10927 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 XL 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 8:20 a.m., January 30, 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 10928 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 RICHARD M. HAGSTROM 7 MICHAEL R. CASHMAN MICHAEL E. JACOBS 8 Attorneys at Law Zelle, Hofmann, Voelbel, 9 Mason & Gette, LLP 500 Washington Avenue South 10 Suite 4000 Minneapolis, MN 55415 11 (612) 339-2020 12 ROBERT J. GRALEWSKI, JR. 13 Attorney at Law Gergosian & Gralewski 14 550 West C Street Suite 1600 15 San Diego, CA 92101 (619) 230-0104 16 17 18 19 20 21 22 23 24 25 10929 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JOSEPH E. NEUHAUS Attorneys at Law 4 Sullivan & Cromwell, LLP 125 Broad Street 5 New York, NY 10004-2498 (212) 558-3749 6 KIT A. PIERSON 7 Attorney at Law Heller Ehrman, LLP 8 333 Bush Street San Francisco, CA 94104 9 (415) 772-6000 10 STEPHEN A. TUGGY Attorney at Law 11 Heller Ehrman, LLP 333 South Hope Street 12 Suite 3900 Los Angeles, CA 90071-3043 13 (213) 689-0200 14 BRENT B. GREEN Attorney at Law 15 Duncan, Green, Brown & Langeness, PC 16 Suite 380 400 Locust Street 17 Des Moines, IA 50309 (515) 288-6440 18 19 20 21 22 23 24 25 10930 1 STEVEN J. AESCHBACHER Attorneys at Law 2 Microsoft Corporation One Microsoft Way 3 Redmond, WA 98052 (425) 882-8080 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10931 1 (The following record was made out 2 of the presence of the jury at 8:40 a.m.) 3 THE COURT: You wanted to make a 4 record? 5 MR. TULCHIN: Your Honor, just two 6 things, if I may. 7 THE COURT: Okay. 8 MR. TULCHIN: First, the Court ruled 9 in November on a motion in limine concerning 10 circumstances under which Novell or DRI 11 acquired beta copies of Windows 3.1, and on 12 January 23 the Court, if I may put it this way, 13 extended that ruling to cover Windows 95 at the 14 request of Plaintiffs' counsel. 15 I would just like to make an offer of 16 proof. We've put it in writing, Your Honor, 17 and we'll file this as to the evidence that we 18 would have used with Mr. Bradford had the 19 rulings not gone the way they did. 20 THE COURT: Had the Court ruled the 21 correct way? 22 MR. TULCHIN: I wasn't going to put it 23 that way, Your Honor, but you know the way we 24 feel about it. 25 Some rulings go for you and some 10932 1 rulings go against you. 2 And we'll file the original of that, 3 Your Honor. 4 And secondly, Your Honor, I don't 5 think this will be a matter of controversy, but 6 at the end of the day on Thursday, Ms. Conlin 7 offered nine Plaintiffs' exhibits into 8 evidence. 9 As to seven of them, we have no 10 objection. 11 As to two, they have to be explained a 12 little bit. 13 Plaintiffs' Exhibit 5473 originally 14 was four pages, and we discussed that exhibit 15 during the course of the examination of 16 Mr. Bradford, and we indicated that we had no 17 objection to the first two pages, and those 18 were the only two pages used. 19 So if the exhibit being offered is 20 5473 in its revised form; namely, only the 21 first two pages, then, of course, we have no 22 objection, and I just wanted to make sure 23 that's what was being offered when Plaintiffs' 24 counsel said 5473. 25 MS. CONLIN: That's correct. 10933 1 MR. TULCHIN: Thank you. 2 In that case there's no objection. 3 Lastly, Your Honor, there's 4 Plaintiffs' Exhibit 2266, and there there was 5 some embedded hearsay that the Special Master 6 and the Court had ruled upon. 7 I've never seen a redacted version of 8 that, but if there's a redacted version that 9 removes the embedded hearsay, which should be 10 removed, as I think everyone agreed, then that 11 we have no objection to either. 12 THE COURT: Okay. 13 MS. CONLIN: Your Honor, I also need 14 to correct the record because it says that I 15 offered -- I had it right in front of me and 16 I've caused it to disappear. 17 The record says that I offered 18 Plaintiffs' Exhibit 1020, and in fact, it is 19 10020 and -- 20 THE COURT: Oh, okay. 10020? 21 MS. CONLIN: Correct. 22 THE COURT: Yeah, I wrote it down that 23 way too. 24 MR. TULCHIN: I think I understood 25 that as well. 10934 1 THE COURT: Okay. That's already been 2 admitted. Okay. It's corrected. 3 Sorry about that. 4 Are you going to do a redacted version 5 on that 2266? 6 MS. CONLIN: You know, Your Honor, I 7 want to look at it and I don't happen -- it's 8 one of the 10,000 I don't happen to have with 9 me this morning, so if I may have a little bit 10 of time to check that. 11 THE COURT: And when you do that, at 12 the appropriate time, then I'll let the jury 13 know that all these have been admitted at that 14 time. 15 MR. TULCHIN: Thank you, Your Honor. 16 THE COURT: You're welcome. 17 MS. CONLIN: One more thing, Your 18 Honor. 19 533 was offered, and, in fact, only 20 one page of that is admissible so we have 21 renumbered Exhibit 533, the one admissible page 22 as 533A, and we offer that at this time. 23 THE COURT: Okay. Could I just 24 substitute it for the 533? 25 MS. CONLIN: Yes, Your Honor. 10935 1 And it's page -- the page that ends in 2 50 is the one that was submitted. 3 THE COURT: Do you want to show it 4 to -- 5 MS. CONLIN: I did, Your Honor. 6 THE COURT: You showed it to 7 Mr. Holley? 8 MS. CONLIN: I did. 9 THE COURT: Okay, I corrected that. 10 MR. TULCHIN: No objection to that, 11 Your Honor, 533A. 12 THE COURT: Okay. That will be the 13 one instead of 533. 14 MR. TULCHIN: Thank you, Your Honor. 15 THE COURT: You're welcome. 16 (An off-the-record discussion was 17 held.) 18 (The following record was made in the 19 presence of the jury at 8:32 a.m.) 20 THE COURT: Everyone else may be 21 seated. 22 Glad you made it on this nice warm 23 morning. 24 Call your next witness. 25 MS. CONLIN: Thank you, Your Honor. 10936 1 We would call Theodore Lieven. 2 THE COURT: Approach and be sworn, 3 sir. 4 THEO LIEVEN, 5 called as a witness, having been first duly 6 sworn, testified as follows: 7 DIRECT EXAMINATION 8 BY MS. CONLIN: 9 Q. Tell us your name, please. 10 A. My name is Theo Lieven. T-h-e-o, 11 Lieven, L-i-e-v-e-n. 12 Q. And where do you live? 13 A. Belgium. 14 Q. What are you currently doing? 15 A. I'm now the president of a venture 16 capital company which invests in young 17 companies and startup, and I'm also the general 18 minister of a nonprofit organization that helps 19 them to make business plans and all that. And 20 I do some other things in my free time, but 21 this is my full-time job. 22 Q. Were you the founder and CEO of the 23 OEM called VOBIS? 24 A. Yes, the cofounder with my partner 25 Rainer Fraling. We formed the company in 1975. 10937 1 Q. And your partner's name is what? 2 A. Rainer, R-a-i-n-e-r, Fraling, 3 F-r-a-l-i-n-g. 4 Q. We may be doing a lot of spelling this 5 morning. 6 A. Okay. 7 Q. The things that you do in your spare 8 time may be of some interest. It's my 9 understanding that you are a student? 10 A. Again, yes. I stopped studying 11 mathematics in 1970 -- in 1975 because after 12 some years of studying mathematics I knew that 13 will be not the right job for me, and at that 14 time the first electronic calculator came out, 15 Hewlett-Packard Texas Instruments, and we sold 16 that to our cofellows at the university in our 17 hometown in Germany. 18 And this was a free-time job the first 19 year, second year, but then it got bigger and 20 bigger, and you know how this industry grew up, 21 and so I couldn't study anymore. 22 And after we sold our shares to The 23 Metro Company in Germany, I thought I should 24 start again -- 25 Q. Okay. When did you sell your shares 10938 1 to the -- 2 A. 1995. And so I had some more time, 3 and I got a master degree in business 4 administration in 2004, and -- no, in 2005, and 5 in economics and 2006, last year, in April, and 6 now I'm working on a Ph.D. in -- at the 7 University of St. Gallen in Switzerland. 8 Maybe you know that; it's quite famous 9 business university, so -- 10 I did it on the other way around. 11 Normally you first study and then you go to 12 work. I first work and then I study. 13 Q. You also are -- well, why don't you 14 tell us a little bit about your background. 15 A. What do you mean by background, family 16 or -- 17 Q. No. The question I'm asking you is 18 supposed to get you to tell the jury about your 19 concert piano playing. 20 A. Yes, this is another story. 21 I intended to become concert pianist 22 until I was -- until the age of 18, but my 23 piano teacher said maybe you are not good 24 enough for this very tough -- it's a business, 25 it's profession. But I never stopped playing 10939 1 piano, and I have later played as an amateur 2 with some famous orchestras also here in the 3 United States, with the Zubin Mehta in Santa 4 Barbara, in the Lincoln Center and Alice Tulley 5 Hall in New York. 6 But this is -- I won't say just for 7 fun, it is very difficult to play in the public 8 piano with orchestra, but I liked it. 9 Q. All right. And you mentioned that you 10 and Mr. Fraling founded a company while you 11 were still in school, and what was its name to 12 begin with? 13 A. The first name was Vero, V-e-r-o. We 14 always liked Latin names, V-e-r-o. But there 15 was a conflict with an older company, so we 16 changed that name in 1980 to VOBIS, V-O-B-I-S. 17 But the same company, only the name that has 18 been changed. 19 Q. And you came Saturday from Belgium, 20 and did we work together on a time line for the 21 jury to help to put your testimony in context? 22 A. Yes, we did. 23 MS. CONLIN: At this time, Your Honor, 24 I would ask that the time line which we have 25 marked Exhibit 1033 be displayed. It's two 10940 1 pages so we'll have to go back and forth. 2 THE COURT: Any objection to its 3 display? 4 MR. HOLLEY: Not to its display, Your 5 Honor. 6 THE COURT: Very well. You may 7 display it. 8 Q. Mr. Lieven, 1975 you founded the 9 company, and then why don't you just sort of 10 walk us through the development of the company, 11 if you would. 12 A. Yes. It is quite parallel to the 13 development of that industry. From the first 14 electronic scientific calculator from 15 Hewlett-Packard, it was not a long way to the 16 first personal computer. It was Apple II. It 17 was Commodore Pat 2001, and we grew up with 18 that. 19 So we founded our company at the right 20 moment. We could screw a little bit 21 automatically. We only had to follow the 22 market. 23 And all this milestones which have 24 been in the market, they -- we saw that 25 milestones with the first IBM compatibles, and 10941 1 at one point we said that what others can do to 2 build IBM compatibles, we can do ourselves. 3 And in 1978 -- in 1987, 1988, we 4 decided to build up our own line of computers, 5 of IBM-compatible computers, and the name was 6 High Screen. 7 Q. So you became a computer manufacturer, 8 an OEM, in I think it says 1988. It was 1988? 9 A. Right. The first advertising what we 10 did for High Screen computers was in July 1988. 11 Q. Did you sell other brands of computers 12 as well? 13 A. Before, yes, but we were not very -- 14 we didn't like it too much because they had 15 long time for delivery. They didn't follow the 16 markets fast enough. 17 And then we said what they can do, why 18 can't we do that. And so I flew to Far East. 19 I flew to Silicon Valley to go to Intel, and we 20 asked them can we buy these parts from you or 21 these components. 22 And then to put them together is not 23 very difficult. We need some good technicians. 24 And we -- then we decided to do it ourselves. 25 Q. When you first started you had retail 10942 1 stores? 2 A. The first retail store we have had in 3 1976. The second one in 1981. In 1988 I think 4 we have had 20, and then I think in 1991, we 5 have had hundred, and at the end when I left 6 the company we have had thousand retail stores 7 in all of Europe. 8 Q. So you started out in Germany; 9 correct? 10 A. Yes. 11 Q. And then did you expand into all the 12 countries of Europe? 13 A. No. Ten countries, including Spain, 14 Portugal, Italy, France, Switzerland, Austria, 15 Belgium, Luxembourg, Netherlands, and Poland 16 also. 17 Q. Before you sold the High Screen 18 computers of your own, when someone would come 19 into your store, they could buy computers and 20 various kinds of software as well? 21 A. Software was not a big issue at that 22 time for us so we -- we concentrated on the 23 hardware, and the people bought software from 24 other sources, from distributors or from 25 others. 10943 1 So we bought the box from Commodore, 2 Mac PC 10 or from -- Amstrad is another name in 3 Europe which was very famous. And then we were 4 a retailer for them. But we had nothing to do 5 with the R and D of those computers, with their 6 research and with the development of those 7 computers. 8 Q. Are you familiar with the concept of 9 the Egghead stores here in the United States? 10 A. I knew about that, but this must be in 11 the very first -- in that -- was it in 1980? 12 In the '80s? I don't know. 13 Q. But those stores you would go and you 14 could buy all kinds of computer-related things 15 including computers. By the '90s, was that the 16 kind of retail store that you had? 17 A. Not all kind of computers. We then 18 concentrated on our High Screen computers. 19 This was our IBM-compatible brand for those 20 computers. 21 And sometimes we try to sell also IBM 22 computers, but to be honest, they couldn't 23 compete with ours in pricing. So -- the 24 technology was the same. They bought Intel 25 CPUs. They bought memory chips from Texas 10944 1 Instruments like we did, but we can do it much 2 faster and much cheaper. 3 Q. All right. So but in the -- could you 4 buy -- let's pick a year 1995. 5 If I came to your store, would I be 6 able to buy application software in a box? 7 A. In the mid of 1990s, yes. From 1992 8 on, we saw that there is a demand for 9 application software for our customers. At 10 that time we did applications software a lot. 11 So from 1993 on. 12 Q. And I could buy a High Screen computer 13 of various models; correct? 14 A. I think 15 or 20. We always tried to 15 have a good choice for the customer. 16 Q. When you first produced the High 17 Screen computers, did you bundle or insert an 18 operating system? 19 A. I think the first, very first -- it's 20 called the motherboard where the CPU, where the 21 microprocessors on, which we bought from 22 Taiwan, from Far East. 23 We got a bundled operating system with 24 it, but it was very expensive. So we said we 25 should have -- as the quantities grew up, we 10945 1 should have the contract with somebody to 2 bundle with every computer operating system 3 because without operating system, computer does 4 not run. 5 But this started in one year later, in 6 1989. 7 Q. At the time you first decided you 8 wanted to bundle an operating system with your 9 own computer, the High Screen computer, did you 10 approach Microsoft? 11 A. Of course, this was number one in 12 operating systems. 13 Q. And what was the outcome of that? 14 A. We had negotiations, not myself, but 15 one of our people with them. I think it was 16 somebody from the OEM division from Redmond, 17 from United States. 18 I remember that I signed a contract 19 for a bundling of I think MS-DOS 4.01 and 20 Works. Works was an application software. 21 It's the former Office. 22 I signed it, but it came -- did not 23 come back from United States because they said 24 we don't agree to that price. Prices should be 25 higher. 10946 1 Q. So what did you do next? 2 A. I was a little bit upset, you know. 3 We had all this discussions, I signed it, and I 4 thought it was a fixed deal. 5 And at that time we have been 6 contacted by Digital Research in 1989. They 7 had an operating system then, 3.41, which was 8 similar, even a little bit better than the 9 4.01. And we tested it and it worked, and they 10 offered us to buy their copies. I think the 11 first shipment was 20,000 copies for a price of 12 $15, $14. 13 And we said, okay, we have an 14 alternative to Microsoft, why don't we buy 15 that. So then we bundled for a long time this 16 DR-DOS for our computers. 17 Q. You did bundle Works a little bit 18 later from Microsoft, Works? 19 A. Works, yes, but I think this was a 20 finished good. This was not on OEM basis. 21 Q. When you first used the Digital 22 Research product, DR-DOS 3.41, did you put it 23 on the hard drive? Or why don't you tell us 24 sort of the way in which the operating system 25 was distributed. 10947 1 A. It changed a lot in those seven years, 2 from '88 to '95. 3 At the very beginning you got this 4 five-and-a-quarter-inch diskette, you know that 5 big of one. 6 And when you wanted to boot up the 7 computer you put it in and switched it on, and 8 then you hear that noise from the disk drives, 9 and then it boots up. That was very simple. 10 So you got the diskette from Digital 11 Research, put it in, and then it worked. 12 And then you had to work the computer 13 and could load other applications on it. 14 Q. Did you put the disk into the box with 15 the computer? 16 A. Yes, bought a special separate box 17 with a disk and a manual. I think they were 18 always two diskettes. 19 Q. And then after that there was the 20 master disk or the golden master that you put 21 on the hard drive? 22 A. Then we copied those diskettes 23 ourselves later because it was too expensive. 24 I think it was not convenient for Digital 25 Research. 10948 1 We got -- when there was a new version 2 of something, we got these gold diskettes or 3 these master diskettes which had been the 4 master for all the other copies and we made the 5 copies. 6 And then later on we said, when the 7 hard disk drive was coming in '92 -- '91, '92, 8 we put everything, installed the operating 9 system on this hard disk drive, so we didn't 10 need any more diskettes. 11 The customer didn't need any more to 12 load it up with the floppy disk drive. And 13 when you switched it on, automatically it 14 booted from the hard disk drive. 15 Q. At some point when you began with the 16 master disks, did Digital Research issue or did 17 you buy from Digital Research holograms? 18 A. I think this was later. I think -- 19 there was a point when we had -- when we copied 20 the diskettes ourselves because Digital 21 Research must have been sure that it was a 22 legal copy before they delivered those 23 diskettes to us themselves. 24 So the physical diskette came from 25 them, but then we copied. And to be sure that 10949 1 it's a legal copy, we got holograms from them, 2 and then we had to put the hologram on the 3 diskette. 4 So we got for each set of operating 5 system two holograms because we have copied two 6 diskettes and we put one each on the diskette, 7 and so it worked. It was easier for them and 8 for us. 9 Q. So in '89 and '90, the only operating 10 system that you were using with High Screen 11 computers was DR-DOS? 12 A. Yes, mainly -- there was some who 13 insisted to get a 4.01, but that we bought from 14 distributors in Germany who wanted to have it, 15 and you have to pay I think extra price of 16 $149, but this was only few quantity. 17 The bundling, the bundle with the 18 computer was DR-DOS, the only one. 19 Q. All right. And in this period -- 20 let's say by 1990, do you know what your market 21 share was -- and at that time you were just in 22 Germany; correct? 23 A. Yes. And Austria. We started the 24 first store in 1989, in September, in Austria, 25 in Vienna. 10950 1 Q. What was your market share, 2 approximately? 3 A. I don't know. In Germany, 3, 4 4 percent, not so much. We were just starting. 5 Q. And there was regular and steady 6 growth? 7 A. Sometimes it -- it didn't double, no. 8 But the average was 50, 60 percent from year to 9 year from '88, '89. We sold 50 percent of the 10 company in '89 to The Metro Group. It's the 11 second largest retail group behind I think 12 Wal-Mart in the world. And they were very 13 powerful, and they help us to get rid of this 14 financing problems because that is for young 15 companies is the most difficult to get finance. 16 And then we quick grew like a missile. 17 We could -- every year was 50, 60 percent, and 18 this was a great time until '93. 19 I think average was 60 percent year, 20 per year. 21 Q. All right. Did there come a time when 22 you were the largest OEM in Germany? 23 A. I think by 1992 it may be or 19- -- we 24 have been number three in Europe in 1994 or 25 something. And number 15 worldwide in 1995 or 10951 1 something like that. I didn't follow that. 2 Sometimes it is nice to say we are the 3 biggest, but when it grows automatically, you 4 have other concerns than those reports every 5 year. 6 Q. All right. Now, in 1989, when you 7 first loaded the operating system -- let me 8 back up a minute and let's go to Exhibit 5272. 9 MS. CONLIN: May I approach, Your 10 Honor? 11 THE COURT: Yes. 12 MS. CONLIN: Darin, can we see 5272 -- 13 well, wait a minute. 14 Q. Do you see that number in front of 15 you? 16 A. Yes. 17 Q. Would you tell the jury just briefly 18 for the purpose of identification only what 19 that document is? 20 A. This is an advertising page from a 21 weekly magazine in Germany. The name of the 22 magazine is Stern. It means something like -- 23 written S-t-e-r-n. 24 Q. Did your company place this ad? 25 A. Yes, we placed this ad I think in the 10952 1 second half of 1989. 2 Q. And in the ad, do you compare DR-DOS 5 3 point -- I'm sorry, DR-DOS 3.41 with MS-DOS 4 4.01? 5 A. Yes. 6 MS. CONLIN: Your Honor, we would 7 offer Exhibit 5272. 8 MR. HOLLEY: Objection, Your Honor. 9 Hearsay, unless there's some nonhearsay purpose 10 for this. 11 THE COURT: Sustained. 12 MS. CONLIN: Well, Your Honor, perhaps 13 we should approach for just a moment, and I can 14 explain to the Court and counsel what the 15 purpose of this exhibit is. 16 (Off-the-record sidebar discussion was 17 held.) 18 Q. Rather than displaying the document, 19 I'm just going to ask you some questions from 20 that period. 21 In Germany, are their rules different 22 than in the United States concerning comparing 23 two products? At this time in 1989. 24 A. Yes. It was not allowed to compare 25 products in advertising, even if you tell the 10953 1 truth. 2 Q. And as a result of running the ad that 3 is 5272, did someone file a complaint against 4 you or was there some process? 5 A. I don't remember whether it went to a 6 process, but we have got a letter who said we 7 should stop that. And I think we said, okay, 8 we stop it because it's -- 9 Q. All right. Now, did you have visits 10 from representatives of Microsoft? 11 A. Yes, frequently because we contact 12 them ourselves. We signed that one contract, 13 which was not re-signed from Redmond. 14 Q. So you signed that contract, but I'm 15 talking about now after that contract came back 16 and was disapproved, did you continue to see 17 people from Microsoft? 18 A. Of course, yes. 19 Q. And what did they seek to do? 20 A. They recognized that we were quite 21 successfully bundling the Digital Research 3.41 22 with our computers. They saw that we grew up. 23 And then they asked us why don't you bundle our 24 MS-DOS 4.01 with it. 25 And because we were very interested in 10954 1 the Works 2.0, this application package, they 2 said we can offer you a good contract for both 3 together, for MS-DOS 4.01 plus Works 2.0, but 4 we said we only like Works 2.0 and we would 5 like to stay with the DR-DOS 4.01. 6 Q. All right. Now, during this time 7 frame, are you competing with other OEMs or are 8 you the only sort of retail outlet? 9 A. This was really unique. We had been 10 the only one of the OEMs who had their own 11 retail stores that made us so successful and so 12 fast because we had no delay between 13 manufacturing and -- the delay was one day. 14 They went by truck from the factory directly 15 into our retail stores. 16 Q. Let's look at Exhibit 144. That 17 should be the next in order. 18 And this is a document that I showed 19 you. It is an internal Microsoft document. 20 And you did not see it before I showed it to 21 you; correct? 22 A. No. 23 Q. This is dated September, 1989. 24 MS. CONLIN: And we would offer 25 Exhibit 144. 10955 1 MR. HOLLEY: Objection, Your Honor. 2 This witness has never seen this document and 3 he is being asked to speculate about it. 4 MS. CONLIN: No, I'm just going to 5 read to him from the section that I highlighted 6 and tabbed for the Defendant, which deals 7 directly with VOBIS, Your Honor. 8 As I do the examination, my intention 9 is to look at the Microsoft documents that 10 pertain to VOBIS while -- so to put everything 11 into the context of this time line. 12 MR. HOLLEY: I have to object to that, 13 Your Honor. 14 I don't know why this witness -- he 15 has testimonial knowledge about what he knows. 16 He doesn't know what's in Microsoft documents. 17 He shouldn't be asked to speculate about that. 18 THE COURT: Well, the exhibit's 19 admitted. 20 Continue. 21 MS. CONLIN: Thank you, Your Honor. 22 Would you put up Exhibit 144, please? 23 Q. And this is, as I indicated, an 24 internal Microsoft document. It is a report 25 from Joachim Kempin -- did you meet Mr. Kempin? 10956 1 A. Yes. 2 Q. Did you meet Mr. -- how do you 3 pronounce this next name? 4 A. Schindler. 5 The next is Jochen Haink. Jochen 6 Haink. 7 Q. And then Mr. Schindler, and he was the 8 salesperson who called? 9 A. He was our closest representative from 10 the OEM division from Microsoft. 11 Q. And this is a report from September of 12 1989, and we can move to the page ending 434 13 and see that they are reporting on VOBIS. 14 Let me read that. 15 As of September 1989, in the internal 16 Microsoft documents it says, VOBIS has signed 17 for DR-DOS. We'll undertake all efforts to 18 bring them back into our camp, and it looks 19 like that VOBIS wants to continue business with 20 us. 21 Is it correct that you did want to 22 continue business with Microsoft? 23 A. Yes. We were very interested in the 24 Works 2.0, as I said. 25 Q. Next steps, turn them away from DR-DOS 10957 1 and make them Market Pack DOS. Pursue DOS-WIN 2 bundle deal. 3 Did Microsoft offer you a deal if you 4 purchased the DOS product and the Win product 5 together in a bundle? 6 A. They started to do that, but Windows 7 was not an issue at that time. It was, I 8 think, Windows 2.11 it was -- it could not 9 compare to any graphical user interface that 10 was in the market then. So we weren't -- we 11 never were interested in 2.11. 12 Q. All right. So we need to explain that 13 for a moment, I think, Mr. Lieven. 14 When you say Windows was not an issue, 15 do you mean that it wasn't very popular at the 16 time? 17 A. No, it was quite unstable. I used the 18 Windows 2.0, but I deleted it after half a day. 19 The 2.11 was a little bit better. 20 Some of our employees used it. But we didn't 21 see the demand in the market for that. 22 Q. Until -- 23 A. So for bundling in 10,000 of copies, 24 we said no, that is too expensive for that 25 product. 10958 1 Q. All right. Let's turn now to the 2 contract, which is Plaintiffs' Exhibit 371. 3 And this is a contract. If you'll 4 turn, Mr. Lieven, to the page that is 13 in the 5 document and it is 56 in the Bates stamps. 6 Is that your signature? 7 A. Yes, it is. 8 Q. And the person who signs for Microsoft 9 is Mr. Hallman? 10 A. Yes. 11 Q. And you sign on September 12, 1990, 12 and he signs on October 1, 1990. 13 A. Yes. 14 Q. And I think we put it on a time line 15 with your signature at September -- well, we 16 didn't put it at -- but September 1990. 17 MS. CONLIN: And we would offer at 18 this time, Your Honor, Plaintiffs' Exhibit 371. 19 MR. HOLLEY: No objection, Your Honor. 20 THE COURT: Admitted. 21 Q. This is -- now on the front says this 22 is for Microsoft MS Version 4.01 and Microsoft 23 Works Version 2. 24 Of those products, Mr. Lieven, which 25 one were you interested in? 10959 1 A. At that time only the Works 2.0. 2 Q. Did you ever bundle MS-DOS 4.01? 3 A. I don't -- no, we did not, no. We -- 4 Q. And so you continued to bundle with 5 your operating systems -- I beg your pardon. 6 You continued to bundle with your 7 computers DR-DOS? 8 A. Right. 9 Q. Whatever was the current version? 10 A. Right. 11 Q. We're going to have to look at some of 12 these, so we might as well start. 13 Let's turn to page 16. And you have 14 -- in this first contract on page 16, do you 15 see the minimum commitment schedule? 16 A. Yes. 17 Q. And what is the total first period 18 minimum commitment for your first contract? 19 A. It's for 600,000 U.S. dollars. 20 Q. All right. And then the price for the 21 products, if you turn to the next page, you 22 will see at the top the product is Microsoft 23 MS-DOS Version Number 4.01, and the price is 24 $20? 25 A. Yes, it is. 10960 1 Q. But you didn't put this on your 2 computers? 3 A. No. It was triggered. You know, it 4 said that we have to pay the royalties for that 5 as soon as we start to ship it. So we had 6 control over paying this royalties as soon as 7 we ship it with our computers. But we never 8 did, so we didn't have to pay these $20. We 9 only used the license for the Works. 10 Q. All right. And that is on page ending 11 60 -- well, it ends lots of different ways, but 12 it's page 20 in the document, and that's 13 Microsoft Works Version Number 2, and for that 14 you paid $17; correct? 15 A. Yes. 16 Q. And we think this -- is this your very 17 first contract with Microsoft? 18 A. That's the first contract, yes. The 19 first which had been signed by both sides. 20 Q. When you first started loading the 21 Works product, was it a popular product or was 22 it just beginning? 23 MS. CONLIN: Oh, I'm sorry. 24 A. No, I think from -- at that time when 25 we signed that -- we have bought it before as 10961 1 in the retail product, as you could do. You 2 could buy it from Microsoft distributors and 3 put it with extra price I think of 399 deutsche 4 mark. That's at about $250. 5 You could put it in the box if the 6 customer likes it, but then we said let's 7 bundle it with every computer. I think that 8 started in 1990. 9 Q. September of '90 is when we saw the 10 contract? 11 A. Yes. 12 Q. Was that when -- 13 A. Yes. 14 Q. Okay. Stop a minute. 15 When you signed the contract, was that 16 the first time that you started to bundle Works 17 with every computer? 18 A. Without contract, we couldn't do that, 19 so we first signed the contract -- maybe there 20 was obviously delay of four weeks or something. 21 The deal was fixed, and then the 22 contract came later, but it was that time that 23 we bundled this Works with all our computers. 24 Q. And why did you do that? 25 A. Because it was a good product, you 10962 1 know. It was application software. People had 2 a good product, not the best one, but a good 3 product, a reasonable product, for a very low 4 price, and this made our computers much more 5 attractive. 6 Q. And when you started bundling the 7 Works, were you the only company bundling Works 8 with your computers? 9 A. I think so. Not in France. I've seen 10 that idea in France. Somebody did it there, I 11 think -- I thought this is a good idea to give 12 them hundred of gallons of fuel with their car. 13 So all cars look the same, and our car had 14 hundreds of gallons of fuel with it. So for a 15 little bit higher price maybe, but it was great 16 advantage for our customers. 17 And so we could differentiate from the 18 others, but it was very important with those -- 19 you know, those boxes. All the computers 20 looked the same. 21 Q. All right. And did your company 22 bundling of Works increase the popularity of 23 Works? 24 A. Yes, a lot. Of course. 25 Q. Did you sort of create the customer 10963 1 demand? 2 A. I think so. Yes. I think so. 3 Q. I want to look with you now at 4 Plaintiffs' Exhibit 4547. That's this big one. 5 We're going to just tell the jury at this time 6 what this pile of stuff is. 7 What is this? 8 A. These are copies of our monthly 9 brochures that have been circulated in Germany 10 at the beginning, 2 million copies and 4 11 million at the end, 10 or 12 million copies in 12 Germany, and also in Austria and then in other 13 countries every month. 14 Q. So this is a -- these are copies of 15 like a small magazine or a -- 16 A. Eight page or 12 page, sometimes 16. 17 Q. All that's in it is ads for your 18 computer? 19 A. Yes. 20 Q. And when did you start producing that? 21 A. This brochures? 22 Q. Yes. 23 A. The first came out I think in '86, 24 '87, but then from '88 on, we made that 25 monthly. We put that in the newspapers. It's 10964 1 like in the U.S. the same when you get the 2 Sunday newspapers, you have a lot of those 3 brochures with that. 4 Q. So this was one of those that we all 5 love so very much? 6 A. Yes. 7 Q. And in this -- it's called VOBIS Denk? 8 A. Yeah, Denk Zettel. That means -- it's 9 difficult to explain, but it means something. 10 It's sort of a -- it has something to do -- 11 Denk means think. And this fits very good to 12 the information technology. And Zettel means 13 paper. Think paper. 14 Q. And did you in creating the time line 15 rely on the times when you began advertising a 16 product and stopped advertising a product? 17 A. It was very crucial, you know. 18 Because when we say something here 19 what we have in the store, it should be in the 20 store. So the whole supply chain must be very 21 tight. It is very tight. It's just in time. 22 And this was quite time sensitive. 23 Q. All right. So in order to establish 24 dates of when things happened, when you started 25 distributing Microsoft products or when you 10965 1 stopped distributing other products, these 2 advertisements tell us what you had in your 3 store? 