here, Your 16 Honor. 17 This is one chunk of testimony from 18 Willard Peterson. 19 Your Honor, this topic has been argued 20 for several days last week concerning trade 21 press, so I'm not going to certainly repeat all 22 of the arguments that Mr. Cashman made. 23 I will summarize what's going on here, 24 though, especially at the tail end of this 25 block of testimony. 4339 1 This is not unlike the testimony that 2 Your Honor excluded last week from Rick Apple. 3 The examining attorney, one of 4 Microsoft's lawyers, asked Mr. Peterson -- he's 5 a high-level executive at WordPerfect -- about 6 a particular piece of trade press. 7 Never in the questioning did the 8 examining lawyer ask if the -- if Mr. Peterson 9 had read this particular piece of trade press. 10 So this would fail to satisfy the linking 11 problem that we talked about last week. 12 There's no foundational facts to show 13 that Mr. Peterson looked at and reviewed this 14 particular piece of trade press. 15 Earlier in the designation, there is 16 hearsay concerning statements that Mr. Gates 17 may or may not have made to Mr. Peterson. 18 Our position, not unlike our position 19 last week when we were arguing trade press, is 20 that for both of these parts of the testimony 21 to be relevant, you need to believe their 22 truth. And so they suffer from the Gacke 23 problem. 24 So you have the fact that the trade 25 press is not linked up, and you have the fact 4340 1 that you need to believe these prongs for it to 2 be relevant. 3 Thank you, Your Honor. 4 MR. TUGGY: Your Honor, Mr. Tulchin 5 has informed me that he does not believe this 6 will come up today. 7 If it please the Court, we can 8 continue the argument later or I can argue it 9 now. 10 THE COURT: Well, I don't want to keep 11 the jury waiting so let's do it later today. 12 (The following record was made in the 13 presence of the jury.) 14 THE COURT: Apologize to the jurors, 15 but we were working on other matters. So I 16 apologize. 17 MR. TULCHIN: Ladies and Gentlemen, 18 good afternoon. Sorry we kept you waiting a 19 little bit. 20 I want to go back. 21 We had talked about economies of 22 scale. We talked about network effects. And I 23 want to now talk about something that I've 24 called experience effects. 25 And we can talk about this, I think, 4341 1 with a simple example. 2 Sometimes a particular product or 3 format can have a value because it's what 4 people are used to using. 5 In other words, the value of a product 6 can depend in part on how much it costs people 7 to learn that or something new. 8 And here's an example of the keyboard 9 of a typewriter that was made in 1972. And 10 what I want to point out to you is what's 11 called the Qwerty layout. 12 It's called Qwerty because the letters 13 on the upper line from left to right, the first 14 five letters are -- maybe it's six -- 15 Q-w-e-r-t-y. And the format is called Qwerty. 16 Now, there's no magic to the format of 17 a typewriter. It just so happens that 18 literally this format was chosen in the 19th 19 Century by the guy who first started -- who 20 invented the typewriter, Christopher Sholes was 21 his name. And I believe it was in the 1870s. 22 And he made the first typewriter, and 23 he laid out the letters with this Qwerty 24 format. 25 So, okay, back to Qwerty. 4342 1 The inventor of the typewriter in the 2 1870s just happened to set out the letters in 3 exactly the format you see. 4 This is a picture of a typewriter made 5 in 1927. 6 And lo and behold, the format that we 7 still use, we all still use, this is a keyboard 8 of a Dell computer made in -- I want to make 9 sure I get this right -- 2006. 10 The letters are laid out in exactly 11 the same format, with the Q-w-e-r-t-y, Qwerty, 12 in the top line left to right, and all the 13 other letters are exactly as Mr. Sholes laid 14 them out in the 1870s. 15 Now, in fact, there have been other 16 formats proposed for typewriters. 17 A professor named Dvorak, D-v-o-r-a-k, 18 in, I believe the 1920s, as well -- no, 19 1930s -- he was a professor of education, and 20 he actually proposed a typewriter with a very 21 different format. 22 The letters that are most common in 23 the English language would all be in the center 24 of the three rows so that your fingers wouldn't 25 have to reach up or down. They'd all be in the 4343 1 center. And it was A, O, E, U, I, et cetera, 2 in the center row. A very different layout 3 than what we all use. 4 And Mr. -- Professor Dvorak did a 5 study in which he claimed that someone typing 6 at a desk during a day would actually have 7 their fingers move -- I don't know how he 8 measured this -- 16 miles using the Qwerty 9 format, the old format, but with his new 10 format, your fingers would move a total of one 11 mile. 12 And he claimed that this format was 13 much, much more efficient for typists because 14 instead of moving your fingers all around, the 15 common letters would all be right there in the 16 center for you. 17 Now, of course, the Qwerty keyboard is 18 still being used. 19 And the reason it's being used goes 20 back to what we were talking about, experience 21 effects. 22 Here the two -- sorry. Just go back 23 one, Chris. 24 Here are the two; 1927, 2006. The 25 layouts are the same. 4344 1 They're the same economists will tell 2 you because people are used to using the Qwerty 3 format. 4 And if you bought a new typewriter 5 with Professor Dvorak's format, you'd have to 6 train people in your office at a business. 7 And after all, I think most of us who 8 learned to type -- I took typing in the seventh 9 grade. And I think I took it one semester. 10 And you never have to think about it again. 11 Your fingers just automatically go to the 12 letters in the Qwerty format. 13 This is before computers were around, 14 but my mother told me that if I couldn't get 15 any other job, at least I could be a secretary. 16 So she wanted me to take typing, and I did. 17 It turned out to be very useful once 18 we got to computers. 19 And experience effects is really 20 nothing more than this concept that people get 21 used to using a particular product in a 22 particular way. 23 And it may cost a lot of money, 24 particularly for a business, to retrain someone 25 on a new format. 4345 1 So we've talked about these three 2 economic concepts, and our evidence will be 3 that the value of Windows, the value of Office 4 and Word and Excel is high because of all three 5 types of these effects that we've talked about. 6 The value of the product to a user is high. 7 These concepts which we'll hear from 8 economists we expect will be relevant to your 9 consideration of the issue of causation; that 10 is, did anything that Microsoft do that was 11 anticompetitive result in market shares that 12 were different from what they otherwise would 13 have been, or in the absence of any 14 anticompetitive acts, would the market have 15 looked the same in any event. 16 So we talked about economies of scale 17 first copy costs, network effects, and 18 experience effects. 19 And, of course, if -- let's say a 20 business has trained people to use Word or 21 Excel or Windows, a switch to a different 22 product may be expensive for that company. 23 And I want to go back to DX 1348, 24 which we showed you early this morning. 25 That's the letter that Mr. Gates wrote 4346 1 to Mr. Sculley of Apple way back in 1985, July 2 of 1985. 3 I'm sorry, Chris. Did I throw you 4 off? 5 I think this is my fault. Sorry about 6 the delay. 7 But you'll remember that in Mr. Gates' 8 letter he talks about Apple trying to make its 9 format a standard. 10 And I think what we'll show you at 11 trial is that standardization does have 12 benefits; that Mr. Gates understood the value 13 of these economic principles way back when -- 14 in the 1980s when communicating with Mr. 15 Sculley of Apple. 16 Here's a piece of this letter. 17 Apple must make Macintosh a standard. 18 Now, Apple didn't do that. It kept a closed 19 system where the Mac operating system is used 20 only on Macintosh computers, unlike 21 Microsoft's. 22 But here's Mr. Gates recognizing the 23 benefits of standardization, something that we 24 think you will conclude was of benefit to 25 consumers around the country and in Iowa. 4347 1 Now, there's a fourth concept that I 2 want to talk about, and it's the applications 3 barrier to entry. 4 You heard reference to that. You 5 heard reference to it in the findings of fact. 6 And I want to tell you what the 7 applications barrier, according to our 8 witnesses, is and what it stems from. 9 As we've discussed, an operating 10 system needs applications to run on top of it. 11 An operating system by itself has very 12 little value. You want to be able to do 13 something with your computer. 14 You want to be able to use it to type 15 a letter or do a spreadsheet or perhaps these 16 days send E-mail. There are many other things, 17 of course, that now you can use it for. 18 And as you know, applications are 19 software programs that run on top of an 20 operating system. 21 As you also by now have heard, I think 22 from both sides, there are thousands of 23 companies that write applications, literally 24 thousands in this country and elsewhere. 25 And as you've also heard from 4348 1 Plaintiffs, and now from me, an operating 2 system becomes more desirable to an end user 3 the more important applications are written for 4 it. 5 That is, the more available things you 6 can do with a particular operating system, the 7 more likely it is that you'll find that system 8 to be the one you want. 9 You can think about the Beta/VHS 10 example that we talked about earlier. 11 If you have a Beta format, and it 12 turns out that most of the movies that you can 13 watch on your VCR are actually in the other 14 format, you may not want Beta any longer; you 15 may want to switch to VHS because that's how 16 you get more and more movies available to you. 17 Same thing here. 18 The more applications you have 19 available on a particular system like Windows, 20 the more presumably end users, consumers, will 21 want to take Windows, want to have it. 22 And as you know, ISVs have written 23 thousands of applications for Windows. 24 I will show you later that this was 25 part of the competition between Microsoft and 4349 1 other operating systems. 2 Part of the essence of competition was 3 for Microsoft -- and Bill Gates was very active 4 in this -- to try to get ISVs to write their 5 applications to the Windows platform. 6 Microsoft competed. Other companies 7 like DRI and IBM competed against Microsoft. 8 They tried, as well, to convince these 9 thousands of independent companies to write for 10 their operating systems. 11 This was a legitimate form of 12 competition. And ultimately the applications 13 barrier to entry refers to the fact that 14 Microsoft was highly successful in competing on 15 this level. 16 What happened was many, many ISVs 17 wrote their software to the Windows platform. 18 And we will say, that gave Windows an 19 advantage. That made Windows more desirable as 20 compared to any other operating system. 21 That meant, as well, of course, that 22 for a new operating system to break in and get 23 a high market share, that new operating system, 24 the maker of that system, will have to work 25 awfully hard to get ISVs to write applications 4350 1 to that different system. 2 Going back sort of to the Beta/VHS 3 system. Write your movies for me because 4 without that, consumers may prefer the other 5 format. 6 So I want to show you Finding of Fact 7 59. It's on page 10 of the findings. 8 This was something Judge Rosenberg, of 9 course, read to you way back when. 10 Maybe we're having a problem -- here 11 it is. Thank you, Chris. 12 And in Finding of Fact 59, one of the 13 things that the Court said, consistent I think 14 with what we were just discussing about the 15 applications barrier, in many cases, one of the 16 early entrants into a new software category 17 quickly captures a lion's share of the sales, 18 while other products in the category are either 19 driven out altogether or relegated to niche 20 positions. 21 You've heard evidence, you'll hear 22 more evidence during the trial about the market 23 positions of various products competing in each 24 of these markets. 25 And in spreadsheets, for example, 4351 1 Lotus 1-2-3, one of the early entrants quickly 2 captured a lion's share, a big market position. 3 That was during the time that MS-DOS, 4 a character-based system, was prevalent. 5 When the market changed and GUIs began 6 being used and preferred by most consumers, of 7 course, there was a change. And we'll come to 8 that. 9 But the point of showing this finding 10 here in connection with the applications 11 barrier to entry is that software markets are a 12 little bit different than some other markets in 13 this respect, as well. 14 As the Court found in many cases, an 15 early entry can become dominant, capture a 16 lion's share. Other products may be driven 17 out. 18 And in Finding of Fact 134, which is 19 on page 27, you'll see that, yes, with 20 browsers, when Netscape had a superior product, 21 it had a large share of browser usage. 22 So we'll come later to the but-for 23 world that the Plaintiffs' experts have 24 proposed. 25 We would say a world that the 4352 1 Plaintiffs' experts imagined. 2 It's not similar to the world that the 3 Court in the government case described. It's 4 not similar to any of the worlds that have 5 actually existed in software markets. 6 In large measure for the reasons that 7 we've described. 8 All right. The government case you've 9 heard about -- I won't spend a lot of time 10 right now about, but I want to talk a little 11 bit about the concept of violating the 12 antitrust laws. 13 And as you know, Microsoft did so for 14 the period July '95 to June 24, '99. 15 The Court has decided that Microsoft 16 has accepted that result, and as we'll talk 17 about, there was a final judgment in that case. 18 But as the Plaintiffs told you, and I 19 referred to this morning, the rules say that 20 companies should compete as vigorously as they 21 can, the concept of the pedal to the metal. 22 And in voir dire you were asked about 23 stop signs, and we talked a little bit about 24 going through a stop sign. 25 Here's just a little demonstrative. 4353 1 The interior happens to be a Ford 2 F150. We just happened to pick that. 3 I actually drive a Ford Explorer; not 4 this. But this is the picture that we had. 5 And, of course, if you're driving down 6 the road and you see a stop sign, there may 7 even be a sign warning you that a stop sign is 8 coming, you know what the rule is. It's pretty 9 clear. It's right in front of you. It's plain 10 and simple. 11 Everyone understands that you drive at 12 a reasonable speed and that when a stop sign is 13 in front of you, when you see it, you better 14 slow down, be cautious, and you sure better 15 stop. 16 You can see there's some sort of van 17 coming on the cross street, but the location of 18 the line in the real business world, the stop 19 line and the stop sign may be a little bit 20 different. 21 As the Plaintiffs said in their 22 opening, the rules say that companies should 23 compete as vigorously as they can. 24 And if you think about the analogy of 25 driving down the road, you're competing as fast 4354 1 as you can, as hard as you can. And the 2 question of where the line is, where the stop 3 sign is, can be unclear. 4 And we've shown you just 5 hypothetically three stop signs, but they sort 6 of come in and out, and you don't see them 7 coming up on you. 8 And Judge Rosenberg has given you an 9 instruction that makes this point that we've 10 tried to make visually. 11 It's in Instruction 8, which appears 12 on page 10. 13 And the Court's instruction to each of 14 you is that the difference between 15 anticompetitive conduct and conduct that has a 16 legitimate business purpose can be difficult to 17 determine. This is because all companies have 18 a desire to increase their profits and increase 19 their market share. 20 These goals are an essential part of a 21 competitive marketplace. 22 Microsoft went through its stop sign. 23 The Court's determined that. Microsoft 24 violated the law. And we do not -- we do not 25 say otherwise. And, of course, you've been 4355 1 instructed that that's so, and Microsoft long 2 ago accepted that result. 3 Much of what you heard about in the 4 findings of fact had to do with competition 5 between Microsoft and its browser Internet 6 Explorer and Netscape and its browser 7 Navigator. 8 Last Wednesday the Plaintiffs were 9 talking about the findings, and they said most 10 of the rest of the findings focus on Navigator. 11 And I think it's fair to say that 12 there were 43 pages of the findings in your 13 notebooks, pages 27 to 70, which cover Findings 14 134 through 377, that refer to Navigator and 15 Internet Explorer and the competition between 16 those browsers. 17 Now, one thing that you may have 18 noticed, Finding of Fact 376 on page 69, is 19 that -- what Microsoft did, the Plaintiffs call 20 it bundling or sometimes bolting. But as they 21 included Internet Explorer with Windows, and 22 Microsoft included Internet Explorer with 23 Windows at no additional charge. 24 So Windows is being sold now with 25 Internet Explorer in it, and the price didn't 4356 1 go up. There was no additional charge. You 2 were getting Internet Explorer for free. 3 And in a case about overcharging 4 consumers, we think that will be important to 5 you. 6 And Finding of Fact 411 was one that 7 when the Plaintiffs originally talked about it, 8 they brought your attention to a number of 9 sentences in Finding of Fact 411. 10 Later on, I think late last week, last 11 Friday, they made reference very briefly to the 12 one sentence that I now am bringing to your 13 attention. 14 The Court in the government case, in 15 Finding of Fact 411, on page 77 of your 16 findings said, there is insufficient evidence 17 to find that, absent Microsoft's actions, 18 Navigator and Java already would have ignited 19 genuine competition in the market for 20 Intel-compatible PC operating systems. 21 And you remember, as the Plaintiffs 22 said, both Navigator and Java were what the 23 Court called middleware. They were not 24 operating systems. They were middleware that 25 ran on top of an operating system. 4357 1 And the Court in the government case 2 talks about the possibility that applications 3 would plug into the middleware instead of 4 plugging into Windows. 5 And you'll remember the Plaintiffs 6 showed a demonstrative sort of hypothetical 7 about how that might work. 8 But again they sort of skipped over 9 this one sentence, the sentence that the Court 10 in 1999 said there was insufficient evidence -- 11 insufficient evidence that either of these two 12 middlewares, Navigator or Java, would have 13 ignited genuine competition in the operating 14 system market. 15 So again, when we get to the question 16 of causation, of whether or not Microsoft's 17 anticompetitive conduct in the government case 18 caused any injury to these Plaintiffs, whether 19 the Plaintiffs paid too much as a result of 20 Microsoft's anticompetitive conduct from '95 to 21 '99, I ask you to remember what the Court said. 22 Insufficient evidence, to find that 23 genuine competition, some additional 24 competition in the operating system market 25 would have existed. 4358 1 We think that will be important, 2 again, to the whole question of causation. 3 Did Microsoft's conduct in the 4 government case, or otherwise, cause these 5 markets to be so different from what they 6 otherwise would have been that the prices would 7 have been as dramatically different as 8 Professor Netz says? 9 Remember, Professor Netz will offer 10 her testimony, her opinion based on her models 11 that the overcharge for Windows was $42.49 for 12 a product that lasts forever, that gives you 13 great, great functionality, and that in many 14 cases costs about $50. 15 And lastly for now, on the government 16 case, I want to remind you of what the Court 17 said yesterday at noon. 18 You are instructed that in the 19 government action there was no finding of fact 20 as to whether Microsoft imposed monopoly 21 prices. 22 That was just when all of us came back 23 from lunch at 12 o'clock yesterday, and it's 24 something that again we ask you to keep in mind 25 when considering the evidence through a long 4359 1 trial. 2 There will be so many depositions and 3 so much testimony, mostly from competitors, 4 competitors who claim they were injured by 5 Microsoft. 