11435 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 XLII 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 8:38 a.m., February 1, 14 2007, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 11436 1 A P P E A R A N C E S 2 Plaintiffs by: RICHARD M. HAGSTROM 3 Attorney at Law Zelle, Hofmann, Voelbel, 4 Mason & Gette, LLP 500 Washington Avenue South 5 Suite 4000 Minneapolis, MN 55415 6 (612) 339-2020 7 ROBERT J. GRALEWSKI, JR. Attorney at Law 8 Gergosian & Gralewski 550 West C Street 9 Suite 1600 San Diego, CA 92101 10 (619) 230-0104 11 KENT WILLIAMS Attorney at Law 12 Williams Law Firm 1632 Homestead Trail 13 Long Lake, MN 55356 (612) 940-4452 14 15 16 17 18 19 20 21 22 23 24 25 11437 1 Defendant by: DAVID B. TULCHIN 2 SHARON L. NELLES Attorneys at Law 3 Sullivan & Cromwell, LLP 125 Broad Street 4 New York, NY 10004-2498 (212) 558-3749 5 HEIDI B. BRADLEY 6 Attorney at Law Heller Ehrman, LLP 7 333 South Hope Street Suite 3900 8 Los Angeles, CA 90071-3043 (213) 689-0200 9 DAVID E. JONES 10 Attorney at Law Heller Ehrman, LLP 11 One East Main Street Suite 201 12 Madison, WI 53703-5118 (608) 663-7460 13 BRENT B. GREEN 14 Attorney at Law Duncan, Green, Brown & 15 Langeness, PC Suite 380 16 400 Locust Street Des Moines, IA 50309 17 (515) 288-6440 18 STEVEN J. AESCHBACHER Attorneys at Law 19 Microsoft Corporation One Microsoft Way 20 Redmond, WA 98052 (425) 882-8080 21 22 23 24 25 11438 1 (The following record was made in the 2 presence of the jury at 8:36 a.m.) 3 THE COURT: Everyone else may be 4 seated. Thank you. 5 You may continue. 6 MR. HAGSTROM: Thank you, your Honor. 7 (Whereupon, the following video of 8 Stefanie Reichel continued playing to the 9 jury.) 10 Question: Let me show you what has 11 previously been marked as Exhibit 604. 12 Exhibit 604 consists of a series of 13 advertisements Theo Lieven, the CEO of Vobis, 14 produced at his deposition. I wanted to see if 15 you've seen these ads or these types of ads 16 before. 17 Answer: I'm familiar with the Denk 18 Zettel, which was their weekly advertising 19 letter that would be inserted in all the 20 newspapers across the country as well as 21 advertising we would do. 22 Question: What is Denk Zettel ? 23 Answer: Denk is thinking or thought, 24 and then Zettel is letter. So it's the thought 25 letter newspaper, letter. 11439 1 Question: Okay. And Vobis 2 distributed these Denk Zettels in weekly 3 newspapers? 4 Answer: Yes, across the country. 5 Question: On a weekly basis? 6 Answer: Uh-huh. 7 Question: Were any distributed 8 throughout the country? 9 Answer: Uh-huh. 10 Question: And were they placed in -- 11 how widely would they be disseminated? Would 12 they be in most of the major or all the major 13 newspapers? 14 Answer: All the major ones, and 15 everywhere you went, you'd see them, specially 16 when I was flying back and forth on planes, 17 you'd see people reading them in airplanes 18 because they were inserted in the papers. 19 So they were unique in the fact that 20 they did that. 21 Question: Did these advertisements 22 help create a market for the products that were 23 advertised? 24 Answer: Yes. 25 Question: Do you know why you were 11440 1 assigned the Vobis account? Were you ever 2 told? 3 Answer: I was assigned the account by 4 Juergen Huels because he wanted somebody on it 5 who could handle what was going to be a 6 difficult and challenging account, and he knew 7 that I had experience doing that. 8 He felt I was the most experienced and 9 the right person for the job. 10 Question: What were you told about 11 the Vobis account at the time it was assigned 12 to you? 13 Answer: Probably not enough because I 14 wouldn't have wanted it otherwise. 15 No, I was told that it was a large 16 account for them, that their business was 17 growing and that there was a lot of opportunity 18 there for me to make it a successful account. 19 Question: That's all you were told? 20 Answer: I was told that they were 21 growing fast and they were important. 22 Question: Were you told anything 23 about the history of the account? 24 Answer: I was told some and I would 25 get additional history, it seemed, as I went 11441 1 along by the more questions that I asked. 2 Question: Were you told about 3 Mr. Lieven, L-i-e-v-e-n? 4 Answer: I was told initially who he 5 was, and that he was difficult. But beyond 6 that, I didn't really, you know, know much 7 about him. 8 When I started taking over the 9 account, I came to realize, first of all, he 10 didn't want to talk to me initially, didn't 11 return calls, but he eventually did. 12 And he wasn't -- I was also told he 13 wasn't crazy about Microsoft at the time. 14 Question: Do you recall whether Vobis 15 was licensing MS-DOS at the time that you were 16 assigned the account? 17 Answer: Yes, they were. 18 Question: Were they also selling 19 DR-DOS at the time? 20 Answer: Yes, they were. 21 Question: Do you recall -- would you 22 have considered Vobis to be a market leader in 23 Germany? 24 Answer: They were one of the market 25 leaders. 11442 1 Question: The manner in which 2 Microsoft sold its products was by licensing 3 them; is that correct? 4 Answer: Licensing to the OEMs? 5 Question: Right. And then the OEMs 6 would resell the products to the ultimate 7 consumers. 8 Is that the way it worked? 9 Answer: Yes. 10 Question: And do you recall what type 11 of licenses Microsoft offered? 12 Answer: Do you mean for product or -- 13 Question: Yes. Well, let's take 14 MS-DOS, for example. What types of licenses 15 did Microsoft offer for MS-DOS? 16 Answer: They would offer a per copy, 17 a per system, and a per processor. 18 Question: Can you describe the 19 difference between these three types of 20 licenses? 21 Answer: Per copy is pretty 22 self-explanatory. Essentially, you would pay 23 for each copy and the price would be based on 24 that and you would report how many copies you 25 sold. 11443 1 Per system would be that you would 2 specify a specific system, and you would list 3 what that system included or if it had a name 4 or a particular kind of processor, you know, 5 components that were added in. And you would 6 pay based on that system as you would report 7 having sold or shipped those computers, that 8 system. And then there was pricing based on 9 that. 10 And then there was per processor, 11 which was essentially that an OEM would report 12 how many PCs that they shipped and the 13 processor amounts. 14 And then based on that as their 15 agreements, they would pay us for each of 16 those. 17 Question: Were you trained to try to 18 obtain a particular type of license? In other 19 words, of those three license types, which was 20 the license that Microsoft preferred? 21 Answer: Per processor. 22 Question: Why was that? 23 Answer: Well, it helped reduce some 24 of the gray market in counterfeit copies that 25 were going on in the market, and it helped 11444 1 assure that we would regulate that. 2 Question: Was there another reason? 3 After an OEM had signed up for a per processor 4 license, would that license effectively 5 preclude the OEM from shipping a different or a 6 competing systems products? 7 Answer: We wanted their -- I mean, we 8 wanted their business. I mean, we wanted to 9 have a hundred percent of their business. We 10 wanted a win for us. And, obviously, the more 11 software that's on their computers was a win. 12 Question: The more Microsoft 13 software? 14 Answer: And that could be 15 applications. It could be a lot of things, but 16 yeah. 17 Question: Was it your expectation 18 that if a customer signed a per processor 19 license that that customer was going to ship a 20 hundred percent Microsoft system software? 21 Answer: Well, they had an option as 22 it states here, that they could choose to sell 23 and ship other software if they wanted to. 24 Question: But if they did, they would 25 have to pay Microsoft as well as pay the other 11445 1 software supplier? 2 Answer: Correct. 3 Question: And that would tend to 4 create disincentive to ship a competing 5 product; isn't that correct? 6 Answer: I don't know if it would for 7 them or not. I mean, I think they would follow 8 what the customers are asking for. 9 Question: How did these three 10 different types of licenses, how were they 11 priced relative to each other? 12 MR. JARDINE: At what point in time? 13 Question: At the time you joined 14 Microsoft in late '91 or early '92. 15 Answer: Well, the per processor was 16 the least expensive. The per system was the 17 next level up, and that was a bit higher, and 18 the cost per copy being the most expensive. 19 Question: During the training you 20 received, were you taught that you should 21 always try to obtain a per processor license if 22 possible? 23 Answer: Uh-huh. 24 Question: And was that something you 25 were taught during the training in the United 11446 1 States or in Germany? 2 Answer: In both. 3 Question: Was that something that was 4 a stated objective that was repeated throughout 5 the course of your employment as an account 6 manager with Microsoft that you try to obtain 7 per processor licenses whenever possible? 8 Answer: It was repeated and we were 9 encouraged. 10 Question: We referred earlier to 11 DR-DOS. 12 What was DR-DOS or what is DR-DOS? 13 Answer: It is the DOS operating 14 system from a company at the time called 15 Digital Research. The DR stood for Digital 16 Research. 17 Question: Did Microsoft consider 18 DR-DOS to be competitive to MS-DOS? 19 Answer: It was a competing operating 20 system to MS-DOS. 21 Question: Was it an objective of 22 Microsoft to get DR-DOS out of OEM accounts if 23 possible? 24 Answer: It was our objective to have 25 a hundred percent of our products on the 11447 1 systems. 2 Question: Were you specifically given 3 as an objective getting DR-DOS out of specific 4 accounts? 5 Answer: Yes, I was. 6 Question: Do you recall which ones? 7 Answer: In particular Vobis. 8 Question: Do you recall other 9 accounts where DR-DOS was considered a threat 10 or a competitive concern to Microsoft? 11 Answer: In a couple of other 12 accounts, which were larger, that -- it was 13 there. Actebis was one of them, Escom, but 14 they weren't my accounts. 15 Question: Did you -- before you 16 joined Microsoft, did you ever -- had you ever 17 heard of DR-DOS? 18 Answer: No. 19 Question: So to be precise, following 20 Mr. Jardine's suggestion, from the period at 21 least October '91 through -- on into '92 or '93 22 at least, competing versions would have been 23 MS-DOS 5.0 versus DR-DOS 6.0; is that correct? 24 Answer: I don't remember the specific 25 date of when MS-DOS 6 was released. I believe 11448 1 it was summer or fall of '92. I'd have to 2 check. I don't remember. 3 Question: Do you recall when MS-DOS 4 5.0 was released? 5 Answer: That was before I joined 6 Microsoft. 7 Question: Did you ever have 8 discussions with Vobis about the issue of 9 compatibility? 10 Answer: Compatibility of what? 11 Question: In the software business is 12 compatibility of software products between each 13 other a significant concern? 14 Answer: It is important that you have 15 your operating system working with the 16 applications and they all interwork 17 appropriately, yes. 18 Question: And was compatibility, as 19 you've described it, was that ever an issue 20 that came up with your discussions with Vobis? 21 Answer: There was an issue whether or 22 not Windows and another DOS operating system 23 outside of MS-DOS would, you know, function as 24 well or appropriately or be compatible, 25 depending on your definition of compatibility. 11449 1 Question: So do you recall as having 2 a specific discussion with anyone at Vobis 3 about whether DR-DOS would be compatible with 4 Windows? 5 Answer: Yes, I do. 6 Question: Who did you talk to about 7 that subject? 8 Answer: Mr. Dahmen and Mr. Lieven and 9 also Mr. Metz, Dirk Metz, I believe. 10 Question: Did anyone at Microsoft 11 ever tell you to suggest that Vobis or any 12 other OEM that DR-DOS was not compatible with 13 Windows? 14 Answer: It's not that they were not 15 compatible. It was the fact that we -- DR-DOS 16 was a different product. It's not our product, 17 so since we didn't support it, we couldn't 18 guarantee the way doctor DOS and Windows would 19 work together. 20 Question: So was that what you were 21 instructed to tell OEMs? 22 Answer: When I would discuss it with 23 my manager or with product managers after it 24 was brought up, that would be essentially what 25 I'd be told, that we don't support DR-DOS, so 11450 1 we don't know what the interaction is going to 2 end up being. 3 Question: Who told you to say that? 4 Answer: Various people. I mean, my 5 manager obviously. 6 Question: Do you recall ever telling 7 OEMs to watch out, that DR-DOS may not be 8 compatible with Windows in the future? 9 Answer: I remember on that issue of 10 when it would come up about whether or not they 11 were working together that I would address the 12 fact that since we didn't support that product, 13 we couldn't be certain to what the results of 14 the two combined would be. 15 Question: Did you tell me that the 16 two products may not be compatible in the 17 future? 18 Answer: I don't know if I used the 19 word concern, but I probably told them to think 20 about it. 21 Question: Going back to Vobis, do you 22 recall what specific discussions you had about 23 this issue of DR-DOS and Windows compatibility? 24 Answer: Well, I had many 25 conversations with them on issues related to 11451 1 that. 2 Question: Do you remember what the 3 time period was when you had those discussions? 4 Answer: It would have been sometime 5 between January of '92 and spring. 6 Question: And what do you recall 7 about the discussions specifically? 8 Answer: Mr. Lieven, Mr. Dahmen, and 9 Mr. Metz were all concerned about the content 10 -- I mean, of what would happen when they had 11 DR-DOS, I guess, version 6.0 running with 12 Windows 3.1 beta that we had. 13 Question: Did you ever hear about 14 code built into the Windows 3.1 beta that 15 detected DR-DOS? 16 Answer: I've heard and seen 17 references in the media that refer to, you 18 know, allegations. I don't know what the code 19 within itself was but that there had been 20 allegations made that there was some code to 21 detect competitive products. 22 Question: Did you ever hear of that 23 the Win 3.1 beta generated a nonfatal error 24 message when it was running with DR-DOS? 25 Answer: I heard about that, yes. 11452 1 Question: Did you talk to Mr. Dahmen 2 and Mr. Lieven about that? 3 Answer: Yes. 4 Question: Were they concerned about 5 that? 6 Answer: Yes, they were. 7 Question: Did you offer them any 8 explanation? 9 Answer: They had asked about it. And 10 my understanding is that when -- and this was 11 in the beta, not the final product, but that 12 when you installed it, it would detect if it 13 was something other than MS-DOS version, I 14 think, 3.0 and that it would search for 3 dot 15 -- 3 something or higher, and if it detected -- 16 if it didn't detect those, that's when an error 17 message would come up. 18 Question: So let me see if I 19 understand. So what you're saying your 20 understanding was that the Windows 3.1 beta 21 would look to see if it was running on top of 22 something other than MS-DOS 3.0 or higher? 23 Answer: Or actually I should rephrase 24 it. It would look to see if something below 25 MS-DOS 3.0 or something different was running. 11453 1 In other words, if it detected, I 2 think, 3.0 or 4.0 or 5.0 or 3.2, or whatever 3 versions there may have been, if it detected 4 that, the error message wouldn't come up, but 5 if it was anything other than those, it could 6 have been MS-DOS 2.0, it would have an error 7 message or if it was a product other than 8 MS-DOS. 9 Question: Do you -- so it was your 10 understanding that if DR-DOS, any version of 11 DR-DOS was running under Windows 3.1, an error 12 message would come up? 13 MR. JARDINE: Objection. You mean the 14 Windows 3.1 beta? 15 Question: Right. I'm sorry. 16 Answer: Correct. So while if the 17 Windows 3.1 beta was running with any version 18 of DR-DOS, the error message would come up. 19 Question: And it's further your 20 understanding that this -- the fact of this 21 error message coming up under Windows 3.1 was 22 reported in the German press? 23 Answer: I think it was in the German 24 press because a lot of press things that I read 25 were U.S. trade, so I don't know which press I 11454 1 saw it in. But it definitely had gotten 2 attention, yes. 3 Question: And so you discussed this 4 with Mr. Dahmen and Mr. Lieven, and it was a 5 concern to them? 6 Answer: Yes. 7 Question: Do you know -- did you ever 8 hear or do you know what customer support 9 people would tell customers if they called in 10 to inquire about the reason for the nonfatal 11 error message that we've been discussing? 12 Answer: I don't know the specifics. 13 I do know that Dahmen had called in a few times 14 and was not happy with the responses he was 15 getting. 16 Question: Do you recall what he said 17 they told him? 18 Answer: No, I don't. 19 Question: Did you ever hear that 20 customer support would tell customers who would 21 call in and inquire about those error messages 22 that Windows was not supposed to work with 23 DR-DOS? 24 Answer: I don't remember if it was 25 because he got it from a customer support 11455 1 person or what. He felt that Microsoft wasn't 2 being straight with him, but he was always 3 suspicious of Microsoft from the beginning of 4 the relationship. 5 Question: Do you know why Microsoft 6 did not support DR-DOS? 7 Answer: It wasn't their product. 8 Question: Doesn't Microsoft support 9 an array of non-Microsoft products? 10 Answer: I can't think of specific 11 examples, but I know there have been. 12 Question: But you did testify that 13 what you were told and what you told customers 14 was that Microsoft did not support DR-DOS? 15 Answer: Correct. 16 Question: There were -- Vobis had 17 shipped a lot of computers with DR-DOS on it; 18 isn't that true? 19 Answer: Yes. 20 Question: Okay. I have shown you 21 what's been marked as Exhibit 1338, and can you 22 identify the exhibit? It appears to be your 23 performance review for May 1992. 24 Answer: Uh-huh. 25 Question: And who gave you the 11456 1 review? 2 Answer: That was done by Juergen 3 Huels, my manager. 4 Question: And so as I look at this, 5 it appears it goes through account by account 6 and lists specific objectives that had been 7 provided for you during the previous period. 8 Answer: Correct. So this would be 9 running from the time that I started to when I 10 was being reviewed for that period going 11 through May. 12 Question: Okay. If we turn to it 13 looks like the fourth page of the exhibit, 14 halfway down the page it says, previous 15 objective/goal. Win Vobis' commitment to ship 16 all computer systems with MS-DOS, at least one 17 representative model by the end of May. 18 So if I understand this correctly, the 19 objective you had been given was to win Vobis' 20 commitment to ship all of its systems loaded 21 with MS-DOS; is that correct? 22 Answer: Uh-huh. 23 Question: Did you consider that if 24 Vobis was shipping a hundred percent MS-DOS, 25 that that -- and if Vobis correspondingly 11457 1 ceased shipping DR-DOS, that that would have an 2 impact on what other accounts might do? 3 Answer: They were the leader in the 4 market, so I'm sure that those worked hand in 5 hand. 6 Question: Was Vobis considered 7 particularly strategic account? 8 Answer: What's your definition of 9 strategic? 10 Question: Well, I think Microsoft has 11 used that term. But was Vobis an account that 12 was seen as a market leader, one that was very 13 important to having ship hundred percent 14 Microsoft products because of its influence in 15 the Central and European market? 16 Answer: They were important like a 17 Compaq or an HP or a Dell would be in the U.S. 18 market. So they were the market leader, and 19 revenue-wise, they were in the top five in 20 Europe. 21 So, you know, naturally, you know, a 22 company that's watching their business would 23 definitely want to make sure that they're doing 24 well in an account like that. 25 Question: I think you indicated that 11458 1 certainly there was a possibility that if 2 Microsoft could not -- that if Windows were not 3 compatible with DR-DOS, that Microsoft would 4 lose some sales because people that were 5 committed to DR-DOS would then not purchase 6 Windows; is that correct? 7 Answer: That potentially existed 8 assuming they wanted to stick with the 9 nongraphical based operating system. 10 Question: Assuming that they wanted 11 to stick with DR-DOS -- 12 Answer: In the case -- 13 Question: -- it wouldn't run with 14 Windows, Microsoft, could lose some sales? 15 Answer: Uh-huh. 16 Question: And that could cost 17 Microsoft some money; correct? 18 Answer: Uh-huh. 19 Question: And isn't it ordinarily the 20 case that software companies try to make their 21 products compatible with as wide a range of 22 products as possible? 23 Based on your experience as an account 24 manager, isn't that something that's always a 25 concern when you try to sell software products? 11459 1 Answer: I assume companies -- if they 2 want to do well in business, they do make sure 3 their products are compatible with market 4 leaders and other software products in the 5 industry. 6 Question: And certainly Novell and 7 DRI would have wanted their product to be 8 compatible with Windows; isn't that so? 9 Answer: I assume they would have. 10 Question: That it would have been 11 important for Novell and DRI to have DR-DOS run 12 well with Windows; isn't that so? 13 Answer: If I was running those 14 companies, yes, I would have -- if I were them, 15 I would have done that, yes. 16 Question: Think I asked you if Vobis 17 was a strategic account to Microsoft. Do you 18 recall that? 19 Answer: Uh-huh. 20 Question: And would you agree that 21 Vobis was one of Microsoft's most strategic 22 accounts? 23 Answer: Yes. 24 Question: And why was that? 25 Answer: They were the market leader 11460 1 in Germany. They were one of the largest OEMs 2 in Europe. They set standards for the 3 industry, and they were making lots of money 4 for us. 5 Question: I'm showing you what's been 6 marked Exhibit 1339. It's entitled Vobis 7 Microcomputer AG account profile for Q1FY93, 8 which I understand would be first quarter 9 fiscal year '93; is that correct? 10 Answer: Uh-huh. 11 Question: It says Microsoft and 12 Vobis, Stefanie Reichel, OEM account manager, 13 Germany. This is a document that you produced 14 pursuant to the subpoena. 15 Do you recall having prepared this 16 document? 17 Answer: Yes, I do. 18 Question: And what was Microsoft's 19 fiscal year? What period would have been 20 covered by the first quarter? 21 Answer: July 1st is the beginning of 22 the fiscal year. 23 Question: So July 1st of '92? 24 Answer: Yes. 25 Question: So this would have been 11461 1 prepared sometime prior to July 1, 1992; is 2 that correct? 3 Answer: It was a living document. I 4 had prepared this document as far back as the 5 beginning of the year doing the research that's 6 contained in it. And I was updating it as I 7 went along. 8 Question: Let's refer to the 9 executive summary, first paragraph, states 10 Vobis Microcomputer AG represents one of the 11 most strategic accounts to Microsoft both in 12 terms of the revenue they bring us, but also 13 because of their fast growth and strong 14 presence in the German and European market. 15 Do you agree with that? 16 Answer: Yes. 17 Question: From a market share 18 standpoint, Vobis is by far the largest 19 manufacturer and seller of IBM-compatible 20 computer in 1991. Is that true? 21 Answer: Yes. 22 Question: Third paragraph. Vobis is 23 also projected to continue to grow rapidly and 24 dominate the German market and eventually 25 expand in the rest of the European market with 11462 1 as much momentum. 2 Was that your belief at the time? 3 Answer: Yes. 4 Question: Next paragraph. From a 5 royalty revenue standpoint for Microsoft, Vobis 6 is by far our largest OEM in Germany and one of 7 our largest in Europe. 8 Is that true? 9 Answer: Uh-huh. 10 Question: Turning to the next page, 11 first paragraph. Our greatest challenge and 12 threat in this account has been Digital 13 Research (DRI). Vobis is still DRI's largest 14 OEM in Europe and where they have had their 15 strongest foothold in an account. 16 Was that true? 17 Answer: Yes, it was. 18 Question: There are many reasons that 19 DRI was able to get this position with them. 20 One of them is that Vobis does not want to feel 21 dependent on one vendor and this means 22 Microsoft. 23 In other words, Vobis did not want to 24 be dependent on Microsoft, is that true? 25 Answer: Correct. 11463 1 Well, I think most companies in 2 general never, especially in any manufacturing 3 business, do not want to be completely 100 4 percent dependent on one supplier. 5 Question: But most of your OEMs did 6 end up becoming dependent on Microsoft; isn't 7 that true? 8 Answer: Dependent meaning -- 9 Question: Meaning that Microsoft is 10 their sole system software supplier. 11 Answer: But they chose to do that. I 12 mean, they -- 13 Question: I'm not arguing about that. 14 I'm just saying isn't it true that most of the 15 OEMs you worked with in Germany depended on 16 Microsoft exclusively for their system 17 software? 18 Answer: With the PCs that they were 19 shipping, yes. 20 Question: And Vobis was particularly 21 resistant to that happening, unusually so; 22 isn't that true? 23 Answer: Yes. I think he used it as a 24 negotiation tactic. 25 Question: Mr. Lieven made it clear in 11464 1 his deposition very important to have multiple 2 suppliers wherever possible. Wasn't that your 3 experience with that? 4 Answer: He would state that, yes. 5 Question: Okay. And you state 6 another reason is that internally at Vobis 7 there are several DRI disciples who preach 8 within and to the Vobis customer base that 9 DR-DOS 5.0 is better than MS-DOS 5.0. 10 Is that true? 11 Answer: Yes. 12 Question: And I think you previously 13 testified there were several people that told 14 you DR-DOS 6.0 was a better product than MS-DOS 15 5; correct? 16 Answer: Yes. 17 Question: Referring to Exhibit 1340, 18 it's a document that you produced pursuant to 19 the subpoena. It looks like several -- at 20 least two e-mails? 21 Answer: It looks like a string of 22 e-mails -- 23 Question: Right. 24 Answer: -- that are together. 25 Question: And the one I was 11465 1 specifically interested in is halfway down the 2 first page. It says from joachimk. Is that 3 Joachim Kempin? 4 Answer: Yes. 5 Question: It says to chrissa. Is it 6 chrissa with two S's and an A? Who would that 7 be? 8 Answer: I think that was one of the 9 PR people. 10 Question: Then stefanir, is that you? 11 Answer: That's me, stefanir. 12 Question: Stefanir. 13 And then bengta. Is that Bengt 14 Akerlind? 15 Answer: Correct. 16 Question: And then collinsh. Who is 17 that? 18 Answer: He was the head of PR, I 19 think, in Europe. I forget, but I don't 20 remember his last name. 21 Question: Jeffl, would that be Jeff 22 Lum? 23 Answer: Yes. 24 Question: And simoned, who's that? 25 Answer: It was a woman Simone Droll. 11466 1 I think. I don't remember her last name. 2 Question: All right. So this -- 3 anyway it's from joachimk to chrissa and 4 stefanir. 5 First sentence says, I recommended 6 that Vobis puts a company backgrounder together 7 and we distribute this with it. 8 Do you know what this is -- that's 9 being referred to there? 10 Answer: There meaning the company 11 backgrounder that Vobis would give us would be 12 distributed with the press release. 13 Question: And the press release would 14 refer to the strategic alliance between MS and 15 Microsoft and Vobis? 16 Answer: Announcing that, correct. 17 Question: And I'm sure we'll talk 18 about that later. I just wanted to focus on 19 the next sentence there. 20 Answer: Right. Bigger PC seller to 21 Germany than IBM, might get some attention. 22 Uh-huh. 23 Question: The point being in the 24 German market Vobis was a very important OEM? 25 Answer: In the German market Vobis 11467 1 was like a Compaq. Whereas, here in the U.S. 2 when you ask about Vobis, no one's heard of it 3 before. 4 Question: Exhibit 1341. Okay. 5 This is a document entitled MS-GmbH 6 OEM report, April 1991. First MS or GmbH is 7 German shorthand for, I think, it's called 8 gesellschaft. 9 Answer: Gesellschaft. 10 Question: In any event, this is the 11 MS-GmbH would be the German subsidiary of 12 Microsoft? 13 Answer: Of Microsoft, correct. 14 Question: And MS-GmbH OEM report, was 15 this a report that was generated on a monthly 16 basis? 17 Answer: Yes, it was. 18 Question: Okay. And I'm referring to 19 the paragraph entitled Vobis. It states, we 20 are focusing on getting these guys to ship DOS 21 5.0 ASAP. 22 If we can do this quickly, this will 23 have a huge influence on other DRI OEMs that 24 look to Vobis and think it is okay and 25 competitive to ship DR-DOS. 11468 1 Was it your experience that OEMs that 2 shipped DR-DOS looked to Vobis for leadership 3 in that regard? 4 Answer: My understanding was that 5 they knew that Vobis was leading the market and 6 they would follow what Vobis was doing. 7 Question: All right. And part of the 8 reason for that was that Vobis by its broad 9 advertising helped to create a market for 10 whatever product it was advertising? 11 Answer: Correct. 12 Question: And Vobis widely advertised 13 DR-DOS during the period you were in Germany; 14 is that correct? 15 Answer: Correct. 16 Question: At least up until the end? 17 Answer: Yes. 18 Question: 1342. And this is a 19 document prepared by Jeff Lum apparently, to 20 Joachim Kempin dated February 25, 1992. It's 21 January Europe OEM sales status report. 22 Do you recall having seen this 23 previously? 24 Answer: I got to see copies often of 25 these. I wasn't on the distribution list, but 11469 1 I would see these final reports that Juergen 2 Huels was copied on. So this could have been 3 one of multiple ones that I have seen. 4 Question: All right. These reports 5 were prepared by Mr. Lum monthly to advise a 6 lot of people about the status of their 7 accounts, various accounts in Europe? 8 Answer: Correct. 9 Question: Turn to page 11 of the 10 report. 11 Answer: Okay. 12 Question: Under the page heading 13 Vobis. Stefanie Reichel. States, during the 14 mid-year review, Bill Gates visited Vobis -- 15 excuse me -- visited the Vobis store in the 16 Arabella Center in Munich. Arabella spelled 17 A-r-a-b-e-l-l-a. 18 Bill has now seen their efforts for 19 DR-DOS, unfortunately, but we are working on a 20 long-term plan to dramatically improve the 21 presence of MS-DOS in Vobis stores. 22 You were aware of Mr. Gates' visit to 23 the Arabella store? 24 Answer: It wasn't planned. 25 Question: But you were aware that he 11470 1 did make such a visit? 2 Answer: Oh, yes. 3 Question: And Mr. Gates threw a 4 temper tantrum, did he not? 5 Answer: What's a temper tantrum? 6 Question: He was extremely upset. 7 Answer: He was not pleased. 8 Question: He was shouting and 9 yelling; correct? 10 Answer: He was not happy. 11 Question: And he was not very happy 12 because he saw DR-DOS advertising in the store 13 in the Arabella Center? 14 Answer: That apparently was not 15 something he had wanted to see and held us 16 responsible for that. 17 Question: He chewed you out and 18 others that were responsible for the Vobis 19 accounts at that time? 20 Answer: I personally wasn't chewed 21 out, but I know my management -- 22 Question: Mr. Heuls was? 23 Answer: I believe that he and a 24 couple others were the beneficiaries of that. 25 Question: The beneficiaries, your -- 11471 1 Answer: He wasn't happy. 2 Question: He was not happy. 3 Answer: Well, I mean, if you think 4 about it, you don't want to see the CEO of your 5 company who wants you to be, you know, doing a 6 good job, and they walk into the store and see 7 nothing but the competitor. 8 Question: And he was extremely upset, 9 correct? 10 Answer: He was not happy. 11 Question: And he made that known to 12 Mr. Heuls and others in Germany; correct? 13 Answer: Uh-huh. 14 Question: And it goes on to say, on 15 January 28th, we had a meeting with Vobis 16 together with Dahmen to discuss the 17 relationship and to officially introduce 18 Stefanie as their contact. 19 Dahmen, that's the Heinz-Willi Dahmen 20 that we've referred to earlier today? 21 Answer: Yes. 22 Question: Was that the first time you 23 were introduced to anybody at Vobis? 24 Answer: That was the first time I had 25 been up at their location. 11472 1 Question: And prior to that, had you 2 met any Vobis people? 3 Answer: No. 4 Question: You hadn't met Lieven at 5 that point? 6 Answer: No. Lieven wouldn't even 7 return phone calls to us. 8 Question: How long after that did you 9 meet Mr. Lieven? 10 Answer: I don't remember the first 11 time he and I met. 12 Question: Wasn't long after that, was 13 it? 14 Answer: It took a little bit of time 15 because I had to work to get finally a meeting 16 with him where he would agree to meet with me. 17 Question: And wasn't the first 18 meeting with him the result of your sending him 19 a bottle of wine? 20 Answer: Yeah. 21 How did you know about that? 22 Question: I have my sources. You 23 sent him a bottle of wine. 24 Answer: Did he say that in the 25 deposition that I did that because, yes, I did 11473 1 do that. He -- I did a little research on him 2 and discovered that he likes fine wines and 3 fine food. 4 And so on one of my trips back to the 5 U.S., I obtained a better bottle of California 6 cabernet and sent it to him as a way of getting 7 his attention and introducing myself. And it 8 did get a response. 9 Question: And after he met with you? 10 Answer: He agreed to meet with me. 11 Question: During the first meeting, 12 did you discuss business? 13 Answer: Yes. That was the purpose of 14 the meeting. 15 Question: Okay. During the meeting 16 he indicated to you that he was very upset 17 about that relationship with Microsoft, didn't 18 he? 19 Answer: He was not shy to express his 20 feelings on the relationship. 21 Question: And there were at least two 22 things he was very upset about. One was 23 Microsoft had threatened to cease providing his 24 customer support and information unless he quit 25 shipping DR-DOS. Wasn't that true? 11474 1 Answer: He claimed that those things 2 had been said to him in the past, and that was 3 one of the reasons why he was upset. 4 Question: And wasn't he also upset 5 because Mr. Kempin had told him that unless he 6 licensed both MS-DOS and Windows in a package 7 that he was going to have to pay more than 8 double the price of Windows than he would have 9 for Windows separately? Wasn't he upset about 10 that? 11 Answer: That was another. 12 Question: And you were aware that he 13 had been told if he purchased Windows 14 separately it was $35, correct? 15 Answer: I don't remember the exact 16 amount, but it was definitely much higher than 17 what he had been paying or had been wanting to 18 pay, yes. 19 Question: And the Windows price 20 separate would have been more than the price of 21 DOS Windows combined. Wasn't it what 22 Mr. Kempin -- 23 Answer: It was a significantly higher 24 amount. 25 Question: And he was very upset about 11475 1 that and made that clear to you? 2 Answer: Yeah. There was actually 3 another thing he was upset about, and it's in 4 the profile document that there had been also 5 problems going way back before my time which 6 dealt with the contract that had taken place 7 where he had signed a contract agreeing to 8 something. 9 And then it come back to him later or 10 they came back and wouldn't sign it and had 11 doubled the price and that outraged him. I 12 don't know if that is related. I mean, I think 13 that's a separate thing, but -- 14 Question: That's a separate, but he 15 felt that he had been treated unfairly by 16 Microsoft? 17 Answer: Oh, he was not happy. 18 Question: In effect, Microsoft had 19 gouged him? 20 Answer: That was his impression. 21 That is what he conveyed to me when we met. 22 Question: Isn't it true that aside 23 from Vobis, you on at least one or more 24 occasions heard Mr. Kempin tell other OEMs that 25 the price for Windows separately would be 11476 1 significantly more or more than the price of 2 DOS and Windows combined? 3 Answer: I have heard that said. 4 Question: By Mr. Kempin? 5 Answer: I've heard it by him and 6 others, yes. 7 Question: And others. Which others? 8 Mr. Heuls? 9 Answer: Mr. Heuls, yes. 10 Question: And Mr. Haink? 11 Answer: Not Mr. Haink. 12 Question: Who else? 13 Answer: Mr. Lum. 14 Question: Let me show you a document 15 to try to refresh your recollection. 