4 A. Yes. It's a complete -- what's the 5 name -- diary. It's a notebook where you write 6 -- that you can see it from that. 7 MS. CONLIN: Your Honor, we would 8 offer Plaintiffs' Exhibit 4547 for the purposes 9 of establishing the time line and for no other 10 purpose. 11 MR. HOLLEY: With that limitation, no 12 objection, Your Honor. 13 THE COURT: Very well, it's admitted. 14 Q. Why don't we talk for a moment about 15 the DR-DOS products as they came out and your 16 view as the CEO of a computer manufacturer as 17 to the quality and the comparison between the 18 two products, beginning -- the first one you 19 loaded was DR-DOS 3.41; correct? 20 A. Yes. 21 Q. And at that time, the Microsoft 22 product operating system in the market was 23 4.01? 24 A. Yes, it was. 25 Q. How did those two compare? 10966 1 A. I did compare them. We talked about 2 this comparison before. 3 There were some points that 3.41 was 4 more powerful. You have had password security, 5 for instance, which is now it's -- everything 6 has password security. But this was new in 7 1988, and Digital Research has had -- 8 There were some things that were 9 better with 3.41 than 4.01. 4.01 I think was 10 not the best Microsoft product. 11 Q. And then DR-DOS 5.0 is released on -- 12 in June of 1990, and how does that compare with 13 4.01? 14 A. This was much better than every 15 operating system that we have had before. 16 It was much more powerful, and you 17 could see that a lot of people, engineers had 18 worked on that. 19 This was a really breakthrough also 20 for us because with 3.41 people said, okay, 21 it's a substitute for 4.01. We don't know why. 22 But with the 5.0, with all the press releases 23 and the tests what they did and they said it's 24 much better than 4.01, we were back. We were a 25 leader again. 10967 1 Q. Did you feel like loading DR-DOS 5.0 2 onto your computers provided you with a 3 competitive advantage? 4 A. I didn't understand that correctly. 5 Q. You loaded DR-DOS 5.0. 6 Did that provide VOBIS with an 7 advantage as -- 8 A. Yes, of course. 9 Q. Why? 10 A. Because in all -- in the computer 11 magazines, they have tested 5.0 DR-DOS 12 before. 13 Q. Stop a minute. 14 Just tell us -- without talking about 15 that sort of thing, just tell us why it was a 16 competitive advantage. Can you do it without 17 talking about the testing? 18 A. It was better. That's -- we thought 19 it was better and better choice for the 20 customer. 21 Q. All right. And then the next product 22 that came out was the Microsoft MS-DOS 5.0? 23 A. Right. 24 Q. What about the comparison between 25 MS-DOS 5.0 and DR-DOS 5.0? 10968 1 A. Then they were quite equal again. 2 Then it made sense to say to the customers, you 3 have the choice. Because then we felt quite 4 comfortable that we say, okay, you decide what 5 you like. 6 Q. And three months after Microsoft 7 released MS-DOS 5.0, then along comes DR-DOS 8 with DR-DOS 6.0, and how did that compare with 9 MS-DOS 5.0? 10 A. I think they were -- I wouldn't say 11 equal, but there were some points I think they 12 were a little bit more sophisticated, but we 13 still couldn't say this one is better or the 14 other one. So we still said let's have the 15 customer the choice. They should decide what 16 operating system is installed on the computer. 17 Q. Right. 18 Turn now, if you would, to Exhibit 19 448, which is again a Microsoft document which 20 talks about VOBIS, and which we would offer at 21 this time. 22 THE COURT: Any objection? 23 MR. HOLLEY: Just the same objection, 24 which is this witness has never seen this 25 document and is being asked to speculate about 10969 1 it. 2 THE COURT: It's admitted. 3 MS. CONLIN: Thank you, Your Honor. 4 Q. Mr. Lieven, go to the last page, 5 please. 6 This is one of the E-mails of course 7 that goes back to front. 8 And we'll look down at the very last 9 one there. That is from Sergio Pineda, 10 November 6, 1990. 11 Now on the date of the November 6, 12 1990, VOBIS is only shipping DR-DOS; correct? 13 A. This was -- 14 Q. November of 1990. 15 A. Yes. 16 Q. So Mr. Pineda writes to Manfred 17 Schindler, and who is Mr. Schindler again? 18 A. He was our representative who visited 19 us in our office. 20 Q. And the subject is the status of 21 VOBIS, and Mr. Pineda writes you, I'd like to 22 provide -- I'd like you to provide me with the 23 status of VOBIS. Steve Ballmer wants to know 24 what we're doing here and how close we are to 25 signing a deal with them. 10970 1 Mr. Lieven, do you know who 2 Mr. Ballmer was? 3 A. Of course. 4 Q. Did you know that he was very 5 interested in whether or not you signed a deal? 6 A. Of course, sure, because we sold 7 exclusively at that time the Digital Research 8 DOS. He must have been interested in us. 9 Q. Did you know that Mr. Ballmer was 10 interested in what VOBIS was doing in 1990? 11 A. So if he was not interested, he made 12 his wrong -- his job wrong. So he has to be 13 interested in us because we grew every year 14 with 60 percent, and we sold only Digital 15 Research. 16 Q. All right. Let's turn then to the 17 first page of the document and look at the 18 response from Mr. Schindler on November 7, 19 1990, to Mr. Pineda and to Joachim Kempin, and 20 Mr. Kempin was the worldwide director of OEM 21 sales? 22 A. Yes, he was. 23 Q. And again, status of VOBIS, and he 24 summarizes, you wanted me to summarize the 25 license status re DOS with VOBIS. Current 10971 1 license status. License agreement for Works 2 2 signed. Works is already shipping. 3 Penetration, our products on all VOBIS computer 4 systems, more than 50 percent. 5 And then he says, license agreement 6 for Windows 3, agreement in principal, Windows 7 will ship within two weeks. 8 And at that time, you had -- did not 9 have a contract for Windows; correct? 10 A. No. 11 Q. You had a handshake-type agreement? 12 A. Yes. 13 We treated as the same as Works, and 14 they said you can either put Works together 15 with it or either Windows. 16 Q. So it kind of went on your contract 17 for Works? 18 A. I think so because -- I don't remember 19 the royalty reports anymore, but at that time 20 it was a mutual understanding that we could 21 ship Windows with all our computers. 22 Q. Windows or Works, not both? 23 A. Yes. No, not both. You can see that 24 also from the advertising that we always said 25 either Windows or Works. 10972 1 Q. And the underlying operating system he 2 says is DR-DOS, and skipping -- well, let's 3 read this. 4 VOBIS is happy that we appear a loyal 5 partner for those deals. 6 You were happy with Microsoft at that 7 time for this product; correct? 8 A. Yes. Works 2.0 was a very good 9 product. 10 Q. And then it says, DOS 3 and DOS 4 11 packages finished goods sold when customer 12 demands it, volume neglectible, less than 2,000 13 something. But 2,000 units? 14 A. Some, yes. 15 Q. And that's what you told us earlier, 16 you sell a packaged product? 17 A. Right. This is a retail product. 18 Q. They intend to license DOS 5 because 19 their relation to DRI is not in best shape. 20 Was that true? 21 A. I can't remember so -- my relation 22 with DR-DOS at that time was very good so -- 23 Q. All right. And then let's look at the 24 one from Mr. Kempin. He responds to Mr. 25 Schindler. 10973 1 He says, this needs attention. Jeff, 2 use your influence to pressure them to sign up 3 for DOS 5.0. The slip did not help us. They 4 are the last holdout. 5 Were you aware that you were the last 6 OEM in Germany that had not signed up for 7 MS-DOS 5.0? 8 A. I'm not surprised because we have been 9 the most important one who bundled the DR-DOS 10 with it, and if others are not -- were not 11 interested in doing that, maybe all they signed 12 yet a contract for 5.0. And we said, wait, 13 let's see terms and conditions and then we see 14 whether we sign a contract for it. I'm not 15 surprised that we have been the last one. 16 Q. And at that time when they're asking 17 you to sign the contract for MS-DOS 5.0, it 18 isn't out yet; correct? 19 A. It isn't out? 20 Q. Out. It has not been released into 21 the market? 22 A. No, no. It was a not preliminary -- 23 not preliminary, but it was a ready-to-go 24 contract. So to have one in the pocket that 25 you are ready when it comes out and you decide 10974 1 to choose it; that you don't have negotiations 2 that moment when it comes out, but you have 3 ready the conditions before. 4 Q. All right. At the top, it's back from 5 Mr. Schindler, it says, VOBIS sells more than 6 100,000 systems over 12 months. We simply 7 cannot sign them on DOS 4. 8 And that's because you weren't 9 thinking the product was too good? 10 A. We thought our choice was 5.0 is 11 better for the customer. 12 Q. All right. MS-DOS is interesting. My 13 plan is to include a per system option in a 14 separate license agreement without any 15 obligation to pay until the product becomes 16 available, but this will be tough. 17 Is that what you were telling us 18 about, you would have the contract and it would 19 not go into effect until the release of the 20 product? 21 A. Yes or until we decide to -- with 5.0 22 we knew that we would offer that to our 23 customers, and this was we called a trigger 24 contract. It was triggered as soon as we 25 decide to put it with our computers. 10975 1 Q. Let's look now at Exhibit 5208. And 2 that too is a Microsoft -- Microsoft E-mails 3 all about VOBIS. And -- 4 MS. CONLIN: I would offer, Your 5 Honor, at this time the Microsoft E-mails that 6 are 5208. 7 Maybe you would like to see a copy. 8 MR. HOLLEY: Again, Your Honor, I 9 object to this witness being shown internal 10 Microsoft documents he's never seen. 11 THE COURT: Overruled. It's admitted. 12 MS. CONLIN: Thank you, Your Honor. 13 Q. And you have seen these documents, but 14 only when I showed them to you when you came; 15 correct? 16 A. Yes. 17 Q. I want to look at the one from Brad 18 Cole dated Tuesday, December 4, 1990, to Jeff 19 Lum. Subject: 5.0 marketing plan feedback. 20 He says to Jeff Lum and Sergio Pineda, 21 I thought VOBIS was almost closed. What are 22 the issues? I really want to get VOBIS on 23 MS-DOS. 24 One of my first days here Steve B. 25 told me to eat, sleep, and drink VOBIS so I 10976 1 will be on everyone to let me know what is 2 going on with the account and try to learn more 3 about how I can help you turn them around. 4 And then if we look up to the response 5 from Mr. Schindler, he says, VOBIS sells in 6 calendar year approximately 200 computer 7 systems. 8 And so that was about what you were 9 selling toward the -- in 1990? 10 A. Yes. It was projection I think for 11 1992. So end of December we said next year 12 will be 200,000. 13 Q. And current negotiations, license 14 Windows/Works per processor. One royalty for 15 either Windows or Works. 16 That's what you were talking about? 17 A. The current license that we had, yes. 18 Q. All right. And DOS 5 per processor. 19 Here VOBIS GM, Theo Lieven, does not intend to 20 change his confession abruptly. 21 Because you speak German and Mr. 22 Schindler speaks German, do you think he meant 23 confession? We looked it up on your 24 dictionary. 25 A. Change his mind or something is a much 10977 1 better word for that. Confession is not a 2 confession so -- 3 Q. All right. So we just think that 4 means decision-making of some sort? 5 A. Yes, right. 6 Q. Change his mind abruptly. 7 He thinks about a 50 percent 8 penetration in calendar year '91. Of course, 9 DOS 5 in German can be shipped by VOBIS not 10 before April. 11 So this is in December of 1990, and he 12 is predicting that the German version of MS-DOS 13 5.0 will be available in April. But it was 14 not; right? 15 A. I think in June, two months later. 16 End of June. 17 Q. Let's turn now, if we could, to the -- 18 to a big document that just keeps us updated in 19 terms of what's going on inside of Microsoft, 20 and this is 491, which is a report to Mr. 21 Kempin from Jeff Lum dated December 15th, 1990, 22 and it is the November European OEM sales 23 status report. 24 MS. CONLIN: I think, Your Honor, we 25 would offer Plaintiffs' Exhibit 491. 10978 1 THE COURT: Any objection? 2 MR. HOLLEY: Same objection as 3 previously, Your Honor. 4 THE COURT: It's admitted. 5 Q. Would you turn please to page 12, and 6 we are just going to deal with what they say 7 about you inside Microsoft. 8 And it says VOBIS. The existing 9 license agreement has an annual minimum 10 commitment of 3,000 per system units of Works. 11 THE COURT: Was that 30,000 or 3,000? 12 MS. CONLIN: What did I say? 13 THE COURT: Three. 14 MS. CONLIN: Okay. 15 Q. I will amend the record to say 30,000 16 per system units of Works. 17 And at this time, that's your only 18 contract; correct -- 19 A. Yes. 20 Q. -- with Microsoft? 21 They exceeded this within three 22 months. So things are going well? 23 A. Right. 24 Q. Now, Manfred is working on a per 25 processor deal for 200,000 PCs annually for 10979 1 either Works or Windows at 15 -- user chooses 2 -- at $15. Any additional Works or Windows 3 copy costs them additional $15. 4 So you would -- if you went -- I'm not 5 sure I understand what that means. Do you? 6 A. Yes, that means we bundle minimum of 7 200,000 either Windows or Works. If we are 8 selling 300,000, maybe we sell 100,000 Works 9 more, we pay another 100,000 times $15. I 10 think that's what that is. It is -- at the end 11 it isn't quite per copy after we have fulfilled 12 this 200,000. 13 Q. All right. Any additional -- or I'm 14 sorry. 15 VOBIS wants to focus on selling both 16 products per PC. Additionally, we are close to 17 an agreement in principal on DOS 5 on 200 PCs 18 annually. Royalty negotiations are ongoing. 19 We have to consider that VOBIS will not 20 immediately stop DR-DOS and replace it with 21 MS-DOS, but they may commit to replace 50 22 percent or more to start. 23 Was it correct that you would -- even 24 if you signed a contract with Microsoft you did 25 not intend to replace all of DR-DOS? 10980 1 A. That's right. And that was a problem 2 because we were not willing to pay for every PC 3 MS-DOS license because we knew there are some 4 people, some customers who decide to buy the 5 Digital Research. That was big issue at that 6 time. 7 Q. All right. And in deciding whether or 8 not to sign with Microsoft, were you concerned 9 about permitting -- continuing to load DR-DOS 10 as well as MS-DOS? 11 A. Concerned -- what does that mean 12 concern that I -- 13 Q. Let me explain. 14 A. Thought about to discontinue Digital 15 Research, no, no. 16 Q. Okay. But did you want to continue 17 Digital Research? 18 A. Yes, of course. 19 Q. Why? 20 A. It's a good product, you know, and -- 21 when you have a store for maybe radios or 22 something like that, why are you going to sell 23 only one, one brand? So it's better to have 24 two brands and let the customer decide. He's 25 the one who is the -- the sale customer is the 10981 1 king. So he should decide what operating 2 system is best for him. 3 And so we wanted to offer both because 4 some advantages were on the Microsoft side and 5 some advantages, others were on the Digital 6 Research side, and so we offered both. 7 And to give customer choice in itself 8 is an advantage against competition. 9 Q. To be able to offer -- 10 A. Right. 11 Q. -- choice? 12 A. Yes. 13 Q. All right. How did the computers in 14 your store equipped with DR-DOS do in the 15 marketplace? Did you sell plenty of them? 16 A. With DR-DOS, the time when we only 17 bundled DR-DOS, it was 100 percent. It was -- 18 I think the last quarter of 1990 must have been 19 something like 40,000 or something like that. 20 It worked very well. It was highly accepted by 21 the customers in Germany. 22 Q. They liked it? 23 A. Yes. 24 Q. And was it a well-known product, 25 DR-DOS, in -- 10982 1 A. I think it was a stand-up product at 2 that time for our portion of the market. We 3 haven't been in the professional market so 4 much. We were in the home and the home office 5 business. So this for private customers, 6 individuals. And in this portion, we were -- I 7 think, the Digital Research 5.0 was standard at 8 that time. 9 Q. Did your selling of it make it 10 standard? 11 A. I think we have had some followers, 12 yes. They -- I've seen it in their 13 advertising. 14 Q. All right. And along about this time, 15 Windows 3.0 is released. We're now in May -- 16 well, it's released on May 22nd, 1990, and does 17 it begin to sort of increase dramatically in 18 popularity? 19 A. Yes. We really thought -- I don't 20 know how many DR-DOS we install on it, but I 21 think at the end, it has been something like 22 450,000. It was incredible success. 23 Q. All right. I was talking about 24 Windows. 25 A. Windows. 10983 1 Q. Windows, uh-huh. 2 DR-DOS -- we're going to go back to 3 DR-DOS, but I just want to orient the jury to 4 what's going on in the market with Windows. 5 You told them earlier that the first 6 releases of the Windows product were not 7 terribly popular. 8 A. The 4.01. 9 Q. No. Windows. 10 A. Windows, yes. I'm sorry, yes. 11 Q. Okay. 12 A. The first, 2.0, 2.11. It started with 13 3.0. Then it got interesting and it could 14 compete a little bit with other graphical user 15 interface, like the Mac OS. So then it started 16 slowly. 17 Q. All right. Now was Windows the only 18 graphical user interface available for the 19 Intel-compatible PCs? 20 A. I think there has been a Gem, G-e-m, 21 but I didn't like it so much. 22 So it was not necessary at that time 23 to have this -- today we all use Windows, but 24 at that time all the software was still on the 25 DOS basis or the Word for DOS, the Excel for 10984 1 DOS. 2 And there was no need to have a 3 graphical -- it was a little bit at the 4 beginning, it was not a gimmick, but it was for 5 -- first for the earlier adopters that we said, 6 people who want to have the newest one. 7 And there was no need for us to sign 8 the contract for Windows at the beginning, 9 especially for the 3.0. 3.1 was better and 10 3.11 later was much more important. 11 Q. All right. So it increases in 12 popularity, and at some point it becomes very 13 important for you to be able to get a Windows 14 contract; correct? 15 A. Yes. Later in '92, '93, of course. 16 Q. Let's look at Exhibit 10030. Do you 17 have it in front of you? 18 A. Yes, I have. 19 Q. And again this is not a document 20 you've seen except when you came here and we 21 looked at it together. 22 It is titled OEM sales by month, and 23 it is an internal DRI document, and it reports 24 the sales not only to you, but to other 25 companies as well? 10985 1 MS. CONLIN: Your Honor, at this time 2 we would offer Plaintiffs' Exhibit 10030. 3 MR. HOLLEY: Objection. Lack of 4 foundation. 5 THE COURT: Sustained. 6 Q. Well, I wonder if you could use this 7 to refresh your recollection? 8 MR. HOLLEY: How could that happen, 9 Your Honor? 10 MS. CONLIN: Well, we can refresh 11 recollection with any document or thing. 12 Maybe we should talk about this for a 13 moment, Your Honor. 14 May we do that? 15 We're going to go into the back room. 16 Just look at your paper. Don't chat with the 17 jury. 18 (The following record was made out of 19 the presence of the jury at 9:31 a.m.) 20 MS. CONLIN: So I don't understand 21 your objection. 22 MR. HOLLEY: There's nobody here to 23 testify about this document. 24 MS. CONLIN: Of course there is not. 25 You want me to bring someone from -- 10986 1 MR. HOLLEY: Well, Mr. Bradford was 2 here. He worked at this company. Maybe he 3 could have established a foundation for this, 4 but this witness does not know anything about 5 this document, how it was prepared or whether 6 these numbers are accurate. 7 He may remember how many copies of 8 operating systems he licensed from DRI in which 9 case he's entitled to testify about that, but I 10 don't understand this process of showing a 11 witness documents that he's never seen before 12 and asking him: Do you see that? That isn't 13 testimony. 14 MS. CONLIN: You should have been here 15 when Mr. Tulchin examined Mr. Bradford. 16 In any event, Your Honor, we have a 17 stipulation on this that we have honored 18 throughout this process. The stipulation says 19 that a document that comes from a company is a 20 business record unless there's a really good 21 reason to doubt its authenticity. 22 We have followed that stipulation from 23 the beginning of that process until today. 24 THE COURT: Was this -- did this go 25 through the Special Master process? 10987 1 MS. CONLIN: It did not, Your Honor. 2 It did not go through the Special Master 3 process. It was, however, used by the 4 Microsoft lawyer to examine Mr. Lieven in the 5 course of his deposition in the Caldera case. 6 That's where it came from. 7 THE COURT: Mr. Holley. 8 MR. HOLLEY: Well, it's true that my 9 partner Mr. Steinberg used this document, but 10 that doesn't constitute any sort of an 11 agreement that it is a business record. 12 MS. CONLIN: We have that agreement. 13 That's what I'm saying to you. We had a 14 stipulation. We have a stipulation that says 15 that if it is a business record, foundation is 16 waived unless there's a really good reason to 17 doubt the authenticity of the document. 18 THE COURT: Is there such a 19 stipulation? 20 MR. HOLLEY: Perhaps there is, Your 21 Honor, in which case I withdraw my objection. 22 It seems to me that this is a strange way to 23 examine witnesses. 24 He knows what he knows and he should 25 be asked about what he knows from his own 10988 1 personal experience. He should not be used as 2 some conduit for his interpretation of 3 documents he's never seen before. 4 MS. CONLIN: Well, he has them all at 5 this point, and that is exactly the way in 6 which other examinations in this lawsuit have 7 been conducted. In any event, if you're 8 withdrawing your objection, then there's 9 nothing more to say. 10 MR. HOLLEY: Well, I would like to 11 consult with someone about whether the 12 stipulation says what Ms. Conlin says it says. 13 I continue to believe that Mr. Lieven should be 14 asked questions about what he knows based on 15 being the CEO of VOBIS. He should not be here 16 as some person interpreting documents that he 17 saw for the first time when he landed in Des 18 Moines from Germany. He doesn't know about 19 those things. 20 THE COURT: Well, the objection is 21 foundation. 22 MR. HOLLEY: Yes. I guess I need 23 to -- with the Court's indulgence, I would like 24 to consult with Mr. Tuggy about exactly how 25 that stipulation operates. 10989 1 THE COURT: What do we do in the 2 meantime? 3 MS. CONLIN: Do you want to just 4 withdraw this, your objection on this one? 5 MR. HOLLEY: Yeah, I'll withdraw my 6 objection on this one, Your Honor. 7 THE COURT: Okay. Thank you. 8 MS. CONLIN: What time do you want to 9 take a break, Your Honor? 10 THE COURT: Another 10 minutes, is 11 that okay? 12 MS. CONLIN: Thank you, Your Honor. 13 (The following record was made in the 14 presence of the jury at 9:35 a.m.) 15 THE COURT: Mr. Holley? 16 MR. HOLLEY: I'm sorry, Your Honor. 17 THE COURT: Mr. Holley, do you wish to 18 make any record on 10030? 19 MR. HOLLEY: I'm going to withdraw my 20 objection to it, Your Honor. 21 THE COURT: Very well. It's admitted. 22 You may continue. 23 MS. CONLIN: Thank you, Your Honor. 24 Q. Mr. Lieven, let's look at this 25 document, and tell the jury over the period of 10990 1 time beginning -- I think you first appear -- I 2 think this document goes from August 1989 and 3 it says how many copies of the DR-DOS product 4 you bought from DRI month by month; correct? 5 A. Right, yes. 6 Q. And in August of '89, how many did you 7 buy according to this document? 8 A. 20,000. 9 Q. And then in November? 10 A. 25. 11 Q. And then in January of 1990? 12 A. 50,000. So it's increasing 13 dramatically all the time. 14 Q. And in June of '90? 15 A. Another 50,000. 16 Q. In September of '90? 17 A. 100,000. 18 Q. And the next is a couple of pages 19 over, and that would be in February of 1991? 20 A. Yes, it was quarter million, 250,000. 21 Q. How did you get the product, the 22 DR-DOS product, at this time? When you paid 23 for 250,000, what did you get? 24 A. We didn't -- we made it much more 25 simple. So we didn't get the diskettes anymore 10991 1 because we offered them that we will copy the 2 diskettes so they don't have to pay for them. 3 So it was easier for them. 4 And then we said, okay, but then you 5 have to put on each diskette a hologram. A 6 hologram is this piece of sticker that you 7 can't copy because it's with three-dimensional 8 thing so it's impossible to cheat with them. 9 So we got, I think, 500,000 holograms. 10 Q. 250-, is that -- 11 A. Yes, but twice because for each set of 12 DOS was -- I think it was twice. So it was 13 package of two. I think so. I don't think 14 that it fit on one diskette at that time. But 15 every diskette that we shipped has to have 16 hologram from Digital Research. 17 Q. So when you buy your 250-, what you 18 get is the master disk? 19 A. Right. 20 Q. And a hologram for each diskette? 21 A. Yes. 22 Q. You, the OEM, produce the disks of 23 DR-DOS? 24 A. We copied them from the master disk, 25 yes. 10992 1 Q. And who is in charge of the technical 2 aspects of VOBIS at this time? 3 A. This was Mr. Dahmen at that time. All 4 the time he was because he's genius in that. 5 Q. All right. And his name is? 6 A. Heinz Willi so -- should I spell that? 7 It's H-e-i-n zet. 8 Q. Z. 9 A. Z. Zet z, yes. Heinz. Zulu. I can 10 put it in the alpha language if you like. 11 And then Willi is Whiskey, India, 12 Lima, Lima, India. 13 And then Dahmen is Delta, Alpha, 14 Hotel, Mike, Echo, November. 15 Q. All right. That's pilot's language; 16 correct? 17 A. Yes. 18 Q. So did we all get that? 19 Okay. So that pilots who fly all over 20 the world and use different languages as their 21 native tongue can communicate with -- 22 A. Yes, you have to. 23 Q. And you are also a pilot? 24 A. Yes. 25 Q. But you didn't fly yourself here? 10993 1 A. Here not, no. No, that makes no 2 sense. That is too expensive. It is much 3 cheaper to go by United Airlines or something. 4 Q. Let's turn next to Exhibit -- now, we 5 were in February of 1991. 6 MS CONLIN: Can we go down a little 7 bit, Darin, please? 8 Q. So February 1991 you buy your 250- 9 holograms for DR-DOS 5.0. 10 And so let's look at what's going on 11 over at Microsoft. 12 And we'll look at Exhibit 584, 13 Plaintiffs' Exhibit 584, which is mail from 14 Sandy Duncan to Jeff Lum dated February 28, 15 1991, which we would offer at this time. 16 THE COURT: What number? 17 MS. CONLIN: 584. Plaintiffs' Exhibit 18 584. 19 MR. HOLLEY: Same objection, Your 20 Honor, about the use of this Microsoft internal 21 document. 22 THE COURT: It's admitted. 23 Q. Mr. Lieven, the reason I wanted to 24 call this to your attention is because 25 Mr. Duncan -- did you know Mr. Duncan who was 10994 1 in Europe for Microsoft? 2 A. I don't think so. Kempin and 3 Schindler were our persons we talked to at this 4 time. 5 Q. How about Mr. Lum? 6 A. I met him, but he was not the contact 7 person for us, so we did it -- because he 8 didn't speak German. It was easier to speak to 9 Schindler or to speak to Mr. Kempin, especially 10 for our people. Everybody speaking English. 11 So it was easier that we have had the German 12 speaking representatives with us in our 13 offices. 14 Q. All right. And the German -- along in 15 here comes Stefanie Reichel as well. Did she 16 speak German? I don't think she's right here 17 yet. 18 A. She, yes, I think she speaks naturally 19 German, mother language. Yes, I think so. 20 Q. We're on February 28, 1991. So this 21 is just shortly after you make your purchase of 22 the 250- DRI holograms; right? 23 A. (Witness indicated affirmatively.) 24 Q. And he says, Mr. Duncan talks to 25 Mr. Lum about a company called Amstrad. Do you 10995 1 know Amstrad? I think you mentioned it 2 earlier. 3 A. Yes. 4 Q. Tell the jury please what Amstrad is. 5 A. Amstrad was a quite famous English 6 company. They have had their own computers 7 first. Many goods of this home computers came 8 from England. But then they switched over to 9 -- also to IBM compatibles in the end of the 10 '80s. So they were a competitor of us. 11 Q. Did they sell in Germany? 12 A. Yes. 13 Q. What Mr. Duncan says is, I now have 14 details about DR at Amstrad. They want to put 15 DR-DOS on the PC 5000, 8086 model only in 16 Germany. They're doing this because they want 17 to, quote, test the market and they think they 18 are okay in Germany because of VOBIS. They 19 also are tied on other machines due to their 20 per processor DOS agreement. 21 And we'll talk about that last 22 sentence in connection with another exhibit, 23 but did Amstrad start loading DR-DOS in 24 Germany? 25 A. I really don't know. They were not 10996 1 very important for us. I don't know the 2 numbers they sold, but -- I think so. I don't 3 know. 4 Q. All right. 5 A. I didn't recognize it to be. 6 Q. Were they just starting out in Germany 7 at this time? Had they just expanded or had 8 they been there? 9 A. They had been there for a long time 10 with home computers in the early '80s, until I 11 think '85, and then when the home computer went 12 down, maybe you remember Commodore 64 on the 13 home computers. They went off -- they went 14 away from the market and then the IBM 15 compatibles, they were the more important. 16 And then they switched also to the 17 same strategy like us, buy components, put them 18 together and put an Amstrad sticker on them. 19 Q. All right. Did they ever become a 20 serious competitor to you? 21 A. Every competitor is serious. 22 Q. Okay. All right. 23 A. But I didn't recognize them. 24 Q. By that do you mean that -- 25 A. That they were a threat or something. 10997 1 Q. All right. 2 A. Because we had one advantage. We have 3 had our own retail stores. And this was very 4 big advantage because we didn't have to go to 5 dealers and convince them would you please buy 6 our Amstrad computers. We didn't have to 7 convince our salespeople, we said here is your 8 High Screen, sell it. 9 Q. So the ability to sell your own 10 computers in your own store was -- 11 A. This was the story. This was the real 12 strategy behind it, and there was that time 13 very good. 14 Q. You indicated that you had learned of 15 this strategy in France? 16 A. The bundling strategy I have learned 17 from in France. There was one company, I think 18 the name was MPC, Mike, Papa, Charlie. And 19 they have -- I've seen that, they have had DOS 20 and Works I think together. And I saw it on a 21 computer in 1988. And I said, wow, that's not 22 a bad idea. 23 As I explained to you, you have two 24 cars. The cars look the same. One car has 25 hundred gallons of fuel with it. So what car 10998 1 do you buy? 2 Q. Okay. 3 A. The most important thing is that you 4 get this fuel for a lower price what you bundle 5 with your car. If you pay the normal retail 6 price to Microsoft or whatever, it makes no 7 sense; that people can go to the gas station 8 when they get the car plus low extra price they 9 get this value of fuel. That is big advantage 10 to them. 11 Q. The idea of the retail stores, I know 12 that you started out as retail stores -- 13 A. Yes. 14 Q. -- right? 15 And then you decided what the heck, 16 we'll just put them together ourselves. And 17 then did anybody else do that before you, to 18 the best of your knowledge? 19 A. In Germany, no. We have had one 20 company that tried to copy us. That was Escom, 21 E-s-c-o-m. 22 Q. That was after you, though? 23 A. After you, yes. 24 They tried really -- what we did next 25 month they did it. They try to copy us, yes. 10999 1 Q. All right. Were they a significant 2 competitor to you? 3 A. Not 1990, 1991, but from 1992, yes, 4 they -- we felt competition, yes. 5 MS. CONLIN: Your Honor, should I do 6 one more document or should I -- 7 THE COURT: Let's take our recess now. 8 Remember the admonition previously 9 given. You can leave your notebooks here. 10 We'll be in recess for ten minutes. 11 All rise. 12 (A recess was taken from 9:47 a.m. 13 to 10:02 a.m.) 14 THE COURT: Everyone else may be 15 seated. 16 Sir, if you'd take the stand. You're 17 still under oath. 18 BY MS. CONLIN: 19 Q. Have you ever testified in a jury 20 trial before? 21 A. In a jury trial not, no. 22 Q. Let's see if we can clarify this issue 23 of how many DRI licenses you bought in February 24 of 1991. 25 Can you tell the jury as you have 11000 1 thought about this, more explanation would be 2 useful? 3 A. Yes. As I said, that we didn't buy 4 the diskettes anymore from Digital Research. 5 They had to make sure that any copy 6 that we sell with the computer is a legal copy, 7 and therefore we got counted amount of 8 holograms. And I think I made a mistake 9 because for each copy you got one hologram. 10 Either there were two diskettes or no 11 diskettes whatever. When there were diskettes, 12 there were two. You put the hologram on the 13 first diskette, diskette number one. If there 14 are no diskettes, you put the hologram on the 15 machines. Like you see on all the notebooks. 16 If you turn, you see on the dark side, you see 17 the hologram of Microsoft. So that is how it 18 works. 19 It is sure that every computer has a 20 hologram anywhere, maybe on one diskette or 21 maybe on the case or on the downside of the 22 notebook; that sure that there is a legal copy 23 of the operating system in there. And these 24 were 250,000 in February 1991. 25 Q. And if there was no diskette, what did 11001 1 you get? 2 A. We got the gold disk. All the 3 computers have been sold with hard disk drive 4 or CD-ROM, and this started in 1991, 1992, it 5 started slowly. But then you didn't need any 6 more diskette, which was quite expensive. You 7 know, diskette at that time cost one and a half 8 dollar and the CD-ROM later cost only 60 cents. 