6 And I ask you, please, to take note of 7 the Judge's instruction to take note that this 8 is something that the Plaintiffs must prove to 9 you that Microsoft charged too much. 10 All right. I want to come back before 11 too long to the story that we were discussing 12 about the history of Microsoft. I want to come 13 back to some of the evidence in this case. 14 I want to point out to you one other 15 instruction from the Court that we think is 16 also very important, and I've sort of referred 17 to it before. 18 In considering the evidence in this 19 case -- I think this is 108, Chris -- the Court 20 has instructed you -- this is Number 18, page 21 27 -- you will decide the facts from the 22 evidence. Consider the evidence using your 23 observations, common sense, and experience. 24 And Microsoft very much asks that you 25 use your common sense and experience in 4360 1 considering the evidence in this case. 2 When it comes, for example, to the 3 allegations that the Plaintiffs have made about 4 bundling where they say that putting two 5 products together is wrong, just let me say by 6 way of example one of the things that I think 7 the Plaintiffs said was wrongful was combining 8 -- sorry -- MS-DOS with Windows. That is, 9 putting them together. 10 We think the evidence will be that 11 that was of great benefit to consumers. 12 Another thing the Plaintiffs said, I 13 think, that they will contend is wrongful when 14 it comes to bundling was offering Office as a 15 suite of applications. 16 Now, I'm not sure we've talked about 17 this much, but Microsoft Office contains a 18 number of different products and has for a 19 number of years. New products have been added 20 over time. 21 But going way back, about 15 years to 22 the present, Office has included Word and Excel 23 and PowerPoint, and through the years different 24 additional functionality has been added to 25 office. 4361 1 And one thing I want to tell you right 2 here about bundling and common sense and your 3 experience. 4 Microsoft has always given consumers a 5 choice. 6 If you don't want the bundle, the 7 package, Office, you can always buy Word alone, 8 separately. That's been true throughout this 9 whole period of time. 10 And if you just wanted a spreadsheet, 11 Excel, you could buy that separately. You 12 don't have to buy Office as a bundle. You can 13 buy each product individually. 14 Now, of course, and I think the 15 Plaintiffs hinted at this, when it comes to 16 pricing, Office is actually less expensive than 17 Word and Excel combined. 18 Just as a hypothetical, again, these 19 aren't exact real numbers, but if Word costs 20 $60 and Excel costs 60, you could buy Office 21 for about 100, instead of the 120 that you 22 would pay if you bought the two products 23 separately. 24 Again, you could buy one alone if you 25 want, but if you want Office, you get a lower 4362 1 price, and on top of that, PowerPoint and other 2 products and other functionality. 3 So I think you see now why I took a 4 little time to pause and emphasize the point 5 that we want you to keep your common sense and 6 to consider these allegations using your common 7 sense and your experience. 8 If you can get a bundle for less price 9 than the two products together would cost you, 10 how does that hurt consumers? 11 And that's certainly the case with 12 Office. And I think the Plaintiffs conceded 13 that the bundles, the pricing of the bundles 14 was always low. 15 So I want to tell you a little bit 16 quickly about some of our witnesses. 17 You know Bill Gates will be here. We 18 talked about that. 19 I told you that indeed he is eager to 20 come testify. It may be quite a while before 21 he gets here, but he wants to tell you about 22 the history of Microsoft and the founding of 23 Microsoft, and he wants to tell you about how 24 Microsoft became successful and the market 25 shares in the 1980s and what they're 4363 1 attributable to. 2 We're going to try to convince him not 3 to be too modest and to tell you the truth 4 about the good, the really great business 5 decisions that Mr. Gates himself made going 6 back now 25 years or more that explain in a 7 very large measure how Microsoft got to be 8 where it is. 9 And we will have Steve Ballmer here. 10 Mr. Ballmer is the new chief executive 11 officer of Microsoft. 12 As Mr. Gates plans to leave the 13 company and is pulling back a little bit, 14 Mr. Ballmer has taken over as the CEO and is 15 running the company now. 16 Mr. Gates remains the chairman, but we 17 will have Mr. Ballmer here to testify, as well, 18 about Microsoft and its decisions and the low 19 prices of Microsoft products and how Microsoft 20 became as successful as it did. 21 Jeff Raikes will be here. 22 He started with Microsoft in 1981, so 23 25 years ago. 24 Mr. Raikes grew up on a farm in 25 Nebraska. He worked on Microsoft's early 4364 1 development of applications for both the 2 Windows system and the Macintosh. And he'll 3 tell you about Microsoft's decision to combine 4 different applications into a suite, into 5 Office, as well. 6 Jody Snodgrass worked at Microsoft 7 from '83 to '95. 8 In 1988 she was asked by Bill Gates to 9 take responsibility for the development of 10 Windows 3.0, the product that hit the market in 11 May '90 that was a great graphical user 12 interface and that in some significant way 13 changed the world of computing. 14 So we want her to come and tell you 15 about what she did and what the company did. 16 There are just a number of others. 17 Pete Higgins who worked at Microsoft 18 between 1983 and 1998, he worked on the 19 development and marketing of applications. 20 We have the gentleman who was 21 responsible for the development of Windows 95, 22 David Cole, C-o-l-e. 23 Ralph Lipe, L-i-p-e. 24 Mr. Lipe has been awarded 30 patents 25 for his work at Microsoft for innovations that 4365 1 he contributed to and worked at Microsoft for 2 17 years. 3 Robbie Bach, you've seen his name on 4 some of the E-mails that the Plaintiffs showed 5 you. 6 Mike Maples, you saw his name, as 7 well. 8 He joined Microsoft in 1988, as did 9 Robbie Bach. 10 So it's going to be quite a while 11 before we get our chance to bring you these 12 witnesses, but they will be here, and they will 13 testify, and we're eager to have you apply your 14 common sense and experience when listening to 15 their testimony, their sworn testimony about 16 what they did, what Microsoft did, and the 17 reasons for Microsoft's success. 18 There are also witnesses who we will 19 have, many by videotape deposition as well, who 20 are former or current employees of competing 21 companies, companies that competed against 22 Microsoft. 23 There are some former WordPerfect 24 people, most importantly a man named Willard 25 Peterson, who was called Pete by everybody. 4366 1 Pete Peterson was executive vice 2 president of WordPerfect during the time that 3 the Plaintiffs told you WordPerfect and 4 Microsoft was locked in competition. 5 And Mr. Peterson has some important 6 testimony to give about WordPerfect, Microsoft, 7 and the way they competed against one another. 8 We think it will be highly useful for 9 you in evaluating some of the allegations that 10 have been made that Microsoft did something 11 wrong in competing against WordPerfect. Pete 12 Peterson. 13 Also, from WordPerfect there will be 14 Norm Creighton. 15 A man named Dean Clive Winn, W-i-n-n. 16 And Mr. Winn will tell you that 17 WordPerfect in the '80s focused its development 18 on the wrong platform, on OS/2. And so while 19 other companies were writing applications for 20 Windows, WordPerfect missed the boat and wrote 21 applications for OS/2. 22 So when 3.0, Windows 3.0 came out, 23 WordPerfect was a little late getting started 24 writing applications for Windows. 25 There are a number of former Lotus 4367 1 people. 2 Steve Crummey will be an important 3 witness. 4 I'll show you a little of his 5 testimony during this opening, as I will 6 Mr. Peterson's. 7 And there are former employees of 8 Digital Research, DRI. 9 The Plaintiffs gave you what they 10 called their story about the competition 11 between Microsoft and DRI. 12 DRI, of course, had the DR-DOS 13 operating system, which was a character-based 14 system. 15 And Frank Bailinson and Andrew 16 Wightman of DRI will testify for Microsoft. 17 There are also former IBM people, 18 people who know about and worked on OS/2. 19 Anthony Ingenoso. Roy Clauson, 20 C-l-a-u-s-o-n. Max de Freitas. Douglas 21 LeGrande. 22 So Microsoft eventually, when it gets 23 its chance, because again the Plaintiffs go 24 first with their evidence, will have a number 25 of witnesses, not just from our company, but 4368 1 from these competing companies as well, who 2 will give you their evidence about the reasons 3 for the success of Microsoft's products or in 4 some cases the reasons why their own companies 5 were not successful in the marketplace. 6 These reasons all go to legitimate, 7 yes, hard-fought, but legitimate business 8 competition between these companies. 9 Competition that on both sides was 10 rough and tumble, that's correct. It was 11 aggressive on both sides. 12 And the witnesses I've mentioned from 13 the competing companies, companies that went up 14 against Microsoft, will show you that it was 15 legitimate business competition on both sides. 16 I want to mention just a few of our 17 experts. 18 The Plaintiffs, I think, have said 19 that they will call 11 experts on their case. 20 Now, if they do that, that may be, I 21 don't know about the number of fact witnesses 22 that they have other than through deposition, 23 but we have experts ready, as well, if we need 24 them, and we'll have something close to the 25 same number if the Plaintiffs proceed in that 4369 1 fashion. 2 And I just mention a few who I think 3 are perhaps among the most important. 4 We have Kevin Murphy, who is a 5 professor at the University of Chicago. He's 6 an economist. Professor Murphy is a little bit 7 north of 40 now, but when he was below 40 years 8 old, he won a medal as the most outstanding 9 American economist under the age of 40. 10 And he'll explain some of the economic 11 concepts that I spoke about earlier. I'm sure 12 he'll do a better job than I did. But he'll be 13 here to testify for you. 14 And we have Professor Hubbard, who is 15 the dean of the graduate school of business at 16 Columbia University in New York and is a former 17 chairman of the president's council of economic 18 advisers. 19 Professor Hubbard will talk about the 20 value of operating systems and will point out 21 some of the deficiencies in the analysis and 22 the opinions offered by Professor Mackie-Mason 23 and Professor Netz. 24 We have professor Sharon Oster. She's 25 a professor at Yale in New Haven, Connecticut, 4370 1 and she will tell you again about some of the 2 important economic principles, principles that 3 we think cut strongly against the but-for world 4 that the Plaintiffs will offer you, the world 5 that they say would have existed in the absence 6 of the alleged anticompetitive conduct. 7 And I'll mention just one other now, 8 and that's Professor Chris Kemerer. 9 He's a professor of information 10 systems at the University of Pittsburgh. And 11 he's going to tell you a little bit about 12 innovation in software industries and GUIs and 13 a little bit about Microsoft's role in making 14 computers easier for all of us to use. 15 I think it's worth noting that, at 16 least if I understand what the Plaintiffs' 17 evidence will be, there will be not a single 18 witness for the Plaintiffs, not even one, other 19 than their paid experts, not one, who will say 20 that Microsoft's high market shares resulted 21 from wrongful conduct that took place in 1988 22 or 1990 or way back in 1992. 23 I don't think any of the competitor 24 witnesses they're calling will say that, and I 25 don't think that anyone other than an expert 4371 1 will point to any conduct, for example, in the 2 years 2001 through 2006 that was allegedly 3 wrongful. 4 I don't think they'll have any witness 5 who will say that Microsoft's prices in the 6 last five years are too high as a result of 7 some unlawful, allegedly unlawful conduct that 8 took place in 1988 or '90 or '92 or in that 9 period. 10 So I want to turn to a section of my 11 outline which will take me a few minutes to 12 explain to you, and I want to tell you what 13 it's really about and why it's important for 14 you. 15 I have emphasized again and again the 16 question, which is a question that you will be 17 asked to decide of causation. 18 In each of these markets, operating 19 systems, word processors, and spreadsheets, 20 that question will be put to you. It's the 21 second question. 22 The first will be was there any 23 anticompetitive conduct. And, of course, in 24 operating systems we know for the one period in 25 question there was. 4372 1 In the other two markets, you'll start 2 from scratch on that question. Was there any 3 anticompetitive conduct? 4 And then the second question will be 5 causation. 6 If there was a anticompetitive 7 conduct, did it cause any injury? Did it 8 result in a world that would be so different 9 that the Plaintiffs' experts would come up with 10 this but-for scenario of many companies with 11 about equal market shares and an overcharge of 12 $42 for Windows. 13 The facts that I'm now going to 14 present to you that we think we will prove from 15 the evidence pertain to Microsoft's success on 16 the Macintosh operating system. 17 Now, let me just stop here. 18 I will address in my opening the 19 allegations that Microsoft had an unfair 20 advantage with its applications. 21 You will remember the Plaintiffs said 22 that, well, Microsoft had this strong position 23 in operating systems because Windows was -- had 24 such a high market share, and somehow it was 25 unlawful for Microsoft to take advantage of 4373 1 that. 2 And they talked about undocumented 3 APIs, and they talked about the Chinese wall, 4 and they talked about Microsoft not sharing its 5 information with companies that competed in the 6 applications business. And they said, well, 7 that gave Microsoft an advantage. 8 Well, as I will come to, not today, we 9 think there's nothing unlawful about any 10 advantage that Microsoft had. 11 But in talking about the Macintosh and 12 why it's important for causation when thinking 13 about the claims in the applications market, 14 remember, Microsoft had no advantage on the 15 Macintosh. 16 Microsoft didn't have the APIs for the 17 Mac operating system. Apple had those. That 18 was Apple's property, intellectual property. 19 Apple owned the APIs; not Microsoft. 20 And Apple could document them or not, 21 could provide information to ISVs, like 22 Microsoft people writing applications if it 23 chose to. 24 And yet what happened in the Mac world 25 is, I think, important evidence to you that 4374 1 Microsoft's success in the applications markets 2 was a result of superior skill and good 3 business decisions and Bill Gates and Steve 4 Ballmer and all the others working hard and 5 writing great products at low prices. 6 Now, before we get there, remember the 7 Macintosh was the first really commercially 8 popular GUI, graphical user interface. 9 And here's where I want to actually 10 try to show you -- some of you may remember, 11 others I'm sure don't, probably most of us 12 don't. I want to show you what a 13 character-based interface, a character user 14 interface looked like. 15 So you came to the screen. There was 16 no menu. There were no icons. It was just a 17 black screen with that C. 18 And you see there's a C and then sort 19 of a carat. And then there's that line that 20 flashes, and right there you had to type 21 commands. 22 And so in this example, in order to 23 see what files were stored on your computer, 24 you had to type -- you had to know to type the 25 letters D, I, and R. 4375 1 So you typed DIR, and if you type it 2 correctly, up comes a directory -- that's what 3 DRI stands for -- of files. 4 Now, let's say you wanted to open one 5 of those files. 6 Again, this is the old world, the 7 character-based world. 8 You have your directory. And here's 9 this C with a carat, with that little flashing 10 line. I don't know exactly what they called 11 it. 12 And you might think that if you want 13 to get to the Lotus 1-2-3 spreadsheet -- and 14 1-2-3 was at this point a character-based 15 application. 16 If you wanted to get to the 1-2-3, you 17 would type in Lotus. 18 Now, if you did that -- if you didn't 19 remember the proper command, you would get this 20 message, bad command or file name. 21 So if you typed in the right one, 22 1-2-3, up would come the Lotus spreadsheet, 23 Lotus 1-2-3. 24 And this is more or less what the 25 spreadsheet looked like 20 years ago, in 1986. 4376 1 This was a Lotus spreadsheet written for a 2 character-based system. 3 Apple, of course, in 1985 came out 4 with the Macintosh. And although Lotus 1-2-3 5 dominated the spreadsheet market and 6 WordPerfect was number one in word processors, 7 as I told you earlier, Bill Gates when he saw 8 the Macintosh was very excited and thought the 9 future of computing lay with the 10 graphical-based system. 11 Let me show you a slide that is 12 actually the Plaintiffs' slide that we borrowed 13 from them. This is what they showed you. 14 This was the first Apple GUI, 15 graphical user interface. 16 And as the Plaintiffs said when they 17 showed this to you, quote, here is the first 18 Apple GUI with the icons. It was 19 revolutionary. 20 Plaintiffs' lawyer said that to you on 21 December 1st. And Mr. Gates thought so at the 22 time. We say yes, it was. 23 Many people in the industry did not 24 recognize it as such. Bill Gates did. The 25 people running WordPerfect and Lotus, as I will 4377 1 show you and as the evidence will come in at 2 trial, did not. 3 They were very successful with their 4 character-based systems and they kept doing it. 5 Now, what did Microsoft do? I showed 6 you the 1985 letter that Mr. Gates wrote to 7 Mr. Sculley, the CEO of Apple. 8 But what Microsoft decided right away 9 to do back in the early '80s when Steve Jobs, 10 the founder of Apple, showed Mr. Gates a 11 prototype of the Apple GUI, Microsoft decided 12 to write applications, word processing and 13 spreadsheet applications to the Macintosh 14 graphical user interface. 15 Many people at the time thought that 16 GUIs were a gimmick; that they wouldn't last. 17 And John Sculley will testify by 18 videotape for you that Bill Gates was one of 19 the first three developers to write for the Mac 20 platform. Bill Gates was one of the first 21 three. 22 Now, again, Mr. Sculley will add that 23 not only was Microsoft one of the first three, 24 but Microsoft was the most active independent 25 applications developer for the Macintosh by 4378 1 far. 2 And Microsoft started releasing 3 applications for the Mac as early as 1984 4 products called Chart and Multiplan, and Word 5 in January of '85, Excel in November '85, and 6 on and on. Works, PowerPoint, Mail and 7 Project. 8 And these were applications, again, 9 they're not written to Windows, Microsoft's own 10 operating system. They're not written to 11 MS-DOS, Microsoft's character-based operating 12 system. They're written to the Mac. 13 Microsoft, of course, wanted to sell 14 applications written to the Apple system even 15 though Microsoft had no advantage as compared 16 to other developers on the Mac. 17 What did Lotus and WordPerfect do? 18 Well, Lotus came out with its first 19 Mac application in June of 1985, but Mr. 20 Crummey, whose name I mentioned earlier, will 21 testify that it was a commercial failure, and a 22 second version of Jazz, this was a combination 23 spreadsheet, word processor, and database 24 software, came out and was canceled -- I'm 25 sorry, it was announced, but then canceled in 4379 1 1988 before it was even released. 2 And Lotus then announced in October 3 1987 that it would come out with its 1-2-3 4 spreadsheet for the Mac. 5 They said when they announced it that 6 the spreadsheet would be released in 1988. 7 And you'll hear testimony from a 8 gentleman named David Reed, R-e-e-d, who worked 9 at Lotus. That that product announced in '87, 10 Lotus said we're going to come out with it in 11 '88, actually wasn't released to the market 12 until December 1991. 13 So four years after the announcement 14 and six years after Microsoft had its 15 spreadsheet on the Macintosh. 16 Well, I want to come to WordPerfect in 17 a moment, but, of course, I need to pause here. 18 The point, the key point is that 19 Microsoft is writing applications for a GUI, 20 the Mac GUI, not its own, way before Lotus', 21 six years in this case, a six-year advantage, 22 because Bill Gates thought that's the future of 23 computing. And Lotus apparently did not. 24 Even though they announced a product 25 in '87, it took them four years to come out 4380 1 with one. 2 That will become relevant when we talk 3 about so-called vaporware, as well. 4 Now, what about WordPerfect? 