16 Look at Exhibit 607. 17 Answer: Okay. 18 Question: It states -- look at the 19 second paragraph. 20 Answer: First page? 21 Question: I'm sorry. Page 3, and we 22 referred to the first sentence of that 23 paragraph before lunch, and let's look at the 24 sentence that starts round 2. It's the fourth 25 line of the second paragraph. 11477 1 Do you see that? 2 Answer: Uh-huh. 3 Question: And let me just read it. 4 It says, Round 2. I took the opportunity to 5 negotiate in German, sign our offer as is. 6 This is an agreed-upon package deal or if you 7 change any component, we will, too. 8 Second option, scratch the DOS clause. 9 Paid $35 for Windows instead of $15. You have 10 until 4/1/91 to consider. 11 Do you see that? And do you recall 12 that the price that was negotiated for DOS was 13 $9? 14 Answer: I wasn't at the company at 15 that time, but I recall that the price that 16 they ended up finally agreeing on was $9 for 17 DOS. 18 Question: So DOS was $9. Windows was 19 15 for a total of $24. 20 So if they bought -- the deal was if 21 Vobis agreed to a combined price of $24 for DOS 22 and Windows, they can have it, or if it wanted 23 Windows separately, they'd have to pay $35, 24 correct? 25 Answer: Obviously, $9 and $15 do 11478 1 equal 24, so based on what this says here, that 2 seemed to be the agreement that was made. 3 Question: Isn't it true that you 4 heard Mr. Kempin, Mr. Lum, Mr. Heuls, at least, 5 offer similar pricing to other OEMs, in other 6 words, in the range of $35 for Windows alone or 7 $24 for DOS and Windows combined? 8 Answer: I don't remember if the exact 9 amount was 35. It could have been less. It 10 could have been higher. My guess, it was 11 higher because $9 for DOS was lower than what 12 had been given to other OEMs. 13 But I do recall more than once that 14 there were times that that would be offered or 15 suggested to OEMs. 16 Question: Do you remember OEMs to 17 whom that suggestion was made? 18 Answer: Ones specifically that I was 19 involved with? 20 Question: Yeah. 21 Answer: I would say I recommended it 22 at IPC, at Actebis and Peacock. 23 Question: Let's take those one at a 24 time. 25 Did IPC eventually sign a per 11479 1 processor license with Microsoft for DOS and 2 Windows? 3 Answer: I don't remember. 4 Question: Same question as to 5 Peacock. 6 Answer: Peacock, I believe, if I 7 recall correctly, did per processor. 8 Question: Same question as to 9 Actebis. Did Actebis eventually sign a per 10 processor license for both DOS and Windows? 11 Answer: My recollection on Actebis is 12 it was a per system, if I remember, but I'd 13 have to look back on it and refresh my memory 14 because it's been a while since obviously I 15 managed those accounts. 16 But the point is they did agree to 17 signing an agreement that were either per 18 processor based on a particular processor chip 19 or system. 20 Question: Based on -- 21 Answer: Based on getting the price 22 for MS-DOS and Windows. 23 Question: Let me continue down the 24 paragraph we were just reading. 25 It says, the proposal showed impact. 11480 1 They threatened with GeoWorks, Lotus, et 2 cetera. We asked if the DOS price was an 3 issue. He answered no. We parted as friends, 4 believe it or not. Manfred will follow up with 5 a letter and a phone call, and I have a bet 6 with Jeff that they will sign as is. 7 In my judgment, they will hurt if they 8 do not ship Win, meaning Windows, I assume, and 9 paying $35 for it is out of the question. 10 What I just read includes this, in my 11 judgment, they will hurt if they do not ship 12 Win. They being Vobis, Win being Windows, 13 correct? 14 Answer: Win was referring to Windows. 15 Question: And isn't it true that what 16 he's saying that it was essentially to be 17 competitive for Vobis to ship Windows at that 18 time frame? 19 Answer: I actually believe and know 20 that they wouldn't have been able to be 21 competitive with other OEMs if they hadn't been 22 offering Windows. 23 Question: And it was your experience 24 during the time period when you were an account 25 manager in Germany that it was essentially in 11481 1 order for OEMs to be competitive with other 2 OEMs to ship Windows; isn't that true? 3 Answer: It would. 4 Question: By that time it had become 5 a standard in the marketplace? 6 Answer: And I think more so with 3.1, 7 though, that that was going to be -- 8 Question: That was my understanding 9 as well. 3.1 was very popular, and it was -- 10 for an OEM to be competitive, it had to offer 11 that graphical option to its customers, 12 correct? 13 Answer: Uh-huh. 14 Question: I'm handing you what's been 15 marked as Exhibit 1343, and it appears to be 16 the first and last page of a report dated 17 October 15, 1991, written by Jeff Lum to 18 Joachim Kempin. 19 Do you recall having previously seen 20 this document? 21 Answer: Once again, this is right 22 around the time I was joining Microsoft, and I 23 did see many of these copies of documents 24 because they were kept in files that I was 25 given access to in order to get a history of an 11482 1 account. 2 Question: Okay. 3 On page 9 under the heading Vobis, it 4 states, although they sold a lot of MS-DOS, 5 penetration is significantly more than 60 6 percent as estimated until we see the royalty 7 reports. 8 It looks like DRI is urging them to 9 focus on DR-DOS. Lieven is complaining about 10 the per processor license. He does not want to 11 pay $9 with every computer system and thinks 12 about shipping both DR-DOS and MS-DOS. 13 I assume this is consistent with your 14 recollection that Mr. Lieven did not like 15 paying $9 with every computer system he shipped 16 because he was at the time shipping -- at the 17 time when you first met him was shipping both 18 MS-DOS and DR-DOS; is that correct? 19 Answer: He expressed to me on 20 multiple occasions that he did not like having 21 to pay $9 per processor. 22 Question: Because he was trying to 23 ship both DR-DOS and MS-DOS, correct? 24 Answer: Well, he didn't -- he felt he 25 was paying double. 11483 1 Question: That's right. And every 2 time he shipped a system with DR-DOS, he had to 3 pay Microsoft, correct? 4 Answer: If it was a per processor 5 contract at that time that he had negotiated, 6 yes. 7 Question: And were you aware that at 8 the time you joined Microsoft, Vobis also had a 9 license with DRI that was a per copy license on 10 which Vobis had prepaid? 11 Answer: Was I aware? 12 Question: Were you aware of that? 13 Answer: Yes, I was. 14 Question: And were you aware that 15 Vobis had signed the DRI license prior to the 16 time it had signed a contract amendment with 17 Microsoft that changed the basis of the 18 relationship with Microsoft to a per processor 19 contract? 20 Answer: Which amendment contract are 21 you referring to? 22 Question: I'm sorry. I was hoping to 23 skip through this. 24 Let me show you first Exhibit 605. 25 This is a license agreement between Microsoft 11484 1 and Vobis dated September 1, 1994, and MS-DOS 2 version 4.01. 3 Do you recall having seen that? 4 Answer: Is this the actual -- I don't 5 see when it was signed or -- yeah, I mean, this 6 looks familiar. 7 Question: Let me show you what's been 8 marked as Exhibit 608. 9 This is Amendment Number 1 to Exhibit 10 605. 11 Do you recall having seen that before? 12 Answer: Yes. 13 Question: Exhibit 608 was signed by 14 looks like Mr. Lieven March 28th, 1991, 15 correct? 16 Answer: Uh-huh. 17 Question: And it looks like Mike 18 Hallman who was -- at that time wasn't he the 19 president of Microsoft? 20 Answer: Yes. 21 Question: Signed April 4, 1991. 22 And Exhibit Number 1, wasn't this the 23 first license for MS-DOS 5.0? 24 Answer: Yeah. I mean, I've seen all 25 these because obviously future amendments all 11485 1 related back to these, and these are not -- as 2 any and most contracts are -- the easiest to 3 understand, so let me quickly look back through 4 -- 5 Question: Let me look back to make 6 sure I'm right. 7 Answer: Okay. Exhibit Number 608 is 8 the amendment to the original contract, which 9 is your Exhibit 605. And it is what was giving 10 them, licensing them the rights for MS-DOS 5.0. 11 Question: And if I can find the right 12 page. Doesn't it -- and the royalty basis on 13 this amendment is per processor, is it not? 14 Answer: Let me -- 15 Question: Yeah, there it is. 16 Refer to page 9. It's Exhibit C7. 17 Answer: Based on Exhibit M1 of the 18 original contract, which lists the per -- the 19 processors that's to be covered or the systems, 20 that this is a per processor agreement. 21 Question: All right. And it lists 22 the royalty rate in U.S. dollars. I'm 23 referring now to Exhibit 608 at page 9. Lists 24 a royalty rate of $7.82 in U.S. dollars. 25 Answer: Correct. 11486 1 Question: And do you know why the 2 price that's referred to in other documents 3 that was negotiated was $9? Do you know why 4 the contract lists the amount of $7.82? 5 Answer: Yeah, because this price is 6 -- well, it's a U.S. agreement, you know, it's 7 a worldwide agreement. The prices are based on 8 U.S. price plus their foreign language 9 versions, and obviously, in Germany they're not 10 selling the U.S. English version. They're 11 selling German. Maybe somebody asked for 12 another language. Or if they're selling into 13 France or other countries, then it's the 14 foreign language. 15 And actually, even if they were to 16 sell the U.S., it would be the U.K. version 17 which is still considered foreign language. 18 Question: And the foreign language 19 versions were $9? 20 Answer: Based on the way the 21 calculations for that uplift price of foreign 22 language, it would have totaled $9. 23 Question: So the way it worked was 24 Microsoft had entered into this per processor 25 license with Mr. Lieven or with Vobis at $9. 11487 1 At the time they entered into that 2 license, Vobis had unused copies of DR-DOS they 3 had already paid for, correct? 4 Answer: Since this contract was 5 signed before I joined, I don't know if they 6 had or not, or I don't recall whether or not 7 they had actually and what their agreement with 8 Digital Research was. 9 Question: But if Mr. Lieven testified 10 that he had signed a license with DRI on a per 11 copy basis, that he had prepaid for, and that 12 subsequently he signed this per processor 13 license with Microsoft, you are in no position 14 to disagree with that testimony, are you, 15 correct? 16 Answer: No, I don't disagree with 17 that. 18 Question: Okay. Do you recall what 19 the -- with reference to Exhibit 608 that there 20 was a minimum commitment that was made by Vobis 21 for purchase of MS-DOS? 22 MR. JARDINE: Of MS-DOS 4.0 or 5.0? 23 Question: 5.0. 24 Answer: There's always a minimum 25 commitment schedule that they would pay 11488 1 quarterly. 2 Question: Let me refer you to Exhibit 3 610. 4 Exhibit 610, let me try to identify. 5 It is a document that was marked in 6 Mr. Lieven's deposition. First page says from 7 Stefanie Reichel dated July 6, 1992, and the 8 heading toward the top of the page says license 9 summary. 10 Do you recall having seen this 11 document previously? 12 Answer: Yes, I wrote it. 13 Question: And starting on the fourth 14 page of the document is a license agreement 15 between Vobis Microcomputer and Microsoft 16 effective July 1, 1992. 17 Do you see that? 18 Answer: Yes, I do. 19 Question: And this was an agreement 20 that you negotiated with Vobis, correct? 21 Answer: Uh-huh. 22 Question: Referring back to the first 23 page, the executive summary states, Vobis has 24 changed their annual commitment level from 200K 25 units per year for MS-DOS and 100K for Windows 11489 1 to 400K units of MS-DOS and 320K units of 2 Windows per year. 3 Is that in keeping with your 4 recollection? 5 Answer: Yes. 6 Question: So under the previous 7 amendment, the minimum commitment Vobis had 8 made was for 200,000 units of MS-DOS, correct? 9 Answer: Was that 100 or 200 that you 10 said? 11 Question: 200. 12 Answer: Yes. 13 Question: And as a result of this new 14 agreement, Vobis committed to 400,000 units of 15 MS-DOS per year, correct? 16 Answer: Yes, correct. They doubled 17 it. 18 Question: And this new agreement was 19 also per processor license, correct? 20 Answer: Yes, it was. 21 Question: Per processor for both DOS 22 and Windows? 23 Answer: Yes. 24 Question: I've handed you what's been 25 marked as Exhibit 1344. 11490 1 Unfortunately, I only have one page of 2 this document which appears to have been a 3 multi-page document. 4 At the top of the page it says status 5 report Germany OEM sales, page 7. And first 6 line under that heading states, account name 7 Actebis computer GmbH. 8 First, let me ask you, are you 9 familiar with a report entitled status report 10 Germany OEM sales? 11 Answer: I think that's the reports 12 that we've been looking at. 13 Question: Okay. Let me just refer -- 14 Exhibit 1341 was written by whom, Manfred 15 Schindler? 16 Answer: Manfred Schindler. 17 Question: Okay. And Exhibit 1344, 18 have you seen that document before? 19 Answer: I mean, once again, I saw 20 reports. Anything that Juergen wrote or that 21 Manfred had written or reports that they had 22 turned -- that they got back from Lum or 23 Joachim Kempin were kept in a file in the OEM 24 department that I had access to. 25 I believe that the reason this is from 11491 1 Juergen was because A, I'm shown at the bottom 2 listed there working, which was during that 3 time, including a couple other people who 4 started after I had joined or -- and also, when 5 he talks about -- it says down here that I was 6 at CeBIT, that would have been in '92. 7 That's also when Juergen was there. 8 And this meeting that he's referring to, it 9 wouldn't have been Schindler, it was Juergen. 10 Question: Okay. So you've reached 11 the same conclusions I have reached about the 12 document that CeBIT -- it's referred to under 13 account name Actebis, that was the CeBIT 14 conference in the spring of 1992, correct? 15 Answer: Uh-huh. 16 Question: And CeBIT, as I understand 17 it, is the largest computer industry trade show 18 in the world; is that correct? 19 Answer: Yes, it is. 20 Question: And it's in Hanover, 21 Germany? 22 Answer: Yes. 23 Question: And apparently you met 24 Mr. Pursch, is that his name? 25 Answer: Pursch, yes. 11492 1 Question: Do you recall his first 2 name? 3 Answer: Ulrich. 4 Question: Ulrich Pursch? 5 Answer: Ulrich. 6 Question: He was the CEO of Actebis? 7 Answer: Yes. 8 Question: And you met him at CeBIT? 9 Answer: Yes, CeBIT. 10 Question: Before we get down to that, 11 let me ask you a few more questions about this 12 document. 13 This is status report Germany OEM 14 sales. Was that something that Juergen 15 prepared monthly? 16 Answer: If this is the same thing as 17 this, and that's what I believe he called his 18 monthly reports to Lum and Joachim, that would 19 be it. 20 Question: Okay. When you say this -- 21 the same as this, you're referring to Exhibits 22 1344 and 1341, correct? 23 Answer: Yes. I'm referring to those 24 two documents. 25 Question: You say it was prepared for 11493 1 Joachim Kempin and Jeff Lum? 2 Answer: Yes. 3 Question: Were there others who were 4 copied on the report? 5 Answer: Jochen Haink would have been 6 copied on this. 7 Question: Any others that you can 8 think of? 9 Answer: You mean outside of OEM? 10 Question: No -- yeah. Were there 11 other corporate people? 12 Answer: Christian Wedell. Basically, 13 anybody in top management, like Jochen Haink 14 and Christian Wedell would have been copied at 15 the GmbH and our team would have seen this as 16 well. Even if we weren't officially copied on 17 it, he would publish for us what he was turning 18 in. 19 Question: So these documents went to 20 Redmond, to management at Microsoft 21 headquarters; is that correct? 22 Answer: Yes. 23 Question: Would Mr. Gates have seen 24 these documents? Did he review OEM reports? 25 Answer: I don't know. I mean, I 11494 1 assume that just like in this case of -- where 2 in Exhibit 1341, where Mr. Schindler is sending 3 it to Jochen Haink and Jeff Lum and cc'ing some 4 people, it's possible that Juergen might have 5 cc'd Mr. Gates and Mr. Ballmer, but I don't 6 know since I don't see a cover page. 7 Question: Okay. But you've -- 8 certainly Mr. Gates was very aware of what was 9 going on in Germany and at Vobis in particular, 10 correct? 11 Answer: I assume Mr. Gates pays 12 attention closely to his business. 13 Question: And my question was 14 predicated on what we discussed earlier, 15 Mr. Gates visiting the Vobis store in Munich in 16 January of 1992. He was certainly -- Mr. Gates 17 knew that Vobis was a very strategic and 18 important account? 19 Answer: I don't think he would have 20 forgotten Vobis after that, yes. 21 Question: Okay. Let's continue on. 22 Referring again to Exhibit 1344, it 23 says, on the CeBIT we had a meeting between 24 Bernard Vergnes, Christian Wedell, Stefanie 25 Reichel, and myself. Myself being Juergen 11495 1 Huels, correct? 2 Answer: It would appear so, yes. 3 Question: During that meeting Pursch 4 showed us his new dealer catalog. In this 5 catalog he was advertising a system bundle with 6 DR-DOS. This was quite an embarrassing 7 situation because we did not know this at the 8 time. Urban was able to clarify the situation 9 afterwards. 10 Who's Urban? 11 Answer: Urban was somebody who worked 12 for Mr. Pursch. He was essentially like the 13 COO of operations, and he was in charge of 14 purchasing. 15 Question: He was telling us that 16 Novell was offering him a good deal only if he 17 would agree to advertise such a bundle in his 18 catalog. 19 Actebis wanted to cut a good Novell 20 deal so they agreed. We hear of this from 21 different customers right now. We decided to 22 give them more and better support, and we 23 mentioned to him that this is a system he is 24 already paying Microsoft royalties for. 25 You were present at this meeting, I 11496 1 take it? 2 Answer: Yes. 3 Question: So what he's saying is Mr. 4 Heuls pointed out to Mr. Pursch that if Actebis 5 shipped DR-DOS, it would already be paying 6 Microsoft for systems software, correct? 7 Answer: Based on what he says here, 8 that is what he had pointed out. 9 Question: And I think you indicated 10 you were uncertain whether Actebis had a per 11 processor agreement. 12 Does this refresh your recollection 13 that it either had a per system or per 14 processor license? 15 Answer: It was one of those two. I'd 16 have to see the agreement with Actebis in order 17 to confirm exactly what was the agreement with 18 them. 19 But what he was specifically referring 20 to at the time was in his catalog that all of a 21 sudden he was showing this. 22 Question: Wasn't it your 23 understanding that what he was communicating to 24 Mr. Pursch is that if he shipped DR-DOS, he 25 would be paying twice because he was already 11497 1 paying for Microsoft MS-DOS, correct? 2 Answer: I don't remember specifically 3 him saying that, although I have heard Mr. 4 Heuls say that before, yes. 5 Question: And certainly based on your 6 experience, that would be something that he 7 would be trying to point out to Mr. Pursch to 8 discourage him from shipping DR-DOS, correct? 9 Answer: He would have pointed that 10 out. 11 Question: Isn't it true in your 12 experience that per processor license -- the 13 fact that Mr. Heuls pointed out to OEMs that 14 they'd be paying twice once they signed up per 15 processor license was very effective in 16 discouraging OEMs from shipping DR-DOS? 17 Answer: I don't know if, in fact, 18 that's what they would ultimately base their 19 decision on. They might have taken it into 20 consideration. 21 Question: Mr. Lieven told us that 22 once he signed a per processor license, it made 23 no financial sense for him to license DR-DOS. 24 Now, are you telling the Jury here 25 that you were unaware that once an OEM signed a 11498 1 per processor license for MS-DOS it did not 2 make financial sense for the OEM to sign a 3 license for DR-DOS? 4 Answer: The OEMs had a choice of what 5 kind of agreement they would go into, so they 6 had a choice of between going with a per 7 processor, per system or per copy. 8 And if they had chosen to go with 9 something other than a per processor, that 10 would have allowed them flexibility where they 11 weren't essentially if you want to call it 12 paying double. But they chose per processor 13 because it was giving them a better price. 14 Question: Let's go back to -- we got 15 off the subject. 16 We were talking about your initial 17 meeting with Mr. Lieven and he expressed 18 certain complaints he had about Microsoft. 19 Do you recall how long that meeting 20 lasted? 21 Answer: The initial meeting? 22 Question: Yeah, the initial meeting. 23 Answer: I don't remember the exact 24 time, but it was probably anywhere from 30 25 minutes to an hour. 11499 1 Question: Do you -- at that time did 2 you ask him for anything, did you indicate that 3 you wanted to sell him something in particular 4 or cause him -- or you wanted to see him 5 selling DR-DOS's -- what was the purpose of 6 that meeting? 7 Answer: No. That meeting was really 8 to introduce -- I mean, especially given some 9 of his past history. It was a way for me to 10 introduce myself, it was a way for me to gather 11 information. And the last thing I wanted to do 12 on top of that was go, and by the way, I want 13 you to do the following thing. That wouldn't 14 have been appropriate. 15 Question: Okay. Then subsequent to 16 that I assume you had a series of meetings with 17 him and others at Vobis? 18 Answer: Yes. 19 Question: Between that initial 20 meeting and, say, August of 1992, do you recall 21 -- or, actually, let's say between that and 22 July of 1992, when Vobis signed the new license 23 agreement we just referred to, do you have an 24 estimate as to the number of times you met with 25 people at Vobis? 11500 1 Answer: I don't remember. I don't 2 have an exact count, but on average I was up 3 there at least once a week. 4 Question: Okay. So -- and the first 5 meeting would have been in what month, 6 February? 7 Answer: I don't remember, but I 8 believe it was February, yeah. 9 Question: Okay. So between February 10 and July is about five months. Okay. 11 February, March, April, May, June. 12 Answer: So 20. 13 Question: Five months. So maybe 20 14 meetings between your initial meeting and the 15 time Mr. Lieven signed the contract? 16 Answer: Yeah, and maybe in some cases 17 there would have been an additional meeting 18 during the week or something, yeah, but at 19 least 20. 20 Question: Were there others at 21 Microsoft who accompanied you to various of 22 those meetings? 23 Answer: Yes. 24 Question Mr. Heuls, I assume? 25 Answer: Yes. 11501 1 Question: What about Mr. Kempin? 2 Answer: When he was in Europe and 3 would go to each of the subsidiaries, he would 4 come along. 5 Question: When did you first meet 6 Mr. Gates? 7 Answer: I met him at an OEM event in 8 Europe that was being held, and I think it was 9 the spring. 10 Question: Was it in April of 1992? 11 Answer: It may have been, yes. 12 Question: Was it in Monte Carlo? 13 Answer: Yes, it was. 14 Question: That was the first time you 15 met Mr. Gates? 16 Answer: In person, yes. 17 Question: And on that occasion, did 18 you take the opportunity to discuss the Vobis 19 account with him? 20 Answer: Yes, I did. 21 Question: Did he inquire of you -- 22 what do you recall about that discussion? 23 Answer: Discussing with him the 24 progress that was being made in the account, 25 what was happening related to discussions for 11502 1 negotiations on the contract, the relationship, 2 the stores. 3 Question: Did he indicate, reaffirm 4 it was his desire that Vobis not ship any 5 DR-DOS, that he wanted DR-DOS out of the Vobis 6 account? 7 Answer: Yes, he did. 8 Question: Do you recall discussing in 9 April with Mr. Gates incentives that you could 10 offer to Vobis that would get DR-DOS out of the 11 account? 12 Answer: I remember discussing with 13 him some of the ideas and things that we were, 14 you know, either presenting or thinking about 15 doing, yes. 16 Question: And isn't it true that he 17 basically told you he was willing to offer 18 anything -- you could offer just about anything 19 you wanted in order to accomplish the goal of 20 getting DR-DOS out of the Vobis account? 21 Answer: He wanted to make sure it was 22 taken care of, and he offered his assistance, 23 if needed. 24 Question: I assume there came a time 25 when you did get to the point with Mr. Lieven 11503 1 where you started talking about specific types 2 of business that Microsoft would like to do 3 with Vobis, correct? 4 Answer: Uh-huh. 5 Question: And obviously you were 6 interested in selling a number of products. 7 You wanted to get DR-DOS out of the account, 8 correct? You wanted -- you wanted Vobis to be 9 shipping a hundred percent MS-DOS and no 10 DR-DOS, correct? 11 Answer: I wanted them to be shipping 12 a hundred percent of our product, yeah. 13 Question: Right. And, of course, you 14 were interested in selling applications 15 software as well, correct? 16 Answer: They had already had 17 WinWorks. And in Europe, unlike the U.S., we 18 didn't license application products. 19 Question: Okay. So your chief focus 20 was on systems products, correct? 21 Answer: Yes. 22 Question: All right. And eventually 23 got to the point where you started discussing 24 price and minimum commitments with Mr. Lieven, 25 I assume, correct? 11504 1 Answer: I don't remember all the 2 dates, but I would pretty much say that from as 3 soon as I had had some of my initial meetings 4 with Lieven in February, that by the time of 5 the March, April time frame, we were already 6 discussing, you know, some of the core pieces 7 of what he wanted, what we wanted, and what 8 potential Ts and Cs would be. 9 So even though it came together in 10 July with it being signed, I would say that it 11 had been in the works essentially from March 12 with it coming together in, say, April, May. 13 (Whereupon, the playing of the video 14 to the jury adjourned.) 15 MR. HAGSTROM: Is this a good time for 16 a break, your Honor? 17 THE COURT: Yes, it is. 18 Remember the admonition previously 19 given. 20 We'll take a ten-minute recess at this 21 time. Leave your notebooks here. 22 Thank you. 23 All rise. 24 (A recess was taken from 9:49 a.m. 25 to 10:07 a.m.) 11505 1 THE COURT: Everyone else may be 2 seated. 3 Go ahead. 4 (Whereupon, the following video 5 resumed playing to the jury.) 6 Question: Didn't he initially 7 indicate to you that it was his strong 8 preference to have a per copy license? 9 Answer: Who are you talking about, 10 Lieven or -- 11 Question: Mr. Lieven. 12 Answer: Yes. It was his preference 13 to do that. 14 Question: And it eventually got to 15 the point where you started discussing price of 16 the various types of licenses that could be 17 made available to him, correct? 18 Answer: Uh-huh. 19 Question: And isn't it true that you 20 quoted him -- you quoted him the following 21 prices, per copy. $20 per system, $14 per 22 processor, $9 for MS-DOS. 23 Answer: What are you reading this off 24 of? I don't remember this. 25 Question: This is my notes. 11506 1 Answer: I don't remember the exact 2 prices. I'd have to refer because I would be 3 following the pricing guidelines, plus with the 4 approval of my management, what I could offer 5 before I did it, and I don't remember the exact 6 numbers, but that sounds right in terms of the 7 progression of numbers. 8 Question: Okay. And these numbers 9 I've given you, the per copy price is slightly 10 more than twice the per processor price. 11 Does that sound about like the right 12 differential? 13 Answer: Sounds about right, yes. 14 Question: Okay. And was that the 15 usual practice, to quote OEMs a per copy price 16 that was twice the per processor price? 17 Answer: I don't know if there was an 18 actual formula that when they just did their 19 pricing, they said, oh, it's twice as much or 20 three times as much. I just know that based on 21 however they came up with their pricing and put 22 it in guidelines, that we would quote what's in 23 there. 24 Question: But I want to -- this is 25 important. 11507 1 It's your recollection, isn't it, that 2 the price you quoted to Vobis was roughly twice 3 as high for per copy as per processor? 4 Answer: Roughly, yes. 5 Question: All right. And isn't that 6 about the usual difference between per copy and 7 per processor that you quoted to OEMs? 8 Answer: I'm not sure I follow the 9 exact question. When I would speak to other 10 OEMs? 11 Question: When you -- in the case of 12 other OEMs, didn't you quote them a price that 13 was roughly in the range of twice as high for 14 per copy versus per processor licenses? 15 Answer: Roughly, yes. 16 Question: Isn't it true that Vobis 17 competed very aggressively on price in its 18 market? 19 Answer: Yes, that's true. 20 Question: So any money he could save 21 on system software was important to Mr. Lieven? 22 Answer: Software or even components. 23 I mean, anywhere he could cut down on his costs 24 that can allow him to have lower prices than 25 his competitors, of course. 11508 1 Question: The prices that you 2 ultimately quoted to Mr. Lieven, those were 3 discussed with and approved by your 4 supervisors, including Mr. Heuls and Mr. Lum; 5 is that correct? 6 Answer: I couldn't present something 7 without first having had the okay if it 8 differed from the pricing guidelines. 9 So if it was nonstandard versus the 10 standard pricing guidelines, and if there was 11 -- there was something that was counter 12 proposed or nonstandard, I would have to go 13 back and get approval from Mr. Heuls, Mr. Lum, 14 Mr. Kempin in order to go ahead and say yes to 15 the customer. 16 Question: The prices, the $20 per 17 copy, $14 per system, $9 per processor, 18 assuming that's correct, those are prices that 19 you had to get approval from Mr. Heuls or 20 Mr. Lum, correct? 21 Answer: Right. If those were, in 22 fact, the prices, I mean, regardless of whether 23 those were the prices or any other prices, you 24 know, anything I quoted to Mr. Lieven or said 25 we're going to do this, I had to get prior 11509 1 approval first from Mr. Heuls or Mr. Lum. 2 Question: So it's your recollection 3 that the prices you quoted had to be approved 4 by Mr. Heuls and were approved by Mr. Heuls, 5 correct? 6 Answer: Correct. 7 Question: Thank you. 8 I've handed you what's been marked as 9 Exhibit 1345. 10 This appears to be a document that you 11 produced. It's from Juergen Huels to Jeff Lum, 12 a copy to you, correct? 13 Answer: Uh-huh. 14 Question: Subject, IPC, Actebis, 15 Vobis, dated February 3rd, 1992, and it's a 16 copy of an e-mail, correct? 17 Answer: Uh-huh. 18 Question: Okay. This Exhibit 1345 19 refers to a meeting at Vobis last week. 20 Stefanie has the goal to get contact 21 to several people within Vobis. Do you see 22 that? That includes Lieven, Frahling -- is it 23 Frahling? 24 Answer: Yes. Frahling, yes. 25 Question: And Dahmen. And we know 11510 1 who Lieven and Dahmen were. Who was Herr 2 Frahling? 3 Answer: Herr Frahling was one of the 4 executives on the board for Vobis. 5 Question: And then dropping down, it 6 says, next step includes that Stefanie will go 7 together with Ricarda. Is that Ricarda 8 Cisneros? 9 Answer: Okay, where are we now? 10 We're done on -- okay. 11 Next up includes that Stefanie will go 12 together with Ricarda. Yes, that is Ricarda 13 Cisneros. 14 Question: To support Dahmen 15 extensively to create the royalty report. And 16 that's the report of Vobis shipments based upon 17 what the royalty would be computed, correct? 18 Answer: Correct. 19 Question: This is an e-mail dated 20 January 30, 1992. It's from Joachim Kempin, 21 correct? 22 Answer: The top one says it's from 23 Joachim Kempin, and it looks like he's 24 forwarding an e-mail. 25 Question: And can you tell who it 11511 1 would have been forwarded to? 2 Answer: It was -- this e-mail is 3 being sent from Joachim Kempin to the 4 distribution list of DOEM and IOEM. 5 Question: All right. And what does 6 DOEM stand for? 7 Answer: Don't remember what DOEM is, 8 but I do remember that IOEM is international 9 OEM. 10 Question: And that would have been 11 you? 12 Answer: It would have been myself and 13 my colleagues in OEM international. 14 Question: Okay. Oh, and DOEM is 15 probably domestic OEM. 16 Does that sound right? 17 Answer: That's probably a good guess, 18 yeah. 19 Question: Well, do you recall 20 receiving this document? 21 Answer: I obviously did since it's 22 from me and I found it, and I would get 23 information on products. And so this is an 24 example of that, yes. 25 Question: This is a document that you 11512 1 would have maintained in your files at 2 Microsoft? 3 Answer: Uh-huh. 4 Question: Next to the last or 5 actually -- yeah, next to the last paragraph, 6 looks like this is referring to -- I can't tell 7 whether it's -- looks like a defragger. It 8 should have been an MS-DOS a while ago, like 9 lots of other things. 10 Is that referring to the defragger? 11 Answer: Let me read through this. 12 He is referring -- being from, I 13 guess, richf. I don't know if that's Richard 14 Fade. I don't have no idea who richf is. It's 15 referring to the defragger. 16 Question: Okay. It says from richf 17 to billg. Rich -- that would be Richard Fade 18 to Bill Gates. That would make sense, wouldn't 19 it? 20 Answer: It could. 21 Question: Then the others -- and on 22 what we have here, the e-mail from richf to 23 billg and others, was forwarded by Joachim 24 Kempin to international OEM. 25 Answer: To OEM. 11513 1 Question: Okay. And the others on 2 the original OEM besides billg are bradsi. 3 That's Brad Silverberg, correct? 4 Answer: Yes. Joachimk, that's 5 Joachim Kempin. Mikemap, is Mike Maples? 6 Answer: Yes. 7 Question: And Steve Ballmer, correct? 8 Answer: Uh-huh. 9 Question: And those are the 10 seniormost -- well, Bill Gates is the chairman 11 of Microsoft, correct? 12 Answer: Correct. 13 Question: Mike Maples, was he in the 14 office of president at the time? 15 Answer: I believe he was, yes. 16 Question: And do you recall, what was 17 Mr. Ballmer? He was VP of international or 18 senior VP in sales. 19 Answer: It was sales and marketing, 20 maybe support. I don't remember, but he was in 21 the office of the president. 22 Question: What about Brad Silverberg? 23 What was his position? 24 Answer: He was not in the office of 25 the president, but I believe the senior vice 11514 1 president. 2 Question: All right. Referring to 3 the defragger, which is, as I understand it, is 4 that compression technology? 5 Answer: I think it's a component of 6 compression technology. 7 Question: Okay. But referring -- 8 we're referring to the defragger. It says, it 9 should have been in MS-DOS a while ago, like 10 lots of other things. DR 6 has it -- hasn't 11 been a major feature. 12 DR 6 referring to DR-DOS 6.0; is that 13 correct? 14 Answer: Yes. 15 Question: Okay. Down at the bottom 16 it says, my comment. In DOS 6.0, we will have 17 it as well, meaning the next version of MS-DOS 18 Microsoft is going to add this feature that DR 19 6.0 already has? 20 Answer: Yeah. I mean, reading 21 through this, it sounds like that's what it's 22 saying. 23 Question: I've handed you what's been 24 marked as Exhibit 1348. 25 It appears to be a copy of an e-mail 11515 1 dated July 15, 1992, correct? 2 Answer: Uh-huh. 3 Question: And it's from gerdab. Do 4 you know who that is? 5 Answer: Gerda Beining. 6 Question: Who's Gerda Beining? 7 Answer: She was the person I worked 8 with who was over in the marketing department 9 for Microsoft Germany. 10 Question: It's Beining. How do you 11 spell that? 12 Answer: B-e-i-n-i-n-g. 13 Question: Okay. And it's to Baerblb. 14 Answer: Who is Baerbl Brockman? 15 Question: Brockman, how do you spell 16 that? 17 Answer: B-r-o-c-k-m-a-n. Might have 18 been two N's at the end, but I don't know. 19 Question: Was this a document that 20 you maintained in your files at Microsoft? 21 Answer: Yes, it was. 22 Question: And let's see if we can 23 identify the others on the list. Christian 24 Wedell, and, again, what was his position? 25 Answer: Director of Central Europe. 11516 1 Question: And okay, CC, it shows 2 Gerda Beining, again. 3 Jochen Haink, who was head of 4 Microsoft Germany? 5 Answer: Uh-huh. 6 Question: Juergen Huels and Stefanie 7 Reichel and Wolfe? 8 Answer: I don't know who that was. 9 Question: Just generally, it's in 10 German. Can you take a look and explain what 11 it is referring to? 12 Answer: It's coming from Gerda 13 sending it to Baerbl Brockman, who is the 14 director of marketing. And she's thanking her 15 for her quick input for the Microsoft Vobis 16 marketing promotional concept. 