4508 1 IN THE IOWA DISTRICT COURT FOR POLK COUNTY 2 ----------------------------------------------- 3 JOE COMES; RILEY PAINT, ) INC., an Iowa Corporation;) 4 SKEFFINGTON'S FORMAL ) WEAR OF IOWA, INC., an ) NO. CL82311 5 Iowa Corporation; and ) PATRICIA ANNE LARSEN; ) 6 ) TRANSCRIPT OF Plaintiffs, ) PROCEEDINGS 7 ) VOLUME XVII vs. ) 8 ) MICROSOFT CORPORATION, ) 9 a Washington Corporation, ) ) 10 Defendant. ) ----------------------------------------------- 11 12 The above-entitled matter came on for 13 trial before the Honorable Scott D. Rosenberg 14 and a jury commencing at 8 a.m., December 13, 15 2006, in Room 302 of the Polk County 16 Courthouse, Des Moines, Iowa. 17 18 19 20 21 HUNEY-VAUGHN COURT REPORTERS, LTD. 22 Suite 307, 604 Locust Street 23 Des Moines, Iowa 50309 24 (515)288-4910 25 4509 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 Attorneys at Law 8 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 9 500 Washington Avenue South Suite 4000 10 Minneapolis, MN 55415 (612) 339-2020 11 STEVEN A. LAMB 12 DOUGLAS J. ROVENS Attorneys at Law 13 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 14 550 South Hope Street Suite 1600 15 Los Angeles, CA 90071 (213) 895-4150 16 ROBERT J. GRALEWSKI, JR. 17 Attorney at Law Gergosian & Gralewski 18 550 West C Street Suite 1600 19 San Diego, CA 92101 (619) 230-0104 20 KENT WILLIAMS 21 Attorney at Law Williams Law Firm 22 1632 Homestead Trail Long Lake, MN 55356 23 (612) 940-4452 24 25 4510 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JOSEPH E. NEUHAUS JEFFREY C. CHAPMAN 4 Attorneys at Law Sullivan & Cromwell, LLP 5 125 Broad Street New York, NY 10004-2498 6 (212) 558-3749 7 ROBERT A. ROSENFELD KIT A. PIERSON 8 Attorneys at Law Heller Ehrman, LLP 9 333 Bush Street San Francisco, CA 94104 10 (415) 772-6000 11 STEPHEN A. TUGGY Attorney at Law 12 Heller Ehrman, LLP 333 South Hope Street 13 Suite 3900 Los Angeles, CA 90071-3043 14 (213) 689-0200 15 BRENT B. GREEN Attorney at Law 16 Duncan, Green, Brown & Langeness, PC 17 Suite 380 400 Locust Street 18 Des Moines, IA 50309 (515) 288-6440 19 20 21 22 23 24 25 4511 1 RICHARD J. WALLIS STEVEN J. AESCHBACHER 2 Attorneys at Law Microsoft Corporation 3 One Microsoft Way Redmond, CA 98052 4 (425) 882-8080 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4512 1 (The following record was made out of 2 the presence of the jury at 7:58 a.m.) 3 MR. CASHMAN: Good morning, Your 4 Honor. 5 THE COURT: Good morning. 6 MR. CASHMAN: The first item of 7 business this morning, it appears, is the 8 testimony of Pete Peterson at page 152, line 13 9 through page 154, line 4. 10 THE COURT: Correct. That's what I 11 understood. 12 MR. CASHMAN: Plaintiffs request that 13 its motion or their motion be granted 14 precluding the use of this testimony in opening 15 statement for a couple reasons. 16 And that is, first of all, it's 17 hearsay. The Special Master has ruled it's 18 hearsay, and I understand that Microsoft is not 19 appealing that determination of hearsay. 20 I understand that Microsoft's sole 21 argument is that it should be permitted to use 22 this testimony for nonhearsay purpose, 23 allegedly to show the effect on the recipient 24 of the statement pursuant to the Roberts v. 25 Newville case. 4513 1 Plaintiffs submit that Microsoft has 2 no nonhearsay purpose for this testimony. 3 First of all, there is no proof in the 4 testimony that Mr. Peterson read or received 5 the article in question. And, therefore, he 6 could not have -- the article itself could not 7 have had an effect on Mr. Peterson. 8 You'll note from the testimony I've 9 quoted here that nowhere did they ask 10 Mr. Peterson if he read this article. 11 So the testimony fails for that basic 12 purpose. They don't -- Microsoft doesn't even 13 come close to satisfying the test. 14 Also, I refer the Court to its recent 15 order on head fake and product reviews. And 16 the Court states there that the Defendant may 17 use certain exhibits in opening, quote, for the 18 express purpose of the limited nonhearsay use 19 of reaction to, notice of, or knowledge of the 20 existence of the exhibits. 21 And here, Mr. Peterson clearly has no 22 notice of this article. He is not reacting to 23 this article. He does not have knowledge of 24 that article. 25 The testimony which preceded this 4514 1 which Microsoft chose not to use for opening 2 statement underscores that Mr. Peterson was 3 simply aware in a general sense that Bill Gates 4 was saying write for Windows amongst other 5 things. 6 And so what he testifies to in 7 relation to the article is simply saying that 8 it's -- that what they've showed him is 9 consistent with what he already knew apparently 10 based on his hearsay conversations with 11 Mr. Gates. 12 But that doesn't satisfy the 13 nonhearsay use test. 14 Secondly -- or just to wrap up on 15 that, the Roberts versus Newville case that 16 Microsoft cites in its chart in support of its 17 testimony doesn't support its position. That's 18 a state of mind case. 19 There Mr. Roberts, the plaintiff in 20 that case, was in an auto accident with 21 Newville, and Roberts sued and claimed loss of 22 earnings and earning capacity. And he claimed 23 that he was less productive at work and that 24 this caused him stress and depression. 25 Newville, the defendant, disputed 4515 1 those claims and said that Roberts had stress 2 and anxiety before his accident and that it was 3 these things that caused his lack of 4 productivity in what he -- 5 At trial Mr. Roberts was allowed to 6 testify that his boss basically had told him 7 that if he didn't improve his performance, he 8 would be subject to getting fired. 9 In fact, his boss said you've got to 10 improve your performance or maybe you should 11 think about resigning. 12 And there was an objection, but 13 ultimately the Iowa Court of Appeals in the 14 Roberts V. Newville case said that the 15 objections were properly overruled because 16 those statements were offered to show that 17 Roberts' state of mind, that his stress and 18 anxiety was caused by what he had been told by 19 his employer and that it explained his 20 fluctuations in productivity. 21 So, in other words, the Court in that 22 case was saying it didn't matter, it didn't 23 matter whether or not the out-of-court 24 statements by the boss were true or what they 25 were stated to be by Mr. Roberts. 4516 1 The important thing was the effect it 2 had on Mr. Roberts and, in particular, a couple 3 of his damage claims. 4 And so in that case there was a clear 5 effect, notice to and effect on the recipient, 6 Mr. Roberts. 7 Here, the testimony from Mr. Peterson, 8 there is no notice to or effect on Mr. Peterson 9 as a result of this article upon which he is 10 being examined. So they fail on that element. 11 Now, I'm going to turn to the other 12 part of this -- this is both really related to 13 the Roberts v. Newville case and, as is evident 14 from the testimony here and from your order, is 15 that this is really hearsay, that the Microsoft 16 folks want to use this for a hearsay purpose. 17 And that is because, in this instance, 18 it would matter whether Peterson believed what 19 Mr. Gates is alleged to have been saying in the 20 article here. 21 And because the probative value in 22 this testimony is whether or not Mr. Peterson 23 believed that, it's hearsay under the Gacke 24 case that we talked about last week. 25 As the Court may recall, Gacke was a 4517 1 case where there was a hog farming operation, 2 and the Gackes collected some questionnaires 3 from some of the other farmers in the 4 neighborhood, all of whom said there was a 5 severe odor problem at the hog farming 6 operation. 7 In the course of discovery in that 8 case those questionnaires were turned over to 9 the hog farming operation. And so they were 10 then on notice that the neighbors were 11 complaining about the odor. 12 And those questionnaires -- the 13 question was whether those questionnaires were 14 hearsay or not and whether they should be 15 admitted into evidence. 16 And the Court in Gacke concluded that 17 they were hearsay because in order for those 18 questionnaires to be relevant, they had to be 19 believed as true. 20 And, in particular, the hog farming 21 operation, once it received those 22 questionnaires, had to believe that they were 23 true in order to make it relevant that it 24 failed to take any action on those. Now -- any 25 action on the claims of an odor problem. 4518 1 And the Gacke case is very similar to 2 what's happening here, what Microsoft is 3 offering Peterson's testimony for here. 4 In Gacke, they had the questionnaires 5 being offered with the out-of-court statements 6 of an odor problem. 7 Here we have testimony about an 8 article in which Mr. Gates is saying develop 9 for Windows. 10 Both in Gacke and here, those 11 out-of-court statements are being offered to 12 show the effect on the recipient. 13 As we saw in Gacke, there's no 14 question that they had the actual notice of the 15 exhibits, of the out-of-court statements. 16 Here we have no evidence at all. In 17 fact, Mr. Peterson is never even asked whether 18 he read this article. 19 But the alleged effect of the 20 questionnaires in Gacke was that the farming 21 operation, the hog farming operation, took no 22 action. And that's exactly the purpose for 23 which the statements in the article shown to 24 Mr. Peterson -- that's what the purpose of that 25 testimony is here, to show that WordPerfect 4519 1 should have been taking action to write for 2 Windows. 3 So that's the purpose for it. 4 And the probative value, therefore, of 5 this testimony is dependent on whether or not 6 Mr. Peterson believed that WordPerfect should 7 be writing for Windows. 8 If he read the statements -- assuming 9 that he had read this article, if he had read 10 it and decided that he didn't believe it and 11 didn't take any action as a result of not 12 believing it, the article and this testimony is 13 irrelevant. 14 If, however, he read it and did 15 believe it, he would have to be -- believe the 16 out-of-court statement is true to make it 17 relevant, obviously. 18 So, under the Gacke case, we believe 19 that this is clearly hearsay. 20 So, for both of those reasons, we 21 submit that this testimony should not be 22 permitted to be shown in opening statement. 23 Thank you. 24 THE COURT: Thank you. 25 Mr. Tuggy? 