5 In 1986 WordPerfect announced that it 6 would develop a word processing product for the 7 Mac. 8 It didn't come out with that until 9 April '88, almost two years later. 10 Mr. Peterson will testify about that. 11 Mr. Peterson will testify that WordPerfect's 12 first word processor for the Mac was a mistake; 13 that the product got less than glowing reviews 14 and wasn't very good. 15 That's his testimony. 16 So let's look at just a demonstrative 17 briefly about this. 18 Here is what we call GUI applications. 19 And you see on the top, above the time line, 20 Microsoft is writing applications, word 21 processing and spreadsheet applications, and 22 others, for graphical systems going back into 23 1984, '85, '86, '87, et cetera. And coming 24 out, as you will see, with a whole bunch of 25 products, working them and reworking them and 4381 1 improving them. 2 WordPerfect had one in this period, 3 which came out in '88, and which they had 4 announced in '86. 5 And let's look at the next slide. 6 Here's a comparison between what 7 Microsoft did in the graphical world and what 8 Lotus did. 9 And again, this is so important 10 because of the Plaintiffs' allegations that 11 Microsoft's high market share in spreadsheets, 12 when Lotus had been number one by far, was 13 somehow due to some advantage Microsoft had, 14 some improper advantage. 15 The advantage it had was that 16 Microsoft had Bill Gates. And Bill Gates in 17 1983 was excited about GUIs, and he directed 18 the company to work on applications written to 19 the graphical user interface operating systems. 20 So here's Microsoft in spreadsheets 21 and other -- here it is again. All the 22 products Microsoft is releasing in the '80s. 23 And here's Lotus. And I told you 24 about the two products, and I told you what the 25 testimony will be. 4382 1 One of them was even canceled, 2 withdrawn, a couple years later. 3 And Microsoft was there writing 4 applications for the Macintosh, for the Apple 5 system, as well as its own long before anyone 6 else was. 7 Now, one thing that you should 8 remember in this connection, Apple itself was 9 writing applications for the Macintosh. 10 Now, on the Plaintiffs' theory that if 11 you have an operating system you have a big 12 advantage when you write applications to it, 13 Microsoft -- sorry -- Apple had a subsidiary 14 called Claris, C-l-a-r-i-s. 15 That was an Apple business unit that 16 wrote applications for Apple's own Mac 17 operating system. And Microsoft's applications 18 outsold, outperformed Apple's own applications 19 for the Mac. 20 So this allegation that the advantages 21 Microsoft had explain its success in 22 spreadsheets and word processing, I think it 23 has to be evaluated in connection with the 24 evidence we will show you about Microsoft's 25 success on the Mac. 4383 1 There's much more. 2 Mr. Sculley, the CEO of Apple from 3 1983 to 1993, he ran that company for ten 4 years, has testified as follows: A lot of our 5 success during the time I was there was very 6 much tied to the really great applications 7 development that Microsoft did. 8 That's the CEO of Apple. And what's 9 he saying? Of course what he's saying, as we 10 talked about earlier, if there are great 11 applications available for your operating 12 system and your computer, that helps sell 13 computers. 14 And the CEO of Apple is giving 15 Microsoft the credit for writing great 16 applications that led to success for Apple. 17 Microsoft had great developers, great 18 software developers, great people, smart 19 people, very competent people who made a great 20 product without doing anything wrong or having 21 any advantage. 22 Certainly that was true in the Mac 23 world, and there's no allegation otherwise. 24 And Finding of Fact 344 on page 63. 25 Now, this was issued in 1999, so I don't want 4384 1 to be jumping around too much with the time 2 periods. This is after the period that I was 3 talking about, but I still think it's quite 4 helpful. 5 The Court says there, one point of 6 leverage that Microsoft held over Apple was the 7 fact that 90 percent of Mac operating system 8 users running a suite of office productivity 9 applications had adopted Microsoft's Mac 10 Office. 11 Now, to put that into a little plainer 12 English, here's what it means. Mac Office had 13 a 90 percent market share on the Macintosh 14 operating system. 15 Mac Office is written by Microsoft. 16 It's Microsoft's Office product written to run 17 on Mac, on the Mac operating system. And 18 Microsoft had a 90 percent market share in a 19 market where it had none of the advantages that 20 the Plaintiffs say were somehow unfair and 21 somehow explain Microsoft's success against 22 Lotus on Windows. 23 What's the reason for Microsoft's 24 success? 25 Well, in the Mac world, I think you've 4385 1 seen the reason. Microsoft had no power to 2 bundle the Mac operating system with anything 3 else. 4 Microsoft had no special access to 5 source code or undocumented APIs. There was no 6 advantage of the sort that the Plaintiffs said 7 explained Microsoft's success on Windows. 8 But in the Mac world, the evidence 9 will be, and it's so important to causation, 10 the evidence will be that Microsoft had 11 fabulous success with its Office applications 12 written to the Mac. 13 That success is attributable to 14 exactly what I have been telling you explains 15 Microsoft's success; good hard work by smart 16 people making a better product. What the Court 17 has instructed you is the essence of legitimate 18 business competition. 19 And Mr. Sculley, again, was asked this 20 question at his deposition: To what do you 21 attribute Microsoft's success as a developer of 22 applications for the Macintosh? 23 That's the exact question we've been 24 discussing. 25 Here is Mr. Sculley's answer. 4386 1 Answer: Well, they started working 2 with Apple before the Mac was even a shipping 3 product, and they were constantly doing new 4 iterations and adding new improvements to the 5 Microsoft applications throughout the ten years 6 that I was there, and their products were just 7 very good. 8 They made very, very good 9 applications. 10 John Sculley, the CEO of Apple 11 Computer from '83 to '93. 12 So we don't need to look too far to 13 dream up explanations for why Microsoft has 14 been successful. 15 Is it attributable to some advantage 16 that Microsoft should not have had? 17 Certainly on the Mac no one could say 18 that's so. 19 And then there's the testimony of 20 Steve Crummey. I told you he was the Lotus 21 employee, senior vice president of worldwide 22 sales. And his deposition was taken in 2001. 23 He said when he first saw Microsoft's 24 Excel for the Macintosh in 1985, all the way 25 back then, he thought it was, quote, awesome 4387 1 visually, unquote. 2 He said this: Quote, I saw Excel for 3 the Mac at COMDEX, and that set off in my mind 4 a nuclear bomb because up until that time they 5 were only an operating system company. 6 You'll hear more from Mr. Crummey. He 7 saw what was coming, although his bosses at 8 Lotus did not. 9 Microsoft made great software. And 10 Mr. Gates started early, before these major 11 competitors did, concentrating on the GUI. 12 And then Pete Peterson, the executive 13 vice president of WordPerfect who ran that part 14 of their business, he testified that in the 15 late '80s -- he was asked about Microsoft's 16 software in the late 1980s. 17 He said this: Microsoft Excel was a 18 great piece of software. It was obvious that 19 the consumers preferred Excel by a big margin. 20 Question: Why was that obvious? 21 Answer: Because its sales just 22 skyrocketed overnight. It got great reviews. 23 Everybody loved it, unquote. 24 So Lotus and WordPerfect were 25 unprepared, as the last two graphics showed 4388 1 you, when the world changed, not in an instant, 2 but relatively quickly, from character-based 3 systems to GUIs. 4 And Microsoft's success, we say the 5 evidence will show you, is attributable not 6 just to the great products that Microsoft 7 developed for Windows, but because Microsoft 8 had this huge headstart for years writing 9 applications for GUI operating systems while 10 Lotus and WordPerfect missed the boat. 11 It's not because of any special 12 advantage, though there's nothing unlawful 13 about the advantages. And I'll come to that. 14 And here again, we have to go back to 15 Mr. Sculley one more time. 16 Do you believe that Microsoft's 17 success on the Macintosh platform in the 1980s 18 affected its ability to compete as a developer 19 of Windows applications? 20 Answer: Absolutely. 21 Question: Can you explain? 22 Answer: There is almost no difference 23 between a Windows Office product and a 24 Macintosh Office product. While they're 25 running on totally different operating systems 4389 1 with different instruction sets, different 2 microprocessors, different hardware 3 configurations, at the user level, they appear 4 almost identical. 5 And it would be, I think, ridiculous 6 to suggest -- I'm still quoting Mr. Sculley. 7 This isn't me. 8 It would be, I think, ridiculous to 9 suggest that Microsoft didn't learn an 10 incredible amount in terms of the years that 11 they were successfully developing applications 12 on the Macintosh and then translating something 13 that was virtually identical over to the 14 Windows platform. 15 Mr. Sculley goes on. There was no 16 other major software vendor who had that 17 advantage. Lotus wasn't a developer on the 18 Macintosh. Borland wasn't a developer on the 19 Macintosh, et cetera. 20 So Microsoft wrote great software. It 21 did for the Mac. It did for Windows. It's 22 done so for other platforms, as well. 23 Bill Gates made a great decision, one 24 really where he bet Microsoft, bet his whole 25 company that the future of computing was 4390 1 graphical user interfaces. 2 And he did that at a time when 3 everybody else was thinking that's never going 4 to work, we're sticking with the 5 character-based systems. 6 And when Windows 3.0 came out in May 7 of 1990 -- you'll remember the Plaintiffs' 8 expert says that Windows 3.0 was a 9 revolutionary technological leap. 10 When that came out, Microsoft was in a 11 great position. It had all this experience on 12 GUIs. Windows 3.0 took off in the marketplace. 13 It went like wild fire. 14 And what did consumers want? They 15 wanted applications that ran well on Windows 16 3.0. 17 Lotus and WordPerfect did not have any 18 that ran well on Windows 3.0, according to 19 Professor Noll, their expert, for a couple of 20 more years. 21 So we'll touch on some of these issues 22 again, but again, Microsoft's decision to 23 develop on the GUI and its success on the Mac 24 -- its 90 percent market share is a great 25 indication of why Microsoft succeeded in the 4391 1 applications business. 2 MR. TULCHIN: Your Honor, I don't know 3 if you want to take an afternoon break or not, 4 but if you do, this would be a great time. 5 THE COURT: Very well. We'll take a 6 ten-minute recess. 7 Remember the admonition previously 8 given. Leave your notebooks here. 9 All rise. 10 (A recess was taken from 1:35 p.m. 11 to 1:51 p.m.) 12 THE COURT: Everyone else may be 13 seated. Thank you. 14 MR. TULCHIN: Should I proceed, Your 15 Honor? 16 THE COURT: Yes, please. 17 MR. TULCHIN: Ladies and Gentlemen, we 18 were talking about some of the reasons for 19 Microsoft's success in the applications 20 markets, and I was just about to move to 21 something new, but one of my colleagues pointed 22 out that I forgot to show you the two slides 23 about Microsoft's market share on the Macintosh 24 platform. 25 Here's the word processing market. 4392 1 And again, in 1987, Microsoft had 2 close to 70 percent market share for word 3 processing on the Macintosh, and that share 4 grew to over 70 percent in '92 and close to 90, 5 90 percent in 1998. 6 And you'll remember the finding of 7 fact we looked at that talked about a 90 8 percent office share -- sorry -- 90 percent 9 market share for Office. 10 And then let's look at the 11 spreadsheets. 12 The same picture, except even more 13 dramatic. 14 Microsoft had great success on the 15 Macintosh. 1987 in spreadsheets over 80 16 percent. By '92 it's about 90 percent. And 17 according to these figures, it's close to 100, 18 almost 100. There's just a tiny bit of other 19 -- for all others by 1998. 20 And one last time, Microsoft had none 21 of the advantages on the Mac that the 22 Plaintiffs say explain its success on Windows. 23 Okay. Let's go to the next subject, 24 which is something we touched on just a little 25 bit earlier, and this has to do with operating 4393 1 systems and talking about competition in the 2 operating business -- the operating system 3 business and how one succeeds. 4 You've heard about high volume low 5 prices. You've heard about Bill Gates early on 6 thinking that an operating system could be made 7 into a standard if -- this was his letter to 8 Mr. Sculley -- if you had support from ISVs, if 9 many other companies wrote to your platform. 10 That's the July 1985 letter, DX 1348, 11 in which Mr. Gates says to Mr. Sculley, no 12 personal computer company, not even IBM, can 13 create a standard without independent support. 14 And Microsoft, of course, makes an 15 operating system that as the Plaintiffs told 16 you like all other operating systems has 17 applications programming interfaces that we all 18 call APIs. 19 Three long words. Applications 20 programming interfaces. 21 And these are sort of like hooks into 22 which the ISVs, the developers of applications, 23 can build their software to take advantage of 24 what the operating system has to offer. 25 Now, the first thing to note is that 4394 1 as Microsoft's products have gotten better and 2 been improved over time in the operating system 3 business, the number of applications -- I'm 4 saying this wrong -- the number of APIs in 5 Windows has constantly increased. 6 And you'll see that for Windows XP 7 released in 2001, there were about 6,000 APIs 8 that are part of the operating system into 9 which ISVs developers can basically plug into. 10 And the Plaintiffs' lawyer last 11 Thursday in telling you about APIs, I think 12 accurately described one piece of this. 13 The Plaintiffs then said that they're 14 a great help, the APIs are, to ISVs because the 15 ISVs can focus on the special features of their 16 applications rather than spending time 17 reinventing the wheel. 18 The Plaintiffs said an applications 19 developer doesn't have to write the thousands 20 of lines of code that it takes to manage what 21 Windows does. 22 Instead, the ISV can write one or two 23 lines that call that API, and then the API will 24 do those functions with Windows. 25 So we agree, in essence, with that. 4395 1 The more APIs there are at an 2 operating system and the more functionality the 3 operating system has, the more the operating 4 system itself does, the better off ISVs are 5 because there's more to plug into, they can 6 concentrate on writing their applications that 7 are specialized. Let's say a game or some 8 special kind of application. And the operating 9 system can do lots of the work for them. 10 And Microsoft has concentrated over 11 the years in writing good APIs that allow these 12 other companies, ISVs, to take advantage of 13 everything that Windows gives them. 14 Now, I was telling you when we were 15 talking about the applications barrier to entry 16 that attracting applications to your platform, 17 your operating system is part of the legitimate 18 competition between operating systems makers. 19 And I want to tell you just a little 20 bit now about what the evidence will show that 21 Microsoft has done over many years to try to 22 get ISVs to write to Windows. 23 Microsoft has employees that are 24 called evangelists, sort of using a religious 25 term, because they're spreading the religion of 4396 1 the Microsoft operating systems. 2 The evangelists work with ISVs. They 3 go out into the field, work with these 4 developers to promote Windows, and answer 5 questions and try to get developers to hook 6 into the APIs in a way that's good for 7 everybody. 8 There's something called the 9 development lab. This was opened in 1991 at 10 Microsoft in Redmond, Washington. 11 And this is a lab that's made 12 available to all ISVs for free, no charge. 13 You come to Microsoft, you work in the 14 lab, you get the latest hardware and software, 15 and you get to work with all the new 16 technologies that are built into each new 17 version of Windows. Again, with the objective 18 of helping the ISVs. 19 And, of course, Microsoft wants to 20 help them because Microsoft wants them to write 21 their applications to Windows. 22 There's the Microsoft developer 23 network which offers a program to developers 24 via this network. 25 It includes books, magazines, lots of 4397 1 other stuff to keep ISVs current with what's 2 happening in the industry and with Microsoft 3 technology. 4 And then there's the MSDN website, 5 which offers online training, and a host of 6 other similar services, all for free to 7 applications developers. 8 It's interesting that in 1995 IBM 9 recognized just what Microsoft was doing in 10 trying to get developers to work with 11 Microsoft. 12 Here's Defendant's Exhibit 642. 13 It's an IBM memo from August 7, 1995, 14 and it's entitled ISV solution developer 15 strategy. 16 This was a strategy that IBM was 17 trying to come up with to compete with 18 Microsoft in getting the attention and support 19 of ISVs. 20 And, of course, IBM recognized that as 21 of this time in 1995, that Microsoft is 22 accepted as the best of breed in the industry. 23 This is a reference to meeting the needs of 24 ISVs, what they call sometimes solution 25 developers. 4398 1 And you'll see on another page of this 2 same IBM memo, industry perception of 3 Microsoft's value discipline is that their 4 programs are low cost with access to a volume 5 market. 6 The highlight of Microsoft's solution 7 -- support to solution developers are low cost 8 and easy access to a number of the things that 9 Microsoft makes available. 10 So obviously it would be easier for 11 Microsoft, and maybe easier for others, if 12 there wasn't this competition in the market to 13 get the attention and support of ISVs. 14 The very thing that Bill Gates said in 15 1985 to John Sculley you needed in order to 16 become a standard. 17 But Microsoft has invested a lot of 18 time and money in doing exactly that in an 19 effort to make Windows the most popular 20 operating system. 21 And, of course, I want to bring your 22 attention back to the Court's instruction. 23 This is Instruction No. 8, which we've 24 talked about before. 25 Here's a sentence I haven't directed 4399 1 you to before. 2 You should distinguish the acquisition 3 or maintenance of monopoly power through 4 anticompetitive acts from the acquisition or 5 maintenance of monopoly power by supplying 6 better products or services, possessing 7 superior business skills or because of luck, 8 which is not unlawful. 9 So there's much more in the evidence 10 that you'll hear in the trial about what 11 Microsoft did to get support from developers. 12 That's the applications developer -- 13 barrier to entry that Microsoft was so 14 successful that thousands and thousands of 15 applications were written to the Windows 16 platform. 17 Another key to Microsoft's success 18 going way back to the '80s and its high market 19 share and operating systems, and again we're -- 20 I'm talking now about operating systems -- has 21 been volume. 22 We talked about economies of scale. 23 High volume, low price. 24 Mr. Gates will be here to tell you 25 about his strategy from the beginning. 4400 1 We'll talk more later about R and D, 2 research and development. 3 But Microsoft has been a leader in the 4 software field in spending money, time and 5 attention on research and develop, to come up 6 with new products, great new technologies that 7 will benefit consumers and businesses. 8 Professor Noll -- I know you're tired 9 of me saying this -- recognized that with 10 Windows 3.0. With Windows 95 I think it can be 11 said that the public recognized it with people 12 lining up around the block. 13 And there are great applications like 14 Pete Peterson's testimony that I referred you 15 to saying that Excel was a great piece of 16 software. 17 And I want to show you Office, which 18 came out for the first time in 1990. 19 Office, as I explained to you earlier, 20 had word processing and spreadsheet software 21 packaged together for less than the price of 22 those two alone. 