17 Question: Okay. A GROB refers to a 18 GROB-konzept, g-r-o-b, k-o-n-z-e-p-t. That 19 means rough concept; is that right? 20 Answer: Yeah. I don't know the exact 21 translation, but that's basically what it 22 means, is the rough concept package that was 23 being put together. 24 Question: Okay. Let me refer you to 25 the paragraph that starts Baerbl, es handelt 11517 1 sich. 2 Do you see that? 3 Answer: Yeah. 4 Question: Then you see the second 5 sentence, it starts die intention von Stefanie. 6 Answer: Okay. Let me just read that 7 sentence. 8 Question: I wonder if you can just 9 translate that sentence for us. 10 Answer: She says that the intent from 11 myself, meaning here, Gerda and Stefanie, is 12 for starters or, first of all, to use the 13 potential at this time for one of the most 14 important accounts in Germany to use that 15 better and then to eventually take that and 16 maybe do something somewhere with other type of 17 accounts. 18 Question: Okay. Do you recall what 19 the program was that it's referring to in the 20 document? 21 Answer: It was an overall marketing 22 program that Gerda and I were putting together 23 in order to do things with Vobis. And it, you 24 know, had two purposes. 25 One, it helped me in the purpose of 11518 1 making Lieven happy in that it gave him 2 additional visibility and met needs and things 3 that he wanted to see more from us in a 4 marketing effort. 5 And it helped her coming from 6 marketing in Germany so that she could get more 7 visibility and help drive her products, 8 finished good products in particular 9 applications. 10 Question: Dropping down, do you see 11 where it says nun zu Deinen Fragen, which I 12 understand to mean now to your questions. 13 Answer: Yeah, on to your questions. 14 Question: Okay. And then under 1, it 15 says -- can you read, there's a question 16 Wieviel mehr -- 17 Answer: Software wollt ihr durch 18 preinstallationen verkaufen? It says how much 19 more software do you want to sell through 20 preinstallation? 21 Question: Okay. What is the -- can 22 you tell me what the first sentence says? 23 Answer: The preinstallation from 24 Vobis is being done without charge or without 25 cost. 11519 1 Question: 1351, the first page is a 2 fax cover sheet addressed from you to Bill 3 Gates, correct? 4 Answer: Correct. 5 Question: And the handwriting on the 6 document is yours? 7 Answer: Yes, it is. 8 Question: And then it looks like the 9 first or the remaining pages of Exhibit 1351 10 are summary type pages? 11 Answer: Yes. It's a memo saying 12 what's following. 13 Question: All right. And then what 14 is the document that goes with it? What's the 15 exhibit number? 16 Answer: The exhibit number that goes 17 with it is 1339, which is the Vobis account 18 profile. 19 Question: Okay. So the combination 20 of Exhibit 1351 and 1339 are what you prepared 21 for Mr. Gates to brief him for the meeting that 22 was held in London, correct? 23 Answer: Yes. 24 Question: All right. Now, do you 25 know what the occasion was that brought 11520 1 Mr. Gates to London? My understanding is it 2 was in connection with a Microsoft board 3 meeting; is that correct? 4 Answer: Yeah. There was the annual 5 board of directors meeting and other business 6 meetings that he had. 7 Question: And was this the first time 8 that Mr. Gates met with Theo Lieven? 9 Answer: I believe it was. They met 10 on -- I mean on other occasions, but I believe 11 this was the first meeting. 12 Question: Okay. Let's refer to the 13 first page of Exhibit 1351, looking at your 14 handwritten notes on the bottom of the page, it 15 says, Bill, please find attached the requested 16 information for the meeting with Vobis in 17 London this week. I will be briefing you in 18 more detail on Tuesday at the Hyatt Carlton 19 Towers. 20 Do you recall -- did you, in fact, 21 have a meeting on Tuesday at the Hyatt Carlton 22 Towers with Mr. Gates? 23 Answer: Yes, I did. 24 Question: Okay. And then the second 25 page of Exhibit 1351 indicates that the meeting 11521 1 would take place on the day before the annual 2 board of directors meeting held in London, 3 England, correct? 4 Answer: Right. So I guess -- 5 Question: The board meeting was the 6 following day. 7 Answer: So your question was what? 8 Question: Yeah, I'm just trying to 9 clarify that, indeed, as the document reflects 10 you met with Mr. Gates and Mr. Lieven at the 11 Chez Nico on Wednesday, August 19th, and that 12 was the day before the annual Microsoft board 13 meeting. 14 Answer: Which would have been 15 Thursday, the 20th. 16 Question: So the people in attendance 17 were Mr. Lieven, Bill Gates, Juergen Huels, and 18 yourself, correct? 19 Answer: Yes. 20 Question: And then second -- or the 21 third page of Exhibit 1351 indicates several or 22 states several objectives, number 5 of which is 23 get a commitment to get DRI/Novell out of the 24 account, correct? 25 Answer: Yes. 11522 1 Question: And was that a subject that 2 was discussed at the meeting? 3 Answer: Which meeting? 4 Question: At the lunch meeting at the 5 Chez Nico -- 6 Answer: Yes, it was. 7 Question: -- on the 19th of August. 8 And at the conclusion or during the 9 meeting, did Mr. Lieven commit to Mr. Gates 10 that he would no longer ship DR-DOS? 11 Answer: I'm not remembering. I mean 12 -- 13 Question: Isn't it true that he 14 agreed at the meeting that he would no longer 15 ship any more DR-DOS? 16 Answer: I remember him making 17 reference to that, yes. 18 Question: There were a variety of 19 topics discussed at the meeting, correct? 20 Answer: Yes. 21 Question: Things that Microsoft 22 wanted to do in a strategic alliance with 23 Vobis, correct? 24 Answer: Correct. 25 Question: And details of those were 11523 1 worked out over the next several weeks; isn't 2 that true? 3 Answer: That's correct. 4 Question: All right. And Mr. Lieven, 5 based on what was discussed and his expectation 6 that things would work out committed that he 7 was no longer going to ship out DR-DOS? 8 Answer: If the things that he had 9 indicated were met, that's correct. 10 Question: And you state, dropping 11 down a paragraph, up until recently, he favored 12 DR-DOS despite the fact that he had to pay for 13 these licenses extra, since he has a per 14 processor agreement on MS-DOS, correct? 15 Answer: Correct. 16 Question: And then you say, he's most 17 likely paying $5 for DR-DOS on a per copy 18 basis. 19 Is that what he told you? 20 Answer: That I believe is based on 21 information he and others have provided me 22 that, you know, I had gotten tidbits of 23 information, so my calculations figured out to 24 be about $5 per copy. 25 Question: Okay. And then the last 11524 1 paragraph of the page you say, he is even 2 willing to discuss no longer offering DR-DOS if 3 we are willing to work together with him in 4 marketing in the European market and helping 5 him sell our software with his hardware. 6 And that was the taking off point for 7 trying to get a commitment from him to no 8 longer ship DR-DOS, correct? 9 This notion that he wanted a number of 10 things out of Microsoft, he was willing to 11 negotiate no longer shipping DR-DOS? 12 Answer: Correct. That was his 13 negotiation point. 14 Question: All right. Let's refer to 15 Exhibit 1352. 16 What was the purpose of this document? 17 Generally, looks like it was to brief this long 18 list of people that this meeting was coming up 19 between Mr. Lieven and Bill Gates, correct? 20 Answer: Correct. 21 Question: I think the question was it 22 appears -- and I'm just trying to speed this 23 up, so you're free to correct me if I'm wrong, 24 but it looks like the purpose of the document 25 is to brief this list of recipients on the 11525 1 upcoming meeting that you were going to have 2 with Mr. Lieven and Bill Gates in London within 3 the following week. 4 Answer: Yes, that is. 5 Question: And at the time you were 6 aware that Vobis was still selling DR-DOS, and 7 that was something that one of the outcomes you 8 had hoped for from the meeting was to get a 9 commitment out of Vobis to cease shipping 10 DR-DOS, correct? 11 Answer: Yes. 12 Question: Turn to the second page. 13 Do you see the paragraph that says 14 Lieven wants to do active marketing with us? 15 Do you see that? 16 Answer: Which paragraph? 17 Question: It's about two-thirds of 18 the way down. It's indented. 19 Answer: Okay. If I'm just counting 20 down one, two, three, four, five, six -- okay, 21 Lieven wants to do active marketing with us. 22 Question: Right. And you say, he 23 wants to actively on a Europe-wide base 24 advertise and promote software in all 130 25 stores, including information displays, 11526 1 auto-demos, show window displays and stickers 2 in windows, et cetera. 3 He is willing to share costs with us 4 and at no charge bring Microsoft -- or excuse 5 me -- no charge to Microsoft bring us into his 6 flyer Denk Zettel. 7 And Denk Zettel is what we've referred 8 to earlier today? 9 Answer: Uh-huh. 10 Question: And the Denk Zettel was 11 distributed with major German newspapers 12 throughout the country, correct? 13 Answer: Uh-huh. 14 Question: You say it has a current 15 distribution in Germany alone of over 6 million 16 and around Christmas he estimates it to be over 17 10 million. 18 Answer: Correct. 19 Question: Is this what Mr. Lieven 20 told you? Is this true what I just read? 21 Answer: What, the numbers of the 6 22 million and 10 million? 23 Question: Well, it's probably a bad 24 compound question, but is it true that 25 Mr. Lieven told you he wanted to do active 11527 1 marketing and advertising with Microsoft? 2 Answer: Yes, he did. 3 Question: And turning to the next 4 page, this refers to a number of different 5 items that it appears were to be discussed with 6 Mr. Lieven. 7 One, to participate in Microsoft 8 Christmas promotion in his hundred stores in 9 Germany, correct? 10 Answer: Uh-huh. 11 Question: And he indicated he would 12 do this only if it was exclusive to Vobis; is 13 that right? 14 Answer: That is true. 15 Question: Okay. Next item. 16 He would work together with us very 17 aggressively along with a decoration service 18 for window display where he will pay his share 19 of the costs. 20 Was this something that was done in 21 his stores? 22 Answer: Yes. 23 Question: He will put at least one or 24 two pages of free advertising of this 25 promotion, referring to the Christmas 11528 1 promotion, correct? 2 Answer: Correct. 3 Question: Okay. He wants to plan to 4 do a joint data sheets that would be displayed 5 in info racks throughout his store, correct? 6 Answer: Uh-huh. 7 Question: Wants to do joint mailings 8 with both the Vobis and Microsoft data 9 business. 10 Answer: Uh-huh. 11 Question: Okay. He wants to be able 12 to bundle WinWord with Excel with his computers 13 during the time of this promotion. He wants 14 them on commission. He wants to sell them as 15 follows. 16 And then you list machine bundled with 17 works for Windows, D Mark 2999, correct? 18 Answer: Uh-huh. 19 Question: Is that the price for the 20 machine complete with the bundling software? 21 Answer: Yes. 22 Question: Okay. Same machine with 23 option to choose WinWord or Excel, 3499, 24 correct? 25 Answer: Correct. 11529 1 Question: Same machine with both 2 WinWord and Excel 3949, correct? 3 Answer: Correct. 4 Question: And you say, I realize that 5 these are ridiculously low. 6 Were these prices ridiculously low 7 prices? 8 Answer: If you were to take that same 9 machine sold without Word and without Excel, 10 and then to calculate the up price, that single 11 price would have been very low compared to what 12 the finish goods product sold for retail in the 13 German market. 14 Question: I'm handing you what's been 15 marked as Exhibit 1353. 16 Is this another document that was 17 maintained in your files at Microsoft? 18 Answer: Yes, it was. 19 Question: And you produced this 20 document pursuant to the subpoena today? 21 Answer: Yes. 22 Question: Okay. And this was -- the 23 date of this document -- well, it says 24 negotiation August 18th, 1992. Theo Lieven, 25 Mr. Pasture -- who's Mr. Pasture? 11530 1 Answer: He was a gentleman that was 2 brought on by Lieven, Vobis, to be in charge of 3 business throughout Europe. 4 Question: Okay. And it says Juergen 5 Huels, Jochen Haink. 6 Were those the persons who attended 7 that meeting? 8 Answer: Yes. 9 Question: Were you briefed on the 10 meeting immediately after it happened? 11 Answer: Yes, I was. 12 Question: So this meeting took place 13 the day before the meeting you attended in 14 London with Mr. Gates and Mr. Lieven? 15 Answer: That's correct. And that's 16 why I wasn't there, because I was in London. 17 Question: Okay. And you were with 18 Mr. Gates or met with Mr. Gates the day before, 19 correct? 20 Answer: Right. On the 18th I was in 21 London meeting with Mr. Gates, and on the 18th 22 these people were meeting in Germany. 23 Question: All right. Do you recall 24 when you received a copy of this document? 25 Answer: I believe that I received a 11531 1 copy of this document the same day it took 2 place. 3 Question: All right. So you were 4 aware of the meeting before your August 19th 5 meeting? 6 Answer: Yes. 7 Question: Okay. Looking at numbered 8 paragraph 1, it says, strategic partnership 9 wanted. Long-term commitment for MS-DOS over 10 DR-DOS. 11 And as we've discussed, this was one 12 of the chief objectives of the meeting to be 13 held between Mr. Lieven and Mr. Gates, correct? 14 Answer: Correct. 15 Question: And then paragraph 7 refers 16 to, looks like, several applications products, 17 correct? 18 Answer: Paragraph 7? 19 Question: Numbered paragraph 7. 20 Answer: Where it says calculation? 21 Question: Right. 22 Answer: What is your question related 23 to that? 24 Question: It says calculation pricing 25 of Vobis. 11532 1 Does this refer to the price that 2 Vobis would charge for a PC bundled with the 3 products listed which were, for example, CPU 4 with works, 2950 deutsche marks including Vat? 5 Answer: Yes. 6 Question: Okay. Look down, it says 7 requested pricing, Word or XL unit price. 8 Answer: Where is this? 9 Question: Same numbered paragraph 7. 10 Answer: Requested pricing? 11 Question: Do you see that? 12 Answer: Yes. 13 Question: And it says revenue 280 or 14 D-marks. What does that refer to? Is that the 15 price that was to be charged to Vobis for those 16 products? 17 Answer: That is essentially what 18 would be charged to them, yes. 19 Question: And Office deutsche mark 20 560. 21 Do you see that? 22 Answer: Yes. 23 Question: Do you know whether that 24 was the price that was agreed to? 25 Answer: That is the price that was 11533 1 being discussed. I forget what the actual 2 price was. It may have been that. It may have 3 been a little higher or lower. I don't 4 remember the final. 5 I mean, if we refer to the final 6 documents that come later after the Lieven 7 meeting, you can see that. 8 Question: Okay. Paragraph 8. You 9 see it states, additional benefit, and then 10 dropping down five lines, Novell/DRI out at 11 Vobis. 12 Do you see that? 13 Answer: Where is this? 14 Question: Numbered paragraph 8, 15 towards the bottom of the page. 16 Answer: Okay. 17 Question: And it says -- do you see 18 five lines down, paragraph 8, Novell/DRI out at 19 Vobis. 20 Do you see that? 21 Answer: Yes. 22 Question: You were aware that at this 23 time Vobis was still selling DR-DOS? 24 Answer: Yes. 25 Question: And so part of this 11534 1 proposed deal was to extract an agreement that 2 Novell/DRI would be out at Vobis, including 3 DR-DOS, correct? 4 Answer: Can you repeat the question? 5 Question: Well, part of the proposal 6 was to get Vobis to agree to no longer ship 7 DR-DOS, right? 8 Answer: Yes. 9 Question: Number 10 says, retail 10 products, 52 percent discount that he can have. 11 Is that your handwriting? 12 Answer: Yeah, that is. 13 Question: So is that another term 14 that was eventually negotiated with Vobis? 15 Answer: Yes. 16 Question: Okay. Look at paragraph 9. 17 It says negative views. Pricing extremely 18 aggressive for German market. 19 Do you know what pricing is referred 20 to? 21 Answer: I believe that this is 22 referring to the pricing here that's being 23 proposed, that that's extremely aggressive for 24 the German market. 25 Question: That would be applications 11535 1 pricing? 2 Answer: Yes. 3 Question: Okay. And dropping down 4 two lines, channel will react negatively 5 because they cannot match this offer. 6 Channel, that's the distribution 7 channel? 8 Answer: Yes. 9 Question: And this is -- 10 Answer: Distribution for finished 11 goods. 12 Question: All right. This is the 13 retail distribution channel? 14 Answer: Correct. 15 Question: This would be the 16 equivalent of like Egghead stores? 17 Answer: Similar. 18 Question: Do you recall the names of 19 any other distributors in Germany? 20 Answer: Off the top of my head, I 21 can't. But large ones like Amerisel type 22 equivalent. 23 Question: So these were retailers? 24 Answer: Retail distributors and 25 retailers because the price that hit the street 11536 1 after their cost with profit would have been 2 higher. 3 Question: All right. So this would 4 have put Vobis in a very advantageous position 5 competitively in relation to these channel 6 distributors, correct? 7 Answer: Yes. 8 Question: It says distribution sees 9 Vobis as a strong competitor. 10 And we're referring to retail 11 distributors here? 12 Answer: Because of their uniqueness 13 of their business. 14 Question: And it says DEC may react 15 negatively. 16 Is this Digital Equipment? 17 Answer: Yes. 18 Question: What was the concern there? 19 Answer: Well, they are a large OEM as 20 well, hardware manufacturer. And they would 21 have not liked seeing a deal like that because 22 they're a large partner of Microsoft as well, 23 and they may have wanted the same thing. Or I 24 believe they were one OEM of many that have 25 asked for deals like this before. 11537 1 Question: And then the last point is 2 exclusive deal, and that goes to the same issue 3 that you had other partners who you were 4 concerned would be upset if Vobis got that 5 preferential treatment; is that correct? 6 Answer: Yes. 7 Question: It appears -- Exhibit 1354 8 appears to be an e-mail dated August 24th, 9 Monday 1992, prepared by you. 10 Do you recognize it to be an e-mail 11 that you prepared? 12 Answer: Yes, I do. 13 Question: And it has a long 14 distribution list. Looks like Bengt Akerlind, 15 Christian Wedell, Jeff Lum, Joachim Kempin, 16 Jochen Haink, Juergen Huels, correct? 17 Answer: Correct. 18 Question: And the document purports 19 to be a summary of a meeting between Bill Gates 20 and Theo Lieven on August 19th, correct? 21 Answer: Correct. 22 Question: We can go ahead. All 23 right. 24 It says, meeting objectives/topics. 25 Number 1, a chance for Bill Gates and 11538 1 Lieven to finally meet and as a follow-up to 2 the recently signed commitment by Vobis for 3 11,880,000 annually in royalties. 4 Paragraph 1, does that refer to the 5 license agreement that we've discussed 6 previously today, Exhibit 610? 7 Answer: The one that was done in 8 July? 9 Question: Right. 10 Answer: Yes. 11 Question: 2, to demonstrate to 12 Lieven/Vobis that Microsoft is committed to 13 them as a partner and that we want to build a 14 successful and mutually profitable business 15 relationship. 16 Appears to be self-explanatory. 17 3, to discuss Microsoft's future 18 product and systems strategy. (With emphasis 19 on MS-DOS 6.0, Windows NT and WFW), which is 20 Windows for WorkGroups? 21 Answer: Correct. 22 Question: 4, to discuss Vobis' plans 23 for future and how they plan on responding to 24 the quickly changing PC market. 25 5, to get a commitment for a strategic 11539 1 alliance between Microsoft and Vobis to work 2 together closely in the market. 3 And in that regard, isn't it true that 4 it was very high priority for Microsoft to 5 obtain Vobis' business because Vobis was first 6 and foremost the largest OEM in Germany, 7 correct? 8 Answer: Yes. 9 Question: And Vobis was the market 10 leader, somebody that other OEMs followed in 11 terms of what it did competitively? 12 Answer: Yes. 13 Question: Vobis was the largest 14 DR-DOS OEM in Europe, and that was a 15 significant concern to Microsoft; isn't that 16 true? 17 Answer: That I knew of, yes. 18 Question: And Microsoft was very 19 concerned that if Vobis continued to license 20 DR-DOS that other OEMs would license DR-DOS 21 instead of MS-DOS; isn't that true? 22 Answer: It was my understanding that 23 that was a concern, yes. 24 Question: You've discussed with 25 Mr. Gates personally that it was a very high 11540 1 priority to Microsoft to get a hundred percent 2 -- get hundred percent MS-DOS shipping on Vobis 3 computers; isn't that true? 4 Answer: Yes. 5 Question: And it was very high 6 priority to get DR-DOS out of Vobis, correct? 7 Answer: Yes. 8 Question: Okay. Next document. 9 This is an e-mail -- appears to be an 10 e-mail dated September 10, 1992. At least 11 that's the forwarding e-mail, and enclosed is 12 an e-mail dated Friday, September 4th, 1992; is 13 that correct? 14 And it's -- the enclosure -- the 15 September 4th e-mail is from you to, it says, 16 lucar. Who is lucar? 17 Answer: I forget Luca's last name, 18 but he -- I believe -- well, he was in 19 Microsoft Italy, and I think he was the general 20 manager or one of the OEM people. I forget 21 which is which. 22 Question: Okay. And it was one of 23 your objectives to expand the Vobis 24 relationship in other countries besides 25 Germany; is that right? 11541 1 Answer: Based on the agreement that 2 we had come to with Lieven, it was to do this 3 marketing and business relationship across 4 Europe. And so this is me -- I mean, when you 5 manage an account, you don't just manage it for 6 that country. You manage it on a worldwide 7 basis. 8 And in this case because the business 9 was going elsewhere, it was my responsibility 10 to manage that. 11 Question: Okay. Toward the bottom of 12 the first page, the second indented paragraph 13 states, I am in negotiations with Vobis right 14 now, probably by next week I will have 15 signatures on a Windows for WorkGroups royalty 16 commitment of 25K units, a white box bundle 17 deal for Germany of Excel/Word/Office worth 6 18 million and a finished goods contract for 19 Germany worth 14 million. 20 What was the white box deal? 21 Answer: The white box deal was the 22 Excel and Word, and it may have been also 23 Office because I know that was discussed. I'm 24 trying to remember whether or not we did that 25 or not. 11542 1 But, basically, it was the deal that 2 would allow Lieven to have in his stores those 3 machines that he would sell normally, but this 4 time having them bundled with an application 5 like Word or Excel or Office. 6 Question: And this deal was to be 7 offered to Vobis at extremely favorable pricing 8 to Vobis; isn't that correct? 9 Answer: Correct. 10 Question: Do you recall what the 11 price was? 12 Answer: I don't remember what it was 13 finally agreed upon. 14 Question: It was a better deal than 15 any other OEM in Europe was going to receive; 16 isn't that correct? 17 Answer: Yes. 18 Question: And it was one of the 19 incentives that was offered to Vobis in return 20 for Mr. Lieven's agreement to ship no more 21 DR-DOS; isn't that correct? 22 Answer: Yes. 23 MR. HILL: Let's mark this exhibit. 24 Question: All right. Do you have 25 Exhibit 1359? 11543 1 Answer: Yes, I do. 2 Question: And this is a fax memo 3 addressed to Theo Lieven at Vobis, correct, 4 from you? 5 Answer: Yes, it is. 6 Question: And this relates to -- 7 well, first you indicate you're coming to 8 Aachen on September 16th with Gerda Beining, 9 and Gerda Beining was the marketing person, 10 correct? 11 Answer: That I was working with, yes. 12 Question: And is Mr. Pasture Vobis' 13 marketing person? 14 Answer: He, once again, was 15 responsible for marketing related business 16 activities throughout Europe. 17 Question: All right. And at that 18 time you state in the second paragraph, if you 19 have time to meet with me on Wednesday as well. 20 I wanted to give you the white box bundle 21 agreement for your signature and discuss any 22 open business issues. 23 Do you recall whether you presented 24 that agreement to him that day? 25 Answer: Yes, I did. 11544 1 Question: Do you recall whether it 2 was signed on that day? 3 Answer: I believe it was, yes. 4 Question: And then in the next 5 paragraph it says, meanwhile, please find 6 attached a preliminary copy of the agenda for 7 the OEM briefing in Redmond taking place on 8 September 22nd through 24th. 9 Does this -- this refers to a meeting 10 or an event in Redmond for -- is this for all 11 OEMs or just major OEM partners of Microsoft? 12 Answer: I believe it was all OEMs. 13 Question: And you were aware 14 Mr. Lieven planned to attend this briefing? 15 Answer: Yes. 16 Question: And had you -- and as I 17 understand it, you were advising him that a 18 meeting for him personally with Steve Ballmer, 19 Joachim Kempin, Bengt Akerlind, Juergen Huels, 20 and yourself had been scheduled for Wednesday, 21 September 23, correct? 22 Answer: Yes. At that point that's 23 what had been scheduled. 24 Question: Okay. So Steve Ballmer, he 25 was also aware of and involved in what was 11545 1 going on with the Vobis account; is that 2 correct? 3 Answer: Yes, he was. 4 Question: And as it states here, 5 Steve Ballmer was senior vice president of 6 sales and marketing for Microsoft? 7 Answer: Correct. 8 Question: Was he at that time the 9 number two -- was he considered to be the 10 number two person at Microsoft? 11 Answer: I would probably say yes. 12 Question: And he was very -- he's a 13 long-time friend of Mr. Gates; isn't that 14 correct? 15 Answer: Yes, he is. 16 Question: And just -- I guess final 17 question. 18 This is a document that you maintained 19 in your files at Microsoft? 20 Answer: Yes, it is. 21 Question: Let me hand you what has 22 been marked as Exhibit 6, and it includes the 23 first page of what we previously marked as 24 Exhibit 1354. 25 And referring to the paragraph that 11546 1 says Billg and Lieven. 2 Billg, who is Bill Gates, correct? 3 Answer: Yes. 4 Question: Billg and Lieven exchanged 5 their information on each other's strategies, 6 and Billg was able to talk about all the 7 directions we were going in with MS-DOS and 8 Windows. 9 Lieven talked about his new interest 10 in teaming together with Microsoft in the 11 market and was excited about the new features 12 that will be in MS-DOS 6.0 and also Windows for 13 WorkGroups. 14 Net result. Lieven finally gave the 15 word to Billg that he wants to be in a 16 strategic alliance with us and that he is 17 willing to commit entirely to us, no more 18 DR-DOS and no more NetWare Lite and a contract 19 for 25K Windows for Workgroups. 20 This confirms that we've already 21 discussed that at this meeting Mr. Lieven told 22 Mr. Gates that he would ship no more DR-DOS; is 23 that right? 24 Answer: Yes. 25 Question: And then on the first page, 11547 1 I note the second paragraph, there's a 2 parenthesis -- well, second paragraph, last 3 sentence before the parenthesis states, I also 4 will have by this week a draft for a press 5 release that Vobis and Microsoft will jointly 6 release to the media announcing a new strategic 7 alliance, and then in parentheses, (personal 8 copies to be sent to Novell/DRI with our 9 compliments). 10 Was that rubbing it in? 11 Answer: A little competitive. I was 12 gloating. 13 Question: I've handed you what's been 14 marked as Exhibit 1362. 15 It states at the top Theo Lieven, 16 president and CEO Vobis Microcomputer AG. 17 Microsoft visit itinerary. 18 Was this a document you prepared? 19 Answer: Yes, it is. 20 Question: Did you forward a copy of 21 this itinerary to Mr. Lieven? 22 Answer: Yes, I did. 23 Question: What I was trying to get 24 at, these were meetings that you had scheduled 25 separately for Mr. Lieven where he was to get 11548 1 personal attention, correct? 2 Answer: Correct. 3 Question: Okay. And the first such 4 meeting was 7 a.m. Thursday, September 24th at 5 Banner's Restaurant at the Sheraton Hotel, 6 correct? 7 Answer: Yes. 8 Question: And it states the persons 9 to be in attendance were Steve Ballmer, Bengt 10 Akerlind, Stefanie Reichel. 11 Do you recall, were those the people 12 that attended that breakfast meeting with 13 Mr. Lieven? 14 Answer: Yes. 15 Question: Do you recall what was 16 discussed at the meeting? 17 Answer: We discussed the state of 18 their relationship, the agreements, the 19 business, you know, plans, marketing plans, 20 things that we were doing. 21 Question: Was DR-DOS discussed at the 22 meeting? 23 Answer: Yes, it was. 24 Question: You still -- you were 25 discuss -- did you discuss getting Vobis to 11549 1 stop selling DR-DOS at that meeting? 2 Answer: Yeah. He was still 3 advertising at that point, I believe, DR-DOS, 4 so we were still talking to him about it. 5 Question: So notwithstanding what 6 went on in London, he was still advertising and 7 selling DR-DOS, and you were -- part of the 8 objective here, of these meetings, was to bring 9 that to an end once and for all? 10 Answer: Yes. 11 Question: Okay. Do you recall 12 anything specific about what was discussed at 13 the breakfast meeting other than just a general 14 discussion of what was going on and concern 15 expressed that Vobis was still advertising 16 DR-DOS? 17 Answer: We -- I mean, we discussed, 18 like I mentioned, all the different things that 19 were going on and the topic of DR-DOS did come 20 up, yes. 21 Question: Okay. There was nothing 22 agreed to at this meeting, I take it? 23 Answer: What do you mean? 24 Question: Well, no contracts, no -- I 25 mean, there was no -- when you came out of that 11550 1 meeting, you didn't have any agreements with 2 Vobis that you hadn't had before you started 3 the meeting; is that correct? 4 Answer: Correct. 5 (Whereupon, the playing of the video 6 to the jury adjourned.) 7 MR. HAGSTROM: Your Honor, is this a 8 good time for the lunch break? 9 THE COURT: Sure is. 10 We will stop at this time. 11 Please remember the admonition 12 previously given. We will see you at noon. 13 Thank you. 14 (A recess was taken from 10:58 a.m. 15 to 12:02 p.m.) 16 THE COURT: Everyone else may be 17 seated. 18 You may continue. 19 (Whereupon, the following video was 20 resumed playing to the jury.) 21 Question: Next event that's referred 22 to is, 6:30 p.m. Seattle, the limousine will 23 pick up and deliver the following individuals 24 to the Hunt Club at 900 Madison, Seattle; Theo 25 Lieven, Joachim Kempin, Bengt Akerlind, Juergen 11551 1 Huels and Stefanie Reichel. 2 Is the Hunt Club a restaurant? 3 Answer: Yes, it is. 4 Question: Is it a private club? 5 Answer: No. It's a public 6 restaurant. 7 Question: Okay. And so this was to 8 be a dinner meeting with Mr. Lieven? 9 Answer: Yes. 10 Question: Do you recall the meeting? 11 Answer: Yes. 12 Question: Do you recall that at this 13 meeting Mr. Kempin told Mr. Lieven that he 14 would pay him $50,000 to stop shipping DR-DOS? 15 Answer: I recall a discussion about 16 monies being paid for him to not ship DR-DOS 17 anymore, but I don't recall what the exact 18 amount is. 19 Question: Do you recall that 20 Mr. Kempin, however, told Mr. Lieven that 21 Microsoft would pay Vobis to stop shipping 22 DR-DOS and to have Vobis deliver the last of 23 its DR-DOS holograms to Microsoft? 24 Answer: Yes, I do. 25 Question: Hologram, what were the 11552 1 holograms? My understanding is that those were 2 stickers that would be placed on the product 3 that Vobis shipped containing DR-DOS and that 4 was -- the holograms were used to demonstrate 5 that a properly licensed copy of DR-DOS was 6 sold to the customer; is that correct? 7 Answer: Yeah. The way Vobis had 8 their agreement, I guess, with Digital Research 9 is that they would prepay for copies. And so 10 that they would receive as product, 11 essentially, a hologram, and they would 12 meanwhile manufacture the manual, and then to 13 authenticate it, you know, have a hologram on 14 there. 15 Question: And so at the conclusion of 16 this meeting, that was the deal, Microsoft 17 would pay -- or how was this accomplished? Was 18 it a direct payment or did Microsoft issue a 19 credit to Vobis? 20 Answer: I don't remember the exact 21 amount or the payment terms, but I think a 22 credit was done to them on royalties. 23 Question: And was it made to look 24 like it was a credit for returned product? 25 Answer: I don't remember. I think 11553 1 that it was against inventory either shipped or 2 inventory to be shipped. I'm not sure how that 3 was done. 4 Question: And did Vobis or Mr. Lieven 5 then deliver the balance of the DR-DOS 6 holograms that he had to Microsoft? 7 Answer: My understanding was that the 8 holograms no longer were in his possession. 9 What he did with them, I don't know. 10 Question: But following the upshot of 11 this meeting, was after it was all done, Vobis 12 didn't have any more DR-DOS to sell, correct? 13 Answer: As far as I understood it, 14 yes. 15 Question: So you finally -- by the 16 time this meeting was done, Microsoft had 17 finally achieved its objective of getting 18 DR-DOS out of Vobis? 19 Answer: As far as I knew, yes. 20 Question: Let me try and state it 21 again. 22 Wasn't the reason it was done in the 23 form of a credit was to conceal that Microsoft 24 had paid Vobis to stop shipping DR-DOS? 25 Answer: I don't know if that's why 11554 1 that was done. I just assumed they were doing 2 the way they had to do it. 3 Question: I'm asking what in her mind 4 -- in your mind what you understood to be the 5 case. 6 Answer: I just was under the 7 impression that that's how it needed to be done 8 to be done correctly. 9 Question: Is there a correct way to 10 do that sort of thing? 11 Answer: I assume so. You want to do 12 it legally. 13 Question: Was it -- during the time 14 you were at Microsoft, are you aware of any 15 other OEM that was paid to stop shipping 16 DR-DOS? 17 Answer: Not to my knowledge, no. 18 Question: Are you aware of any other 19 OEM that was paid to stop shipping any 20 competitive product? 21 Answer: Not that I know of, no. 22 Question: That was a very unusual 23 type of transaction in your experience; is that 24 true? 25 Answer: I don't know if it was 11555 1 unusual for the company. It was the only 2 transaction that I had done. 3 Question: Didn't you have questions 4 about whether it was legal? 5 Answer: I assumed that because we 6 were doing it, it was legal. 7 Question: Is your assumption that 8 Microsoft -- everything Microsoft did was 9 legal? 10 Answer: Yeah. 11 Question: Do you know whether 12 Mr. Ballmer was aware of this arrangement 13 whereby Microsoft was to pay $50,000 to Vobis 14 in return for its agreement to no longer ship 15 DR-DOS? 16 Answer: I believe he was informed of 17 what we were proposing to do or going to do. 18 Question: Was there -- do you recall, 19 was there any other -- do you know whether 20 Mr. Gates was aware of that arrangement? 21 Answer: I believe he was, yes. 22 Question: Mr. Gates was aware that 23 Vobis was being given a $50,000 credit in 24 return for its agreement to no longer ship 25 DR-DOS and to deliver its remaining DR-DOS 11556 1 holograms to Microsoft, correct? 2 Answer: He was aware of what we were 3 doing with the account, yes. 4 Question: I've handed you what's been 5 marked as Exhibit 1363. 6 I apologize for replowing old ground, 7 but we need to cover the documents that we've 8 got. They're important. 9 This -- it's dated September 10th, 10 1992. Appears to be an e-mail from Bernard 11 Vergnes to Jochen Haink, correct? 12 Answer: Correct. 13 Question: Okay. Let me just cover a 14 few points that are made in this memo. I just 15 want to verify that it's accurate. 16 It says Vobis -- starting right under 17 the heading proposal for white box bundle. 18 As many of you are aware, the 19 relationship with Vobis has come a long way in 20 the last ten months. Vobis owns 15 percent of 21 the PC market and is the number one before IBM 22 with ten percent. 23 Is that referring to Vobis market 24 share in Germany? 25 Answer: It's either Germany or 11557 1 Europe. 2 Question: Well, you said Vobis owns 3 15 percent of the PC market. And my question 4 was do you know whether that refers to Germany, 5 and you said it's either Germany or Europe. 6 Answer: I don't know. It could be 7 one or the other. 8 Question: And then my follow-up 9 question was Vobis is -- isn't it true that 10 Vobis' market share in Germany would be higher 11 than its market share in Europe? 12 Answer: Yes, it would. 