9 And even then after that you didn't 10 need anymore the CD-ROM, because you could 11 preinstall it on the computer, like it is done 12 today, and then you put the hologram on the 13 machine, on the backside or downside or 14 whatever, so -- 15 Q. All right. 16 A. Okay. 17 Q. When you bought your 250- licenses 18 from DRI in February of 1991, was there any 19 limit in terms of the time that you needed to 20 use them by? 21 A. No, it was a per copy, you know, 22 because we could use it immediately or within 23 12 months or -- they were never lost. 24 This hologram was the right to sell a 25 computer with Digital Research DOS, at that 11002 1 time 5.0, and we could do it whatever time. 2 Q. So you had the use of those holograms, 3 once you bought them, the use of the licenses 4 once you bought them, it went on until you ran 5 out of holograms? 6 A. Yes, of course. 7 Q. And that -- in 19 -- February of 1991, 8 250,000 licenses is what you bought? 9 A. Yes. 10 Q. And each of those licenses had with it 11 one hologram? 12 A. Yes. 13 Q. All right. Now, when you had your 14 250- licenses for DR-DOS 5, when DR-DOS 6 came 15 out, could you use those for DR-DOS 6? 16 A. Yes, of course. It's only the master 17 disk, or the gold disk as we called it, that 18 was exchanged. But it was for all the licenses 19 the same. So it was the proof that the license 20 is valid, and we paid the royalty for it. 21 Q. Did you have to pay any more when 22 DR-DOS 6.0 came out in September of 1991? 23 A. I don't know. I think we paid $9 for 24 the 250,000, and I wonder if we paid more for 25 6.0. But 6.0 didn't -- did we sell so many of 11003 1 them? I don't know. 2 Q. Well, as we walk through this I think 3 that it will help to refresh your recollection 4 because 6.0 came out in September of -- yes, 5 DR-DOS 6.0 is released, VOBIS begins shipping 6 DR-DOS 6.0 or MS-DOS 5.0. 7 A. It was in '91? 8 Q. Yes. 9 A. Then we sold a lot of them. So that 10 was the same price. 11 I think then it is -- I mixed it up 12 with 7.0 when we bought some thousand 400. 13 That was a little bit cheaper. But the 6.0 14 then was the same contract, yes. It's $9, same 15 price. 16 Q. Well, here, we have another document. 17 Do you see Exhibit 9026? It looks like this, 18 Mr. Lieven. 19 A. Yes, 9026, I have it. 20 Q. Perfect. And 9026 -- 9026 is a 21 license agreement. Do you see your signature 22 on that, Mr. Lieven? 23 A. Yes, I do. 24 Q. And the date is February 8th? 25 A. '91, yes. This I think is the 250,000 11004 1 licenses. 2 Q. Yes. 3 MS. CONLIN: We would offer 4 Plaintiffs' Exhibit 9026. 5 MR. HOLLEY: No objection, Your Honor. 6 THE COURT: It's admitted. 7 Q. Let's look at -- the last page, I 8 believe, is for 250,000. 9 MS. CONLIN: Right in the middle, if 10 you could highlight that. 11 Q. All right. It says, DR-DOS 5.0, 12 including ViewMax, in German, English, French 13 and Italian. 14 A. Yes. 15 Q. And it says 13.50 and that's -- 16 A. It's deutsche marks. The exchange 17 rate was 1.5 at that time. So it's $9. 18 Q. All right. So this is the contract 19 that you signed with DRI to get these 250- 20 DR-DOS's? 21 A. Yes. 22 Q. Let's look now at what's going on 23 around this time, the same time in February and 24 March of 1991 with respect to Microsoft. 25 Are you receiving regular visits from 11005 1 Microsoft representatives? 2 A. Yes, we did, of course. 3 Q. And are they wanting you to license 4 MS-DOS 5.0? 5 A. Of course. They wanted us. 6 Q. And let's talk about the CeBIT 7 conference. And tell the jury what CeBIT is. 8 A. This is still the I think world -- the 9 largest computer fair in Germany. It's in 10 Hanover. It's the IT part of the Hanover fair. 11 It's always in March every year, and I think 12 it's biggest computer show. It's even bigger 13 than Las Vegas or CES. So it's most important 14 for every OEM to be there and for any 15 manufacturer to be there at that show. 16 Q. When you talk about Las Vegas, you 17 mean the COMDEX? 18 A. COMDEX forum. 19 Q. The jury has heard about that. 20 Let's look at Plaintiffs' Exhibit 607. 21 Plaintiffs' Exhibit 607 is a Europe 22 trip report from Joachim Kempin to Jeremy 23 Butler dated March 26, 1991, with copies to 24 Mr. Gates, Mr. Hallman, Mr. Vergnes. 25 A. It's French, yes. 11006 1 Q. Who was Mr. Vergnes? 2 A. He was, I think, the European head of 3 Microsoft. 4 MS. CONLIN: Your Honor, I 5 misidentified the exhibit. It's Plaintiffs' 6 Exhibit 638, and Mr. Hagstrom says I've been 7 saying 607 for some reason. But it's 638. I 8 have it in front of me. 9 So, Your Honor, at this time we would 10 offer Plaintiffs' Exhibit 638. 11 MR. HOLLEY: Your Honor, we object to 12 this. There has been redactions of this 13 document to create 638A. I wouldn't object to 14 that being admitted, but 638 I do object to. 15 There's embedded hearsay. 16 MS. CONLIN: Your Honor, I believe 17 that Mr. Holley is right, and it will be 638A 18 that we show the jury, I hope. Let me -- 19 THE COURT: Make sure. 20 MS. CONLIN: May I take a moment to 21 check with Mr. Buchbinder? 22 THE COURT: Sure. 23 MS. CONLIN: He's ahead of me. 24 THE COURT: Do you have the correct 25 one? 11007 1 MS. CONLIN: Yes. 2 THE COURT: It's admitted then. 3 Q. This is Mr. Kempin's document, and I 4 know that you've seen it recently when you 5 came, and he talks about his meeting with you, 6 and I thought it might be useful to look at it 7 while we're talking about the meeting. 8 Do you remember your meeting with 9 Mr. Kempin at CeBIT? 10 A. Yes, I do. 11 Q. What was the tenor -- do you know 12 tenor? 13 A. Yes. 14 Q. -- of the meeting? 15 A. Microsoft got a little bit unpatient 16 to say like that. That they finally not had 17 yet a contract for DOS. 18 Q. MS-DOS? 19 A. MS-DOS, yes. Their DOS, of course. 20 Still I think they knew that we bought 21 250,000 licenses from Digital Research. And 22 Germany is small, and I think somebody told 23 them that we are not married to Digital 24 Research, but it will be difficult to get us in 25 their Microsoft camp back, as they said. 11008 1 And Kempin got unpatient a little bit, 2 and he said now please sign here, and you don't 3 have to take it now, but as soon as MS-DOS 4 comes out, you will also offer that. 5 But the question was we had enough -- 6 we had sufficient Digital Research licenses. 7 250,000 was enough for the whole year. So why 8 should we pay twice the license that we have 9 paid to Digital Research and another license to 10 Microsoft? And that was the issue that we were 11 discussing about that. 12 Q. At around this time, is it important 13 for an OEM to be able to sell Windows? 14 A. It start at that time, yes. I think 15 it was Windows 3.1 and it was better. It was 16 quite stable, yes. 17 Q. All right. Well -- 18 A. At least that we could offer it. That 19 if a customer asks, yes, we have it. If you 20 like it, you get it. 21 Q. When you are competing with other 22 companies, with other OEMs, is it important for 23 you to have access to the same kind of software 24 that other OEMs may be loading? 25 A. Not all software, but Windows got more 11009 1 and more important that time. 2 Q. All right. Well, let's look at what 3 Mr. Kempin reports to Mr. Gates and others. 4 He says -- we're just going to look at 5 this second paragraph. 6 He says, interesting enough, Amstrad 7 and other German companies have been noticing 8 VOBIS' success and its DRI bundling. 9 Was that true? 10 A. I think, yes, because reports that 11 said VOBIS now is number two, I think, behind 12 IBM. I think in 1992 we were ahead of IBM. 13 And this is, of course -- it's a message, it's 14 a signal to all the other competitors. 15 Q. So you got to be number two in the 16 German market bundling DR-DOS exclusively? 17 A. So it didn't keep it away from that. 18 I don't know whether it helped us, but I'm sure 19 it help, but I can't prove it so -- but we 20 didn't make a mistake with DR-DOS. And I'm 21 sure that because it was better than 4.1 that 22 people appreciated that; that they said, okay, 23 VOBIS has a better product than others offer so 24 I buy a High Screen computer. 25 Q. And that High Screen computer had 11010 1 DR-DOS on it? 2 A. Yes. 3 Q. And he says, after talking to Manfred, 4 it was obvious that Lieven -- not spelled 5 correctly -- was reneging on the deal. 6 Reneging, do you know that? 7 A. Yeah. We talked and talked again 8 about those things, those terms and conditions. 9 I think that's what it means. 10 Q. Well, it means that when you -- that 11 you had already made an agreement with 12 Microsoft and that you went back on it, that 13 you did not keep your word, that's what -- 14 A. No, that's not true. We were still 15 discussing the terms and conditions -- I told 16 you, why pay $18 for DOS, MS-DOS, as the same 17 time we had yet paid $9 for the DR-DOS. That 18 makes no sense. So this quantity, 200,000 19 times $18, it's $3.6 millions a year. That's a 20 lot of profit that we lose because of also 21 licensing MS-DOS. 22 So we were still in the stage of 23 negotiations. 24 Q. So you did not renege on a deal? 25 A. No. We said we would like to have 11011 1 MS-DOS also together with DR-DOS, but let's 2 talk about the terms and conditions. 3 Q. All right. Round two, he says. I 4 took the opportunity to negotiate in German, 5 sign our offer as is -- this is an 6 agreement-upon package deal, or if you change 7 any component, we will too. 8 Second option, scratch the DOS clause, 9 meaning no, you don't have to buy MS-DOS; 10 right? 11 A. Uh-huh. 12 Q. And then pay $35 for Windows instead 13 of 15. Is that the offer that he made to you? 14 A. Yes, that's Mr. Kempin's way to 15 negotiate. 16 Q. So what he said to you is you can buy 17 MS-DOS and Windows together for $15; is that 18 right? 19 A. No, that's not right. That means -- 20 either $9 DOS plus 15 Windows. That means 24. 21 Or only Windows for 35. I think that's what it 22 means. 23 Q. So the $15 was for Windows, but in 24 order to get the $15 price you had -- 25 A. We had also to choose the DOS. 11012 1 Q. MS? 2 A. Of course, MS-DOS. 3 Q. So I want to be sure I understand. 4 In order to get Windows, you had to 5 also buy DOS and together they would cost $24 6 or you could pay $35 for Windows alone? 7 A. Yes, that is -- was his offer. I 8 didn't take it serious because -- 9 Q. You didn't -- 10 A. It's a little bit unusual not to say 11 -- it's a little bit nasty, you know, to offer 12 us half of the package for three times the 13 price, you know, or two-thirds of the package 14 -- two-thirds of the package for Windows was 15 $15. Together with DOS we paid 15, but without 16 DOS we paid 35. I don't think he himself took 17 it serious because we never would have done 18 that. 19 Q. That's what he says. Let's read on. 20 He gave you until March -- I beg your 21 pardon -- April 1st, 1991, to consider. And 22 this was toward the end of March, is that when 23 the CeBIT is? 24 A. Yes, the CeBIT is always mid of March, 25 20's or something. 11013 1 Q. So you have until April 1st to 2 consider. If no contract is signed, seize 3 shipping Windows by 5-1-91. 4 They are shipping without a license, 5 and there's an exclamation point there. 6 Was that true? Were you shipping 7 without a license? 8 A. No, the agreement was I think not 9 written down in that contract, but there was a 10 mutual understanding that either Works or 11 Windows we could ship with our computers, but 12 there was no separate contract for Windows. 13 They wanted to put that in this new 14 contract to get the situation in written order, 15 not only in oral understanding. That was their 16 idea behind it. 17 Q. All right. So your license was a 18 license -- 19 A. Of course we sold Windows for one and 20 a half year. Without license, I don't think 21 Microsoft allows that. I don't think so. 22 Q. All right. You were paying for it? 23 A. Yes, of course. 24 Q. They knew that you were paying for it? 25 A. Yes. We paid it to them, so they 11014 1 should knew -- know. 2 Q. They are shipping without a license. 3 Submit royalty reports for Win and 4 Works and pay up. They have a valid Works 5 license at $25. The proposal showed impact. 6 Meaning you reacted to it? 7 MR. HOLLEY: Objection, Your Honor. 8 Leading. 9 THE COURT: Sustained. 10 Q. I'm sorry. When Mr. Kempin says the 11 proposal showed impact, do you know what he 12 meant? 13 MR. HOLLEY: Objection. Calls for 14 speculation. 15 THE COURT: Overruled. 16 He may answer. 17 A. I can go ahead? 18 Q. You can. 19 A. Yes. I think we left the meeting from 20 their stand on the show a little bit upset, you 21 know, because we were in a bad situation, you 22 know, like in chess, you know, we -- one side 23 you could say, okay, you don't want to have 24 that DOS and -- 25 Q. MS-DOS? 11015 1 A. -- MS-DOS for that price, but if we 2 don't take it -- so even if we took that DOS 3 together with the Windows, it would be $24. 4 That's less than $35 only for the Windows. So 5 by that we throw away the DOS. That's not a 6 good business. So that's not a good offer to 7 us to do that. 8 Q. All right. They threatened with Geo 9 Works, Lotus, et cetera. We asked if the DOS 10 price was an issue. He answered no. 11 Is it correct that -- well, when they 12 -- do you remember that they asked you if the 13 DOS -- MS-DOS price was an issue? 14 A. The usual license royalty for MS-DOS I 15 think was $18. You could say that's a good 16 price. All the others paid that, I don't know. 17 But we said maybe we will only sell half of our 18 product with MS-DOS. But when we have to pay 19 per processor, then we said we are selling 20 200,000 computers that year, that we have to 21 pay under their normal terms and conditions 22 200,000 times 18, but we are only shipping 23 hundred thousand. 24 Q. With -- 25 A. With MS-DOS. Because the other half 11016 1 of the other 50 percent goes with that per copy 2 license from Digital Research, the DR-DOS 5.0. 3 And we could not do that, you know, 4 because we throw away half of the MS-DOS 5 licenses. That was the issue with this $18. 6 But later we agreed to $9, and that was the 7 trick how we could do that. But we didn't go 8 away from the processor license. If you report 9 all the processors you sell, that means in that 10 example 200,000. But you don't pay $18. You 11 pay $9. That was the conclusion I think months 12 later. 13 Q. All right. We asked if the DOS price 14 was an issue. He answered no. 15 Are you telling me price was an issue 16 or price was not? 17 A. The quantity was an issue. 18 We were willing to pay $18 for every 19 machine that goes with MS-DOS but not for all 20 computers because half of them went with 21 Digital Research DOS. And so the price was not 22 the issue. The issue was that we had to pay 23 this $18 for all processors that we are 24 shipping. 25 Q. And we parted as friends, believe it 11017 1 or not. Manfred will follow up with a letter 2 and a phone call, and I have a bet with Jeff 3 that they will sign as is. In my judgment, 4 they will hurt if they do not ship Win, and 5 paying $35 for it is out of the question. 6 A. That's it, of course. It makes no 7 sense. As I said, we can't do that. 8 Q. All right. Let's look at the contract 9 itself, which is Plaintiffs' Exhibit 373. 10 And if you will look at page ending in 11 788. Is that your signature? 12 A. Yes, it is. 13 Q. And the date on that is what? 14 A. March 28th. Maybe one week after the 15 CeBIT show, ten days. 16 Q. March 28th, 1991? 17 A. 1991, right. 18 Q. And who signs for Microsoft? 19 A. It's again Michael Hallman. 20 Q. And was he the CEO at the time, or do 21 you know? 22 A. I don't know that. I think he was 23 somebody in the -- in Redmond who had to sign 24 those contracts. 25 Q. And he signs on April 22nd? 11018 1 A. Yes. 2 Q. 1991? 3 MS. CONLIN: Your Honor, at this time 4 Plaintiffs will offer Plaintiffs' Exhibit 373. 5 MR. HOLLEY: No objection, Your Honor. 6 THE COURT: Admitted. 7 Q. Okay. Let's kind of walk through 8 this. 9 This shows on its face that it is an 10 amendment to the earlier contract that we 11 looked at, and it's dated September 1, 1990, 12 but this amendment is in March 28th, 1991. 13 A. Right. But they didn't change the 14 front page. It was the original contract for 15 DOS and Works from 1990 -- MS-DOS and MS Works 16 from 1990. It's an amendment to that. 17 Q. And that is kind of confusing, but 18 this contract is for both Windows -- Microsoft 19 Windows and for MS-DOS 5.0? 20 A. That's it, yes. 21 Q. All right. Let's look at your 22 royalty. The royalty amount listed on the 23 second page of 13.05. That is for which 24 product? 25 A. This is the -- I think the Windows, I 11019 1 think. It's 13.05 plus their other language, 2 and it's multiplied by 1.15, and this at the 3 end gives $15, what we had to pay. 4 Q. All right. So let's talk about that 5 for a moment. 6 For a foreign language, was there an 7 additional charge? 8 A. Yes. They had a factor of 1.15, I 9 think. 10 Q. 15 percent? 11 A. Plus, yes. 12 Q. So the price of 13.05, you add 15 13 percent to that, and the total amount that you 14 paid for Windows was $15? 15 A. It's $15 then, yes. 16 Q. Let's look at the second page, Exhibit 17 B, and talk about minimum commitments. 18 In the middle of the first paragraph 19 there is a sentence that begins, to the extent 20 that actual earned royalties exceed the 21 cumulative minimum -- let's skip that sentence. 22 Well, we better read both of them. 23 To the extent that actual earned 24 royalties exceed the cumulative minimum 25 commitment payments, company shall pay 11020 1 Microsoft for actual earned royalties. 2 That's what you said earlier. That 3 becomes then a per copy license? 4 A. Strange enough, yes. 5 From that point, if you fulfilled your 6 promises, your minimum commitment, then it gets 7 a per copy license. 8 Q. And then to the extent that cumulative 9 minimum commitment payments exceed the actual 10 earned royalties, such excess shall be known as 11 prepaid royalties and shall be recoupable 12 against future earned royalties during the term 13 of this agreement. 14 A. In the future if you are nice to them 15 and if you have a new contract, you may get 16 these prepayments as a prepayment for the new 17 contract; that you don't have to pay it again. 18 Q. But under the contract -- 19 A. No, you didn't get automatically a 20 refund. Normally one would say if you sell 21 more, you pay more. If you sell less, you get 22 money back. Normally. 23 Q. Right. 24 A. So if you go to grocery store and say 25 you buy 100 eggs, I pay you now. Then you buy 11021 1 110, you pay 10 more. If you borrow 90, you 2 get ten times one dollar back. But that is not 3 the case here. 4 If you sell more, you pay more 5 automatically. If you sell less, nobody knows. 6 Q. When you say nobody knows, you mean 7 what? 8 A. There's no clause in there that you 9 have the right to ask them to refund you. 10 Q. It is recoupable during the period of 11 the contract automatically under the contract; 12 correct? 13 Look here what it says. 14 Such excess shall be known as prepaid 15 royalties and shall be recoupable against 16 future earned royalties during the term -- 17 A. From one period to another, that's 18 right. But at the end, only counts the minimum 19 commitment. And if you have in total, you used 20 more licenses, you have to pay more. If you 21 used less licenses, you didn't get your money 22 automatically back. 23 Q. All right. So in this contract, you 24 had a total minimum commitment for Windows of 25 -- for the first period of $3 million; correct? 11022 1 A. Yes. That means 200,000 copies times 2 15 is $3 million. 3 Q. And was that expected to be your total 4 output for the year under this contract? 5 A. We started to decide to put on every 6 machine a Windows 3.1 that time. The 3.1 was 7 quite -- was the first really good Windows that 8 Microsoft had. 9 Q. All right. So let's look at the 10 contract again. 11 In the second paragraph, it says, 12 commencing with the first complete calendar 13 quarter subsequent to the company's shipment to 14 a customer for revenue of product MS-DOS 15 Version 5.0, German language version, in 16 Exhibit C7, but no later than four months after 17 Microsoft delivers the product to the company, 18 that's when your minimum commitment starts. 19 Please explain that to us. 20 A. We didn't pay the license fees from 21 the beginning of this contract. We paid for 22 Windows. But because we didn't like the 4.0 -- 23 MS-DOS 4.01, we said let's wait until you are 24 ready with that. It was post appointed all the 25 time, the MS-DOS 5.0. We said wait, give us a 11023 1 product ready to ship, and from that time on we 2 will pay you for each machine $9. That means 3 $9 a year for 200,000 is $1.8 million. If it 4 starts the second quarter, it's $450,000. That 5 means 50,000 per quarter times 9, is $450,000. 6 But it gets triggered then when we start to 7 bundle it with our computers. 8 Q. So when it's shipped, that's when the 9 minimum commitment comes into place and you pay 10 450,000 per period after that as a minimum 11 commitment? 12 A. In addition to the schedule, what we 13 have here. 14 Q. Right. 15 A. Because this is only Windows. 16 Q. All right. 17 A. What's written down here in the 18 minimum commitment schedule what you see on 19 that page. 20 Q. It does say thereafter in the 21 contract, the minimum commitment amounts for 22 royalty periods during the remaining term of 23 this agreement shall increase an additional 24 $400,050. So that's what's added? 25 A. Right, that's it. For the remaining 11024 1 periods. That means if it starts in July, then 2 we have another nine months, three periods, to 3 pay this additional $400,050. 4 Q. This was a two-year contract; correct? 5 A. Yeah, right. 6 Q. Your first contract or your -- with 7 Microsoft was shorter? 8 A. I think one and a half years. But 9 this was rolling contracts. You know, when we 10 were in negotiation we made a new one, and this 11 is now is two years, and there came new 12 products, Windows 3.1. There were always 13 adjustments with this contract. 14 Q. I've noticed that. 15 Let's look at just the sheets that end 16 in 91, and that just tells us that the 17 Microsoft Windows -- actually, this is a 3.0 18 Microsoft Windows on page 5. 19 Do you see that? 20 A. 3.0, yes. But when 3.1 came out so 21 this -- it was announced as 3.1 at that time, 22 and I think we have had some 3.0. But later -- 23 the most quantity was 3.1 later. 24 Q. All right. 3.1 is -- doesn't come 25 out, I don't think -- 11025 1 MS. CONLIN: Can we get the next page, 2 Darin? 3 Q. I can't remember for sure, but Windows 4 3.1 comes out in -- 5 A. I think it's April. A little bit 6 later, 1992. 7 Q. Okay. April 21, 1990 -- 8 A. But it was absolutely clear that 9 Windows will be a product that you have to ship 10 to the customers. 11 Q. Right. When you say have to ship, 12 what do you mean? 13 A. People are asking for that. They read 14 in the computer magazines, and if you see -- 15 our problem -- not our problem, but our threat 16 could be somebody has a friend, he bought the 17 computer from a competitor. He has Windows. 18 Oh, he says, so I don't have Windows on my 19 machine so next time I don't buy it from VOBIS 20 anymore. 21 So there's automatically demand 22 because everybody knew what's happening. They 23 read the computer magazines, and they see 24 there's a good Windows version now, so why 25 don't I get it on my computer. So you have to 11026 1 have it. 2 Q. An OEM has to be able to load Windows 3 is that -- 4 A. That time it started, yes, in 1991. 5 Q. And let's just look at the MS-DOS 6 page, which is page 9 of the contract and Bates 7 number ending in 95, and that's the Microsoft 8 MS-DOS Version 5.0 and it is for a royalty rate 9 of $7.82. 10 A. Times 1.5 means $9. 11 Q. In signing this contract, did you have 12 any arrangements about who in Germany would be 13 first to market -- 14 A. With -- 15 Q. -- MS-DOS 5.0? 16 A. We always tried to be first to market. 17 Q. Were you first to market with MS-DOS 5 18 point -- 19 A. Yes, we were. So Mr. Dahmen -- I told 20 you about him -- was the genius who took care 21 of all of the software and the copies of the 22 diskettes. 23 He got I think the master diskette 24 middle of July, and he set up -- he said he 25 will put it somewhere in there that nobody can 11027 1 get it. I said no. Immediately start to copy 2 it, and then I ask -- I did not ask him. I 3 think I asked Microsoft, but I informed them 4 that we at the date when it is announced, the 5 28th of June, we will have an advertising in 6 the newspaper and we say VOBIS again is the 7 first with good product. That was what we did 8 then. 9 But we were ready to ship, and I think 10 normally they ask for one day delay. So when 11 they announce it and Bill Gates is in the TV 12 and press releases, then they say give us a day 13 and then you can ship. But we shipped that day 14 when it was released in June 28, 1991. 15 Q. I think we have that on -- we have to 16 go back a page. 17 MS. CONLIN: Tried to get it all on 18 one page. Just did not work out this time. 19 Q. So June 28, 1991 MS-DOS 5.0 is 20 released in Europe and VOBIS begins shipping 21 both DR-DOS 5.0 and MS-DOS 5.0, customer 22 chooses. 23 So now as of June 28, 1991, you are 24 offering both MS-DOS 5.0 and DR-DOS 5.0? 25 A. Yes. Without any extra price customer 11028 1 could choose what operating system he would 2 like to have. 3 Q. All right. How did that work? 4 A. Wonderful. 5 Q. Okay. Well, but I mean, when I come 6 to your store, how do I make my choice? 7 A. At the beginning, as we still have had 8 this diskettes with it, we have a package 9 Microsoft DOS, DR-DOS, and customer asks for 10 DR-DOS, gets DR-DOS with this hologram, and 11 then if he asks for Microsoft DOS, he gets the 12 package Microsoft DOS. 13 Q. But put it in the package with the 14 computer? 15 A. Yes. Right, that's what these were, 16 packages with the white carton and you had 17 documentation with them. 18 Q. Let's go back for a moment and talk 19 about minimum commitments. That contract that 20 you signed on March 28, 1991, had minimum 21 commitments of a total of, you know, more than 22 $4 million probably? 23 A. Yes, together with the MS-DOS 5.0, it 24 was more than 4. Windows was 3 million. That 25 means 200,000 times 15. Plus for three periods 11029 1 300, $450,000. That makes something like 4.3 2 to $4.4 million in one year. And it was much 3 more because we sold more than 200,000 4 computers that year. 5 Q. Would you owe that money to Microsoft 6 under that contract even if you didn't sell a 7 single computer during that period? I mean, I 8 know that would be very bad. 9 A. With Windows, yes, but if we have had 10 never triggered the MS-DOS, no, because the 11 MS-DOS was combined with a trigger. But the $3 12 per year, or later the $750,000 per quarter, of 13 course we have to pay that. Under those rules 14 that -- maybe that we discuss if we don't use 15 it, what we do the next year or the next 16 contract, but first we have to pay that. 17 Q. No matter what? 18 A. No. They don't care about that. They 19 don't count your licenses. They count the 20 number of processors you ship. 21 They could have easily asked Intel how 22 many processors did you ship to VOBIS and okay, 23 this is the quantity times the license fee so 24 that you have to pay. They didn't count the 25 software they ship. They counted the 11030 1 processors that have been shipped to us. 2 Q. So the per processor license was 3 something -- did you discuss that frequently or 4 infrequently? 5 A. Often. I complained about that every 6 time because it was such an issue for Microsoft 7 to stay with that per processor license that I 8 said, okay, we can't say you only buy 100,000 9 copies or 100,000 licenses for MS-DOS, we can't 10 do that. 11 Q. Who can't? Microsoft can't? 12 A. No. They said it's a law. Per 13 processor license is a law. We can discuss 14 your price. 15 And so we divided the price by two. 16 The price for MS-DOS was $18. They said per 17 processor license is a law. We cannot change 18 anything about that. That is our policy and 19 nobody gets any exclusion from that. 20 Price we can discuss. So we divide 18 21 by 2. So you have your $9 times 200,000. That 22 means $1.8 million what you wanted to get. And 23 we were not happy with that, but we could live 24 with that, you know. 25 Q. Were you -- was there a per copy 11031 1 price? 2 A. You know, we call it in German moon 3 prices, you know. Prices never is asking -- 4 never nobody -- nobody is ever asking for that. 5 There may be a price, I don't know 6 whether it was $18 or something but -- 45, I 7 don't know, but it was out of any discussion 8 because now we had $9. And to pay a per copy 9 of -- maybe $30 something. They had a per copy 10 price in the price list, but I think nobody 11 bought that. 12 Q. And nobody bought it why? 13 A. It's too expensive. You know, if you 14 sell 200,000 PCs a year and the difference is 15 $20, 200,000 times 20 is $4 million. It's 16 nearly a whole profit a year that you give away 17 to Microsoft only to get that product, you 18 know. 19 Q. Does Microsoft know when you enter 20 this contract what you're planning to do with 21 your computers, what operating system you're 22 going to use? 23 A. Yes, they knew, and that was the 24 reason why they said, okay, we will help you 25 not to pay $18 for 200,000 machines, but we 11032 1 can't give you a contract 100,000 -- this would 2 have been a per copy license -- because 3 processors we sold 200,000. But we can't give 4 you a per copy license for 100,000, but it will 5 be the same for you if you have a per processor 6 license for half the price. That was the trick 7 and that -- then we said, okay, if you insist 8 on your processor license, which we didn't like 9 all the time, never, but then we can agree. 10 Q. All right. So the 200,000, was that 11 the number of computers you expected to ship? 12 A. Yes, this was the number for 1992 -- 13 for 1991, sorry. 14 Q. And so instead of paying $18 you paid 15 $9 per unit of MS-DOS 5.0? 16 A. Right. That's it. 17 Q. And that -- 18 A. In total it's the same, you know. 19 It's 200,000 times 9 is the same as $450,000 20 times 18. 21 Q. Yes. 22 A. So economically, there was no 23 difference for us. 24 Q. But you expected and intended to keep 25 shipping DR-DOS? 11033 1 A. Yes, that was the reason to say that. 2 Because we said maybe 50/50. The products were 3 same good, I think. MS-DOS had some 4 advantages. DR-DOS had some advantages. But 5 we thought it would be a 50/50 relation. 6 Q. And Microsoft knew you were going to 7 keep shipping DR-DOS? 8 A. Yes. 9 Q. But Microsoft would not give you the 10 lower price if you had a license for only 11 100,000 of your expected 200,000 output? 12 A. They said there is no per copy license 13 for that price. 14 Q. Okay. 15 A. They said -- we felt that they are so 16 interested in those per processor licenses that 17 they didn't think about the price anymore. The 18 pricing was not the problem. You know, if $18 19 is normal price for it, then you pay only $9. 20 But you pay it for every processor you ship. 21 Q. Okay. Now, let's talk about your 22 customers and the price of your computers. 23 How did you establish how much to 24 charge customers for your High Screen 25 computers? 11034 1 A. How we calculated that? 2 Q. That's correct. 3 A. This bottom up. That is in the 4 industry retailers do. They have calculation. 5 They add the cost. Then they have -- let me 6 see -- we have the cost of $700, material cost. 7 Then you add something like $100 overhead. And 8 then say you need 20 percent from top. Then 9 your sales price, your offer price is $1,000. 10 Not good, so you say 999. That's how it works 11 all the time. 12 Q. Now, if Microsoft or another component 13 supplier raises the price to VOBIS for a 14 component, what happens? 15 A. We don't have 20 percent anymore. 16 Q. And then -- 17 A. And that we did like. 18 Q. But what did you do? If a price was 19 raised by a supplier what -- 20 A. First we try to convince Microsoft 21 that's not the time to raise prices. It's -- 22 this industry, all prices went down, not up, 23 and the quantities -- you know, what I never 24 understood is that the quantity goes up 60 25 percent a year -- 11035 1 Q. Quality? 2 A. Quantity. Quality also, but that 3 prices went up. So there's one thing. 4 Either quality raises and the price is 5 the same or you get the same quality for lower 6 price. That's how it worked. 7 Capacity 40 megabyte at that time. 8 First we pay $200, then 150, then 100. The 9 $200 later you paid for 80 megabyte so -- 10 Q. Okay. Stop for a moment. 11 We're talking about 80 megabytes of 12 what? 13 A. Capacity of hard disk drive. 14 Q. So when the capacity of the hard disk 15 drive increased, the price went down, is that 16 an -- 17 A. Not immediately. It was the same 18 price. 19 So it was a steady progress. It was 20 always turning. 21 You better quality, more capacity, 22 first same price, then this price lower. And 23 the next higher capacity, higher quality took 24 that same price level. You understand what I 25 mean? 11036 1 Q. I think so. 2 A. So it's difficult. 