Table of exhibits used in current transcript with a link to each page where they are discussed:
IN THE IOWA DISTRICT COURT FOR POLK COUNTY
|JOE COMES; RILEY PAINT, ||)|
|INC., an Iowa Corporation;||)|
|SKEFFINGTON'S FORMAL ||)|
|WEAR OF IOWA, INC., an ||)|| NO. CL82311|
|Iowa Corporation; and ||)|
|PATRICIA ANNE LARSEN; ||)|
| ||)|| TRANSCRIPT OF|
|Plaintiffs, ||)|| PROCEEDINGS|
|)|| VOLUME X|
|MICROSOFT CORPORATION, ||)|
|a Washington Corporation ,||)|
The above-entitled matter came on for
trial before the Honorable Scott D. Rosenberg
and a jury commencing at 8:30 a.m., December 1,
2006, in Room 302 of the Polk County
Courthouse, Des Moines, Iowa.
HUNEY-VAUGHN COURT REPORTERS, LTD.
Des Moines, Iowa 50309
A P P E A R A N C E S
ROXANNE BARTON CONLIN
Attorney at Law
Roxanne Conlin & Associates, PC
Des Moines, Iowa 50309
RICHARD M. HAGSTROM
Attorney at Law
Zelle, Hofmann, Voelbel,
Mason & Gette, LLP
Minneapolis, Minnesota 55415
RORBERT J. GRALEWSKI, JR.
Attorney at Law
Gergosian & Gralewski
San Diego, California 92101
DAVID B. TULCHIN
SHARON L. NELLES
JOSEPH E. NEUHAUS
Attorneys at Law
Sullivan & Cromwell, LLP
New York, New York 10004-2498
ROBERT A. ROSENFELD
Attorney at Law
Heller Ehrman, LLP
San Francisco, California 94104
BRENT B. GREEN
Attorney at Law
Duncan, Green, Brown &
Des Moines, Iowa 50309
RICHARD J. WALLIS
Attorney at Law
One Microsoft Way
Redmond, California 98052
THE COURT: Good morning, Ladies and
Gentlemen of the jury.
We will proceed with the remainder of
the instructions. There's not that many left.
However, at the end of that, I am
going to take a short recess to allow the
parties to have a few moments to prepare before
opening statements, and also there's a few
matters of law I have to take up with them
prior to that, so I thought we'd just get this
done first, take a short break, and then have
them come back for opening, all right.
We're at page -- duplicate page
numbers, but you want the last 66, all right.
It would be paragraph 352.
The technology agreement further
provides that any other Internet browsers
bundled in the Mac OS system software sold by
Apple shall be placed in folders in the
software as released.
In other words, Apple may not position
icons for non-Microsoft browsing software on
the desktop of new Macintosh PC systems or Mac
Moreover, the agreement states that
Apple will not be proactive or initiate actions
to encourage users to swap out Internet
Explorer for Macintosh. Both Apple and
Microsoft read this term to prohibit Apple from
promoting non-Microsoft browsing software.
The agreement even states that Apple
will encourage its employees to use Microsoft
Internet Explorer for Macintosh for all
Apple-sponsored events and will not promote
another browser to its employees.
Pursuant to this provision, Apple's
management has instructed the firm's employees
to not use Navigator in demonstrations at trade
shows and other public events.
Also, with regard to the promotion of
browser technology, the agreement requires
Apple to display the Internet Explorer logo on
all Apple-controlled web pages where any
browser logo is displayed.
Finally, the agreement grants
Microsoft the right of first refusal to supply
the default browsing software for any new
operating system product that Apple develops
during the term of the agreement.
355. Apple increased its distribution
and promotion of Internet Explorer not because
of a conviction that the quality of Microsoft's
product was superior to Navigator's or that
consumer demand for it was greater, but rather
because of the in terrorem effect of the
prospect of the loss of Mac Office.
To be blunt, Microsoft threatened to
refuse to sell a profitable product to Apple, a
product in whose development Microsoft had
invested substantial resources and which was
virtually ready for shipment.
Not only would this ploy have wasted
sunk costs and sacrificed substantial profit,
it also would have damaged Microsoft's goodwill
among Apple's customers, whom Microsoft had led
to expect a new version of Mac Office.