13 Question: So if Vobis owned 15 14 percent of the PC market in Europe, it would 15 have had a higher percentage of the PC market 16 in Germany, correct? 17 Answer: Correct. 18 Question: Next sentence, Lieven wants 19 to commit to a strategic alliance with us and 20 work exclusively with us as a partner. He says 21 he is willing to no longer offer DR-DOS or 22 Network Lied, L-i-e-d, and it should be 23 L-i-t-e, correct? 24 Answer: Correct. 25 Question: He will commit to a 11558 1 contract for 25K WOW. What is WOW? 2 Answer: Probably supposed to be WFW. 3 Question: Okay. Dropping down, it 4 says if we can make an offer to him with the 5 following T and Cs. Are those terms and 6 conditions? 7 Is T and C -- 8 Answer: Terms and conditions, yes. 9 Question: He's ready to commit to us 10 exclusively and to throw DR-DOS and Novell out 11 and also to commit to 25K WFW, which is Windows 12 for Workgroups, correct? 13 Answer: Uh-huh. 14 Question: This white box deal would 15 have to be an exclusive deal only to Vobis and 16 no other OEMs (at least for a minimum of three 17 months, the length of the Christmas season), 18 true? 19 Answer: Yes. 20 Question: If we did this type of 21 deal, we would also need to estimate 22 approximately 350 deutsche marks for marketing 23 costs to help us support Vobis in getting the 24 product in their stores and for posters and 25 collateral to help sell the product. 11559 1 Is that correct, do you recall that 2 being the amount? 3 Answer: Yes. 4 Question: I've handed you what's been 5 marked as Exhibit 1364. 6 It's a document entitled Bill Gates 7 German agenda. 8 Do you recall having seen this 9 document previously? 10 Answer: Yes. 11 Question: Did you prepare it? 12 Answer: This was a document that was 13 prepared with a combination of people. 14 Question: Was this -- or did you have 15 a hand in its preparation? 16 Answer: Yes. 17 Question: The first date at the top 18 is Thursday, October 15th. 19 Is that October 15th, 1992? 20 Answer: Yes. 21 Question: And do you recall what was 22 -- this appears to be an event to be held at 23 Frankfurt Messe, which would be the Frankfurt 24 Convention Center, correct? 25 Answer: Yes. 11560 1 Question: And what was the purpose of 2 this event? 3 Answer: It was the PC Windows show. 4 Question: And on the second page, it 5 indicates the audience would include 6 representatives from Microsoft OEM partners 7 such as Vobis, Actebis, Aquarius, Zenith, and 8 Tandon, correct? 9 Answer: Uh-huh. 10 Question: Turn to the third page. 11 By the way, did you attend this 12 conference? 13 Answer: Yes, I did. 14 Question: Did you hear Mr. Gates 15 speak? 16 Answer: Yes, I did. 17 Question: Down about halfway through 18 the page it says, expected questions. 19 Could you describe the role of Windows 20 3.1 in the future? 21 Do you recall what Mr. Gates had to 22 say about the role of -- the future role of 23 Windows 3.1? 24 Answer: I couldn't recall for you 25 specifically what he said, no. 11561 1 Question: Do you recall whether 2 Mr. Gates was talking about Chicago at this 3 point? 4 Answer: I believe we were, yes. 5 Question: And what is Chicago? 6 Answer: Chicago eventually became 7 Windows 95. 8 Question: Okay. And that was a 9 product that was designed to incorporate both 10 Windows and MS-DOS functionality, correct? 11 Answer: It was the next generation of 12 Windows. 13 Question: And did Windows 95, in 14 fact, incorporate both Windows and MS-DOS 15 functionality? 16 Answer: It was the next generation of 17 Windows and essentially that DOS would go away 18 or it would be a part of the product, so 19 separate products. 20 Question: Do you recall in this '92 21 time frame when Mr. Gates was talking about 22 Chicago, was that one of the things that he 23 told people, was that DOS would go away with 24 the release of Windows 95? 25 Answer: I don't -- I don't recall him 11562 1 specifically using those words. I don't 2 remember exactly how that would be phrased. 3 Question: But the idea was that 4 Windows 95 would replace MS -- in other words, 5 if you purchased MS-DOS -- excuse me -- if you 6 purchased Windows 95 or Chicago, there would be 7 no need to buy a DOS product, correct? 8 Answer: I believe that was the way 9 Windows was presented, that Windows 95 is a 10 future product, yes. 11 Question: And that presentation was 12 beginning to be made to the market in 1992? 13 Answer: Yes. I don't remember 14 specifically when it started, though. 15 Question: Okay. But at least by the 16 latter part of 1992, Microsoft was talking 17 about Chicago in that fashion? 18 Answer: Correct. 19 Question: Okay. Do you recall 20 whether in 1992 that Microsoft was talking 21 about Chicago and explaining that if you 22 purchase Chicago, there would be no need to buy 23 a DOS product? 24 Answer: Yes, I do. 25 Question: And that was indeed what 11563 1 was being said at that time? 2 Answer: Like I said, I don't remember 3 when it began, but I do remember that it was in 4 the later part of '92. 5 Question: Okay. Thank you. 6 All right. Turn to page 5 of the 7 document. It's got the Bates number SR 00005 8 at the bottom. Refers at the bottom of page -- 9 Do you have that page? 10 Answer: Uh-huh. 11 Question: Refers to brief meeting 12 with Theo Lieven/Vobis Microcomputer. 13 Do you see that? 14 Answer: Uh-huh. 15 Question: It says, although this is a 16 brief meeting, it is a follow-up to their last 17 meeting at Redmond OEM briefing in September. 18 Were you present at this -- did 19 Mr. Lieven, in fact, meet with Bill Gates at 20 this time? 21 Answer: In the meeting in Frankfurt. 22 Question: Thank you for clarifying. 23 At the meeting in Frankfurt. 24 Answer: Okay. Yes, they did meet, 25 and, yes, I was present. 11564 1 Question: And do you recall what was 2 discussed? 3 This indicates that Mr. Lieven wanted 4 to talk to Mr. Gates about how Luigi Colani, a 5 designer of pens, cars and jewelry, and I 6 believe Colani was designing a limited edition 7 of Vobis computers; is that correct? 8 Answer: Yes. And they did a photo 9 shoot as well. 10 Question: And so Mr. Gates met with 11 Mr. Colani and Mr. Lieven at that time? 12 Answer: Uh-huh. 13 Question: In August of '92, we've 14 already talked about what occurred at the 15 meeting at Chez Nico with Mr. Lieven and 16 Mr. Gates. 17 And Mr. Colani was not present at that 18 meeting, correct? 19 Answer: Colani was not there, no. 20 Question: Mr. Colani was present in 21 October of '92 in Frankfurt. 22 That doesn't help. You correct me if 23 I'm wrong. 24 Answer: To resummarize it, Colani was 25 not present at the August '92 meeting in 11565 1 London. He was present at the October '92 2 meeting in Frankfurt, Germany. 3 Question: And, to your knowledge, the 4 October '92 meeting in Frankfurt is the only 5 time that Mr. Colani met with Mr. Lieven and 6 Mr. Gates; is that correct? 7 Answer: Correct. 8 Question: And on page 6 of Exhibit 9 1364 there's a heading that says, goals and 10 objectives. 11 Do you see that? Goals and 12 objectives? 13 Answer: I see objectives. Oh, there, 14 goals and objectives, okay. 15 Question: Goals slash objectives. 16 Demonstrate our further commitment and interest 17 in working together with Vobis Microcomputer, 18 correct? 19 Answer: Uh-huh. 20 Question: And that was, again, to 21 emphasize the Microsoft place -- its 22 relationship with Vobis as a very high 23 priority, correct? 24 Answer: Yes. 25 Question: Let me show you what we 11566 1 will mark as Exhibit 1365. 2 This appears to be an e-mail from you 3 and it's addressed to a set of people I'm not 4 familiar with. Could you identify who this was 5 sent to? 6 Answer: Oh, boy. I forget all of 7 their names, but they're all from Microsoft 8 Holland, near Amsterdam. 9 Question: And this was -- I think we 10 referred to an earlier document of this nature 11 that was addressed to someone at Microsoft in 12 Italy. 13 Answer: In Italy. 14 I basically did documents like this to 15 every country that Vobis was located in, 16 whether it be Spain, Italy, France, Austria, 17 Switzerland -- I mean, Belgium. I sent ones to 18 everybody. 19 Question: And you go through -- it 20 looks like five points that were agreed to with 21 Vobis first. 22 You make reference to a new $12 23 million annual commitment to license product by 24 Vobis. It was agreed that the two companies 25 would form a strategic alliance. 11567 1 That was true? 2 Answer: Yes. 3 Question: Next, Vobis and Lieven 4 agreed no longer to offer DR-DOS and wants to 5 partner with us exclusively, true? 6 Answer: Correct. 7 Question: Refers to finished goods 8 and says with reference to finished goods that 9 Vobis will be getting the distributor rebate of 10 52 percent, correct? 11 Answer: Yes. We were giving them a 12 distribution agreement for finished goods, and 13 that was their discount. 14 Question: We also have a proposal to 15 them which they intend on accepting which is 16 for a white box bundle for Excel, Word and 17 Office. They will be making a ten million 18 deutsche marks (6 million dollar commitment), 19 true? 20 Answer: Where's -- 21 Question: That's the -- 22 Answer: Yeah, correct. 23 Question: Okay. And then the last, 24 starting in October, Microsoft GmbH will be 25 doing an exclusive Christmas promotion for 11568 1 three months with all 100 Vobis stores 2 throughout Germany, true? 3 Answer: Uh-huh. 4 Question: Further down that 5 paragraph, Vobis is going to be putting us in 6 their monthly Denk Zettel, is which in Germany 7 alone has distribution of ten million, correct? 8 Answer: Yes. 9 Question: Do you recall whether any 10 OEM besides Vobis had a deal that entitled it 11 to a 52 percent rebate on finished goods? 12 Answer: Not to my knowledge, no. 13 Question: So was that part of the 14 inducement to get Vobis to ship a hundred 15 percent MS-DOS and no DR-DOS? 16 Answer: That was part of what we had 17 discussed and agreed to. 18 Question: Okay. Do you recall -- 19 were there any -- Vobis, as you've testified, 20 received treatment that other OEMs did not. 21 They got deals that were not made available to 22 other OEMs in Europe. 23 Answer: Correct. 24 Question: Do you recall whether other 25 account reps or account managers were unhappy 11569 1 because you were in a position to offer 2 inducements to Vobis that were not available to 3 them? 4 Answer: I know that the account 5 manager for Escom, which was one of the next 6 leading computer manufacturers, was not happy. 7 Question: Who was that? 8 Answer: I think it was Michael John. 9 Question: Do you recall anybody else 10 that -- 11 Answer: Andreas Niegel and -- I mean, 12 a couple people were just not happy because 13 essentially -- I mean, if you think about it, 14 they had every single customer of theirs, you 15 know, jumping on them, why aren't I getting 16 that same deal. You know, what's going on? 17 Question: Well, the bottom line, 18 Vobis got the deal because Microsoft saw Vobis 19 as particularly strategically important to it? 20 Answer: Yes. 21 Question: Okay. I believe you 22 testified that you have knowledge that 23 Mr. Kempin, Mr. Heuls, and Mr. Lum told OEMs 24 that Microsoft would charge a higher royalty 25 for Windows if the OEM did not also license 11570 1 MS-DOS, correct? 2 Answer: I believe I said that, yes. 3 Question: Did you ever hear that 4 other Microsoft employees told OEMs that they 5 would pay more for Windows if the OEM didn't 6 also license MS-DOS? 7 Answer: Yeah. I know that that would 8 happen, yes. 9 Question: Do you know the names of 10 any other employees who told OEMs that? 11 Answer: I can't recall specific 12 people. 13 Question: Did Microsoft GmbH train 14 its sales force to use Windows pricing to get 15 OEMs to license MS-DOS? 16 Answer: The GmbH didn't train us. 17 Question: Did Mr. Heuls train you to 18 do that? 19 Answer: Mr. Heuls was my manager, and 20 I would follow his direction, yes. 21 Question: And you saw Mr. Heuls do 22 that, use Windows pricing to induce or to 23 encourage OEMs to license MS-DOS? 24 Answer: There would be a better 25 price, yes. 11571 1 Question: And that certainly was an 2 inducement to license both MS-DOS and Windows, 3 correct? 4 Answer: Correct. 5 Question: And at least based on your 6 observation, the practice was widespread of 7 Microsoft employees telling OEMs that they had 8 to -- that the Windows price would be 9 significantly higher or at least would be 10 higher if they didn't license both MS-DOS and 11 Windows? 12 Answer: I don't know what your 13 definition of widespread is, but you asked me 14 earlier if I had known of other people, and the 15 answer was yes. 16 Widespread, I don't know. 17 Question: You saw several people do 18 that? 19 Answer: Yes. 20 Question: Mr. Jardine asked me to 21 break up the question into two parts. 22 Did anybody at Microsoft Corp., 23 corporate in the U.S., encourage you to use 24 Windows pricing as a way to encourage OEMs to 25 license MS-DOS? 11572 1 Answer: You're asking if anybody at 2 Microsoft Corp.? 3 Question: Yes. And we tried to break 4 it up into two parts. We talked about 5 Microsoft Germany and Microsoft GmbH. 6 And my question now relates to 7 Microsoft corporate. 8 In the training you received with 9 respect to making sales to OEMs, did anybody at 10 Microsoft corporate encourage you to charge or 11 tell OEMs that the price would be higher for 12 Windows stand-alone than DOS and Windows 13 combined? 14 Answer: I don't -- I don't recall 15 specific conversations, but I believe in 16 conversations with Mr. Lum that there would be 17 references made to that. But I don't recall 18 specifics. 19 Question: What about Mr. Kempin? I 20 believe you said that you had seen Mr. Kempin 21 offer that kind of pricing to a number of OEMs. 22 And he was with Microsoft corporate, was he 23 not? 24 Answer: Yes. 25 Question: So to follow up on that, 11573 1 that was a practice that Mr. Kempin, at least 2 by his example, encouraged others to follow; is 3 that correct? 4 Answer: Yes. 5 Question: Did anyone at Microsoft, 6 other than Microsoft lawyers, tell you that it 7 was illegal to tell OEMs that Microsoft would 8 not license Windows if the OEM did not also 9 license MS-DOS? 10 Answer: I don't -- I don't recall 11 hearing that. 12 Question: Okay. Let me try again. 13 Did anyone at Microsoft tell you that 14 it was illegal to tell OEMs that the license 15 royalty amount for Windows would be higher if 16 the OEM licensed Windows alone than if the OEM 17 licensed both Windows and MS-DOS? 18 Answer: No. 19 We're referring here to business 20 people having talked to me about this, and 21 you're asking has a business person at any time 22 asked me or told me that it's illegal to have 23 higher Windows prices if DOS wasn't licensed, 24 correct? Is that the question? 25 Question: That's correct, yeah. 11574 1 Answer: And I'm saying, no, I don't 2 recall anybody ever telling me it was illegal 3 to do that. 4 Question: Do you recall anyone at 5 Microsoft, other than lawyers, telling you that 6 it was illegal for Microsoft to use OEM 7 licensing practices for the purpose of 8 excluding competitors from the market? 9 Answer: I don't recall being told 10 that, no. 11 Question: Do you recall -- forgive me 12 if I'm repeating myself, but do you recall any 13 nonlawyers explaining any OEM licensing 14 practices to you that would be illegal? 15 Answer: None that I can recall. 16 Question: Do you recall being told by 17 nonlawyers anything specifically that you could 18 not do in the marketplace? 19 Answer: I can't recall specifics. 20 I'm sure there were things. 21 Question: Have you ever told anyone 22 that Microsoft used per processor licenses to 23 exclude a competitor, specifically to exclude 24 DR-DOS? 25 Answer: I don't recall having made 11575 1 that statement, but I'm not going to deny that 2 I may have made that on the basis that if I 3 did, I don't remember saying that. 4 Question: Do you recall, did Juergen 5 Huels ever say that -- did you ever hear him 6 saying that or encouraging you to get a per 7 processor license to block DR-DOS out of an 8 account? 9 Answer: I do recall him discussing 10 something like that with me. 11 Question: Do you recall Mr. Kempin 12 ever saying that, telling you to get a per 13 processor license to get DR-DOS out of an 14 account? 15 Answer: Yes. 16 Question: So they understood that a 17 per processor license would have the effect of 18 excluding competition out of an account because 19 it would impose a penalty if the OEM licensed a 20 competing operating system? 21 Answer: I don't know what was in 22 their minds. I certainly -- it was my 23 impression they felt it would make it more 24 difficult for any competitor. 25 Question: And you understood that if 11576 1 once a per processor license was in place, that 2 if an OEM licensed another operating system, it 3 would have to pay both Microsoft and the 4 company that sold the other operating system, 5 correct? 6 Answer: Correct. 7 Question: And that would create a 8 powerful economic disincentive for the OEM to 9 license any competing operating system, 10 correct? 11 Answer: Unless the OEM having made 12 that choice had economically computed it to be 13 to their advantage overall doing a per 14 processor benefit than they had done it 15 otherwise. But it definitely made it more 16 difficult for them. 17 Question: Paying twice was a tough 18 deal for OEMs in that competitive period where 19 the market margins were thin; isn't that true? 20 Answer: It could have in 21 circumstances, yes. 22 Question: Okay. And did Mr. Lum -- 23 do you ever recall hearing Mr. Lum saying that 24 getting a per processor license would block 25 DR-DOS from an account? 11577 1 Answer: I recall him feeling strongly 2 about a per processor agreement, yes. 3 Question: And that per processor 4 agreements would have the effect of blocking 5 DR-DOS from competing accounts? 6 Answer: I believe that was his 7 belief. 8 Question: Did you ever hear Mr. Gates 9 say that, that getting a per processor license 10 would block DR-DOS from OEM accounts? 11 Answer: I don't recall. 12 Question: Did you ever hear 13 Mr. Ballmer say that? 14 Answer: I don't recall. 15 Question: Did you ever recall seeing 16 documents that talked about getting a per 17 processor license to block DR -- or to block 18 DR-DOS out of an account? 19 Answer: I may have, but I can't 20 recall specifics. But it's possible that I 21 did, yes. 22 Question: Did anyone at Microsoft 23 ever tell you it was illegal for Microsoft to 24 pay an OEM not to sell a competitor's product? 25 Answer: I don't believe that anybody 11578 1 ever told me it was illegal. 2 Question: Hello, Ms. Reichel. It's 3 been a long day, but now it's my turn to ask 4 questions, which I'd like to do to follow up on 5 some parts of your examination. 6 Answer: Okay. 7 Question: Now, in late 1991, did 8 Vobis have a per processor license for certain 9 processors for MS-DOS 5.0? 10 Answer: I believe they did, yes. 11 Question: All right. And did -- 12 based on your testimony, did that, the 13 existence of that per processor license 14 preclude or stop Vobis from also selling DR-DOS 15 in the same time period? 16 Answer: It didn't preclude them from 17 selling it, no. 18 Question: Let me show you what's been 19 marked as Exhibit 1339. 20 I'm going to just use my copy, so it's 21 easier to find. And ask you -- I think you 22 testified this is the Vobis account profile you 23 prepared. 24 Answer: Uh-huh. 25 Question: Let me have you turn to the 11579 1 fourth page back under the quick personal 2 profile on Theo Lieven. 3 Do you see that? 4 Answer: Yes. 5 Question: Down at the first paragraph 6 after the bullet points that begins previously, 7 it says, previously Lieven did not see the 8 importance of the operating system or software 9 applications to his company's success. He was 10 aggressively marketing several software 11 products and three operating systems (DR-DOS, 12 MS-DOS and OS/2). 13 Is that a true and accurate statement 14 as to this time period, late 1991 and early 15 1992? 16 Answer: I'm not sure what I was 17 referring to as previously, whether it was 18 previous to this document or another time, but, 19 yes, that is true. 20 Question: Is it fair to say that 21 Vobis was aggressively marketing DR-DOS during 22 the time period it had a per processor license 23 for certain processors for MS-DOS 5.0? 24 Answer: During what time period? 25 Question: Late 1991 and early 1992. 11580 1 Answer: He was definitely 2 aggressively marketing DR-DOS, more so than 3 MS-DOS. 4 Question: Based on your experience 5 with Mr. Lieven, was he a skilled and effective 6 businessman? 7 Answer: Extremely, yes. 8 Question: And a tough negotiator? 9 Answer: Yes, but so was I. 10 Question: All right. In your 11 judgment, did he elect the license options with 12 Microsoft that he thought were in the best 13 interest of Vobis? 14 Answer: Yes, I believe he did. 15 Question: And Mr. Hill elicited on a 16 number of occasions the statement from you that 17 Microsoft wanted a hundred percent of Vobis' 18 operating system business. 19 That was true? 20 Answer: Correct. 21 Question: But I gather from your 22 testimony that notwithstanding that hope of 23 Microsoft, Microsoft continued to license to 24 Vobis any of its products that Vobis wanted 25 even though Vobis was selling DR-DOS? 11581 1 Answer: Correct. 2 Question: Did you -- based on your 3 experience of negotiating with people at Vobis, 4 did you ever reach a conclusion that they 5 tended to try to portray Microsoft in the worst 6 light and DR-DOS in the best light in order to 7 achieve a negotiating advantage with you? 8 Answer: I'm not sure I understand the 9 exact part of your question. 10 I mean, Mr. Lieven was a good 11 negotiator, and he would do whatever it took to 12 get the deal he wanted. 13 Question: During your experience with 14 him, do you believe that he ever tried to put 15 DR-DOS in the best light in order to gain a 16 negotiating advantage with you? 17 Answer: He may have done that, yes. 18 Question: Can you describe how in 19 that period, late 1991 and early 1992, Vobis 20 would sell an operating system to a customer or 21 have customers make a choice as to which 22 operating system they wanted with the PC they 23 were buying from Vobis? 24 Answer: I don't recall the specifics. 25 I had gone into Vobis stores to see how they 11582 1 would do it, but you would go into a store and 2 you would choose the system you wanted. And 3 you'd be asked what operating system or what 4 package you wanted. 5 Question: All right. And so at the 6 point of sale, a customer could either say I 7 want DR-DOS or I want MS-DOS? 8 Answer: Correct. 9 Question: All right. In late 1991 10 and early 1992, did you visit one or more Vobis 11 stores? 12 Answer: Yes. 13 Question: And how would you describe 14 their in-store advertising as between DR-DOS 15 and MS-DOS? 16 Answer: It was primarily oriented 17 towards DR-DOS with very little Microsoft. I 18 mean, if any. 19 Question: During the time that you 20 were an account manager for Vobis, would you 21 look at those advertising -- that newspaper 22 advertising? 23 Answer: Yes, I would. 24 Question: And based on your view of 25 that advertising, did you form an opinion as to 11583 1 whether the advertising favored DR-DOS or 2 favored MS-DOS? 3 Answer: I felt it favored DR-DOS. 4 Question: I think you testified 5 earlier that you thought that Vobis' outside 6 advertising and its inside advertising and at 7 least in the times you were -- its in-store 8 advertising -- at least the times that you were 9 in the stores, the approach of its sales 10 persons favored DR-DOS over MS-DOS. 11 Do you recall that testimony? 12 Answer: Yes. 13 Question: Based on the data that you 14 gathered, is it fair to say that 15 notwithstanding that activity, the percentage 16 of DR-DOS being sold by Vobis was declining 17 during late 1991 and the first half of 1992? 18 Answer: Based on the information I 19 see in here, it appears that it was declining 20 drastically and more so than I thought. 21 Question: Now, you testified that you 22 began to negotiate this overall customer 23 relationship, this new contract, with 24 Mr. Lieven at Vobis leading up to July of 1992. 25 Answer: Correct. 11584 1 Question: Do you recall -- and I 2 think you testified that Vobis eventually 3 agreed to increase their minimum commitments? 4 Answer: Yes. In the new agreement in 5 July. 6 Question: Let me show you that. I 7 think that's Exhibit 610. 8 Let me -- Mr. Hill asked you questions 9 about Vobis increasing its minimum commitments 10 for MS-DOS from 200,000 to 400,000 per year. 11 Do you recall that? 12 Answer: Yes. 13 Question: While you were the account 14 manager, and to your knowledge, did Vobis have 15 any trouble meeting its minimum commitments? 16 Answer: No. In fact, they always 17 were exceeding it. Their business was growing 18 so fast. That's why they were able to commit 19 to that with relative, you know, certainty 20 because they knew that they were -- I mean, 21 they probably knew they were going to be 22 selling even double that and yet went for those 23 levels. 24 Question: And I think you also 25 testified that in connection with this 11585 1 contract, the July 1, 1992 contract, which 2 included Windows 3.1, that they increased their 3 minimum commitments from 100,000 to 320,000. 4 Answer: Correct. 5 Question: With respect to their 6 Windows minimum commitment, did Vobis ever have 7 any difficulty meeting that minimum commitment? 8 Answer: Not that I recall, no. 9 Question: Do you recall why Vobis -- 10 what indications Vobis gave you as to why they 11 were interested and willing to enter into the 12 contract that's attached as part of Exhibit 13 610? 14 Answer: Other than that it was a good 15 business decision for them. I don't understand 16 the question. 17 Question: Did Mr. -- let me restate 18 it. 19 Did Mr. Lieven ever express to you any 20 view one way or the other about Vobis' interest 21 in licensing Windows 3.1 as a new product? 22 Answer: Well, he clearly wanted to 23 license Windows 3.1 and did so. 24 Question: Did Mr. Lieven ever say 25 anything to you in the negotiations leading up 11586 1 to your July 1, 1992 contract with regard to 2 his -- with regard to whether or not his 3 decision to increase minimum commitments 4 reflected at all his view of the future of 5 DR-DOS as a product? 6 Answer: He would say that we were the 7 market leader. 8 Question: Was Mr. Lieven always given 9 the option of choosing a per system or per copy 10 license for Microsoft with respect to these 11 products? 12 Answer: He had a choice of any of 13 those three pricing structures. 14 Question: When a per processor 15 license was negotiated, the OEM had the option 16 of listing whatever processors it wanted to in 17 the contract; is that correct? 18 Answer: Correct. 19 Question: Is it fair to say or is it 20 your understanding that an OEM could choose to 21 list one or more than one processor in such a 22 license? 23 Answer: Yes. Because, for example, 24 Lieven didn't license Windows on a 286 25 processor because, A, it wouldn't have worked 11587 1 on a 286 processor. It needed a higher 2 processor, but that meant he didn't have to pay 3 us for those systems with that processor 4 shipping. 5 Question: Right. I think that 6 answers my question. 7 Answer: Okay. 8 Question: An OEM wouldn't pay any per 9 processor royalty for a processor type or model 10 not listed in the per processor license? 11 Answer: Correct, if they hadn't 12 elected it. 13 Question: And after the July 1, 1992 14 contract was signed, did Vobis continue to 15 license and sell DR-DOS? 16 Answer: They continued to advertise. 17 What they were selling, I'm not sure of. 18 Question: Now, you also were asked a 19 series of questions by Mr. Hill about the 20 strategic alliance that was negotiated and 21 discussed with Vobis and that led up to the 22 London meeting between Mr. Lieven and 23 Mr. Gates. 24 Do you recall generally that you were 25 asked about that subject? 11588 1 Answer: Earlier today, yes. 2 Question: Can you describe generally 3 how those discussions about a strategic 4 alliance were initiated or began? 5 Answer: Gerda Beining and I had 6 discussed the possibility of using Vobis to do 7 a marketing campaign that they had been wanting 8 to do, and they were trying to find a way to do 9 it and be able to have it succeed. 10 And I liked the idea of approaching 11 Vobis because I thought that it would be 12 something Vobis would be interested in that 13 would be good for us and it could be a 14 bargaining chip for working with Mr. Lieven. 15 And in the process of presenting that 16 to Mr. Lieven, he obviously liked it and then 17 it built -- additional things were added on 18 that built what then was dubbed the strategic 19 alliance. 20 Question: And in that process, were 21 things added by Mr. Lieven as well as by 22 Microsoft? 23 Answer: By both parties. 24 Question: Mr. Hill asked you about 25 Exhibit 1352. And I'd like to come back and 11589 1 ask you some questions about that. 2 This is an e-mail from you to a large 3 list of people dated August 13th, 1992. 4 Do you recall being asked about that 5 document? 6 Answer: I remember seeing this 7 document. I don't remember what I was asked. 8 Question: All right. And can you 9 read what the subject line says? 10 Answer: Urgent Vobis meeting with 11 Lieven August 13th, 1992. Important long 12 e-mail. 13 Question: All right. If you'll look 14 down to the second paragraph of the text, it 15 says, today I went to Vobis to discuss current 16 business issues and to prepare for the agenda 17 of items that Lieven wishes to discuss in next 18 week's meeting with Billg in London. 19 Do you recall attending this meeting 20 with -- that's described in this memorandum 21 with Mr. Lieven? 22 Answer: Yes. 23 Question: All right. And can you 24 generally -- I want to go through some 25 specifics, but, generally, before I go through 11590 1 this memorandum, would you generally describe 2 what the subject matter of that meeting was and 3 its outcome? 4 Answer: It was discussing details of 5 what we can be doing together on all levels and 6 coming and moving towards an agreement so that 7 by the time the Billg meeting happened, we knew 8 what he wanted, he knew what we wanted, and we 9 could come to an agreement on it. 10 Because my goal for the Billg meeting 11 was that I could meet my objective, which was 12 getting them to commit exclusively to us and 13 not selling DR-DOS anymore. And all these 14 things were to make that happen. 15 Question: All right. The second -- 16 the third paragraph down on the first page 17 said, overall, the meeting went very well and 18 included some very positive reactions on many 19 issues, which I need to tell you about and get 20 your feedback as quickly as possible. 21 Does the memo accurately reflect your 22 view that the meeting went very well? 23 Answer: Yes. 24 Question: Now, the memorandum earlier 25 says today. 11591 1 Do you recall drafting this memorandum 2 on the same day as the meeting? 3 Answer: Yeah. Because usually I'd be 4 on an airplane flying back from Aachen to 5 Munich, and I had an hour or I'd be in the 6 airport and I'd have time to kill, and I would 7 use that time to draft an e-mail. 8 Although, I sent this e-mail at 9:30 9 at night, which probably meant that I was, you 10 know, there during the day, flew back in the 11 evening, went to the office, back in the 12 airport, and then sent it out. 13 Question: And would this memorandum 14 reflect your impressions and recollections of 15 the meeting on that same day? 16 Answer: It should, unless I had 17 forgotten it between the time of the meeting 18 and the time I wrote it. 19 Question: Would it be -- was it your 20 intent in drafting this memorandum to have it 21 reflect as accurately as possible the content 22 of that meeting? 23 Answer: Yes. 24 Question: And the paragraph we read a 25 minute ago says that you were trying to get 11592 1 feedback as quickly as possible. 2 Was this e-mail addressed to your 3 superiors to get feedback on the proposals that 4 came out of the meeting? 5 Answer: Yes. Because without the 6 support of these people, I wouldn't have been 7 able to make this be a successful project. 8 If this was something that I had 9 dropped on their laps after the Billg meeting 10 without any prior knowledge to them or idea or 11 hint as to the content of what we were trying 12 to put together with Billg, it could have been 13 shot down. 14 Question: Let me have you look at the 15 next paragraph down on page 1. 16 It reads, Lieven is looking forward to 17 the meeting with Billg next week. He is 18 excited to be able to discuss with him where 19 Microsoft's strategy is going and his own. 20 Do you recall earlier Mr. Hill asked 21 you if Mr. Gates was interested in learning 22 about where Vobis' strategy was going? 23 Do you recall Mr. Lieven saying to you 24 that he was excited to be able to discuss with 25 Mr. Gates where Microsoft's strategy was going? 11593 1 Answer: I recall both of them saying 2 that they were looking forward to it. 3 Question: The next sentence says, 4 currently, Lieven is very positive towards 5 Microsoft and is very committed to the contract 6 which was signed on July 2nd. 7 Do you recall that being Mr. Lieven's 8 attitude towards the July 2nd contract at this 9 time? 10 Answer: He was definitely riding on a 11 high. He felt he had a good deal with us and 12 things were going well, and he was looking 13 forward to meeting with Bill. 14 Question: Let me have you look at the 15 last paragraph on page 1. Right below where it 16 says the sum of all of this is as follows. 17 Do you see that? 18 Answer: Yes. 19 Question: The paragraph then reads, 20 Lieven has been giving thought to these offers. 21 And I think that refers to offers from 22 other competitors of Microsoft discussed in the 23 preceding paragraph. 24 But he prefers our product pallete and 25 he feels that we are the market leaders. 11594 1 Do you recall Mr. Lieven expressing 2 that view to you? 3 Answer: I recall him saying that he 4 felt we were the market leader, yes. 5 Question: And was that -- do you 6 recall him expressing in any way whether that 7 was important to him? 8 Answer: That we were market leaders? 9 Question: Yes. 10 Answer: That was important to him, 11 yes. 12 Question: All right. The paragraph 13 then reads, price is, of course, important to 14 Lieven, but he would rather pay a slightly 15 higher price to us knowing that he can offer 16 the customer the leading market standard and 17 high-quality products. 18 Do you recall him expressing to you 19 that he regarded Microsoft as the leading 20 market standard and a producer of high-quality 21 products? 22 Answer: I assume by having put it 23 there, I'm recalling what he told me from my 24 notes that day. I do recall him at that point 25 feeling that way. He had not always stated 11595 1 that. 2 Question: Let me have you look down 3 at the bottom paragraph of this page. It says, 4 many of you who attended the meeting at 5 C-e-b-i-t '92 where Lieven stated that he 6 doesn't care about software and is a hardware 7 seller only and is not interested in marketing 8 or selling software are probably wondering now 9 why Lieven had 180 degree turn in his 10 viewpoint. 11 This is because, quite simply, Lieven 12 sees what is happening in the marketplace and 13 that he needs to react if he wants to continue 14 to grow and be successful in the marketplace. 15 Do you recall Mr. Lieven communicating 16 that to you? 17 Answer: Communicating what, that he 18 -- that he didn't care about software? 19 Question: No. That he now had had a 20 change of mind and he thought he needed to have 21 software to be successful in the changing 22 marketplace? 23 Answer: Yes. 24 Question: The next sentence says, he 25 now understands and has seen the light 11596 1 regarding the importance of software helping 2 sell his hardware. He knows that he cannot 3 offer every operating system, every spreadsheet 4 or every word processing product. 5 Do you recall him expressing that to 6 you? 7 Answer: Yes. 8 Question: Let me have you turn to the 9 top of the next page. 10 The next sentence reads, he, 11 therefore, feels that as the leading OEM in the 12 market, he should partner with the leading 13 software company which he feels is Microsoft. 14 Do you recall him expressing that? 15 Answer: Yes. 16 Question: You were asked some 17 questions by Mr. Hill about the Christmas beta 18 of Windows 3.1 and the nonfatal error message. 19 Do you remember generally being asked 20 about that? 21 Answer: Yes, I do. 22 Question: And I just want to clarify, 23 was it your understanding that there was no 24 nonfatal error message included in the final 25 version of Windows 3.1 released to OEMs and to 11597 1 the public? 