23 And I want to look at Defendant's 24 Exhibit 853, which was a memo written in 1993 25 by Pete Higgins, who I told you is on our list 4401 1 of witnesses who will testify here. 2 And in 1993, Mr. Higgins starts 3 exploring the reasons that Office has been 4 successful. 5 And Microsoft does a survey of users 6 of Office, and here Mr. Higgins reports that 7 over two-thirds claimed that the following 8 factors were very influential to their decision 9 to acquire software; integration, putting these 10 things together so they work well together, 11 Excel and Word, ease of use, ease of learning, 12 consistency across products. 13 Exhibit 853, Defendant's 853 goes on. 14 And here in talking about the move to suites -- 15 Did we lose this, Chris? 16 There we go. Wanted to make sure it 17 came up big enough so that everyone could read 18 it. 19 The Microsoft document reports that 20 the popularity of Office was based on pricing 21 and packaging benefits and that Microsoft 22 focused on delivering products which had 23 leadership features in their own category, but 24 also worked well together with each other. 25 Let's go on. 4402 1 Spend just a couple more minutes with 2 this document. 3 Here on the subject of research and 4 development, Richard Fade reports, we will 5 spend over $670 million in R and D this next 6 year. 7 That's more money than any other 8 company makes in software sales. 9 So Microsoft in '93 is not content to 10 say, well, Office is doing well, let's just 11 stop. We've been successful. We have a high 12 market share. 13 They're spending $670 million in a 14 year on Office to try to improve the product. 15 And then let's look at Defendant's 16 Exhibit 440A. 17 This is now jumping forward to 1995. 18 Microsoft Office strategy. Again by 19 Richard Fade. 20 And I bring this to your attention 21 because I want to give you a sense of the kind 22 of things Microsoft often focused on, which is 23 to find out how consumers used Microsoft's 24 software and how to make the experience for 25 consumers better, make it easier, make it more 4403 1 inviting, make the software perform better for 2 consumers. 3 Here we're talking about Office, of 4 course, which has Word and Excel in it. 5 And Mr. Fade, in Exhibit 440A, says 6 the first area is something we call activities 7 based planning or ABP. 8 You're not going to hear that term 9 anywhere outside of MS, Microsoft. 10 And he goes on to say, that this is a 11 methodology that describes the process of 12 spending time with customers and finding out 13 what they do. We asked them what do you do on 14 a daily basis? How do you run your business? 15 What are the processes involved? 16 We actually spent entire days trying 17 to understand what customers are doing, all for 18 the sake of trying to make the Microsoft 19 software better. 20 Let's go on. 21 They do something called usability 22 testing. Again, this is a little unusual. Not 23 every software company will do it. 24 What we do in usability testing is 25 take a feature idea, mock up the design in 4404 1 Visual Basic and bring it into a special 2 testing lab. 3 In the lab, the user -- that's just an 4 average person -- sits on one side of a one-way 5 mirror and a research scientist, as well as the 6 product designer, sits on the other. 7 The researcher watches the user going 8 through the process of trying out a feature in 9 this Microsoft software. 10 And then we go back once they observe 11 how the feature is used and redesign it based 12 on this feedback they get from users. 13 Now, we can spend lots and lots of 14 time -- I want to go through a couple of other 15 things in this document, but I think you're 16 getting the point of the lengths to which 17 Microsoft went to try to improve the software 18 and make it better for consumers, all the while 19 the prices of software -- Microsoft software 20 are either going down or staying about the same 21 as the product gets better and better. 22 Mr. Fade in 1995 even says, until we 23 get that feature usable -- some new feature -- 24 usable for nine out of ten users, without them 25 having to refer to any outside instructions or 4405 1 manuals, we are not satisfied with the design 2 of that feature. 3 So they want to put new features into 4 Microsoft software that at least nine out of 5 ten people at the first use can be comfortable 6 with, can use without referring to an 7 instruction manual, which I know would drive 8 all of us nuts trying to read the manuals. 9 Features that are just so good, so 10 usable that the first time you use them, nine 11 out of ten people say, that's for me. 12 And that kind of effort that Microsoft 13 makes is unusual and explains in some measure 14 why people prefer Microsoft software. 15 So that was a slide from 1995. 16 There's Exhibit 453 from 1999. It's a 17 Steve Sinfsky E-mail. 18 And I don't have a slide of this, but 19 it's interesting that in 1999, Office at this 20 point has a huge market share, as does Word and 21 Excel. 22 Mr. Sinfsky, an executive at 23 Microsoft, says, Office will simply be pushed 24 out of the way if we do not address this 25 challenge head-on. 4406 1 And he's referring to the challenge of 2 putting more and more features into the product 3 to make it better and better, to make sure that 4 Microsoft stays ahead of the competition. 5 He says again in Exhibit 453, we must 6 first and foremost learn directly from 7 customers about the web features in Office 2000 8 and how those meet expectations. 9 We must improve those features in ways 10 that customers want and expect. 11 Well, we'll come back to some of this, 12 but I want to go on to my next section in my 13 outline after asking you again to keep in mind 14 all the things that Microsoft does to improve 15 its product while instead of raising prices, 16 certainly in the applications field, constantly 17 lowering them. 18 And let's go back to our favorite 19 Preliminary Instruction No. 8, page 10. 20 You've heard this before. 21 Harm to competition is to be 22 distinguished from harm to a single competitor 23 or groups -- a group of competitors. 24 And now I want to begin talking about 25 some of the allegations of wrongful conduct 4407 1 that the Plaintiffs spent several days on. 2 I expect it will take me the 15 3 minutes left this afternoon and I'm sure all of 4 tomorrow. I hope you'll bear with me. 5 First, you'll remember that last 6 Monday, December 4th, the Plaintiffs said 7 Novell is attacking Microsoft on many fronts. 8 That's a quote from what their lawyers said. 9 There's Exhibit 517, which I want to 10 show you as well about IBM. And I'm just 11 trying to give you a sense here of the way 12 these companies spoke of and talked about one 13 another. 14 Yes, Novell was attacking Microsoft. 15 I'm sorry, we have just a moment's 16 delay. We'll get this for you. 17 Here's Exhibit 517. 18 And what happened -- this is an IBM 19 document. Gary Norris is at IBM. And this is 20 from 1996. 21 And IBM finds out that Microsoft had 22 been given in -- from IBM Italy something that 23 IBM had written called Microsoft Competitive 24 Project Office. This was an Office that IBM 25 created to compete against Microsoft. 4408 1 It is my understanding, Gary Norris 2 says, that these documents are in a large 3 three-ring binder in the format of educational 4 materials on how to kill and annihilate 5 Microsoft in the marketplace. 6 Well, this is just a little bit of an 7 introduction. 8 We can look as well at PX 5978. 9 This was something Plaintiffs showed 10 you on December 8. 11 IBM wasn't the only one who wanted to 12 annihilate Microsoft. Netscape did as well. 13 Here's something in the exhibit that 14 Plaintiffs showed you last week where there's a 15 report that Netscape openly announced that 16 their goal was to replace our key asset. 17 Now, replacing our key asset means 18 nothing more than replacing Windows. That is 19 annihilating Windows. And Netscape wasn't 20 bashful about announcing what its goal was. 21 And I want to come back to IBM. 22 We're going to look at something 23 that's actually called Project Shiner, written 24 at IBM in 1995. 25 I don't think it was named after any 4409 1 of us in the courtroom, presumably. I guess it 2 refers to a shiner as like having a black eye. 3 And IBM in 1995 comes up with Project 4 Shiner, which was their code name for a 5 marketing campaign to battle the Windows 95 6 launch. 7 This is going to become very important 8 when we talk about FUD. 9 IBM says, hey, Project Shiner, we're 10 going to battle. Everybody uses these sort of 11 war metaphors and so on. 12 We're going to battle the launch of 13 Windows 95. Maybe they're afraid of what's 14 coming. 15 Windows 95 was launched in August. 16 This document is in June. 17 Battle kits will be prepared for use 18 by the PSP field organizations in their effort 19 to battle Microsoft. 20 Let's look at the next one. 21 Here's IBM in 1995 talking about fear, 22 uncertainty, and doubt, FUD. 23 And I won't read you this whole 24 paragraph. 25 It starts by saying that IBM has a 4410 1 media relations team which is continuing its 2 ongoing gorilla efforts to expose Windows 95's 3 weaknesses. 4 It talks about a campaign challenging 5 Microsoft, and then it concludes by saying our 6 FUD efforts are improving. 7 Now, it will be important when we talk 8 about FUD to understand this: The Plaintiffs 9 used FUD, fear, uncertainty, and doubt, and 10 implied, or maybe asserted, that there's 11 something wrong about a public relations 12 campaign where you attack someone else's 13 product. 14 Microsoft used FUD, the expression FUD 15 to refer to that sort of campaign but only when 16 the information used was truthful. And Mr. 17 Gates has so testified, and he'll tell you that 18 from the witness chair here. 19 FUD was actually a term, fear, 20 uncertainty, and doubt, invented by IBM. 21 They were the first one to come up 22 with that phrase and was used at Microsoft when 23 someone said let's FUD IBM, to refer to a 24 public relations campaign to attack the other 25 company. But only using truthful information, 4411 1 not information that you believed was untrue. 2 That goes well beyond FUD. And what 3 IBM was doing in Exhibit 608 that we just 4 looked at, Project Shiner, when they talked 5 about their FUD campaign was, as far as we're 6 concerned, perfectly normal competitive 7 behavior. No one says it's illegal to fight 8 Microsoft to the verge of the launch of Windows 9 95. 10 IBM wanted a public relations 11 campaign. A media relations team was formed, 12 and they were going to go out into the 13 marketplace and get information to key trade 14 press reporters and challenge Microsoft about 15 the quality of Microsoft's product. 16 In this industry, FUD was used as 17 campaigns that companies mounted against one 18 another in which they compared the two 19 products, and one company would say my product 20 is better than yours, and the other would say 21 vice versa. 22 As long as the information provided to 23 the press, to the media, to the public was 24 truthful, we say there's nothing wrong with 25 that. 4412 1 All right. I'm sorry for the delay. 2 I've lost my place in the outline. I'll come 3 back to you in just a moment. 4 In fact, the Plaintiffs talked to you 5 at some great length about Mr. Ballmer's 6 so-called bad app campaign. And the Plaintiffs 7 said that Steve Ballmer of Microsoft was going 8 around the country trying to crash an IBM 9 product. 10 Well, what the Plaintiffs left out of 11 that story were a couple of things. 12 Lee Reiswig, a high executive of IBM, 13 had, before Steve Ballmer ever started, had 14 himself gone around the country doing exactly 15 the same kind of thing against Microsoft. 16 Mr. Reiswig was referred to at the 17 time in this connection as the blue ninja. 18 And the evidence will show that in 19 1992, in '92, IBM wrote a program specially for 20 one purpose, and that was to crash Windows. 21 And they used that, and Mr. Reiswig 22 used that in support of a public relations 23 campaign. And they said in that campaign that 24 OS/2, which was then owned by IBM, OS/2 was 25 quote, better Windows than Windows, unquote. 4413 1 Lee Reiswig of IBM called this PR 2 campaign the bad app. And Reiswig was the 3 president of IBM's personal software products 4 division, and he demonstrated how this bad app 5 would crash Windows. 6 As I said, he became known as the blue 7 ninja for all these trips he made in which he 8 showed people how to crash Windows. 9 Kevin Murphy will be here to talk 10 about it. We have a deposition from 11 Mr. Reiswig himself. 12 And what Steve Ballmer did, the 13 so-called bad app campaign that Microsoft 14 engaged in, was nothing more than a response to 15 what IBM had earlier done. 16 So when we talk about FUD and we talk 17 about campaigns in which two companies compare 18 their products and claim that one is better 19 than another, we would say this is legitimate 20 business competition as long as -- as long as 21 the party making the claim believes that what 22 he or she is saying is true. 23 Now, you may remember years ago, I 24 don't think it happens too frequently now, but 25 there were TV commercials where Coke would say 4414 1 we've done some consumer survey and 51 out of 2 100 people prefer Coke over Pepsi. 3 And Pepsi would have theirs, and 4 they'd say 52 out of 100 prefer Pepsi over 5 Coke. And, of course, there are campaigns in 6 the beer industry, as well. 7 Less filling, better tasting, et 8 cetera, et cetera. 9 Again, FUD -- the word FUD is used at 10 Microsoft. Doesn't mean that you're spreading 11 disinformation. It means that you're out there 12 campaigning against your competitors, just as 13 they are against you. 14 Now, we talked yesterday briefly about 15 per processor licenses. And as you remember, I 16 pointed out that the Plaintiffs had said that 17 this was the most effective tactic that 18 Microsoft had. 19 I also said that the per processor 20 licenses in the operating system business 21 ceased in July of '94. Microsoft hasn't used 22 them in 12 1/2 years. 23 I want to point out to you something 24 else about per processor licenses. 25 No OEM was obligated, was forced to 4415 1 use a per processor license even before July 2 '94 when Microsoft used them. 3 I know there will be lots of evidence 4 in this case about per processor licenses, but 5 OEMs always had available to them, even before 6 '94, three kinds of licenses for Microsoft 7 operating systems; per copy, per system, and 8 per processor. 9 And the per processor licenses were a 10 little bit cheaper, very often a dollar or two 11 less than the price to the OEM using the per 12 system license. 13 But an OEM had a choice. If an OEM 14 didn't want the per processor license, it could 15 stay with per system. 16 All that per system licenses mean is 17 that if an OEM has a particular brand or model 18 of computer, it will use the Microsoft 19 operating system in each of those systems. 20 But if they change the model by one 21 digit or call it something a little bit 22 different, of course, they're free to use any 23 operating system in that other model. 24 And I don't think the Plaintiffs 25 mentioned, of course, that DRI and IBM had 4416 1 their own type of licenses with OEM -- 2 MR. HAGSTROM: Your Honor, covered by 3 a motion in limine. 4 THE COURT: Members of the jury, we're 5 going to take up a matter. Since it's 2:30 6 anyhow, it probably will be a good time to 7 break. 8 Remember the admonition previously 9 given. 10 You can leave your notebooks here. 11 They'll be quite safe. 12 We'll see you here at 8:30 tomorrow 13 morning. Thank you. 14 [Juror Name]: Is that 8:30 or nine? 15 THE COURT: 8:30, I promise. 16 You may be seated. 17 (The following record was made out of 18 the presence of the jury.) 19 THE COURT: Mr. Hagstrom, if you could 20 restate your objection, please. 21 MR. HAGSTROM: Your Honor, one of the 22 motions in limine that the Plaintiffs had filed 23 was what was referred to as the 24 everyone-is-doing-it type of claim or defense 25 by Microsoft. 4417 1 And that specifically one of the 2 examples cited in the motion in limine was per 3 processor, per system type license by other -- 4 by other companies such as DRI. 5 And Your Honor granted that motion, 6 and so as I understood it, Mr. Tulchin was 7 getting into that issue right at the end. 8 THE COURT: Response? 9 MR. TULCHIN: Your Honor, I don't 10 think I had actually gotten into the issue at 11 all, but I'm just trying to find the ruling 12 that Mr. Hagstrom's referring to. 13 THE COURT: Do you have a copy of it 14 for him? 15 MR. TULCHIN: I wish I could find it. 16 MS. CONLIN: The name of the motion in 17 limine, I think, was regarding other 18 technologies, companies and the circumstances 19 under which DRI, Novell obtained certain beta 20 copies of their Windows 3.1. 21 We do have a copy. 22 I'm sorry, that isn't the right one. 23 Sorry. It looked like the right one. 24 MR. TULCHIN: I'm sorry, Your Honor, 25 I'm sort of lost. 4418 1 The decision that I'm looking at, Your 2 Honor, says the following: I hope it's the 3 right one. 4 The Plaintiffs' motion is denied in 5 part and sustained in part. The Defendant may 6 not produce evidence of other entities' illegal 7 anticompetitive conduct merely to show that the 8 illegal conduct occurred or to justify its own 9 conduct. 10 Such evidence must be relevant to a 11 specific defense or claim that is appropriate. 12 A defense of everybody else is doing it will 13 not be allowed. The Court will consider such 14 offers of evidence on an issue-by-issue basis. 15 I think that's what Mr. Hagstrom was 16 referring to, but I don't think I was offering 17 any evidence that fits within this category at 18 all. 19 I don't contend that DRI's licensing 20 was unlawful. I'm not offering evidence about 21 DRI's licensing to show that everybody was 22 doing it or to somehow communicate to the jury 23 that illegal anticompetitive conduct justifies 24 what Microsoft did. These are just normal 25 business arrangements, licenses of software. 4419 1 I think I'm entitled, since they 2 attacked Microsoft's licensing programs, to 3 point out that DRI had its own licensing 4 program, and an OEM could choose between them. 5 THE COURT: Okay. Go ahead. 6 MR. HAGSTROM: Your Honor, the point 7 of the motion, and as I understood the ruling, 8 was that when Microsoft obviously engages in 9 per processor licensing, it's a -- it has a 10 monopoly share in the marketplace. 11 And the point of the motion in limine 12 was that when some other company does something 13 similar, like a per processor license, that -- 14 the reason Microsoft is raising it is to 15 justify what it's doing. But that is 16 irrelevant to the anticompetitive effect of 17 Microsoft's conduct. 18 The fact that DRI or Novell or 19 somebody else used a per processor license is 20 irrelevant. 21 Similarly, we didn't object earlier on 22 the FUD, although Mr. Tulchin was making the 23 same argument with regard to FUD that IBM and 24 others were using FUD. 25 The point here is that a monopolist is 4420 1 using these types of tactics to engage in the 2 anticompetitive conduct. 3 If DRI, that's got a small percentage 4 in the marketplace, does the same thing, 5 doesn't have anticompetitive effect. 6 THE COURT: The per processing 7 licensing, is that one of the things that was 8 found illegal in the government case? 9 MR. HAGSTROM: The per processing 10 licensing of Microsoft was not at issue in the 11 DOJ case. 12 THE COURT: And -- 13 MR. HAGSTROM: That was the subject of 14 the prior 1995 consent decree. 15 THE COURT: The everyone-is-doing-it 16 defense, correct me if I'm wrong, went to other 17 companies doing illegal acts; is that right? 18 MR. HAGSTROM: It went to the issue of 19 Microsoft citing to similar conduct by other 20 companies to justify its conduct. 21 THE COURT: Okay. 22 MR. HAGSTROM: In other words, you 23 know, everybody's doing it. 24 THE COURT: Okay. And the way 25 Mr. Tulchin read my ruling, it sounded like I 4421 1 ruled that they couldn't refer to other 2 companies or businesses doing illegal acts; is 3 that right? 4 MR. TULCHIN: That's what it seems to 5 say, Your Honor. 6 And I don't think that what Mr. 7 Hagstrom is now reporting was actually what he 8 was seeking in his motion. It's certainly not 9 what he was granted. 10 I should also say that there just 11 isn't any law to support the notion that 12 because you're a monopolist, you take your foot 13 off the pedal, to use the metaphor I used with 14 the jury. 15 As Ms. Conlin said in her opening, the 16 rules require everybody to -- encourage, I 17 should say, not require -- encourage all 18 companies to compete vigorously. 19 These are just normal business 20 practices, and showing that one company does 21 FUD while Microsoft does FUD doesn't mean that 22 the jury should conclude its lawful or 23 unlawful. I guess that's their allegation. 