The predominant reason Microsoft was
prepared to make this sacrifice, and the sole
reason that it required Apple to make Internet
Explorer its default browser and restricted
Apple's freedom to feature and promote
non-Microsoft browsing software was to protect
the applications barrier to entry.
More specifically, the requirements
and restrictions relating to browsing software
were intended to raise Internet Explorer's
usage share to lower Navigator's share, and
more broadly, to demonstrate to important
observers, including consumer developers,
industry participants, and investors that
Navigator's success had crested.
Had Microsoft's only interest in
developing the Mac OS version of Internet
Explorer been to enable organizational
customers using multiple PC operating system
products to standardize on one user interface
for web browsing, Microsoft would not have
extracted from Apple the commitment to make
Internet Explorer the default browser or
imposed restrictions on its use and promotion
356. Microsoft understands that PC
users tend to use the browsing software that
comes preinstalled on their machines,
particularly when conspicuous means of easy
access appear on the PC desktop.
By guaranteeing that Internet Explorer
is the default browsing software on the Mac OS,
by relegating Navigator to less favorable
placement, by requiring Navigator's exclusion
from the default installation of the Mac OS 8.5
upgrade, and by otherwise limiting Apple's
promotion of Navigator, Microsoft has ensured
that most users of the Mac OS will use Internet
Explorer and not Navigator.
Although the number of Mac OS users is
very small compared to the Windows installed
base, the Mac OS is nevertheless the most
important consumer oriented operating system
product next to Windows.
Navigator needed high usage share
among Mac OS users if it was ever to enable the
development of a substantial body of
cross-platform software not dependent on
By extracting from Apple terms that
significantly diminish the usage of Navigator
on the Mac OS, Microsoft severely sabotaged
Navigator's potential to weaken the
applications barrier to entry.
357. The cumulative effect of the
stratagems described above was to ensure that
the easiest and most intuitive paths that users
could take to the web would lead to Internet
Explorer, the gate controlled by Microsoft.
Microsoft did not actually prevent
users from obtaining and using Navigator,
although it tried to do as much in June 1995,
but Microsoft did make it significantly less
convenient for them to do so.
Once Internet Explorer was seen as
providing roughly the same browsing experience
as Navigator, relatively few PC users showed
any inclination to expend the effort required
to obtain and install Navigator.
Netscape could still carpet-bomb the
population with CD-ROMS and make Navigator
available for downloading. In reality,
however, few new users (ones not merely
upgrading from an old version of Navigator to a
new one) had any incentive to install, much
less download and install, software to
replicate a function for which OEMs and IAPs
were already placing perfectly adequate
browsing software at their disposal.
The fact that Netscape was forced to
distribute tens of millions of copies of
Navigator through high-cost carpet-bombing in
order to obtain a relatively small number of
new users only discloses the extent of
Microsoft's success in excluding Navigator from
the channels that lead most effectively to
360. According to estimates that
Microsoft executives cited to support their
testimony in this trial, and those on which
Microsoft relied in the course of its business
planning, the shares of all browser usage
enjoyed by Navigator and Internet Explorer
changed dramatically in favor of Internet
Explorer after Microsoft began its campaign to
protect the applications barrier to entry.
These estimates show that Navigator's
share fell from above 80 percent in January
1996 to 55 percent in 1997 and that Internet
Explorer's share rose from around 5 percent to
36 percent over the same period.
In April 1998, Microsoft relied on
measurements for internal planning purposes
that placed Internet Explorer's share of all
browser usage above 45 percent. These figures
are broadly consistent with the ones AOL relied
on in evaluating its acquisition of Netscape.
AOL determined that Navigator's share
had fallen from around 80 percent at the end of
1996 to the mid-50 percent range in July 1998
and that Internet Explorer's share had climbed
to between 45 and 50 percent of the domestic
market by late 1998.
372. In summary, the estimates on
which Microsoft and AOL relied and the
measurements made by AdKnowledge and the
University of Illinois provide an adequate
basis for two findings.
First, from early 1996 to the late
summer of 1998, Navigator's share of all
browser usage fell from above 70 percent to
around 50 percent, while Internet Explorer's
share rose from about 5 percent to around 50
Second, by 1998, Navigator's share of
incremental browser usage had fallen below 40
percent while Internet Explorer's share had
risen above 60 percent.