2 Answer: That was my understanding. 3 Question: And did you communicate 4 that to the people at Vobis? 5 Answer: When I would talk to them 6 about the final product, if the issue came up 7 about those, I would tell them it's not in the 8 final product. 9 Question: Right. The March 1991 10 agreement was the first per processor license 11 with Vobis or that Vobis signed with Microsoft, 12 correct? 13 Answer: Yes. 14 Question: And subsequent to that, to 15 your knowledge, Vobis never signed another 16 license for DR-DOS with either DRI or Novell, 17 correct? 18 Answer: I don't know. I'd like to 19 believe on my watch they never did. 20 Question: Okay. And it's true that 21 even in July of 1992 or August of 1992, 22 Mr. Lieven still didn't like the per processor 23 license? He would have preferred to have a per 24 copy license? 25 Answer: That contradicts what I wrote 11598 1 in my e-mail here about my meeting with him. 2 Question: The last time you ever 3 discussed that subject, he indicated -- even as 4 you negotiated your July contract, he indicated 5 he would have preferred a per copy license, but 6 he needed -- but he wanted per processor price; 7 isn't that true? 8 Answer: He was never crazy about the 9 whole per processor business. 10 Question: We already discussed per 11 processor and per system pricing. 12 And your understanding, is it not, is 13 that per processor licensing was or per 14 processor pricing was available only if the OEM 15 agreed to pay a royalty to Microsoft on every 16 processor it shipped? 17 Answer: On every one that it put in 18 the contract. 19 Question: But the per processor 20 pricing required it to list all of its systems 21 in the contract, didn't it? 22 Answer: They would list all the 23 processors that were currently their systems 24 and that were shipping, but they could exclude 25 a processor if they chose to. 11599 1 So, for example, in the Vobis 2 agreement, they chose not to license Windows on 3 the 286 processor. 4 Question: And that's because Windows 5 wouldn't run on the 286 processor? 6 Answer: Right. So why make them pay 7 for it. 8 Question: Exactly. Okay. All right. 9 Was per processor pricing available 10 for an OEM if the OEM didn't include all 286, 11 386, and 486 processors -- 12 Answer: They -- 13 Question: -- for MS-DOS? 14 Answer: I don't -- I don't know about 15 that. 16 Question: The idea was to make sure 17 that the OEM paid a royalty on every processor 18 that it shipped that could support a particular 19 piece of operating system software; isn't that 20 right? 21 Answer: I'm not sure on that, so I 22 don't want to -- I don't want to -- 23 Question: It certainly was the case, 24 however, that the Vobis license required a 25 license to be paid on all 286, 386, and 486 11600 1 processors in 1992 and that was all of the 2 processors -- 3 Answer: That's what they were 4 shipping. 5 Question: That's all Vobis shipped at 6 that time? 7 Answer: Correct. There was no 8 Pentium. 9 (Whereupon, the playing of the video 10 to the jury concluded.) 11 MR. HAGSTROM: Your Honor, that 12 concludes the testimony of Stefanie Reichel. 13 We have some exhibits we'd like to 14 offer. 15 THE COURT: Very well. 16 MR. HAGSTROM: Plaintiffs' Exhibits -- 17 THE COURT: Hang on one second. I'll 18 turn the microphone on. 19 Proceed. 20 MR. HAGSTROM: Plaintiffs' Exhibits 21 653, 1304, 1369, 1426, 1427, 5513, 5528, and 22 8750A. 23 THE COURT: I have 653, 1034 -- 24 MR. HAGSTROM: That's 1304. 25 THE COURT: 10 -- 11601 1 MR. HAGSTROM: No. 1304. 2 THE COURT: Sorry. 1304, 1369, 1426, 3 1427, 5513, 5528, 8750A. 4 MR. HAGSTROM: Yes. 5 THE COURT: Any objection? 6 MR. GREEN: Your Honor, I don't have 7 1369. Could I -- what exhibit was that? 8 That's not on your list. 9 I don't have any objection. I'd like 10 to reserve my objection on 1369. 11 653, 1304, 1426, 1427, 5513, 5528 we 12 have no objection to. 8750A has some embedded 13 hearsay. I believe they are offering it for a 14 nonhearsay purpose. And, on that basis, we 15 have no objection. 16 THE COURT: Very well. The objection 17 is reserved, then, on 653. 18 MR. GREEN: No, 1369. 19 THE COURT: I'm sorry. 1369. I'll 20 get this straight one time here. 21 MR. HAGSTROM: So we'll talk about 22 that one later. 23 THE COURT: Also, while we're talking 24 about it, has the Defendant had opportunity to 25 look at the exhibits that were offered 11602 1 yesterday that you reserved? 2 MR. TULCHIN: We have, your Honor. 3 There are a number that we would like 4 to discuss. 5 We do have objections to a significant 6 number of them. 7 I think the first one that was 8 mentioned was 10033A. That's the timeline, 9 Your Honor. And we have the same objections 10 there as we did earlier. The timeline is a 11 demonstrative exhibit. It ought not to be 12 admitted into evidence under the Iowa Rules of 13 Evidence for the reasons we have discussed 14 earlier. 15 As to the others, Your Honor, we have 16 relevance objections to 410, 710, 756, 943, 17 1421, 1424, 1435A, 3517, 3799A, 5168, 5185, 18 7695, 8884. 19 We have no objection, Your Honor, to 20 1394 and 5513. 21 THE COURT: And the rest are relevancy 22 objections; right? 23 MR. TULCHIN: Yes, Your Honor, that's 24 correct. 25 THE COURT: Okay. 11603 1 All are admitted except 10033A is 2 denied. 3 MR. TULCHIN: Thank you, Your Honor. 4 THE COURT: And I'll hear back from 5 you on 1369; correct? 6 MR. GREEN: Yes, Your Honor. We'll 7 talk about that. It didn't appear to be one 8 that I knew was going to be offered. 9 THE COURT: Okay. 10 Mr. Hagstrom, do you have another 11 depo? 12 MR. HAGSTROM: Yes, Your Honor. 13 Plaintiffs next call by deposition 14 Phillip Barrett, whose deposition was taken in 15 the coordinated discovery proceedings in the 16 MDL and the California litigation, and the 17 deposition was taken on May 17th, 2002. 18 THE COURT: Very well. Wait just one 19 moment for Sandy to get her book up here. 20 MS. NELLES: I'll join you, Your 21 Honor, if that's all right. 22 THE COURT: Yes. 23 MS. NELLES: Thank you. 24 THE COURT: Okay. Sandy's ready. You 25 may begin. 11604 1 (Whereupon, the following video was 2 played to the jury.) 3 Question: First, if you would state 4 your full name for the record, please. 5 Answer: Phillip Lyne Barrett. 6 Question: And, Mr. Barrett, where are 7 you currently employed? 8 Answer: I'm employed at RealNetworks, 9 Incorporated. 10 Question: And what is your position 11 there? 12 Answer: Senior vice president of 13 consumer products. 14 Question: And prior to your work at 15 RealNetworks, you were employed by Microsoft 16 Corporation? 17 Answer: That is correct. 18 Question: You joined Microsoft in 19 spring of 1986? 20 Answer: That is correct. 21 Question: What was your position? 22 Answer: My position was project lead 23 for Windows 386. My initial position. 24 Question: Your initial position. 25 Did you have any responsibilities when 11605 1 you first joined the company in connection with 2 MS-DOS, the MS-DOS product? 3 Answer: Not initially. 4 Question: Later on did you have some 5 responsibilities with respect to the MS-DOS 6 product? 7 Answer: Yes, that's correct. I was 8 the -- the MS-DOS project lead worked for me, 9 so I was responsible for MS-DOS as well as 10 Windows. 11 Question: And you said that the 12 initial Windows product that you were 13 essentially responsible for developing was 14 Windows 386? 15 Answer: That's correct. Windows 386. 16 Question: When that was released to 17 the market, was that how the product was 18 identified to the public? 19 Answer: Yes, it was identified as 20 Windows 386. 21 Question: And then subsequently were 22 you responsible for managing the development of 23 other Microsoft products? 24 Answer: That's correct. 25 Question: Would you just tell us 11606 1 which ones you were responsible for managing 2 the development of? 3 Answer: Okay. I was manager of 4 Windows 2.1, Windows -- I was a development 5 manager for Windows 2.1, Windows 3.0, and 6 Windows 3.1. 7 Question: And you mentioned you had 8 some responsibilities with respect to 9 development of MS-DOS? 10 Answer: That's correct. I was 11 basically the development manager of the group 12 that built both MS-DOS and Windows from 1986 to 13 1992. 14 Question: And which MS-DOS products 15 were under development during the time period 16 that you were in charge? 17 Answer: MS-DOS -- MS-DOS, MS-DOS 4.0 18 and MS-DOS 5.0 and I believe there's an interim 19 version, MS-DOS 4.1. 20 Question: Were you involved at all in 21 the development of MS-DOS 6.0? 22 Answer: During my management, yes. 23 Question: Mr. Barrett, the reporter 24 has marked Exhibit 1 to your deposition. 25 This first series of documents relates 11607 1 to Microsoft and some of the issues that it had 2 to deal with in connection with a company known 3 as Digital Research, Incorporated. 4 Were you familiar with that company? 5 Answer: Yes. Yes, I'm familiar with 6 Digital Research and I was then. 7 Question: Can you tell us what 8 Digital Research was? 9 Answer: Digital Research was an 10 operating system development company in Pacific 11 Grove, California. 12 Question: And can you tell us what 13 their principal products were? 14 Answer: Yeah, they had several 15 operating systems. They actually created the 16 CP/M operating system and still sold that at 17 that time. 18 And then they moved to an MS-DOS, 19 created an MS-DOS clone that was directly 20 competitive with MS-DOS. 21 Question: And that directly 22 competitive product was known as? 23 Answer: DR-DOS. 24 Question: DR-DOS. 25 If you would take a look at Exhibit 1 11608 1 to your deposition. This appears to be a 2 series of e-mail messages. 3 I want to focus your attention on the 4 message that is the second one down on the 5 first page. 6 Do you recognize this as an e-mail 7 message from Bill Gates to a number of people 8 at Microsoft, including yourself? 9 Answer: Certainly I recognize this as 10 an e-mail from Bill Gates. 11 Question: And you'll see under the cc 12 heading in that e-mail there is a -- there is a 13 designation Philba, P-h-i-l-b-a. 14 Was that your alias for e-mail? 15 Answer: Yeah, that was my e-mail 16 address at Microsoft, that's correct. 17 Question: It says the subject is 18 DR-DOS. That's the competitive operating 19 system produced by Digital Research? 20 Answer: That's correct, yes. It's a 21 competitive operating system. 22 Question: The message says -- from 23 Mr. Gates says, you never sent me a response on 24 the question of what things an app would do 25 that would make it run on MS-DOS and not run 11609 1 with DR-DOS. Is there any version check or API 2 that they failed to have? Is their feature 3 they have that might get in our way? 4 I am not looking for something they 5 can't get around. I'm looking for something 6 that their current binary fails on. This is a 7 fairly urgent question for me and I have 8 received nothing. 9 Now, first let me just ask you about a 10 couple of terms here. 11 When Mr. Gates refers to app, a-p-p, 12 is that a term that was generally used at 13 Microsoft to refer to an application? 14 Answer: Yes. The term app means 15 application that runs on top of an operating 16 system. 17 Question: And there's an acronym API. 18 What does that refer? 19 Answer: API stands for application 20 programming interface. And it's a way that 21 software, a piece of software in an 22 application, can call the operating system and 23 have it do things for it, like run programs or 24 open files, read files, that sort of thing. 25 Question: Do you recall the time 11610 1 period -- this was dated September 22, 1988. 2 Do you see that? Do you see that? 3 Answer: Yes. 4 Question: Do you recall during this 5 time period whether there was some effort to, 6 as Mr. Gates says, find something that would -- 7 what things an application would do that would 8 make it run with MS-DOS and not run with 9 DR-DOS? Was that an effort that was underway 10 that you were familiar with? 11 Answer: Certainly there was -- this 12 effort was going on during this time frame. 13 Question: And what do you recall 14 about that effort? 15 Answer: In general, there was very 16 big concern about Digital Research making 17 headway in the market. 18 And basically a number of people, 19 including Bill, Bill Gates, were very 20 interested in finding ways to prove that our 21 products were better. 22 Question: Were you involved in this 23 effort to find things in an application that 24 would make it run with MS-DOS and not run with 25 DR-DOS? 11611 1 Answer: Yes, I was involved. 2 Question: And can you describe what 3 occurred? 4 Answer: Well, certainly -- certainly 5 this sort of thing, someone who worked for me 6 was a very deep expert in MS-DOS and other 7 DOSs, and he was tasked with digging and 8 understanding, you know, very precisely down to 9 the most minute detail the differences between 10 the two operating systems, Digital Research, 11 DOS, DR-DOS and MS-DOS. 12 Question: And who was that person? 13 Answer: It was Aaron Reynolds. 14 Question: And what was his position 15 at the company? 16 Answer: He was a software developer. 17 His title might have been senior software 18 developer, I think. 19 Question: Do you recall any meetings 20 where Mr. Gates or other Microsoft executives 21 discussed this effort to find things that would 22 run with MS-DOS, but not run with DR-DOS? 23 Answer: There were a number of 24 meetings where the subject came up. 25 Unfortunately, I don't recall the 11612 1 timing of them, but, yes, there were a number 2 of meetings where he specifically asked about 3 that. 4 Question: Who, Mr. Gates? 5 Answer: Mr. Gates. 6 Question: Can you tell us what you 7 recall about what Mr. Gates said during those 8 meetings, in words or in substance? 9 Answer: Basically, my memories 10 reflect what was in this piece of e-mail. You 11 know, it was an urgency to it. DR-DOS was 12 gaining market share and gaining mind share. 13 And so it was over, I think, most of 14 the period that I managed that group, it was a 15 significant issue that Mr. Gates was concerned 16 about. 17 Question: Do you recall whether there 18 was ever an effort to actually place something 19 in Microsoft's applications that would make 20 them fail when running on DR-DOS? 21 Answer: Yeah, there were a number of 22 discussions on this point. And there's at 23 least one or two points where it was -- where 24 employees of Microsoft were specifically 25 looking at how to do that. 11613 1 Question: Do you recall which 2 employees? 3 Answer: Well, there was an issue with 4 Korean DOS -- Korean applications, I believe. 5 And Korean Windows, I'm sorry. 6 And there was also -- within Windows 7 there was -- one of the betas of Windows, there 8 was some code added to attack the difference 9 and do something. 10 Question: I'll ask you some more 11 questions about that later. 12 Mr. Barrett, you've been handed 13 Exhibit 2 to your deposition. Do you recognize 14 this as an e-mail from a PascalM to Bill Gates 15 copying Aaron Reynolds, yourself, and others at 16 Microsoft dated September 22, 1988? 17 Answer: Yeah. Yep, I recognize this. 18 Question: Who's PascalM? 19 Answer: Pascal Martin. And he was a 20 product manager on MS-DOS during that time 21 frame. 22 Question: In his e-mail message, 23 Mr. Martin begins by saying, here follow the 24 three differences between, paren, between DR 25 and MS-DOS, close paren, that Aaron has been 11614 1 able to find so far. 2 Except for these differences, the two 3 operating systems behave similarly, including 4 undocumented calls. The bottom line is that 5 given Aaron's current findings, an application 6 can identify DR-DOS. 7 However, most applications usually 8 have no business making the calls that will let 9 them decide which DOS, paren, MS or DR, close 10 paren, they are running on. 11 Was this a response to Exhibit 1 where 12 Mr. Gates was asking for your group to 13 determine these differences between MS-DOS and 14 DR-DOS? 15 Answer: Yes, I believe that this was 16 directly responsive to the question from 17 Exhibit 1, I believe. 18 Question: Now, the Aaron that's 19 referred to here, is that Aaron Reynolds? 20 Answer: Yes, that is Aaron Reynolds. 21 Question: And why was he looking for 22 differences between DR-DOS and MS-DOS? 23 Answer: Well, certainly the e-mail 24 from Bill Gates in Exhibit 1, someone answered 25 that question. 11615 1 Basically looking for differences to 2 exploit. To either, you know, take advantage 3 in the marketplace or take advantage in PR, 4 whatever. 5 Question: But was there some effort 6 to use these differences to, as Mr. Martin 7 says, identify DR-DOS? 8 Answer: Yes, there were. Although 9 I'm not sure of the time frame to be honest. I 10 don't recall the specific time frame. 11 Question: All right. 12 Now, Mr. Martin says at the end, most 13 applications usually have no business making 14 the calls that will let them decide which DOS, 15 MS or DR, they are running on. 16 Why was Microsoft trying to find 17 application calls that would determine which 18 DOS they were running on? 19 Answer: Compatibility is the issue 20 there. And compatibility is a binary thing. 21 Either you're compatible or you're 22 not. Being 99 percent compatible is the same 23 as being not compatible because there will be 24 some applications that will fail. 25 The goal here was to, or the hope 11616 1 somewhat -- somewhat -- somewhat 2 unsubstantiated in reality, was the hope was 3 that the two operating systems would behave 4 differently enough that some applications would 5 fail to run on DR-DOS. 6 Question: And when you say somewhat 7 unsubstantiated, what do you mean by that? 8 Answer: Well, DR-DOS was a pretty 9 darn good clone of MS-DOS. 10 Question: Meaning it was 11 substantially similar? 12 Answer: It was compatible. 13 (Whereupon, the playing of the video 14 to the jury adjourned.) 15 MR. HAGSTROM: Your Honor, would this 16 be a good time for the afternoon break? 17 THE COURT: Sure. 18 We'll take our recess for ten minutes. 19 Remember the admonition previously 20 given. You can leave your notebooks here. 21 Thank you. 22 (A recess was taken from 1:20 p.m. 23 to 1:38 p.m.) 24 THE COURT: Everyone else may be 25 seated. 11617 1 You may continue. 2 (Whereupon, the following video 3 resumed playing to the jury.) 4 Question: Mr. Barrett, you've been 5 handed Exhibit 3 to your deposition. 6 Do you recognize this as a Microsoft 7 memo from a Mark Chestnut to Russ Werner dated 8 May 22, 1989, showing a copy -- I'm not showing 9 a copy. 10 Do you recognize this as a Microsoft 11 memo from Russ Werner to Mark Chestnut dated 12 May 22, 1989? 13 Answer: I recognize this as a memo, 14 but it was from Mark Chestnut to Russ Werner. 15 Question: I'm sorry, you're correct. 16 Who was Mr. Chestnut? 17 Answer: Chestnut was the next product 18 manager on MS-DOS. 19 Question: Next after you? 20 Answer: No, after Pascal Martin. 21 Question: I see, okay. 22 Answer: A product manager is a 23 marketing person. Development manager does 24 software development. 25 Question: I see. So Mr. Chestnut was 11618 1 involved in marketing MS-DOS? 2 Answer: Yes, that is correct. 3 Question: And he succeeded Mr. Pascal 4 Martin in that position? 5 Answer: Yes. 6 Question: And Russ Werner, what was 7 his position at Microsoft? 8 Answer: He was the general manager of 9 basically DOS and Windows. I reported to him 10 as well as Mark Chestnut. 11 Question: If you'll turn to the third 12 page -- you're free to read as much of this as 13 you would like, but I'm going to be asking you 14 about the heading beginning towards the top of 15 the third page where it says DRI competitive 16 response. 17 Now, the subject of this memo is 18 status report for April 1989. 19 Under this heading DRI competitive 20 response, Mr. Chestnut says, the first 21 Microsoft product with the nontested DOS 22 warning code QuickPascal was released. 23 Tom Reeve and Cindy Kasin, K-a-s-i-n, 24 have committed to implementing it in all new 25 Microsoft application and language releases 11619 1 from this point forward, including 2 international. 3 Do you recall around this time period, 4 May of 1989, that Microsoft was releasing 5 applications and language products that had a 6 nontested DOS warning code in it? 7 Answer: Yeah, sure. And this is -- 8 thank you -- this is certainly one of those 9 cases. 10 Question: QuickPascal, what was that? 11 Answer: Pascal is a programming 12 language in the Quick products, or the product 13 line of language products from Microsoft, 14 including QuickBasic and QuickPascal. And 15 there may have been one or two other ones. So 16 they were for program developers. 17 Question: What was the substance of 18 this nontested DOS warning code that was placed 19 in QuickPascal and other Microsoft applications 20 in the language product? 21 Answer: I'm not directly familiar 22 with the specifics of it, but I believe that it 23 exploited the differences that Aaron Reynolds 24 had found between DR-DOS and MS-DOS, in order 25 to detect non-MS-DOS operating systems. 11620 1 Question: If you can tell me -- I'm 2 not asking you for, you know, to quote the 3 exact language, but if you can tell me what the 4 substance of the warning was. 5 What was being warned? What was the 6 consumer being warned about? 7 Answer: I actually don't recall the 8 specifics of the warning. I'm sorry. It's 9 just not in my memory. It was 14 years ago. 10 But the basic gist of it was that this 11 has not been -- this is running on an operating 12 system that has not been tested and the 13 consumer being informed of that. 14 Question: Do you know what triggered 15 the warning? 16 Answer: Well, running on something -- 17 an operating system that did not pass the 18 specific set of tests that they were looking 19 for -- the non-MS-DOS code was looking for -- 20 non-MS-DOS test code was looking for. 21 Question: And as soon as that was 22 detected, what would happen? Would something 23 pop up on the screen? 24 Answer: Yes, I believe a message -- 25 the sequence of events generally was execute 11621 1 the detection code. If the detection code said 2 non-MS-DOS, then a message would be displayed 3 on the screen. 4 Question: You've been handed Exhibit 5 4 to your deposition, Mr. Barrett. 6 This appears to be a series of e-mail 7 messages at Microsoft. 8 Do you recognize it as such? 9 Answer: Yes, I recognize this as a 10 series of e-mails from Microsoft, at Microsoft. 11 Question: In this series of e-mail 12 messages, you'll notice that there appear 13 towards the bottom of the first page and then 14 at the top of the second page some vertical 15 lines in the margin. 16 Can you tell us what the significance 17 of those vertical lines is in the Microsoft 18 e-mail system at that time? 19 Answer: Sure. What these lines 20 signify is basically when someone gets a piece 21 of e-mail and they respond to it and they 22 include parts of the original e-mail so that 23 their response can be within contact, that's 24 what the inclusion means. 25 And the double lines mean that there 11622 1 were two e-mails -- there were three e-mails in 2 this chain, in this particular case. 3 The original one that was from myself 4 on August 2nd to -- actually, it's not clear 5 who it was to. And then -- actually, it wasn't 6 from myself, I take that back. It was from 7 Bjbahk. And then that went to -- 8 Question: That's beginning the bottom 9 of the first page? 10 Answer: Yeah. And that went to -- 11 I'm not sure who that was from, but then that 12 went to Davidw, who then responded. 13 So there's basically a response to a 14 response in this e-mail. 15 Question: Let me direct your 16 attention to the middle of the second page. 17 And there appears an e-mail from a 18 Yongchi. 19 Do you see that? 20 Answer: Yeah, I do. 21 Question: To Bjbahk. 22 Do you know who Mr. Yongchi was? 23 Answer: I'm not familiar with 24 Yongchi. 25 Question: And who was Bjbahk? 11623 1 Answer: Bjbahk was a software 2 engineer at Microsoft working on localization. 3 Question: Localization for foreign 4 language, foreign countries? 5 Answer: Localization of Microsoft 6 products into foreign languages, non-English 7 languages. 8 Question: Mr. Yongchi's e-mail there 9 is dated July 20th, 1989. And it's included, 10 as one of those included e-mails in some 11 subsequent e-mails that we'll take a look at. 12 Do you see that? 13 Answer: Yes, I see that. 14 Question: Okay. And the subject is 15 DOS clone check on Windows. 16 Do you see that? 17 Answer: Yep, I do. Yes, I do. 18 Question: And he says, hello, BJ. We 19 will finish our Windows project before October. 20 Now, I must decide our product retail Windows 21 spec. 22 Would you please let me know how 23 Windows (or other apps, too) check current DOS 24 is MS-DOS or MS-DOS clone. And if it is MS-DOS 25 clone, how original Windows handle them, stop 11624 1 Windows, warning messages? Thanks, Yongchi. 2 And that is included in another 3 message, am I correct, that was from Bjbahk? 4 Answer: Yes. That looks like a 5 message that was included in the Bjbahk mail. 6 Question: And just above -- or just 7 below where it says from Bjbahk, it also says 8 from Phil Barrett, your alias. 9 Can you explain what the significance 10 of that was? 11 Answer: I don't understand that 12 because this is obviously not my e-mail. So 13 sometimes people get what they call 14 attributions incorrect when they edit e-mail, 15 and I think that's probably what happened here. 16 Question: Mr. Bahk's e-mail says, 17 beginning -- it says, hi, Jody. 18 About halfway down, the second 19 paragraph of this e-mail says, Bill Gates 20 ordered to all application business units to 21 include checking routines of operating 22 environments. And if it is Microsoft DOS, 23 nothing will happen. 24 But if it is non-MS-DOS (such as 25 DR-DOS), application will display messages 11625 1 saying that, quote, this application has been 2 developed and tested for Microsoft MS-DOS. 3 Since you use different environment, this 4 application may not work correctly, close quote 5 and there's an ellipse, close quote. 6 The question from MSCH is how to check 7 the MS-DOS is MS-DOS or clone, close quote. 8 MSCH wants to include such routine in Hangeul 9 Windows, H-a-n-g-e-u-l, so that Hangeul Windows 10 can run only on Hangeul MS-DOS. Could you tell 11 me to whom I can ask to resolve this question, 12 this problem? 13 Let me ask you, the reference to 14 Hangeul Windows, do you know what that is? 15 UNIDENTIFIED ATTORNEY: I think you 16 made one mistake in reading it. The quote on 17 the top of the second page is how to check the 18 DOS is MS-DOS or clone, close quote. 19 MR. GROSSMAN: All right. That's a 20 correct statement. I'm sorry if I misstated 21 that. 22 Question: Do you know what Hangeul 23 Windows is? 24 Answer: Yes. 25 Question: Can you tell me what it is? 11626 1 Answer: Certainly. Hangeul is 2 Korean, the Korean language. MSCH is Microsoft 3 Korean subsidiary and Hangeul Windows is the 4 Korean localized version of Windows. 5 Question: All right. Now, those two 6 messages that we just read from Mr. Yongchi and 7 Mr. Bjbahk, were those included within a 8 message just above that from a Davidw to 9 Bjbahk? 10 Answer: It appears to be included in 11 a message from Davidw to Bjbahk. 12 Question: And you were copied on that 13 message? 14 Answer: That appears so. And I 15 recall getting this e-mail, yeah. 16 Question: This was in August, on 17 August 9th, 1989? 18 Answer: Yes. Sorry. 19 Question: What do you recall about 20 receiving this e-mail? 21 Answer: I just recall receiving it. 22 Question: Now, who is Davidw? 23 Answer: That's David Weise, and he 24 was a very senior developer who worked for me 25 on Windows. 11627 1 Question: Mr. Weise says, Windows has 2 no such code in it. Since we do not have any 3 code that does this, we put up no warnings. 4 However, our testers have informed us 5 that we crash while booting Windows if running 6 under some DOS, not our own. 7 Do you recall anything about that 8 statement, what the circumstances of that were? 9 Answer: I do recall that there were 10 -- there were issues with some DOS clones not 11 properly running Windows. And I don't recall 12 the specifics, but I do know that there were 13 problems in various DOS clones. 14 Question: And then David Weise says 15 at the end Tomle. 16 Who is that? 17 Answer: That's Tom Lennon, and he was 18 the -- I believe he was the development lead 19 for MS-DOS, and he also worked for me. 20 Question: All right. It says, Tom 21 Lennon can give you checking code for a warning 22 message. 23 To your knowledge, had a checking code 24 for warning message been developed by this 25 time, August of 1989? 11628 1 Answer: Yes. There had been some 2 code that had been developed to check on the 3 existence of MS-DOS or not. 4 Question: And had that been 5 incorporated into any of Microsoft's products 6 at this time? 7 Answer: I believe so. I'm not 8 exactly sure of the timing, but I believe -- I 9 believe so. Certainly the QuickPascal is from 10 the previous exhibit. 11 Question: Now, just above the message 12 from David Weise is another message from 13 Bjbahk. 14 Do you see that? 15 Answer: Yes, I see that. 16 Question: And that's to Tom Lennon 17 dated July 3rd, 1992. I'm sorry. 18 Well, the date appears July 3rd, 1992, 19 but then above that there's a reference to 20 August 9, 1989. Can you explain what might 21 account for that, the difference in those 22 dates? 23 Answer: Yeah, this is probably a case 24 where somebody had the time on their machine 25 incorrectly set. 11629 1 Typically, the date that you see there 2 is on the local machine that received the 3 e-mail. And the date, the from date is the 4 date that it was sent by the sender. 5 So it's probably just a case of the 6 e-mail -- I mean, the time on the machine being 7 incorrectly set. Although it is surprising to 8 see it being three years apart. 9 Question: There's a reference to Mr. 10 Bahk's message that we just referred to, to him 11 talking to you about this Windows warning 12 message. 13 Do you recall talking to Mr. Bahk 14 about that? 15 Answer: I don't recall specifically 16 talking to BJ. Although I know who he is and 17 he did work in that group. 18 I think that he was using that more as 19 a way to get Tom to respond to him because that 20 was his boss. 21 Question: The reporter has just 22 handed you Exhibit 5, but I have one more 23 question about Exhibit 4. 24 We had -- I had originally directed 25 your attention to at the bottom of page 1 of 11630 1 Exhibit 4, a message from Bjbahk dated August 2 9, 1989. 3 He refers to Bill Gates ordering all 4 applications business units to include checking 5 routines of operating environments and if it is 6 MS-DOS, nothing will happen, but if it is 7 non-MS-DOS, such as DR-DOS application and 8 display messages saying that, quote, this 9 application has been developed and tested for 10 Microsoft MS-DOS. Since you have a different 11 environment, this application may not work 12 correctly. 13 Do you recall Mr. Gates ordering, 14 making such an order? 15 Answer: Yeah, I do recall -- I'm 16 sorry. 17 I don't recall the timing of the 18 meeting, but I know that there was at least one 19 meeting that I sat in where Mr. Gates turned to 20 someone from the applications group and said, 21 you know, basically words to that effect. 22 Question: And do you recall who he 23 turned to at that meeting? 24 Answer: My memory, my memory -- my 25 recollection is it was Greg Whitten, but 11631 1 something tells me that that was not the 2 person. So I think it was Greg Whitten, but I 3 could be wrong. 4 Question: And what is Mr. Whitten's 5 position or was his position? 6 Answer: Well, he was a senior 7 technical person at Microsoft for a long time. 8 Question: In the applications 9 division? 10 Answer: I believe -- I believe he was 11 in the applications division. 12 Question: All right. Now, if you'll 13 turn to Exhibit 5 that's been handed to you. 14 Do you recognize Exhibit 5 as an 15 e-mail message from Russ Werner to Bill Gates 16 and Steve Ballmer dated May 16, 1990? 17 Answer: Yeah, I -- I recognize that. 18 Question: You'll see that the text of 19 the message begins in the subject line. 20 Answer: Yep. Yes, I see that. 21 Question: I have asked Phil Barrett 22 to spend a lot of time making DOS 5 happen 23 fast, given the aggressive stance taken by DRI 24 this week. 25 I have asked Phil Barrett to spend 11632 1 more of his time on DOS 5 than on Windows 3.1 2 planning, like 60 to 70 percent, to make sure 3 this product happens as fast as it can and that 4 it checks out and to get the troops pumped up. 5 Why was Microsoft trying to speed up 6 MS-DOS 5.0 development during this time frame? 7 Answer: DR-DOS, Digital Research and 8 DR-DOS was making significant headway in the 9 market. We were seeing them in customer 10 accounts. They were getting good press. 11 Overall, they were coming on very strong during 12 this time frame. 13 Question: And what did that have to 14 do with Microsoft's MS-DOS 5.0? 15 Answer: Well, Digital Research DOS 16 was a competitor to Microsoft DOS, and in the 17 highly competitive software world at that time, 18 you couldn't let a competitor steal a march on 19 you. 20 And these guys had a really good 21 product. And, basically, we had MS-DOS 4.0 in 22 the marketplace which had significant issues. 23 Question: Significant issues meaning 24 what? 25 Answer: Meaning that it did not have 11633 1 a lot of the features that Digital Research DOS 2 5 had. That it had some quality problems. It 3 was not as good a product as it could have 4 been. And, because of that, customers were 5 seriously considering moving to Digital 6 Research DOS. 7 Question: Were you familiar with the 8 DR-DOS 5.0 project, a product that was out 9 during that time frame? 10 Answer: Certainly. I was very 11 familiar with it. 12 Question: Had you done any -- had you 13 worked with it or done any testing of it? 14 Answer: People that worked for me had 15 done testing of it, yes. 16 Question: At this time was Microsoft 17 trying to speed up its development of MS-DOS 18 5.0? 19 Answer: Yes, yes. That's why Russ -- 20 Russ Werner asked me to put most of my focus on 21 getting MS-DOS 5.0 project up and running 22 faster. 23 Question: And was their hope that 24 MS-DOS 5.0 would be more competitive with the 25 Digital Research product that was on the market 11634 1 at the time? 2 Answer: Yeah. There was very much a 3 hope that Digital Research -- that MS-DOS would 4 be very competitive or even better than DR-DOS. 5 Question: In the next paragraph, 6 Mr. Werner says, we are also planning some more 7 extensive PR around our beta ship (in about 8 three weeks) to get across the message that the 9 product is now a now thing versus a later 10 thing. 11 DRI is spending time saying that our 12 DOS 5 won't be around for a long time. 13 Why was this message important? 14 Answer: One of the things that -- one 15 of the tactics that Microsoft would use, and a 16 number of other companies, too, would use in 17 the marketplace is to very quickly get a new 18 beta out, either in demo form, demonstration 19 form, or an actual beta or in some cases what 20 they call vaporware where they just describe 21 the features. 22 And this is totally consistent with 23 that. The goal is to show the customers -- the 24 customers, the press and the analysts and the 25 cognoscente that this is -- that the company is 11635 1 producing products and they're coming out and, 2 you know, you don't have to switch to a 3 competitor's product to get all the features 4 you want. 5 Question: In the next paragraph 6 Mr. Werner says, also I believe that their EMS 7 and load high modes are incompatible with 8 Windows 3.0. We are trying to verify this by 9 the announced time frame. 10 First, let me ask you, what is an 11 announced time frame? What is referred to 12 there? 13 Answer: Well, it's rather obscure 14 English, but what it means is by the time that 15 we were going to announce the beta of MS-DOS 16 5.0, that we would know. I mean, basically 17 it's the announcement of MS-DOS 5.0. The time 18 that it would have. 19 Question: All right. Why did 20 Microsoft want to verify DR-DOS 21 incompatibilities with Windows 3.0 by the 22 announced time frame? 23 Answer: The announced -- well, you 24 want to show that -- that the competitor fails 25 in some way. And EMS -- it's actually EMMS and 11636 1 load high are aspects of Microsoft Windows 3.0. 2 You have to have them working properly 3 in order to run Windows 3.0 on your operating 4 system. So this is a way to hopefully be able 5 to discredit Digital Research DOS. 6 Question: Do you know whether during 7 this time frame, in fact, the DR-DOS 5.0 8 product EMMS and load high modes were 9 incompatible with Windows 3.0? 