4520 1 MR. TUGGY: Yes, Your Honor. 2 I have Microsoft's memorandum in 3 support of its resistance to the Plaintiffs' 4 motion to prevent Microsoft from using this 5 testimony in its opening statement. 6 And addressing the Plaintiffs' motion. 7 Originally it was captioned as an 8 appeal of the Special Master's rulings, and in 9 fact, the way Mr. Cashman just described it is 10 correct. 11 The role of this Court, and what the 12 Plaintiffs are requesting, is to determine 13 whether it is appropriate for Microsoft to use 14 this information in its opening statement. 15 The process that we have in place for 16 appealing Special Master rulings relating to 17 testimony by individual witnesses is a process 18 we have already engaged in, for example, with 19 Richard Williams where the Court has the 20 advantage of reviewing all the objections and 21 all the appeals relating to a particular 22 witness in a single setting. And, in that 23 setting, the Special Master's rulings ought to 24 be considered on appeal. 25 Here the issue is whether Microsoft 4521 1 will be permitted during its opening statement 2 to show to the jury testimony by Mr. Peterson 3 that the Special Master has ruled has a proper 4 nonhearsay purpose, and Microsoft's proposal is 5 in its opening to use it for that nonhearsay 6 purpose. 7 The issue we are presented here today 8 is whether Microsoft has a good faith basis to 9 believe that this testimony will be admissible 10 at trial. And Microsoft has that good faith 11 belief. 12 It is reasonably based on the law and 13 on the facts which I will discuss. And 14 Microsoft requests that this Court do, as it 15 did with the trade press, which is to issue an 16 order permitting Microsoft to use this 17 testimony in its opening statement, but 18 reserving for the appropriate time when 19 Microsoft offers evidence for admission at 20 trial to determine its ultimate admissibility. 21 With respect to the designations at 22 issue, they begin at page 152 of the 23 transcript. 24 An actual fact, when the Special 25 Master ruled on the designations, there were 4522 1 two parts. 2 There was a designation that began at 3 page 150 and ended at page 152. And in that 4 designation, it's important to understand that 5 designation in the context of the one we are 6 about to discuss. 7 Mr. Peterson describes statements that 8 Mr. Gates made to Mr. Peterson -- statements 9 that Mr. Peterson heard Mr. Gates say. 10 Now, in the transcript of 11 Mr. Peterson's deposition that's described at 12 page 151, beginning at line 5, there the 13 question was asked. 14 Question: All right. We'll talk 15 about that in a minute, but I want to focus on 16 one point. You said you were at a conference 17 -- you were at conferences in 1989 in which -- 18 in which Bill Gates said that people should be 19 writing for both Windows and OS/2. 20 Answer: That's right. He would say 21 write for Windows. One side of Microsoft would 22 say write for OS/2 and then Bill Gates was kind 23 of this, you know, lone man in the wilderness 24 saying write for Windows, write for Windows. 25 Question: And Mr. Gates was giving 4523 1 that advice to you and other ISVs? 2 There was an objection. 3 The question, again, was: Who was 4 Mr. Gates giving that advice to? 5 Answer: As I remember it, at in -- 6 not like if we'd go to a conference and you'd 7 see him up there in a regular interview. He 8 wasn't talking about Windows, but, afterwards, 9 you know, you'd go to the bar. You'd be 10 talking with friends and he'd come in and out 11 and that's when he would be saying it. 12 Question: And the advice he was 13 giving? 14 Answer: Offhanded advice, yes, write 15 for Windows, don't get left behind. 16 Question: And you heard him say this? 17 Answer: Yes. 18 These statements by Mr. Gates are 19 offered to put -- because they show what 20 information was available to Mr. Peterson 21 regarding statements Microsoft made about 22 developing for Windows. 23 Now, the section that's now at issue 24 begins at page 152, line 13. 25 Here Mr. Peterson is presented with 4524 1 Exhibit 14 in the deposition. And on line 13 2 of the deposition, the examiner asked, I've 3 marked as Exhibit 14 an article that is dated 4 February 27th, 1989. The article is entitled 5 Microsoft details, broad applications, OS 6 strategy. It's a PC Week article. 7 Now, Exhibit 14 in the deposition is 8 the same document as Defendant's Exhibit 381 as 9 to which this Court has already ruled that it 10 may be used in the opening statement for the 11 limited nonhearsay use of reaction to notice 12 of, or knowledge of the existence of the 13 exhibit. 14 So the first question asked of 15 Mr. Peterson was whether this -- whether PC 16 Week as a publication was widely read in the 17 computer industry. 18 And Mr. Peterson answers yes. 19 Then the question was: Did you, 20 Mr. Peterson, read this magazine on a weekly 21 basis, I mean, on a regular basis? 22 The answer was yes. 23 Then the examiner -- so the foundation 24 the examiner has already laid in these two 25 questions is that PC Week is widely read and 4525 1 that Mr. Peterson regularly reads it. 2 Then the examiner points to a 3 particular language in the article. The 4 examiner on page 153 quotes this part of the 5 article. 6 Our direction is, within the next 18 7 months, to have a whole family of applications 8 under Macintosh, OS/2, and Windows said 9 Microsoft chairman Williams Gates. Anybody 10 who's not doing what we're doing is crazy. 11 The question was: Is that information 12 that you likely would have been aware of in 13 February 1989? 14 The answer was yes. 15 And that's consistent with what I 16 heard when he'd talk -- when he'd talk to me. 17 So, in that answer, he's referring 18 back to the prior testimony about the things 19 Mr. Gates said specifically to Mr. Peterson. 20 And that's the section that Microsoft 21 seeks to play in its opening statement, the 22 section being that part of the testimony where 23 the foundation is laid that it was widely read, 24 that he read this publication on a regular 25 basis, and that this information was 4526 1 information about which he would likely have 2 been aware in February 1989 when the article 3 was published. 4 That's offering this for a classic 5 nonhearsay purpose. 6 Now, the nonhearsay purpose for which 7 this is being offered is to show that this 8 information was -- the information being this 9 article reporting this statement by 10 Mr. Gates -- was available in the market and 11 including to Mr. Peterson, and that it can be 12 reasonably inferred from the fact that this was 13 widely read -- that he read this on a regular 14 basis, and he said he likely would have been 15 aware of it, it can reasonably be inferred from 16 those facts in his testimony that he was aware 17 of this article. 18 And that is -- Microsoft is offering 19 this to show the fact that he was aware of this 20 report of a statement by Mr. Gates. 21 Now, the statement by Mr. Gates is not 22 being offered for its truth. 23 For example, the first part of the 24 statement is our direction is within the next 25 18 months to have a whole family of 4527 1 applications under Macintosh, OS/2, and 2 Windows. 3 Now, the Plaintiffs' head fake theory 4 is that Microsoft told developers to write for 5 OS/2 while secretly it was working on Windows. 6 So one of the facts that Plaintiffs 7 seek to prove in this case is that, in fact, 8 Microsoft was working on Windows and that it 9 was doing so secretly. 10 The statement that's attributed to 11 Mr. Gates here is that Microsoft was working on 12 Windows. That's what the Plaintiffs want to 13 prove. 14 Microsoft agrees that it was working 15 on Windows. The question is whether there was 16 some form of deception. This information, 17 because it was published to the market, is 18 relevant to whether there was a deception. 19 In other words, if Mr. Peterson, who 20 was the executive at WordPerfect, responsible 21 for marketing at the company -- Mr. Peterson 22 was an executive vice president of WordPerfect. 23 Mr. Peterson was one of three members 24 of the WordPerfect board of directors. 25 Mr. Peterson was a very high-level executive at 4528 1 WordPerfect testifying about what WordPerfect 2 -- what information WordPerfect received or 3 didn't receive. 4 The question is whether in light of 5 receiving this information is the deception the 6 Plaintiffs allege plausible. 7 For example, upon receiving this 8 report, should Mr. Peterson have picked up the 9 phone and called Mr. Gates, what do you mean 10 it's crazy to develop for Windows? Haven't you 11 been telling me to write for OS/2? 12 The question whether in light of this 13 report of information, which this evidence 14 provides a reasonable basis to believe 15 Mr. Peterson received, was his so-called 16 reliance on other statements Plaintiffs may 17 bring up from the press in not developing for 18 Windows justifiable. That is an element of any 19 deception claim. 20 So the issue is whether Mr. Peterson 21 had access and likely saw this information in 22 1989. That is the foundation. 23 We already have for the admissibility 24 of this exhibit -- I'm sorry, for the ability 25 of Microsoft to use this exhibit in its 4529 1 opening, which you have already approved. 2 And now the question is whether 3 Microsoft can offer part of the foundation for 4 the admissibility of that exhibit, which is 5 this testimony about what Mr. Peterson likely 6 saw in 1989. 7 Now, Plaintiffs would like to put 8 Microsoft to an impossible test. The 9 Plaintiffs have decided to assert claims 10 involving conduct of Microsoft in 1988, which 11 is 18 years ago. 12 I have no ability to recall what I 13 read 18 years ago. I read a lot of magazines. 14 I subscribe to magazines, but to ask a witness 15 18 years -- in this case, the deposition was in 16 2002. 17 To ask a witness 14 years after an 18 article was published whether that witness read 19 that particular article and for the law to be 20 that it could only be admitted as information 21 available to the person and to the market would 22 make it impossible to show notice when it 23 involves publications such as this, which is 24 why in Fanning versus Mapco, which was argued 25 extensively to you before, the issue was 4530 1 whether it was widely read in the relevant 2 community. 