All signs point to the fact that
Internet Explorer's share has continued to rise
and Navigator's has continued to decline since
the last -- late summer of 1998.
It is safe to conclude, then, that
Internet Explorer's share of all browser usage
now exceeds 50 percent and that Navigator's
share has fallen below that mark.
376. Including Internet Explorer with
Windows at no additional charge likely helped
the usage share of Microsoft's browsing
software. It did not, however, prevent OEMs
from meeting demand for Navigator which
remained higher than demand for Internet
Explorer well into 1998.
Moreover, bundling Internet Explorer
with Windows had no effect on the distribution
and promotion of browsing software by IAPs or
through any of the other channels that
Microsoft sought to preempt by other means.
Had Microsoft not offered distribution
licenses for Internet Explorer and other things
of great value to other firms at no charge, had
it not prevented OEMs from removing the
prominent means of accessing Internet Explorer
and limited their ability to feature Navigator,
and had Microsoft not taken all the other
measures it used to maximize Internet
Explorer's usage share at Navigator's expense,
its browsing software would not have weaned
such a large amount of usage share from
Navigator, much less overtaken Navigator in
377. In late 1995 and early 1996,
Navigator seemed well on its way to becoming
the standard software for browsing the web.
Within three years, however, Microsoft had
successfully denied Navigator that status and
had thereby forestalled a serious potential
threat to the applications barrier to entry.
Indeed Microsoft's Kumar Mehta felt
comfortable expressing to Brad Chase in
February 1998 his personal opinion that "the
browser battle is close to over."
Mehta continued, "We set out on this
mission two years ago to not let Netscape
dictate standards and control of the browser
APIs. All evidence today says they don't.
394. In a further effort intended to
increase the incompatibility between Java
applications written for its Windows JVM and
other Windows JVMs, and to increase the
difficulty of porting Java applications from
the Windows environment to other platforms,
Microsoft designed its Java developer tools to
encourage developers to write their Java
applications using certain key words and
compiler directives that could only be executed
properly by Microsoft's version of the Java
runtime environment for Windows.
Microsoft encouraged developers to use
these extensions by shipping its developer
tools with the extensions enabled by default
and by failing to warn developers that their
use would result in applications that might not
run properly with any runtime environment other
than Microsoft's and that would be difficult,
and perhaps impossible, to port to JVMs running
on other platforms.
This action comported with suggestion
that Microsoft Thomas Reardon made to his
colleagues in November 1996: "We should just
quietly grow j (Microsoft's developer tools)
share and assume that people will take more
advantage of our classes without ever realizing
that they are building win32-only Java apps.
Microsoft refused to alter its
developer tools until November 1998, when a
Court ordered it to disable its key words and
compiler directives by default and to warn
developers that using Microsoft's Java
extensions would likely cause incompatibilities
with non-Microsoft runtime environments.
396. Determined to induce developers
to write Java applications that relied on its
version of the runtime environment for Windows
rather than on Sun-compliant ones, Microsoft
made a large investment of engineering
resources to develop high-performance Windows
This made Microsoft's version of the
runtime environment attractive on its -- on its
technical merits. To hinder Sun and Netscape
from improving the quality of Windows JVM
shipped with Navigator, Microsoft pressured
Intel, which was developing a high-performance
Windows compatible JVM, to not share its work
with either Sun or Netscape, much less allow
Netscape to bundle the Intel JVM with
Gates was himself involved in this
effort. During the August 2, 1995 meeting at
which he urged Intel to halt IAL's development
of platform-level software, Gates also
announced that Intel's cooperation with Sun and
Netscape to develop a Java runtime environment
for systems running on Intel's microprocessors
was one of the issues threatening to undermine
cooperation between Intel and Microsoft.
By the spring of 1996, Intel had
developed a JVM designed to run well on
Intel-based systems while complying with Sun's
Microsoft executives approached Intel
in April of that year and urged that Intel not
take any steps toward allowing Netscape to ship
this JVM with Navigator.
397. By bundling its versions of the
Windows JVM with every copy of Internet
Explorer and expending some of its surplus
money power -- sorry -- surplus monopoly power
to maximize the usage of Internet Explorer at
Navigator's expense, Microsoft endowed its Java
runtime environment with the unique attribute
of guaranteed, enduring ubiquity across the
enormous Windows-installed base.