10 Answer: I actually don't recall. I 11 believe if they were, that Digital Research 12 would fix the problem very quickly. Because I 13 don't think that persisted in the market very 14 long. 15 Question: You've been handed Exhibit 16 6 to your deposition. 17 Mr. Barrett, do you recognize Exhibit 18 6 as a draft of a Windows 3.1 beta plan dated 19 December 17, 1990? 20 Answer: Yes, it appears to be that. 21 Question: Were you involved in the 22 development of the beta plan for Windows 3.1? 23 Answer: Yes, I was -- I was involved 24 in development of the beta plan. 25 Question: And what exactly is a beta 11637 1 plan? 2 Answer: Well, a beta is -- or a beta 3 release is -- during this time frame was what 4 was considered to be at that time a broad 5 market test of the product before it was 6 released in its final form in order to find 7 bugs, usability problems, anything that might 8 prevent the product from being a success in the 9 marketplace. 10 Question: Is there any marketing 11 purpose in a beta release? 12 Answer: Certainly. 13 Question: And what is that? 14 Answer: Certainly. 15 One of the -- and this is part of the 16 software industry tactics of letting people 17 know about products that are coming before 18 they're finally released. So that corporations 19 can do planning, they can do evaluations of the 20 product in an early form knowing that it's 21 somewhat buggy, has certain flaws in it, I 22 should say. 23 And it allows -- it allows the company 24 releasing the beta version of the software to 25 essentially put a stake in the ground, this is 11638 1 a product. And hopefully build up some 2 excitement and word of mouth and that sort of 3 thing. 4 Question: When you talk about 5 planning that allows the customers, the beta 6 sites to do planning, what does that mean? 7 Answer: Well, a corporation that 8 wants to -- let's say they wanted to, where 9 they were considering rolling out a Windows 3.1 10 on every desktop in their corporation, they 11 would be able to get it before its release. 12 Start, you know, testing it, figuring 13 out what they have to do to support it. 14 And then when it's actually released, 15 what they call its gold form, the final release 16 version, that they're all set to go and they 17 can just roll it right out. 18 Rather than taking a long delay in 19 getting the gold version and then doing the 20 evaluation, which takes time. By putting that 21 evaluation during the beta period, it allows 22 Microsoft to gain more sales by having the 23 product roll out across the corporation. 24 Question: Would part of that planning 25 process be by determining which other software 11639 1 products are compatible with the product that 2 you're planning on rolling out? 3 Answer: Absolutely. Compatibility 4 with software applications is a crucial part. 5 I mean, operating systems exist to run 6 applications fundamentally. 7 Question: You'll see that in this 8 draft of the Windows 3.1 beta plan, on the 9 second page under the heading number of sites, 10 it says, there will be approximately 360 sites 11 involved in the technical beta. This group 12 will consist of corporate accounts, ISVs and 13 end users. 14 ISVs stands for independent software 15 vendors? 16 Answer: That's correct. 17 Question: And what is an independent 18 software vendor? 19 Answer: An independent software 20 vendor is anybody who is at Microsoft that 21 writes software. 22 Question: Anybody who is not 23 Microsoft -- 24 Answer: Is not Microsoft that writes 25 and sells software. 11640 1 Question: The draft plan goes on to 2 say, the prerelease program will have upwards 3 of 2,500 independent software vendor 4 participants. 5 What is the prerelease program? 6 Answer: The prerelease program is 7 similar to the beta program, although its 8 intent is different, and that is to give early 9 exposure to the product. 10 In this case ISVs, the hope is to get 11 a large number of ISVs starting to write 12 software for Windows 3.1 in this case. 13 Question: Approximately -- it goes on 14 to say, approximately 500 retail copies will be 15 given out as part of the preview program. 16 There are approximately 12 development 17 partners, 15 ESP OEMs and 300 general OEMs who 18 will be receiving Windows 3.1 software. 19 Let me just see if I understand the 20 development partners. Do you know what that 21 is, the 12 development partners? 22 Answer: The development partner is a 23 shorthand form for the more favored independent 24 software vendors. 25 Question: They would be independent 11641 1 software vendors? 2 Answer: I'm sorry? 3 Question: ISVs? 4 Answer: Yes. 5 Question: And the ESP OEMs, what are 6 those? 7 Answer: Well, I don't recall the 8 specific acronym, but those are -- those are 9 the most favored OEMs, Compaq, et cetera. 10 Question: And OEM is an original 11 equipment manufacturer? 12 Answer: That's what OEM -- OEM stands 13 for original equipment manufacturer. What it 14 really means is PC manufacturers in this case. 15 Question: Did the ultimate Windows 16 3.1 beta release look like what is described 17 here under this number of sites paragraph? 18 Answer: I couldn't tell you, you 19 know. I don't recall seeing sort of a 20 postmortem on the beta, but this looks like 21 what was implemented. I mean, just in my own 22 recollection. 23 Question: Mr. Barrett, you've been 24 handed Exhibit 7 to your deposition. 25 You're free to read both of the 11642 1 e-mails that appear here, but I'll be asking 2 you about the one beginning in the middle of 3 the first page and continuing on. 4 Answer: Okay. 5 Question: Do you recognize that as an 6 e-mail message that you sent to an e-mail 7 address entitled DOSwar, D-O-S-w-a-r, dated 8 April 17, 1991? 9 Answer: Yep. Yes, I do. 10 Question: And what was DOSwar? What 11 was that e-mail address? 12 Answer: DOSwar was -- let's see, 13 what's the best way to describe it? 14 Well, there was a war -- a war 15 meeting, a war group. We were at war with 16 DR-DOS. 17 And DOSwar was a group of people -- 18 what this is, this is an e-mail alias that 19 expands out to a number of people. I was on 20 it. Basically, all the top developers, product 21 managers, program managers on DOS were on that. 22 And, basically, DOSwar was a group of 23 people that was charged with winning the war 24 against DR-DOS. 25 Question: Was there also an e-mail 11643 1 alias known as the Winwar? 2 Answer: Yeah, there was. 3 Question: And was that a similar 4 group directed at winning the war against 5 Windows competitors? 6 Answer: Winwar was a little bit 7 different. But, yes, it was directed against 8 winning the war against Windows competitors. 9 Question: And how was Winwar 10 different? 11 Answer: It was a much larger group. 12 Question: Who did that include? Or 13 what types of people? 14 Answer: It's a similar kind of 15 people. There's a lot more people. And it had 16 broader complications. I believe there were 17 several VPs on the Winwar alias. 18 Question: You'll see that included 19 within your e-mail is an embedded e-mail from a 20 Percyt to you. 21 Do you see that? 22 Answer: Yes, I see that. 23 Question: And that's dated Monday, 24 April 15, 1991? 25 Answer: Yes. 11644 1 Question: Who was Percyt? 2 Answer: I believe Percy was -- he's a 3 fairly junior employee, perhaps a tester in the 4 Windows group. And he had fairly strong 5 opinions about Digital Research DOS versus 6 MS-DOS, and so I asked him to write it, an 7 evaluation. 8 Question: Do you recall asking a 9 person to give you a user's view of DR-DOS 5.0? 10 Answer: Yeah, I certainly do recall I 11 did ask him. 12 Question: Did you make any use of 13 this analysis that he provided to you that you 14 recall? 15 Answer: Yeah. Yes, I did. 16 Question: And what was that? 17 Answer: The -- well, probably the 18 primary issue was to send it to the DOSwar 19 group to jibe them into, to goad them into more 20 effort. 21 Question: More effort to? 22 Answer: To beat DR-DOS, sorry. 23 Question: Mr. Barrett, you've been 24 handed Exhibit 8 to your deposition, which 25 appears to be a compilation of e-mail messages 11645 1 that were produced to us by Microsoft. 2 I want to direct your attention to a 3 particular one of these e-mails. That is 4 located on page 57 of the document, second from 5 the last page. It's been stamped with the 6 number X 567209. 7 In the middle of the page, there's an 8 e-mail that I wanted to ask you about. 9 Do you recognize this as an e-mail 10 message from a Bradc to you and others at 11 Microsoft dated July 30, 1991? 12 Answer: Yes. 13 Question: Who's Bradc? 14 Answer: Bradc is Brad Chase. 15 Question: And what was Mr. Chase's 16 position at Microsoft? 17 Answer: I think he was -- I don't 18 recall a specific title, but he was director of 19 marketing, reporting to Brad Silverberg, who's 20 bradsi on this. And Brad was vice president of 21 Windows and DOS version. 22 Question: Now, take a moment to read 23 this e-mail, if you would, but it is -- the 24 subject line says re: Novell. 25 Do you see that? 11646 1 Answer: Right. Yes, I do. 2 Question: Do you know whether this 3 e-mail was generated around the time of 4 Novell's acquisition of the DR-DOS operating 5 system? 6 Answer: Yeah, this is definitely 7 around that time. I'm not sure that it 8 actually had gone through at that point, but, 9 yeah. 10 Question: Had the acquisition been 11 announced publicly at this time? 12 Answer: I really don't know the 13 answer to that. 14 Question: Okay. Mr. Chase begins his 15 e-mail message by saying, one of my thoughts is 16 that we have to think about how to 17 short-circuit Novell DOS before it gets off the 18 ground. 19 If we can put a dagger in DR-DOS (or 20 perhaps we should call it Novell DOS) now then 21 it will put them on the defensive and have 22 customers worried. 23 Now that we have the NSTL data back 24 and some reasonable data on where DR-DOS is 25 problematic, I'd like to start a, quote, slow 11647 1 leak, close quote, program every other week or 2 month we try to get the word out on some major 3 DR-DOS compatibility problems. 4 Let me ask you, the reference to NSTL 5 data, do you know what that is? 6 What is NSTL data? 7 Answer: Well, NSTL stands for 8 National Software Testing Lab. They're a 9 testing outfit that takes various products and 10 tests them however the customer wants. 11 And Microsoft asked NSTL to test 12 Digital Research DOS for compatibility and, I 13 guess, other issues. And that's what NSTL data 14 is, the test results back. 15 Question: At the end of his e-mail 16 message, Mr. Chase says, I'd have to work with 17 public relations to develop the specifics of 18 the plan, but if we can get the world to 19 understand that DR-DOS has a lot of 20 incompatibilities with apps, Windows and 21 networks, then it will put Novell on the 22 defensive and make it hard for customers or 23 OEMs (IBM?) to consider DR-DOS seriously. 24 Do you know whether IBM Corporation 25 was considering making use of DR-DOS at around 11648 1 this time frame on its computers? 2 Answer: Yeah, I believe that there 3 was a lot of concern within Microsoft that IBM 4 would use DR-DOS instead of -- would switch 5 from DR-DOS -- would switch to DR-DOS from 6 their product, which was PC DOS, which was a 7 licensed version of MS-DOS. 8 Question: Did you ever hear of the 9 term FUD, F-U-D, at Microsoft? 10 Answer: Certainly I've heard that 11 term. 12 Question: What does that stand for? 13 Answer: It's an acronym -- it's an 14 acronym for fear, uncertainty and doubt, F-U-D. 15 And it means to, through whatever means 16 necessary, cast dispersions on a product. 17 Question: Was this proposal by 18 Mr. Chase of the slow leak program, is that 19 something that would fall under the definition 20 of FUD as that term was used at Microsoft? 21 Answer: Certainly. 22 (Whereupon, playing of the video 23 adjourned.) 24 THE COURT: We're going to break for 25 the day. I understand one of our jurors has to 11649 1 be somewhere; is that correct? Okay. 2 So remember the admonition previously 3 given. 4 We will recess until 8:30 tomorrow 5 morning and leave your notebooks here. 6 Carrie will collect them and lock them 7 up. Drive safely. 8 See you tomorrow. 9 (The following record was made out of. 10 the presence of the jury at 2:27 p.m.) 11 MS. NELLES: I think this came up 12 before. It may have been in an earlier Barrett 13 testimony, but it has to do with what's being 14 scrolled underneath on the transcript that they 15 played underneath the video as compared to 16 what's been agreed to by the parties on the 17 play list. 18 A couple things happened that I'd like 19 to bring to the Court's attention and get a 20 commitment so it won't happen again. At least 21 certainly not intentionally. I do recognize 22 mistakes happen. 23 It first happened on page 27, line 3. 24 THE COURT: When you say page 27, are 25 you referring to the bold print at the bottom 11650 1 print? 2 MS. NELLES: Yes, Your Honor. I'm 3 referring to the transcript page 27 of the 4 transcript of the Barrett JCCP testimony. And 5 it's on line 3. 6 And the question was asked briefly 7 before on the prior page, if the witness 8 says -- if you can tell me -- I'm not asking 9 you to quote the exact language, but if you can 10 tell me what the substance of the warning was, 11 what was being warned, what the consumer was 12 being warned about. 13 And the answer that's in the 14 transcript, and that was actually -- that was 15 provided to us and as it was played on the 16 screen, which is why I didn't specifically 17 object at the time, is I actually don't recall 18 the specifics of the warning. I'm sorry, it's 19 just not in my memory. It was 14 years ago. 20 So I believe that's in the transcript 21 as it was given to Sandy. It was in the 22 transcript as it was given to the Court. It 23 certainly was in the transcript as it was 24 provided to Microsoft. And it is what he said. 25 However, when the scroll -- I'm going 11651 1 to call it the scroll as opposed to the 2 transcript -- was played underneath, the Number 3 14 was clipped from the play. It simply was 4 taken out. 5 My understanding is that, at least it 6 works on my software, and I believe we are 7 using similar software, the transcript is 8 simply loaded with the video and it can be 9 altered. In fact, we need to alter it all the 10 time because of these agreements. 11 However, to simply clip out the fact 12 that this was 14 years ago, I can't understand 13 how that could have happened. And we certainly 14 would like it clear that it is not okay to 15 selectively remove words from the transcript 16 process when it is agreed among the parties 17 that that is the testimony that's going to be 18 played. It simply didn't accurately reflect 19 the witness' testimony and that just can't be 20 right. 21 Now, I had sort of an inverse problem 22 going on a few lines later, which -- and I'm 23 looking on my transcript -- what I'm looking at 24 is page 47 of the Barrett JCCP transcript, and 25 there is a question and answer series beginning 11652 1 on line 10 where it says who was Percyt. The 2 witness testifies who Percyt was, and there's a 3 question that begins on line -- on page 16, and 4 it says. 5 Question: Percy's e-mail begins, 6 quote, last Thursday you asked me for a user's 7 view of DR-DOS 5.0. When I worked for David 8 Weise's brother Ira, I used DR-DOS 5.0 and a 9 huge number of applications. I found it 10 incredibly superior to MS-DOS 3.31 and IBM DOS 11 4.01. 12 Now, whether through agreement or 13 through hard-fought battle before the Special 14 Master, I don't know, but it was agreed that 15 that testimony -- that question, that portion 16 of the question was not to be played, and, in 17 fact, it wasn't played. 18 However, the text of the question that 19 was appropriately clipped from the witness's -- 20 as it was played on the video was scrolled 21 underneath so that it was visible to the Jury. 22 And, particularly, the line, superior 23 to MS-DOS 3.31 and IBM DOS 4.01 was let hung as 24 the witness was -- it just hung underneath for 25 a few moments as the witness was preparing to 11653 1 answer as the clip was being fit. 2 So it was sitting there right for the 3 Jury to see. 4 This is language that both parties 5 either agreed or were so ordered should not be 6 shown. 7 And that can be clipped. They can 8 clean up that transcript. They can take out 9 the Number 14, which they shouldn't do and they 10 did, but they can clearly take out, just clean 11 up, you go in and erase it just like it's a 12 Word doc, that kind of -- the scroll language. 13 And, clearly, they are doing that for 14 other pieces of this testimony. 15 The very last thing we saw which was 16 on transcript page 54 regarding this fear, 17 uncertainty, or doubt, there is language -- the 18 question was: What does that stand for? 19 Answer: It's an acronym. It's an 20 acronym for fear, uncertainty and doubt. FUD. 21 It means to through whatever means necessary 22 cast dispersions on a product. 23 Again, either through agreement or 24 otherwise, there was a little bit more to that 25 answer. 11654 1 It went on: Or offering or even 2 company, which I believe Plaintiffs didn't want 3 and there was agreement on that. And when the 4 transcript scrolled underneath, it matched 5 exactly to the witness's testimony. 6 So it's not a matter of incapability. 7 It's not that you need to scroll through -- you 8 have to fast forward through the transcript 9 that's being scrolled underneath the video. 10 It is possible to clean it up. It's 11 not being cleaned up, shall I say, 12 consistently. 13 And I think it's very important that 14 it be cleaned up consistently or that -- or we 15 can't have this going on. 16 And as I've said before, Your Honor, I 17 don't object in theory to having a scroll of 18 the transcript underneath the witness video. 19 I think it's very useful for the Jury, 20 but if it's going to be done this way, I think 21 we need to stop. 22 THE COURT: Has the audio been okay? 23 MS. NELLES: The audio's been fine. 24 THE COURT: Okay. 25 MS. NELLES: There's been no problem 11655 1 with the audio at all. It's been perfect 2 according to my notes of agreements. 3 THE COURT: Anything else? 4 MS. NELLES: No. Thank you, Your 5 Honor. 6 THE COURT: Any response? 7 MR. HAGSTROM: Your Honor, I don't 8 have a response other than that this 14, I 9 don't know what happened with that. I think 10 Ms. Nelles said it was stated. The witness 11 stated it. 12 So the fact that the 14 didn't appear 13 in the scrolling underneath, presumably the 14 Jury heard it. 15 On this page 47, this one clause, you 16 know, it was excluded by agreement of the 17 parties, superior to MS-DOS 3.31 and IBM DOS 18 4.01. I don't know why that was in there. 19 THE COURT: Anything else? 20 MR. HAGSTROM: So, I mean, basically, 21 you know, inadvertent error. 22 THE COURT: Okay. 23 Anything else? 24 MS. NELLES: Your Honor, it's 25 inadvertent error, perhaps. I can't understand 11656 1 why the 14 was clipped. 2 It had to have been done by somebody. 3 Maybe not for that purpose, but it had to have 4 been manually done. 5 What I'm asking for, and I'd asked for 6 this before and I thought I had received it, is 7 a commitment that Plaintiffs will go through 8 and make sure -- and maybe I'm not asking for a 9 commitment. 10 Perhaps I'm asking for an order, that 11 the Plaintiffs will take the time to go through 12 and make sure the scroll matches the testimony 13 and agreement precisely or they won't use a 14 scroll. 15 So long as they do that and it 16 matches, I have no objection to the use of the 17 scroll. 18 Thank you. 19 THE COURT: Okay. 20 MR. HAGSTROM: Your Honor, you know, 21 hours are spent proofreading this stuff. 22 And I think Your Honor knows if you 23 are dealing with a complex contract, for 24 instance, you know, plenty of people can look 25 at something and there might be typographical 11657 1 errors in it. 2 And this is really no different. 3 Everybody's doing their best to get it right. 4 THE COURT: I would hope that you 5 check it over some more and make sure it's 6 right. 7 If it happens again, I'll consider 8 just eliminating the scroll and we'll listen to 9 the audio. 10 MS. NELLES: Thank you, Your Honor. 11 THE COURT: Anything else on this 12 topic? 13 Okay. 14 Off the record. 15 (An off-the-record discussion was 16 held.) 17 MR. HAGSTROM: Just one report to 18 1369, was previously admitted. 19 MR. GREEN: The one that I had on my 20 list -- 21 THE COURT: Is that okay? 22 MR. GREEN: It had already been 23 admitted on the 30th, Your Honor, on the direct 24 testimony of Mr. Lieven. 25 THE COURT: It was admitted before? 11658 1 MR. HAGSTROM: Yes. 2 THE COURT: Okay. I'll say something 3 in front of the jury. Thanks for telling me. 4 MR. HAGSTROM: I was going to say 5 something when we got back from lunch, but I 6 forgot. 7 THE COURT: We admitted it a long time 8 ago. Okay. 9 (A recess was taken from 2:37 p.m. 10 to 2:46 p.m.) 11 THE COURT: Okay. We are talking 12 about the Phase 7 rulings and appeals; is that 13 correct? 14 MR. GRALEWSKI: Yes, Your Honor. 15 Good afternoon. 16 May I approach and provide the Court 17 with a rulings chart and the documents at 18 issue? 19 THE COURT: You may. 20 MR. GRALEWSKI: The parties have 21 agreed on this rulings chart, and Mr. Jones, 22 who will be arguing for Microsoft, has a copy. 23 The binder, Your Honor, is in the 24 order, as is the rulings chart, of the order 25 that we'll proceed today, which is the same 11659 1 order that the documents appear in the briefs 2 of the parties. 3 THE COURT: We are doing exhibits 4 first; right? 5 MR. GRALEWSKI: This is all exhibits. 6 A couple preliminary matters and 7 housekeeping points, Phase -- this is Phase 7 8 appeal. 9 Phase 7 was documents only -- I 10 believe it was testimony also, but this is just 11 documents. 12 As you will see, Plaintiffs limited 13 substantially what they are bringing before the 14 Court to appeal. 15 There were lots of rulings with the 16 Special Master in Phase 7, which did not go 17 Plaintiffs' way, which we have elected not to 18 appeal. And we've elected to proceed with just 19 ten documents this afternoon before Your Honor. 20 THE COURT: Great. 21 MR. GRALEWSKI: I want to note a 22 couple things for the record. 23 This morning, Mr. Jones and I met and 24 conferred on several documents that appear in 25 the briefs, and I wanted to note for the record 11660 1 what we have agreed. And I also want to note 2 for Your Honor's benefit in case you wonder why 3 we don't address those documents today. 4 Those documents are PX 9228, 9303, 5 9304, 9306, 9528, and 9529. 6 They are discussed on pages 14 and 15 7 of the Plaintiffs' memorandum in support of 8 their appeal. 9 Those documents all relate to 10 spoliation. And the parties have agreed to 11 defer consideration of these documents until 12 such time that Plaintiffs make the showing that 13 the Court has ordered that Plaintiffs must make 14 before putting on their spoliation evidence. 15 So the parties have agreed that 16 Plaintiffs certainly aren't waiving their 17 appeal rights to these documents and 18 Microsoft's not waiving their objections to the 19 documents. 20 We're just going to put it off to the 21 time until the package of spoliation issues are 22 decided. 23 That saved about five inches of 24 materials from the binder. 25 The second agreement we reached, Your 11661 1 Honor, concerns PXs 9330 and 9586, which are 2 addressed on pages 15 and 16 of our memorandum 3 in support of the appeal. 4 These documents Plaintiffs intend to 5 offer as summaries at an appropriate time in 6 trial. 7 At that point in time that we intend 8 to offer those documents, if we intend to offer 9 them, the parties will address their 10 objections, if any remain at that point in 11 time. 12 Again, Plaintiffs are not waiving 13 their appeal of any rulings the Special Master 14 made with respect to these documents. And 15 Microsoft's not waiving any objections they 16 have to those documents. 17 THE COURT: Very good. Thank you, 18 both parties. 19 MR. JONES: Yes, Your Honor. 20 Just to clarify. That does accurately 21 represent our agreement. We had a productive 22 call this morning. 23 Just as a final aspect of the two 24 summary documents, I believe Plaintiffs -- and 25 you correct me if I'm wrong. 11662 1 I believe Plaintiffs have agreed that 2 they will provide Microsoft with 24-hour notice 3 before they make an offer of a document of a 4 1006 summary so Microsoft will be prepared to 5 address any concerns that it has about the 6 documents with the Court. 7 THE COURT: Okay. 8 MR. GRALEWSKI: Indeed. 9 THE COURT: Okay. 10 MR. GRALEWSKI: So with those 11 agreements, Your Honor, that leaves us with ten 12 documents. 13 Before proceeding directly with those 14 documents -- and a lot of these issues we've 15 addressed, so hopefully this can be an 16 efficient argument on both sides. 17 One last housekeeping matter. 18 We had originally agreed, and we had 19 informed the Court, that we would argue the DX 20 Phase 7 appeals tomorrow afternoon. 21 With the Court's permission, and by 22 agreement with Microsoft, we'd like to argue 23 that appeal on Tuesday of next week because 24 Ms. Davis from the Zelle Hoffman firm is going 25 to handle that for the Plaintiffs and she's not 11663 1 in Des Moines this week. 2 THE COURT: Any objection? 3 MR. JONES: None. We are glad to 4 provide the courtesy. 5 THE COURT: Granted. 6 MR. GRALEWSKI: Thank you, Your Honor. 7 With no further delay then, the first 8 document that we will address is PX 9152. 9 And I will note, Your Honor, that 10 every document but one in this group of 11 documents we're here to discuss today are 12 documents that Microsoft claims are documents 13 that were prepared in anticipation of 14 litigation and/or are posturing documents. 15 And, because of that, they do not qualify as 16 business records, either under the parties' 17 agreement, business record agreement, or under 18 Iowa evidence law. 19 So given that that is an overarching 20 issue, I just want to recap Plaintiffs' 21 position and what we believe the law is with 22 respect to this particular issue. 23 And I know Your Honor's been presented 24 with this law in Phase 1, in Phase 2, and in 25 Phase 6, so I don't want to spend a lot of 11664 1 time, but I do want to focus the Court's 2 attention on the fact that for Microsoft's 3 objections to carry the day, we believe the 4 Court must find that the primary purpose, the 5 primary purpose for the documents at issue 6 today was to prepare for litigation. 7 But -- and this is important -- if the 8 document would have been created regardless of 9 litigation, even if litigation ensues, if the 10 document would have been created anyway, for 11 example, to report on the competitive process, 12 to report on the negotiation of a business 13 deal, to negotiate a business deal, because 14 those things would occur anyway, it's our 15 position that those documents would qualify 16 under the business records exception even 17 though litigation may be contemplated or even 18 though litigation may ensue. 19 And as we'll see when we look at these 20 documents, in many instances, litigation is not 21 even contemplated and doesn't ensue. 22 In other words, we'll see examples of 23 documents where Sony and RealNetworks are 24 trying to negotiate a license so that Real's 25 media player can be put on Sony's computers. 11665 1 Sony and Real never sued one another. 2 And, as we'll see, we believe because of this 3 and other reasons that posturing or in 4 anticipation of litigation argument just won't 5 carry the day for Microsoft. 6 With respect to 9152 specifically, 7 these are two internal RealNetworks e-mails. 8 The bottom one, Your Honor, which 9 comes first in time reports that the Windows 10 Media Player, which is the thing or the product 11 that competes with the Real media player, this 12 e-mail simply reports that the Windows Media 13 Player was on a website called WWW.COM -- 14 that's all caps, WWW.COM. 15 We submit that this is an ordinary 16 business activity to track one's competitors 17 activity and to track one's competitor's 18 products. 19 He then, the author of this e-mail in 20 the final paragraph entitled recommendations, 21 he recommends how to get Real media player on 22 more websites, which again is a business 23 purpose. 24 The author writes, we need to be more 25 aggressive about getting our Real Player logo 11666 1 on sites like this. 2 And then further down in that 3 paragraph, the author writes, what can/should 4 we be doing to get above that noise and make 5 the player more compelling? 6 Again, here there's no -- I'm hard 7 pressed to see how this can possibly be 8 construed as a posturing document or a document 9 created in anticipation of litigation when 10 plainly on the face of this document people are 11 discussing how to get the Real media player out 12 in the market, how to make it available to 13 people, how to get it on the websites. 14 Even if litigation is somehow on the 15 fringe of this issue, going back to what I 16 originally said, Your Honor, to put the 17 documents in the context of the law, if this 18 document would have been created anyway, which 19 we submit that it would, it would qualify as a 20 business record. 21 Then if you move up to the top e-mail 22 -- and, again, Your Honor is free to rule 23 separately, which you've done on many 24 instances. Even though it's a single-page 25 document, there are two discrete e-mails here. 11667 1 The top e-mail is from a Real 2 marketing manager, and he reports on a meeting 3 that he had with the CEO of this website, 4 WWW.COM. 5 And what he does is he passes along 6 information that he learned about Microsoft's 7 activities during the conversation with this 8 CEO of WWW.COM. 9 And Plaintiffs submit that it is an 10 ordinary business activity for a marketing 11 manager of a company like Real to meet with a 12 CEO of a company like WWW.COM, which 13 distributes Real's products and then go back 14 and report on what occurred during that 15 meeting. 16 And, for those reasons, Plaintiffs 17 believe that the top e-mail, as well as the 18 bottom e-mail, satisfies the business records 19 exception to the hearsay rule. 20 THE COURT: Mr. Jones, are you going 21 to argue? 22 MR. JONES: I am, Your Honor. 23 I agree that we have plowed this 24 ground before, and, in fact, the Court in Phase 25 6 recognized that when a document is not 11668 1 prepared in the regular course of business, 2 when there is some other motivating factor for 3 the document, particularly when that motivating 4 factor calls the trustworthiness of the 5 document into question, then the Court has 6 found that those documents will not be admitted 7 as business records. 8 And just as an example, or a few of 9 them, PX 5260, 5263, 5365, and 5421 all 10 represent examples in Phase 6 where there it 11 was Novell documents, but it's of apiece where 12 folks are more interested in complaining than 13 competing are engaging in nonregular business 14 course communications and circumstances that 15 call the communication's trustworthiness into 16 question. 17 So that's the model that we're using 18 here. It's a model that counsel has 19 recognized. We've talked about before, and we 20 won't go into the underlying basis, but it's 21 actually -- Microsoft's position is more 22 accurately stated that those documents that are 23 not prepared in the regular course of business 24 cannot satisfy 5.803(6). 25 That's a threshold requirement that a 11669 1 document be prepared in the regular course. 2 And when you have documents that are 3 not prepared in the regular course, then you 4 really -- then you're just not satisfying a 5 threshold requirement for business records 6 exception. 7 Now, we would agree, when you look at 8 -- before we get into the particulars on 9152, 9 I want to just briefly establish some context. 10 I indicated that in Phase 6 we were 11 talking about Novell documents. The nine 12 documents that have hearsay objections that 13 were sustained by the Special Master that are 14 at issue before you today all involve 15 RealNetworks communications. 16 So they're not Novell this time. 17 We're RealNetworks. And these communications 18 are generally taking place in 2000, in that 19 time period. 20 RealNetworks, like Novell, had in 21 addition to its business as a producer of media 22 streaming software, had an interest in 23 assisting authorities in bringing allegations 24 of anticompetitive conduct against Microsoft. 25 It's not a bald accusation. It's an 11670 1 accusation -- or it's simply a fact of record. 2 Mr. Glaser, president and founder, former 3 Microsoft employee, but the president and 4 founder of RealNetworks, testified in front of 5 the senate in the summer of 1998 about his 6 concerns regarding Microsoft. 7 There was testimony from a 8 RealNetworks' chief operating officer, 9 Mr. Jacobsen. It was part of the findings or 10 part of the government trial against Microsoft 11 in 1998, 1999. 12 There were findings regarding 13 RealNetworks in the findings of fact that Judge 14 Jackson issued, though I would note that there 15 were no liability findings attached to the 16 allegations against RealNetworks in the 17 government case. No finding that Microsoft 18 engaged in anticompetitive conduct against 19 RealNetworks. 20 After that, of course, the government 21 and Microsoft came to a settlement which was 22 published widely in November 15 of 2001 with 23 the publication of government's competitive 24 impact statement. 25 And after that, after the publication 11671 1 of the settlement between Microsoft and the 2 government suing states in the federal 3 government, RealNetworks submitted comments 4 during the remedy phase opposing the 5 settlement. 6 In addition, a RealNetworks 7 individual, a vice president named Dave 8 Richards, who I think is on one of the e-mails 9 we are going to be talking about, testified as 10 part of the remedies phase against the proposed 11 remedy, arguing that Microsoft was -- had too 12 many loopholes and that Microsoft was engaging 13 in anticompetitive conduct against 14 RealNetworks. 15 And, finally, of course, RealNetworks 16 did, when it was not able to get what it wanted 17 through the government suit process, brought 18 suit itself against Microsoft in, I believe, 19 2003. 20 So the context here is we are dealing 21 with a party, or a nonparty in this case, but 22 an entity RealNetworks that had actively been 23 involved in the government allegations and 24 investigations and had, as we will see through 25 these documents, had as a side practice -- 11672 1 besides producing software, had a side practice 2 of preparing or maintaining a Microsoft file of 3 allegations or concerns about anticompetitive 4 conduct. 5 Now, let's address, then, 9152. 6 We would agree -- Microsoft agrees 7 that the first e-mail does appear to us to 8 satisfy business records exception. It does 9 appear to be, as counsel indicated, a document 10 that would have been prepared in the regular 11 course. 12 It's not being sent to legal counsel. 13 It's reporting on an interaction that would go 14 on in the regular course. And, therefore, 15 that's not the e-mail to which Microsoft is 16 objecting. 17 What Microsoft is objecting to, then, 18 is the top e-mail, the one that has no to line 19 and that has the response redacted. 20 Now, it's our view that the likely 21 reason for that is because Mr. Jacobs, who is 22 sending the e-mail is sending it to legal 23 counsel. 24 And as we'll see in some of the other 25 documents, more likely than not, Kelly Jo 11673 1 MacArthur, the general counsel of RealNetworks, 2 and that her response then, as a lawyer 3 communication, has been redacted here. 4 So the indications are -- the 5 inference clearly is that Mr. Jacobs is 6 engaging in a communication to Ms. MacArthur. 7 He does not ask for her assistance in 8 a business-type purpose. What he is doing is 9 conveying basically hearsay information to her 10 for her to use in her Microsoft file. 11 And, again, 9152 in isolation, it's a 12 little difficult to maybe get all these 13 inferences, but as we go through these 14 documents -- they shouldn't be seen in 15 isolation. 16 As we go through, we'll see more 17 clear, much more clear examples of 18 communications from RealNetworks employees to 19 Ms. MacArthur clearly for her purpose in 20 maintaining and in creating this file of 21 allegations against Microsoft. 22 So the problem with the top e-mail in 23 sum is it is not being prepared for a regular 24 business purpose. It is being prepared for the 25 purpose of gaining or collecting allegations 11674 1 against Microsoft. 