24 What it does show is that Microsoft 25 was responding to the FUD campaign which IBM 4422 1 engaged in, and there's nothing -- we don't say 2 there's anything illegal about what IBM did. 3 IBM was very aggressive in the 4 marketplace. A much, much bigger company than 5 Microsoft, although we're not telling the jury 6 that. None of that's come out except that 7 Mr. Hagstrom himself said it by referring to 8 the strength of IBM. I haven't. 9 But all we're doing is explaining when 10 the jury's being asked in a set of instructions 11 to evaluate conduct and to determine -- and the 12 line really isn't clear for anyone, least of 13 all the business people who engage in conduct, 14 but to determine whether conduct goes over the 15 line or doesn't, whether it's for a 16 pro-competitive business or it goes a little 17 too far, it is relevant, and all the cases say 18 this, to understand what the business practices 19 are of people in the industry. 20 It doesn't mean we'll win if IBM is 21 engaging in X or if DRI has its own contractual 22 license provisions. It doesn't -- it's not the 23 end of the inquiry, but it is relevant 24 information for the jury. 25 THE COURT: What's it relevant to? 4423 1 MR. TULCHIN: It's relevant to their 2 evaluation of whether this is anticompetitive 3 under Instruction No. 8. 4 THE COURT: You just stated it's not 5 anticompetitive what these other businesses 6 did. 7 MR. TULCHIN: I didn't say that to the 8 jury. 9 THE COURT: No, you just told me that. 10 MR. TULCHIN: Yes. 11 THE COURT: If it's not 12 anticompetitive, it's irrelevant, period, 13 because all the jury should be hearing is 14 relevant illegal acts. 15 MR. TULCHIN: But the Plaintiffs have 16 alleged that these same acts when engaged in by 17 Microsoft are unlawful. 18 THE COURT: Okay. 19 MR. TULCHIN: They're part of their 15 20 icons. 21 THE COURT: And the fact that someone 22 else may do them is not relevant to the case. 23 MR. TULCHIN: Your Honor, all the 24 cases say, and if I may, I'd like to have an 25 opportunity again to point out some of the law 4424 1 here. There's no law supporting Mr. Hagstrom's 2 statement that a monopolist can't engage in 3 conduct that others can. 4 And there is law exactly for the 5 proposition that the jury in evaluating whether 6 conduct is for the purpose, for example, of 7 business efficiency, which would make it 8 legitimate, or is for some other 9 pro-competitive purpose -- the jury is entitled 10 to understand what practices are in the 11 industry. 12 I mean, the Court at page 11 talks 13 about whether the conduct is consistent with 14 competition on the merits. 15 THE COURT: I don't understand what 16 you're reading from. 17 MR. TULCHIN: Your instruction. 18 THE COURT: Okay. 19 MR. TULCHIN: Instruction No. 8, which 20 I go back to, and you've asked the jury to 21 determine whether the conduct is consistent 22 with competition on the merits. 23 This is information that the jury 24 needs to know to understand what the 25 competition was all about between IBM and 4425 1 Microsoft and DRI and Microsoft. 2 We've certainly not violated the 3 motion in limine which referred to the 4 everybody-is-doing-it illegality argument, 5 which I think was the highlight of their 6 motion. 7 Your instruction, Your Honor, goes on 8 to say that the jury should consider whether 9 the conduct would make business sense. 10 I mean, without understanding what 11 competitors are doing in the market, how are 12 they supposed to evaluate this? 13 THE COURT: Do you have some cases for 14 me on that? 15 MR. TULCHIN: Yes, but not at hand, 16 Your Honor. I didn't know that this would come 17 up, and it's -- 18 THE COURT: Neither did I. That's why 19 I don't have the cases. 20 MR. HAGSTROM: Your Honor, we spent, 21 as you may recall, two, three days on motions 22 in limine, and this was one of those. 23 And in the Court's ruling, I think it 24 was November 13th, a defense of everybody else 25 is doing it will not be allowed. The Court 4426 1 will consider such offers of evidence on an 2 issue-by-issue basis. 3 THE COURT: All right. I'll let you 4 say -- make the argument on your opening, but 5 not -- 6 MR. TULCHIN: Thank you, Your Honor. 7 THE COURT: But you can't bring in 8 illegal acts by other parties. 9 MR. TULCHIN: Correct. 10 THE COURT: We'll take it 11 issue-by-issue when the evidence is presented. 12 Anything else on your motion or 13 objection, Mr. Hagstrom? 14 MR. HAGSTROM: No, Your Honor. 15 THE COURT: Very well. 16 If you have authorities, both of you, 17 I'd like to see them again sometime. There's 18 no rush, I guess. We'll be starting evidence 19 soon. 20 Okay. Mr. -- who are we on? 21 Mr. Reece is he here? 22 JAMES REECE, 23 called as a witness, having been first duly 24 sworn, testified as follows: 25 DIRECT EXAMINATION 4427 1 BY MR. ROVENS: 2 Q. Good afternoon. 3 A. Good afternoon. 4 Q. Mr. Reece, would you please state and 5 spell your name for the record. 6 A. It's James, and R-e-e-c-e. 7 Q. And how long have you been a lawyer? 8 A. Been a lawyer since 1975. 9 Q. And you're currently a partner in 10 Zelle, Hofmann? 11 A. I am. 12 Q. And you have some responsibilities in 13 this matter, I take it? 14 A. I do. 15 Q. And how long have you been working on 16 the Comes/Microsoft matter? 17 A. Probably for the last couple of years. 18 I've been doing some other things as well, but 19 I think for the last couple years. 20 Q. And would you just describe, please, 21 generally the subject matter of your 22 responsibility for this case over the last, you 23 know, month or so? 24 A. Over the last month or so, I've been 25 involved with obviously a number of motions 4428 1 where I've been in court arguing some things. 2 On a day-to-day basis, I'm often in 3 the office and kind of overseeing and 4 supervising innumerable projects that go along 5 with a trial like this. 6 Q. I take it you're pretty busy? 7 A. I've been like everyone else very, 8 very busy. 9 Q. And is one of your responsibilities 10 dealing with experts in some fashion, expert 11 witnesses? 12 A. Yes, it is. 13 Q. You know Mr. Jurata? 14 A. I do. 15 Q. And how do you know him? 16 A. I met Mr. Jurata at a number of the 17 expert depositions I think was the first time 18 that I met with him, and I've seen him here in 19 town and in the courtroom and interacted with 20 him. 21 Q. How would you describe your working 22 relationship with him? 23 A. Good. I mean, I think he is a very 24 pleasant person, face-to-face, and I think 25 we've had a good working relationship. 4429 1 MR. ROVENS: Your Honor, may I 2 approach the witness? 3 THE COURT: Yes. 4 MR. ROVENS: Thank you. 5 Q. Mr. Reece, I'm handing you a copy of a 6 declaration that was filed and I believe signed 7 by you in connection with this matter. 8 MR. ROVENS: Does Your Honor need one? 9 THE COURT: I have it. 10 MR. ROVENS: Thanks. 11 Q. Do you recognize the declaration? 12 A. I do. 13 Q. And, in fact, it's a declaration that 14 was signed by you? 15 A. It is. 16 Q. Under oath? 17 A. Actually, it's -- what happened is 18 that I was in Minneapolis. This would have 19 been Sunday, so I guess two days ago. I was 20 working on this into the -- fairly late into 21 the evening. My secretary and others were down 22 here, so I didn't have a notary in the 23 Minneapolis office so I signed it as a 24 declaration, but I believe what I put in here 25 is true and accurate. 4430 1 Q. All right. Let me refer your 2 attention to exhibit I believe it's C -- 3 A. Yes. 4 Q. -- to your declaration. If we can go 5 there. 6 And do you recognize Exhibit C? 7 A. I do. 8 Q. And what is it? 9 A. It is the Court's ruling and order on 10 a number of pretrial motions, but particularly 11 relative to this matter it includes the Court's 12 ruling on the motion regarding experts' 13 discovery. 14 Q. And that's at page 2 of the order? 15 A. It is. 16 Q. Was this a motion that you, in fact, 17 argued? 18 A. It was. 19 Q. All right. And I take it you received 20 this order at some point? 21 A. I did. I can't remember. It was the 22 day of the order or the next day, but it would 23 have been no later than the next day. 24 Q. And the order is dated November 28 of 25 2006. Do you see that? 4431 1 A. Yes, I see that, yes. 2 MR. HOLLEY: Your Honor, can I just 3 interpose an objection? 4 The purpose of this evidentiary 5 hearing is to find out whether 6 Mr. Reece is telling the truth or Mr. Jurata is 7 telling the truth about the existence of an 8 alleged agreement between Microsoft's counsel 9 and the Plaintiffs' counsel. 10 As I said the other day, the purpose 11 of this hearing is not to impeach the Judge's 12 -- the Court's order in this matter or to 13 attempt to argue that the orders are in some 14 sense unclear. That's not a proper purpose. 15 MR. ROVENS: Your Honor, I would 16 absolutely disagree. 17 Microsoft has decided to bring a 18 contempt proceeding against the Plaintiffs in 19 this case. 20 A contempt proceeding is a quasi 21 criminal proceeding and depends upon a willful 22 violation of a Court order. So whether there 23 was an agreement or not is totally irrelevant 24 to this proceeding, I believe. 25 The relevant issue is what Mr. Reece 4432 1 has done, has he as kind of lead person 2 responding to this order intentionally violated 3 a Court order, and that is the purpose of a 4 contempt proceeding, I believe. 5 MR. HOLLEY: Your Honor, that's 6 certainly not the way this proceeding started. 7 The proceeding started by my suggestion that if 8 the Court had to resolve this contest in the 9 sworn testimony between two lawyers, which is 10 an unfortunate state of affairs, but it's the 11 one we're in, that we needed an evidentiary 12 hearing. 13 It was not my understanding that that 14 threw open the entire question of whether the 15 Court's orders were somehow unclear or whether 16 there was some justification for the delay that 17 has existed in this situation. 18 THE COURT: Your motion was an 19 emergency motion in order to show cause why 20 Plaintiffs shouldn't be sanctioned for failure 21 to comply with the Court's expert discovery 22 orders. 23 MR. HOLLEY: That is correct, Your 24 Honor. 25 THE COURT: Well, this seems to be a 4433 1 reasonable response to it. 2 MR. HOLLEY: Well, I'm not sure about 3 that, Your Honor. 4 I mean, they filed papers in which 5 they attempted to justify their delay. 6 The reason that we're having this 7 hearing, it's my understanding, was that we had 8 a conflict between Mr. Jurata and Mr. Reece 9 about whether we had ever agreed to give them a 10 further delay. 11 But if this is the way they wish to 12 proceed and the Court is happy to hear it, I 13 obviously have nothing to say about that. 14 MR. ROVENS: Your Honor, there's no 15 Court ordered date in the November 28th order 16 that was issued by the Court as far as 17 responding. So I think -- I thought the 18 purpose was what -- whether the response by 19 Mr. Reece on behalf of Plaintiffs was 20 reasonable and whether he was willfully 21 violating a Court order or not. That's usually 22 what a contempt proceeding entails as far as I 23 know. 24 THE COURT: Well, Mr. Holley is right 25 in regard that the original reason that you 4434 1 brought these witnesses in was because there 2 was a conflict as to what was stated by the two 3 attorneys as a subissue, I guess, to the entire 4 motion by the Defendant for sanctions. So I'll 5 give you some leeway. 6 Go ahead. 7 MR. ROVENS: Thank you, Your Honor. 8 Q. Now, Mr. Reece, when you received and 9 read this order, what was your response or 10 reaction to it? 11 A. I thought it was a helpful order in 12 the sense that it identified things that -- 13 materials that we should be providing and that 14 we did not understand we should be providing or 15 at least looking for. 16 Q. And when you say that you did not 17 understand prior to this order that these were 18 items you should be looking for, why was that? 19 A. I was really thinking back to both the 20 agreement that the parties had and the prior 21 Court's August order. 22 And again, I would note that I think 23 the November order was helpful in understanding 24 what we should be doing. 25 Prior to that time, we had been 4435 1 looking at the March 8, 2006 agreement and the 2 Court's August 21 order. 3 Q. The March 8, 2006 agreement, is that 4 Exhibit A to your declaration? 5 A. It is. 6 Q. And what was that agreement? 7 A. Primarily what we were looking at is 8 that the experts were to provide a final report 9 and copies of all materials reviewed and/or 10 relied upon by the testifying expert for the 11 purpose of preparing the testifying expert's 12 report. 13 And that's what we thought we had 14 done. 15 And then when we received the Court's 16 August 21 order -- 17 Q. Let me stop you for a moment. Is that 18 Exhibit B? 19 A. That is Exhibit B. 20 Q. Okay. 21 A. We had thought, and again, I 22 appreciate the November order, which we're now 23 responding to -- but we had thought when the 24 Court -- the language of the order said that 25 Plaintiffs should produce to the Defendant the 4436 1 withheld expert discovery material requested as 2 long as the material is that which the 3 Plaintiffs' experts reviewed, looked at, or 4 used in preparing their expert opinions or 5 reports. 6 We had thought the Court was picking 7 up the language that we understood we were 8 operating under and that Microsoft was 9 operating under, under the March 8 agreement, 10 and so we saw that the Court added expert 11 opinions, and we believe that to be that 12 anything that the experts are going to be 13 opining about, whether it's literally the words 14 are in the report or not. 15 And the Court added the words looked 16 at or used instead of reviewed or relied upon. 17 Q. And what did you understand that to 18 mean? 19 A. Again, that there wouldn't be some 20 technical interpretation of reviewed. 21 If an expert looked at this for the 22 purposes of preparing their expert opinions or 23 reports, that that's what it meant, that we 24 wouldn't be getting into some technical 25 argument about what reviewed meant. 4437 1 Q. All right. Now, let me draw your 2 attention back to the order that's the subject 3 of this proceeding. 4 A. Yes. 5 Q. Which is Exhibit C. And page 2. 6 A. Yes. 7 Q. And I'm referring -- let me refer you 8 specifically to the second sentence, which 9 says, to further clarify that order, referring 10 to the August 21 order. Do you see that? 11 A. I do. 12 Q. And then it goes down and says, the 13 intent of the Court's order was to. Do you see 14 that language? 15 A. I do. 16 Q. And from your perspective, did you 17 view this as being something different than 18 what had been required under the prior order 19 and agreement? 20 A. I viewed it as different. I think the 21 Plaintiffs viewed it as different. And it was 22 different than what we had argued for and 23 represented to the Court was our understanding 24 from the outset. And we thought it was a 25 mutual understanding. 4438 1 And so when I saw the Court's order, I 2 realized that this was different than what we 3 were believing and started to take action. 4 Q. And you say started to take action. 5 What did you do after receipt and review of 6 Exhibit C, the November 28, '06 order? 7 A. As soon as I saw this order, I felt we 8 needed to be in touch with our experts, and I 9 think at the oral argument -- I don't think I 10 got this exactly right at the oral argument. 11 I talked about the fact that experts 12 on both sides if you added up all the boxes of 13 documents they had, there's probably hundreds 14 and what probably wasn't as clear as I could 15 have made it is that the vast majority of those 16 hundreds of boxes had been produced probably by 17 both parties. 18 But, as I had said at the oral 19 argument from the outset, it was very clear, 20 and we made it very clear, as I thought 21 Microsoft did, that there were documents that 22 all experts had looked at that they did not 23 feel fit the stipulation. 24 And I also knew at the oral argument 25 on this motion Microsoft said, specifically, 4439 1 hey, we aren't including draft reports or notes 2 about draft reports -- 3 Q. I'm sorry, you are not or are? 4 A. Yeah, that they were not seeking draft 5 reports or notes about draft reports. 6 So what that meant to me is that this 7 was different in our view. Experts -- 8 depending upon the subject matter of their 9 testimony, some had lots and lots of documents. 10 Some had not so many. Most had been produced, 11 but I felt we needed to be back in touch with 12 all experts and with this guidance from the 13 Court. 14 Q. Did you, in fact, initiate that? 15 A. I did. I specifically personally 16 contacted a number of experts who I had been 17 working with and directed others -- asked 18 others to be contacting experts as well, so 19 that we'd cover all the experts. 20 Q. All right. Now, did you communicate 21 in writing with the other side after receipt of 22 this order? 23 A. I did. What my initial letter was, I 24 think on the 29th, I think, to Ms. Nelles 25 and -- 4440 1 Q. Let me just refer you to that. It's 2 Exhibit D I believe to your declaration. 3 A. Yes. 4 Q. Is that the letter you're talking 5 about? 6 A. It is. 7 Q. And what was the purpose of this 8 letter? 9 A. The purpose of this letter is we did 10 see the order again different than what we 11 understood we were to provide before this, and 12 I was simply writing Ms. Nelles to see if 13 Microsoft would agree to have the same order 14 apply to them without having to make a motion 15 just so that -- because they'd expressed the 16 fact, hey, we just want a two-way street on 17 this, and since this seemed to be different to 18 me, I just wanted to see if they would just 19 voluntarily agree that, yeah, we'll operate 20 under the same interpretation, same rules. 21 Q. And why did you believe that they had 22 not done that before? 23 A. Well, I mean -- I didn't want -- this 24 wasn't an adversary kind of thing. 25 You know, there are some documents 4441 1 that we identified in depositions that we 2 thought would fit this language that had not 3 been produced, but I mostly just wanted a 4 mutual situation. 5 Q. And when you say some other documents, 6 whose documents are you referring to? 7 A. We've identified documents from some 8 of their experts during the depositions. And, 9 again, I wasn't trying to turn this into any 10 kind of an adversarial thing, but we've 11 identified those to Microsoft, documents that 12 it appeared their folks, their experts had 13 looked at that had not been produced or 14 documents that their experts had just -- at 15 least one had discarded. And so I thought 16 there probably would be a response from them as 17 well. 18 And again, I just wanted to see if we 19 could just have that kind of agreement. 20 Q. All right. And did you receive a 21 response from Microsoft's lawyers? 22 A. I did. 23 Q. And let me just draw your attention to 24 Exhibit E. Is that, in fact, the response? 25 A. That is the response I received, yes. 4442 1 Q. And it looks like it came from a 2 different lawyer than to whom you had 3 communicated? 4 A. It did. It came from Mr. Jurata. 5 Q. All right. And Mr. Jurata is a Heller 6 Ehrman lawyer? 7 A. He is. 8 Q. Now, when you received this letter, 9 what did -- I take it you read it? 10 A. I did read it, yes. 11 Q. And did anything stand out in this 12 letter that was of concern to you? 13 A. Well, I noticed what it said, which 14 was kind of an implication that, you know, on a 15 different subject; that maybe they might not 16 agree to have the order apply or -- but I was 17 really focused -- I mean, I thought, well, 18 we'll just deal with that issue separately. 19 I noticed that they kind of 20 unilaterally said produce all these documents, 21 any additional documents by December 6. So I 22 noted that. 23 Q. And what was the note? 24 A. Well, I just -- you know, again, not 25 -- you know, not to comment personally, I just 4443 1 thought, you know, why would -- you know, it 2 was a unilateral demand that we contact all our 3 experts all across the country, search for 4 documents, and respond in some way within seven 5 days, and this was also the week of opening 6 statements when everyone was working awfully 7 hard as well. So, you know, I didn't respond 8 in kind. 9 I just thought, okay, well, that's the 10 kind of letter occasionally you get, and I 11 would focus more on trying to comply with the 12 Court's order than to write back at this point. 13 I was hoping -- kind of what I had in 14 mind is I knew they would have this on the 15 December 6th tickler, if they sent that kind of 16 letter, and I thought I'll just see how much 17 progress I can make by December 6, so I can 18 report. 