As one internal Microsoft presentation
from January 1997 put it, the company's
response to cross-platform Java entailed
"increased IE share integration with Windows."
Partly as a result of the damage that
Microsoft's efforts against Navigator inflicted
on Netscape's business, Netscape decided in
1998 that it could no longer afford to do the
engineering work necessary to continue bundling
up-to-date JVMs with Navigator.
Consequently, it announced that
starting with Version 5.0, Navigator would
cease to be a distribution vehicle for JVMs
compliant with Sun's standards.
400. Recognizing ISVs as a channel
through which Java runtime environments that
complied with Sun's standards could find their
way onto Windows PC systems, Microsoft induced
ISVs to distribute Microsoft's version instead
of a Sun-compliant one.
First, Microsoft made its JVM
available to ISVs separately from Internet
Explorer so that those uninterested in bundling
browsing software could nevertheless bundle
Microsoft's David Cole revealed the
motivation for this step in a message he wrote
to Jim Allchin in July 1997: "We've agreed
that we must allow ISVs to redistribute the
Java VM standalone without IE. ISVs that do
this are bound into Windows because that's the
only place the VM works, and it keeps them away
from Sun's APIs."
401. Microsoft took the further step
of offering valuable things to ISVs that agreed
to use Microsoft's Java implementation.
Specifically, in the first wave
agreements that it signed with dozens of ISVs
in 1997 and 1998, Microsoft conditioned early
Windows 98 and Windows NT betas, other
technical information, and the right to use
certain Microsoft seals of approval on the
agreement of those ISVs to use Microsoft's
version of the Windows JVM as the default.
Microsoft and the ISVs all read this
requirement to obligate the ISVs to ensure that
their Java applications were compatible with
Microsoft's version of the Windows JVM.
The only effective way to ensure
compatibility with Microsoft's JVM was to use
Microsoft's Java developer tools, which in turn
meant using Microsoft's methods for making
native calls and (unless the developers were
especially wary and sophisticated) Microsoft's
other Java extensions.
Thus, a very large percentage of the
Java applications that the first wave ISVs
wrote would run only on Microsoft's version of
the Windows JVM.
With that in mind, the first wave ISVs
would not have any reason to distribute with
their Java applications any JVM other than
So in exchange for costly technical
support and other blandishments, Microsoft
induced dozens of important ISVs to make their
Java applications reliant on Windows-specific
technologies and to refrain from distributing
to Windows users JVMs that complied with Sun's
The record contains no evidence that
the relevant provision in the first wave
agreements had any purpose other than to
maximize the difficulty of porting Java
applications between Windows and other
Microsoft remained free to hold the
first wave ISVs to this provision until a Court
enjoined its enforcement in November 1998.
402. In addition to the first wave
agreements, Microsoft entered an agreement with
at least one ISV that explicitly required it to
redistribute Microsoft's JVM to the exclusion
of any other and to rely upon Microsoft's
native methods to the exclusion of any other
methods. Such agreements were also prohibited
by the November 1998 injunction.
404. As discussed above, Microsoft's
effort to lock developers into its
Windows-specific Java implementation included
actions designed to discourage developers from
taking advantage of Java class libraries such
Microsoft went further than that,
however. In pursuit of its goal of minimizing
the portability of Java applications, Microsoft
took steps to thwart the very creation of
cross-platform Java interfaces.
The incorporation of greater
functionality into the Java class libraries
would have increased the portability of the
applications that relied on them while
simultaneously encouraging developers to use
Sun-compliant implementations of Java.
In one instance of this effort to
stunt the growth of the Java class libraries,
Microsoft used threats to withhold Windows
operating system support from Intel's
microprocessors and offers to include Intel
technology in Windows in order to induce Intel
to stop aiding Sun in the development of Java
classes that would support innovative
405. In November 1995, Microsoft's
Paul Maritz told a senior Intel executive that
Intel's optimization of its multimedia software
for Sun's Java standards was inimical to
Microsoft as Microsoft's support for non-Intel
microprocessors would be to Intel.
It was not until 1997, though, that
Microsoft prevailed upon Intel to not support
Sun's development of Java classes that would
have allowed developers to include certain
multimedia features in their Java applications
without sacrificing portability.