3 But let's say this $100,000, since 20 4 years the entry-level price for a reasonably 5 good machine maybe 800, but $1,000 you get a 6 good software with it. The quality always 7 improved, but the price kept the same. 8 So that means that there is always a 9 circle that the former capacity went down in 10 price. Maybe then you have a computer that 11 only costs $700, but it's not state of the art. 12 People say no, that's not good enough. I want 13 better computer with now 200 megabyte of maybe 14 hard disk capacity. But the price kept the 15 same. 16 So if you have the schedule what I 17 showed you that you come together, hardware, 18 software, memory, CPU from Intel, it was always 19 the same normally. You have had -- I think for 20 the CPU was 15 percent of your material cost 21 for CPU. Hard disk drive was 10 percent. K's 22 and power supply was 5 and 8 percent. You 23 understand that? 24 So that even with the new quality, it 25 didn't -- went up in price, it took the place 11037 1 of the former product. 2 Q. Okay. 3 A. But the schedule was this map, you 4 know. This what you have had was always the 5 same. 6 And this $1,000 retail price was 7 something -- or 999, what this amounts to in 20 8 years, that's -- I mean, you go somewhere and 9 buy a computer that is quite good with monitor, 10 it's $1,000, you get a quite good computer. 11 Q. All right. Now, when you say the 12 quality went up and the prices stayed the same, 13 was that true of Microsoft's products? 14 A. They went up in price. That was the 15 problem. Because then one line in that 16 schedule goes up, and then you can't substitute 17 the former quality by the next better quality. 18 You have to stay with that quality. 19 Maybe you say I reduce memory by half, 20 you know. But if you want to get your $800 21 buying prices to set it with 20 percent for 22 999, you had to do something. 23 Q. So you decrease the quality of the 24 other components to make up for the price 25 increase from Microsoft? 11038 1 A. Or you decided not to take the newest 2 capacity in there, but you stayed with the 3 older, with the smaller capacity because it 4 went cheaper. 5 Q. Okay. And the 20 percent margin, that 6 was your profit margin? 7 A. We needed that, you know. It's not 8 too much, you know. It's 20 percent was a law. 9 It was our law. 10 Q. When you say law -- when you use the 11 word law -- 12 A. That means it's advice to people to 13 calculate with a 20 percent margin on it. 14 Q. Okay. 15 A. From top. That means 1,000 minus 20 16 percent is 800. 17 Q. So you could spend for a computer that 18 costs 999, you could spend costs of 800? 19 A. Yes. 20 Q. And when costs went up for a 21 component, in order to stay with your price, 22 you would decrease memory or some other thing 23 or stay with an older product? 24 A. That is -- normally then you stayed 25 with the older product. And you had to sell 11039 1 the new product after those prices went a 2 little bit down, but this was a delay in 3 innovation for us. 4 Q. If a price went up a dollar, was that 5 important or not important? 6 A. No, a dollar not. Later, yes. Half a 7 million computers times $1 is, but no, $1 is 8 not so important. 9 Q. All right. When you're selling more 10 computers, does it become more important? 11 A. Of course. It's one factor. It's 12 times 500,000. It was only -- $10 times 5,000 13 is a lot of money, but in that business not so 14 important. But $500,000 times $10, that's a 15 lot. I think it's $10, that would be an issue. 16 Q. Did any other software company refuse 17 to sell you products on a per copy basis that 18 you know -- that you recall? 19 A. No, I don't think so. 20 Q. And did you have prepayments for any 21 software or any hardware? 22 A. Sometimes you -- they want to have 23 down payment at the beginning, you know, but 24 you sign big contracts and your supplier, 25 especially if one doesn't know you so good, 11040 1 when the first contact is up, they make a 2 prepayment of 10 percent of the whole contract 3 value. That may happen, yes. 4 Q. Did you have the kind of minimum 5 commitment prepayment schedule with anybody 6 else that you -- of the sort that Microsoft 7 required of you? 8 A. No, not -- no. I can't -- not in this 9 important numbers, no. 10 Q. All right. 11 A. Maybe there has been some, but not in 12 millions of dollars. 13 Q. Was there an option for you to simply 14 not do business with Microsoft and stay in 15 business yourself? 16 A. Nobody dare to do it. We didn't dare 17 to do it, and I think it wouldn't be a good 18 idea to do it. 19 Q. Why not? 20 A. Once -- let me say sometime later -- 21 in 1989 we could say that because there was a 22 good competitive product. 23 We didn't -- if Microsoft had said we 24 don't offer you contract -- OEM contract for 25 Works, we would have said, okay, then leave it. 11041 1 That would not be so -- we had other products 2 then. 3 There were other products from -- 4 integrated products from Star Division that has 5 been bought by Sun later has been a good 6 product, good price. 7 This was -- at that time you didn't 8 need Microsoft necessarily, but from 1991 on it 9 would be a tough time if you don't have the 10 Microsoft products in your line. 11 Q. All right. Let's look at Plaintiffs' 12 Exhibit 658, and that is a -- just a small 13 one-page E-mail, and it is from Manfred 14 Schindler to Christian Wedell and other people, 15 and the subject is VOBIS, and it's dated 16 April 2, 1991. 17 MS. CONLIN: And, Your Honor, we would 18 at this time offer Plaintiffs' Exhibit 658. 19 MR. HOLLEY: Object on the same basis 20 that he's being asked to speculate on documents 21 he's never seen. 22 THE COURT: Overruled. It's admitted. 23 Q. And this one says Mr. Schindler was 24 with you when you signed the contract or you 25 signed it and sent it to him? 11042 1 A. Normally they come in and we have had 2 a nice lunch, and, of course, it's a big volume 3 contract, you know. 4 Q. All right. So he says to his 5 colleagues on April 2nd, just in this hour I 6 received a signed amendment from VOBIS. It is 7 signed for Windows Works per processor and for 8 DOS 5 per processor. The DOS 5 license 9 triggers automatically after four months of 10 shipment German DOS to customer. Go buy 11 champagne. 12 So they were -- there was a 13 celebration apparently of your signing? 14 A. I think so. This is -- yes, normally 15 we did that. 16 Q. Did you have some of the champagne? 17 A. I don't know. I have had some 18 champagne in my life, yes. 19 Q. All right. I didn't mean to make it 20 quite so broad, but -- well, do you think you 21 had any of that champagne that they bought -- 22 A. No, I think this is more of success to 23 his colleagues, I now will go out and have 24 champagne. 25 Q. All right. 11043 1 A. I'd invite you for champagne. I think 2 that's it. 3 And he was very happy to get that 4 after all this years. It was negotiations for 5 three years in total, you know, for that 6 contract. 7 Q. Let's look at Plaintiffs' Exhibit 204. 8 And Plaintiffs' Exhibit 204 is the 9 March status report European OEM division from 10 Jeff Lum. 11 MS. CONLIN: And my offer is of 12 Plaintiffs' Exhibit 204 -- oh, I'm sorry. 13 And the only page we will be 14 discussing is the page 8, which deals with 15 VOBIS. 16 MR. HOLLEY: I have the same 17 objection, Your Honor, to the admission of this 18 document. 19 THE COURT: It's admitted. 20 Q. Let's look at page 8. Do you have it 21 there, Mr. Lieven? 22 A. Yes. 23 Q. Okay. Page 8, this is Mr. Lum 24 reporting to various people on your contract 25 and dealings with Microsoft, and he says, 11044 1 Joachim met with Theo Lieven and reached 2 agreement on the outstanding license. We get 3 Windows or Works on every PC plus DOS 5.0 when 4 they start shipping the German version. VOBIS 5 is one of DRI's largest OEMs worldwide and 6 largest in Europe. 7 That was correct? 8 A. That was correct, yes. 9 Q. This was a great win for us. This is 10 just the beginning, however. We need to stay 11 close to this company as we know DRI is very 12 close. 13 Was that correct? 14 A. Yes. 15 Q. DRI was very close to your company? 16 A. Yes, yes. 17 Q. And what was Mr. Dahmen your technical 18 genius's attitude toward DRI? 19 A. He loved it. He was in -- stayed in 20 contact with Mr. -- I don't remember the name. 21 He come from India. He visited them very 22 frequently. 23 We were the key customer in Europe 24 with this quantity 500,000 or 450,000 in three 25 years, and there -- you know, there's always 11045 1 some minor problems with computers, printers 2 don't work, software, some other software don't 3 work, and we have had really, we have had -- he 4 had a red phone. He could phone the technician 5 and ask maybe there's a problem, could you fix 6 that. And then they got the new gold version 7 or new master, and this was very easy-going 8 business, it was very nice. 9 Q. He says, we know DRI is very close and 10 they would do all they can to win these guys 11 back, but we do have them locked up for another 12 1.5 years. 13 Did you think you were locked up? 14 A. I didn't think that this contract was 15 unfavorable to us. It was the price of $9 for 16 each computer for MS-DOS, not bad. $15 for 17 Windows. In that time it was not so bad. 18 I had to sign the contract maybe even 19 for two years for that. 20 Q. Well, you didn't. You signed the 21 contract for two years, didn't you? 22 A. Yes, but the remaining time was 1.5. 23 Q. Oh, all right. 24 A. So this was -- so this $9 was not -- I 25 don't think that anybody else has got this $9 11046 1 all the time in that quantities. 2 Q. All right. So after June of -- 3 June 28th, 1991, from that point for some 4 period of time, what OS did you ship with your 5 computers? 6 A. Both. We gave choice to people and 7 they could choose. It was very easy, as I've 8 explained to you, with the packages, and 9 customers decided, and they liked it to decide. 10 THE COURT: We're going take our 11 recess at this time. 12 Remember the admonition previously 13 given. You may leave your notebooks here. 14 We'll be in recess until 12 noon. 15 All rise. 16 (A recess was taken from 10:58 a.m. 17 to 11:59 a.m.) 18 (The following record was made out of 19 the presence of the jury at 11:59 a.m.) 20 MS. CONLIN: The Court will recall 21 that on Thursday I asked whether or not the 22 Court would permit us to contact our own 23 clients, and I think that you said that 24 Microsoft should let us know whether or not 25 they had an objection to me contacting our own 11047 1 clients, and we haven't -- we don't know 2 what -- 3 MR. TULCHIN: Your Honor, we expect to 4 file something tomorrow on this subject. I 5 think on Thursday I said would it be okay if we 6 do it next week, and the Court said okay, and I 7 should have something in writing for the Court 8 tomorrow. 9 THE COURT: Okay. 10 MS. CONLIN: All right. Your Honor, 11 it's becoming more and more time important 12 because of what Microsoft is doing in the 13 press, but we're ready. 14 THE COURT: Okay. 15 (The following record was made in 16 the presence of the jury at 12:03 p.m.) 17 THE COURT: Everyone else may be 18 seated. 19 Sir, would you take the stand. 20 Remember you're still under oath. 21 DIRECT EXAMINATION (CONT'D) 22 BY MS. CONLIN: 23 Q. All right. Good afternoon, Mr. 24 Lieven. 25 Let's move on to Plaintiffs' Exhibit 11048 1 805, and that is a contract with Microsoft 2 dated July 1, 1991. And if you'll turn to the 3 second -- third page and look and see if that 4 is your signature on the contract. 5 A. Yes, it is. 6 Q. And who signs for Microsoft? 7 A. I think Joachim Kempin now signs it. 8 Q. And he signs it on what date? 9 A. March 9, '92. Quite late, three 10 months later. 11 Q. Was that kind of an ongoing problem? 12 A. Yes. No, no, it wasn't a problem. 13 But we had our understanding, we had a 14 handshake, and so it was technical. 15 Technically we have to have a signed contract, 16 but it was not more -- it was fixed at the -- 17 MS. CONLIN: We would offer 18 Plaintiffs' Exhibit 805. 19 MR. HOLLEY: No objection, Your Honor. 20 THE COURT: It's admitted. 21 MS. CONLIN: Can we look at the first 22 page? 23 Q. As I said, this is an amendment to 24 that original contract that we saw. 25 A. Yeah, once again on that amendment. 11049 1 Q. And this is number two and the date on 2 the front is September 1, 1990. But if we turn 3 the page, just to the very next page, we will 4 see the effective date of this contract right 5 at the top is effective July 1, 1990. 6 And perhaps the easiest thing to do, 7 rather than going through the contract, is to 8 look at the summary that you did, Mr. Kempin -- 9 I mean, Mr. Lieven, I'm sorry -- Mr. Lieven, do 10 you see on the time line it says July 2nd, 1992 11 VOBIS agrees to per processor contract for 12 MS-DOS 5.0 -- wait a minute. Are we in the 13 wrong year? I think we might be. 14 MS. CONLIN: I think we need to go 15 back a page, if we could, Darin. And we are 16 looking for a July -- let me see. 17 Q. I don't think that we put this 18 contract on -- was this a technical amendment? 19 A. Yes. When you have a look at Exhibit 20 C4, they are now the language versions in there 21 because we expanded in Europe very fast. We 22 have been in Italy, in Spain. We made 23 computers for England also. So we need all the 24 licenses for the language versions. 25 I think this was reason why we got 11050 1 that. It's Danish, Dutch, Finnish, French, 2 German of course, Italian, Norwegian, 3 Portuguese, Russian, Spanish, Swedish, and 4 Turkish. 5 I think this was only because of 6 technical reasons. 7 Q. All right. 8 A. Because pricing didn't change, minimum 9 commitments didn't change. It was same -- 10 under the same contract, I think. 11 Q. Look at number 9 on page 2 of the 12 contract. Did the term of the agreement also 13 change? 14 A. Number 9 that was? 15 Q. Yes. Term of the agreement on page 2. 16 A. Yes. 17 Q. Did the term of the agreement -- was 18 that extended? It runs from the effective date 19 of the earlier of two years -- or two years and 20 six months. 21 A. It may be that it was extended from 22 the time is there -- but it was because the 23 price was not so bad so we didn't object to 24 that. Because I think this gave us now -- this 25 contract now was end of 1993, is that right? 11051 1 And this was long period of time that we could 2 work under these terms and conditions. We 3 liked that. 4 Q. Now, in September I believe that we 5 talked about the fact that DR-DOS 6.0 is 6 released and then you begin shipping 6.0 -- 7 DR-DOS 6.0 and MS-DOS 5.0; right? 8 A. Yes. 9 Q. Let's look at Plaintiffs' Exhibit 10 7626. 11 This is a September -- it's the 12 September 1991 worldwide OEM status report. 13 The date on it is October 29th. It is from -- 14 October 29th, 1991. It's from Mr. Kempin to 15 Mr. Hallman. 16 MS. CONLIN: And Plaintiffs would 17 offer Plaintiffs' Exhibit 7626. 18 THE COURT: Any objection? 19 MR. HOLLEY: Yes, Your Honor. I 20 object to this witness being shown documents 21 he's never seen and asked to speculate about 22 what they mean. 23 THE COURT: Overruled. It's admitted. 24 Q. Okay. Turn if you would, please, to 25 page 6 of the document. You'll see VOBIS there 11052 1 at the middle of the page. 2 Okay. It says, VOBIS is very pleased 3 about their success. 4 Were you very pleased about your 5 success? 6 A. Yes, of course. 7 Q. Although they sold a lot of MS-DOS, 8 penetration is significantly more than 60 9 percent as estimated until we see the royalty 10 reports. It looks like DRI is urging them to 11 focus on DR-DOS. 12 Was that true? 13 A. Of course. They recognized that we 14 now have parallely MS-DOS and maybe they have 15 been afraid that they run out a little bit of 16 business, but that is usually -- that's usual 17 business. 18 Q. And Lieven is complaining about the 19 per processor license. He does not want to pay 20 $9 with every computer system and thinks about 21 shipping both DR-DOS and MS-DOS. 22 So you -- this confirms that you were 23 continuing to complain about the -- 24 A. I didn't like the per processor 25 licenses at all. All my life I didn't like it. 11053 1 Because of one reason, you know. Maybe I 2 explain it to you. 3 It is really tying you up. Imagine 4 you know that every morning you like to eat one 5 egg. So now one farmer says you, okay, give me 6 your minimum commitment of $300. Is one egg 7 $1? I don't know. Let's assume it is. For 8 one year and you pay $360, and you will get one 9 egg every day. It is per egg, not per 10 processor. That is one egg you pay that. 11 But the next day or one month or two 12 months ago you have a friend who says, oh, I 13 have better eggs there from another farmer, why 14 don't you take that? I says, well, it tastes 15 good, but I have prepaid everything. I don't 16 get back anything. So I pay whether I take the 17 eggs from Farmer A or not so I'm blocked, you 18 know. 19 I could do that if I'm rich enough, 20 but who is? So nobody pays twice if you get 21 only one. 22 So that is why I never like this per 23 processor license. Because you were tied up 24 for a future that you could not know. You 25 didn't know what is in the future. In this 11054 1 business it changed so fast, and with this 2 two-year contracts, you didn't have any 3 flexibility anymore. 4 Q. All right. Let's move on and talk 5 about Plaintiffs' Exhibit 1046. 6 And this is an E-mail string, internal 7 Microsoft E-mails from October of 1991, and 8 VOBIS is mentioned on the second to the last 9 page. 10 MS. CONLIN: And, Your Honor, at this 11 time we would offer 1046. 12 THE COURT: Any objection? 13 MR. HOLLEY: Object to the fact that 14 90 percent of this is entirely irrelevant, Your 15 Honor, and the portion that I presume Ms. 16 Conlin intends to direct the witness' attention 17 to is something he's never seen and has no 18 basis to testify about. 19 THE COURT: It's admitted. 20 Q. Are you there? 21 A. Yes. 22 Q. All right. Let's look at that E-mail 23 from Adam Taylor to Brad Cole and DOS marketing 24 and Jeff Lum and an update on VOBIS DR-DOS 25 dated November 12, 1991. 11055 1 All right. So you started shipping 2 both products on June 28th, right, 1991? 3 A. Yes. We gave customers the choice 4 from that date on. 5 Q. And he says spoke with Jeff from 6 Germany. Here is a quick VOBIS update. 7 Since September VOBIS claims they are 8 shipping 50/50 MS-DOS to DR-DOS, but we are 9 still paid on a per processor royalty 10 agreement. 11 So you're paying for the -- you're 12 paying Microsoft for the computers that you 13 ship with DR-DOS on them? 14 A. That was my complaint about that, that 15 structure of the contracts, yes. 16 Q. All right. VOBIS chairman hates 17 Microsoft. Is that true? 18 A. No, it's not true. 19 Q. Has that ever been true? 20 A. No, no. If that would happen, so, no 21 that is -- we have had quite -- we have always 22 had tough discussions, but it was mostly -- I 23 say mostly fair from both sides. 24 We never owed them one dollar, you 25 know. So that is -- it's relationship 11056 1 especially with some persons from Microsoft 2 were quite good. 3 Q. All right. So you're not -- your 4 motivation is not hatred toward Microsoft? 5 A. No, no. The problem of this per 6 processor license always -- as I said, I don't 7 like it. Or maybe they thought this is hate. 8 I don't know. 9 Q. All right. And instructs their chain 10 of VOBIS dealers to push DR on customers who 11 don't know what they want. 12 A. No. 13 Q. Did you ever issue such an 14 instruction? 15 A. I'm not stupid. I don't push a 16 customer to buy something what he does not 17 want, you know. I let him make the choice. 18 Q. What did you think providing -- 19 providing this choice for consumers, did you 20 think that was a competitive advantage or a 21 competitive disadvantage? 22 A. To give choice to consumers? 23 Q. Yes. 24 A. Let consumers decide. And every 25 consumer will tell you it's an advantage. 11057 1 Q. All right. 2 A. It's one of the most admired books on 3 the American Colonies. Milton Friedman. Its 4 title is Free to Choose. That's all what it 5 is. That's a whole book about it. 6 Q. Let's turn to Exhibit 3492, which is a 7 report from Jeff Lum to Joachim Kempin dated 8 November 15, 1991. And we would offer Exhibit 9 3492, and there is a part of this report that 10 goes to Mr. Kempin that of course deals with 11 VOBIS because it is the October Europe OEM 12 sales status report for Microsoft. 13 MS. CONLIN: And we would offer 14 Exhibit 3492. 15 THE COURT: Any objection? 16 MR. HOLLEY: Same objection as 17 previously. 18 THE COURT: It's admitted. 19 Q. Let's turn to page 9 in the document. 20 And remember, this is for the October sales 21 report. 22 We finally -- VOBIS. We finally got 23 their royalty reports for the last year and 24 they reported 220 units for the last four 25 quarters. 11058 1 That's your total sales are around -- 2 A. I think from -- this will be from 3 October 1990 to September 1991, I think. 4 Something like that. 5 Q. All right. 6 A. Because this is from November. That 7 means -- that means that in 1991 total sales 8 was even higher than 220 because this is a 9 ramp. You know, it always went up. 10 Q. All market data points to the fact 11 that they are number one in Germany with IBM 12 falling behind at 180- to 190,000 per year. 13 Does that seem correct with your own 14 recollection about when you achieved your 15 status as number one in Germany? 16 A. I think so, yes. 17 Q. All right. 18 A. I think so. 19 Q. So by October of 1991 -- 20 A. Yes. 21 Q. -- you were passing IBM? 22 A. From that status -- if it was IDC, I 23 think yes. There were others that were nearly 24 the same, but '90, '91 -- I recall that 1992 25 that we would be undoubtedly number one in 11059 1 Germany and number three or four in Europe. 2 Q. Let's turn to Exhibit 7312, the 3 December status report, December 1991, and it 4 is from -- doesn't say who it's from. Called 5 the December status report. Europe OEM sales, 6 Jeff Lum director, and there's a section of 7 course dealing with VOBIS. 8 MS. CONLIN: And we would offer 7312. 9 THE COURT: Mr. Holley? 10 MR. HOLLEY: Same objection, Your 11 Honor. We don't even know who wrote this 12 document. 13 THE COURT: Overruled. It's admitted. 14 Q. Let's turn to page 8 of the document 15 and share with the jury what Mr. Lum says about 16 VOBIS. 17 We had a meeting with VOBIS together 18 with Joachim Kempin and we identified 19 possibilities to kick DR-DOS out of VOBIS. 20 Do you remember that meeting? 21 A. There were frequently meetings, but I 22 think monthly meetings we have had. This is 23 one of them. I don't remember it especially, 24 sorry. 25 Q. The only obstacle is Lieven's personal 11060 1 commitment to DRI. Did you have a personal 2 commitment to DRI? 3 A. Personal I won't say, no. It was a 4 business commitment because I thought it's the 5 right way to do business in Germany. 6 Q. All right. 7 A. No, I haven't -- friends there or 8 something like that. It was a business 9 decision. 10 Q. Lieven has not determined any 11 strategies for calendar year '92, although he 12 feels that his current strategy will not fit to 13 the changed marketplace and he is feeling stiff 14 competition from Escom. I believe you already 15 talked about Escom. 16 A. Right, yes. 17 Q. Stefanie Reichel is picking up account 18 work and will focus on more marketing issues. 19 Now, at this point in December of 1991 20 you had not yet met Ms. Reichel? 21 A. I don't think so. I met her later in 22 '92, I think. 23 Q. We are going to go to 1992 and look at 24 the document in front of you, which is marked 25 1195, and it is an E-mail string kind of 11061 1 printed strangely, but it's just the first page 2 that I'm going to focus on. 3 MS. CONLIN: And we would offer 1195. 4 The E-mail string is from Microsoft. Brad 5 Cole. 6 THE COURT: Mr. Holley? 7 MR. HOLLEY: No, it isn't Brad Cole. 8 There is no such person. That's part of the 9 problem with this. I object. There's no 10 author listed for this document. 11 MS. CONLIN: Well, do you have the 12 right one? It says -- oh, I see what you're 13 saying. It's to Brad Cole. 14 MR. HOLLEY: It's to Brad Silverberg. 15 MS. CONLIN: Oh, maybe. It's very 16 difficult to read. 17 THE COURT: Did this go through the 18 process, Special Master? 19 MS. CONLIN: Yes, Your Honor. 20 THE COURT: Very well. It's admitted. 21 Q. It is -- it's very difficult to read. 22 MS. CONLIN: Could you put that up, 23 Darin, because we'll just take a look at it all 24 together. 25 The document was produced from 11062 1 Microsoft in this form, and it is -- it could 2 be Brad -- would you kind of underline that and 3 see if it makes it any clearer? 4 It doesn't. Either Brad Silverberg or 5 Brad Cole. I believe it's -- well, and it is 6 to Jeff Lum, we can see that, and someone in 7 the middle and -- Jeff Lum is I think the only 8 one we can read, and then subject is something 9 and DR-DOS, and under that it says VOBIS. 10 MS. CONLIN: Let's highlight that, 11 just the VOBIS part. 12 Let's do the whole thing. 13 Q. VOBIS. It is true that VOBIS is still 14 promoting DR-DOS. The reason is that VOBIS 15 wants to keep a 50/50 ratio between MS-DOS and 16 DR-DOS. We are working on getting this stopped 17 over the next months. 18 Was it true, Mr. Lieven, that that was 19 your goal, to keep -- 20 A. Yes. This was all the time what -- we 21 hoped that it would be like this automatically. 22 Q. Now, in this time frame, we're now in 23 January of 1992, and you will see from the time 24 line that on December 22nd, the Win 3.1 25 Christmas Beta 3 was shipped to beta sites. 11063 1 Were you a beta site -- 2 A. Yes. 3 Q. -- for Windows? 4 A. For 3.1 we were, yes. 5 Q. And was there anything that was 6 noticed by VOBIS about the Windows 3.1 beta 7 that was shipped to you in December -- in 8 December, January of 1992? 9 A. Yes. When Mr. Dahmen, we talked about 10 him, our genius, when he tried to install it on 11 our computers which had the operating system 12 from Digital Research on it, there was, I 13 think, an error message. 14 I don't know the background behind 15 that, but he immediately phoned to Digital 16 Research, and they went through -- to that 17 problem, and I don't know how it was fixed. 18 But I think there were several beta versions, 19 and the problem was that at the end the press 20 wrote some rumors about it that maybe 3.1 does 21 not work with Digital Research. 22 And this is not so nice. So this is, 23 you know -- if you read the report in an 24 automotive magazine, maybe with this model with 25 the brakes some error message, I don't think 11064 1 that you take into consideration to buy it, 2 even if you haven't seen that car. So that was 3 a problem for us. 4 Q. All right. Did you ever see the 5 message yourself? 6 A. No. 7 Q. What is the effect of such a warning 8 on OEMs like yourself, like VOBIS? What does 9 that mean? 10 A. I couldn't believe it, that it really 11 doesn't work. We could fix it with the first 12 beta version. 13 When we first installed MS-DOS -- this 14 was 5.0 on the machine, then we installed this 15 Windows beta Version 3.1 on the machine, and 16 then we deleted the MS-DOS from the machine and 17 put the DR-DOS on it. Then everything worked 18 fine. 19 It seems that only something in the 20 Windows 3.1 installing procedure ask, hey, 21 computer, what operating system are you working 22 with? And depending on that, it make this 23 error message. 24 Q. All right. Does -- what is the issue 25 of compatibility? Let me try to ask a better 11065 1 question. 2 How important is compatibility between 3 the operating system and Windows? 4 A. I think the most important question at 5 all -- everything, it started with IBM 6 compatible, you know. Compatibility was -- is 7 still the word in the whole industry, and that 8 is what every manufacturer has to take care of; 9 that his products are compatible with the 10 system. And if not, then he's out of business 11 because people want to put all things to the 12 interfaces and want to put the software on it, 13 and they want to be sure that not only today 14 but also tomorrow they can use any software or 15 hardware on this PC that's offered. 16 Q. So the suggestion of incompatibility 17 would have what kind of an effect on a product? 18 A. Go out of business immediately. 19 Q. Let's look at Exhibit 151. 20 MS. CONLIN: And this, Your Honor, is 21 already admitted. 22 Q. And I want to be sure that the record 23 is clear that this is not even anything that 24 was sent to you. It was sent -- it was a 25 letter to Mr. Leonard Liu of Acer sent back in 11066 1 1989. I only call that to your attention at 2 the bottom where it says -- now the bottom, I'm 3 sorry, I'm not telling you correctly. The 4 second from the bottom paragraph, the last 5 sentence beginning -- 6 MR. HOLLEY: Objection. I'm sorry, I 7 thought you were done. 8 MS. CONLIN: Did you -- 9 MR. HOLLEY: I just want to object to 10 the form of this question, but I want you to 11 finish it first. 12 MS. CONLIN: Okay. That would be 13 good. 14 Q. The bottom of this letter from Mr. Lum 15 to Mr. -- I'm sorry, from Mr. Butler to Mr. Liu 16 of Acer says, it only takes a couple of reports 17 about noncompatibility to give the kiss of 18 death to a PC. We've seen that on the hardware 19 side as well as in the operating system area. 20 My question to you, Mr. Lieven, is, do 21 you agree with that? 22 MR. HOLLEY: Object to the form of the 23 question. Misstates this document, which is a 24 draft, and there's no evidence that it was ever 25 sent. 11067 1 THE COURT: Overruled. You may 2 answer. 3 A. Well, the kiss of death I know only 4 from opera, not from operating system. But of 5 course that is true. That's what I said just 6 three minutes ago. 7 It's really death, immediate death. 8 It's like the kiss -- it's really from one day 9 to the other you are out of business because 10 nobody would buy a car where he can't get fuel 11 anywhere. 12 If you have a special car that you 13 can't fuel up, you won't buy it, or else you 14 can't go with it anywhere, and so that's -- of 15 course that's true. 16 Q. All right. But you, VOBIS, you keep 17 loading DR-DOS. Despite the error messages 18 popping up, you keep providing it to your 19 customers. Why do you? 20 A. To be -- so we thought it was a fake 21 because the operating systems were not so 22 complicated that they didn't work similarly 23 with the Windows. 24 And we said there must be a way to fix 25 it. And we could fix it by the way that we 11068 1 first installed MS-DOS, then installed the 2 Windows, then deleted the MS-DOS again and then 3 installed the DR-DOS. That worked. 4 There was a next -- what I have heard 5 from my people, a next beta version what we 6 never got. So we never had a chance to fix it. 7 This went to the press. And then came out the 8 rumors from the press that it's important 9 because we didn't have any answer. We didn't 10 get that beta version -- 11 Q. Okay. 12 A. -- of 3.1. 13 Q. So you didn't get the Christmas beta, 14 the December 22nd beta? 15 A. I don't know which one it was. 16 Q. All right. 17 A. But there was -- Mr. Dahmen said it 18 was the second one. I don't really know. But 19 the first one we could fix, and we was quite 20 happy when they said there will be a patch. 21 You know, a patch is a piece of 22 software that solves problem. We still today 23 have that. 24 And with the second, we didn't know. 25 We got phone calls from Germany, said, hey, you 11069 1 guys have DR-DOS 5.0, it will not work with 2 Windows 3.1. 3 So I talked to Heinz Willi Dahmen, and 4 he phoned immediately to the technician for 5 DR-DOS. And the rest I don't know. It was -- 6 the problem was fixed. 7 And we were strong enough in Germany 8 to survive the rumors of the press because we 9 could show in all our stores -- I think that 10 time we had 100 stores in Germany, and we could 11 -- we said that also I think in our advertising 12 that it's compatible. 13 Q. All right. We've talked a little bit 14 about Stefanie Reichel, and was there a time 15 when she first came as your account 16 representative from Microsoft that you did not 17 return her phone calls? Do you remember that? 18 A. May be. But in that time -- our 19 company grew too fast, you know, and we haven't 20 been very good organized. So if somebody 21 phones, I have no time, I'm busy, who is there? 22 Stefanie Reichel I don't know. So it was not 23 to -- because I didn't want to speak to a 24 representative from Microsoft. 25 But I think the first time she tried 11070 1 to get in touch with me I said I have no time. 2 Q. Well, did she send you a bottle of 3 wine? 4 A. Possible. I've got so many bottles of 5 wine, you know, so -- I think one has been from 6 her. I think she came from California, did 7 she? 8 Q. I think so. 9 A. California has good wine. So maybe I 10 remember, maybe. 11 Q. Do you remember the first meeting with 12 Ms. Reichel? 13 A. Not specifically. I don't know. We 14 have had many, many, a lot of meetings with 15 her. 16 Q. Well, she talks about the first 17 meeting, and in her deposition, which the jury 18 has not seen yet, she talks about some things 19 that you were upset with Microsoft about, and 20 one was -- one was I believe you've already 21 talked to the jury about, and that would be 22 this contract that you had that got sent back. 23 Do you remember talking with a 24 Microsoft representative long after this had 25 happened? Because this would have been January 11071 1 about of 1992. 2 A. It's possible. 3 MR. HOLLEY: Objection, Your Honor. 4 Leading. Leading. 5 THE COURT: Sustained. 6 Q. Let me see if I can ask it another 7 way. 8 State whether or not you remember 9 talking with a Microsoft representative about 10 this incident that had occurred back in 1989 11 with a contract. 12 A. Maybe that -- because we met first 13 time, and she should become our representative. 14 She -- as I now know, she was choosen to be the 15 representative for us. 16 Maybe we talked about God and the 17 world and we talked about that. Microsoft 18 sometimes is a strange company that we 19 discussed it and then we -- I signed the 20 contract and then said no, we don't accept the 21 price. 