3 Mr. Peterson is part of the relevant 4 ISV community. He testified it was widely 5 read, and that he read it on a regular basis. 6 And this is likely information about which he 7 would be aware. 8 So this is a classic nonhearsay use of 9 evidence. 10 The examination in the deposition 11 proceeded on a nonhearsay basis. This is 12 information that was reported. This is 13 information about which he would have been 14 aware. Laying the proper foundation. 15 It is not being offered for the truth 16 of two things. It's not being offered for the 17 truth that this was actually a correct quote of 18 a statement by Mr. Gates. It's not being 19 offered for the truth of statements that are 20 attributed to Mr. Gates. 21 It's being offered to show that this 22 is information available to Mr. Peterson, which 23 is relevant to whether he could somehow 24 justifiably rely, without taking any other 25 action on other information that he may have 4531 1 received regarding developing applications for 2 OS/2 versus Windows. 3 Now, as for ultimate admissibility, 4 there's other evidence that will be presented 5 at trial regarding, for example, the readership 6 of PC Week and who would have the information 7 identified in this article. 8 There is -- Mr. Gates will be 9 testifying, and may testify about what he told 10 or what he likely told reporters during this 11 time period. 12 There's all sorts of additional 13 foundation that can affect the admissibility of 14 this testimony and of the exhibit that 15 underlies it. 16 The question for the opening is 17 whether Microsoft has a good faith basis to 18 believe that this can be admitted and so can 19 tell the jury that this is what the evidence 20 will show. 21 Based on the examination and the 22 foundation laid in this examination, that 23 reasonable good faith belief exists. And 24 Microsoft respectfully requests that it be 25 permitted to show this in its opening as what 4532 1 it expects the evidence will show. 2 Mr. Cashman's final argument is on the 3 Gacke case. And he offered an argument that 4 would have, of course, practically eliminate 5 the hearsay -- the nonhearsay use for notice. 6 In Gacke, the question was whether a 7 standard of care was triggered when the 8 recipient received certain information. 9 When the recipient in that case 10 received information which was generated in a 11 very unreliable way, in the context of 12 litigation, that there were some odors, did 13 that trigger an obligation, a legal obligation 14 for the defendant to take steps to abate a 15 nuisance. 16 To offer those statements in such a 17 way as to trigger that legal obligation, that 18 standard of care under the law, there would 19 have to have actually been a nuisance. If 20 there's no nuisance, there's no legal 21 obligation. 22 And in that context, the Gacke court 23 said these statements are actually being 24 offered for their truth because they're trying 25 to use them to trigger an obligation to abate a 4533 1 nuisance. 2 This situation is completely 3 different. And this situation, the testimony 4 by Peterson is actually a classic nonhearsay 5 use, which it doesn't matter if Mr. Gates was 6 accurately quoted. It doesn't matter if his 7 statements are accurately true. 8 What matters is it was a statement 9 that was not only available to Mr. Peterson, 10 but one which he likely read. 11 And based on that foundation, it is 12 admissible as a nonhearsay use. 13 And for the purposes of this argument, 14 it is evidence that Microsoft ought to be 15 entitled to show the jury what evidence we 16 expect will be admissible at trial. 17 Microsoft, for those reasons, 18 respectfully requests that under Fanning versus 19 Mapco and the McElroy case, that this testimony 20 be admitted for -- that Microsoft be permitted 21 to use this in its opening for a nonhearsay 22 purpose. 23 THE COURT: Mr. Cashman, can you sum 24 up in a few minutes? 25 MR. CASHMAN: Well, it may take a 4534 1 little bit longer than that, Your Honor. 2 I suppose we can pick up at lunch 3 because I think there's some comments that I 4 would like to address. 5 THE COURT: Well, I'm going to go 6 ahead and rule. It's not admissible. It 7 doesn't show any effect on the listener. 8 Denied. 9 MR. CASHMAN: Thank you, Your Honor. 10 MR. GRALEWSKI: Your Honor, do we have 11 five or ten minutes on Sculley? 12 THE COURT: No. 13 MR. WILLIAMS: Your Honor, before the 14 jury comes in, there are a few matters I'd like 15 to address. 16 THE COURT: No. 8:30 we are starting. 17 We are not going to keep the jury waiting. 18 (The following record was made in the 19 presence of the jury at 8:31 a.m.) 20 THE CLERK: All rise. 21 THE COURT: You may proceed, sir. 22 MR. TULCHIN: Thank you, Your Honor. 23 Ladies and gentlemen, good morning. 24 We were talking yesterday at the end 25 of the day about competition in the operating 4535 1 system market and specifically about 2 competition between Microsoft and Digital 3 Research, which is sometimes referred to, as 4 you know, as DRI. 5 And at the end of the day yesterday, 6 just at 2:30, I was coming to the point of 7 telling you that there will be evidence at the 8 trial about contracts, licenses that Digital 9 Research itself used in the operating system 10 market. 11 You will -- 12 MR. HAGSTROM: Objection, Your Honor. 13 MR. TULCHIN: Your Honor ruled 14 yesterday on this, I believe. 15 THE COURT: Overruled. Continue, 16 please. 17 MR. TULCHIN: Thank you, Your Honor. 18 You will remember that the Plaintiffs 19 have made allegations about contracts that 20 Microsoft used. And we will show you evidence 21 at trial from Peter DiCorti, who was the chief 22 financial officer of Digital Research, that at 23 the time Digital Research used a type of 24 contract which was very much like a per 25 processor license that required the OEM, the 4536 1 person getting the license, to distribute 2 DR-DOS with every unit of a particular type of 3 computer. 4 And there will also be evidence from 5 another DRI employee named Robert Gunn, 6 G-u-n-n, that DRI used contracts that were 7 essentially the same as the per processor 8 license agreements that Microsoft used up until 9 -- Microsoft used them up until July of 1994. 10 So there was competition in the 11 marketplace using these types of contracts. 12 And we believe -- and I will come to this later 13 today -- that Microsoft prevailed in the 14 competition against DRI on the merits because 15 people wanted the Microsoft operating systems, 16 MS-DOS and Windows. 17 And we also need to spend some time, 18 which I'm going to do right now, talking about 19 competition between Microsoft and DRI. 20 The Plaintiffs allege that Microsoft 21 acted wrongfully when it portrayed DR-DOS as 22 having bugs and technical problems. 23 And I spoke yesterday about FUD and 24 what it meant at Microsoft -- and Plaintiffs in 25 their opening on December 1st, their very first 4537 1 day, said the same thing that I told you 2 yesterday. Truthful information, that's not 3 FUD. 4 So I think we agree, although our 5 definitions are different, we use FUD to mean 6 comparative statements about products. But 7 there's nothing wrong with telling people the 8 truth about someone else's product. 9 So I'm going to get into right now the 10 question of whether or not there were indeed 11 technical problems with DR-DOS. Very relevant 12 to the Plaintiffs' allegation that Microsoft 13 should not have been telling people that there 14 were. 15 And let's look first at Defendant's 16 Exhibit 230. 17 This is a DRI document from 1988. 18 It's handwritten, but I think we'll be able to 19 make it out. 20 It's Richard Dixon of DR-DOS writing a 21 note to Dick Williams, who was one of the 22 senior executives at DRI, about an OEM named 23 Essex, E-s-x -- sorry, E-s-s-e-x. 24 And as you can see, what Mr. Dixon 25 reports is that they, referring to this OEM, 4538 1 will not proceed with DR-DOS agreement and 2 payment due of $57,500 until tech issues, 3 referring to technical issues, with DR-DOS and 4 responsiveness of DRI to their request are 5 answered promptly. 6 We're going to come to the question of 7 how responsive DRI was. 8 But there's a clear reference to the 9 fact that this OEM is not entering into a 10 contract or paying money to DRI because of tech 11 issues. 12 And let's look at another piece of 13 this handwritten memorandum by Mr. Dixon. 14 They claim no acceptance in market for 15 DR-DOS -- and I believe the word due is left 16 out here -- due to too many tech problems. 17 They, Essex, this OEM that DRI wanted 18 as a customer, claim no acceptance in market 19 for DR-DOS due to too many tech problems. 20 This is what Microsoft was telling 21 others as well; that there were technical 22 problems with the DR-DOS product. 23 And you'll remember that the 24 Plaintiffs said that the real competition 25 between Microsoft and DRI began in around May 4539 1 1990. That's when DR-DOS 5.0 came out. 2 Around the same time, of course, that 3 MS -- sorry -- Windows 3.0 came out. But the 4 Plaintiffs say the real competition begins when 5 DR-DOS 5.0 comes out in May '90. 6 I guess implying that the competition 7 before then was somewhat less than real. 8 But let's see what DRI itself thinks 9 of DR-DOS 5.0. 10 This is from June 1980. It's 11 Defendant's Exhibit 80. 12 So this is just the next month after 13 this product comes out. 14 And John Constant, who Plaintiffs say 15 will be a witness here, he was then the product 16 development manager at DRI. 17 And you will see in this document that 18 Mike Shelton writes a memorandum to 19 Mr. Constant and two other people at Digital 20 Research. And we've blown up the whole first 21 page of this document because I think it's 22 worth your attention for a minute or two. 23 A month after DR-DOS first ships, 24 here's Mr. Shelton reporting to Mr. Constant. 25 Just a quick note to document my concern at the 4540 1 release of DR-DOS 5.0 at this time on two 2 counts. 3 Now, he then reports on the number of 4 outstanding category 3 and category 2 SPRs. 5 The evidence will be that SPR stands for 6 software problem reports. 7 The evidence will also be that the 8 category 3 problems are the most severe. 9 They're so severe in DRI's lexicon that 10 customers will have either their data corrupted 11 or lost. 12 And there are 56 outstanding category 13 3 problems with what the Plaintiffs say was 14 this great 5.0 product. 