19 Q. And did you, in fact, make progress by 20 December 6? 21 A. I did. 22 Like I say, I had been in touch with 23 essentially four experts directly, or people 24 involved with those people in their offices, 25 and so -- and that search was well underway, 4444 1 and I thought we were making good progress. 2 And again, I'd identified for others to contact 3 the other experts. 4 Q. Did you receive any follow-up 5 communication from Mr. Jurata? 6 A. I did. 7 Q. And would you turn to Exhibit F, 8 please? 9 A. Yes. 10 Q. Is that a letter you received from 11 him? 12 A. It is a letter I received from 13 Mr. Jurata. 14 Q. And do you recall when you received 15 this letter? 16 A. I would have received it, I'm sure, 17 between 9 p.m., and when I responded at 9:24 18 p.m. that evening, and that's the evening of 19 December 6th. 20 Q. So I think you said you received the 21 letter, then you responded? 22 A. I did. 23 Q. And is your response an exhibit to 24 your declaration also? 25 A. It is. It is Exhibit G. 4445 1 Q. So looks like you responded pretty 2 quickly? 3 A. I did. I did. 4 Q. And what was the purpose of your 5 E-mail, Exhibit G to Mr. Jurata? 6 A. I wanted to respond to the letter from 7 Mr. Jurata that said it's 9 p.m. on December 6. 8 We haven't heard from you, and then had some 9 kind of what -- you know, lawyer posturing kind 10 of comments about things. 11 So I responded back to say, look, I 12 actually had prepared a letter to send to you 13 today to report on progress and got tied up in 14 other things. 15 I said a secretary wasn't available. 16 I'll write you tomorrow before noon to kind of 17 bring you up on the status. 18 And I think I said -- yeah, I said if 19 you'd like to talk instead of sending these 20 kinds of letters, just give me a call. 21 Q. Why did you propose you talk about 22 something like this? 23 A. Well, I just thought if we actually 24 talked about it, that maybe we had reached some 25 kind of a reasonable discussion about this. 4446 1 And I didn't see the letters as -- I 2 didn't really see them as serious in the sense 3 that -- serious in the sense that they really 4 intended that we should be producing things 5 within eight days, given what they knew about 6 what that would involve. 7 And so I thought if we just talked to 8 each other, that we could talk about what's 9 really reasonable and just resolve this. 10 Q. Now, did you follow through with your 11 promise to send him a letter on your progress? 12 A. I did. I did. 13 Q. Would you please turn now to it looks 14 like Exhibit H to your declaration? 15 A. Yes. 16 Q. Is that, in fact, the letter you sent 17 Mr. Jurata? 18 A. It is. 19 Q. On or about December 7 of '06? 20 A. It is. 21 Q. And had this been essentially the 22 final of the draft you had prepared the day 23 before? 24 A. You know, I think it was mostly the 25 same, but the format was different, simply 4447 1 because now there was a letter that had come in 2 between. 3 My original letter which I had 4 intended if I had not gotten pulled into other 5 matters was just going to be directly 6 responding on where we're at on December 6, and 7 now, of course, I had the intervening letter 8 from Mr. Jurata at 9 o'clock the night before. 9 So it changed it a little bit in format, but I 10 think the general content was the same. 11 Q. And in sum and substance, what were 12 you communicating to Mr. Jurata? 13 A. Well, I wanted to tell him that we 14 actually were making progress. We really were 15 working on this; that we thought with some 16 experts there would be additional documents to 17 look for. 18 Others, of course, there would be 19 additional documents to look for, but there 20 might not be some, and for some experts I 21 expected there would be some. 22 And so I wanted to assure him that we 23 were working on it. I wanted to make clear 24 that if it wasn't already understood, that -- I 25 mean, we have these experts all across the 4448 1 country, and they're busy folks. There's 2 logistics, trying to respond to this order. So 3 I wanted to kind of communicate that. 4 Q. Did you provide any time frame in 5 which you were -- you believed you'd get this 6 accomplished? 7 A. You know, I said I hoped to do it 8 within a couple weeks. 9 Q. Did you believe that was a reasonable 10 time frame to get it accomplished? 11 A. I thought it was aggressive, but I 12 wanted us -- you know, I wanted us to get this 13 done. And so I really put it as a high 14 priority. 15 I didn't want this lingering around. 16 So I thought it was aggressive to be contacting 17 all these experts around the country and 18 accomplishing this search and production of 19 documents and listing if documents had not been 20 kept, but I wanted to be aggressive because I 21 wanted this to -- I wanted to accomplish this. 22 Q. With respect to Mr. Jurata's earlier 23 letter to you that you said you thought was 24 somewhat posturing -- 25 A. Right. 4449 1 Q. -- and not really serious, why was 2 that? What do you mean by that? 3 A. Well, because I -- Microsoft -- and 4 with all due respect, I'm not commenting on 5 Mr. Jurata or any individual, but Microsoft 6 knew very well that our -- we had experts 7 located all across the country, six different 8 states, multiple experts in some states. 9 They knew that a lot of these people 10 were extraordinarily busy folks because we had 11 been communicating about travel schedules, and 12 they know just from having taken their 13 depositions these people have commitments. And 14 so I didn't think anyone could reasonably 15 suggest that we could comply with this in eight 16 days. 17 And I explained in the motion that 18 this would require some real work to do, to 19 contact these experts and go through the 20 process. 21 So that's -- I mean, I took it 22 seriously, as I take any letter that comes in, 23 and I thought we should respond and -- but 24 rather than argue, I put it as kind of a 25 tickler for December 6th to simply report on 4450 1 progress. 2 I didn't think that they were 3 seriously suggesting that we really should 4 comply by December 6th. I mean, from a 5 reasonable sense. 6 Maybe they're suggesting I didn't 7 think they -- I didn't think it was reasonable. 8 I didn't think if I talked to them that they 9 would think it was reasonable. 10 Q. And, in fact, this is right after 11 Thanksgiving also? 12 A. It was. 13 Q. Now, following sending your letter to 14 Mr. Jurata, Exhibit H we've looked at, did you 15 receive a call from Mr. Jurata? 16 A. I received a voice mail from 17 Mr. Jurata, which is transcribed as Exhibit I. 18 Q. Do you typically maintain voice mail 19 communications? 20 A. I typically just throw them into a 21 save box for -- until I get around to deleting 22 them. You know, if it's anything to do with 23 business I typically do that, at least 24 initially. 25 Q. All right. And Exhibit I is a true 4451 1 and accurate transcription of a voice mail you 2 received from Mr. Jurata? 3 A. It's what I recall, and I basically 4 just transferred it to my secretary to have her 5 type it up. 6 Q. I'm sorry. When was this voice mail 7 left, do you recall? 8 A. I think it was on December 7, and, you 9 know, I E-mailed Mr. Jurata back at it looks 10 like 1:14. So I think it was in the morning, 11 probably between noon and 1:14. 12 Q. And what was the tone or tenor of the 13 voice mail message? 14 A. Very pleasant. I mean, as Mr. Jurata 15 is. I mean it was -- the tone was just, hey, 16 thanks for the letter. You know, can you 17 please give me a call. You know, very 18 friendly. 19 Q. No deadlines or threats or anything of 20 that nature? 21 A. No. The content I think is literally 22 what's been transcribed, but the tone was very 23 friendly. 24 Q. All right. And you mentioned you 25 responded by E-mail? 4452 1 A. I did. 2 Q. And that's Exhibit J to your 3 declaration? 4 A. It is. 5 Q. Did Mr. Jurata respond to your E-mail? 6 A. Yes. I had E-mailed and he had asked 7 if -- I think he had asked if I could call him 8 back, and I was busy doing other things, and so 9 I said -- E-mailed back and said can I make it 10 after 3:30 p.m., and I said if you need to talk 11 to me before then, call me, and I'll stop what 12 I'm doing. 13 Q. And was the tone of this voice mail 14 similar to the other? 15 A. Yeah. I mean, his E-mail back was -- 16 or his voice mail back -- I was on the phone at 17 the time -- was hey, I'd really like to talk to 18 you. Can you just give me a call? So I -- as 19 soon as I was -- got that, I immediately called 20 him back. 21 Q. All right. Now, would you please 22 describe for the Court what Mr. Jurata said to 23 you and what you said during that telephone 24 conference? 25 A. Sure. 4453 1 Q. Following his last voice mail when you 2 returned his call. 3 A. Okay. We covered a number of topics, 4 but let me just kind of go through them. 5 First of all, of course, I called 6 back, and we really just for probably a minute 7 or so just talked pleasantries. 8 I mean, it was very friendly. We were 9 talking about the long trial days, the amount 10 of work that people had on both sides, and 11 maybe other things, but just kind of 12 pleasantries. And then we turned to the 13 subject of the correspondence. 14 And Jay mentioned that we had said 15 that we hoped to do this within a couple weeks, 16 and what was -- what were we thinking in terms, 17 can you explain how you're coming up -- or kind 18 of tell me about that, and I said -- I went 19 through again the logistics and -- 20 Q. When you say you went through the 21 logistics, what do you mean? 22 A. I went through the logistics of having 23 experts all around the country and their busy 24 schedules and contacting them, and I said some 25 experts likely would tell us that they had 4454 1 nothing additional, that would be easy, but 2 some -- I knew there would be additional 3 documents to look for, and that that would take 4 some time to do. 5 So I explained that was our thinking. 6 I said we already were on it. We had 7 made a lot of progress, and that I was really 8 hoping to get this done in a couple weeks. 9 So that was that subject. 10 To which there wasn't any response 11 like no, you know, that's not good enough, or 12 do it quicker, or anything like that. 13 Q. All right. 14 A. The next topic was by the way, Jim, if 15 we provide a really, really good faith basis 16 for doing so, if there is additional documents 17 that you produce, can we take a deposition of 18 your experts on that subject? 19 Q. And what was your response to that? 20 A. You know, I thought about it. So 21 there was a pause. And I said you know, I 22 can't agree to that, but if you run into -- if 23 we give you documents you feel you have a need 24 for that, then just talk to us about it. 25 And that was the end of that 4455 1 discussion on that subject. 2 Q. Anything else you spoke with him about 3 during that -- 4 A. Couple other things is, we had 5 identified Mr. Alepin as a witness that would 6 be coming in the first -- you know, the early 7 weeks. And so I thought they would be 8 wondering about him. 9 And so I said to Jay that I had 10 already checked and heard from some people that 11 they did not believe Mr. Alepin had any 12 additional documents. 13 I said I would check again and let him 14 know on Friday on that subject. 15 Another topic was, I said, you know, I 16 don't really want to argue about this or divert 17 our argument at this point, but do you -- would 18 you guys just be willing or think about whether 19 you're just willing to do a mutual agreement to 20 be bound by the same orders? And we talked a 21 little bit about that -- 22 Q. Did he agree or disagree? 23 A. He said okay, so what you want is just 24 us to agree to the same kind of orders? 25 I said yes. And I said -- again, I 4456 1 said, I don't want to divert this topic that 2 we're talking about, but I said we believed 3 that some of the examples that we had pointed 4 out with respect to Microsoft's experts would 5 now come within the language of the Court's 6 November order. 7 As I said, again, I don't want to 8 argue about it now. I just wanted to identify 9 the issue. And Mr. Jurata said they were 10 actually checking with their various experts 11 and that they were running that down on that 12 subject. 13 Q. During this discussion did Mr. Jurata 14 ever tell you he had no authority to agree to 15 anything at that point? 16 A. He didn't say he didn't have the 17 authority. He didn't say I have the authority. 18 It was just like a talk with any of the 19 Microsoft lawyers when we talk with them about 20 an issue that respective lawyers are dealing 21 with. It's like a meet and confer or any other 22 kind of thing. 23 Q. Did you ever say to him that you had 24 no authority to agree to anything during that 25 conversation? 4457 1 A. No. 2 Q. Is that essentially what was said 3 between you and him during that conversation? 4 Anything else? 5 A. That's what I recall. 6 Q. All right. Did he speak to you again 7 shortly after that conversation? 8 A. He did. 9 Q. And would you tell us about that, 10 please? 11 A. Yeah. Almost as soon as I hung up, 12 very, very shortly after the phone rang again. 13 I picked it up, and Mr. Jurata said, you know, 14 Jim -- and I can't remember -- it may be in the 15 prior call when I said two weeks. Either then 16 or this one. He said okay, that would be 17 December 21st. 18 I didn't literally give the day -- 19 date. I said two weeks, and he said okay, that 20 would be December 21st. So I think that was -- 21 Q. What was the significance of December 22 21? 23 A. It was just two weeks from our 24 discussion. 25 So when I said, hey, I think we can do 4458 1 it in two weeks, he said okay, that would be 2 December 21st. 3 So when he called back, he said Jim, 4 because of the holidays, can you do this on 5 December 19th? Can you produce the stuff -- 6 respond by December 19th? 7 Q. And what did you say? 8 A. I said I would check on it and get 9 back to him. 10 Q. And when you said you would check on 11 it, did you mean you had to get authority from 12 someone else in the firm, or what did you mean 13 by that? 14 A. I wanted to just check on the 15 logistics, because, again, there were a lot of 16 logistics here. And I wanted to make sure that 17 we could try to do this with everything else 18 going on and reaching experts and that kind of 19 thing. 20 Q. All right. Now, did Mr. Jurata 21 contact you again after this second 22 conversation you had on this subject? 23 A. He did. 24 And I should say, I think in the prior 25 discussion, I mean, I said we definitely 4459 1 intended to do it by December 19th. And, you 2 know, I had not personally been in touch with 3 all the experts because I was talking to some 4 and others were talking to others. 5 Q. I understand. 6 A. I realized that some were potentially 7 going to be out of the country or were 8 currently out of the country, and I said if we 9 run into a problem with a particular expert, 10 that we'll notify you in advance. 11 In other words, what I had intended is 12 in advance of December 19th. So we aren't 13 going to tell you on December 19th here you go. 14 By the way, here's four experts who we ran into 15 problems with. 16 Q. All right. Now, would you please turn 17 to Exhibit L to your declaration. 18 A. I'm sorry, exhibit -- 19 Q. L as in lamb. 20 A. Yes. 21 Q. And do you recognize these two 22 E-mails? 23 A. I do. 24 Q. All right. And, in fact, it looks 25 like the E-mail on the bottom was from you and 4460 1 Mr. Jurata? 2 A. It was, yeah. 3 Q. Is that right? 4 And this is dated December 7, '06, 5 5:07 p.m.? 6 A. Yes. 7 Q. Did you, in fact, send it at that 8 time? 9 A. I did. 10 Q. What was the purpose of sending this 11 E-mail to Mr. Jurata at 5:07 on December 7th? 12 A. I wanted to confirm that we would 13 intend to provide the responsive documents by 14 December 19th. Again with that point that I 15 made that if there's a particular expert we're 16 running into a real problem with, we'll call 17 you in advance of December 19. 18 Q. By the way, do you know whether when 19 Microsoft brought their initial motion as the 20 subject of this order, did they ask that there 21 be a particular date that the Plaintiffs -- the 22 order to produce these documents by, do you 23 know? 24 A. I don't think so. I know the December 25 6th date kind of came totally out of the blue. 4461 1 Q. It wasn't in the order? 2 A. No. 3 Q. And you received, I guess, Mr. 4 Jurata's response at about 6:22? 5 A. I did. 6 Q. Okay. And what was your reaction to 7 his response? 8 A. You know, it was, you know, the big 9 sigh, I guess. It was like disappointment. 10 And, really, I think substantively -- 11 I mean we're all lawyers and so you deal with 12 this kind of stuff. 13 But substantively what bothered me a 14 little bit is that I wanted to be working on 15 the project. I didn't want to be dealing with 16 something I thought could be easily resolved 17 and reasonably resolved, and so I was 18 disappointed that it's going to take -- if they 19 want us to comply, and again I'm not -- I don't 20 mean to be adversarial at all, it's just kind 21 of going through my mind, they want the 22 materials, then this was just going to be a 23 diversion of the people who are trying to get 24 them the materials, and so I was disappointed 25 in that regard. 4462 1 Q. And did you, in fact, send him a 2 letter after receipt of his E-mail? 3 A. You know, the next day I just sent him 4 a letter just kind of recounting some of, 5 obviously, if you can tell not everything we 6 said in the discussions, but kind of a little 7 bit of a time line, just of what had transpired 8 as evidenced in these other letters, E-mails 9 and voice mails. 10 Q. Would you turn to Exhibit N in your 11 declaration, please? 12 A. Yes. 13 Q. Is that, in fact, the letter that kind 14 of accounts for the history of this? 15 A. Yes. Again it recounts kind of what 16 it recounts. I wasn't trying to recreate the 17 full conversations as we've talked about here, 18 but it did kind of lay out the time line, so -- 19 Q. Did you feel that you were thwarting 20 court orders? 21 A. Completely to the contrary. I mean, I 22 really want to get this accomplished, and 23 that's what we were trying to do. 24 We had already done a great deal by 25 December 6th, and, you know, my intent was just 4463 1 to really get this thing done. 2 I just -- you know, this isn't a 3 pleasant experience to get this kind of letter. 4 We respect the Court's order, and we 5 immediately went to work as soon as we got it. 6 Q. And do you believe you can have this 7 accomplished by the break here? 8 A. We do. I mean, that's what we're 9 working -- we're really -- we're working on it. 10 Again, that's our intent, and that's 11 what I expressed, and we have every intention 12 of doing that. 13 Again, you know, I don't know if one 14 of these experts is going to say I'm completely 15 unreachable in some other part of the world, 16 but I believe we've communicated with all the 17 experts, including those traveling out of the 18 country, or at least someone who can talk with 19 them. 20 MR. ROVENS: Your Honor, I have 21 nothing further at this time. 22 THE COURT: Cross? 23 CROSS-EXAMINATION 24 BY MR. HOLLEY: 25 Q. Mr. Reece, you have in front of you, 4464 1 do you not, sir, your declaration in this 2 matter? 3 A. I do, yes. 4 Q. Can you turn please to Exhibit A, 5 which is the stipulation between the parties 6 dated March 8, 2006? 7 A. Yes. 8 Q. Did you or did you not instruct 9 Professor Netz at her deposition that she could 10 not testify about any documents she reviewed 11 unless she had looked at the document twice? 12 A. I don't think I instructed her to do 13 that. I think I -- so, no, I don't think I 14 instructed her -- I never used the words I am 15 instructing you not to respond unless you have 16 looked at the document twice. 17 She talked about how she interpreted 18 things. 19 Q. Is it your sworn testimony, Mr. Reece, 20 that you never instructed any of the 21 Plaintiffs' witnesses at their depositions that 22 they could not respond about documents they had 23 reviewed or relied on unless they had looked at 24 the documents twice? 25 A. Boy, I don't recall using those words. 4465 1 I would try to always use the words of -- I 2 would try to use the words of the stipulation 3 and then the Court order and say, hey, that we 4 clearly want you to be able to testify about 5 anything, and then I would try to use the words 6 of the stipulation. 7 I don't think this looked-at-twice 8 language came up anywhere other than Professor 9 Netz's deposition. 10 I think she identified -- she 11 described what she meant. Whether I 12 incorporated her language after she said that 13 into an objection, I didn't think I did, but if 14 I did, I did. I mean, the transcript is what 15 it is. 16 So I didn't recall using those words 17 like don't answer unless you looked at it 18 twice, but if I did, it would have been after 19 she described how she did things. 