406. In February 1997, one of Intel's
competitors called AMD, solicited support from
Microsoft for its 3DX technology, which
provided sophisticated multimedia support for
Microsoft's Allchin asked Gates
whether Microsoft should support 3DX despite
the fact that Intel would oppose it. Gates
responded: "If Intel has a real problem with
us supporting this, then they will have to stop
supporting Java Multimedia the way they are. I
would gladly give up supporting this if they
would back off from their work on Java which is
terrible for Intel."
Near the end of March Allchin sent
another message to Gates and Maritz. In it he
wrote, "I am positive that we must do a direct
attack on Sun (and probably Oracle)... Between
ourselves and our partners, we can certainly
hurt their (certainly Sun's revenue) base....
We need to get Intel to help us. Today, they
Two months later, Eric Engstrom, a
Microsoft executive with the responsibility for
multimedia development, wrote to his superiors
that one of Microsoft's goals was getting
"Intel to stop helping Sun create Java
Multimedia APIs, especially ones that run well
(i.e. native implementations) on Windows.
Engstrom proposed achieving this goal
by offering Intel the following deal:
Microsoft would incorporate into the Windows
API set any multimedia interfaces that Intel
agreed to not help Sun incorporate into the
Java class libraries.
Engstrom's efforts apparently bore
fruit, for he testified at trial that Intel's
IAL subsequently stopped helping Sun to develop
class libraries that offered cutting-edge
407. Had Microsoft not been committed
to protecting and enhancing the applications
barrier to entry, it might still have developed
a high-performance JVM and enabled Java
developers to call upon Windows APIs.
Absent this commitment, though,
Microsoft would not have taken efforts to
maximize the difficulty of porting Java
applications written to its implementation and
to drastically limit the ability of developers
to write Java applications that would run in
both Microsoft's version of the Windows runtime
environment and versions complying with Sun's
Nor would Microsoft have endeavored to
limit Navigator's usage share to induce ISVs to
neither use nor distribute non-Microsoft Java
technologies, and to impede the expansion of
the Java class libraries, had it not been
determined to discourage developers from
writing applications that would be easy to port
between Windows and other platforms.
Microsoft's dedication to the goal of
protecting the applications barrier to entry is
highlighted by the fact that its efforts to
create incompatibility between its JVM and
others resulted in fewer applications being
able to run on Windows than otherwise would
Microsoft felt it was worth
obstructing the development of
Windows-compatible applications where those
applications would have been easy to port to
It is not clear whether, absent
Microsoft's interference, Sun's Java efforts
would by now have facilitated porting between
Windows and other platforms enough to weaken
the applications barrier to entry.
What is clear, however, is that
Microsoft had succeeded in greatly impeding
Java's progress to that end with a series of
actions whose sole purpose and effect were to
do precisely that.
409. To the detriment of consumers,
however, Microsoft has done much more than
develop innovative browsing software of
commendable quality and offer it bundled with
Windows at no additional charge.
As has been shown, Microsoft also
engaged in a concerted series of actions
designed to protect the applications barrier to
entry, and hence its monopoly power from a
variety of middleware threats, including
Netscape's web browser and Sun's implementation
Many of these actions have harmed
consumers in ways that are immediate and easily
discernible. They have also caused less
direct, but nevertheless serious and
far-reaching, consumer harm by distorting
410. By refusing to offer those OEMs
who requested it a version of Windows without
web browsing software, and by preventing OEMs
from removing Internet Explorer -- or even the
most obvious means of invoking it -- prior to
shipment, Microsoft forced OEMs to ignore
consumer demand for a browserless version of
The same actions forced OEMs either to
ignore consumer preferences for Navigator or to
give them a Hobson's choice of both browser
products at the cost of increased confusion,
degraded system performance, and restricted
By ensuring that Internet Explorer
would launch in certain circumstances in
Windows 98 even if Navigator were set as the
default, and even if the consumer had removed
all conspicuous means of invoking Internet
Explorer, Microsoft created confusion and
frustration for consumers and increased
technical support costs for business customers.
Those Windows purchasers who did not
want browsing software -- businesses, or
parents and teachers, for example, concerned
with the potential for irresponsible web
browsing on PC systems -- not only had to
undertake the effort necessary to remove the
visible means of invoking Internet Explorer and
then contend with the fact that Internet
Explorer would nevertheless launch it in --
launch in certain cases.