15 And 61 of the slightly less severe 16 category 2 problems. 17 And then Mr. Shelton goes on to report 18 to Mr. Constant in the paragraph beginning with 19 the Number 2. 20 He says, the number of major software 21 products that are known to have 22 incompatibilities with DR-DOS 5.0 -- and he 23 lists there around 10 what he described as 24 major software products, major applications 25 that have incompatibilities with this operating 4541 1 system, one of which is worth noting, 2 WordPerfect. 3 So if a customer had MS-DOS 5.0 and 4 wanted to run the WordPerfect word processing 5 program with that operating system, there would 6 be incompatibilities. It would not work. 7 And then Mr. Shelton goes on to say, 8 although I fully appreciate the effort that has 9 gone in to fix other issues and the pressure to 10 release the product on time, I feel these 11 issues seriously undermine the stability of the 12 product. 13 We do not need many journalists to 14 find these problems before we get tarred with a 15 DOS 4.0 brush. 16 So when Microsoft was telling people 17 about technical problems, we can see here that 18 DRI itself found the same problems internally. 19 Of course, they didn't want the 20 journalists to find out, but these 21 incompatibilities between their operating 22 system and major applications were known and, 23 of course, were going to be discovered by 24 people in the market. 25 And then let's look at the next DR-DOS 4542 1 product. It's DR-DOS 6.0. That was released 2 in September 1991. 3 And we have testimony from Anthony 4 Ingenoso, who was an IBM employee, and who 5 tested operating systems to make sure that they 6 worked correctly. 7 Here is Mr. Ingenoso telling us, 8 testifying at deposition, about what he found 9 when he looked at the DR-DOS 6.0 product. 10 (Whereupon, the following video was 11 played to the jury.) 12 Question: Have you ever used the term 13 roach motel to describe DR-DOS 6? 14 Answer: Yes. 15 Question: What did you mean by that? 16 Answer: Roach motels are normally 17 full of bugs. 18 Question: And DR-DOS 6? 19 Answer: It had a number of bugs. It 20 had more bugs than, I think, we shipped in the 21 IBM and Microsoft product. 22 Question: So, overall, what was your 23 opinion of the DR-DOS 6 product after you had 24 tested it? 25 Answer: It needed work. 4543 1 Question: How much work? 2 Answer: To achieve a level of quality 3 and completeness, I felt it needed more than a 4 year's worth of work, probably 18 months worth 5 of concerted effort to put the missing pieces 6 in place. 7 (Whereupon, playing of video 8 concluded.) 9 MR. TULCHIN: So there we are, an IBM 10 employee who looked at DR-DOS 6.0, and you 11 heard it, he called that product a roach motel. 12 So when Microsoft was in the market 13 spreading truthful information that DR-DOS 14 operating systems had bugs, we contend there's 15 nothing wrong with that. I think the 16 Plaintiffs agree. 17 And let's look at DX 1046. 18 This pertains to DR-DOS 7.0, the next 19 product it came out with in the operating 20 system field. This was released, DR-DOS 7.0, 21 in January of 1994. 22 Now, by this time -- there are a lot 23 of dates and facts that you won't be able to 24 all remember, but by this time, as the 25 Plaintiffs told you, DRI was owned by Novell, 4544 1 and DR-DOS 7.0 was actually now called Novell 2 DOS 7. Novell took over. 3 And here's a document written by a 4 Novell employee, someone at Word -- I'm sorry. 5 That was my error. 6 Shawn Lynn wrote this document. He 7 then worked at WordPerfect, which was just 8 about to be purchased by Novell as well. 9 Novell bought DRI. 10 Now we're talking about 1994, and they 11 are about to buy WordPerfect. And Shawn Lynn, 12 a technician at WordPerfect, writes an analysis 13 of Novell DOS 7, and he calls it -- I don't 14 know if you can see the title at the very 15 top -- waltzing through the minefield. 16 Right at the top almost of his memo, 17 Mr. Lynn starts off by saying, so, what we've 18 got here is a product that is less of an 19 operating system than it is a minefield, and a 20 new dancing partner that we can't afford to 21 offend. 22 Dancing partner because WordPerfect 23 and DRI are about to become part of Novell 24 together. 25 So, what do we do? We waltz through 4545 1 the minefield. We waltz very carefully, but we 2 waltz through the minefield. 3 And then here's a little bit more of 4 what Mr. Lynn says at the bottom of page 1 of 5 Defendant's Exhibit 1046. 6 I'm not overstating it when I say that 7 the installation and setup programs for Novell 8 DOS 7 are, quite simply, the worst that I have 9 ever encountered. 10 So, when thinking about competition in 11 the operating system market between Microsoft 12 and DRI and the allegations that Microsoft did 13 something wrong in that competition, I think 14 it's important to remember what DRI itself, 15 what Mr. Ingenoso of IBM, what WordPerfect's 16 person, Shawn Lynn, they are about to become a 17 family at Novell, said about these successions 18 of DRI products. 19 All right. Let's turn to what the 20 Plaintiffs called vaporware. 21 And I want to point out here that, 22 again, we believe -- and I think the way the 23 Plaintiffs said it, they agree -- that there's 24 nothing wrong with announcing that a product is 25 coming out, making a preannouncement. 4546 1 Saying, for example, in May we expect 2 to announce to have on the market a product in 3 December. Nothing wrong with that. And 4 nothing wrong with missing the date. 5 Software can be complicated. There 6 are changes that come about. And if you miss 7 the date that you've predicted for good 8 business reasons, because you've had problems, 9 in fact, getting the product out on time, 10 nothing wrong with that. 11 The allegation here is that Microsoft 12 misled people because Microsoft itself knew 13 that it couldn't meet the dates that it 14 predicted the product would be out. 15 And the main part, the main part of 16 the story, which I want to come to in just a 17 moment, that the Plaintiffs told pertained to 18 MS-DOS 5.0 and the testimony of Mark Chestnut. 19 But I showed you yesterday that Lotus 20 1-2-3 for the Mac, Lotus announced in October 21 '87 that the product would be out in '88. And 22 it wasn't released until the very end of '91, 23 more than three years after Lotus predicted it 24 would be out. 25 Now, we don't contend that Lotus 4547 1 misled anyone. This is what can happen when 2 you make these announcements with software. 3 And, in fact, Novell DOS 7.0, which we 4 just talked about, Novell announced in March 5 '93 that the product would be available this 6 summer. In fact, it wasn't. It was delayed by 7 almost six months, and it came out in December 8 of '93. 9 WordPerfect announced in 1990, in 10 June, that it would have a new product out by 11 January of '91. 12 And Mr. Peterson of WordPerfect will 13 testify by deposition that the announcement 14 that the product would be out next January was, 15 quote, the most optimistic date I could give 16 them and still not be a total liar, unquote. 17 I think what Mr. Peterson is saying, 18 quite plainly, is that WordPerfect made an 19 announcement using the most optimistic date 20 they could give them and not be a total liar. 21 Instead of January '91, the product 22 came out in November 1991. 23 So with that context, I want to turn 24 to the testimony of Mark Chestnut. 25 The Plaintiffs showed you a piece or 4548 1 two of what Mr. Chestnut said. I want to fill 2 in the story, if I may, and just to go back and 3 give you the context. 4 Mr. Chestnut was the DOS product 5 manager. And in 1989 -- he was the product 6 manager in '89. And Microsoft announced that 7 MS-DOS 5.0 announced in 1990 that MS-DOS 5.0 8 would be available and released to the market 9 in August or September. 10 Now, let's look at the first piece of 11 this testimony from Mr. Chestnut. 12 (Whereupon, the following video was 13 played to the jury.) 14 Question: Did you tell them when it 15 would be available for shipment? 16 Answer: Our plan at that point in 17 time was to have it shipping in -- I believe it 18 was September time frame. 19 Question: September 1990? 20 Answer: Yes. 21 Question: And this is May 1990? 22 Answer: Yes. 23 (Whereupon, playing of video 24 concluded.) 25 MR. TULCHIN: Okay. So our plan in 4549 1 May '90, when the announcement was made, was to 2 have the product released in September. 3 And the question for you, we submit, 4 will be whether or not Microsoft believed when 5 it made that announcement that MS-DOS 5.0 was 6 going to be available in September. 7 And let's look at the next piece of 8 testimony from Mr. Chestnut. 9 (Whereupon, the following video was 10 played to the jury.) 11 Question: And even though features 12 were going to be added after May 1990 in 13 response to DR-DOS 5.0, is it still your 14 testimony that you believed Microsoft was going 15 to be able to do a short beta test and have 16 this product out by September 1990? 17 Answer: We believed that, yes. 18 (Whereupon, playing of video 19 concluded.) 20 MR. TULCHIN: Well, there's 21 Mr. Chestnut quite unequivocally saying that 22 when they made the announcement, they believed 23 they would make that September date. 24 Now, in fact, Microsoft did not make 25 the September date. MS-DOS 5.0 was not shipped 4550 1 when Microsoft first predicted it would be. 2 And you may remember from the 3 Plaintiffs' presentation in their opening on 4 this point that after the announcement was 5 made, a man named Brad Silverberg at Microsoft 6 took over as the person in charge of MS-DOS 7 5.0. 8 And the evidence will be that when 9 Mr. Silverberg took that responsibility, he 10 decided to make changes in the product that 11 caused a delay in the actual release of MS-DOS 12 5.0. 13 But the evidence will be at this trial 14 that Microsoft's announcement in that case was 15 based on its good faith belief about when the 16 product would ship. 17 The product didn't ship with MS-DOS 18 5.0 when Microsoft predicted, but not because 19 of any attempt to mislead anyone. 20 And the vaporware allegation, I think 21 both sides agree, is dependent upon proof that 22 Microsoft deliberately misled the market. 