22 That is possible, yes, but I really 23 don't recall that, so -- 24 Q. All right. So we'll have to rely on 25 her testimony for that. 11072 1 Do you recall that she talked with you 2 about the compatibility of DR-DOS, the DRI 3 product, with Windows 3.1 now and in the 4 future? 5 MR. HOLLEY: Objection. Leading. 6 THE COURT: Sustained. 7 Q. Do you have any recollection of any 8 discussion about compatibility with Ms. 9 Reichel? 10 A. Again, not -- I can't recall that -- 11 if it was an issue, of course I talked to her 12 why shouldn't -- she was the representative of 13 Microsoft. But I don't know. I think it was 14 like that, but if it was an issue I had to talk 15 with her because it had to be solved you know. 16 But I don't have any idea whether I really did 17 it or not. 18 Q. Well, let's move on to Plaintiffs' 19 Exhibit 1211. 20 And this is an E-mail from Toshim, 21 February 2nd, 1992, to Richard Fade about good 22 news. 23 MS. CONLIN: We would offer 1211. 24 THE COURT: Any objection? 25 MR. HOLLEY: Just one moment, Your 11073 1 Honor. 2 Object that this seems to be a series 3 of unrelated E-mails, the first of which has 4 nothing to do with VOBIS. And to the extent 5 that this witness is going to be asked what 6 these internal Microsoft documents mean, I 7 object for the reasons I've stated previously. 8 THE COURT: Overruled. They're 9 admitted. 10 MS. CONLIN: Thank you. 11 Q. Mr. Lieven, let's turn to the second 12 page because that talks about VOBIS. 13 It says with VOBIS we are trying to 14 get them to push MS-DOS. Was that what 15 Ms. Reichel was doing? 16 A. Of course that was her job. 17 Q. And VOBIS's intention is to have a 18 second supplier for every product they sell. 19 Was that correct? 20 A. That's correct. To give a choice to 21 the customer. 22 Q. All right. Actually, the ratio of 23 MS-DOS is climbing over 60 percent -- I think 24 65 percent and Windows is getting the champ 25 with over 70 percent. 11074 1 Does that seem correct? 2 A. Yes. 3 Q. And Exhibit 1243 is another of the OEM 4 sales reports. This is for January. It's 5 dated February 25, 1992. It's to Mr. Kempin 6 from Mr. Lum. 7 MS. CONLIN: And we would offer 8 Plaintiffs' Exhibit 1243. 9 THE COURT: Any objection? 10 MR. HOLLEY: Same objection. Same 11 basis, Your Honor. 12 THE COURT: It's admitted. 13 Q. Please turn to page 11. And let's 14 remember that this is for the January Europe 15 OEM sales status report. And this helps us a 16 little bit to put things in perspective. 17 During the midyear review -- and now 18 at this point, instead of Manfred Schindler 19 that we used to see at the top of this, it's 20 Stefanie Reichel; correct? 21 A. Correct. 22 Q. So it says, during the midyear review, 23 Bill Gates visited the VOBIS store in the 24 Arabella Center in Munich. 25 Did you talk with Stefanie? Do you 11075 1 know about this visit? 2 A. Yes. The first thing that she told 3 me, she said that Bill Gates was very upset 4 about it. 5 Q. What happened? 6 A. He saw all the DR-DOS boxes. And he 7 said what's here? What's going on? And 8 Germany is falling, falling to -- do they have 9 their own lives or do they have their own 10 ideas? Why don't they have Microsoft like in 11 all other countries? I think it was like that. 12 Q. All right. Bill has now seen their 13 efforts for DR-DOS, unfortunately, but we are 14 working on a long-term plan to dramatically 15 improve the presence of MS-DOS in VOBIS stores. 16 On January 28th we had a meeting with 17 VOBIS, together with Dahmen, to discuss the 18 relationship and to officially introduce 19 Stefanie as their contact. 20 This may -- you may not be able to 21 answer this, but did you talk with her on the 22 phone before you met with her, or do you know? 23 A. I don't know. I think I did, but 24 normal way is she phones, then we make an 25 appointment, and then we met, but I don't 11076 1 remember. 2 Q. One thing that I'm not sure is clear 3 is how did -- did there come a time when the 4 operating system was installed on the hard 5 disk? 6 A. There was a time, but I don't know 7 when this was. I think it was later because to 8 install it on hard drive, you needed a CD-ROM 9 drive because you put a CD-ROM in, and then it 10 copied from the CD-ROM to the hard disk drive. 11 And I think 1992 beginning was not yet ready 12 for machines all with CD-ROM. 13 I think we offered the first CD-ROM 14 drive in October 1991. We again had been the 15 first. The word was multimedia. Everything 16 was multimedia at that time. And again we 17 wanted to be the first supplier who could ship 18 multimedia machines. But this must have been 19 later, I think. 20 Q. When that happened, whenever it was, 21 how did you manage to continue to offer a 22 choice between MS-DOS and DR-DOS? 23 A. That's a good question, but we have 24 had a solution for that because all the time 25 since -- and you can see that from our 11077 1 advertising from 1989, we -- also that is the 2 idea of the freedom to choose what the customer 3 wants. 4 We didn't put a hard disk drive in 5 there, a fixed hard disk drive, but we have had 6 removable hard disk drive. It was drawer. And 7 so if the customer wants to have hard disk 8 drive -- at that time 40 megabyte. Okay, you 9 get the machine and then you get the hard disk 10 drive and you can put it in and it works. 11 If you want 80 megabytes, you get the 12 80 megabytes and we didn't have to change the 13 whole computer. That was the idea behind it; 14 that the customer could also choose the 15 hardware. 16 And if you can do that, you can also 17 say I have a 40 megabyte hard disk drive with 18 MS-DOS and I have a 40 megabyte hard disk drive 19 with DR-DOS. And so we could give the customer 20 the choice what operating system he wanted to 21 have or not. 22 Q. So -- 23 A. That's how it worked. That was quite 24 easy, but very effective. 25 Q. So right in the store, the person came 11078 1 into the store and the salesperson would say 2 which operating system and then -- 3 A. First the customer comes and I ask him 4 what is your need. Is it for professional use 5 or for home use, do you want to play games on 6 it, and then I choose the processor. 7 I have to choose the system. This I 8 can't change. I can't change the processor. I 9 have to have one box or this box for games, 10 this box for business applications. That's 11 fine. 12 Then the question comes what is 13 capacity of hard disk drive. You have a choice 14 of three or four hard disk drive. 15 And then question what operating 16 system do you like. And then maybe the 17 customer ask what is advantage, and then our 18 people gave him some explanation, and then the 19 customer decided, and then we took that 20 removable hard disk drive out of the box, put 21 it in, and the machine was ready. 22 Q. So right in the store that would 23 happen? 24 A. Yeah, this was in the store. We could 25 do that. This was one of the secrets of our 11079 1 success. 2 We could be so flexible because we 3 didn't have that bottleneck, you know. It's 4 called bottleneck of dealers whom you have to 5 convince do that, do that. 6 We alter them -- we didn't need to 7 alter them because everybody felt it very good 8 idea to do it like that. But we could do only 9 one place in our own stores, and that was the 10 secret of success, that we could do it there. 11 Q. Right away? I mean, do I have to 12 stand around and wait while do you this? 13 A. Yes, waited for 14 minutes or for 15 14 minutes. 15 Q. 50 minutes or 15? 16 A. 15. 17 Q. One five? 18 A. It's not so much, you know. 19 People want to see whether the machine 20 works or not at all. So they switch it on. 21 First you put the hard drive disk in and then 22 you switch it on, and then the customer can see 23 whether it works or not. You put it in the box 24 and then it's ready. And we installed in one 25 store, I think, 30, 40 computers a day like 11080 1 that. 2 Q. So it was not a problem for you? 3 A. No. 4 Q. Here is a license for 7-6-92. 5 It is a license summary from Stefanie 6 Reichel dated July 6, 1992, and attached is 7 that license and I think one more, but we're 8 just going to talk about the July 6th license. 9 And if you would turn to the page that 10 ends in the Bates numbers 98 and tell us 11 whether or not that is your signature. 12 THE COURT: What's the exhibit number? 13 MS. CONLIN: I'm sorry, the exhibit 14 number is 1369. Plaintiffs' Exhibit 1369. 15 Q. And the question is -- 16 A. Yes, it is my signature. 17 Q. Your signature? 18 MS. CONLIN: We would -- 19 Q. And the date of your signature? 20 A. 2nd of July, 1992. 21 MS. CONLIN: And we would offer 22 Plaintiffs' Exhibit 1369. 23 THE COURT: Any objection? 24 MR. HOLLEY: Just so that the record 25 should be clear, Your Honor, this is actually 11081 1 five documents stapled together. It's an 2 agreement, three amendments, and a summary. 3 But with that clarification, I have no 4 objection. 5 THE COURT: Was that the way you 6 intended it, ma'am? 7 MS. CONLIN: I beg your pardon? 8 THE COURT: Was that the way you 9 intended it? 10 MS. CONLIN: Absolutely, Your Honor. 11 These are the boundaries that we got from 12 Microsoft. We staple them together according 13 to their instructions. 14 THE COURT: Okay. It's admitted. 15 Q. I want to focus on the license 16 summary, and this is done by Ms. Reichel, and 17 she says with respect to the license agreement 18 -- and this is the one that I called your 19 attention to before, prematurely before. 20 And this is the one where you agree, 21 according to our summary, to a per processor 22 contract for MS-DOS 5.0 for $9 and Windows 3.1 23 for $15 for a year and a half, until December 24 of 1993, with a minimum commitment of $12.6 25 million; correct? 11082 1 A. That's right. 2 Q. Let's look at her summary which begins 3 with this license agreement Microsoft -- I beg 4 your pardon. 5 With this license agreement, VOBIS 6 Microcomputer is canceling their former 7 contract and implementing this new license 8 agreement and its terms and conditions. 9 VOBIS has changed their annual 10 commitment level from 200,000 units per year 11 for MS-DOS and 100,000 units per year for 12 Windows to 400,000 units of MS-DOS and 320,000 13 units of Windows per year. 14 Was that -- that was a significant 15 increase for you? 16 A. Yes, this was -- in the middle of '92 17 we saw that it was really increased and we 18 could imagine that next would be 400,000 at all 19 in total. 20 Q. All right. 21 MS. CONLIN: And then if we go down to 22 the next paragraph, please, Darin, and just 23 highlight the whole thing. 24 Q. But we're just going to focus on the 25 separate -- she says, in addition, they have 11083 1 committed in a separate one-year contract for 2 100,000 units of Works for Windows 2.0 and 3 80,000 units of PC Works Version 2.0. 4 So you're still selling the Works 5 product? 6 A. Yes. 7 Q. As well -- 8 A. But now it's 100,000 for Works for 9 Windows and the 80,000 the formal Works for 10 DOS. 11 You see, not everybody used Windows at 12 that time. So still they were using the DOS 13 versions. But we were now totally flexible 14 with that. 15 Q. So you could give them what they 16 wanted? 17 A. What they wanted. 18 Q. And we'll look at the third paragraph 19 of the summary done by Ms. Reichel, and 20 starting with the second sentence that says, 21 basically they are no longer going to be 22 distributing software diskettes. Instead, they 23 will be preinstalling all software on the hard 24 drive and handing out the manual and license 25 agreement and registration card in a carrying 11084 1 box. 2 So is this when the change occurs? 3 A. Yes, that is middle of '92. There was 4 -- mostly of the computers then had also the 5 CD-ROM drive. 6 Q. In this -- you entered this contract 7 on July 2, 1992, and then the next entry on our 8 time line is August 19, 1992, when you and 9 Mr. Gates meet in London. 10 Do you recall that meeting? 11 A. Yes. 12 Q. What can you tell the jury about that 13 meeting with Mr. Gates? 14 A. Stefanie Reichel had a good relation 15 to Bill Gates. I think she also had a red 16 phone. If there was a problem she could write 17 him an E-mail and she got an immediate answer. 18 I said, okay, I never met him, so 19 let's talk about some things. Maybe we can do 20 something. 21 And during that time, we intend -- so 22 VOBIS has been all the years before a hardware 23 dealer. That means a box mover or something 24 like that so -- 25 Times changed a little bit. That's 11085 1 what happened in that one document before that. 2 I felt that some things changing in the market 3 and we have to get rid of that image of only a 4 stupid vanilla box mover. We have to do 5 something more. We have to offer solutions. 6 And I thought it would be a good idea 7 to go into a strategic alliance -- that was the 8 words at that time -- with Bill Gates. You 9 know, he was very famous man then -- 10 Q. Still is. 11 A. Still is, yes. 12 And I asked Stephanie could you get a 13 meeting with him and maybe we can make an 14 appointment or some photography later or 15 something with the new product that we could 16 launch in the press. 17 She saidm well, no problem, I will do 18 that for you. Let's meet in London. I flew 19 then myself in the morning to London, Biggon 20 Hills, so I remember very well. 21 And then we have had three or four 22 hours lunch. We talked technology. We didn't 23 talk about prices. I don't think so. He 24 didn't like to do that. So we talked about new 25 technologies, online help, online correction, 11086 1 and we left in a very good mood and very good 2 mutual understanding, and that was the goal of 3 that meeting. 4 Q. Did you have a particular request that 5 you wanted to make of Mr. Gates? 6 A. Yeah, this was a photography on the 7 show in Frankfurt in November. 8 Q. October? 9 A. Was it October? 10 Q. Maybe. 11 A. Okay. We have had one problem with 12 our competitor Escom. He started to ship not a 13 color with the boxes. He sold black computers, 14 which were very successful. 15 He says, well, we can't do that. We 16 cannot give the customer a choice of black and 17 white computers because then we have to 18 construct two computers, which is very 19 dangerous in the market because when one 20 product gets obsolete, you can throw way 21 those, you know. 22 Q. Obsolete. 23 A. Obsolete. You can put in the fridge, 24 but a computer you can't do it. If it's old, 25 you know -- it's really dramatic. And then I 11087 1 said we can't do that. 2 But we need a designer who designs our 3 boxes, our PCs. You may not know him. He's 4 quite famous in Japan. He's the one who 5 invented the round camera, the Canon camera. 6 His name is Luigi Colani. He's a German. He 7 lives in Switzerland, or lived then in France. 8 And we asked him to design our new computers. 9 And my idea was let's make a 10 photography with Bill Gates as a businessman, 11 as a software specialist, as a specialist, and 12 very successful man and with Luigi Colani, he 13 comes from the art side, he's an artist, and 14 me. That looks quite good. 15 And so I asked him whether it's 16 possible that he could step over and come to 17 the show. Yes, he will do, and we have made 18 the photography, which we used very often in 19 the press. Of course, those two famous people. 20 That time I would say both were same famous, 21 Bill Gates and Colani in Germany. Now Bill 22 Gates is much more famous. But it helped a 23 lot, and this was my request. 24 It was a marketing event what I ask 25 him. 11088 1 Q. And he said yes? 2 A. I think so, yes, but he was prepared 3 to do that by Stefanie before. 4 Q. You had made the request of Stefanie 5 before? 6 A. Yes, yes, of course. 7 Q. So she knew what your purpose was? 8 A. Yes. 9 Q. Well, let's look at Exhibit 1405, and 10 my records indicate that this document has 11 already become a part of the record, and I want 12 to turn first to the second page of 1405, and 13 that is Stefanie's report of August 21 to her 14 bosses, including Christian Wedell and Juergen 15 Huels? 16 A. Huels we say. It's like -- Huels, 17 it's a U with a -- 18 Q. Umlaut? 19 A. Yes, but you write it u-e, Huels. 20 Q. Okay. H-u-e-l-s. 21 And Jochen Haink? 22 A. Haink, I think. 23 Q. We know Joachim Kempin and Jeff Lumm 24 and Bengt Akerlind? 25 A. He was Swedish, yes. 11089 1 Q. From Stefanie. And the meeting report 2 for Bill G. and Lieven VOBIS of August 19. 3 And she summarizes that meeting, and 4 under meeting objectives, topics. Down at the 5 bottom. Then we're going to turn the page. Do 6 you see that at the very bottom? 7 Okay, turn the page and look at -- 8 there is a group of meeting objectives and 9 topics, and the one, number six says, to get a 10 commitment to get DRI/Novell out of VOBIS. 11 And at this time, August 19, 1992, 12 were you still shipping both MS-DOS and DR-DOS? 13 A. Yes, we were. 14 Q. And then if we look down at the net 15 result, just -- you see in the third paragraph 16 it begins net result? 17 Lieven finally gave the word to Bill 18 Gates that he wants to be in a strategic 19 alliance with us. 20 Did you say that you wanted a 21 strategic alliance? 22 A. Yes, this was the key words for us. 23 Q. Strategic alliance? 24 A. Right. 25 Q. And that he is willing to commit 11090 1 entirely to us, no more DR-DOS and no Novell 2 Lite and a contract for 25,000 Windows for 3 Workgroups; is that correct? 4 A. Yes. Windows for Workgroups was the 5 Version 3.11. 6 Q. What was Windows for Workgroups 3.11? 7 A. It was the first Windows with network 8 capabilities. It was very important. So you 9 could build up your own network and was very 10 important at that time. 11 Q. And you indicated that one of the 12 things that you were thinking about as you 13 moved forward into 1992 was adding applications 14 to your box. 15 A. I first talked about that with Steve 16 Ballmer in Nice in April of that year. 17 Q. All right. I think we have that on 18 our list. And in April of 1992, was that when 19 you initially agreed to bundle Excel and Word? 20 A. Yes. But it was still quite 21 expensive. The cost have been expensive. I 22 don't recall, probably I think $80 or something 23 like that per copy license. But we offered it 24 from that time, but the breakthrough came 25 later. 11091 1 Q. Was your deal subsequent with dates? 2 A. I think it was in, yes, in 1993. 3 There have been a whole bunch of contracts 4 later and even didn't know all the contracts 5 anymore, but I knew all the conditions. But 6 there were every month there were new 7 contracts. 8 Q. Well, let's look at 1425 because that 9 discusses, among other things, the negotiation 10 of a deal with VOBIS. And my records indicate 11 that that is already a part of the record. 12 Let's just -- first of all, if we can 13 go clear to the top. It's kind of messy up 14 there. Just look at that to and from. 15 This is from Bernard Vergnes you said? 16 A. Yes. European head I think he was at 17 that time. 18 Q. To Jochen Haink and so on. 19 And what he says -- he's responding to 20 something that Ms. Reichel has sent, and he 21 says something -- 22 MS. CONLIN: Just the first paragraph, 23 Darin. 24 Q. Congratulations. Germany is also 25 negotiating a deal with VOBIS. It is key to 11092 1 keep Lotus out of that customer, but still 2 maintain reasonable profitability. Attached is 3 a mail from Jochen describing the German offer 4 which I have approved. 5 And then there's a lengthy complicated 6 offer. 7 Do you recall discussing this and -- 8 A. Oh, yes, it was quite difficult 9 because you can imagine their Word and Excel 10 has been sold at that time by the retail 11 division. And now the OEM division from 12 Redmond -- the retail division was in Munich, 13 was a German retail division. They were 14 responsible for the software dealers and they 15 sold retail packages, very high price, I think 16 600, $700 dollars for Word or Excel, something 17 like that. 18 And now they were discussing an OEM 19 business. 20 And, of course, when I give a product 21 with my computer to the customer, he's a lost 22 customer for the retail division. 23 And they had internally, I think, 24 quite strong discussions about that, and that 25 was reason why it took so long. 11093 1 I think the OEM division had decided 2 much, much faster. But they had to take care a 3 little bit of their retail division. 4 And so the first prices have still 5 quite -- have been quite high. Later it was -- 6 I think we paid $25 for a processor license for 7 Excel or Word, and this was incredibly cheap, 8 you know. When you put that with a PC, you are 9 the winner. It's just not anymore 100 gallons 10 with the car, it's 1,000 gallons. 11 Q. All right. 12 A. You don't need anymore. You have your 13 Word, your Excel, maybe your Access, your 14 database software. 15 This was a good deal. We really 16 wanted that deal because it gave us a leap 17 ahead. 18 Q. A leap ahead? 19 A. Yes. 20 Q. Now, we're in -- you had your meeting 21 with Mr. Gates. You're negotiating your Word 22 and Excel, and then you are invited to do -- to 23 go to Redmond; correct? 24 A. Yeah, there was a conference, annual 25 conference in Seattle. 11094 1 Q. And what was the conference for? 2 A. I don't remember. Sorry. 3 Q. Was it for OEMs? 4 A. I think so, yes. 5 Q. And let's look at Plaintiffs' Exhibit 6 5515 which is about this visit of you. 7 MS. CONLIN: Your Honor, our records 8 indicate that this is already a part of the 9 record so we can put it up. 10 Q. Right at the top this says Theo 11 Lieven, president and CEO, VOBIS Microcomputer, 12 and it is a Microsoft visit itinerary. And it 13 appears from this that you went there from 14 September 22nd to September 24th. 15 A. Yes. 16 Q. And then on the 24th, at 6:30 -- and 17 this is '92? 18 A. '92. 19 Q. They're going to pick you up with a 20 limousine. Did they do that? 21 A. Yes. Very comfortable. 22 Q. And then you and Mr. Kempin and Mr. 23 Akerlind and Mr. Huels? 24 A. Huels. 25 Q. Okay. 11095 1 A. Huels is okay. 2 Q. And Ms. Reichel are going to dinner -- 3 MS. CONLIN: If we could look down 4 just a bit. Thank you. 5 Q. -- at the Hunt Club at the Sorento 6 Hotel. Do you recall that dinner? 7 A. Yes, I think so. I don't know who sit 8 where at the table, but I recall that we have 9 had this nice dinner. 10 Q. Well, we are not going to ask you who 11 sat where, but did the subject of DRI come up 12 in that meeting? 13 A. Yes. As you'll see from that meeting 14 with Bill Gates in September and with Stefanie 15 in August. In August. 16 Q. Yes. 17 A. 19th of August in London, you know, 18 the ice was melting, you know. Is that a good 19 metaphor to say the ice was melting between 20 Microsoft? 21 Q. Yes. 22 A. So we really haven't been only 23 business partners like before and all this. We 24 got really some kind of partners. And when you 25 want to be a partner, you don't squeeze the 11096 1 other one anymore. 2 And it was a mutual understanding 3 between Stefanie and me that we -- I said let's 4 stop the DR-DOS on our computers. 5 So MS-DOS 5.0 was quite stable, and I 6 said if I get something for that, give me 7 something, give me Bill Gates photography in 8 November, and then we will stop it. And so 9 then the question came up -- 10 Q. Okay. Now we're at the Hunt Club? 11 A. At the Hunt Club, yes. 12 At the Hunt Club -- 13 Q. Yes. 14 A. -- there were no more negotiations I 15 think about that so -- 16 Q. So you had already reached the 17 agreement that you -- 18 A. But I haven't said that. 19 Q. Okay. 20 A. I was not -- always have to keep some 21 space for negotiations. 22 Q. All right. 23 A. So -- and I don't recall exactly what 24 -- normally I like when I travel around the 25 world that I get my travel expenses back 11097 1 immediately because it's expensive to travel 2 around the world. And I think I had the idea 3 to ask Joachim Kempin if we stop DR-DOS 4 battling with our PCs, what are we doing with 5 our holograms, what we talked before, because 6 we still have had some so -- 7 Q. Do you know how many? 8 A. I think Mr. Dahmen said 70,000, but it 9 was not a big issue because I don't think we 10 sended that back later. 11 But then Mr. Kempin said, well, I buy 12 those holograms, and I said what price, and he 13 asked me, and I said $100,000, and he said I 14 think $50,000. And I don't know what we agreed 15 to, but it was okay for the travel expenses and 16 some more, so it was -- 17 Q. More than 50-? 18 A. Yes, it was more than 50- I think so, 19 yes. 20 Q. That would cover your travel expenses? 21 A. No, more than that. I never, never 22 exceeded $8,000, so that -- but I told him it's 23 expensive. 24 Q. I guess we haven't actually talked 25 about this, but I'm going to pay your travel 11098 1 expenses. 2 A. Not that -- no, we -- 3 Q. But not 50,000. 4 A. No, we declared it as a marketing fund 5 on marketing or -- 6 Q. All right. So wait a minute. 7 So you get -- Mr. Kempin asks you or 8 you ask him -- somehow you sell the holograms 9 to Mr. Kempin? 10 A. Yes, but for him they haven't had any 11 value, you know, so -- 12 Q. Right. Did you ever actually give 13 Mr. Kempin the holograms or did you just -- 14 A. I don't think so. I don't think so. 15 Because of -- no, it was -- how can we -- it 16 was a sign, you know. He wanted to show me 17 that physically I had him over those holograms 18 and that he gives me -- it wasn't a deal to 19 earn some money. 20 Q. All right. You don't think you 21 actually returned them. 22 Do you remember any remark by 23 Mr. Kempin about wallpapering your bathroom 24 with them? 25 A. No. 11099 1 MR. HOLLEY: Objection, Your Honor. 2 Leading. 3 THE COURT: Sustained. 4 Q. Let's be sure that I understood what 5 you said about the marketing funds. 6 Tell the jury, please, how this 7 arrangement to transmit some amount between 50- 8 to $100,000 for the DR-DOS holograms was made. 9 A. You know, in business, there are 10 always price lists, you know. There is -- let 11 me say 1,000 pieces of that cost $1,000. But 12 there are some dealers who negotiate better, 13 others not. And so there are always some 14 practices to hide rebates, to hide discounts so 15 you can say, okay, you pay the price, but I 16 deliver 1,010 to you and nobody will see. 17 And in this case we said, well, we 18 can't say we sold you the holograms, but we get 19 a marketing development fund. I think there 20 was a word for that at that time. So that we 21 -- what we did very often, we made a lot of 22 advertising for Microsoft. And they said, 23 okay, we help you a lot -- we help you a little 24 bit, and that means this money is for 25 advertising or for development of our products 11100 1 or marketing for our products. 2 Q. All right. 3 A. I have never seen an invoice, but we 4 got the money that I know. 5 Q. And after you sold holograms, your 6 remaining DR-DOS holograms to Mr. Kempin, could 7 you continue to sell DR-DOS? 8 A. No, of course not. Not legally. So 9 we did not. We didn't advertise DR-DOS anymore 10 from October 1992 on. 11 Q. So October -- 12 A. As a bundle, as a bundle with a 13 computer. 14 We offered later retail products 15 DR-DOS 7, but small quantities, but this either 16 MS-DOS or DR-DOS was finished in October 1992. 17 Q. So October 1992 you stopped shipping 18 and advertising -- 19 A. Right. 20 Q. -- DR-DOS? 21 And October 15th is your meeting with 22 Mr. Gates, and I will show you Exhibit 5517, 23 which is dated 10-15-92 and which is already a 24 part of the record, and I just want to confirm 25 with you if you'll turn to the page with the 11101 1 Bates stamp ending in 5. 2 This is the Luigi Colani meeting? 3 A. Yes. 4 Q. Back to the time line for a moment. 5 In 1989 you only shipped DR-DOS; correct? 6 A. 19 -- 7 Q. 1989. 8 A. Yes, 3.41 and then later in 1992, 9 number five, I think, yes. 10 Q. Right. So all of 1990 you also 11 shipped what operating system? 12 A. In 19 -- 13 Q. '90. 14 A. '90, until 28th of June, 1991, we 15 shipped only DR-DOS either number 3.41 or 5.0 16 until the MS-DOS 5.0 was released, and that was 17 28th of June, 1991. 18 Am I right? 19 Q. I don't know. Let's look. 20 MS. CONLIN: Can we go back -- can we 21 go back to the next page please, Darin? 22 Q. Okay. June 28th, 1991, that's when 23 MS-DOS 5.0 is released? 24 A. Yes. So that for more -- I think two 25 years we shipped only DR-DOS. From 1989 until 11102 1 mid of 1991. 2 Q. So 100 percent? 3 A. Yes. 4 Q. And then June 28th of 1991 until -- I 5 guess it's on the next page, but September -- 6 A. September 1992 it was posed together 7 as a choice, and then we switched over 8 exclusively to Microsoft DOS. 9 Q. As of October 1992? 10 A. Right. 11 Q. So on June -- well, on June 27th, 12 1991, it was -- the day before you started 13 shipping both, that was 100 percent DR-DOS? 14 A. Yes. 15 Q. And then on September -- by October 1 16 of 1992 you were 100 percent MS-DOS? 17 A. Yes, right. 18 Q. And in -- let me look here. 19 We have another amendment to the -- to 20 these licenses. If you could look at 21 Plaintiffs' Exhibit 1446 and confirm that on 22 page 6 there is your signature. 23 A. Yes, it is. 24 Q. And this is -- take a look at this and 25 confirm this is -- and the date of this 11103 1 contract is -- the date you signed this is what 2 date? 3 A. February 17, 1993. 4 Q. And again, is this a per processor 5 license? 6 A. Yes. 7 Q. And it is for MS-DOS? 8 A. 6.0, yes. 9 Q. MS-DOS 6.0 that's on page 7, and the 10 price of the MS-DOS is now $10? 11 A. $10, yes. 12 Q. You did mention -- let's look at 13 Exhibit 9423. And this is a Microsoft internal 14 document from Bernard Vergnes dated April 15th, 15 1984, a European monthly report. 16 MS. CONLIN: And we would offer 17 Plaintiffs' Exhibit 9423. 18 THE COURT: Any objection? 19 MR. HOLLEY: Well, the date is '94, 20 not '84, but I object on the basis I've stated 21 previously, Your Honor, about Microsoft 22 internal documents. 23 THE COURT: It's admitted. 24 Q. And turn, if you would, to the page 25 that has a Bates number ending in 98, and you 11104 1 mentioned -- 2 MS. CONLIN: And let's highlight, if 3 we could, the paragraph dealing with VOBIS. 4 Q. And it says they're going to decrease 5 your minimum commitment from the high-end 6 application deal. 7 Do you recall any details about a 8 decrease in your minimum commitment? 9 A. A decrease? 10 Q. A decrease in the minimum commitment 11 from the high-end application deal. 12 Do you recall this? 13 A. There was something I think with Works 14 because after we started with the Excel and 15 Word, but I don't know, but we -- normally we 16 didn't have any problems with not reaching our 17 promises. That means our minimum commitments. 18 Normally not. In the main portions like 19 Windows or DOS, we ever were much higher 20 because also that time we were increasing also 21 '93 30, 40 percent. I think maybe not so much, 22 but we were increasing quite well. 23 Q. All right. And this document from 24 Microsoft says VOBIS sold in the last month 25 7,500 units of Novell DOS 7.0. 11105 1 Was that the finished goods you were 2 talking about? 3 A. Finished goods. These were retail 4 products. And it was not included in the price 5 of the machine. It had to be paid separately. 6 I don't know the price. Maybe 99 in deutsche 7 mark. You have to check in the advertising. 8 But it was not an OEM deal like the 9 others so -- because some people were there. 10 They wanted to have -- this was Novell at the 11 time. Novell was a good name, not bad. 12 They brought Digital Research and the 13 software. 14 Q. Right. 15 A. But there was no question to go back 16 again to Novell 7.0 as a standard operating 17 system as a choice between Novell and 18 Microsoft. 19 Q. All right. 20 Let's move to -- back to our time line 21 and July 15th of 1994. 22 And the consent decree between 23 Microsoft and both the government of the United 24 States and the European Union was filed that 25 day. 11106 1 Were you aware of that consent decree? 2 A. We really awaited that because this 3 was -- somebody listened to my complaints about 4 minimum commitments and per processor licenses, 5 and I said wow, now it's totally changed 6 situation. Now we can negotiate again with 7 Microsoft. 8 Q. Did you? 9 A. Well, we did, but it's -- I didn't 10 feel so much difference to the situation 11 before. 12 I recognized that they didn't insist 13 anymore on minimum commitments payments. This 14 is progress, of course, because then you are 15 not tied so much up to that what you promised. 16 Although when you say I buy 100,000 copies of 17 whatever, you just sell 100,000 computers with 18 Microsoft operating system, you have to pay. 19 But the bad thing was the prepayments, if you 20 overpaid, and that was the reason why I think 21 the consent decree said stop that. That was a 22 good thing. 23 Q. Okay. 24 A. But the negotiations what we had, I 25 didn't feel so much had changed -- changed with 11107 1 Microsoft. 2 Q. Now, when this consent decree was 3 entered did you as an OEM get notified by 4 Microsoft that you could negotiate a new 5 contract? 6 A. There was a message and there was, I 7 think, three months' time where one could 8 cancel the old contract and negotiate. Of 9 course we tried to negotiate immediately 10 because I was very happy and said so. 11 What's going on? What is now your per 12 copy offer? 13 Q. And did those negotiations occur in 14 August? 15 A. I think so. It was quite -- three or 16 four weeks after the consent decree. When was 17 the consent decree? 18 Q. July -- 19 A. July, yes. 20 Q. -- 15, 1994. 21 A. We asked for an appointment and we 22 discussed that. 23 Q. All right. So you have no minimum 24 commitments, but tell the jury, please, what 25 you recall about the negotiations that you had 11108 1 with Microsoft at this time about a license 2 that would permit you to have what you thought 3 was best for your business. 