2 The communication itself has hearsay 3 in it. He's just quoting. It's not even my 4 understanding. It's just straight quotes from 5 a communication Mr. Jacobs allegedly had. 6 And, for that reason, it simply does 7 not satisfy the requirement that it was 8 prepared in the regular course of business and 9 falls more -- looks more like those types of 10 communications that the Court has found do not 11 satisfy business records in the Phase 6 12 process. 13 THE COURT: How do you know it's sent 14 to counsel? 15 MR. JONES: We have to infer it, Your 16 Honor. 17 And I would say that as the proponent 18 of a document, you know, Plaintiffs bear the 19 burden of establishing that it does satisfy the 20 business records requirements, that it was 21 prepared in the regular course. 22 THE COURT: All they have to do is 23 point to it. It says there's no address to 24 counsel. That solves it. 25 MR. JONES: Well, there's no address 11675 1 at all is the problem. 2 THE COURT: Well, under your theory of 3 how to look at documents and see if they 4 satisfy a hearsay exception, the Court's 5 allowed to speculate on a bunch of things. 6 MR. JONES: I wouldn't say speculate, 7 Your Honor. I would say make a good -- and I 8 think, again, when we look at these other 9 documents, it's an inference that's fairly 10 drawn from the facts. 11 What do we know? The responsive 12 e-mail has been redacted. If it were a fact 13 just to a business person, there would be no 14 basis. Why redact it? More likely than not 15 because it's a legal communication. 16 So we know that the response to 17 Mr. Jacobs' e-mail has been redacted. And we 18 don't -- and Plaintiffs, who, again, are the 19 proponents here and bear the burden of showing 20 that they have satisfied the business records 21 requirement, would equally ask the Court to 22 speculate that this was sent to a company VP in 23 the regular course of business. 24 THE COURT: So, under your theory, 25 even the person below here -- who sent the one 11676 1 below? 2 MR. JONES: Ben Rothelz. 3 THE COURT: Under your theory, they'd 4 have to show that that guy, Mr. Rothelz -- 5 whatever his name is. 6 MR. JONES: Right. 7 THE COURT: -- was employed at 8 RealNetworks at the time, what his job duties 9 were. 10 MR. JONES: Actually, no, we're not 11 making that -- 12 THE COURT: What are you specifically 13 trying to do? I mean, it's an endless round of 14 speculation. No court could ever decide under 15 your way of looking at things. 16 MR. JONES: Well, I think, in fact, 17 Your Honor -- 18 THE COURT: It would be an impossible 19 task. 20 MR. JONES: Right. And I understand 21 that, that our view could be seen that way. 22 But, in fact, the proof is in the 23 pudding. We are not engaging in that type of 24 flyspecking. Here we have an instance where 25 the to line is completely gone. 11677 1 We're not questioning whether -- we're 2 not questioning whether the underlying e-mail, 3 the first e-mail is done in the regular course. 4 We're not demanding that they prove up 5 all these folks were employed in the regular 6 course. We're not doing that. 7 What we're saying is that when there 8 is a redacted to and a redacted response, that 9 suggests to us that a lawyer communication is 10 taking place. 11 And that will be -- and that 12 suggestion is borne out when, again, we look at 13 some of these other e-mails when just this type 14 of communication is going forward. 15 THE COURT: So under your theory, any 16 communication that has any redaction at all 17 should not be admitted so you can speculate as 18 to what happened? 19 MR. JONES: No, I wouldn't say that. 20 THE COURT: Why not? I've redacted 21 other things, ordered redacted. Wouldn't the 22 speculation be -- your response be, Judge, we 23 think this was sent to the attorney, therefore, 24 the whole thing should go out? 25 MR. JONES: Right. First of all, 11678 1 again, I'd say that the proof is in the 2 pudding. We haven't made those kinds of 3 arguments. 4 What we have done here is Plaintiffs 5 have put forward a document. They're the 6 proponent of a document and they've asked this 7 Court to accept their assertion that this 8 document was prepared in the regular course. 9 They have a burden of showing that that's, in 10 fact, the case. 11 The document has no to line, has no to 12 line. So they are putting Microsoft in the 13 position of -- and the Court of speculating 14 that that, in fact, satisfies the requirement. 15 That's not carrying your burden. What 16 we are doing is drawing a reasonable -- what I 17 think is a reasonable reference based on the 18 fact that the response is redacted and that the 19 to line has been redacted as well. 20 We have not engaged -- I've sat here 21 and argued the Phase 6 before you. I'm going 22 to be arguing a bunch of other documents before 23 you. I don't intend to flyspeck, and I'm sure 24 opposing counsel will call me on it if I do. 25 We think here where you have no base 11679 1 line threshold satisfaction of the requirements 2 and you have indications that, in fact, this is 3 part of a nonregular business communication, 4 then we think that the inferences we've drawn 5 are the reasonable ones. 6 THE COURT: Plaintiffs, where's the 7 rest of this e-mail? 8 MR. GRALEWSKI: Well, we wish we had 9 it, Your Honor. 10 THE COURT: Who redacted it and when? 11 MR. GRALEWSKI: It was, I believe, 12 redacted by RealNetworks when the documents 13 were produced to the parties that they were 14 produced to. 15 We addressed this issue square on in 16 our brief to Your Honor at page 9 and 10. 17 And we've seen this. We've seen this 18 before. 19 First of all, we don't even know, as 20 Your Honor has indicated, if this document was 21 sent to a RealNetworks lawyer. 22 But let's assume for the sake of 23 argument that it was. 24 Simply because a communication is sent 25 to a lawyer doesn't convert an otherwise 11680 1 admissible business record into a document that 2 was created primarily for posturing or 3 anticipation of litigation purposes. 4 THE COURT: Well, except your subject 5 line says several losses to Microsoft remain to 6 be covered. 7 MR. GRALEWSKI: Yeah, what -- as I had 8 argued originally, I believe a fair context for 9 this document is RealNetworks is competing and 10 they recognize that their product, the Real 11 Player, is not on certain websites. It's not 12 able to be distributed. Microsoft's product 13 is. 14 And so like any company would do, a 15 marketing person goes to meet with a prime 16 distribution channel, WWW.COM. 17 So it's a situation where -- and this 18 is on the face of the document. It's not 19 argument or speculation. The person goes to 20 meet with the CEO of WWW.COM, not to gather 21 intelligence for a possible suit against 22 Microsoft down the road, but they go to try to 23 get Real Player on WWW.COM. And in the process 24 of that meeting, discuss certain things having 25 to do with Microsoft. 11681 1 So, under the law, even if -- even if 2 litigation touches the fringe of this document, 3 this executive still would have gone to meet 4 with WWW.COM because they have a business 5 reason to do so. And their business reason is 6 to distribute their product. 7 Now, I want to respond to a few things 8 that Mr. Jones said. And I think the argument 9 will be streamlined as we go because, as 10 Mr. Jones said, a lot of these documents are 11 similar. 12 RealNetworks was not a fan of the 13 Department of Justice settlement. RealNetworks 14 ultimately did sue Microsoft. 15 That does not mean -- that just does 16 not mean that all Real e-mails that we see are 17 created in anticipation of litigation. 18 The people that work at RealNetworks 19 still have a job to do and that job is to get 20 their product distributed and market their 21 product. And Plaintiffs submit that that's 22 exactly what's going on here. 23 Another point that I wanted to address 24 that I spent a significant amount of time 25 discussing with the Court in the Phase 6 11682 1 argument, so I will be brief, is this issue of 2 burden. And it is an important issue. 3 I respectfully submit that Microsoft 4 has it backwards in this instance. 5 Plaintiffs' burden, as I've 6 articulated in the past, is to demonstrate that 7 the documents were created and maintained in 8 the ordinary course of business. And we 9 believe we've done that. 10 Once we do that and Microsoft 11 challenges the trustworthiness of the document, 12 they have the burden to demonstrate that the 13 document lacks trustworthiness. 14 They cannot meet that burden by 15 arguing that it might have gone to a lawyer or 16 they were collecting documents in a file to use 17 later on and sue Microsoft. 18 As I argued to the Court in the Phase 19 6 appeal, trustworthiness actually is assumed, 20 and Microsoft does have the burden to overcome 21 the badge of reliability. 22 Your Honor may recall that that is 23 from one of the cases that I handed up. This 24 touchstone phrase overcome the badge of 25 reliability is their burden. 11683 1 In the Firemen's Fund Insurance 2 Company case, the cite is 63 F. 3rd 754 at 757, 3 -58, and also Footnote 4 in that case. 4 And this was provided to the Court and 5 Microsoft in the Phase 6 argument. 6 The Eighth Circuit held in 1995 that 7 whether a proposed business record is 8 untrustworthy -- which is what Microsoft is 9 really arguing here. They're -- with respect 10 to this document and all these other documents 11 that we are going to see, they attack the 12 trustworthiness of the document. 13 The Eighth Circuit held that whether a 14 proposed business record is untrustworthy goes 15 to credibility and not admissibility. 16 And there the Court overruling an in 17 anticipation of litigation argument just like 18 Microsoft is making here, the Court ruled that 19 the proper course was to admit the document and 20 then allow the Jury to decide the issue of 21 credibility or trustworthiness when the 22 document was presented, when the document was 23 or the proponent of the document was 24 cross-examined, things of that nature. 25 So we think that the Eighth Circuit in 11684 1 the Firemen's Fund case is the law and is the 2 law that should be applied to this document and 3 the other documents. 4 And the final point, Your Honor, in 5 rebuttal is that as part of their burden, 6 Microsoft must demonstrate to the Court that 7 the people making the statements, the 8 declarants in the documents, have a motive to 9 give false information. 10 Again, what Microsoft does repeatedly 11 is simply argue -- is make an argument before 12 Your Honor that the declarants or the people 13 making the statements in the documents have a 14 motive to offer falsehoods. 15 And, again, we would submit that they 16 need to do more than just simply state it. 17 They have to show that the person had a motive 18 to lie and actually did. 19 THE COURT: Anything else on this one? 20 MR. JONES: Very briefly, Your Honor. 21 I think we have a different 22 perspective. It's our view that as a threshold 23 matter, the proponent of a document, whether 24 it's Microsoft or Plaintiffs, the proponent has 25 that initial burden of satisfying the threshold 11685 1 requirements. 2 Without question, a threshold 3 requirement under 5.803(6) is a requirement 4 that you showed that the document was prepared 5 in the regular course. 6 Plaintiffs cannot do that here because 7 of the deficiencies in the document that we've 8 already set forth. 9 And I think further undercutting their 10 ability to satisfy that requirement is borne 11 out when you look at the e-mail itself. 12 This is not asking for any assistance. 13 It's not in a business type of sense. It's not 14 asking for whoever is receiving it to help 15 solve a business problem. It's not doing 16 anything of that type. Can you call the person 17 and see if we can move WWW.COM more our way? 18 What you see being done is tattling. 19 What we see here is MSFT tried to get him not 20 to end code in RN, RealNetworks' format. He 21 said no. MSFT wanted to invest in his company. 22 He said no. 23 Clearly why is this being done? Why 24 is this being reported? For a business 25 purpose? No. 11686 1 What this is being done for is so that 2 this can be put in a quiver of allegations that 3 will be then fired off at Microsoft at some 4 point. 5 There is no indication that this is a 6 regular course communication. The indications 7 are clearly to the contrary. The content of 8 the communication bears that out, the lack of 9 indication as to who it was even sent to, but 10 the strong inference that it was sent to 11 counsel all show that this document, that this 12 top e-mail, does not satisfy the business 13 records requirement as the Special Master 14 found. 15 THE COURT: What if you had a sales 16 report from RealNetworks to the president of 17 RealNetworks saying that Microsoft took away 18 one of our accounts and they're selling -- they 19 no longer buy our RealNetworks anymore? Is 20 that anticipation of litigation? 21 MR. JONES: I don't believe so. 22 THE COURT: Why not? 23 MR. JONES: Because I don't believe -- 24 I think when you have a communication from a 25 salesperson to the top of his company, that 11687 1 sounds to me, unless there's some indication in 2 the e-mail otherwise or there was something 3 from the context -- you know, maybe this -- in 4 fact, the president was going to go the next 5 day for a deposition and talk bad about 6 Microsoft. 7 Maybe that context might tell me 8 otherwise, but just hearing those bald facts, 9 that sounds to me like a business 10 communication. 11 And it's different from what's going 12 on here because, one, we know to whom it's 13 being sent, to the president. 14 Second, it is in the nature because he 15 is the president, he needs to have information, 16 it would be logical that that person 17 communicated -- 18 THE COURT: What if you know the 19 president hates Microsoft? 20 MR. JONES: Well, I think -- that's 21 why I indicated if you've got a context. I 22 mean, that's not what we're talking about here, 23 but in the hypothetical that you've posed, if 24 you've got a context where the president was 25 supposed to meet the next day with the 11688 1 Department of Justice officials, where this 2 president was in an ongoing sort of 3 communication with the investigators or with 4 counsel in preparing a lawsuit, that might 5 raise concerns, but that's not -- 6 THE COURT: It's sent from the 7 salesperson to the president. 8 MR. JONES: Right. 9 THE COURT: Wouldn't that have to be 10 the intent of the salesperson and not the 11 president? 12 MR. JONES: What you are asking me to 13 do is speculate how the context would affect. 14 THE COURT: What I'm trying to point 15 out is under your argument, there can be no 16 exception for a business record, period. 17 Business records are totally inadmissible. 18 MR. JONES: I don't -- well, Your 19 Honor, in fact -- 20 THE COURT: You could argue that every 21 business record is in anticipation of 22 litigation. 23 MR. JONES: Right. 24 THE COURT: When did RealNetworks -- 25 when did they sue Microsoft? 11689 1 MR. JONES: In 2003 after they -- 2 THE COURT: This is dated 2000. 3 MR. JONES: That's correct. 4 THE COURT: So you are arguing that 5 for three years consecutive, they are gathering 6 information that's part -- 7 MR. JONES: In fact, Your Honor, we 8 are going to show -- I've got a copy of the 9 complaint. 10 THE COURT: How far back do you want 11 to go? 12 MR. JONES: Well, what I would do is 13 -- I would tell you a number of the 14 allegations, the facts that are developed in 15 these e-mails show up in the complaint that 16 RealNetworks ends up filing in 2003. 17 THE COURT: Okay. How far back? What 18 date does RealNetworks' complaint start? 19 MR. JONES: 1997 is when they start 20 complaining. 21 THE COURT: So every business record 22 from 1997 to 2003 is inadmissible? 23 MR. JONES: No, Your Honor. And -- 24 THE COURT: Why not? It's in 25 anticipation of litigation. 11690 1 MR. JONES: Because that's not the 2 argument we're making. 3 THE COURT: It sure is. 4 MR. JONES: No, Your Honor. I 5 respectfully -- 6 THE COURT: You don't even know who 7 this is to. 8 MR. JONES: Then I'm making it wrong 9 because what I'm trying to suggest to the Court 10 is -- and, again, if you look at what we're 11 arguing, we're not arguing that the first 12 e-mail in the string is in anticipation of 13 litigation. 14 THE COURT: Why not? 15 MR. JONES: Because it appears to us 16 from the content that this is a regular 17 reporting of what's going on to other people in 18 the business, with the expectation that -- in 19 the exhortation that, look, we've got to do 20 better. We've got to do things to try to get 21 more business. 22 THE COURT: Do what better? 23 MR. JONES: Go out and get -- 24 THE COURT: Let's speculate some more 25 as long as we are speculating. We got to sue 11691 1 Microsoft better. 2 MR. JONES: What he's saying is we 3 need to go out and do a better job of getting 4 our product out there. 5 That's not we need to do a better job 6 of suing. I think we really -- the argument 7 that we are making -- and, again, as we go 8 through these documents, it will be more 9 clearer than perhaps it is with this document, 10 because with the successive documents, we are 11 not arguing that underlying communications are 12 necessarily business records. 13 THE COURT: Let's say the president of 14 RealNetworks tells every salesperson in his 15 organization I want a monthly report of all our 16 sales versus Microsoft because I don't like 17 Microsoft and I might sue them. 18 So every sales report they get, that's 19 not a business record anymore? It's in 20 anticipation of litigation? 21 MR. JONES: In that circumstance -- 22 THE COURT: Even though they may use 23 it to monitor their sales, and, in fact, in the 24 past, let's say, they've done exactly that. 25 MR. JONES: Right. In that 11692 1 circumstance -- 2 THE COURT: It's not a business 3 record, is it? 4 MR. JONES: In that circumstance, Your 5 Honor, if, in fact, the president said I am 6 preparing to sue Microsoft and I want you folks 7 to go out and get me dirt on Microsoft -- 8 THE COURT: No, no. All he's saying 9 is I want to know the sales we have versus 10 Microsoft. I want the facts of what we're 11 selling and what Microsoft is selling for every 12 month -- 13 MR. JONES: In that instance -- 14 THE COURT: -- to our clients. 15 MR. JONES: He would need -- 16 THE COURT: According to your theory, 17 that could never be admissible -- 18 MR. JONES: No. I think, Your Honor, 19 that -- 20 THE COURT: -- since it's in 21 anticipation of litigation. You said so. All 22 you have to do is say it. 23 MR. JONES: You have to, but we are 24 not just saying it. 25 What we're saying is that -- 11693 1 THE COURT: So that means every 2 document that you have, that Microsoft has 3 after you've been sued, you can't show -- you 4 can't put in evidence too? It's in 5 anticipation of litigation. Not only that, 6 your litigation has already happened. It's no 7 longer a business record. 8 So we've got to start looking at 9 everybody's documents here. 10 MR. JONES: Your Honor, first, to 11 answer your first hypothetical. 12 If, in fact -- if the salesperson is 13 deriving his sales information from regular 14 business activity -- 15 THE COURT: How do you know? 16 MR. JONES: -- then his reporting of 17 -- 18 THE COURT: How do you know? 19 MR. JONES: There would be indication 20 -- I have looked at -- 21 THE COURT: He just said we sold $2 22 million worth this month. Microsoft sold 3 23 million. That's all he said. How do you know? 24 That's how he's been reporting for 15 years. 25 MR. JONES: Then that suggests 11694 1 regularity. And that is the guarantee because 2 he has regularly done that in that fashion -- 3 THE COURT: Well, now, it's in 4 anticipation of litigation. 5 MR. JONES: The question doesn't 6 necessarily -- doesn't necessarily -- if you 7 have the background of regular activity, which 8 you have in the circumstance that you set 9 forth, then because there is some other purpose 10 for asking or some other use for asking for 11 information that would have been produced 12 anyway, then that is going to satisfy business 13 record. And -- 14 THE COURT: What if he copies it to 15 their attorney? 16 MR. JONES: If it is being produced 17 anyway, then if, for a regular business 18 purpose, just as they've always done, then that 19 will satisfy business records. 20 We think that's true. We think -- and 21 that's why we have agreed that the first e-mail 22 looks like a regularly conducted -- you know, 23 it's sent to business people. It reports 24 business activity. 25 We're not saying that every piece of 11695 1 communication -- and we've never made that 2 argument -- that every piece of communication 3 by a party prior to some litigation in the 4 future falls afoul of business records 5 exception. 6 What we're saying is that when you 7 have communications that are motivated solely 8 by a desire, as indicated by the context of the 9 document and the context of the time frame, to 10 build up this quiver of allegations, then that 11 is not regular course communication. That's 12 something different. 13 And that doesn't deserve business 14 records treatment so that we are going to treat 15 that unassailably as the truth. You know, it's 16 not -- again, the notion that a business record 17 -- this is not a paper exercise. 18 A business record is taken for its 19 truth. It doesn't get cross-examined. 20 And so -- and given that consequence, 21 if you have indications, strong indications as 22 you have here that this is not regularly done, 23 that this is something that's not part of the 24 regular business for another purpose, and where 25 it really is just conveying hearsay information 11696 1 in any event, then that doesn't satisfy 2 business records. 3 And I think the time frame aspect here 4 is important. Clearly, what RealNetworks was 5 doing in this time period is cooperating with 6 the government hoping that its water would get 7 carried into the eventual settlement or 8 resolution of the case. 9 When that didn't happen, when its 10 concerns about the settlement were submitted to 11 Judge Kollar-Kottely and then rejected, they 12 brought their own suit. 13 And as we'll see -- and you can look 14 at the complaint. The allegations that are 15 being developed in these very documents that 16 are at issue, a number of those allegations are 17 then carried forward in the suit that's 18 eventually brought. 19 THE COURT: Okay. 20 Anything else on this before we move 21 to the next one? 22 MR. GRALEWSKI: Yes, Your Honor. 23 We are taking a lot of time on this 24 document, but it does set the stage -- 25 THE COURT: It's my fault. I'm asking 11697 1 questions. 2 MR. GRALEWSKI: No, no. 3 It does set the stage for all the 4 documents to follow, so I agree that it is 5 important. 6 And I think Your Honor is asking the 7 right questions, and I think the question how 8 do you know the intent of the declarant or how 9 do you know what the purpose is is the right 10 question to ask. 11 And I think that is exactly why the 12 Eighth Circuit ruled the way it ruled. 13 Otherwise we are taking the job of the jury 14 away. 15 It's the Jury's job to decide after 16 hearing all the facts whether the author of the 17 document had a motivation to lie or whether 18 they were reporting truthfully. 19 The other thing I want to stress, Your 20 Honor, is that even if they were collecting 21 information for a suit down the road, it would 22 be this person's job to meet with this person 23 to see if they could get their product on the 24 WWW.COM website. 25 The declarant of the top e-mail says, 11698 1 I asked him why is MSFT -- that's Microsoft, of 2 course -- I asked him why is Microsoft all over 3 your website. 4 That's a question that would be asked 5 regardless of whether or not they were 6 contemplating a suit. That's a question that a 7 competitor asks who wants to get their product 8 out there. 9 As we point out in our brief -- and it 10 makes Your Honor's point precisely -- we cite 11 the Vaccaro case, V-a-c-c-a-r-o. It's on page 12 6 of our brief. 13 There the Second Circuit held, 14 wrestling with this identical issue, this 15 identical issue, the Second Circuit held, 16 quote, we do not understand Palmer v. Hoffman. 17 That's the primary purpose case that both sides 18 cite to, Your Honor. 19 We do not understand Palmer v. Hoffman 20 to require the exclusion from evidence of all 21 records which were made with some contemplation 22 that they might be valuable in the event of 23 litigation. 24 So I don't agree that that's why the 25 declarant in this top e-mail was doing what he 11699 1 was doing. I think it's plain from the 2 document that he was trying to get the Real 3 product out in the marketplace. 4 But if you accept Microsoft's 5 argument, the case law, the case law supports 6 the admission of this document because even if 7 it might be valuable in the event of 8 litigation, you don't exclude it. 9 THE COURT: Okay. 10 Let's go to the next one. Unless you 11 want to say more on this. 12 MR. JONES: Thank you, Your Honor. 13 I'll put it in the context of the next 14 document. 15 Let's go. 16 MR. GRALEWSKI: The next document, 17 Your Honor -- and I believe unless Microsoft 18 objects, we can address three documents 19 collectively, PX 9153, 9155, and 9158. And I 20 won't belabor all the points that I just made. 21 Similar law applies and similar facts 22 are at issue here, similar issues are at issue 23 here. 24 Your Honor, these three documents are 25 all RealNetworks' e-mails detailing factual 11700 1 experiences that Real salespeople had with 2 potential customers and experiences with 3 Microsoft. 4 And as we point out in our brief, we 5 believe that it is ordinary business activity 6 to keep your company informed, as Your Honor 7 suggested, of your sales activities and your 8 competitors' sales activities. 9 And whether or not factual information 10 that a salesperson becomes aware of makes its 11 way into a complaint three years later does not 12 convert otherwise admissible business records 13 into documents that are untrustworthy and are 14 pure posturing. 15 We would submit that Microsoft cannot 16 meet the burden to show that the only purpose, 17 the only purpose that these documents were 18 created was to posture for litigation three 19 years down the road. 20 These documents at least had another 21 purpose, which was to enable RealNetworks to 22 compete in the marketplace. 23 MR. JONES: Your Honor, we agree that 24 I think it would be useful to go through the 25 three documents or you can actually consider 11701 1 all four as sort of a package, but I do think 2 that as we look at the particular documents, 3 you do see that these are utterly unrelated to 4 the business of getting more business; that 5 they are, in fact, the documents to which -- or 6 the communications that Microsoft objects to 7 are, in fact, nonregular course, tattling, 8 conveying, preparing for litigation, or 9 assisting others in that endeavor. 10 I would note that on the first one, 11 9153, we're not -- and it's similar to 9152. 12 Microsoft has no objection to the first 13 communication, the first block e-mail. 14 THE COURT: At the bottom? 15 MR. JONES: Correct. Correct. 16 That appears to be done in the regular 17 course. It's a reporting of what's going on. 18 What Microsoft objects to, though, is 19 the second e-mail or the top one. And this is 20 the one in which on the cc line are Kelly Jo 21 MacArthur and Alex -- I'm sorry, Alex Alben are 22 on the cc line. 23 Why I draw the attention to those two 24 folks on the cc line is they are, in fact, the 25 intended recipients of this communication. 11702 1 You can see that by the second 2 paragraph where he says I am not suggesting 3 that we want to pay for Rush Limbaugh content, 4 but wanted to alert Kelly Jo, the general 5 counsel, and Alex, the lobbyist, of another 6 example of Microsoft anticompetitive behavior. 7 So he's not trying to here engage -- 8 THE COURT: What about the top 9 paragraph then? 10 MR. JONES: Below is a lengthy e-mail. 11 And the below e-mail, we don't object to. 12 THE COURT: No. I'm saying, you 13 object to the entire top e-mail? 14 MR. JONES: We think the whole 15 communication is motivated by this desire to 16 get information to the general counsel so that 17 she has in her arsenal these instances. 18 THE COURT: What if I redact just the 19 second paragraph of the top e-mail? What's 20 wrong with the first paragraph? You're looking 21 for a counter proposal from us. Isn't that a 22 business thing? 23 MR. JONES: It is a potential business 24 communication. It is. 25 But we think that -- and, Your Honor, 11703 1 we would -- clearly we think that the Special 2 Master's decision should be affirmed to exclude 3 the entire communication. 4 Deleting the second paragraph 5 certainly -- I'd rather have that than nothing 6 because I think that does go a long ways to 7 remedying the problem with the communication, 8 but I think that the reason the Special Master 9 was correct in the first instance is because 10 from that second paragraph, we know that the 11 motivation here is really to get information 12 before the general counsel and the government 13 affairs person at RealNetworks for them to use. 14 And I would point out again, we are 15 not objecting to that underlying information, 16 to the initial communication. 17 It's simply those communications that 18 are not regular course, that are unrelated to 19 streaming media software and the sort of 20 distribution thereof. 21 If you go to -- unless the Court has 22 questions on 9153 -- 9155 is perhaps the 23 starkest example of what's going on. 24 As with the other two documents, 25 Microsoft does not object to the bottom e-mail. 11704 1 THE COURT: Starting? 2 MR. JONES: With from XXX at -- you 3 can't even see it -- to Paul Drizio. 4 THE COURT: Uh-huh. 5 MR. JONES: I'm sorry, it's dated 6 Wednesday, March 2000. That e-mail. 7 We don't object to that portion of the 8 e-mail being found to be a business record. 9 What Microsoft objects to are the -- I 10 guess, the top e-mail and then the second 11 e-mail. 12 And you can see starting with the one 13 that follows the e-mail to which we do not 14 object, the intent of the communication is 15 clearly to provide this sort of litigation 16 information. 17 Kelly Jo, again, Kelly Jo MacArthur, 18 the general counsel of RealNetworks, you may 19 want to keep this in your files. I will get 20 more information for you. 21 And then he says something, but with 22 the timing, he doesn't want to disrupt some 23 other activities. 24 And then you see, as we saw before, 25 material redacted. Likely Kelly Jo's response. 11705 1 And then we see the next e-mail. The 2 little information that I collect included. 3 He's simply providing -- he's 4 tattling. He's not communicating with 5 Ms. MacArthur for a business purpose. 6 And then he promises at the end, more 7 to come. Not to assist RealNetworks in 8 producing software or distributing it, but in 9 assisting Kelly Jo MacArthur in preparing and 10 collecting allegations of anticompetitive 11 conduct. 12 THE COURT: So are you saying there's 13 a tattling part of hearsay, you can't -- so if 14 somebody admits to you they killed someone and 15 you tell someone, that's tattling? 16 MR. JONES: No. What I'm saying, Your 17 Honor, is the business records exception is for 18 regular -- communications made in the regular 19 course of business, regular course of business. 20 That ensures regularity. That provides 21 trustworthiness. 22 Here, these are not regular course 23 communications. These are extraordinary 24 communications intended not to advance the 25 business, but to create a litigation file, a 11706 1 file of allegations against Microsoft. 2 THE COURT: I'm having trouble reading 3 that top one. That little information that I 4 could collect included Premier Radio will not 5 share? 6 MR. JONES: Will not -- it looks like 7 that -- share the MSFT -- it's very unclear -- 8 with Intel. That part. 9 Indicates that the offer is very 10 substantial and includes money, comarketing, 11 branding. FR -- I'm sorry, PR, Premier Radio 12 indicates that the offer is -- I don't -- 13 exclusions. I can't read that. 14 Premier Radio indicates that Microsoft 15 -- 16 THE COURT: Specifically singled out 17 RealNetworks. And G2 is the platform that they 18 want PR to drop entirely. 19 MR. JONES: Right. 20 THE COURT: Why doesn't that relate to 21 business? 22 MR. JONES: It's not -- because like 23 the other documents that the Court found did 24 not satisfy the business records exception in 25 Phase 6, it's not a regular business 11707 1 communication. It is an allegation against 2 Microsoft. 3 THE COURT: Well, wouldn't you want to 4 know if you were the president of RealNetworks 5 and said -- someone wants to drop you? 6 MR. JONES: That might be the case, 7 but this is not to the president of 8 RealNetworks. 9 This is to Kelly Jo MacArthur, the 10 general counsel of RealNetworks. And it's not 11 intended to -- there's no indication that she's 12 going to be providing this or using this in a 13 business sense. 14 What this is is a communication that 15 is for her files as the sender says. And he 16 was going to get more information for the 17 files -- not for action, but for the files that 18 RealNetworks is maintaining against Microsoft. 19 This is not a regular course 20 communication. This is, again, intended to 21 prepare allegations against Microsoft. 22 And these communications are 23 themselves conveying hearsay information from 24 others. 25 The last one in the group, 9158, is a 11708 1 similar communication from a RealNetworks 2 employee to Kelly Jo MacArthur, the general 3 counsel. 4 She's reporting on some hearsay 5 conversation she had with Victoria's Secret, 6 and then she asks at the end is this 7 anticompetitive action legal? Her name is 8 Carol. 9 This, I would agree, is closer, is a 10 closer call. This does not -- you could 11 construe this as being more consistent with a 12 business-type communication. 13 It does still suffer, however, from 14 the fact that it's conveying hearsay 15 information. 16 And if it were to be admitted, then, 17 certainly the last is this anticompetitive -- 18 she's characterizing the conduct as 19 anticompetitive action. I think that should be 20 redacted. 21 THE COURT: How do you square this one 22 as a business communication? That's just being 23 sent to the same attorney. 24 MR. JONES: It's being sent -- 25 THE COURT: You said the other one 11709 1 that was being sent to the attorney is 2 automatically. Why isn't this? I don't get 3 it. 4 MR. JONES: Because here there is at 5 least some -- I mean, I believe that the 6 Special Master was right. I think this is -- 7 this is like the others because it is being 8 sent, I believe, not in the regular course. 9 I can see an argument that, no, this 10 is really just asking for a legal opinion from 11 counsel. So that's a regular thing. 12 But what I was trying to do was 13 acknowledge there may be an argument that is 14 not -- that clearly doesn't apply to the other 15 documents. 16 But this document, I believe the 17 Special Master was correct when he found here 18 that this, like the other documents, are 19 communications not in the regular course, but 20 are, in fact, communications to the general 21 counsel, were meant for her files, the files 22 that she is clearly keeping that we learned 23 from the other e-mails regarding allegations 24 against Microsoft. 25 THE COURT: Anything else? 11710 1 MR. JONES: Nothing. 2 MR. GRALEWSKI: Yes, Your Honor. In 3 response, I'll try to go quickly. 4 With respect to 9153, I'm going to 5 focus on the second paragraph of the top 6 e-mail. 7 I believe that where the declarant 8 writes although we are trying to convince them 9 of the advantages of RBN, so on and so forth, 10 this demonstrates, like the paragraph above 11 demonstrates, that this is a business activity 12 that's going on. 13 And while, again, there may be a dual 14 purpose to the document, the law that we cited 15 to the Court supports the Plaintiffs' position 16 which is that even if a document might be 17 useful to litigation down the road -- here it 18 was three years later -- the document is still 19 an admissible business record. 20 With respect to 9155, something that 21 jumped out at me during the course of counsel's 22 argument, this is the second time Mr. Jones has 23 referred to this notion of tattling. 24 Tattling is not the issue when we're 25 contemplating the business record exception to 11711 1 the hearsay rule. 2 The issue, as Microsoft has framed it 3 in the past, is trustworthiness. 4 Trustworthiness is the issue. 5 And as I have argued and we believe 6 the law supports, Microsoft has the burden to 7 show untrustworthiness. They can't do it just 8 by argument. 