23 All right. I'm still talking about 24 the operating system market and competition in 25 that market. And I want to pause and talk 4551 1 about intellectual property, something the 2 Plaintiffs spoke of as well. 3 And you'll remember that the 4 Plaintiffs said on December 7, intellectual 5 property is just like any other kind of 6 property. 7 And we agree with that. We agree that 8 you shouldn't have to give away your property 9 to competitors. Certainly, you shouldn't have 10 to do it for nothing. And, certainly, you 11 shouldn't have to give away your property so 12 that competitors can compete better against 13 you. 14 Now, intellectual property includes 15 things like trade secrets, copyrighted source 16 code. And many of you may be aware that an 17 author writing a book is entitled to a 18 copyright. 19 You get a copyright, which means that 20 no one else can take the words in your book and 21 go sell them. This is your property, your 22 work, written work is yours. It belongs to 23 you. 24 And source code has the same copyright 25 protection. The author, in this case 4552 1 Microsoft, is entitled to a copyright and, 2 indeed, source code was always subject to 3 copyright. 4 Intellectual property also includes 5 patents awarded by the U.S. Patent and 6 Trademark Office. 7 And we'll come to a little bit more 8 about patents and how many patents Microsoft 9 had for its inventions a little bit later. 10 But I want to talk about this in the 11 context of some of the technologies that the 12 Plaintiffs referred to. 13 The Plaintiffs said just as you can't 14 use a piece of physical property like a 15 baseball bat on a car window, that can give 16 rise to liability. The use of IP to bludgeon 17 competitors may also give rise to liability. 18 Now, we ask you to think about what 19 the Plaintiffs are really saying. Are they 20 saying that it's necessary for Microsoft to 21 give away its property so that its competitors 22 can take that so-called baseball bat and pound 23 Microsoft on the head with it? 24 If this property belongs to Microsoft, 25 is it a requirement that it be given to 4553 1 competitors? 2 And let's start with OLE. You 3 remember the Plaintiffs referred to OLE and 4 OCX, and they said -- and let me stop here to 5 remind you. OLE means object linking and 6 embedding. And what it really means is it 7 allows the user to transfer data between 8 different applications using drag and drop 9 operations. 10 And controls and file extensions are 11 called OCX. So this would allow you, for 12 instance, to paste a spreadsheet or a portion 13 of a spreadsheet onto a memorandum 14 automatically by this OLE/OCX technology. 15 Now, who invented this? Although you 16 didn't hear this before, this was invented by 17 Microsoft. Not IBM. Not Lotus. 18 The Plaintiffs did call it, quote, a 19 new advanced technology on December 7th. And 20 that's correct. It was a new advanced 21 technology. 22 And what the Plaintiffs asserted was 23 that in '94 or '95 Microsoft should have made 24 this technology available to Lotus because 25 Lotus -- you remember Mr. Mendelsohn -- asked 4554 1 for it so that Lotus could compete better with 2 Microsoft access. 3 And Sara Williams, who's now named 4 Sara Spaulding, of Microsoft, and 5 Mr. Mendelsohn, had e-mail exchanges back and 6 forth. 7 Mr. Mendelsohn of Lotus in his e-mails 8 tries to use some leverage, and I guess you'd 9 call it wheedling pressure, to get this 10 technology for Microsoft. And Microsoft 11 declined to give it to him, and that's the 12 testimony you'll hear from Sara Spaulding. 13 It's important to keep in mind the 14 evidence in this case that OLE and OCX were 15 Microsoft's intellectual property. 16 And the idea that there's some 17 requirement that you give it away so your 18 competitor -- in this case Lotus -- competing 19 in the spreadsheet business, can use it to 20 compete against you is an idea that I don't 21 think makes any sense. 22 Define handle table. This is an API 23 that Microsoft created that would allow a user 24 to go beyond what was then the 640K memory 25 limit. 4555 1 Excel, Microsoft's product, was using 2 the define handle table API. 3 Other companies wanted it. Lotus 4 wanted it so that they could use it for their 5 own 1-2-3 spreadsheet. 6 And, of course, it's the same story. 7 Microsoft did not give it away for nothing to 8 Lotus. Microsoft owned that property. 9 And then there was the CPT hook. And 10 the arguments that the Plaintiffs made -- CPT 11 stands for computer-based training. 12 It basically allows one application to 13 manipulate keyboard or mouse activity in 14 another application. 15 Again, this was created, invented by 16 Microsoft and used by Microsoft in its 17 applications such as Word. 18 The Plaintiffs say in 1988 Microsoft 19 should have made this publicly available, given 20 it away for nothing by documenting an API so 21 that WordPerfect could compete better against 22 Microsoft Word in that market. 23 Well, Coke didn't give away its 24 formula to RC Cola, some smaller competitor. 25 And Coca-Cola doesn't give away advantages that 4556 1 it has. 2 For example, a big company like 3 Coca-Cola can get the most preferred shelf 4 space in a supermarket or in a drugstore, let's 5 say Walgreens. 6 RC Cola or some small competitor may 7 get relegated to a less ideal spot on the 8 shelf, maybe the bottom shelf, which is less 9 visible. Your eye doesn't go there 10 automatically. You'd have to reach all the way 11 down. 12 And it's true that companies in those 13 businesses compete to get shelf space, the best 14 shelf space, from retailers. 15 Coca-Cola is entitled to do that. 16 They're entitled to compete on that basis. 17 There's no reason that everyone has to be 18 equal. That's not competition. 19 And let's talk about DPMI again for a 20 moment. I touched on it yesterday. 21 I told you that it was invented by a 22 young man named David Weiss in the summer of 23 1988. He was a recent college graduate. He 24 had started at Microsoft shortly before then. 25 And he figured out how to make Windows 4557 1 invoke the so-called protective mode of an 2 Intel microprocessor. 3 Windows 3.0, when it came out in May 4 1990, used protected mode. It did this by 5 incorporating a technology known as a DOS 6 extender. 7 And I'm sorry. We get a little 8 complicated here, but the story here, what this 9 case is all about is not complicated. It's 10 about causation and prices, whether there was 11 any overcharge. 12 But occasionally we have to go down 13 the road that the Plaintiffs went in order to 14 provide what we think is some balance and to 15 tell you what we think the evidence actually 16 will show about a particular subject matter. 17 So here's DPMI. And in late '89, as 18 Microsoft was still working on Windows 3.0, 19 Microsoft learned that a DOS extender that 20 Lotus was using called VCPI was not compatible 21 with Windows. 22 And Ralph Lipe, I mentioned here 23 yesterday -- he had many patents awarded to him 24 when working at Microsoft -- solved this 25 compatibility program by coming up with the DOS 4558 1 protected mode interface, DPMI. 2 This all stemmed from Mr. Weiss' 3 invention, and Mr. Lipe saw the compatibility 4 program which enabled Lotus to fix the problem 5 between 1-2-3 and Windows. 6 Now, Defendant's Exhibit 661 is what 7 Lotus said about DPMI itself at the time in 8 1989. 9 And I'm sorry. We don't have a slide 10 on this, but you'll see this evidence, Exhibit 11 661. 12 And Lotus says this: Before we go 13 charging off with our VCPI banners raised on 14 high, we should understand the technical 15 realities. The protected mode interface 16 proposed by Microsoft is superior to VCPI. 17 Again, Microsoft's technical 18 abilities, its inventions, the software it 19 created was superior. 20 And the idea that Microsoft was 21 required to share that superior technology with 22 other companies, we think, is wrong. Those 23 inventions can be kept at Microsoft. They are 24 Microsoft property. 25 And I want to pause here and tell you 4559 1 one more thing about DPMI, which is important. 2 There were allegations made by the 3 Plaintiffs that Microsoft failed to give IBM 4 DPMI, the DOS protected mode interfaces. 5 There was lots of time spent on this 6 last Wednesday, a week ago, by the Plaintiffs. 7 They pointed to an exhibit called PX 8 3448. And you'll remember that was an e-mail 9 in March of '91 from Steve Ballmer at Microsoft 10 that said take out the DPMI functionality and 11 send them 3.1 sources in a month. We only owe 12 them source once a month. 13 Now, what Plaintiffs did not tell you 14 about what happened with DPMI right at that 15 time. Mr. Ballmer's e-mail is March 3rd, '91, 16 was that IBM, in fact, got the full source 17 code, including DPMI, on March 15th, 12 days 18 later, despite what Mr. Ballmer said in his 19 e-mail. 20 Here's a March 26th e-mail from Andrew 21 Hill of Microsoft. It's Defendant's Exhibit 22 898. 23 And what Mr. Hill reports is as 24 follows. Let's see if we can bring this out. 25 The DPMI sources were shipped with the 4560 1 3.1 drop we gave you on 3/15. 2 And I should say that Mr. Hill is 3 sending his e-mail to IBM. You can see IBM 4 Boca. IBM had a software facility in Boca 5 Raton, Florida. And Mr. Hill of Microsoft, on 6 March 26th, is telling IBM that they already 7 have DPMI. 8 The DPMI sources were shipped with the 9 3.1 drop we gave you on 3/15, March 15. 10 So when the Plaintiffs made these 11 allegations that we should have given DPMI to 12 IBM in March '91, and they showed you 13 Mr. Ballmer's e-mail where he says we only have 14 to give them code once a month, source code 15 once a month, they didn't quite finish the 16 story. 17 On March 15th -- in fact, IBM as a 18 result -- sorry. 19 Microsoft, as a result of its contract 20 with IBM, did provide this technology to IBM. 21 So let's go back and talk a little bit 22 about undocumented APIs and documented APIs. 23 As I showed you yesterday, with each 24 version of Windows, Microsoft makes available 25 to all applications developers more and more 4561 1 APIs. 2 By the time we got to Windows XP, 3 there were 6,000 that Microsoft opens up and 4 shows to all developers inviting them to use 5 the technology in the operating system to make 6 their product better and to hook up with 7 Windows. 8 And the Plaintiffs allege that 9 Microsoft should have disclosed other APIs that 10 they were undocumented. 