20 Q. Do you remember sitting in a room with 21 me in Boston at Mr. Smith's deposition where 22 you instructed him pursuant to this stipulation 23 that he was not to answer about documents 24 reviewed or relied on unless he had looked at 25 the documents twice? 4466 1 A. Well, if I did, I did. I don't recall 2 -- I don't recall using that kind of language. 3 I certainly wanted our experts, and I 4 thought that I said to the experts and said to 5 the Microsoft folks who were at the 6 depositions, here's the stipulation, and you 7 can ask about anything that they reviewed 8 and/or relied upon for the purpose of preparing 9 a report. 10 I thought -- if it came up, I would 11 repeatedly I thought tried to say, hey, we have 12 a stipulation, and certainly answer with 13 respect to the stipulation. 14 Q. And, Mr. Reece, please, focus on my 15 question. 16 Did you interpret the word reviewed as 17 it appeared in the stipulation to mean that 18 unless a witness had looked at a document 19 twice, it had not been reviewed? 20 A. Well, I mean, I didn't initially come 21 up with that concept. I think Doctor Netz in 22 her deposition is the source of that -- is the 23 source and only source of that comment. 24 And I understood what she was saying, 25 and I thought what she was saying was proper 4467 1 under the way I understood the stipulation. 2 And I can explain if you want, but I did think 3 that she was right in the way that she 4 described that at her deposition. 5 Q. Just so the record is very clear, 6 Mr. Reece, can you tell me what you understood 7 Professor Netz to mean when she said that she 8 hadn't reviewed a document pursuant to Exhibit 9 A to your declaration unless she had looked at 10 the document twice? 11 A. Sure, I'd be happy to. 12 I think at most of the depositions the 13 lawyers had these stipulations, and both sides 14 would refer to the stipulation, the written 15 agreement of the parties, and the language in 16 that first sentence I think that we've been 17 referring to says that the experts designated 18 in this case opposing -- for each expert, 19 opposing counsel will receive the testifying 20 expert's final report and copies of all 21 materials reviewed and/or relied upon by the 22 testifying expert for the purpose of preparing 23 the testifying expert's report. 24 And the context of that with Professor 25 Netz, and it was a very common situation in 4468 1 these depositions, is the question would be to 2 the witness, well, tell me what you reviewed, 3 and parties on both sides, I believe, would, 4 say, well, wait a minute, we've got a 5 stipulation. It's what you reviewed in 6 connection with -- for the purpose of preparing 7 the testifying expert report. 8 Now, with respect to Doctor Netz, what 9 she was saying was, in the process since 10 retention, as I understood it, documents come 11 across my desk, and I glance at documents that 12 come across my desk, I look at documents that 13 come across my desk, and not everything is 14 going to be something that I would use for 15 purposes of preparing my report, or if even my 16 opinions. 17 And so I thought what she was saying 18 is I'm making -- you know, here's the total 19 group, there's stuff that I see that comes 20 across my desk that I put into this category of 21 being not something that I reviewed for 22 purposes of my opinion or my report, and 23 there's -- throughout the depositions there's a 24 host of reasons why that would be the case. 25 And so when she said, yeah, I 4469 1 interpreted this to be something I looked at 2 twice, what I understood her to be saying is, 3 yeah, as documents came in I segregated them 4 into my report opinion stack, and I would go 5 back and look at those when it's time to 6 prepare my report. 7 So that's the way I interpreted what 8 she said. 9 And then other documents that she 10 looked at and didn't think were relevant, 11 didn't think would be relevant to her opinions 12 or reports she looked at once, and that was it. 13 So that's what I understood her to be 14 saying. I thought that made sense in terms of 15 the way we understood the stipulation, and I 16 thought it was the way -- well, I thought it 17 was the way we understood it, and we made it 18 very clear, I thought, that that's how we 19 understood it. 20 Q. I agree you made it very clear. 21 Is that still your interpretation in 22 complying with this Court's November 28, 2006 23 order? Are you still adopting that rule? 24 A. No. 25 Q. You're not. When did you change? 4470 1 A. When we saw the November 28 order, we 2 read that -- I read it as very different than 3 what I had been understanding, and Plaintiffs 4 read it as different, and so we immediately 5 started contacting experts. 6 I started contacting -- I contacted 7 the experts I was dealing with very quickly 8 after that for the purpose of complying. So I 9 read it very different. 10 Q. Okay. I told you in the Smith 11 deposition, Mr. Smutny told you and Mr. 12 Rosenfeld told you that your interpretation of 13 this agreement was palpably ridiculous. Did it 14 occur to you before November 28 to seek the 15 guidance of the Court about whether the English 16 word reviewed meant looked at twice? 17 A. You know -- 18 MR. ROVENS: Objection. 19 Argumentative. 20 THE COURT: Overruled. 21 A. We interpreted this as a subset of the 22 documents that would come across the experts' 23 desk. We always did. 24 That seemed to us to be the only 25 reason to have a stipulation like this. 4471 1 Otherwise, why wouldn't we just say produce 2 everything, if that indeed is ultimately the 3 intention, absent reports or draft reports. 4 I mean, I know that a lot of time went 5 into this stipulation. And if the intent was, 6 okay, let's just produce anything an expert 7 ever sees except for draft reports or notes 8 about a draft report, it wouldn't have taken 9 much effort or time to do that. 10 So I accept the fact that Microsoft 11 has interpreted this differently than us. 12 Q. Okay. Let me direct your attention, 13 Mr. Reece, to Exhibit B of your declaration, 14 which is this Court's order dated 21st day of 15 August, 2006, and I'd like to direct your 16 attention, sir, to the third paragraph that 17 begins it is therefore the order of the Court. 18 How could you have interpreted the 19 phrase Plaintiffs' experts reviewed, looked at, 20 or used in preparing their expert opinions to 21 mean that they had to look at it twice? 22 A. Well, I mean, it gets back again -- 23 and I don't think our, you know, position has 24 ever been any different -- that the way we -- 25 until November 28. 4472 1 The way we viewed this, and this is 2 the way we -- what I told the Court and told 3 Microsoft lawyers at the November 9 hearing is 4 that this Court -- on the August order, we 5 thought -- again, I respect and appreciate the 6 November order, but we thought the language 7 used -- in preparing their expert opinions or 8 reports -- did not include everything that they 9 ever saw other than the draft report or notes 10 about a draft report. 11 We thought that was consistent with 12 the way we had interpreted the agreement from 13 the beginning and the way we expressed on 14 innumerable occasions that we viewed this. 15 So that's how we interpreted it. 16 Q. Now, it's true, is it not, Mr. Reece, 17 that you are already aware as you sit here 18 today that there are documents that we have 19 never seen on the defense side of the room that 20 are called for by the Court's November 28, 2006 21 order? 22 A. I think that's right. 23 Q. In fact, you've told Mr. Jurata that 24 you are aware of memoranda from Professor Netz 25 and Professor Mackie-Mason's economic 4473 1 consulting firm that need to be produced under 2 the November 28, 2006 order; correct? 3 A. I said that I expected there would be 4 some documents from either Professor Netz or 5 Mackie-Mason that would be now producible, but 6 we'd have to search for them. 7 I said I have to consider your 8 representation that drafts of reports and notes 9 about drafts aren't, but I said there 10 definitely are documents that were not 11 produced, as we've said all along. 12 I mean, that's -- I couldn't have been 13 any clearer in the oral argument even on this 14 motion. 15 Again, I mixed up in terms of how many 16 hundreds of boxes the experts had. I was 17 referring to all the boxes that they had and 18 mostly produced, but I said then to the Court 19 and to Microsoft on November 9th that -- and I 20 said again that, yes, I think there are 21 documents. That was the whole point of this, 22 is that that was the meaning that we understood 23 of the stipulation. 24 Q. Okay. I'd like to return again 25 please, sir, to Exhibit B to your declaration 4474 1 and to the last line of the paragraph that 2 begins it is therefore the order of the Court. 3 It says, if said materials have been 4 deleted or destroyed, then the Plaintiffs shall 5 prepare in writing a list of the deleted and 6 destroyed -- or excuse me -- or destroyed 7 materials to be presented to the Defendant on 8 or before September 1, 2006. 9 No such list has ever been provided to 10 the Defendant; is that correct? 11 A. That's correct. 12 Q. When do you propose to do that, sir? 13 MR. ROVENS: Objection. Lacks 14 foundation. 15 THE COURT: Overruled. 16 A. I mean, we looked at this and didn't 17 think under the August 21 order that there was 18 anything -- and we interpreted this, where it 19 says if said materials, we interpreted that as 20 being the discovery materials referred to 21 above; that the experts reviewed, looked at, or 22 used in preparing their expert opinions or 23 reports. 24 And at the time using that, we weren't 25 aware of documents that fit that category. I 4475 1 was aware of what Microsoft had identified, two 2 categories E-mails between -- so-called E-mails 3 between Professor Noll and Professor 4 Mackie-Mason, which I did not believe after 5 talking, understanding, and reading those 6 transcripts, that those had anything to do with 7 preparing their expert opinions or reports. I 8 still don't. 9 Then there was the reference to the 10 scribbling by Doctor Netz on the back of an 11 envelope. And again I didn't think that fit 12 the category, but we identified both of those 13 issues. I mean, it wasn't like any -- either 14 of those were hidden. 15 Those were in the briefing and fully 16 explained and addressed. 17 We certainly are going to be producing 18 a list under the Court's November 28 order 19 because we see it as different, and if there's 20 documents, I think there will be documents on 21 that that have been -- I think both the things 22 I just mentioned which we've always -- I mean, 23 which were identified, they probably fit the 24 Court's November 28 order. So we will put them 25 on the list. 4476 1 Q. Mr. Reece, you're aware that this 2 trial has been underway since the 13th of 3 November; correct? 4 A. Yeah. I don't know the exact date, 5 but whatever it is, I've certainly been down 6 here. The days kind of flow together. 7 Q. And you're also aware, sir, that 8 opening statements in this case began on the 9 1st of December, are you not, sir? 10 A. Again, whatever day it is, I'll 11 accept. 12 Q. And is it your practice, Mr. Reece, 13 when a trial is underway and your client has 14 been ordered by a Court to do something, that 15 you take two to three weeks to comply? 16 MR. ROVENS: Objection. Overly broad 17 Your Honor; vague. 18 THE COURT: Overruled. 19 A. I mean, I think in the context of this 20 order, we immediately started the process and 21 had made a fair amount of headway, and I didn't 22 think anyone would reasonably suggest that 23 these things should be produced by December 6. 24 Microsoft -- I guess I'm just 25 repeating myself. 4477 1 They knew how many experts we had, 2 where they're located; that we'd actually have 3 to do searching on some and reviewing on some. 4 And so I really didn't think that that was in 5 the least bit reasonable or that anyone would 6 think it was reasonable. 7 Q. Mr. Reece, in your possession, either 8 on your person today, in some office in Iowa, 9 or Des Moines, Iowa, or in any office of Zelle, 10 Hofmann, do you already have documents that you 11 know are responsive to your current 12 interpretation of this Court's orders? 13 A. I've received some documents from 14 several experts that I'm reviewing, and I'm in 15 the process and hope to have those reviewed 16 soon. 17 I've been deterred from kind of 18 getting to this by a number of things, 19 including this motion. But, yeah, I mean that 20 was my point, is I immediately set off, and at 21 least as to some of the experts I've had, I've 22 said send me what you've got. And so, yes, I 23 have been doing that, and I'm in the process of 24 doing that. 25 Q. All right. I'd like to return to some 4478 1 of the questions that Mr. Rovens asked you 2 about some of the attachments, other 3 attachments to your declaration. 4 Now, he asked you some questions about 5 Exhibit G, which you, I believe, described, 6 sir, as a substantive response to Mr. Jurata's 7 letter asking where your compliance was with 8 the Court's November 28 order. 9 Do you recall giving that testimony, 10 sir? 11 A. Whatever I said, I said. It was a 12 response to his letter. It was an E-mail 13 response because I wanted to get back to him 14 after receiving that letter. 15 Q. And what are all these other projects 16 that are more important to you, Mr. Reece, than 17 complying with this Court's orders? 18 A. Well, I mean, I wouldn't say things 19 are more important, but it is a reality that 20 we're all juggling many, many balls at the same 21 time. 22 I was diligently proceeding on this, 23 but, yeah, I mean we all get called into other 24 things, and so I was working around the clock, 25 probably like most people in this office -- or 4479 1 in this courtroom, operating on very little 2 sleep, and this was a high, high priority 3 project. 4 But, you know, I was arguing in Court 5 a number of times, as well, and doing other 6 things that were required to be done. 7 Q. Okay. I believe you testified, sir, 8 that Exhibit H, the letter from Mr. Jurata -- 9 excuse me. I'm sorry. Exhibit I, the voice 10 mail, the transcription of the voice mail that 11 you received from Mr. Jurata, you didn't take 12 seriously? 13 A. I don't think I said I didn't take his 14 voice mail seriously. I said I didn't take the 15 suggestion that Microsoft really thought that 16 we could contact all of our experts, have them 17 search through all of their documents and send 18 them to Iowa and get a response to the Court, 19 and also list anything they think they may have 20 discarded in the ordinary course. 21 I personally didn't think that was a 22 reasonable request or even a serious request. 23 I saw it again, with all due respect, 24 as a posturing letter without any belief that 25 anybody could really accomplish all that in 4480 1 that period of time. 2 Q. How many lawyers are there at Zelle, 3 Hofmann, sir? 4 A. In the firm? 5 Q. Yes. 6 A. You know, I'm not very good on that. 7 There's probably over 80 in the firm. I don't 8 -- maybe there's -- I don't keep track of that, 9 but it's at least 80, I think. 10 Q. Now, Mr. Jurata said to you in his 11 voice mail, as you had it transcribed, if we 12 can talk this afternoon, it seems that the word 13 -- this is repeated twice, and I'm looking at 14 Exhibit I to your declaration, sir. 15 If we can talk about this this 16 afternoon, that would be great, so we can 17 decide whether or not there is anything that 18 has to be taken up with the Court. 19 You understood that to mean, did you 20 not, Mr. Reece, that if Microsoft didn't get 21 satisfaction that the Plaintiffs were going to 22 comply with the Court's order, Microsoft 23 intended to raise this matter with the Court 24 once again; correct? 25 A. I didn't really. I mean, what I 4481 1 understood that to be is, yeah, if -- maybe. I 2 mean, I understood that, yeah, let's talk. If 3 there's some issue we really need to bother the 4 Court with, sure. 5 And I would have been happy to come 6 over and explain to the Court the logistics of 7 this. So I certainly heard what is written 8 there. 9 I didn't think it would ever come to 10 that, but I saw what was written. 11 Q. Now, you testified, sir, about a 12 telephone conversation that you had with 13 Mr. Jurata on the afternoon of December 7, 14 2006. Do you recall that, sir? 15 A. Yes. 16 Q. Okay. And I believe you testified 17 that the call began with approximately one 18 minute spent on pleasantries; is that correct? 19 A. Yeah, one to two. I mean, it was -- 20 started with just general pleasantries, yes. 21 Q. And, then, you then said that you 22 turned to the subject of how long it would take 23 the Plaintiffs in your view to comply with the 24 order. 25 Do you recall giving that testimony? 4482 1 A. Yeah. 2 Q. At any time during your recitation of 3 how long it would take the Plaintiffs to comply 4 with the Judge's order, did Mr. Jurata say, I 5 agree that that is acceptable? 6 A. No, I don't think so. I don't think 7 he used those words. 8 Q. You then said that you discussed the 9 topic of additional depositions if Microsoft 10 had a good faith basis to believe that if new 11 documents showed up in this production, that 12 Microsoft could reopen those depositions. You 13 recall giving that testimony? 14 A. Yes. 15 Q. Was there an agreement on that 16 subject, sir? 17 A. Well, I mean, I guess it depends on 18 what you mean. I thought there was a general 19 agreement -- well, let me put it this way. 20 After I responded, there was no 21 suggestion that the response was inappropriate 22 or that he took issue with it on both those 23 issues. In other words, both on the date issue 24 and on the deposition issue. 25 After I said, hey, we'll try to get 4483 1 this in two weeks, that's what we'll try to do, 2 and on the deposition issue, he didn't say, no, 3 that's not -- we're going to have to go to 4 court on that or I don't agree with that. 5 I simply -- I explained why on both of 6 those, on the timing why we thought two weeks 7 would be appropriate. On the other, after I 8 said hey, if you have an issue, why don't you 9 bring it up with us. And there just wasn't any 10 further discussion that I recall from him on 11 either of those two points. 12 Q. And based on your years in practice as 13 a lawyer, you interpreted that, that 14 description you just gave as an agreement? 15 A. Well, I did -- what I thought after 16 that first call, before the second call, is I 17 thought that because I had described, first of 18 all, in the timing what was involved, and I 19 thought that anyone listening would have said, 20 okay, that's fine, and that's kind of how I 21 took the -- you know, no comment back that, 22 gee, this is a problem, you have to do it 23 sooner or anything else. 24 I thought when I got done with that 25 call, I thought good, you know, he understands 4484 1 we're working on it, we're going to proceed 2 diligently, and this issue is no longer an 3 issue. That's what I thought about that. 4 On the deposition piece, I didn't 5 think he really ever imagined that I would just 6 say, oh, yes, you can have additional 7 depositions after the parties had agreed to a 8 time limit for their deposition. 9 And I thought after I had said, hey, 10 if you have a problem, just talk to us about 11 it. I thought, okay, that's probably what 12 he'll do. 13 Q. But you wouldn't come into this Court 14 and say as to the depositions based on the 15 conversation that you had and Mr. Jurata had 16 that you had an agreement, would you? 17 A. All I've said all along, I think on 18 that first conversation is that I left the 19 conversation thinking we didn't have any 20 issues. 21 Q. Okay. Well, your partner, Mr. 22 Hagstrom, told this Court on December 11 at 23 page 3938 of the transcript, quote, I reported 24 to the Court that an agreement had been reached 25 between Mr. Jurata and Mr. Reece, closed quote, 4485 1 in the telephone conversation that you and I 2 have just been talking about; is that correct, 3 sir? 4 A. Well, of course, these two phone 5 conversations -- just so I'm clear, these two 6 phone conversations were within about 30 -- you 7 know, a minute of each other. So are you 8 saying -- are you asking me just about the 9 first one and not the second follow-up one? 10 Q. Well, let's take them in two stages. 11 Did you think that you had an 12 agreement at the conclusion of the first call 13 that we've just been talking about? 14 A. Well, you know, I mean, you don't 15 anticipate some of these things. 