4 A. That was what we asked for is a price 5 list. A price list per copy what we have to 6 pay. That means we start with 500,000, that 7 was the quantity we sold that -- that year 8 1994, I think, for 1995, 19 -- we estimated I 9 think 500,000 units. So please tell us the 10 price for a per copy license of 500,000. So if 11 you said 500,000, good, you get a price. I 12 don't recall what it was that -- for DOS and 13 Windows $28 I think they offered. 14 Q. Okay. 500,000 units, correct? 15 A. Right. Or 40,080 items, but it was in 16 the -- high in the hundred thousands. 17 Q. And Microsoft offered you for all 18 500,000 $28 for DOS and Windows? 19 A. I think so. That was the price if I 20 don't -- I think $28, I think, or was something 21 like that. 22 I said okay, but I can't tell you the 23 truth -- the future, I can't tell you what the 24 future will be. So one year is a long time in 25 that business. What is -- if we sell only 11109 1 400,000 or if we don't tell you a quantity -- 2 let's start with I tell you 350,000, and if we 3 sell more and come to the 500,000, we pay 28. 4 But what's the price if we buy at the end only 5 350,000, and then the price is increased 6 dramatically. I think it was $23.50 for the 7 DOS. And both came up to $63.50 instead of 28 8 with only -- price difference between 500,000 9 28 and 350,000 $63.50, it's too big, you know. 10 This just makes no sense. 11 When you are in those high quantities, 12 the difference may be one, two, three, four, 13 five dollars. 14 So if we pay $28 for 500,000, I had to 15 agree to $31 for 250,000, but not -- a separate 16 price again for DOS $23.50 and for Windows 36 17 or something like that. 38, something like 18 that. 19 Q. All right. 20 A. This I didn't understand again, and it 21 seemed to me that is the old per processor 22 license versus the copy license. 23 Q. What about -- 24 A. It seemed to me there was no 25 difference. For me there was no difference. 11110 1 Q. Well, what about the per system 2 license? Do you recall Microsoft called this 3 arrangement a per system arrangement? 4 A. I think this was what the consent 5 decree allowed. Wasn't it explicitly in there? 6 Q. Yes, per system licenses. 7 A. Yes, but it's the same so -- let me 8 explain that. 9 The strategy -- Microsoft's strategy 10 was not to count the copies of software but to 11 count the copies of hardware. Whether you do 12 that by per processors horizontally. Processor 13 one, 286, 386, 486, Pentium or whether you do 14 that horizontal -- vertically, this columns and 15 rows -- what's row is vertically or -- never 16 mind, but you -- I think you understand what I 17 mean. 18 Whether you do that by systems, System 19 A, System B, System C, System D, that makes no 20 difference. Still have to pay all of that 21 system. Not on the basis how many software 22 installations we had of the operating system or 23 Windows, but how many hardware boxes you have 24 sold, and that again was very difficult for us. 25 So imagine you have System B and say 11111 1 System B has Windows, has DOS. So now neither 2 one is -- I would prefer another combination of 3 software, then I have to have another system 4 hardware box, and that's what we wanted to 5 avoid, to have so many hardware boxes, only 6 because the customer is choosing another 7 operating system. 8 And that we again couldn't agree, and 9 for us that has -- there was no change. 10 Q. So in a practical -- as a practical 11 matter, what you could see was the same? 12 A. Nothing, except the prepayments. This 13 has changed. 14 Q. All right. And after this negotiation 15 with Microsoft, what did VOBIS decide to do? 16 A. Just -- you know, we have been in the 17 situation again like before the meeting with 18 Bill Gates, and maybe even the time when we 19 have been in these strong discussions in 1991, 20 we thought about alternatives. 21 Q. And what alternatives -- 22 A. So if somebody does not like to work 23 with us on a fair basis, then we try to do 24 something else. 25 Q. And what was an alternative -- in 11112 1 September of 1994, what was an alternative at 2 that point did you think to the MS-DOS 3 operating system? 4 A. We have been very surprised that IBM 5 was able to deliver the operating system OS/2. 6 They -- long time they worked on that. Long 7 time they worked on that with Microsoft 8 together in the late '80s. But they were not 9 quite good. 10 But then they showed the Version OS/2, 11 Warp 3.0, and it was really good, and some 12 people say, so to show you how important that 13 step was for IBM that even this OS/2 is today 14 still better than the Vista that's coming out 15 from Microsoft. It was a very stable operating 16 system. No crashes, nothing. And then we 17 said, let's talk to Microsoft -- to IBM. It 18 was not because to squeeze Microsoft. It was 19 really good. The OS/2 was really good. It was 20 not to get a good position to negotiate with 21 the Microsoft people and -- no, that was really 22 because of that very good operating system. 23 We tested it, and then we saw also 24 that it runs quite good with Windows, and so we 25 said why don't we make a per copy license with 11113 1 IBM and give the customer choice either OS/2 2 with Windows or on the other hand side MS-DOS 3 5.0 with -- either OS/2 with Windows or 4 Microsoft DOS with Windows. 5 And this was really great time because 6 then the customer saw that we are really taking 7 care about the innovation in the market. 8 Q. You thought OS/2 Warp was an 9 innovation? 10 A. It was really -- still it's really 11 good. It's what technicians tell me. And tell 12 me it's even still better that the Windows 13 Vista that comes out. So it's no preliminary 14 here, it's meaning -- so to show you how 15 convinced we were at that time that this is a 16 really good product. 17 Q. And so in September, does VOBIS sign a 18 contract with IBM for OS/2 Warp? 19 A. We were shipping I think from November 20 on or something, I think. So it took some time 21 to implement everything, you know. It changed 22 a little bit in the work flow for copying the 23 CDs and installing the software on the hard 24 disk drives. 25 I think from November on, there was 11114 1 the first offer for that. 2 Q. All right. November. I think we -- I 3 think there's a later version of this, and I 4 think you're correct that it was November of 5 1994 when you -- 6 A. I think so, yes. 7 Q. -- when you signed the contract with 8 IBM for OS/2. 9 A. Maybe the contract we signed before, 10 but there was lead time to prepare everything. 11 Q. All right. Now, we go from your 12 signing the contract with IBM, and then right 13 after this is known that you had signed this 14 contract, what happens with Microsoft? 15 A. I think we still negotiated about the 16 contracts, as we always did, but I remember one 17 day that I practiced with my teacher for a 18 concert in Austria for Mozart's piano concerto, 19 and then we went to lunch, and I got a phone 20 call, well, Microsoft's people have decided to 21 make an audit at VOBIS. 22 Audit means that they will check 23 whether everything is all right, whether the 24 royalty reports are -- it's like text authority 25 when text authority decides to come to your 11115 1 home and make an audit. 2 And I was very upset about that 3 because this is not the way you treat customers 4 who have paid $80 millions, or I don't know 5 what it was, 60 or 50 million. 6 We really have been one of the biggest 7 customers, it was number 15 in the world, and 8 you don't go there and bother them with an 9 audit. You come there and if there are 10 problems you talk about it. 11 But I felt that this is a tit for tat 12 because of that -- that deal what we did with 13 IBM. 14 Because again that was an alternative 15 to MS-DOS, and, of course, they didn't like 16 that, but what's -- why didn't they like a 17 little bit competition? It was a good product 18 so they could learn from it. Still today 19 maybe. 20 Q. So let's try to put this in order. 21 Let's look at a Defendant's exhibit, 22 Defendant's Exhibit 626, which is a -- this is 23 an IBM document, Mr. Lieven. 24 A. Do I have that? 25 Q. 626. I hope so. It should be almost 11116 1 at the very end. 2 A. I thought I have been at the end. 3 MS. CONLIN: May I approach, Your 4 Honor? 5 THE COURT: While you're looking for 6 that, we're going to take a recess for ten 7 minutes. 8 Remember the admonition previously 9 given. 10 We'll be back in session in ten 11 minutes. Leave your notebooks here. 12 (A recess was taken from 1:27 p.m. 13 to 1:41 p.m.) 14 THE COURT: Everyone else may be 15 seated. 16 Sir, you're still under oath. 17 BY MS. CONLIN: 18 Q. We're in November of 1994. You have 19 signed a contract with IBM, and we're looking 20 at Defendant's Exhibit 626, and it is an IBM 21 confidential document dated December 6, 1994, 22 and the subject of this memorandum is OS/2 Warp 23 update. 24 And if you will turn to page -- Bates 25 page ending at the bottom 712. Do you see 11117 1 that? 2 A. Yes. 3 MS. CONLIN: Did I give Mr. Holley 4 one? 5 MR. HOLLEY: Yes. 6 Q. Let's look at under OEM -- 7 MS. CONLIN: You can go ahead and put 8 it up. 9 THE COURT: Has it been admitted? 10 MS. CONLIN: Your Honor, it's a 11 Defendant's exhibit. 12 THE COURT: Has it been admitted? 13 MS. CONLIN: I'm not going to offer it 14 necessarily, but -- unless the Court requires 15 that I do so. 16 THE COURT: Proceed. 17 Q. Let's look at under obviously VOBIS 18 Microcomputer, and IBM says the largest PC 19 retailer and manufacturer in Europe with more 20 than 270 retail sales outlets, announced at 21 COMDEX that it plans to preload nearly 100 22 percent of its PCs in Europe with OS/2 Warp. 23 COMDEX occurs when? 24 A. That's COMDEX fall. I think that's 25 November of one of the years. It's November 11118 1 '94. I haven't been there personally but 2 during that time it was announced. 3 Q. During that time at COMDEX in Las 4 Vegas? 5 A. Yes. 6 Q. In November of 1994? 7 A. '94, yes. 8 Q. It's announced that you signed a 9 contract with IBM? 10 A. Yes. 11 Q. VOBIS shipped their first OS/2 preload 12 PCs on November 25. This contract is expected 13 to yield several hundred thousand OS/2 Warp 14 licenses per year in Europe. On November 29, 15 the board of directors of VOBIS decided to 16 cancel all existing contracts for operating 17 systems from Microsoft. However, it's possible 18 this move is a price negotiating ploy with 19 Microsoft and could be subsequently reversed. 20 All right. Let's talk about that for 21 a moment. 22 Did you, VOBIS, cancel all of your 23 contracts with Microsoft on November 29, 1994? 24 A. I think that the -- Microsoft didn't 25 accept that we cancel it, but I made a press 11119 1 release on November 29 where we said from now 2 on, we will install on all the machines OS/2 3, 3 this warp version, and that we don't go ahead 4 by bundling necessarily as we did before DOS 5 and Windows with this PCs. 6 So this was not a cancellation of the 7 contract. The contract was still legal. We 8 were binded with -- to Microsoft. But we said, 9 okay, prepayments paid or not, we now go to 10 OS/2 IBM. 11 Q. And was that shortly after you learned 12 of the audit? 13 A. The press release, yes. The decision 14 was made before. But to point out why we did 15 that, I made a press release in which I also 16 talked about why we did it. 17 Q. Why did you do it? 18 A. Because of the consent decree that now 19 there are other times than before. All OEMs 20 now are allowed to make the copy licenses to 21 sell what they want, and we are the first who 22 uses that new right; that we have the right to 23 install what we want. 24 Q. All right. When you talked to the 25 press about this, did you say anything about 11120 1 your dealings with Microsoft on the issues that 2 you talked to the jury about in August -- your 3 negotiations and the difference in price they 4 were offering you? 5 A. Yes, that was their question. They 6 said why haven't you negotiated with Microsoft? 7 What happened? So they also knew there was a 8 consent decree. Also I think the journalists 9 thought now there are better times for 10 competition. 11 And I explained that; that with the 12 $28 for DOS and Windows on the one side, for 13 the quantity of 470,000 or something, if we 14 don't agree to 470,000, any other number, then 15 it's 23 I think for the DOS and 36 or something 16 like that for the Windows. 17 And, of course, I talked to them about 18 those negotiations. Otherwise they wouldn't 19 have understood that. So I had to explain what 20 the discussion with Microsoft about and why did 21 we do that step. 22 Q. All right. Did your announcement that 23 you were not going to do business with 24 Microsoft anymore have anything to do with the 25 -- with their audit of you? 11121 1 A. After I have been informed by my CFO, 2 my chief financial officer, I think it was 27 3 or 28 of November, I really was upset, as I 4 told you before, because that's not the way you 5 -- the financial office maybe they can do that, 6 the text authority they may do that because 7 it's different. 8 But mutual relationship between a 9 supplier like Microsoft and a customer like us, 10 number fifth in Europe, that payments what we 11 ever did, we had never owed them a cent. That 12 was not the right way to do that, and I was 13 really upset. 14 I said now, okay, if they want this 15 battle, we can do also. So now we inform 16 everybody not only that we have made the 17 decision before, we have not only made 18 decision, but now we say why we did that, and 19 we say because now we think after that consent 20 decree we have the right to bundle what we 21 would like to do and that we are not any more 22 binded -- not any more fixed to that hardware 23 per processor license. 24 Q. All right. 25 A. Because we always thought maybe that 11122 1 people didn't understand what it really is, 2 this per processor or per system license; that 3 they count hardware, that they don't count what 4 they sold, the software, they count hardware. 5 We didn't pay for the software. We pay for 6 each machine that we bought from Intel, from 7 whatever. 8 And I didn't understand that. I 9 thought this now is over and we have much 10 better times and more and more choice for the 11 customers. Maybe more competition on the 12 operating system side. And IBM's OS/2, for us 13 it was good sign. It finally is a good 14 operation system. 15 It has had -- to explain you one 16 feature. Preemptive multitasking. Even the 17 first Windows versions, they said you have more 18 Windows, but Windows was not able a long time 19 to run several applications simultaneously. 20 That means you open up your Outlook and say, 21 okay, download my E-mails. And okay, it takes 22 some seconds. Go over to my exit sheet. 23 In doing that, Outlook stopped in 24 Windows, in the early Windows versions. But 25 OS/2 could do that simultaneously. This was 11123 1 preemptive multitasking, and this was really 2 new and still today is a very good technology. 3 And so now there will be much better times. 4 And that was the reason why we really 5 were very happy that time -- that we could do 6 that under this new conditions from this 7 consent decree. 8 Q. All right. So as you get the audit -- 9 let's look at Plaintiffs' Exhibit 9578. 10 And Plaintiffs' Exhibit 9578 is an 11 E-mail string from Mr. Akerlind to Mr. Kempin, 12 and it is the October status report. Comes on 13 November 13th, 1994, and includes reference to 14 VOBIS. 15 MS. CONLIN: And we would offer 16 Plaintiffs' Exhibit 9578. 17 THE COURT: Any objection? 18 MR. HOLLEY: Same objection as stated 19 previously about the use of Microsoft 20 documents, Your Honor. 21 THE COURT: Very well. 22 It's admitted. 23 Q. Look under flags, and under flags it 24 says, VOBIS and Escom -- that's your 25 competitor? 11124 1 A. Yes. 2 Q. -- has decided to start ship OS/2 Warp 3 on 100 percent of their systems. See trend 4 above. We are still in fighting mode at VOBIS. 5 And so that's -- as of November 13th, 6 they know -- they, Microsoft, is aware that 7 you're going to switch to -- 8 A. Yeah, we told them in September, I 9 think, we told them. 10 Q. And then you ship your first OS/2 11 machine on November 25th? 12 A. Right. 13 Q. And sometime shortly thereafter you 14 learn you're going to be audited? 15 A. It was strange, strange thing what 16 happened. 17 Q. Well -- 18 A. I hadn't really not expected that. 19 Q. Did you ever -- were you ever audited 20 before this? 21 A. No, no. Normally, Stefanie Reichel or 22 before Schindler came in and we made the 23 royalty reports together. So there should not 24 be any -- any unclarified things in there. 25 Q. Well, what do you mean, Mr. Lieven, 11125 1 when you say that you and Mr. Schindler or you 2 and Ms. Reichel made the royalty reports 3 together? 4 A. We looked through it. Maybe you have 5 seen the sheet of paper. 6 Q. Oh, yes. 7 A. It's very difficult. And when you 8 have to count up all this hardware items 9 because you do not pay for the -- normally we 10 could have -- in our sales reports we look DOS 11 Windows or whatever, we sold 30,000 that month, 12 we pay for that. But this didn't help. We had 13 to check what processor we sold, and this was 14 very, very difficult because this had nothing 15 to do technically with the operating system. 16 So any processor could have any 17 operating system and any operating system could 18 be on any processor. And this was very 19 difficult. I take it -- it took three people 20 one week to make that royalty reports. 21 And we ask Microsoft, come here, let's 22 do it together, and several times it has been 23 made. I've seen this. 24 Q. So someone from Microsoft usually 25 assisted you in filling out the reports and 11126 1 determining what your payments to Microsoft 2 would be. Is that what you're saying? 3 A. I don't know whether usually, but 4 maybe after we learned how it works, we did it 5 ourselves, but it was difficult. 6 Q. All right. I don't understand why it 7 would be difficult -- more difficult to count 8 the processors than -- 9 A. I have to show you our reporting 10 system. It was really difficult. It was -- 11 this is because of the flexibility we wanted to 12 have. 13 In our cash reports from the stores, 14 there was -- there hasn't been a line system 15 like that. That means High Screen System ABC. 16 It was all broken down in parts. That 17 was for one reason, that we knew what part we 18 had to order; that we knew exactly what hard 19 disk drive is the most on demand from the 20 customer. 21 Q. But let me stop you for a moment 22 because at this time, and by this time, I mean 23 the -- well, let's say the third quarter of 24 calendar year 1994 you were shipping all 25 Microsoft; right? 11127 1 A. Yes, but I don't mean that royalty 2 report. The royalty reports when we did ship 3 with everything, you know, with the Works, with 4 either Windows or Works. That DOS traded on 5 28th of June 1992 I think it was. 6 There were always breaks in there, and 7 it was not easy. It was difficult. 8 Q. All right. All right. Then -- 9 A. If you have a look at this royalty 10 reports, I wouldn't even understand them today 11 anymore. 12 Q. All right. November -- then on 13 November 29th you issued the press release that 14 you have told the jury about; correct? 15 A. Right. And the 29th, yes. 16 Q. What happens next? 17 A. I got phone calls from the press and 18 -- I was very busy with television so -- that 19 is one thing I complained a little bit about 20 because journalists normally are not stupid, 21 especially journalists who know about 22 technique, and sometimes I felt a little bit 23 underestimated -- they didn't support us too 24 much I thought -- 25 Q. The journalists you mean? 11128 1 A. Yeah, I think in their heart they felt 2 the same; that it is something not as in other 3 markets, but that time when we made that press 4 release, they really supported us, they said 5 finally there's somebody who is fighting. 6 Q. All right. 7 A. That was -- we have been, I think, the 8 only one. Unfortunately, it was the only one. 9 Q. Then in -- right around -- now, 10 December, heighth of the Christmas season for 11 you? 12 A. Yes, I know what you -- the second 13 thing -- strange thing what happened, that time 14 Microsoft has had another procedure how this 15 material -- how the box, the documentation was 16 copied. Before -- until one year before every 17 OEM could do it himself. We have had a 18 printer. And Microsoft was afraid a little bit 19 to get out of control what was printed. That 20 is okay, tell us somebody where we can buy it 21 from for a reasonable price. So if we don't 22 overpay, we buy from them. And they have had 23 that in Germany two authorized replicators. 24 That's the name. 25 Q. Authorized replicators? 11129 1 A. Authorized replicators. They were the 2 only one who have been authorized to ship 3 Microsoft material to anybody. 4 Q. Stop a minute, please. 5 The material that they're shipping, 6 you said documentation? 7 A. And the certificate of authenticity, 8 that was the most important. This green paper 9 with the hologram on. Again, without that, you 10 were not allowed to ship any Microsoft 11 software. 12 Q. So you needed from an authorized 13 replicator the certificate of authenticity, and 14 are you talking about -- when you say 15 documentation, are you talking about like the 16 manual? 17 A. Yeah, I don't know, manuals are small, 18 small booklet. The most important was this 19 certificate, the COA, certificate of 20 authenticity is the name. I think that you 21 must have it. Must be with the customer, 22 showed that this was a legal copy of Microsoft 23 software. And, of course, you have to audit 24 that in time, just in time, and we ordered for 25 Christmas business 50,000. 11130 1 Q. From -- you have to order that -- 2 A. Buhl. The name was Buhl, B-u-h-l, 3 Buhl Data. 4 I knew Mr. Buhl personally, and so we 5 have had both a holiday house in Italy. So we 6 knew each other, and we have very good 7 relationship. 8 Q. So you ordered from Buhl? 9 A. Yes, 50,000 copies of this 10 documentation for December. 11 And it was ready to ship. 12 Q. Was -- had he already printed out what 13 you -- 14 A. Yes, it was ready, of course. 15 Q. Then what happened? 16 A. He phoned me up, or he phoned up Mr. 17 Dahmen, I don't know. I think on 2nd of 18 December. We just don't have the verify from 19 Redmond because to control this replicators 20 that they don't make any such silly thing, they 21 had to get the verify from the headquarter in 22 Redmond, and then they ask 50,000 VOBIS, yes or 23 no, and they said no. 24 I think it was 2nd or 3rd, I don't 25 know. It was early in December. So it was 11131 1 very, very crucial time. It was Christmas 2 business. 3 And then I wrote a letter to Mr. -- 4 Q. I need to stop you for a moment to be 5 sure that I understand what you're saying. 6 You've ordered your 50,000, they're 7 ready to go. You hear from someone from Buhl? 8 A. Not from someone, from the one who 9 must know it because he was ready to ship and 10 ready to send the invoice. It was his money 11 too, you know. 12 Q. So he did not ship to you at that 13 time? 14 A. No. And he said he has not yet a 15 verify from Redmond. 16 Q. So had he made a contact with Redmond? 17 A. I'm sure. 18 Q. And they said -- 19 A. They didn't say anything. It was 20 quiet. So no verify. They didn't say no -- 21 maybe that's wrong. 22 So but the effect was no. They have 23 -- Mr. Buhl had to have positive go. Unless 24 go, he couldn't deliver, and if he had done, he 25 had lost the contract with Microsoft, and I 11132 1 think he had to pay big fine for that if he had 2 done that. 3 Q. And if you could not, you, VOBIS, 4 could not get this 50,000 copies of your 5 certificate of authenticity and your 6 documentation, what happens to VOBIS? 7 A. Obvious, we can't ship. We cannot 8 ship. 9 Q. You can't ship? 10 A. Of course we can ship without 11 Microsoft DOS and Windows, but this is not so 12 good because people want to have that and they 13 want to have the complete package. 14 And, of course, as we offer it, 15 there's also Windows with it, and if we don't 16 have the documentation and the COA, it was -- I 17 was really -- this was a really tough time. I 18 worked several days until midnight because 19 between Germany and Redmond is nine hours' 20 difference, and when they get up, we have 21 8 o'clock or 6 o'clock in the evening, and then 22 I try to get in contact to the responsible 23 person there in Redmond. 24 Q. So then you write a letter? 25 A. Yes. 11133 1 Q. So to whom do you write the letter? 2 A. Mr. Grant, I think it's spelled Lures, 3 it's L-u-r-e-s, Grant, G-r-a-n-t L-u-r-e-s. 4 I think at that time he was 5 responsible for all finished goods for 6 reputation. He's still with Microsoft. He 7 does another job there, but he's still there. 8 Q. And what did you say to him? 9 A. I first stated that I know that they 10 haven't given the go, verify to Buhl Data, 11 although the material is there and is waiting 12 to be shipped for us. 13 Second, that we urgently need that 14 material. Otherwise it will spoil our whole 15 Christmas business. And I made some assumption 16 about the situation what it is. 17 So I think even I said this is a 18 little bit criminal, you know. It will kill 19 the company, either Buhl or us. Because if 20 Buhl dares to ship other material, he loses his 21 contract and he will go bankrupt. If he does 22 not dare to do that, we are out of this 23 documentation, and this had killed us, I'm 24 sure. 25 You know, there are 3,000 people in 11134 1 Europe waiting for material. People, customers 2 waiting in the stores, and you can't ship 3 anything for one month with cost of, can we 4 say, what was the 150 million deutsche mark 200 5 million a month with no revenue, this had 6 killed us. 7 Q. So -- 8 A. Let me explain what really the threat 9 was. 10 Normally, there have been strange 11 things, you know. Didn't get answer to your 12 phone call or some things and that you didn't 13 know was it intentional or not, was it an error 14 or Microsoft didn't take care of VOBIS 15 customer. I like to compare with one thing. 16 Like I think they did it -- I can't 17 say that it was intentional -- intentionally, 18 but it will show you how what impact I felt 19 with that. 20 Imagine you live here in the 21 countryside in winter. It's dark, it's cold. 22 In fact, now, maybe blizzard or something like 23 that. 24 You ever -- and that time it was a 25 monopoly of Microsoft. 11135 1 You have a monopolist electricity 2 plant. You can get electricity only from one 3 supplier, which is not -- it's rather 4 interesting that you get your energy, your 5 electricity. 6 One day, he says, I don't do any more 7 like this. I have hundreds other terms and 8 conditions, I ask you 30 percent more in price. 9 What can -- and you say no. Of course 10 you say no. I would say no. My wife I don't 11 know, but I would say no, I don't pay 30 12 percent for anything more what I don't see 13 progress in that. 14 So what can the electricity, Mr. 15 Energy, what can he do? He does not have to 16 cut off. And that makes it so difficult to see 17 is it really made intentional. You know what 18 happens during night when it's really very 19 cold. The light flickers for two seconds. And 20 you know what my wife tells me? Sign that 21 contract because you'll get very nervous 22 because you can't get -- you can't prove 23 anything. You have no evidence, nothing. But 24 it really frightens you, and that was the bad 25 thing with that. 11136 1 In that case I thought now they're 2 cutting off and it was a tough time. 3 Q. All right. You write your letter. 4 What happens next? 5 A. Then it worked again. We got our 6 material. So it seems -- I never talked to 7 Mr. Lures, but we got it finally. So they 8 didn't cut off. But it was really a heavy 9 flicker of light. 10 Q. Okay. And then when you -- I want to 11 go back for a moment because on November 29th 12 you tell the press in Germany and elsewhere 13 that you're going to stop using Microsoft 14 products. 15 Did you put the -- 16 A. No, we didn't say that. That's wrong. 17 Q. What did you say? I'm sorry. 18 A. We said we preinstalled OS/2. We 19 didn't say we would stop. No, we never -- 20 something what's good, and maybe a customer 21 comes in. But we say we don't preinstall DOS 22 and Windows as standard bundle, but we now 23 install OS/2 and Windows if customer likes 24 Windows as a standard. That we said. 25 We didn't say we reject Microsoft, no. 11137 1 Q. All right. And you had a contract 2 with Microsoft that lasted until March 8th? 3 A. Yes. 4 Q. Of '95? 5 A. Exactly, yes. 6 Q. So you could under the contract 7 continue to ship? 8 A. Yes, and under this contract, we 9 needed -- or this material, this certificate of 10 authenticity and all that; that was still -- 11 the contract was still valid. So we didn't 12 cancel the contracts, which we couldn't do from 13 our side. 14 Q. And was there someplace in here, I 15 know you don't know exactly the time, but do 16 you recall another incident that happened 17 sometime after you made your press release 18 where Mr. Dahmen went to Redmond -- not 19 where -- 20 A. No, it wasn't Redmond. It was 21 somewhere the Bay area in San Francisco. There 22 was another threat, not this -- with the 23 documentation in December. 24 Everybody knew Windows 95 will be 25 released in 1995. Nobody knew when. First it 11138 1 was projected for April. 2 And we, of course, have been in that 3 Windows beta program. That means all the major 4 OEMs -- OEM, that you have been one of those 5 OEMs are invited to make a try with that 6 product with the beta release to install that 7 on the computer to see whether it runs, whether 8 there are mistakes. So one hand helped the 9 other. 10 Microsoft helped us to prepare our 11 machines to get ready for the software, and we 12 helped them to show that maybe there was a 13 compatibility problem or something like that. 14 And there has been USB installation 15 something -- 16 Q. Conference? 17 A. Yeah, conference. It was called the 18 Plug Fest. It's called today still Plug Fest. 19 It's when it doesn't plug together, the 20 hardware with the software. 21 Q. Stop. Plug Fest? 22 A. Yes. 23 Q. Plug Fest? 24 A. Like plug. 25 Q. So it's called -- it has a formal 11139 1 name, but people call it the Plug Fest? 2 A. Yes. 3 All the OEMs came to the Bay area and 4 shipped their systems there to have the systems 5 ready and to check whether USB in this case, 6 USB was not so famous at that time. You still 7 had the Centronix printer port. Maybe somebody 8 knows that. But USB now is that way. You can 9 put everything to PC. 10 And this was new at that time, and you 11 had to check does it work or not with scanners, 12 with printers, with mice or with whatever. 13 Q. So who went to this on behalf of -- 14 A. Mr. Dahmen and I think Mr. Wirtz, 15 W-i-r-t zet. 16 Q. Z? 17 A. Z. They shipped I think 20 boxes or 18 something like that. 19 Q. 20 boxes of what? 20 A. The computers, the hardware. 21 Q. The actual computer hardware? 22 A. Yes, and it was -- there was a lot of 23 -- of Microsoft people, evangelists, or what is 24 the name for that? They had to show people how 25 good it is. Okay, that's all right. 11140 1 So but when this started this 2 conference, this series of tests, we didn't 3 have any Windows 95. Everybody else has had a 4 CD-ROM, the beta version, to install on the 5 PCs. We didn't have. 6 And so Mr. Dahmen complained about 7 that, and at least Mr. Bengt Akerlind, who is 8 really nice, from Microsoft, he didn't give him 9 anything, but he arranged that there was 10 Windows 95 installed on the machines. But he 11 had to put everything away. He had to delete 12 everything after this event. 13 So this was again something I can't 14 tell you that it is made intentionally, but 15 imagine you are invited to a dinner party. You 16 go there and you sit there. Everybody is 17 getting fork and knife and a spoon, and you are 18 the only one who don't have. But then you ask 19 the waiter. And I don't have for you. And 20 then you get some plastic forks or spoon. But 21 give it back when you are ready with your 22 dinner. 23 Is that narrow or is that intentional 24 or is that -- so this is not the way you treat 25 a big customer. 11141 1 So this is again the flickering, you 2 know. And with Windows 95, if we are not any 3 more -- what I didn't know, I thought they 4 threw us out of that program so that we have at 5 least a delay of three or four months to be in 6 the market with Windows 95, and this was again 7 a threat. 8 Q. Let's be sure. The purpose of this 9 Plug Fest is to test the Windows 95 beta with 10 your High Screen computers? 11 A. Yes, and to take action that 12 everything will be ready to ship in the good 13 order and with compatibility with Windows 95 is 14 released. 15 Q. Would there be any reason to go there 16 if you didn't get a Windows 95 beta? 17 A. We'll have nice surprises, you know, 18 so that you have -- we had to make many 19 adjustments to hardware. Microsoft had to do 20 many adjustments to the software. But this was 21 the purpose of that meeting. The meeting was 22 -- the idea is very good. They are still doing 23 that today. 24 This is to keep compatibility up 25 between all the systems, the software, and the 11142 1 hardware. 2 But I know that Mr. Dahmen phoned me, 3 and Mr. Akerlind was really -- he said, okay, I 4 help you to do that because it's -- it is not 5 very good hospitality to let people come, and 6 don't let them do what the reason why they came 7 there. 