11 Although when the Plaintiffs began 12 talking about this subject, again, a week 13 ago -- or maybe this was last Thursday and not 14 exactly a week ago -- they acknowledged that 15 not all APIs should be or can be documented. 16 And the evidence at this trial will be 17 that there are good business reasons not to 18 document all APIs. 19 Doing so actually can eventually break 20 some applications, that the undocumented APIs 21 that the Plaintiffs say Mr. Schulman found way 22 back 15 years ago could be found by software 23 developers. 24 Mr. Schulman did. Others found them 25 too and used them. And that the undocumented 4562 1 APIs explain nothing about Microsoft's success 2 in either the operating system market or the 3 applications market. 4 And, again, let's go back and think 5 about Microsoft's success on the Macintosh 6 where Microsoft does not have access to any 7 so-called undocumented APIs. 8 Professor Murphy, one of Microsoft's 9 experts from the University of Chicago, will 10 touch on this subject. 11 And Microsoft wrote great software to 12 the Mac that was highly successful and that 13 has, as you saw yesterday, a great market 14 share -- in some cases 90 percent or above -- 15 just as it did to Windows, without any 16 so-called advantage. 17 Now, let's talk for a moment about the 18 Chinese wall. 19 The Plaintiffs say there was something 20 wrong with what Microsoft did. That the two 21 sides of Microsoft, the operation -- sorry, 22 operating systems side and the applications 23 side, should not be talking to or cooperating 24 with each other. 25 And there's no rule that a company has 4563 1 to have that kind of a wall internally. In 2 fact, if the operating system people and the 3 applications people have lunch together, talk 4 together, work together to make their products 5 better, we contend there's nothing at all wrong 6 with doing that. 7 No obligation to go out and help a 8 competitor who might not have an integrated 9 company. Let's take Lotus. Lotus made 10 spreadsheets. Lotus did not make an operating 11 system at the time. We're going back, let's 12 say, to around 1990. 13 Lotus had a spreadsheet. 14 If Microsoft had an advantage because 15 it had both Windows and Excel and it could use 16 its people to make both those products run 17 better together, well, that's just a normal 18 business advantage. It's called competition. 19 And if Lotus is disadvantaged by that, 20 Lotus has every right to come up with its own 21 operating system. 22 And Mr. Peterson of WordPerfect, 23 again, the executive vice president in charge 24 of the WordPerfect product, will testify that 25 when he was asked about the Chinese wall at 4564 1 deposition, he said no one actually believed 2 that there was a Chinese wall at Microsoft. 3 What he testified to was that he 4 understood that, in the industry, Microsoft 5 would have people internally working together 6 from both sides. 7 So will a man named Paul Brainerd, who 8 was the CEO of a company called Aldus, 9 A-l-d-u-s. 10 Aldus made an application called page 11 maker. It also made other desktop publishing 12 software. 13 And he, too, will testify he wasn't 14 misled by any statement about some separation 15 between church and state or Chinese wall. 16 He didn't believe there was any such 17 thing at Microsoft. He expected that the two 18 sides of the company were working together. 19 And, indeed, we think the evidence 20 will very strongly support your conclusion that 21 that was so, and that was proper. 22 So, I want to go back now and talk a 23 little bit more about Digital Research. 24 And we touched on some of the 25 Plaintiffs' allegations about the competition 4565 1 between Microsoft and Digital Research. But 2 there's much more to say. 3 The Plaintiffs spent, I would think, 4 more time on this subject than on any other 5 subject. 6 And I want to start by reminding you, 7 as you heard me say earlier, that according to 8 the Plaintiffs, it was in May of 1990 when the 9 real competition between the two companies 10 begins. 11 And I also want to remind you of 12 something that Professor Noll, the Plaintiffs' 13 expert, has testified to in another lawsuit. 14 Sorry. I should have stopped and 15 showed you this. This is the Plaintiffs' 16 statement about the real competition, and 17 here's Professor Noll saying that Windows 3.0 18 was a revolutionary technological leap. 19 Now, there's one other point that 20 Professor Noll has testified to that I think is 21 important in understanding what was going on in 22 1990 and what the market looked like. 23 I told you in some detail about the 24 beginnings of Microsoft, going back all the way 25 into the '70s, and the good fortune -- or maybe 4566 1 good business skill that Mr. Gates had in 1980 2 when he landed that first contract with IBM. 3 By 1986 or '87, according to 4 Plaintiffs' expert, and he testified that he 5 didn't look back any earlier than that, he 6 started his analysis in '86 or '87. 7 By that time, according to Professor 8 Noll, Microsoft already had monopoly power in 9 the operating system market. 10 Microsoft had a large market share 11 with MS-DOS. 12 And the question put to Doctor Noll 13 was whether he had any claim -- he was making 14 any claim in this other case, that Microsoft 15 obtained that monopoly power, the power it had 16 by 1987, by virtue of anything anticompetitive. 17 And he responded that he was not 18 making that claim. 19 And here's the next question and 20 answer. 21 Question: So in 1986 and 1987, 22 assuming that Microsoft had that monopoly 23 power, it had a monopoly that was, as far as 24 you're concerned, completely lawful? 25 Answer: To the best of my knowledge, 4567 1 I have no reason to doubt that. 2 Now, I'm taking a minute or two on 3 this subject because I think it's important to 4 set the context for what competition was like 5 at the time. 6 You'll remember -- and we've covered 7 this before. I won't spend a lot of time on it 8 now. You'll remember the Court's instructions 9 to you that having a monopoly, acquiring 10 monopoly power, is not in and of itself 11 unlawful. 12 If you get a monopoly by virtue of 13 better products, lower prices, good business 14 decisions, even luck, there's nothing unlawful 15 about that at all. 16 And here is the Plaintiffs' expert 17 acknowledging that by 1986 and '87, Microsoft's 18 monopoly in operating systems, what he called 19 Microsoft's monopoly power, was completely 20 lawful. 21 He says, I have no reason to doubt 22 that. 23 So when we go through some of these 24 allegations about the competition between 25 Microsoft and DR-DOS, remember, according to 4568 1 the Plaintiffs' own expert, Microsoft lawfully 2 was entitled to its market position by '86 or 3 '87. 4 And this fact is also going to be 5 important in thinking about causation. 6 Did any anticompetitive acts against 7 DR-DOS, if there were any, did any 8 anticompetitive acts cause the market to be so 9 different from what it was that the Plaintiffs' 10 experts have any justification in coming up 11 with models that predict in this but-for world 12 a state of competition where there are four or 13 five companies with low market shares competing 14 against each other. 15 Remember, Microsoft's operating system 16 monopoly was held lawfully. 17 So, let me get to some of the specific 18 allegations. 19 They spent a lot of time on this. It 20 will take a little bit of time for me to 21 respond. 22 But the Plaintiffs did say -- they 23 predicted what I would tell you about this 24 state of competition. And here I think they 25 predicted it pretty well. 4569 1 One of the things they said Microsoft 2 would say was that DR-DOS was history in any 3 event. And they told you that we would talk 4 about Jody Clifton and the kind of business 5 that DRI was running at the time -- and I'm 6 talking about responding to customers. 7 Pretty basic thing for any business. 8 If customers call and have a problem and you 9 don't respond to them, well, I think it's fair 10 to say, and the evidence will show, that 11 customers go away. They find someone who does 12 respond. 13 And I'm going to show you some 14 documents that deal with this critical time, 15 according to Plaintiffs, starting May 7th, 1991 16 -- this is slide -- sorry, Exhibit 196. 17 And here is a memorandum, May 7th, 18 1991, at DRI. And you'll see it's to 19 Mr. VanDaele, I think his name is pronounced. 20 A copy goes to DiCorti, whose name I 21 mentioned; Dick Williams, who was in charge of 22 this. 23 And it says status of GPOS technical 24 support. 25 Let's see what was going on at DRI at 4570 1 the time. 2 Other factors to consider -- this is 3 on the first page, second paragraph of the text 4 -- are the abandoned call rate, which is people 5 who get tired of waiting for technical support 6 or customer service and simply hang up. The 7 following are statistics for March and April. 8 Again, it's 1991. 9 Customer service, technical support -- 10 and you'll see there are thousands of people 11 calling. They've got a problem. They want to 12 talk to someone at Digital Research about their 13 problem. 14 And thousands of people -- this is 15 what DRI reports internally itself. Thousands 16 of people each month get tired of waiting and 17 simply hang up. 18 So let's look at the next one, 19 Defendant's Exhibit 2565. This is from 20 November of that same year. 21 And this is a memorandum from Jody 22 Clifton, who's name you were given by 23 Plaintiffs. And she writes to some of the same 24 people, Dick Williams, Pete DiCorti, Toby 25 Corey. We'll come back with Mr. Corey a little 4571 1 bit later. Follow-up on technical support 2 overlead problem. 3 And what does Jody Clifton say? 4 Here's what she says. I am getting complaints 5 from customers about have the answering service 6 take messages. I get anywhere from three to 7 five a day in addition to the other irate 8 individuals I already receive. 9 What they are complaining about mainly 10 is not that someone is taking a message, but 11 that they are told that no one will return 12 their call for three to four days. 13 As a result of having this service, we 14 now have 627 messages and no one to call them 15 back. 16 On the next page of this memo, second 17 page, right down at the bottom. This is what 18 Miss Clifton adds. 19 We need to solve this problem as soon 20 as possible. We are losing a large market 21 share and right now we are Microsoft's biggest 22 endorser. 