16 I thought implicitly that was the end 17 of it. I mean, I didn't hear any disagreement 18 with my proposals, so, you know, if someone 19 said, gee, that -- certainly Mr. Jurata didn't 20 say, Jim, thank you, we have an agreement or 21 anything to that effect. 22 I explained it, and that was the end 23 of it. He didn't suggest any problem with 24 either of those, and I thought -- again, 25 certainly because of what I thought we were 4486 1 suggesting was reasonable, I thought that was 2 the end of it. 3 Q. Okay. And in the second call -- 4 A. Right. 5 Q. -- did Mr. Jurata say what you just 6 said, which is did he say at any stage during 7 that very short telephone call, Jim, we have an 8 agreement? 9 A. He didn't use those words, no. 10 Q. So when your partner, Mr. Hagstrom, 11 referred to what you and Mr. Jurata did on the 12 afternoon of December 7 as a stipulation 13 between the parties, you would have to disagree 14 with that, wouldn't you, Mr. Reece? 15 A. Well, I mean, all I can say is what 16 I've said about the two conversations, is I 17 didn't think it was going to be an issue after 18 the first one. 19 When he called back and said, hey, can 20 you do it on December 19th because of the 21 holidays, I thought great, and I just wanted to 22 get confirmation that we could try to do it by 23 then. 24 Q. I'd like to read you, sir, and I want 25 you to pay very close attention to what I'm 4487 1 reading. I'd like to read you the testimony of 2 Mr. Jurata on the 11th of December at page 3 3977, lines 1 to 9, and I'm going to ask you a 4 question when I'm done. 5 A. Sure. 6 Q. Question: Can you tell the Court 7 whether you agreed with Mr. Reece that the 8 Plaintiffs would have until December 19 to 9 produce those materials? 10 Answer: No, I did not. 11 Question: Did you ever suggest to him 12 that you had the authority to reach such an 13 agreement on behalf of Microsoft? 14 Answer: No, I did not. 15 Is it your sworn testimony, Mr. Reece, 16 that this testimony by Mr. Jurata is untrue? 17 A. No, I don't think he used those words. 18 Q. In sum or substance, Mr. Reece, is the 19 testimony I read from Mr. Jurata untrue? 20 A. You know, I'd have to hear it again. 21 I mean, I think -- he didn't say, gee, I have 22 an agreement or, gee, I have -- I don't have 23 authority or anything like that. He called 24 back and said, hey, Jim, can we do December 25 19th because of the holidays. 4488 1 Now, again, I just took that. I mean, 2 we deal with each other every day; that is, the 3 Plaintiffs' lawyers and Microsoft lawyers. We 4 are making agreements constantly on all sorts 5 of different issues. 6 When he called back and said, hey, can 7 you do December 19th because of the holidays, 8 you know, I didn't take that as some signed 9 contract or something, but I thought the deal 10 was over. I really didn't think we'd hear 11 about this issue again. 12 Q. Is that what you said, sir, in 13 paragraph 10 of your declaration? Quote, I 14 told Mr. Jurata that I would check with others 15 and get back to him? 16 A. Yeah. 17 Q. You said that, sir, right? 18 A. Yeah. 19 Q. Okay. That doesn't suggest, does it, 20 that you thought there was any sort of done 21 deal here, does it? 22 A. I thought there was a done deal if we 23 could agree -- if we could do it by the 19th. 24 In other words, he had suggested, hey, can you 25 do it by the 19th? I thought, great, all I got 4489 1 to do is just get confirmation from others who 2 are working that we can do it by the 19th and 3 we can go back and focus on trying to comply as 4 opposed to this kind of stuff. 5 Q. Okay. Mr. Reece, I don't mean to 6 repeat myself, but you did say that you wanted 7 to hear it again, and I want to hear it again. 8 When Mr. -- when I asked Mr. Jurata 9 the following question, and he gave the 10 following answer, this is line 3977, line 1 11 through line 5. 12 Question: Can you tell the Court 13 whether you agreed with Mr. Reece that the 14 Plaintiffs would have until December 19 to 15 produce those materials? 16 Answer: No, I did not. 17 Is it your sworn testimony, Mr. Reece, 18 that what Mr. Jurata said to the Court is 19 false? 20 A. I wouldn't call him -- I wouldn't say 21 he would say -- I'm not saying that's false. 22 That's not my understanding of it. I had a 23 very different view. 24 If he says he didn't by the words that 25 I've described intend to convey that he would 4490 1 agree if we could do it by the December 19th, 2 you know, I don't know what's in his head. 3 He's a pleasant guy, and so I don't want to 4 cast any negative things about him. 5 I took his comment as, great, if we 6 can get it by the 19th, it's a done deal. We 7 don't have to worry about this issue, and we 8 can focus on others. 9 MR. HOLLEY: I have no further 10 questions, Your Honor. 11 THE COURT: Redirect? 12 MR. ROVENS: Thank you, Your Honor. 13 REDIRECT EXAMINATION 14 BY MR. ROVENS: 15 Q. Let me try to reel us back into focus 16 on what is really significant here. 17 Let's go back and again look at the 18 order, Exhibit C, the Court's November 28 19 order, which I think you received on the 28th 20 or 29th. 21 Did you view this as a either 22 clarification or a change in what the prior 23 December order and the stipulation covered? 24 A. You meant prior -- August? 25 Q. I'm sorry. August 21 order. 4491 1 A. Again, respecting the Court and the 2 Court's order, and from my vantage point, yes, 3 I viewed it as very different than the 4 agreement and the August order and responded 5 accordingly. 6 Q. And anywhere in this order do you see 7 a specific date by which the Plaintiffs were 8 ordered to produce these materials that were 9 going to be additional to materials that you 10 believed were required to be produced pursuant 11 to the prior order and the stipulation? 12 A. No. 13 Q. So when you were discussing this 14 matter with Mr. Jurata, in your view, did you 15 believe you needed to reach some agreement with 16 him to vary a date or alter a date or anything 17 like that? 18 A. No, I really didn't, and again I'm not 19 suggesting anything negative about Mr. Jurata, 20 but, you know, again, we're all busy, and we 21 have a million different things we're trying to 22 accomplish, and I saw this unilateral kind of 23 view, comply by this date or else, as just a 24 unilateral -- yeah, do it. 25 And I thought, look, if we can't 4492 1 agree, then, that's fine, let's professionally 2 go talk to the Court, and I'll explain the 3 logistics we're running into, and they can 4 argue for a different date. 5 So I kind of took it as okay, you set 6 up a situation where you put a date in. Now 7 you say we violated it because we didn't meet 8 the unilateral date you put in. So, yeah. 9 So I thought again -- it's kind of 10 lawyer stuff, and I thought, look, if -- you 11 know, we have too much to do. Let's just -- if 12 there's an issue, let's get it resolved with 13 the Court. 14 Q. And by not being able to comply with 15 the unilateral direction of Defendant's counsel 16 that you produce all of these documents, search 17 for them, review them, produce them by December 18 6, were you intending -- did you believe that 19 you were willfully violating the Court's 20 November 28 order? 21 A. Absolutely not. I thought Microsoft 22 had absolutely no basis or authority for 23 demanding unilaterally that we do all this by 24 December 6. 25 And, frankly, again, I kind of saw it 4493 1 as they know how much is required here to do 2 this. 3 So they picked a date that would be 4 impossible for us to comply. You know, again I 5 didn't get into that kind of argument with them 6 because, you know, if I had intended to, that's 7 kind of what -- the kind of letter I would have 8 written back; is why would you pick a date that 9 you know we can't comply? 10 You know, it has to be done. Just so 11 you can then go and argue ah-ha, you can't 12 comply by that date so you're in violation. 13 So rather than do that, I thought I'll 14 put my energies towards complying with the 15 Court order, and that was our focus. But I 16 also put on my calendar for December 6 to write 17 back and say here's where we're at. 18 Q. You mentioned you were working a lot 19 of hours. How many hours a day would you say 20 you've been working in this last month or so? 21 A. You know, I think like all people 22 here, I'm probably getting -- you know, I'm 23 trying to get six to seven hours of sleep, but 24 a lot of the nights I'm going to bed at 25 midnight to four in the morning, depending. I 4494 1 guess, 3 o'clock, as well. So working late 2 into the night. 3 The fact is I don't have to be in 4 Court the next morning, that allows me to work 5 till two, three, four, five, whatever, but -- 6 so I think -- I mean, it's not just me. It's 7 everybody here in this courtroom, is working 8 extraordinary hours. 9 Q. And Mr. Holley asked you how many 10 lawyers does Zelle, Hofmann have. You said 11 about 80. 12 A. Right. 13 Q. That's approximately correct? 14 A. 80 -- I know -- I think we're over 80. 15 You know, I really don't pay attention to that 16 kind of thing. I think that's the stock answer 17 I've given the last five years, so I don't know 18 the exact number, but -- 19 Q. Far less than Sullivan & Cromwell, I 20 take it? 21 A. The point, really, is how many lawyers 22 know about these experts and have the history 23 of what this issue is about to properly 24 respond, and that melts down to a very few 25 people. 4495 1 Q. And that was going to be the question 2 I had asked you. 3 Even though the law firm has 80 or so 4 lawyers, really, did you feel from your 5 perspective that this was really incumbent on 6 you to really be the lead person to respond to 7 this? 8 A. Well, I wanted to make sure we did, 9 and again, it's not something you can just hand 10 off easily with the history of this and with 11 complicated experts, so -- 12 MR. ROVENS: Nothing further, Your 13 Honor. Thank you. 14 THE COURT: Any recross? 15 MR. HOLLEY: No, Your Honor. 16 THE COURT: You may step down. Thank 17 you, sir. 18 Any other evidence or witnesses? 19 MR. HOLLEY: None for the defense, 20 Your Honor. 21 THE COURT: Plaintiffs? 22 MR. ROVENS: No, Your Honor. 23 THE COURT: Any further argument on 24 this motion for the sanctions? 25 MR. HOLLEY: Yes, Your Honor. 4496 1 I think it's now clear from Mr. 2 Reece's testimony that there was no agreement 3 by Microsoft that the Plaintiffs could delay 4 yet again their compliance with this order. 5 I think that the testimony about the 6 convoluted interpretation of the parties' 7 stipulation goes to show an intentional effort 8 to thwart our justifiable discovery into the 9 materials that were reviewed or relied upon by 10 the Plaintiffs' experts in formulating their 11 opinions and preparing their reports in this 12 case. 13 The Plaintiffs have adopted at every 14 turn tortured interpretations both of the 15 stipulation and of this Court's orders in order 16 to avoid doing what they knew they had to do. 17 They claim that there was some light 18 bulb that went off on the 28th of November 19 where they finally understood what the Court 20 meant. 21 With respect to the Court's August 21, 22 2006 order, it is very clear. And there's no 23 reason why they waited and waited and waited to 24 go find the documents that they were required 25 to produce. 4497 1 We are in the middle of a trial, and 2 the cavalier attitude adopted by the Plaintiffs 3 in this respect is not justified. 4 The Court has had to go to the trouble 5 on two occasions of compelling them to produce 6 these documents. One can only wonder what it 7 is they don't want to give us, but we certainly 8 want to see these documents and we need to see 9 them soon. 10 And with -- I just believe that the 11 Court should not countenance having two orders 12 issued being sitting here 18 days after the 13 second order was issued and still being told 14 we'll get to it when we feel like it. That is 15 not of the -- not the way litigants should deal 16 with this Court. 17 So, Your Honor, we encourage the Court 18 as a sanction for this to exclude the testimony 19 of Doctors Mackie-Mason, Netz, and Noll, along 20 with any other expert witness for whom expert 21 discovery has been withheld. 22 This is just beyond the pale, Your 23 Honor. 24 THE COURT: Response? 25 MR. HAGSTROM: Yes, Your Honor. 4498 1 I've got a brief in response to 2 Microsoft's. May I hand that up? 3 THE COURT: Thank you. 4 MR. HAGSTROM: You're welcome. 5 The accusations here are simply 6 amazing when you consider the history of this. 7 Your Honor, when we go back to the 8 March 2006 stipulation that I negotiated with 9 Sharon Nelles, the idea was to limit discovery 10 from the experts rather than having a lot of 11 burden on both sides. 12 We spent many weeks negotiating that, 13 and as a result, we ended -- entered into that 14 stipulation. 15 Had we wanted to simply agree to the 16 Iowa rules or the Federal Court rules, we would 17 have done that. 18 But we did not. 19 So both sides ended up producing 20 literally thousands upon thousands of pages 21 from their experts of documents that they cited 22 in the reports, that they considered for 23 purposes of preparing the reports, and those 24 were produced, you know, back this summer. 25 When we ended up taking depositions, 4499 1 both sides identified some additional documents 2 that the experts had not included, and to that 3 extent, both sides have done some 4 supplementation. 5 Then we get to the motion to compel by 6 Microsoft, whenever that was, that resulted in 7 the August 21st order, and we made -- both 8 sides made their arguments. 9 We understood that based upon that 10 order the Court was generally adopting the 11 stipulation that there was a few extra words. 12 We went back to the experts, looked at 13 -- to see if there was any additional 14 documents. We provided a few extra documents. 15 Microsoft was not satisfied with that. 16 They came back with another motion, and in that 17 motion at that time made a change in their 18 argument. 19 And the change was that, well, we want 20 not documents just reviewed or relied upon for 21 purposes of preparing the report, but also 22 anything you saw, but then decided wasn't 23 helpful, I guess, for purposes of the report. 24 That was a change and that was 25 contrary to, in fact, my negotiations with 4500 1 Ms. Nelles way back in the spring. 2 So ultimately, then, when Your Honor 3 issued the new order in November, that was a 4 change from the prior stipulation, and so 5 obviously it was a modification to the 6 August 21st order, and I think the November 7 28th order, in fact, says something like, you 8 know, I meant to say or some clarification of 9 that prior order. 10 So in light of that, we've again gone 11 back to the experts. We're in -- we've 12 contacted all of them. We're seeing if there 13 are responsive documents. 14 We've heard back from some that there 15 are not based upon their beliefs. A couple of 16 others we're getting information to see whether 17 or not there are particular documents that are 18 responsive. 19 Obviously, for purposes of, you know, 20 the -- this contempt order seeking sanctions, 21 the fact that the order itself has modified 22 what was prior makes it inappropriate for the 23 type -- number one, makes it inappropriate for 24 any types of sanctions. 25 It's a new -- it's a new modification. 4501 1 Number two, the case law that we've 2 cited in our memorandum makes it clear that 3 that type of sanction is totally inappropriate. 4 There's been no willful disregard or whatever, 5 flagrant disregard with regard to the Court's 6 August 21st order. 7 The November 28th order came out with 8 the modification. We've been working on that 9 and -- in order to comply. 10 Now, when Microsoft was ordered 11 compelled to produce certain things, we 12 understood that they generally had 30 days. We 13 ended up giving them lots more time when they 14 were ordered to produce documents from the 15 competitor cases. They took 15 months. 16 When they were ordered to produce 17 material on the source code, there was a 18 deadline on that. I forget the exact date. It 19 took them another two to two and a half months 20 to comply with that. 21 We're not looking at spending two to 22 two and a half months to deal with the November 23 28th order. 24 We're in the -- we're dealing with it. 25 We're trying to get through all of the experts' 4502 1 materials to see if they've got anything 2 additional. And when I say additional, to the 3 thousands of pages that have already been 4 identified for -- you know, with their reports 5 and then supplemented by further productions. 6 So the bottom line is that the types 7 of sanctions that Microsoft has requested are 8 truly inappropriate under all of the case law 9 that we've cited in our memorandum. So the 10 real question is what's a reasonable amount of 11 time to get through this process. 12 You heard from Mr. Reece that he 13 thought that December 21st was actually 14 aggressive. That's not even 30 days from the 15 date of the order. And given Microsoft's time 16 to produce things in response to other motions 17 to compel, December 21st was highly reasonable 18 in our view, and, you know, we'd actually asked 19 for 30 days, but, you know, we're in the 20 process of getting it done, and we intend to do 21 so. 22 MR. HOLLEY: Your Honor, briefly, this 23 problem is one of the Plaintiffs own creation. 24 They're the ones who adopted that ridiculous 25 interpretation of this Court's August 21st 4503 1 order. 2 No one could justifiably have believed 3 that reviewed meant what they said it meant. 4 And they haven't explained why the November 5 28th order somehow rendered their 6 interpretation of the word reviewed any 7 different. 8 So I think that these claims that they 9 have no time should fall on deaf ears from the 10 Court. They should have been doing this months 11 ago. 12 We're now prejudiced. Their experts 13 are going to start coming to testify in this 14 trial. We may need to open -- seek the Court's 15 permission to reopen the depositions of some of 16 these experts depending on what it is we see. 17 We would like to talk about some of 18 this in opening, perhaps, depending on what's 19 in those documents. 20 So I won't go into this he said, she 21 said about how long it took us to produce 23 22 million documents from 11 other cases. That's 23 not a good analogy. And I think that we've 24 said what we need to say on this, Your Honor. 25 Thank you. 4504 1 MR. HAGSTROM: Again, Your Honor, I go 2 back to the August 21st order. 3 It had the key language in it, in 4 preparing their expert opinions and reports. 5 The preparing their expert reports was in our 6 stipulation. 7 We understood that that's what the 8 Court was ordering us to do. We went back, 9 talked to the experts in light of the language 10 in the order. A few extra documents were 11 produced. 12 And as far as documents that were not 13 -- in other words, may have been seen but were 14 not used for purposes of preparing those expert 15 reports, we understand that that's the way 16 Microsoft's experts have interpreted that as 17 well. 18 So the November 28th order is a 19 modification. We're working on complying with 20 it. And, in fact, that's why we've tried to 21 get Microsoft's agreement to also be bound by 22 the November 28th order, and that agreement has 23 not yet been forthcoming. 24 I mean, if it -- so accordingly, we've 25 filed a motion on that. 4505 1 THE COURT: Anything else? 2 MR. HOLLEY: No, Your Honor. 3 THE COURT: Very well. 4 Court's going to order the Plaintiffs 5 to get the exhibits to the Defendant as soon as 6 possible. Anything that you've received up to 7 this point should be turned over to the 8 Defendant. 9 You should concentrate on starting 10 with the witnesses that you intend to call 11 first and produce those documents. 12 I want a status report on this 13 production by Friday, and at that time the 14 Court will decide what further action or 15 sanctions or anything will be done, if at all, 16 at that time. 17 So now you're on notice to get it done 18 and get it done immediately. Anything you've 19 got now, turn it over. 20 Anything else? 21 MR. HOLLEY: No, Your Honor. 22 THE COURT: Thank you. 23 MR. GRALEWSKI: Your Honor, would the 24 Court like to hear any evidentiary issues now? 25 THE COURT: My court reporter tells me 4506 1 she has to go at 4:30, so maybe we should start 2 tomorrow. 3 MR. GRALEWSKI: Very good, Your Honor. 4 THE COURT: Is that all right? 5 MR. GRALEWSKI: Absolutely. 6 THE COURT: 8 o'clock. 7 MR. GRALEWSKI: 8 a.m., Your Honor. 8 (Proceedings concluded at 4:20 p.m.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4507 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 12th 19 day of December, 2006. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25