9 And the Eighth Circuit has addressed 10 this issue precisely and squarely and ruled 11 that this is an issue that goes to credibility, 12 not admissibility. And it's for the Jury to 13 decide when presented with all the facts in the 14 context of the trial. 15 This document and others that we'll 16 see involves the general counsel. 17 And as Your Honor is well aware, it 18 didn't take Mr. Bradford to be on the stand to 19 be aware of this, but Your Honor is well aware 20 that general counsels in businesses perform all 21 kinds of business functions. 22 In addition, there's no indication -- 23 we're making assumptions. 24 Microsoft wants the Court to assume 25 that the reason -- the only reason that this 11712 1 information is being collected is so that 2 Real's general counsel can add it to a Word 3 file that she's drafting which is -- ultimately 4 becomes RealNetworks' complaint against 5 Microsoft. 6 There's no indication that that's 7 what's happening. There's no indication that 8 RealNetworks' general counsel says to the 9 person supplying the information thank you for 10 collecting this information so that I can use 11 it in the complaint. That's just argument by 12 counsel. 13 We submit they haven't met their 14 burden to show lack of trustworthiness. 15 I will also note, Your Honor, that 16 informing your lawyer of something is not the 17 sort of thing that one would typically think 18 would be unreliable. 19 There's no indication that Real 20 employees are making this stuff up. 21 Lastly, 9158, PX 9158. This is an 22 e-mail that reports that a particular company, 23 here Victoria's Secret, is using Windows or 24 Microsoft's product, Windows Media Player 25 exclusively and that they are contractually 11713 1 obligated to show a particular event of 2 Victoria's Secret's using only the Word -- or 3 the Windows Media Player format. 4 Again, this is competitive information 5 that a business like RealNetworks would want to 6 know. 7 And even if, even if this information 8 was collected to be used in litigation down the 9 road, that is not the exclusive reason to know 10 this information. There is a business purpose 11 to know this information. 12 The Palmer case supports the 13 admissibility of the document. And the Vaccaro 14 case cited on page 6 of our brief supports the 15 admissibility of this document. 16 THE COURT: Next one. 17 MR. JONES: If I could just very 18 briefly, Your Honor. 19 THE COURT: Oh, sure, go ahead. 20 MR. JONES: Your Honor, the issue has 21 already been decided by this Court and it is 22 followed, but what Palmer teaches, which is 23 that those communications that are drafted and 24 prepared not in the regular course do not 25 qualify as business records. 11714 1 There was no indication that the 2 accident reports being prepared in the Palmer 3 case were somehow errant. 4 The Court was concerned, though, that 5 when folks are engaged in nonregular course 6 communications, then those communications lack 7 the regularity that provides the guarantee of 8 trustworthiness, that allows us to forego 9 cross-examination and to allow the document to 10 speak truth to the Jury, to be taken for its 11 truth. 12 So that's what Palmer teaches. That's 13 what this Court has applied again in striking 14 documents that are remarkably similar to this, 15 documents prepared by Novell that we cited at 16 the beginning of the argument, documents, 17 communications from officers of Novell to 18 Ms. Harlan, the general counsel of Novell. 19 These communications the Court has 20 already found don't satisfy the business 21 records exception. 22 Here we don't -- on just a couple of 23 particular responses, we don't know really what 24 -- on 9155, what business purpose could 25 possibly be being engaged in in these 11715 1 communications to Ms. MacArthur. 2 I would agree general counsels can 3 serve business purposes. But I haven't heard a 4 business purpose even suggested by Plaintiffs 5 for the communications at issue in 9155, or in 6 the other documents. 7 These are -- there's no request for 8 business assistance. There's been no proffer 9 of a permissible business use. 10 The inference is fairly drawn that 11 these are, in fact, being made. These 12 communications are motivated and being done not 13 for regular business purpose, but for the 14 purpose that we've described, the litigation 15 purpose. 16 The last one, 9158, suffers from this 17 motivation question, we believe. 18 It also suffers from this notion of if 19 9158 is admitted, then it will be admitted for 20 the truth of what the contract between 21 Victoria's Secret and Microsoft is. 22 There is an allegation as to what that 23 contract requires. And the allegation or the 24 assertion of what the contract requires is 25 being made in a negotiating or in sort of -- in 11716 1 a circumstance that lacks an indication or 2 guarantee of trustworthiness. 3 There is a complaint by a RealNetworks 4 person about something and the Victoria's 5 Secret person says, oh, well, we're 6 contractually required. 7 The best evidence of what the contract 8 requires would, of course, be the contract. 9 Instead, what will be before the Jury 10 is this assertion in e-mail that doesn't appear 11 to be done in the regular course as to what a 12 Victoria's Secret/Microsoft contract required. 13 That's not -- that's not worthy of 14 business records treatment. It suffers from a 15 negotiation potential problem. 16 It certainly, as the Special Master 17 found, suffers from the notion that this is not 18 a regularly conducted business activity 19 communication. 20 THE COURT: Anything else before we 21 move to the next one? 22 MR. GRALEWSKI: Without responding to 23 each point, Your Honor, just the last argument 24 that Mr. Jones made, I believe, is easily dealt 25 with to the extent the statement is untrue, 11717 1 Microsoft can impeach the witness with the 2 Victoria's Secret contract at the time this 3 issue arises. 4 There's no demonstration -- the burden 5 is not met that this e-mail is not in the -- 6 that it's in the context purely of litigation 7 and it lacks trustworthiness. 8 Unless Microsoft has anything further, 9 the next document is 9166. 10 9166, Your Honor, is a one and 11 one-quarter page internal RealNetworks e-mail. 12 And what is going on here is that the 13 author of the e-mail is recording discussions 14 that RealNetworks had with Sony Corporation 15 regarding an agreement for Sony to bundle 16 RealNetworks products on Sony's computers. 17 And we would submit that it is 18 certainly ordinary business practice to engage 19 in negotiations with a company like Sony and 20 try to get your products on their products. 21 And it's certainly an ordinary 22 business practice after those negotiations to 23 report to people at your company. We do that 24 all the time in all of our professions. 25 And, for those reasons, we believe 11718 1 that 9166 is an admissible business record. 2 MR. JONES: Your Honor, 9166, like PX 3 5260 and the other PXs that we described 4 earlier, is not a regular course communication. 5 It is a report that's clearly being 6 prepared, again, for this litigation quiver. 7 It's going directly to Kelly Jo MacArthur, the 8 general counsel. 9 And what Plaintiffs -- and by looking 10 at the document, it says for itself why this 11 document should not be admitted as a business 12 record. That is, as a document whose contents 13 are taken for their truth. 14 This document contains assertions -- 15 the last one is probably the most egregious, on 16 the last page. 17 Clearly, Sony is afraid of retaliation 18 from Microsoft for challenging them on 19 monopolistic Windows OS tying issues. 20 He's characterizing, Mr. Richards, 21 who, again, we will see testifying in the 22 remedies portion of the case against Microsoft. 23 Mr. Richards is providing fodder for 24 the antitrust allegations that are to come and 25 fodder for allegations that assuredly are being 11719 1 passed on to investigatory officials. This -- 2 THE COURT: So at this time in July 3 24th of 2000, you know for sure that 4 RealNetworks was contemplating litigation 5 and/or giving information to the federal 6 government? 7 MR. JONES: We know -- I'm not a 8 federal -- I wasn't involved -- I wasn't a 9 Department of Justice lawyer on the Microsoft 10 case. 11 I can tell you that we know that 12 RealNetworks at the time they filed their 13 complaint, one of their deputy general 14 counsels, David Stewart made a statement, look, 15 we've been cooperating with Department of 16 Justice throughout the case, but the settlement 17 isn't doing for us what we need, basically, and 18 their suit followed. 19 So the presumption I think is a fair 20 one that what's going on here is a building, 21 again, of the record. 22 I would, again, say what's the 23 business purpose for the communication? 24 THE COURT: Well, let's look at it. 25 Look at the first paragraph. Tell me how 11720 1 that's in anticipation for litigation. 2 And if what you say is true, and they 3 were in anticipation of litigation, they were 4 anticipating the federal government solving the 5 problem for them without having to sue. So 6 that's not even in anticipation of litigation. 7 MR. JONES: Well, they didn't have to 8 anticipate it because the litigation was going 9 and they were involved -- 10 THE COURT: Not their litigation. 11 MR. JONES: No, but litigation was 12 going on in which their allegations were being 13 put forward to the Department of Justice. 14 We know that because, again, findings 15 of fact in the government case about 16 RealNetworks -- 17 THE COURT: Okay. Tell me why the 18 first paragraph isn't something that would 19 happen in the regular course of business. 20 MR. JONES: This document suffers both 21 from the anticipation of litigation problem and 22 the reporting of negotiations problem. 23 Sony is not wanting to do something. 24 And what Sony -- what he's reporting is Sony's 25 purported reasons for not wanting to do 11721 1 something. 2 But he's reporting them as if they are 3 the truth. And if the document is admitted, 4 they will be taken as the truth. 5 THE COURT: So not in anticipation of 6 litigation. It's the negotiation part of your 7 argument? Is that what you're saying? 8 MR. JONES: This document has both 9 defects. 10 THE COURT: Okay. 11 MR. JONES: It has both defects. 12 And we see that at the end of the 13 first paragraph. 14 I mean, if the Court -- if the 15 directive of the Court is that we go and 16 identify precisely the problematic areas, we 17 can go and do that. 18 I think when the motivation -- but in 19 some respects, really what's the problem with 20 the document isn't some sort of technical 21 issue. It is the fact that it is not being 22 prepared in the regular course. 23 It is an extraordinary document that 24 is not part of the RealNetworks business, 25 that's not part of making software or 11722 1 distributing it. It's reporting back. 2 And it really is remarkably similar to 3 the DX -- or, I mean, to the Phase 6 documents 4 that Novell prepared for their general counsel 5 that this Court has found to be not worthy of 6 business record exception treatment. 7 THE COURT: It's not part of the 8 RealNetworks' business to negotiate with 9 another company to sell a product? 10 MR. JONES: It certainly is. It 11 certainly is. 12 But what the problem is is that the 13 communication from Mr. Richards is motivated -- 14 this is not a report to the president here's 15 what happened in the negotiations, they said, 16 we said, that type of thing. 17 This is, in fact, being conveyed to 18 Ms. MacArthur not in the regular course, for 19 the purpose of preparing her litigation 20 materials. 21 And we know that because he's using 22 terminology that's clearly indicating the basis 23 for his communication. He's talking about the 24 monopolistic practices of Microsoft. 25 He's talking about the strong 11723 1 antitrust legal problems that Microsoft was 2 facing in the U.S. 3 He's engaging in -- he's making his 4 report fit into the mold, into the template 5 that Ms. MacArthur is clearly preparing or that 6 Ms. MacArthur is contemplating of Microsoft's 7 conduct. 8 So this is not sort of a dispassionate 9 reporting of what's being done. This is a 10 report of events molded to fit a particular 11 template. 12 THE COURT: Is it possible in 13 communications such as this or in any 14 communication in a business that it can have a 15 dual purpose, being a business record and also 16 documenting something which they believe is 17 illegal or anticompetitive? 18 MR. JONES: I believe that could be 19 the case, and I would go back to the example 20 you provided, Your Honor, of the president who 21 said you've been reporting to me like this, but 22 now I want to start using these in our suit. 23 There, because of the past regularity 24 of the practice, I would -- the better argument 25 likely is that those communications, even 11724 1 though the motivation has changed, regularity 2 of the communications indicates that they 3 should be treated as business records. 4 Unless -- but, again, circumstances 5 might tell us it's a problem because the 6 salespeople may -- we may see spikes in numbers 7 or things happening with numbers that indicates 8 the salespeople are juicing the record to make 9 the president happy. 10 But absent -- and it would be 11 Microsoft's obligation in challenging the 12 document to show that kind of monopoly, when 13 you have a dual purpose. 14 But here the business purpose is 15 nowhere evident. There is no request to 16 Ms. MacArthur can you assist in the 17 negotiations. Giving you this info so that 18 when you meet with Sony later, you'll be armed 19 with the facts. That would be a legitimate 20 business purpose. 21 There's no request for any action from 22 her at all. Instead, this, like the other 23 communications we saw, are not for action, but 24 for file. For file and preservation, and then 25 perhaps passing on or molding into the body of 11725 1 a complaint. 2 THE COURT: Okay. Anything else on 3 this? 4 MR. GRALEWSKI: Yes, Your Honor. 5 I don't want to sound like a broken 6 record, but I guess I will. 7 The last point that Mr. Jones made is 8 argument. I can say the same thing. I can say 9 there's nothing in the record to show that she 10 was provided this information so that she could 11 draft the complaint. 12 That's just argument. 13 The simple fact of the matter is that 14 at a minimum this document, as Your Honor 15 suggests, has a dual purpose, to document 16 contractual negotiations with Sony Corporation. 17 Lawyers are involved in important 18 business deals all the time. This is a major, 19 major deal for RealNetworks. 20 Why wouldn't -- why wouldn't the 21 general counsel of RealNetworks be provided 22 with this information? I submit that this is 23 normal business activity. 24 Mr. Jones focused in part during his 25 argument on the last paragraph as one of the 11726 1 most egregious parts of the document in 2 suggesting most clearly why it's not a business 3 record and why it's hearsay. And that is where 4 Mr. Jones talked about the declarant, here Dave 5 Richards' opinion that Sony was afraid of 6 retaliation. 7 And the Court's aware, this isn't the 8 first time this issue has come up. We spent a 9 lot of time arguing about this issue with 10 respect to Ms. Harlan's testimony. A lot of 11 time arguing about this issue with respect to 12 Mr. Dixon's testimony. 13 And as we have argued, and we believe 14 the Judge's rulings support, a person who has 15 personal interactions with somebody is 16 perfectly able to offer an opinion like 17 Mr. Richards does here if it's based on their 18 personal knowledge. 19 And here it clearly is based on his 20 personal knowledge given that he has been 21 involved in lengthy negotiations with Sony over 22 at least eight months. 23 I guess in conclusion, Your Honor, 24 even if -- and there isn't any proof of this, 25 but even if this document were provided to the 11727 1 general counsel of RealNetworks for use in 2 future litigation, again, coming back to the 3 case law, the Wells Dairy case is another case 4 that supports the admissibility of this 5 document. 6 That is an Iowa case from 2004, 690 7 N.W. 2d 38 at 48. That's on page 5 of our 8 brief. 9 And that case holds that a document is 10 generated in anticipation of litigation if 11 prepared because of the pending or anticipated 12 litigation. 13 So there the Iowa Supreme Court 14 required that you, Your Honor, have to find to 15 exclude this document that this whole document 16 was created because of RealNetworks' decision 17 to eventually sue Microsoft. 18 And we would submit that that burden 19 can't be met here. This document was created 20 to document the negotiations between Real and 21 Sony Corporation. The Wells Dairy case, the 22 because of standard supports the admissibility 23 of this document. 24 And, again, the Vaccaro case. 25 Even if there is some contemplation 11728 1 that this document might be valuable in the 2 event of litigation down the road does not 3 convert it to an inadmissible document. 4 THE COURT: Anything else on this one? 5 MR. GRALEWSKI: Thank you, Your Honor. 6 MR. JONES: Nothing further, Your 7 Honor. 8 THE COURT: Next? 9 MR. GRALEWSKI: The next document, 10 Your Honor, is 9162. 11 And I did have one other thing, but 12 I'll make the point now because it's the same 13 issue. 14 Your Honor will recall that we've 15 spent a lot of time talking about documents 16 that are in the context of negotiation. 17 And I believe Microsoft would agree 18 that just because a document involves a 19 business negotiation does not automatically put 20 it into the bucket of an inadmissible business 21 record. 22 During Phase 6 we talked about a scale 23 -- a spectrum -- thank you, Mr. Jones -- a 24 spectrum, and we both agreed that you would 25 need to look at documents on a 11729 1 document-by-document basis and see where they 2 fell within that spectrum. 3 Here, 9162 is an e-mail from an 4 individual at IBM to an individual at 5 RealNetworks requesting an amendment to the 6 Real Player distribution agreement. 7 And then, subsequently, it's forwarded 8 on to other people. 9 First of all, this document doesn't 10 even involve negotiations with a company and 11 Microsoft which even in those situations where 12 arguably there might be a greater potential for 13 posturing, the Court has granted Plaintiffs' 14 appeal. 15 PX 7766 was an example where if the 16 Court recalls in Phase 6, Mr. Barksdale with 17 Netscape was engaged in e-mail communication 18 with Microsoft, and Mr. Barksdale was saying, 19 hey, we need X. It was an API phone book in 20 that instance. 21 They were involved in business 22 negotiations. We need something to make our 23 product work. 24 Even in that situation where it was a 25 competitor at odds with Microsoft sending an 11730 1 e-mail with Microsoft, the Court admitted that 2 document. 3 Here, Microsoft is not even involved. 4 There's no litigation certainly contemplated. 5 Certainly no litigation ever filed by IBM 6 against Real or vice versa on these issues. 7 Microsoft, to remind the Court, has 8 the burden of showing that the primary purpose 9 for the creation of this document, PX 9162, the 10 primary purpose was for litigation, and there's 11 no way that Microsoft can meet that burden in 12 this instance. 13 Thank you. 14 MR. JONES: Your Honor -- I'm sorry, 15 are you finished? 16 MR. GRALEWSKI: I am. Thank you. 17 MR. JONES: Your Honor, on 9162 18 Microsoft asserted and the Special Master 19 sustained an objection based on the 20 negotiations prong, if you will, of the 21 business records debate that this is a record 22 of a negotiation. 23 And, in particular, why this is 24 problematic is -- just to set the context, IBM 25 is communicating with RealNetworks. IBM does 11731 1 not want to include clearly a RealNetworks icon 2 in the system tray, which is those little icons 3 right next to the clock on a computer. They 4 don't want to give up their real estate, for 5 whatever reason. 6 The assertion in the document is that 7 they have a Microsoft-imposed requirement. 8 There's no citation of the 9 requirement. It's a bald assertion. But if 10 this record -- if this document is accepted as 11 a business record, then, that will be taken for 12 its truth. 13 Now, you can understand that IBM would 14 have a reason for not wanting to give space on 15 the system tray -- all space on the desktop is 16 valuable. It's sometimes called the most 17 valuable real estate in the world. 18 And so there would obviously be a 19 motivation for IBM to say, look, I don't want 20 this. And you can't get on there, and I'm 21 going to blame it on somebody else. That's as 22 old a motivation as there has been mankind is 23 to blame something -- blame something on 24 somebody else. 25 But, again, if this is taken as a 11732 1 business record, that blame assertion will be 2 taken as true with no opportunity for 3 cross-examination involved. 4 THE COURT: So are you saying this is 5 in anticipation of litigation or it's part of 6 negotiation? 7 MR. JONES: It's a negotiation. There 8 is no indication of litigation here. 9 THE COURT: Isn't the contract already 10 in existence and they just want an amendment? 11 MR. JONES: Well, there is a contract, 12 but what they're saying is we need to amend it. 13 We, being IBM. 14 We need to amend the agreement that we 15 have with RealNetworks. We want to -- what we 16 had initially said was we would put your icon 17 evidently in the system tray. 18 Now, we're saying we don't want it in 19 the system tray. We need to amend our 20 contract. 21 So this is a negotiation. It's an 22 attempt to amend what had already been agreed 23 to. 24 And, in the course of doing so, the 25 declarant is saying here's the reason we need 11733 1 it out. We need it out because of this 2 unspecified Microsoft requirement. 3 THE COURT: And what is the quid pro 4 quo here? What do they get in return? 5 MR. JONES: The negotiations are now 6 off and running. 7 I mean, we don't know how this is 8 played out. In fact, it's not clear that the 9 IBM person has, in fact, interpreted the 10 Microsoft, if there is a Microsoft requirement, 11 properly. 12 But there is clearly here a desire 13 from IBM to remove the RealNetworks icon from 14 the system tray. 15 And the justification is not we'll 16 give you some money, but we want it out because 17 Microsoft says we got to take it out. 18 That's a negotiation. If the evidence 19 -- if Plaintiffs want to say that Microsoft had 20 agreements that required IBM to reduce or 21 eliminate RealNetworks from the system tray, 22 then the evidence should go to that, should be 23 those agreements, not the assertions of what 24 those agreements say made by an IBM employee in 25 the context of negotiation with RealNetworks. 11734 1 MR. GRALEWSKI: And, in response, Your 2 Honor, as I indicated, after this original 3 e-mail, it does get forwarded along and there 4 are other e-mails on this same topic. 5 The e-mail on the second page, right 6 in the middle, that's not an e-mail back and 7 forth between parties negotiating a deal. 8 That's simply somebody within Real 9 reporting to other people within Real of a 10 request from IBM. 11 So I don't certainly agree to any 12 portion of this document should be stricken 13 from the record, but I do want to call that to 14 the Court's attention that this is simply -- 15 this particular e-mail is simply a situation 16 where internal within Real there's conversation 17 about a request made by IBM. 18 Two quick points on the main issues 19 here. 20 Number one, Plaintiffs would introduce 21 this document at our own peril. If it's not a 22 requirement what's being discussed here, 23 Microsoft can easily show the contract or show 24 that it's not a requirement and we'll suffer 25 the consequences. 11735 1 That is not an argument that should on 2 the front end exclude this document from 3 evidence. 4 Secondly, I'd like to refer the Court 5 to PX -- we all have our examples. 6 I'd like to refer the Court to PX8640. 7 That was a document at issue in the Phase 6 8 appeals. 9 It was a negotiation document, and 10 there, interestingly, it involved RealNetworks 11 again. There the other party was Sony, not 12 IBM. 13 And to remind the Court -- and I know 14 that you see hundreds of documents on a daily 15 basis, but 8640 involved a situation where 16 there was an e-mail from a Sony employee to 17 RealNetworks. 18 So not unlike the situation with the 19 one at issue now, 9162 where you have an e-mail 20 from IBM to RealNetworks. 21 In both instances, Microsoft was 22 arguing that the person sending the e-mail 23 wanted something from RealNetworks or wanted to 24 manipulate RealNetworks in some way. 25 In Phase 6, 8640 the argument was that 11736 1 because Sony told RealNetworks, quote, we 2 cannot afford the double encode costs at this 3 point, close quote, Microsoft was arguing that 4 they were posturing in a negotiation context to 5 get a better deal from RealNetworks. 6 And that's the exact same argument 7 they're making here. 8 In Phase 6, Your Honor granted 9 Plaintiffs' appeal and admitted 8640. We 10 submit that the legal issues are identical and 11 this document should be treated similarly to 12 8640. 13 THE COURT: Anything else on this one? 14 MR. GRALEWSKI: Not from Plaintiffs, 15 Your Honor. 16 MR. JONES: Just a very brief 17 observation. 18 Your Honor, it's not the case that a 19 trial should work so that documents that don't 20 qualify for business records treatment can 21 nevertheless be shown because, well, the other 22 side can always just put in a proper business 23 record to rebut it later. That's not the way 24 things work. 25 If a document doesn't meet the 11737 1 business record requirement, if a document is 2 being prepared like this one, clearly in the 3 context of negotiation, then that document 4 shouldn't be treated as if its contents were 5 true and that's the end of the matter and do 6 not require parties to waste time rebutting 7 matters that are not trustworthy. 8 And I would agree certainly the Phase 9 6 appeals addressed negotiation documents. 10 Some were excluded, some, as counsel pointed 11 out, came in. And the reason for that is not 12 that the principle is wrong. The reason is 13 that there is a spectrum. 14 And there are documents where -- there 15 are indications or there are reasons to say 16 look at, that looks like there is no motivation 17 to make things up, there's no -- to puff, to 18 posture. That's coming in. 19 Even though it's in a negotiation 20 context, you know, like an opening price or 21 something, that's going to come in. 22 But where there were indications that 23 suggested otherwise, that there was posturing 24 or puffing going on, then, in fact, those 25 documents are not admissible as business 11738 1 records. They are not accepted for their 2 truth. 3 THE COURT: Anything else? 4 MR. GRALEWSKI: No, Your Honor. 5 THE COURT: 9164? 6 MR. GRALEWSKI: 9164, Your Honor, not 7 entirely dissimilar legally from the prior 8 exhibit, although there are different facts 9 involved. 10 What was going on with 9164, there are 11 two e-mails from Sony Japan employees regarding 12 terms of an anticipated business deal with 13 Real. There's no dispute between Sony and 14 Real. 15 Any issues here go to weight, not 16 admissibility. 17 This is a negotiation document that we 18 believe should fall on the side of the spectrum 19 weighing in favor of admissibility. 20 MR. JONES: 9164, Your Honor, you 21 won't be surprised to believe Microsoft falls 22 on that other side, on the side where it is not 23 trustworthy, and this is why. 24 If you look -- the part that creates 25 the concern for Microsoft is on the first page 11739 1 of 9164. 2 About a third of the way -- two-thirds 3 of the way down, under what's marked as one 4 prior commitment. 5 Our license agreement -- and this is 6 Sony speaking. Our license agreement with 7 Microsoft prohibits to change the status 8 related to the Windows Media Player including 9 changing file association. 10 Our license agreement with Microsoft 11 prohibits us to preinstall applications as 12 start-up status. 13 THE COURT: Okay. 14 MR. JONES: Again, you've got a party, 15 Sony, in negotiation with RealNetworks not 16 wanting to do something. 17 What don't they want to do? They 18 don't want to have preinstalled applications in 19 the start-up process. They don't want 20 RealNetworks starting up when the computer 21 starts up. 22 Lots of pre- -- if you have a lot of 23 things starting up when the computer starts up, 24 that slows the time that the user has to sit 25 there and wait for his computer to boot up. 11740 1 So OEMs clearly have an incentive for 2 their product to be perceived as lickety-split 3 fast. They don't want to have -- what's 4 clearly being communicated here, Sony does not 5 want to have the RealNetworks product as part 6 of the start-up status. 7 THE COURT: So it's not even 8 negotiable? 9 MR. JONES: Well, we don't know. They 10 are saying we don't want it. And the reason 11 that they're trying to make and isn't that -- 12 that may be what they are trying to create the 13 impression of, this is not negotiable. 14 And the way they do that is they say 15 don't blame me, I've got this obligation from 16 Microsoft. 17 So that may well be the motivation to 18 create the impression that this is a 19 nonnegotiable item or to create leverage for 20 other matters in negotiation. 21 But -- and I see the Court is 22 perplexed. 23 THE COURT: No, I'm following you. 24 MR. JONES: Okay. You're following. 25 You're just not buying it. 11741 1 THE COURT: I'm always perplexed. 2 MR. JONES: So the motivation is 3 there, as the Court indicated, to make this 4 appear to be a nonnegotiable item or an item 5 that Sony will, if it's to be changed, will 6 require some compensation, some consideration 7 in return. 8 THE COURT: How could they change the 9 agreement with Microsoft without getting sued? 10 MR. JONES: Your Honor, the Court is 11 making the assumption that Sony's articulation 12 of what the Microsoft agreement says is true. 13 We don't know that. This is Sony's assertion 14 of what the Microsoft agreement requires. 15 This is an assertion being made to 16 RealNetworks who doesn't have -- who don't have 17 the Microsoft agreement. This is an assertion 18 being made to RealNetworks about what Sony and 19 Microsoft have agreed to. 20 So there is -- you know, RealNetworks 21 can't know otherwise. RealNetworks just knows 22 that it's being subjected to a contract 23 negotiation ploy in which they, Sony, is saying 24 we can't do this. 25 So RealNetworks is either going to 11742 1 have to sweeten the pot or extract some other 2 concession or perhaps, as Sony wishes, simply 3 drop the matter and move on to something else. 4 But the Court, again, has identified, 5 I think, why this document should not be 6 admitted as a business record as asserting the 7 truth as a document that can be taken for its 8 truth. 9 Because the natural inclination is to 10 read it and say Sony and Microsoft have an 11 agreement that prohibits Sony from putting this 12 icon in the start-up tray. I'm sorry, in the 13 -- yeah, in the start-up process. 14 THE COURT: So last page is not 15 admissible either? 16 MR. JONES: I'm sorry? 17 THE COURT: The last page isn't 18 admissible either? 19 MR. JONES: The last page of the 20 document? 21 THE COURT: Page 5. 22 MR. JONES: To the extent that it 23 doesn't -- 24 THE COURT: About where they are going 25 to do their negotiations? 11743 1 MR. JONES: No. What we would say -- 2 THE COURT: The venue is going to be 3 Tokyo? 4 MR. JONES: No, that would not be -- 5 in fact, that's a good example. There are 6 communications that go on in negotiations where 7 clearly there's no motivation to posture. 8 THE COURT: How do you know it's true? 9 It's going to be Tokyo? 10 MR. JONES: Because I suspect that the 11 parties want to get a deal done, they'll try 12 and end up in the same place. And there will 13 be heck to pay if these guys show up in Tokyo 14 and there's nobody there to meet them. 15 So I think in that instance we have a 16 pretty good assurance and Microsoft wouldn't 17 say that a communication like that should be 18 excluded as a negotiation. 19 But, here, the communication that we 20 are concerned with where it's an assertion of 21 what a Microsoft agreement requires in an 22 instance where Sony has an interest in not 23 doing something RealNetworks wants to do, 24 that's different. That shouldn't be taken for 25 its truth. 11744 1 THE COURT: Anything else? 2 MR. GRALEWSKI: Very briefly, Your 3 Honor. 4 I think that carried to it's logical 5 extreme, what Mr. Jones is advocating, the rule 6 that he's advocating is if Mr. Bradford is on 7 the stand, he cannot testify that Microsoft -- 8 the Microsoft contract that Novell had required 9 us to do X, Y, or Z or if Rick Apple is on the 10 stand, he cannot testify that our contract with 11 Microsoft required us -- 12 THE COURT: Well, this is different. 13 This is Sony telling Real what their contract 14 is with Microsoft, not what Real is saying 15 their contract is with Microsoft. 16 MR. GRALEWSKI: Right. This is Sony 17 -- I think what Microsoft -- 18 THE COURT: It's a third party. It's 19 going through a third party. Mr. Bradford 20 hearing right from the guy who saw the 21 contract. He had a contract with Microsoft. 22 RealNetworks doesn't have a contract 23 with Microsoft, Sony does. And they're telling 24 RealNetworks what's in the contract, aren't 25 they? 11745 1 MR. GRALEWSKI: Exactly. Exactly. 2 THE COURT: There's not a difference 3 there? 4 MR. GRALEWSKI: In my analogy, 5 Mr. Bradford was saying what was in the Novell 6 contract and Mr. Apple was saying what was in 7 their contract. 8 Here, Sony is telling Real what's in 9 their contract. 10 THE COURT: In their contract with 11 Microsoft? 12 MR. GRALEWSKI: Correct. 13 THE COURT: Okay. 14 MR. GRALEWSKI: And Mr. Bradford was 15 -- and Rick Apple with ZEos had a contract with 16 Microsoft and he was permitted to tell and 17 state what the terms of that contract were. 18 The rule can't be that a party cannot 19 state what the terms of their own contract is. 20 And it seems like that's what 21 Mr. Jones is saying that Sony shouldn't be able 22 to do. 23 THE COURT: I think what Mr. Jones is 24 saying, it's untrustworthy whether or not Sony 25 is communicating the right information to 11746 1 RealNetworks as to what their contract is with 2 Microsoft. 3 MR. GRALEWSKI: I agree. 4 THE COURT: Okay. So we agree on 5 that. 6 MR. GRALEWSKI: Yeah. 7 THE COURT: But you say it's reliable? 8 MR. GRALEWSKI: Well, I'm saying that 9 carried to its extreme, a party couldn't 10 testify -- 11 THE COURT: Oh, I see what you're 12 saying. Okay. 13 MR. GRALEWSKI: Couldn't testify about 14 what its terms were of its own contracts and 15 that can't be the law. 16 THE COURT: Okay. You were 17 analogizing. 18 MR. GRALEWSKI: Okay. That's all I 19 have, Your Honor. 20 MR. JONES: I've got a quick response 21 to that, Your Honor. 22 The big difference between the 23 instance that he's talking about and this in 24 9166 or -62 is that Mr. Bradford is on the 25 stand. He's subject to cross-examination live. 11747 1 If this document is said to be a 2 business record, it comes in, and it is 3 presumed to be true. And I cannot have the 4 document sit there and answer my questions on 5 cross-examination. 6 The declarant is in Japan. He's 7 outside the subpoena power of this Court. But 8 we have to take this assertion of what the 9 Microsoft agreement says as true. 10 Now, there may be a way we can 11 introduce the document and have someone 12 interpret it, but that's a side show that 13 shouldn't be necessary when the underlying 14 document is not qualified as a business record. 15 THE COURT: Anything else on this one? 16 MR. GRALEWSKI: No, Your Honor. 17 THE COURT: Very well. We'll continue 18 tomorrow. 19 MR. GRALEWSKI: Thank you, Your Honor. 20 THE COURT: You've got two more or 21 three more? 22 MR. GRALEWSKI: Three and a half. 23 THE COURT: Three and a half. 24 MR. GRALEWSKI: There's four actually. 25 One that's been broken into two. 11748 1 THE COURT: Okay. I only see three 2 more tabs. Am I missing one? 3 MR. GRALEWSKI: Tomorrow we will -- 4 oh, you're right, Your Honor. There are three. 5 THE COURT: Make sure I've got the 6 right one. 7 MR. GRALEWSKI: I had an additional 8 tab. 9 THE COURT: Okay. See you tomorrow. 10 MR. JONES: Thank you, Your Honor. 11 MR. GRALEWSKI: Thank you. 12 (Proceedings adjourned at 4:27 p.m.) 13 14 15 16 17 18 19 20 21 22 23 24 25 11749 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 1st 19 day of February, 2007. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25