23 Majority of all the irate individuals 24 I speak with say that they are going back to 25 Microsoft because at least they provide 4572 1 support. 2 Now, this is direct competition 3 between DRI and Microsoft. 4 When you're using -- particularly if 5 you cast your mind back to 1991, and to the 6 character-based world that we talked about, 7 that's the world that DRI lives in. 8 Their operating system has no GUI. So 9 you have that black screen and the C prompt and 10 you have to type things in, and things are a 11 little more complicated than now. 12 And talk about competition. What's 13 more basic than responding to your customers? 14 And when Miss Clifton says now we are 15 Microsoft's biggest endorser, what is it that 16 she's telling people at DRI? 17 But let's see whether or not this got 18 much better. 19 January 7th, 1992, just at the turn of 20 the next year. Again, an internal memo at DRI 21 from Dave Valentino to Joe Taglia and the same 22 subject is explored. 23 According to Sue Nageotte, there are 24 approximately 6,500 callbacks in backlog at 25 tech support and they will not be able to call 4573 1 at least 5,000 of those at all. These are end 2 users who are having a problem with DR-DOS. 3 That's why they called. 4 And 5,000 are not going to get a 5 return call at all. 6 So just to summarize, the three 7 documents we just looked at -- and the last one 8 I may not have given you the exhibit number. 9 It was 2582, DX 2582 -- sorry. 10 These three documents, which we 11 summarize here, tell you what was going on 12 internally at DRI in May, in November, and then 13 at the turn of the year in January of 1992. 14 Customers got tired of waiting and 15 hung up. 627 messages and no one to call them 16 back. 6,500 in a backlog in January. End 17 users who are having a problem with DR-DOS and 18 there's no one to return their phone call. No 19 one. 20 So in thinking about competition, one 21 has to ask is Microsoft doing a better job 22 competing against DRI or is DR-DOS failing for 23 some other reason? 24 And then let's look at the question of 25 DRI, again, living in this character-based 4574 1 world. 2 And you remember the Plaintiffs told 3 you that DRI had no GUI, no graphical user 4 interface. And they predicted that we would 5 discuss this with you. And, in fact, they 6 talked about the fact that DRI tried three 7 times to develop a GUI. 8 DRI indeed had three projects. The 9 Plaintiffs mentioned them. One was called Gem, 10 G-e-m; the other Cutlass; and the third was 11 called Star Trek. 12 Three times they tried to develop a 13 GUI. Legitimate competition, Microsoft has 14 Windows, DRI should develop its own GUI. 15 And they tried. But the point that 16 we're about to get to is that it's not just 17 Microsoft saying now that DRI could not succeed 18 in the market without a GUI. DRI knew this as 19 well. 20 And let's look at -- I guess what 21 we're looking at first, my apology, is the 22 testimony of Toby Corey. And before we play 23 this, let me tell you who Toby Corey is. You 24 saw his name a moment ago on one of the 25 memoranda. 4575 1 Toby Corey was vice president of 2 marketing at DRI, and then after the merger he 3 became -- the merger with Novell -- Novell 4 bought DRI -- he kept that job as director of 5 marketing. 6 And the Plaintiffs told you that we 7 would offer evidence to you about DRI's efforts 8 to come up with some GUI that competed with 9 Windows. 10 And, again, one of the three projects 11 was called Cutlass. There was also Star Trek. 12 And there was Gem. 13 Let's look at what Mr. Corey testified 14 to by deposition. 15 (Whereupon, the following video was 16 played to the jury.) 17 Question: Did you think that DRI 18 needed some kind of a graphical user interface 19 strategy in order to be successful? 20 Answer: Yes, I did. 21 Question: Why did you think that? 22 Answer: Well, the marketplace had 23 been -- was beginning to move off of a 24 character DOS operating system. And the lure 25 of graphical user interface making PCs easier 4576 1 to use was compelling. 2 Question: That's simply that it was 3 easier for people to use a mouse and have 4 little pictures of icons on the screen than it 5 was the way things were done under DOS, is that 6 basically what you're saying? 7 Answer: That's correct. 8 Question: Did others at DRI feel the 9 same way, that a graphical user interface 10 strategy was important to the success of DRI? 11 Answer: Yes, I believe that we all 12 shared that point of view. 13 Question: Did you think this would 14 have been an important way to keep the DR-DOS 15 business going? 16 Answer: I felt it was a necessity to 17 keep the DR-DOS business going, to have -- the 18 company needed a graphical user interface 19 product in order to meet the market demand. 20 (Whereupon, playing of video 21 concluded.) 22 MR. TULCHIN: There is the guy who is 23 director of marketing at Digital Research 24 talking about what we're going to show you more 25 of in a moment and what the Plaintiffs 4577 1 predicted we would say. 2 DRI knew at the time that without a 3 GUI, they could not compete with Microsoft. 4 They knew that it was a necessity to use the 5 word that Mr. Corey just used. 6 And, again, you just saw his 7 testimony. And he was asked whether or not 8 others at DRI felt the same way, that a 9 graphical user interface strategy was important 10 to the success of DRI. 11 Answer: Yes, I believe that we all 12 shared that point of view. 13 And in his next answer he said, I felt 14 it was a necessity to keep the DR-DOS business 15 going. 16 And the Plaintiffs also said on 17 Monday, December 4th, that you would see some 18 strong language in DRI's own documents where 19 DRI recognizes -- and I'm using the Plaintiffs' 20 words -- that it was history, that it was 21 history if it wasn't able to develop some GUI, 22 some GUI that could compete with Windows. 23 Let's look at Exhibit 240. 24 This is Defendant's Exhibit 240. It's 25 from someone named Mas Morimoto, who's with DRI 4578 1 in Japan, writing to Dick Williams, again, the 2 boss in August of 1990. 3 Remember, the Plaintiffs said the real 4 competition began in May of '90. Well, this is 5 just a few months later. 6 First, Mr. Morimoto says we have 7 agreed to form a swat team to target a group of 8 major OEMs around the world. If we have 9 executed the plan, although we have not, 10 substantial technical resources are required at 11 EDC. 12 And then he says, we also have not 13 executed on our obligation to ASCII, a customer 14 with respect to Cutlass -- Cutlass is their 15 code name for one of their GUI projects -- even 16 though every one of us involved believe that we 17 must address the issues of Cutlass in order for 18 our long-term survival. 19 Well, let's go to the next month, 20 September of '90. 21 This is Defendant's Exhibit 120. 22 It's another internal memo at Digital 23 Research. And you can see at the very top, 24 it's not real easy to read, Digital Research 25 Japan. 4579 1 And it's from Phillip Balma, 2 B-a-l-m-a, not to be confused with Steve 3 Ballmer of Microsoft. 4 Mr. Balma to Steve Tucker of Digital 5 Research. 6 Subject: DR-DOS 6.0 meeting. They 7 haven't issued DR-DOS 6.0 yet, but they're 8 working on it. 9 And here's what this memo says at DRI. 10 Again, talking about Cutlass. 11 We all feel that this is our only 12 long-term answer. If we don't start addressing 13 this, then forget all the interim stuff; we'll 14 be history. 15 So when the Plaintiffs predicted that 16 we'd say that DRI would be history if it 17 couldn't come up with a GUI, well, DRI said so 18 itself. 19 Let's look at another one, Defendant's 20 Exhibit 106. 21 This is now the next year. No, I beg 22 your pardon. We're still in 1990. It's 23 October. 24 And here's Mr. Balma again. We 25 believe that it is essential for us to develop 4580 1 Cutlass if we are to stay in this business. 2 Defendant's Exhibit 3 -- sorry, 106. 3 And I don't know if I mentioned the 4 last one, which we went by quickly, was 5 Defendant's Exhibit 136. This one is 106. 6 And here is a memorandum in February, 7 proposition for a global graphic strategy. 8 DRI sure is thinking about their 9 future and how they're going to compete with 10 Microsoft which has Windows. 11 You know that Windows 3.0 is this 12 revolutionary technological leap. And DRI in 13 this memorandum says, in the future within four 14 years -- they were right on, Windows '95. 15 Within four years, people will buy a 16 whole product, an operating systems, plus a 17 graphical interface. It will be difficult, not 18 to say impossible, then, to sell only operating 19 systems without offering a global solution. 20 DRI in these four exhibits recognizes 21 the point that I'm making. 22 The point merely being that the 23 evidence in this case will show that in the 24 competition between Microsoft and DR-DOS, 25 between MS-DOS and DR-DOS, between Windows and 4581 1 DR-DOS, Microsoft had an advantage, a perfectly 2 legitimate advantage. 3 It's called coming up with a better 4 product, Windows. A product that everyone 5 wanted, that people from 1990 with Windows 3.0, 6 and in 1995 with Windows 95, very, very much 7 wanted on their computers. 8 That's a legitimate business 9 advantage. That's called competition. 10 And DRI knew it, and they knew that 11 without their GUI -- and all these projects 12 that they tried failed. They never came up 13 with one that they marketed. They never 14 released a GUI commercially. 15 Without that, they were history. 16 Looking at Exhibit 120. 17 So, let's look at the testimony of 18 Toby Corey on this question of the extent to 19 which DRI went to try to develop a GUI. 20 (Whereupon, the following video was 21 played to the jury.) 22 Question: Were there other efforts, 23 either by DRI or by Novell, to figure out ways 24 to come up with a graphical user interface 25 strategy? 4582 1 Answer: Yes, there were. The one 2 that I think had -- drew the most resources and 3 time and efforts was a top secret project 4 called Star Trek. 5 Question: What can you tell us about 6 Star Trek? What was that about? 7 Answer: Star Trek was an initiative 8 to build a competitor to the Windows operating 9 system. It was a partnership between Novell 10 and Apple Computer. This initiative would have 11 started early 1992. 