8 And so we had to prepare for that and 9 we had to make our experiments, but, 10 unfortunately, we could not do that. But we 11 even didn't have a beta version of Windows 95 12 when we came back because they had to delete 13 from the hard drive. 14 Q. Why does that matter -- now they go 15 there. They finally get their beta. They do 16 their tests. They have to delete everything 17 when they come back. They don't have -- 18 A. You can make adjustments, but you 19 don't have a chance to test whether these 20 adjustments were successful or not. 21 Q. Did you ship all of your High Screen 22 systems to the Plug Fest? 23 A. Yeah, I think so. Everything must be 24 in a container or something. Must be I think 25 20 systems, something like that. 11143 1 Printers -- not only the computers, 2 the printers, scanners. Mainly to show you 3 that it's really an issue with this 4 compatibility, there was an introduction of 5 something, I don't know, Windows 98 where even 6 on the presentation with Bill Gates, the 7 computer crashed. Do you remember when he put 8 on the USB scanner? It was in 1998. And this 9 really -- and this he did not intentionally, 10 this was not a joke. It could happen. 11 I don't say -- I don't complain about 12 that. That's a problem with compatibility in 13 computers because everybody should be able to 14 put his product together with a computer or 15 software so that it works and he can sell his 16 product. 17 Q. All right. Let's move to Plaintiffs' 18 Exhibit 2228. And Plaintiffs' Exhibit 2228 is 19 a February 1995 worldwide regional director 20 meeting -- it's to them, I'm sorry. It's from 21 Joachim Kempin to worldwide regional director 22 meeting attendees, and it's about the 23 prospective fiscal year '96, fiscal year '95 24 reflections, dated January 31, 1995. And on 25 page 5 there's a mention of VOBIS. 11144 1 MS. CONLIN: And at this time, Your 2 Honor, the Plaintiffs offer Plaintiffs' Exhibit 3 2228. 4 MR. HOLLEY: Same objection as 5 previously, Your Honor, about the use of 6 Microsoft internal documents. 7 THE COURT: It's admitted. 8 Q. And turn please to page 5. 9 This is Mr. Kempin. Now we're in 10 January 31, 1995. And Mr. Kempin is writing to 11 other salespeople in Microsoft, and he is 12 saying that here are only two German accounts, 13 Escom and VOBIS, have been seriously 14 experimenting with it. 15 MS. CONLIN: I guess to make sense out 16 of this, Darin, we need to go up and talk about 17 OS/2 units sold. The little heading. Good. 18 OS/2 units sold. 19 Q. And he says, only two German accounts, 20 Escom and VOBIS, have been seriously 21 experimenting with it and I expect them to 22 change their minds sooner than later. 23 And in your discussions, did you have 24 direct discussions with Mr. Kempin about your 25 contracts with Microsoft? 11145 1 A. We talked together, of course. We 2 wanted to find a solution for that. 3 Q. I forgot to ask you, along in here 4 when all of this is happening, toward the end 5 of December, did you also write a letter to the 6 United States Department of Justice? 7 A. Yes, to Ann Bingaman. 8 Q. Do you know what her role was at that 9 time? 10 A. I think she was in the Department of 11 Justice. She was responsible for that consent 12 decree. She worked on that, I think, at that 13 time. 14 Q. All right. And did you write that 15 letter to -- what did you tell her in that 16 letter? 17 MR. HOLLEY: Your Honor, may we 18 approach? 19 THE COURT: Yes. 20 (The following record was made out of 21 the presence of the jury at 2:16 p.m.) 22 THE COURT: Mr. Holley. 23 MR. HOLLEY: Well, Your Honor, it had 24 been my understanding that the parties were not 25 going to put in evidence about compliance with 11146 1 the two consent decrees. 2 And this testimony now being elicited 3 is Mr. Lievin's belief, which the government 4 did not agree with, that Microsoft was not in 5 compliance with the '94 decree. 6 We have been prevented from putting in 7 similar evidence in the past. And if the 8 plaintiffs want to open the door to this, I 9 guess that's their strategic decision, but it 10 is not consistent with my understanding of what 11 the Court had said about compliance evidence 12 regarding consent decrees. 13 MS. CONLIN: Perhaps I misunderstood. 14 Is your point that we can prove conduct but 15 not -- 16 MR. HOLLEY: I thought -- my 17 understanding of what the Court had said was 18 you can say what Microsoft did after the 19 consent decrees, either one of them was in 20 place, but that you can't claim that it was or 21 was not compliant with the judgment. 22 And maybe you'll tell me this is not 23 what you're doing, but he wrote a letter to 24 Mrs. Bingaman, the assistant attorney general, 25 saying that Microsoft is not complying with the 11147 1 consent decree which seems exactly what I 2 thought we were not supposed to do. 3 MS. CONLIN: That's not exactly what 4 I'm trying to do, but I'm not sure how this 5 witness might respond. 6 So perhaps that's a question I should 7 withdraw because I really -- I'm trying to be 8 narrow, but I can't be sure that the narrowness 9 will remain so -- 10 MR. HOLLEY: I understand exactly what 11 you're saying. I mean, he says what he wants. 12 MS. CONLIN: Yes, he does, indeed. 13 THE COURT: With not much prompting. 14 MS. CONLIN: Or any ability to stop. 15 (The following record was made in the 16 presence of the jury at 2:19 p.m.) 17 THE COURT: Sorry for the delay. 18 MS. CONLIN: No problem. 19 Q. I'm going to ask a different question, 20 and I want to move you forward to March 3rd I 21 think is when we believe this happened, but 22 March 3rd, 1995. 23 We've had all of these other things 24 occur. 25 A. It was Friday, I think Friday. 11148 1 Q. Okay. And what -- what happened on 2 March 3rd, 1995? 3 A. Mr. Dahmen has succeeded in getting a 4 good Windows 3.1 copy before from IBM. IBM has 5 had OS -- this operating system contract with 6 Microsoft for Windows 3.1, and for us it was 7 difficult because Windows 3 point -- 3.1 8 contract ran out 8 of March so -- 9 Q. Wait a minute. 10 So as of March 8th -- 11 A. No Windows anymore. But then we said, 12 okay, let's Windows put that APIs in there so 13 that this works with OS/2. 14 And they succeeded in doing that until 15 mid of February, and we had everything ready to 16 ship to our customers. That means OS/2 plus 17 Windows 3.1. 18 From this time, not anymore from 19 Microsoft, but indirectly through IBM. 20 And then there was a discussion with 21 Microsoft people on 3rd of March in our offices 22 in Aachen -- it's A-a-c-h-e-n -- Germany was 23 our headquarters. 24 And some people attended that from our 25 side. I haven't been there because I was busy. 11149 1 And from what I know, it was a very frozen 2 atmosphere. So I think Microsoft said you are 3 in our hands, your contract is ending in one 4 week or in three days -- 5 Q. Five days? 6 A. Five days. And then I came in there 7 and said doesn't matter anything now, I'm 8 writing -- 9 Q. Wait, wait. 10 Did you then reach a contract with 11 Microsoft? 12 A. On 3rd of -- March 3, no. 13 Q. When was your contract with Microsoft 14 for -- 15 A. It was at the last minute. It was 16 March 8th. Just one hour before our press 17 conference on the 7th again, CeBIT in Hanover. 18 It started on Wednesday 8th, 1995. 19 And we said we'll do that to the last 20 moment, and we said together I think the moment 21 8 o'clock, 9 o'clock. My press conference 22 started at 11. And we found a solution 23 finally. 24 I have to -- do I have to explain that 25 solution now because it's a little bit 11150 1 difficult? 2 Q. Well, let's just -- you did, in fact, 3 reach agreement with Microsoft on March 8, 4 1990 -- 5 A. Yes, last minute was the day when the 6 other contract was ended. 7 Q. Did you also resolve issues related to 8 the audit at that time? 9 A. Yes, we -- I wanted to get rid of all 10 the problems. We paid them $3 million. 11 Q. Are you sure it was 3 million? 12 A. 2 or 3 but -- too much. 13 Q. Do you pay Microsoft for the audit 14 because you think you've done something wrong 15 or for some other reason? 16 A. No. I have never seen the audit. I 17 don't know whether there was a result or not, 18 so they said -- some rule, maybe 2 million, 3 19 million, okay, 3 million and then forget the 20 past. 21 Q. And perhaps we can use the time line 22 to describe what the contract said. 23 VOBIS reaches per system contract with 24 Microsoft that permits the declaration of the 25 system not by the box, but by the label. 11151 1 A. By the label on the removable hard 2 disk drive again. So we still had one box, one 3 computer with the motherboard, with a CPU in 4 it, with memory. But to declare it as a 5 specific system under the contract with 6 Microsoft, again, we took that hard disk drive, 7 there was a number on that, and we put it in. 8 And we have had I think nine different 9 systems that was IBM PC-DOS only was number 10 one. I think differences -- there was also a 11 system, Microsoft DOS plus Windows. There was 12 a system OS/2 plus Windows. And at the end we 13 offered until I think May 1996 two major 14 versions. 15 It's Version Number 1, it's OS/2 plus 16 Windows. And then, on the other hand, after we 17 got that Windows 95 contract, only Windows 95 18 in this way. 19 And this was the only way we could do 20 it because others couldn't do it because they 21 didn't have that removable hard disk drive in 22 their own stores. We could do it, but others 23 could not do it, except they made ten times how 24 many versions, ten computers times ten 25 versions, hundred different systems. 11152 1 Q. All right. So you had a way of doing 2 this? 3 A. Yes, fortunately. So that was reason 4 why we gave up. We said, okay, then, let's 5 settle it. 6 Q. When do you leave VOBIS? 7 A. December 31, 1996. 8 Q. And do you sell the company? 9 A. Yes, last 35 percent. We still own 10 17.5 percent I think, or maybe a third -- but 11 minority. We sold that and we left that day. 12 Q. If you were still with VOBIS, would 13 you be here testifying? 14 A. It would be more difficult, but, you 15 know, I have done a lot of things. You know, I 16 have testified with the press release. You 17 know. 18 I was not afraid to get in trouble 19 with Microsoft so -- but it is -- I think -- I 20 got a little bit at the end trouble with the 21 head of the supervisory board from our company. 22 I think he got a letter from Kempin. I don't 23 know exactly. But I think Kempin got in touch 24 to Mr. Conradi, C-o-n-r-a-d-i. 25 Q. And what was his role? 11153 1 A. He is the boss -- he was the boss of 2 Metro. 3 Q. So he was your boss? 4 A. He was -- not the boss, but he was the 5 head of the supervisory board. He could not 6 advise me what to do or not, but he could have 7 thrown me out as CEO, not as a shareholder, but 8 -- he's very good man. He's really retailer, 9 and he also does not like monopolist. So he 10 said what you're doing in principal is right 11 but be careful. 12 Q. Was this in the -- 13 A. It was in the spring 1995 when all 14 this trouble was. I think he got in touch with 15 Mr. Kempin that time. 16 Q. You didn't get fired? 17 A. No, not then. But, you know, it's 18 another small stone which -- or hint that shows 19 you to give up, you know. That is, if you 20 don't feel that you're 100 percent supported by 21 the head of your supervisory board. 22 I have also had trouble with my board 23 of directors, you know. It's not true what is 24 said that the whole board of directors has 25 decided to install now 100 percent OS/2 on the 11154 1 computers. Are you crazy? Why are you doing 2 that? You get trouble with Microsoft. I said, 3 so what? They get trouble with us. 4 MS. CONLIN: All right. That's all I 5 have for this witness at this time, Your Honor. 6 THE COURT: Cross? 7 MR. HOLLEY: Yes, Your Honor. 8 Your Honor, may I move to that table, 9 please? 10 CROSS-EXAMIANTION 11 BY MR. HOLLEY: 12 Q. Good afternoon, Mr. Lieven. My name 13 is Steve Holley, and I'm a lawyer for 14 Microsoft. 15 When were you first contacted by the 16 Plaintiffs in this lawsuit about coming to 17 testify here today? 18 A. I think in April last year by the 19 Plaintiffs that -- 20 Q. By Ms. Conlin? 21 A. Yes. I think in April 1995. That is 22 not -- that's in the last century. 2006, last 23 year. 24 Q. April 2006? 25 A. Yes, sorry. 11155 1 Q. And did you have any discussions with 2 the Plaintiffs' lawyers about whether you would 3 be paid for the time that you spent working on 4 this case? 5 A. We talked about that on I think Sunday 6 when I came here, and Mrs. Conlin was surprised 7 that I'm not retired, and oh, you are working. 8 So you -- no, I don't need no money. So I 9 asked maybe the travel expenses or something 10 like that. But it's -- no, I'm not paid for 11 that. 12 Q. Now, you are a business person as 13 opposed to a technician; is that correct? 14 A. A business person? 15 Q. Your relationship vis-a-vis VOBIS was 16 as an executive and not as a technical person; 17 correct? 18 A. Oh, I like the techniques, you know. 19 To be in that business you have to know what's 20 going on. So I could build a computer. I have 21 done that. 22 Q. Well, you recall giving a deposition, 23 do you not, sir, on the 4th of May of 1998 in 24 Los Angeles? 25 A. Right. 11156 1 Q. In a case called Caldera against 2 Microsoft? 3 A. Yes. 4 Q. And did you testify there, sir, that 5 you were not a technician? 6 A. No, I'm not a technician, but I have 7 to know what technique does. What the customer 8 asks for, and the customer asks for things that 9 have a technical background. So I can tell you 10 something about preemptive multitasking. I do 11 not know like a technician what it does 12 internally, but the result I can tell you. 13 Q. So you didn't mean to testify on 14 direct that there was no preemptive 15 multitasking in Windows 3, did you? 16 A. No, at the beginning there was not. 17 I think Windows has had problems that 18 when there should be preemptive multitasking, 19 the system break down. I think it was in the 20 very beginning of the early betas of Windows 21 3.0 or 3 or something like that. It's 22 difficult. It's not easy, you know. 23 Q. But Windows 3.1 as released to the 24 marketplace is capable of preemptive 25 multitasking? 11157 1 A. Yes. 3.1 was, yes. 2 Q. Now you never conducted any sort of 3 technical comparison you yourself between 4 DR-DOS and MS-DOS? 5 A. Technical result, no, but the features 6 I compared. 7 Q. Okay. 8 A. So that's not the technique but the 9 result of the technique. 10 For instance, DR-DOS 3.41 had the 11 capability of password, and MS-DOS 4.01 has 12 not. 13 Q. Your view based on your experience in 14 the computer industry is that the most relevant 15 player to decide which product is better is the 16 consumer, right, based on their buying 17 decisions? 18 A. As soon as he knows the details, yes. 19 Q. Now, when you were originally in 20 business first -- well, by the time you were 21 VOBIS, you were still largely retailing 22 products that other companies had manufactured; 23 correct? 24 A. Printers, scanners, right. 25 Q. At the time that you decided to start 11158 1 building your own PCs, you thought it was 2 important to add an operating system to those 3 computers; right? 4 A. Without an operating system, a PC is 5 nothing. It doesn't work. 6 Q. So it was your judgment that having a 7 naked PC with no operating system was not 8 something that VOBIS's customers wanted? 9 A. No. You need an operating system. 10 Either you buy it in a box as a retail, that 11 was the first time, or we sold them retail. I 12 think MS-DOS 3.3 or something like that, we 13 could buy from distributors, but it was too 14 expensive. We said if others are buying large 15 quantity, with a contract with Microsoft, and 16 then, you know then we contacted Microsoft and 17 asked for that contract, and I signed it. I 18 didn't get it back signed. 19 Q. Now, VOBIS did business in Europe; is 20 that correct? 21 A. Only -- to sell, yes. We bought of 22 course in Far East, but we sold only our PCs in 23 Europe. 24 Q. And there was never a VOBIS store in 25 any of the 50 states of the United States; 11159 1 correct? 2 A. No. 3 Q. And to your knowledge, did anyone in 4 the state of Iowa ever buy a VOBIS PC? 5 A. It should be possible. We sell 2 6 million PCs. Maybe one or the other went in 7 our stores in Germany and bought one, but I 8 don't have any record about that. But it could 9 be possible. 10 Q. It's possible, but as you sit here 11 today you can't testify that even one VOBIS's 12 PC was sold? 13 A. Not seriously, no. 14 Q. And just so the court reporter doesn't 15 kill us both, if you could wait until I finish 16 my question and then you can answer, and I'll 17 try to do the same for you. 18 A. Fine. I will do. 19 Q. Thank you, sir. 20 And you left VOBIS on the 31st of 21 December of 1996; correct? 22 A. Right. 23 Q. And you have had no involvement with 24 the company since that time; is that right? 25 A. I know the people still. I know some 11160 1 people from them. 2 Q. But you have not been involved in 3 VOBIS's business since that time; correct? 4 A. No. 5 Q. Now, if you'd had your choice back 6 when VOBIS first started selling operating 7 systems with its computers, you would have 8 chosen MS-DOS as the standard; correct? 9 A. I didn't know about any other 10 competitive product. We -- we started to look 11 for another product after this contract was 12 sent back unsigned, and then I asked is there 13 another operating system, and we said yes, we 14 have. 15 THE COURT: Could you adjust your 16 microphone? 17 MR. HOLLEY: I'm sorry, yes. 18 Thank you, Your Honor. 19 Q. So when you licensed DR-DOS 3.41, it 20 wasn't because you made a judgment that it was 21 a particularly great product, right, it was the 22 product that you could get your hands on at a 23 price you thought was attractive? 24 A. Yes, but it was -- it was a good -- it 25 came on quite good because then we found the 11161 1 product that is the same as good and was much 2 cheaper, and we have been very, very successful 3 with that, and we were very happy with it. 4 So at the end, we found that solution 5 much better than the first one, except the 6 Works 2.0, this we still -- as you know, we 7 licensed from you because there was no 8 alternative to that. But the DOS, we were very 9 happy. We said it's nice that Microsoft sent 10 that contract back without signing it because 11 now we have found another operating system that 12 is as good and is cheaper. 13 Q. Now, you're not saying, are you, sir, 14 that DR-DOS 3.41 was a good operating system, 15 are you? 16 A. The 5.0 was much better. To compare 17 it with the 5.0, it was better. But 3.1 to 18 compare with Microsoft -- Digital Research 3.41 19 to compare with the Microsoft 4.01, I think 20 there was advantage for the Digital Research. 21 There were some features in there. As 22 I said, the security option with the password, 23 it was not bad. It was slightly better. 24 MR. HOLLEY: May I approach the 25 witness, Your Honor? 11162 1 THE COURT: You may. 2 Q. I'd like to show you, sir, a 3 transcript of this deposition that you and I 4 talked about earlier, which is the one that 5 occurred in May of 1998. 6 Q. And I'm particularly interested in 7 the -- 8 THE COURT: Just one moment, sir. I 9 think your microphone is off. 10 MR. HOLLEY: Thank you, Your Honor. 11 Q. You were asked the question starting 12 at the bottom of page 12 at line 24 by Mr. 13 Palumbo: 14 Question: So your first license for 15 an operating system was with Digital 16 Research -- 17 A. What was it, line 24 on page 12 -- 18 Q. I'm sorry, sir. Page 12, line 24. 19 A. Okay., yes. 20 Q. And I'm interested in this question 21 and answer. Mr. Palumbo asks you: So your 22 first license for an operating system was with 23 Digital Research? 24 Answer: Yeah, with 3.41. 25 And a little further down there, you 11163 1 say, and it's -- it wasn't very good, the 3.41. 2 And that -- that testimony is correct, 3 right? It was your view that although DR-DOS 5 4 was better, 3.41 wasn't very good? 5 MS. CONLIN: Your Honor, we object to 6 the formulation of the question. Mr. Holley 7 has not read Mr. Lieven's answer. 8 MR. HOLLEY: Well, he's perfectly free 9 to read whatever he likes. 10 Q. I mean my question is, did you testify 11 at your deposition on May 4th of 1998 that 12 DR-DOS 3.41 wasn't very good? 13 THE COURT: Objection is overruled. 14 A. You are right. 15 And I think the Digital Research 3.41 16 was -- the man with one eye against the blind 17 of Microsoft 4.01. The 4.01 was really bad and 18 the 3.41 wasn't -- was not so good. 19 So from the point of view of consumer, 20 everybody had expected more, and that came with 21 the 5.0. But it worked. Everything worked. 22 But in 1988, '89, the operating 23 systems, all of them, haven't been so good. 24 They did what they did. They started the 25 computer, but there was no support for 11164 1 anything. 2 Q. Why don't you take a look at what you 3 said on page 153 of the same deposition. And 4 it's a little hard because you and Mr. 5 Steinberg were talking on top of each other. 6 But the question begins -- you might 7 want to start reading 152, line 12, and read 8 through to 153, line 4. And when you're done, 9 if you could let me know that because I want to 10 ask you a question about what you said there. 11 THE COURT: Are you done, sir? 12 THE WITNESS: Yes. 13 Q. I'm sorry. 14 So having read that to yourself, this 15 is another instance in which you said at your 16 deposition in May of 1998 that DR-DOS 3.41 was 17 not a good product; right? 18 A. It was not, but that has nothing to do 19 with was it better than 4.1 or not. 20 It worked, but from my point of view, 21 and my point of view is the point of view of 22 the customer. It was not sufficient for that 23 operating system could do. 24 For years, nobody worked on operating 25 systems. It was 3 -- MS-DOS 3.1, 3.2, 3.3, and 11165 1 nobody worked on that. There was no progress, 2 no innovation. 3 And that's the reason that also you 4 are right, 3.41 was not the state of the art 5 what could have been, and that was the reason 6 why -- I think one of the reasons why I think 7 Digital Research skipped the 4 and went to the 8 5 because they didn't want to get in comparison 9 with the Microsoft 4.01. 10 Q. Well, you're aware, are you not, sir, 11 that the developer of MS-DOS 4 was the IBM 12 Corporation, not Microsoft; right? 13 A. I don't know that -- may be, but it 14 was Microsoft product, you know, so -- 15 Q. Now, you expressed some frustration on 16 direct that Microsoft treated VOBIS in the late 17 '80s as a retailer as opposed to an OEM, and 18 that was correct; right? 19 It was frustrating to you that 20 Microsoft asked you to buy finished goods 21 products rather than offering you OEM prices? 22 A. At the very, very beginning in 1988, 23 when we -- I think we got in touch to the 24 retail division in Munich, but quite fast, we 25 got in contact to the Redmond OEM people. That 11166 1 was the result with this contract that I have 2 signed, they didn't sign. 3 Q. Okay. 4 A. So it was not a big issue, but, you 5 know, we have been a retailer of copy drawers, 6 of other things until 1986. Also all others, 7 we have only 15 stores at the time or 10 or 12, 8 15 stores. So maybe they said go to 9 distributor, buy it there. Buy retail products 10 from a distributor. 11 Q. And so your decision to go with 12 Digital Research as opposed to Microsoft was 13 because DRI was willing to give you the lower 14 pricing that OEMs got as opposed to finished 15 goods retailers' prices; correct? 16 A. That's true. Yes, it was a price of 17 $15, I think, per copy. The first shipment was 18 20,000 in 1989. I don't recall that. So 19 20,000 times 15 or 16. 20 Q. And it was your understanding that the 21 price that you were paying Digital Research for 22 DR-DOS 3.41 was approximately the same 16 or 23 $17 that you would have been paying Microsoft 24 if Microsoft had been willing to treat you like 25 an OEM; is that correct? 11167 1 A. I don't recall the price for 2 Microsoft. Maybe it was $18. So it was not so 3 far -- or maybe 16, 17. 4 I don't know exactly the terms of the 5 contract that I signed there. I don't recall 6 that. So after Microsoft refused to sign it, I 7 threw it away so -- because it was of no use 8 anymore use. I don't -- I think I even don't 9 have a copy of that sitting in my office. 10 Q. Okay. Well, take a look, if you will, 11 again at your deposition, sir, and I'm 12 interested in page 139, starting at line 7, the 13 question was asked: And Digital Research 14 offered you a -- the product 3.41 at a very low 15 price; correct? 16 Your answer was, it was similar to the 17 price that Microsoft offered to other OEMs. I 18 think that was -- 19 And the question was asked at that 20 point in time? 21 And your answer was, yeah, I think so. 22 It was $18, $17 something like. 23 Does that refresh your recollection 24 that you believed that the price you were 25 paying for Digital Research 3.41, DR-DOS 3.41 11168 1 was roughly the same price that Microsoft was 2 charging OEMS for MS-DOS 4.01? 3 A. I think it was not reasonable to think 4 about the difference if there was a difference. 5 So it was -- it was good substitute. 6 Q. Now, you entered into a contract with 7 DRI, with Digital Research, in June of 1990 to 8 license operating systems from DRI. Do you 9 recall that, sir? 10 A. '89. 11 Q. I wasn't suggesting that it was the 12 first one, but there was a contract in June 13 1990 between DRI and VOBIS relating to DR-DOS 14 5.0; correct? 15 A. Maybe, yes. We have -- subsequently 16 we have renewed the contracts. When we run out 17 of the licenses, we sold everything, and then 18 we talked about new contracts. 19 Q. And the price that you paid in that 20 contract was roughly the same for DR-DOS 5, 21 this $18 price that you'd been paying for 22 DR-DOS 3.41 up until that June 1990 contract; 23 correct? 24 A. If you like to know really precisely, 25 there was a list from Digital Research where 11169 1 all the shipments were in because I don't 2 really recollect that. 3 I don't know the price in summer 1990 4 what it was, but the list we have here and all 5 the shipments are there, and when you have a 6 calculator, the dollar revenue through the 7 copies and we know exactly the price. Shall we 8 do that? 9 MR. HOLLEY: Your Honor, may I go get 10 the document that Mr. Lieven is referring to? 11 THE COURT: You may. 12 A. I think it has a landscape form or 13 something like that. 14 Q. Will, Mr. Lieven, if it's still up 15 there, it's Plaintiffs' Exhibit 10030, but I'm 16 happy to -- 17 A. Yes, I have it. 18 And now you're talking about June? 19 Q. June of 1990, which I believe is on 20 the third page of this document, about 21 two-thirds of the way down. 22 A. Yes, it's number 3187 at the left 23 side. Somebody, calculator so we know exactly. 24 Q. Don't have one on me. 25 A. I have one. 11170 1 THE COURT: Do you want me to get one? 2 MS. CONLIN: Well, he has one on him 3 always. 4 THE COURT: Oh, okay. 5 A. I have to switch it on. It's a mobile 6 phone so it's not allowed here. I'll switch 7 off the mobile phone and use only the 8 calculator function. I promise. 9 Q. The Court will probably give you a 10 special dispensation. 11 A. But maybe we can do it by -- 900 12 divided by 50, what is that? It's $18; is that 13 right? 14 Q. Yes. 15 A. Still works. 16 Q. Your mathematician skills are still 17 there. 18 MS. CONLIN: Okay. Dollars or 19 deutsche marks or pounds? 20 A. Let me see what is it. I can see that 21 from something else. 22 I think it's dollar. I can see that 23 from page 486 because this was the big 24 shipment, 250,000 in February, '91. $2,265,000 25 divided by 250,000 is exactly $9 something. 11171 1 Maybe because of the exchange rate, but I think 2 this is dollars. 3 Q. And if it was deutsche marks it would 4 be more like 3 million 3 or something somewhere 5 in that range; right? 6 A. It would be a nice deal with deutsche 7 marks. 8 Q. Now, after DRI entered into this 9 contract in June of 1990 at roughly $18 per 10 copy for DR-DOS you also started negotiating 11 with Microsoft about the possibility of 12 licensing MS-DOS 5, which was coming down the 13 pipe, but not yet released; correct? 14 A. In 1991, yes, I think -- yes, that's 15 true. 16 Q. And it was your belief at that time 17 that the price that you would pay for MS-DOS 5 18 from Microsoft on an OEM basis was 19 approximately the same as the price that DR-DOS 20 was -- DRI was charging for DR-DOS, roughly 21 $18; correct? 22 A. Let me check again. 23 When did the MS-DOS 5.0 came on the 24 market? When was that? This was June 28, 25 1991; is that right? 11172 1 So -- and this was September '90. But 2 this price is not the price we have had in the 3 period when both went parallely. You know, 4 both parallely. So the last shipment, this was 5 the most important shipment, in February '91. 6 That is $9. That was the discussion with 7 Microsoft. That is if we can't pay $18 for 8 200,000 PCs. You remember the discussion? 9 Q. No, I do. 10 A. They consistent on the per processor 11 license, but the the price is flexible. So we 12 said, okay, stay with per processor but lower 13 price to $9. So we have same price for both, 14 for Digital Research and for Microsoft. 15 And that was very comfortable 16 situation because we didn't hurt ourselves, but 17 we could give the choice to the customer. 18 Q. Just so I make sure I understand this, 19 from an economic standpoint, it's your 20 testimony that paying $18 for 100,000 copies of 21 MS-DOS is equivalent, just mathematically 22 equivalent to paying $9 for 200,000 copies of 23 MS-DOS? 24 A. Right. 25 Q. And so practically speaking, since you 11173 1 anticipated only shipping 50 percent of your 2 volume in MS-DOS, you remember paying $18 for 3 both products in economic reality? 4 A. Yes, that's it. That was the price as 5 it was before, and we accepted that. This is 6 what whole market -- we haven't been 7 disadvantaged by that. 8 What we didn't want that we get 9 disadvantaged because we give a choice to the 10 customer. And under the normal per processor 11 license, we would have been disadvantaged, but 12 by this price cut from Microsoft, we haven't 13 been disadvantaged, and that was the goal, and 14 then we said, okay, we signed that. 15 Q. Now, do you still have up there with 16 you, sir, Plaintiffs' Exhibit 9026, which is 17 the the February 8, 1991 agreement between 18 VOBIS and Digital Research? And if you don't 19 I'll just -- 20 A. This is totally out of -- 21 Q. Okay, fine. Then let's cut through 22 that and -- 23 A. But if you tell me I will remember. 24 Q. It's 9026, but I have more copies so 25 maybe it's better to just -- 11174 1 A. Right. Oh, that's great. 2 MR. HOLLEY: Your Honor, may I 3 approach the witness? 4 THE COURT: Yes. 5 A. Tomorrow I will bring that in order. 6 Q. No, no, that's not your job. 7 A. Good. 8 Q. You can if you want, but that's not 9 your job. 10 I show you what's been marked as 11 Plaintiffs' Exhibit 9026. 12 Is that the contract that you signed 13 on February 8th of 1991 pursuant to which VOBIS 14 licensed 250,000 copies of DR-DOS? 15 A. Right, that it is. 16 Q. And it was your anticipation as of 17 February 1991 that this was basically one 18 year's supply of DR-DOS? 19 A. Yes, I think. So we don't have -- so 20 we don't have to discuss with this prices, 21 okay. Let's do it for 250,000, then we're 22 ready for one year, one and a half year maybe. 23 Maybe also three-quarter year, whatever. 24 Q. And DRI's willingness to give you this 25 very low price for 1,350 deutsche marks for 11175 1 DR-DOS was dependent in part on the size of 2 your order, wasn't it? 3 A. Yes. It was big order, 250,000, of 4 course. 5 Q. And your experience in business, 6 particularly at VOBIS, is that when you order 7 in bulk, you get volume discounts; right? 8 A. That is how it works in business. 9 Q. Now, if you turn to the fourth page of 10 Defendant's -- excuse me -- Plaintiffs' Exhibit 11 9026, it says under the standard payment 12 obligations, DR-DOS 5.0, including ViewMax, and 13 then it lists four language versions. It says 14 number of copies 250,000, and then it has an 15 amount due of the 3,375,000 deutsche marks that 16 you and I talked about just a minute ago; 17 correct? 18 A. Right. 19 Q. And you by signing this agreement 20 agreed to pay DRI that 3,375,000 deutsche marks 21 even if you never used any of these copies of 22 DR-DOS; correct? 23 A. I know what you want to say, but, you 24 know, what this is here -- of course, if you 25 buy 250,000 eggs which you have to pay for, it 11176 1 is whether you eat it or not, but that's not 2 the issue. 3 The issue is if at the end of the year 4 didn't use everything, can I use the remaining 5 eggs for something? Can I use in this case the 6 stickers, the holograms? And of course I can. 7 If I don't use all the 250,000 8 whatever in that time of one year, I still have 9 the holograms and I can go on paying later. 10 So it's not lost. It's not in vain 11 paid. That is different. You know, this what 12 we have here. We have those payments; one, 13 two, three, four, five, six, but this is a 14 payment schedule. These are not prepayments. 15 Prepayments are lost payments, but this here we 16 got our 250,000 holograms for, and the value we 17 have had of the whole holograms, we could have 18 sold forever. Even today we could have gone on 19 and sell Digital Research because there was no 20 time limit in this contract. This is the 21 difference between what Microsoft did and what 22 Digital Research is doing. 23 Q. Okay. I appreciate your point, but 24 I'd like to focus on my point, which is a 25 slightly different point. 