12 Let me think here. Is that right? It 13 was in 1992, I believe, and Novell and Apple 14 combined -- each took some of our top 15 engineers, located them off-site in Santa Clara 16 to begin porting the graphical user interface 17 aspects of the Macintosh operating system to 18 run on Intel architecture on the DR-DOS 19 operating system. 20 (Whereupon, playing of video 21 concluded.) 22 MR. TULCHIN: So here's Mr. Corey 23 telling you that Novell and Apple got together 24 using the DRI engineers, and yet they were 25 unable to. They never came out commercially 4583 1 with any graphical user interface. 2 So, on this subject, if I may go back 3 to the slide rule, the evidence will be that 4 DRI, in effect, was making a slide rule at a 5 time when the market was going to hand-held 6 calculators to make scientific calculations. 7 Nobody was sticking with the 8 character-based world. And DRI had no answer. 9 They knew they couldn't survive without an 10 answer. They never came up with one. 11 Your Honor, I'm prepared to continue 12 if you think this is a good time for a break. 13 I'll go into another subject. 14 THE COURT: Okay. Why don't we take 15 about a 10-minute recess. 16 Remember the admonition previously 17 given. Leave your notebooks here. They will 18 be quite safe. 19 See you in 10 minutes. 20 (The following record was made out of 21 the presence of the jury at 9:43 a.m.) 22 THE COURT: Mr. Williams, how many 23 more things do we have in your estimation? 24 MR. WILLIAMS: Your Honor, we have 25 several items that we'd like to discuss with 4584 1 the Court. Some of them will be relatively 2 short. 3 There's one I think that is going to 4 take a bit more time. That's the matter that 5 was discussed at the end of Mr. Tulchin's 6 opening yesterday having to do with the 7 everybody was doing it defense. 8 I think both sides have some 9 authorities they'd like to hand up and make 10 some argument on that. 11 THE COURT: And is this important 12 before he goes on with his opening or is this 13 something that can be taken up later in the 14 day? 15 MR. WILLIAMS: Well, without arguing 16 the motion, Your Honor, one of the things we 17 are asking for is a corrective discussion. 18 In our view, the damage has sort of 19 been done. I don't want to take up the jury's 20 time any more than we have to. 21 THE COURT: You may be seated, please. 22 MR. WILLIAMS: So, you know, it's 23 really up to Your Honor. I think it won't take 24 more than ten minutes to argue that issue. 25 THE COURT: Okay. What else do we 4585 1 have? Do you have anything else? 2 MR. WILLIAMS: There's a few other 3 issues, Your Honor. 4 Like I said, I think they'll be 5 relatively brief arguments on. There's -- but 6 they do go to some of the other statements that 7 Mr. Tulchin made to the jury. 8 THE COURT: Okay. Mr. Cashman left, I 9 see. 10 Was there other -- Mr. Hagstrom, other 11 exhibits or -- Mr. Gralewski is here. Any 12 other exhibits or items that need to be 13 discussed that are the subject of Mr. Tulchin's 14 opening? 15 MR. GRALEWSKI: Your Honor, Mr. Tuggy 16 is not here. I don't see him. I believe he's 17 the person prepared to argue anything related 18 to Mr. Sculley and Mr. Erickson. 19 I don't believe that based on Mr. 20 Tulchin's subject matter -- but, of course, I 21 don't know where he's going -- that those will 22 come up in the next hour. 23 THE COURT: Okay. 24 MR. GRALEWSKI: Perhaps we can address 25 them at the lunch break. If they do come up, 4586 1 we are prepared to make our objection at the 2 time. 3 THE COURT: Okay. Anything for the 4 defense that needs to be addressed relatively 5 soon? 6 MR. TULCHIN: No, Your Honor. 7 THE COURT: Okay. All right. Great. 8 Thanks. 9 (A recess was taken from 9:45 a.m. 10 to 10:04 a.m.) 11 THE CLERK: All rise. 12 THE COURT: Everyone else may be 13 seated. I gave you a little more time than 10 14 minutes, but I'm sure you are not discouraged 15 about that. 16 MR. TULCHIN: All right. Just to 17 pause for a moment. 18 As you know, we are talking about 19 competition between Microsoft and Digital 20 Research, DRI. 21 I hope to be able to finish that up by 22 around lunch time, and then we'll get to 23 competition between Microsoft and IBM. 24 So we're still with Digital Research. 25 The Plaintiffs, you will remember, 4587 1 talked a little bit about what they called 2 incompatibilities. 3 And I think it's important to set the 4 stage here when they think about 5 incompatibilities with something that the 6 Plaintiffs themselves told you in their opening 7 statement. 8 Again, we have common ground here. 9 Both sides agree with this. 10 The Plaintiffs said, we are not saying 11 that Microsoft has an obligation to make its 12 products compatible with DR-DOS. 13 Now, that's important when we try to 14 understand what the evidence will be about the 15 so-called incompatibilities. 16 Again, both sides agree -- and it's 17 nice occasionally. Occasionally that we find 18 places where we can agree. Both sides agree 19 Microsoft has no obligation to make its 20 products compatible with DR-DOS. 21 And we think the evidence will show 22 you that the incompatibilities, the -- let me 23 try that again. 24 The incompatibilities that arose 25 between DR-DOS and Microsoft were not 4588 1 Microsoft's fault and are an effort to blame 2 Microsoft for the problems that DRI had itself. 3 Now, DR-DOS, the operating system made 4 by DRI, was supposed to be a clone, c-l-o-n-e, 5 a copy of MS-DOS. 6 In other words, Digital Research set 7 out to try to make its product as close to 8 MS-DOS as it could. Perfectly legitimate 9 business competition. 10 If you're not taking anyone else's 11 trade secrets improperly, but you simply try to 12 copy what someone else has done, perfectly 13 legitimate. And they had a right to make a 14 clone. 15 But bugs are inevitable. Problems are 16 inevitable in software. 17 When you're working on a very complex 18 product that has sometimes millions, literally 19 millions, of lines of code, source code, which 20 is written and becomes the product. 21 So the bugs that popped up -- and 22 we'll come to this -- popped up because of 23 problems that Digital Research itself had. 24 And let's talk about some of the 25 allegations that I've sort of put together here 4589 1 that I think we can put under the category of 2 incompatibilities. 3 The first was the AARD code. The 4 Plaintiffs spoke of this, A-A-R-D. And the 5 evidence at trial will show that Microsoft was 6 concerned about the cost to Microsoft of 7 supporting Windows on top of an operating 8 system made by another company. 9 And there was a decision to display a 10 message in a beta version, a beta version, of 11 Windows 3.1 in December of 1991. 12 The AARD code was inserted into the 13 beta. The beta is a test version. It's not 14 the copy that gets sold to the public. It's a 15 test version that goes out to a limited 16 universe of people who, in effect, act as 17 testers for Microsoft to see if the source code 18 -- sorry -- if the product has any problem. 19 And the AARD code did not make -- 20 there's no evidence that it made DR-DOS 21 malfunction. It merely came up and said 22 nonfatal error. Nothing fatal about this. It 23 didn't break DR-DOS. 24 So there's no evidence -- there won't 25 be any evidence that any end user -- because 4590 1 this was only in the beta version. 2 When Microsoft commercialized Windows 3 3.1, when it came out with the actual product 4 which it sold to the product, to end users, 5 that AARD code was inactivated. It was not 6 present. No one could see it. 7 And the question of whether the AARD 8 code was a significant problem or whether it 9 was benign has been addressed in discovery in 10 this case. 11 John Constant, who the Plaintiffs say 12 will come into this courtroom to testify, has 13 testified at deposition that he concluded that 14 the AARD code was -- I'm using the word in the 15 deposition -- benign. 16 Here's the question: And you 17 concluded that those messages were benign; is 18 that correct? 19 Answer: That was our evaluation after 20 testing was done in Provo. Provo is Provo, 21 Utah, where DRI had a facility. 22 And those messages, the evidence will 23 show, refers to this AARD code in the beta. 24 There's also an internal document at 25 DRI. It's Defendant's Exhibit 19. 4591 1 This is from 1992, just a couple of 2 months later. March 3rd, '92. 3 The AARD code was in this beta in 4 December of '91. And here's a memo at Digital 5 Research. Again, the subject is they're 6 working on DR-DOS 6.0, but here's the portion 7 that I bring to your attention now. 8 Windows 3.1 support. Some progress 9 has been made. There are four benign error 10 messages. All we need is a patch to fix 11 problems. 12 So what DRI is saying, we think the 13 evidence will show you, is that this AARD code 14 was, to use their word, benign, and it was a 15 simple matter to get a patch to fix it. 16 Let's talk about what the Plaintiffs 17 call the nested task flag. 18 Now, this is actually not a bug. And 19 sorry to get a little bit technical with you. 20 The nested task flag is a registered 21 setting in the Intel processor, and the setting 22 can be either 1 or 0. It's just a binary 23 setting. 1 or 0. Zero is the normal default 24 setting. 25 Now, what DRI did is to set the 4592 1 default at 1 instead of 0 and not tell anyone 2 that they had done that. 3 Mr. Constant, we believe, will testify 4 that this was part of a research exercise that 5 DRI was then engaged in. 6 So the nested task flag when set at 1 7 caused Windows 3.1 to fail when an end user 8 tried to use DR-DOS on top of Windows 3.1. 9 This was not Microsoft's fault. The 10 nested task flag problem was a problem created 11 by DRI when they changed this setting in the 12 microprocessor from 0 to 1. 13 Further, this problem was fixed by 14 DRI. They created it, they should have fixed 15 it, and they did. 16 Here's Defendant's Exhibit 318. 17 No, wrong number. Defendant's Exhibit 18 3656. I was reading my notes incorrectly. My 19 apology. 20 3656. And this is a memo internally 21 at DRI. You'll see it was written by 22 Mr. Constant, and he writes to a number of 23 other people, including Mr. Tucker, whose name 24 you've seen before, March 4th, '92. And he