11177 1 When you signed the contract, you 2 committed yourself to pay the 3,375,000 3 deutsche marks, correct? It wasn't an option 4 that you had? 5 A. No, but what is so unusual. 6 If you say I now pay -- I buy ten 7 Ferraris, you have to pay that whether you 8 drive it or not. 9 Q. Right. 10 A. You get it? I really got this 11 holograms, and it was in our possession. In 12 our possession, yes. 13 Q. Yes. 14 A. And we could do with it what we wanted 15 to do or not. 16 So it was -- even if we had not -- 17 this is the good thing with it. 18 Let's assume we sell only 50,000 the 19 first year. What is the difference between the 20 Microsoft contract and the DR-DOS contract? 21 With Microsoft, the prepayments are 22 lost in the first moment. They are lost. We 23 have to pay and they are lost. 24 What is in this case with Digital 25 Research? We still have the holograms. We can 11178 1 sell the second year 50,000, the third year 2 50,000, the fifth year 50,000. We can use what 3 we have paid for, and that you can't do with 4 Microsoft. That's the difference. 5 Q. Okay, and here's an example which is 6 exactly like what Microsoft did. 7 If I subscribe to the Vienna 8 Philharmonic for the season and I agree to go 9 to 30 concerts and I pay 500 Euros a ticket, I 10 have to write a check to the orchestra at the 11 start of the season; correct? And then I get 12 my tickets. That's how it works. 13 And if I don't -- if I decide after 14 concert number two that I really wish that I 15 had subscribed to the Berlin Philharmonic, I'm 16 out of luck. I'm not going to get my money 17 back and the tickets expire; correct? 18 A. That's true. 19 Q. Okay. 20 A. But you pointed out the solution. You 21 had a choice, and you know why you went to the 22 Berlin Philharmonic. With Microsoft you don't 23 have any choice. And that's a problem with the 24 minimum commitment, you know. 25 You are buying to that -- not only the 11179 1 choice to say Digital Research or Microsoft, 2 but that you have the flexibility in the time 3 schedule that is -- I know what you want to 4 say, but this is a free decision of everybody 5 who can say let's change from the Vienna 6 Philharmonic to the Berlin, but this is not the 7 same situation as it is with operating systems. 8 THE COURT: We're going to have to 9 break here, I'm sorry. 10 It is 3, and I promised the jury I'd 11 let them out. I apologize, Mr. Holley. 12 Remember the admonition previously 13 given. Leave your notebooks here. 14 We'll see you at 8:30 a.m. tomorrow, 15 and drive safely. 16 (A recess was taken from 2:59 p.m. 17 to 3:11 p.m.) 18 (The following record was made out of 19 the presence of the jury at 3:11 p.m.) 20 MR. CASHMAN: We're here to argue one 21 issue, Your Honor, related to the prior 22 testimony designation of Stefanie Reichel. 23 And that issue is, Your Honor, whether 24 Plaintiffs can call Ms. Reichel to provide 25 evidence through her prior testimony 11180 1 designations and then later recall Ms. Reichel, 2 portions of her prior testimony designations on 3 a separate issue, and that issue is spoliation. 4 And here we have a situation where 5 Microsoft has objected saying that the 6 Plaintiffs have to call and play all of 7 Ms. Reichel's testimony at one time, and 8 Plaintiffs believe that objection is without 9 merit and should be overruled, Your Honor, and 10 it's because of the order that you issued on 11 December 18, 2006. 12 And if I may, Your Honor, I have a 13 copy just to remind the Court. 14 THE COURT: Thank you. 15 MR. CASHMAN: That is an order that 16 the Court issued saying that the Plaintiffs can 17 call their -- call witnesses more than once, 18 and Plaintiffs submit that this order is 19 directly on point here, and that given this 20 order, Microsoft's objection to calling 21 Ms. Reichel both this week to testify through 22 her deposition testimony and then later on 23 spoliation issues is covered by your December 24 18th order. 25 Just by way of background, Your Honor, 11181 1 Ms. Reichel, you may recall from some prior 2 discussion we had about her concerning some of 3 the documents that we were playing that were 4 used in the opening statements, she was an 5 account manager for Microsoft Germany from '91 6 to '94, and she was an account manager who was 7 responsible for five or six accounts, including 8 VOBIS in particular. 9 And as you know, Mr. Lieven, who is 10 testifying today, was a cofounder and CEO of 11 VOBIS, which is one reason why we want to put 12 on the testimony of Ms. Reichel following the 13 conclusion of Mr. Lieven's testimony. 14 So the testimony which we intend to 15 play, Your Honor, following Mr. Lieven has to 16 do with the interaction that Ms. Reichel had 17 with VOBIS and OEMs. 18 The testimony from Ms. Reichel which 19 we wished to play later concerns spoliation 20 issues. 21 And pursuant to the order of December 22 18th, Plaintiffs believe we should be permitted 23 to do that. 24 We believe that it's clear from the 25 order, but given Microsoft's objection to 11182 1 bifurcating Ms. Reichel's testimony, we wish to 2 make sure that there is no issue and ask that 3 the Court make a simple confirmation that yes, 4 indeed, Plaintiffs can bifurcate the testimony 5 of Ms. Reichel. 6 Under the criteria set forth in the 7 order, Your Honor, of December 18th, it's clear 8 that this should be allowed because we're 9 basically talking about two different subjects 10 here, and it will create a situation where the 11 jury will not be confused if the testimony is 12 bifurcated as Plaintiffs intend to do. 13 And that's further underscored, I 14 think, Your Honor, by the ruling that you 15 issued on spoliation which indicates that there 16 would have to be an offer of proof out of 17 Court, not in the presence of the jury. I 18 should say an offer of proof to the Court but 19 not in the presence of the jury to see whether 20 the threshold facts set out in the Hartsfield 21 case have been established by substantial 22 evidence. 23 So again, the -- that kind of argument 24 is something that's going to have to happen 25 later which underscores why Plaintiffs should 11183 1 be allowed to bifurcate the testimony of 2 Ms. Reichel. 3 So to sum up, Your Honor, this is a 4 pretty straightforward issue that Plaintiffs 5 request that Microsoft's objection to the 6 bifurcation of the testimony by Ms. Reichel be 7 overruled pursuant to your December 18th order. 8 THE COURT: Thank you. Mr. Neuhaus, 9 you going to respond? 10 MR. NEUHAUS: It is me, Your Honor. 11 THE COURT: All right. 12 MR. NEUHAUS: In obtaining the ruling 13 that Mr. Cashman referred to of December 18th, 14 the Plaintiffs expressly said that this -- that 15 what they were seeking would not apply to 16 deposition testimony and that deposition 17 testimony from a single deposition would all be 18 played at once. 19 And if I could hand Your Honor some 20 pages from the transcript. 21 THE COURT: Thanks. 22 MR. NEUHAUS: This is the transcript, 23 Your Honor, of December 18, 2006, when this 24 issue -- Plaintiffs' motion was argued, and if 25 you -- I've highlighted various places at which 11184 1 Ms. Conlin discusses how deposition testimony 2 would be treated. 3 And I guess I would ask Your Honor to 4 turn first to page 5584. I've highlighted 5 other language, but I would just highlight 6 orally, Your Honor, some of what was said 7 there. 8 At the end of her argument, she asks 9 that the request be allowed to divide up 10 witnesses, as they've suggested, and you asked 11 -- the Court says at page -- line 17, will this 12 be in regard to deposition testimony too and 13 Ms. Conlin responds, well, Your Honor, there 14 are -- I want to deal with these two separate 15 things. 16 And she explains with respect to 17 deposition testimony, there can't be any issue 18 of cross-examination. Those depositions are 19 done. There isn't going to be any more 20 cross-examination. That refers to our concerns 21 about dividing up cross. But if you then turn 22 to page 5585, next page, on line 15, she 23 answers the question. 24 So I think the depositions is one 25 thing and what we're talking about, Your Honor, 11185 1 is not splitting the deposition in a particular 2 case, but, rather, Microsoft says that when we 3 present the testimony of Jim Allchin, a 4 Microsoft executive, that we have to present 5 his testimony from all the cases he's testified 6 to. 7 And if you turn over to the next page, 8 5586, she says, we are not saying that all of 9 the testimony of Mr. Allchin with respect to 10 remedies -- that's her example of one case in 11 which testimony might have been given, 12 shouldn't come in at the same time. 13 That should come in at the same time, 14 Your Honor. 15 What we're saying is if we offer 16 testimony of Mr. Allchin in remedies, that 17 doesn't mean that we have to offer any 18 testimony of his in Caldera involving DR-DOS or 19 in Burst involving spoliation issues or any of 20 the other -- you know, any of the other various 21 cases in which he testified. 22 What we're saying is when a -- when a 23 deposition from a particular case is offered, 24 yes, of course we give that. We provide that 25 whole deposition with the exception that the 11186 1 Court has not required of us that we provide 2 affirmative designations at that time. 3 That refers to affirmative 4 designations of the other party will be played 5 in their case. 6 So that, Your Honor, Ms. Conlin 7 plainly told Your Honor in seeking this order 8 that deposition testimony was quite different 9 from live testimony; the issue being discussed 10 was live testimony on the one hand and the 11 question of whether all the deposition 12 testimony -- all the prior testimony of a given 13 witness had to be played at once. 14 And in granting this motion or, 15 rather, in seeking this order, Ms. Conlin made 16 clear that her intention was and what she was 17 seeking was to have all the testimony from a 18 given deposition played at once. And that's 19 what we think should be done. 20 There are really two reasons for that, 21 Your Honor. As Ms. Conlin said, all the 22 testimony is in the can. The cross-examination 23 and the direct is all fixed in the deposition 24 and so you can't -- if Ms. Reichel is brought 25 back later -- her testimony, rather, is played 11187 1 later, we can't reintroduce her or provide 2 context for the testimony -- the snippet that 3 they want to play. 4 And the parties have gone through an 5 elaborate designation process with the Special 6 Master in deciding what can be played to make a 7 given transcript comprehensible and make the 8 points that each party wants to make. 9 So we shouldn't have to start again to 10 figure out what is needed to make some part of 11 what Plaintiffs want to play later 12 comprehensible to the jury. 13 The second reason that all the 14 testimony should be played together -- and Ms. 15 Conlin refers to it -- is that all the 16 testimony is going to be broadly about the same 17 subject matter. And that is true here. 18 All of Ms. Reichel's testimony relates 19 to her time at Caldera -- sorry, at Microsoft 20 in the early 1990s when she was employed there. 21 It's not fair to us to rip the 22 spoliation pieces, a few pages of testimony, 23 out of the context of her employment in 1992 to 24 1994. 25 If they can get that before the jury 11188 1 at all pursuant to Your Honor's instruction, 2 they must order -- they must do a threshold 3 showing as Mr. Cashman said, but it is 4 important to Microsoft that this testimony be 5 clearly limited and tied to the overall context 6 of Ms. Reichel's testimony -- Ms. Reichel's 7 employment at Microsoft about which she'll be 8 testifying for several hours before they get to 9 this little bit about spoliation. 10 And the spoliation material is all 11 tied together in the sense that it's supposedly 12 her boss who gave her some instruction and 13 relates to her work with respect to the -- as 14 an account manager, which she will have been 15 talking about for the last -- for the prior 16 three hours. 17 So, Your Honor, you know, our position 18 is that -- and our belief is that deposition 19 testimony should be played all at once. That 20 has been the understanding when Ms. Conlin 21 argued this before you and from the very 22 beginning of the Special Master process where 23 the parties have designated and cross 24 designated the testimony in order to make the 25 portions understandable to the jury in context. 11189 1 Thank you, Your Honor. 2 THE COURT: Thank you. 3 Anything else? 4 MR. NEUHAUS: I should say, Your 5 Honor, if they wish to play Reichel now and 6 talk about -- and offer the testimony, there's 7 no reason why they can't put their threshold 8 showing on now as to spoliation. I mean, if 9 they have to do that, fine. 10 If they want to offer that testimony, 11 they have to make their spoliation offer of 12 proof. Mr. Cashman said that couldn't be done 13 until later. There's no reason for that. 14 They can certainly offer -- make an 15 offer of proof as to what -- in order to try to 16 satisfy the Hartsfield elements right now as to 17 the Reichel testimony. If that's what they 18 want to do tomorrow or in the near future, 19 let's do it. 20 THE COURT: Anything else? 21 Mr. Cashman? 22 MR. CASHMAN: Your Honor, first of 23 all, obviously, this is just a ploy by 24 Microsoft to control the way that we put on our 25 evidence -- the way that the Plaintiffs want to 11190 1 present their evidence. And I hope the Court 2 will see through that ploy and not permit 3 Microsoft to engage in that kind of conduct 4 here. 5 And then next, I'd like to just state 6 that as far as playing the depositions all at 7 once, when we had that discussion in connection 8 with the order of December 18, that was in 9 relation to a situation where witnesses 10 testified in different proceedings. 11 And so there were multiple depositions 12 given by the same witness usually, for example, 13 in the Caldera case, then in the DOJ case, and 14 then in the JCCP California action and that was 15 where that discussion came up. 16 Here, Your Honor, we have a unique 17 situation because of the objections that 18 Microsoft is making about spoliation. 19 So while we do intend to play the 20 testimony -- the designated testifimony from a 21 certain witness when it pertains to a certain 22 subject in a given deposition, this is a 23 different situation because of the objections 24 that Microsoft has asserted on spoliation 25 issues. 11191 1 And they have carved spoliation out 2 into a different topic by the way that they've 3 objected to the presentation of that evidence. 4 Therefore, by Microsoft's own conduct, 5 it's clear that spoliation is a different 6 issue. 7 Next, Your Honor, I'd like to point 8 out that the basis for your order on December 9 18, Rule 6.11(a), obviously, that gives you, 10 the Court, the power to permit the bifurcation 11 of Ms. Reichel's testimony just as we are 12 requesting here because it makes sense. 13 So not only does your order apply to 14 this situation, but the reasons for the order 15 in the first place clearly apply to this 16 situation. 17 Now, Mr. Neuhaus for Microsoft makes 18 two -- basically two contentions. 19 First of all, he says that if we 20 bifurcate deposition testimony, somehow that's 21 different than a live witness because in the 22 case of deposition testimony, when we present 23 it the second time, the jury might be confused 24 apparently because there wouldn't be all the 25 foundation of the testimony provided by the 11192 1 witness. 2 That argument makes no sense because 3 it can be easily handled by a Court statement, 4 for example, stating Ms. Reichel previously 5 testified you'll recall and she's being called 6 again through deposition testimony. That's a 7 very easy situation to handle. 8 Second of all, Mr. Neuhaus said that 9 he contended that Ms. Reichel's testimony was 10 about the same subject matter. That argument 11 doesn't make any sense because Microsoft itself 12 has carved out spoliation from the rest of what 13 Ms. Reichel testified about. 14 And, in fact, Your Honor, they have 15 line-by-line objections to certain portions of 16 Ms. Reichel's testimony which concerns 17 spoliation. And it's those which triggered 18 this hearing today. 19 So it's not true by Microsoft's own 20 admission that all of Ms. Reichel's testimony 21 is about the same subject matter. 22 Lastly, Your Honor, I'd like to say 23 that if Microsoft really wants to see all this 24 testimony played at one time, to see Ms. 25 Reichel played at one time, all they have to do 11193 1 is withdraw their insistence that we have a 2 threshold hearing pursuant to the Hartsfield 3 case. 4 The evidence can go in and then later 5 we can have an argument about Hartsfield if -- 6 if and when that becomes appropriate. 7 And the only reason why we're finding 8 the need to have that hearing, the Hartsfield 9 hearing, is because Microsoft objects to the 10 presentation of this kind of evidence before 11 that hearing. 12 So if they want to see Ms. Reichel 13 played all at one time, including the 14 spoliation testimony, all they have to do is 15 say, fine, we're willing to let that evidence 16 come in and we'll have the Hartsfield hearing 17 in due course rather than insisting upon it 18 before any spoliation evidence is presented. 19 Thank you, Your Honor. 20 THE COURT: Is Jim Allchin going to be 21 presented by depo, do you know? 22 MR. TUGGY: I don't know. 23 MR. CASHMAN: I think Allchin was just 24 an example, Your Honor, that was being 25 discussed for the purposes of -- 11194 1 THE COURT: You don't know if it's 2 depo or not -- 3 MR. CASHMAN: -- that hearing, but I 4 don't recall offhand if he's on Microsoft's 5 witness list. 6 THE COURT: The reason I asked -- I 7 didn't mean to sound like I was taking it out 8 of thin air. 9 On 5586 at line 15, if Ms. Conlin is 10 saying that what we're saying is if we offer 11 testimony of Mr. Allchin in remedies, that 12 doesn't mean that we have to offer any 13 testimony of his in Caldera involving DR-DOS or 14 in Burst involving spoliation issues or any of 15 that other, et cetera. That was a deposition 16 she was referring to. Then she was talking 17 about splitting up depositions. 18 MR. CASHMAN: What she was talking 19 about, Your Honor, is the situation I was 20 describing before where you have depositions 21 given in different matters. 22 Remedies would have been a different 23 matter from Caldera and would have been a 24 different matter from Burst and would have been 25 a different matter -- 11195 1 THE COURT: Okay. 2 MR. CASHMAN: I don't think she was 3 saying that she necessarily knew that Mr. 4 Allchin gave a deposition in every one of those 5 matters, but we do have situations where 6 witnesses have given depositions in multiple 7 different proceedings. 8 THE COURT: I've got you, all right. 9 I understand. I misunderstood. 10 MR. NEUHAUS: That was the point of 11 her -- remedies was the DOJ remedies case. 12 Deposition was given in that. Caldera, several 13 years earlier. 14 THE COURT: If you played the 15 spoliation thing separately, would it be 16 repetitive, anything that she said before or 17 would it be totally separated out? 18 MR. CASHMAN: No, it would be 19 separate, Your Honor. 20 THE COURT: Okay. 21 MR. NEUHAUS: Your Honor, our concern 22 is that taking it out of the context in which 23 she gave it and which she's talking about all 24 of her other work for Microsoft, you know, it 25 means that where we have to put that in and 11196 1 it's not -- or we have to -- will that be 2 played twice in order to put it in context, 3 that doesn't make any sense. 4 In fact, Your Honor expressly said you 5 don't want any testimony repeated unless you 6 give express permission for it. 7 So it is prejudicial to us to separate 8 this out and rip it away apparently by some 9 period of time from the context in which -- you 10 know, from the context in which she explains 11 her role -- her background and the work she was 12 doing for Microsoft. 13 The idea that this is a ploy from us 14 to disrupt the presentation of their evidence, 15 it's not our ploy. It's what Ms. Conlin said 16 she was going to do and she accepted not even 17 -- a little bit more than a month ago that 18 depositions should be played all at once and 19 that it would be disruptive to try to chop them 20 up when they're a single deposition. 21 And as for Mr. Cashman's idea that all 22 we have to do is withdraw our spoliation 23 objections, I mean, Your Honor has made very 24 clear threshold showing. 25 And, again, there's no reason why that 11197 1 threshold showing as to Ms. Reichel can't be 2 made at this time. 3 THE COURT: Okay. 4 Anything else? 5 MR. CASHMAN: Your Honor, Mr. Neuhaus 6 has not advised the Court of the fact that 7 Microsoft has its own cross designations on the 8 spoliation issue if and when that evidence 9 comes in. 10 So the contention that they'd be 11 prejudiced if the spoliation issues are 12 presented separately are just plain wrong. 13 They've got their own cross designations on 14 that issue, which would be played in connection 15 with the affirmative designations. 16 It's by their own admission is a 17 separate, distinguishable issue, spoliation. 18 So there's no reason why it can't be 19 bifurcated if Microsoft is going to insist on a 20 threshold hearing before the evidence is 21 presented to the jury. 22 As I stated, the issue can be remedied 23 easily if either the Court orders or if 24 Microsoft agrees that the evidence can be 25 presented and that we have the hearing at a 11198 1 later time. 2 So Plaintiffs believe that under Rule 3 6.11(a) and under the Court's December 18 order 4 and given the facts of the situation, it's 5 clear that Plaintiffs should be allowed to 6 bifurcate the testimony of Ms. Reichel. 7 Thank you. 8 THE COURT: Anything else? 9 MR. NEUHAUS: Mr. Tuggy wanted to 10 address one small point with the counter 11 designations. 12 MR. TUGGY: The counter designations 13 relate narrowly to spoliation of evidence. 14 Her deposition, as you'll see when 15 it's played, involves a specific period. And 16 the Plaintiffs will be showing E-mail after 17 E-mail in the course of her examination that 18 Ms. Reichel either received or sent. 19 And, in that context, Ms. Reichel was 20 asked questions about Microsoft's retention of 21 E-mail in Germany. And you may recall from the 22 opening statement arguments -- there was a 23 portion where there's some reference to 24 computer graveyards in East Germany, which was 25 excluded for use in opening statements. And 11199 1 that was part of this Reichel testimony. 2 So when her testimony regarding 3 spoliation is heard in the context of the 4 entire deposition, it's quite clear that there 5 are many, many E-mails on all important facts 6 produced and used by the Plaintiffs when on the 7 other hand months possibly after the testimony 8 is played the small portion regarding 9 spoliation is excised and then played without 10 reference to anything that has occurred, it 11 will be confusing to the jury because it won't 12 limit and focus on what it was Ms. Reichel was 13 doing and what evidence was otherwise available 14 to the Plaintiffs with respect to that 15 particular period. 16 So to take spoliation evidence out of 17 a deposition and put it into a larger context 18 blurs the distinction between Caldera case and 19 remedies case and different time periods. 20 And that's the prejudice we're trying 21 to avoid by requiring the Plaintiffs to play 22 the testimony either all at once or at separate 23 times. 24 And if they're to do it all at once, 25 they need to provide the Hartsfield showing on 11200 1 the spoliation evidence. 2 THE COURT: Do you want the jury to 3 hear the spoliation stuff before I rule on it? 4 MR. NEUHAUS: No, Your Honor. 5 THE COURT: If you allow the entire 6 deposition to be played, they're going to hear 7 it, aren't they? 8 MR. NEUHAUS: If they wish to play 9 this spoliation evidence with Reichel's 10 testimony, they make the Hartsfield showing to 11 Your Honor before they play that testimony. 12 That's Your Honor's order on 13 spoliation that before they play any evidence 14 of spoliation, they need to make the threshold 15 showing as to that evidence. And that's what 16 we're talking about or threshold showing -- 17 sorry, that that order requires, that 18 Hartsfield requires. 19 And on this question of mixing up the 20 the testimony, the testimony on -- that they're 21 talking about has a -- refers to a certain 22 conversation, which is set in time by reference 23 to testimony somewhat earlier and to an exhibit 24 that tells you the date of when this occurred 25 or about the date -- she says it was in that 11201 1 time frame. 2 And it was in the time frame of the 3 Hunt Club meeting. And the Hunt Club meeting 4 you can determine when it occurred by looking 5 at an exhibit that would be shown in connection 6 with the testimony. 7 So, you know, you have to bring all 8 that together in order to show it. And the 9 date is very important because, in fact, there 10 was no document retention obligation whatsoever 11 during that period. 12 And you showed that by means of 13 exactly when it occurred and when the document 14 retention obligations ended if they ever 15 applied to Germany, which they did not, or ever 16 applied to Ms. Reichel, which they did not. 17 So it's critical if that evidence were 18 to come in that it be placed in time and that 19 is -- requires pulling in that testimony and 20 that exhibit from much earlier in the 21 deposition. 22 So that's just an example of why it is 23 that depositions should be played at once. And 24 if they want to get spoliation evidence in, 25 they do have to make the threshold showing. 11202 1 And there's nothing that Mr. Cashman 2 has said that suggests they have to do it at 3 some point in time that's not now or at 4 whatever point in time they want to play this 5 testimony. 6 MR. CASHMAN: Your Honor, the 7 arguments that you've just heard cleverly 8 disguise just why this is a ploy as I described 9 earlier. 10 Because they say we want Ms. Reichel 11 to be played all at once, but we won't withdraw 12 our objections to spoliation until you have the 13 Hartsfield ruling, which would mean that we 14 can't play Ms. Reichel at the point in time in 15 the trial when it's best for the jury and when 16 Plaintiffs want to present that evidence to it 17 -- make the best presentation to the jury. 18 Obviously, since Mr. Lieven, the CEO 19 of VOBIS, it makes sense to have the Microsoft 20 account manager who dealt with VOBIS testify 21 right alongside or right after Mr. Lieven has 22 given his testimony. 23 And that's what Plaintiffs wish to do 24 is they want to play Ms. Reichel as soon as Mr. 25 Lieven is finished so that makes sense to the 11203 1 jury. That's the subject we're talking about 2 is the interaction that Microsoft had with 3 VOBIS. 4 And the reason it's a ploy by 5 Microsoft is they want to disrupt that and 6 force Plaintiffs to play Ms. Reichel at a time 7 disconnected from Mr. Lieven. 8 And there's no reason why that should 9 happen other than Microsoft's attempt to 10 interfere with the presentation of Plaintiffs' 11 case. 12 So, by their own admission, they've 13 carved out spoliation. They don't deny that 14 they have their own counter designations on 15 spoliation to counteract what Plaintiffs have 16 designated, all of which can be played at a 17 later time. 18 And so either, Your Honor, Plaintiffs 19 should be permitted to bifurcate or if we play 20 it all at once, we should be permitted to play 21 it all now when Mr. Lieven is finished 22 testifying and have the Hartsfield hearing at a 23 time to be determined later. 24 Thank you. 25 MR. NEUHAUS: Thank you, Your Honor. 11204 1 Happy to respond to any questions you 2 have if you have any, but I think -- 3 THE COURT: So what you're suggesting 4 is, then, Mr. Neuhaus, is they play what they 5 want to play from this deposition except the 6 part about spoliation until they have a hearing 7 on that and then that can be played at any time 8 or at this time? 9 MR. NEUHAUS: No, Your Honor. 10 THE COURT: It's okay if they play the 11 whole thing, then, right? 12 MR. NEUHAUS: If they want to play 13 Reichel, they should play the whole thing. If 14 the whole thing that they've designated 15 includes evidence on spoliation -- 16 THE COURT: Then so be it? 17 MR. NEUHAUS: -- they should make an 18 offer of proof outside of the presence of the 19 jury to determine the threshold facts set out 20 in Hartsfield. And that it is a fairly 21 straightforward -- 22 THE COURT: Has the Court ruled on the 23 designations yet on this? 24 MR. CASHMAN: Your Honor, there are no 25 objections except to the spoliation 11205 1 designations. 2 THE COURT: When am I going to hear 3 that? 4 MR. CASHMAN: The rest of her 5 testimony is all clear. 6 At the time -- after we have the 7 Hartsfield hearing is a time, whenever the 8 ruling is, would determine whether that 9 evidence is going to be presented, spoliation 10 evidence. 11 So to clarify, Your Honor, what 12 Plaintiffs wish to do by bifurcating is play 13 all the nonspoliation testimony by Ms. Reichel 14 after Mr. Lieven finishes. 15 And then at some time in the future 16 will have the Hartsfield hearing. Then based 17 on the ruling of the Hartsfield hearing, will 18 determine what spoliation or whether any 19 spoliation evidence would be presented to the 20 jury. 21 And so that's why we believe a 22 bifurcated proceeding makes perfect sense. 23 What Microsoft is proposing is that we 24 play all of Ms. Reichel at one time including 25 spoliation, which by that procedure would mean 11206 1 we could not play it when Mr. Lieven finishes 2 tomorrow. 3 It would be at some point in the 4 future a week from now or two weeks from now or 5 three weeks from now. 6 And that's why I say it's a ploy to 7 interfere with Plaintiffs' presentation of the 8 evidence in the way that makes most sense for 9 the jury. 10 We should be able to present Ms. 11 Reichel right now because the spoliation issue 12 not only is separate, but based on the ruling 13 of the Court, will affect how much of that 14 evidence gets played if it ever gets played. 15 THE COURT: Anything else? 16 MR. NEUHAUS: No, Your Honor. 17 THE COURT: Very well. 18 MR. CASHMAN: Plaintiffs kindly 19 request that the Court's ruling on this issue 20 is as soon as possible because Mr. Lieven will 21 finish tomorrow and we'd like to have Ms. 22 Reichel testify afterwards. And this will 23 determine obviously what we do. 24 THE COURT: It will be done by 5:00. 25 I'll E-mail it to you. Is that all right? 11207 1 MR. NEUHAUS: There's plenty of other 2 testimony in the can if they don't play 3 Reichel. 4 THE COURT: From who? 5 MR. NEUHAUS: I'm sorry? 6 THE COURT: From who? 7 MR. NEUHAUS: Barrett. 8 MR. CASHMAN: That's the whole point, 9 Your Honor. They want to force us to play 10 somebody else. 11 MR. NEUHAUS: If they really wanted to 12 play Reichel and they knew about the spoliation 13 evidence is in there and they want to play 14 that, they should have the Hartsfield offer of 15 proof and they can make it to Your Honor at -- 16 you know, at a suitable time. 17 And they should have made it if they 18 wanted to play this -- this is their ordering. 19 They should have made it if they wanted to play 20 it back when -- you know, last week or 21 whenever. 22 THE COURT: True. A little late, but 23 I'll get a ruling out. 24 MR. NEUHAUS: Thank you, Your Honor. 25 THE COURT: Anything else? 11208 1 MR. CASHMAN: Nothing, Your Honor, 2 nothing today. 3 I have one housekeeping matter and 4 that is -- 5 THE COURT: I thought we were doing 6 something else. 7 MR. TUGGY: No -- Bob and I -- Mr. 8 Gralewski and I had talked about scheduling the 9 Phase 7 appeals for Thursday and Friday 10 afternoon this week. 11 THE COURT: I thought we were starting 12 on those tonight. We're not? 13 MR. GRALEWSKI: I've been in 14 communication with Mr. Jones at Heller Ehrman 15 and the parties have agreed with the Court's -- 16 if it's convenient for the Court to do the PX 17 appeals -- there are about 18. And given the 18 way the -- given the amount of time that that 19 number of documents usually takes, that would 20 fill up one afternoon. 21 THE COURT: Okay. 22 MR. GRALEWSKI: That would take maybe 23 about an hour and a half, which would be 3:00 24 to 4:30. We'd do those on Thursday afternoon 25 and then the DX's, which is about the same 11209 1 number, on Friday afternoon. 2 And Mr. Jones and Mr. Tuggy are in 3 agreement that that makes logical sense. 4 THE COURT: Is that correct, sir? 5 MR. TUGGY: Yes, that's correct. 6 THE COURT: That's fine. 7 Housekeeping? 8 MR. CASHMAN: The other matter, Your 9 Honor, which Plaintiffs would like to schedule 10 is the hearing on the McGeady testimony. 11 Microsoft provided its reply brief yesterday 12 and I think perhaps we could do that tomorrow. 13 MR. NEUHAUS: Your Honor, could I -- I 14 don't know anything about that and not involved 15 in that. Could we just confer with -- 16 THE COURT: Let me know and I'll 17 decide tomorrow morning. 18 I don't think we have anything else 19 scheduled. We could do it tomorrow. Talk to 20 each other. 21 MR. CASHMAN: We will, Your Honor. 22 THE COURT: Anything else? 23 MR. TUGGY: No, Your Honor. 24 Thank you. 25 THE COURT: Stay warm. I'll get a 11210 1 ruling on this tonight. I'll just E-mail it to 2 you tonight. 3 Is that all right? 4 (Proceedings adjourned at 3:50 p.m.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11211 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 19 day of , 2007. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25