They also had to (assuming they needed
new, nonbrowsing features not available in
earlier versions of Windows) content themselves
with a PC system that ran slower and provided
less available memory than if the newest
version of Windows came without browsing
By constraining the freedom of OEMs to
implement certain software programs in the
Windows boot sequence, Microsoft foreclosed an
opportunity for OEMs to make Windows PC systems
less confusing and more user-friendly, as
By taking the actions listed above and
by enticing firms into exclusivity arrangements
with valuable inducements that only Microsoft
could offer and that the forms reasonably
believed they could not do without, Microsoft
forced those consumers who otherwise would have
elected Navigator as their browser to either
pay a substantial price (in the forms of
downloading installation, confusion, degraded
system performance, and diminished memory
capacity) or content themselves with Internet
Finally, by pressuring Intel to drop
the development of platform-level NSP software,
and otherwise to cut back on its software
development efforts, Microsoft deprived
consumers of software innovation that they very
well may have found valuable had the innovation
been allowed to reach the marketplace.
None of these actions had
411. Many of the tactics that
Microsoft has employed have also harmed
consumers indirectly by unjustifiably
The actions that Microsoft took
against Navigator hobbled a form of innovation
that had shown the potential to depress the
applications barrier to entry sufficiently to
enable other firms to compete effectively
against Microsoft in the market for
Intel-compatible PC operating systems.
That competition would have conduced
to consumer choice and -- that competition
would have conduced to consumer choice and
The campaign against Navigator also
retarded widespread acceptance of Sun's Java
This campaign, together with actions
that Microsoft took with the sole purpose of
making it difficult for developers to write
Java applications with technologies that would
allow them to be ported between Windows and
other platforms, impeded another form of
innovation that bore the potential to diminish
the applications barrier to entry.
There is insufficient evidence to
find that, absent Microsoft's actions,
Navigator and Java already would have ignited
genuine competition in the market for
Intel-compatible PC operating systems.
It is clear, however, that Microsoft
has retarded, and perhaps altogether
extinguished, the process by which these two
middleware technologies could have facilitated
the introduction of competition into an
412. Most harmful of all is the
message that Microsoft's actions have conveyed
to every enterprise with the potential to
innovate in the computer industry.
Through its conduct toward Netscape,
IBM, Compaq, Intel, and others, Microsoft has
demonstrated that it will use its prodigious
market power and immense profits to harm any
firm that insist on pursuing initiatives that
could intensify competition against one of
Microsoft's core products.
Microsoft's past success in hurting
such companies and stifling innovation deters
investment in technologies and businesses that
exhibit the potential to threaten Microsoft.
The ultimate result is that some
innovations that would truly benefit consumers
never occur for the sole reason that they do
not coincide with Microsoft's self-interest.
Ladies and gentlemen, we'll take a
short break. Remember the admonition
We'll come get you as soon as we can.
Leave your notebooks there.
(The following record was made out of.
the presence of the jury.)
THE COURT: You may be seated.
Stand by and I'll get my papers for
this next part.
There were two matters that I believe
needed to be cleared up before the opening
statements. One was request by the Plaintiffs
and a resistance by the Defendant that the
Plaintiffs mentioned spoliation, or evidence
regarding spoliation in the opening statement;
is that correct?
MS. CONLIN: That's correct, Your
THE COURT: Any further record on that
before the Court rules?
MR. TULCHIN: No, Your Honor.
We've submitted some papers, and I
think that we've said what we needed to.
THE COURT: Ma'am?
MS. CONLIN: No, Your Honor, nothing
THE COURT: In denying Plaintiffs'
motion for spoliation instruction, which the
Court did for the preliminary instructions, and
stating that the Court find that there has been
no showing by substantial evidence of the facts
necessary to justify such a destruction, the
Court simply meant that the evidence set forth
by Ms. Conlin in support of her motion for
spoliation instruction was insufficient
evidence for the Court to make a threshold
And that the four requirements for the
instruction on spoliation have been met, and
consequently, that a preliminary instruction on
spoliation should not be given.
The evidence advanced by counsel in
support of her motion consisted of exhibits and
deposition or other testimony from differing
sources, cases, and proceedings.
It remains to be seen, if at all, if
all or any of the supporting documentation
would be admissible or admitted at trial in
It is best that the Court not view the
supporting proffered evidence in a vacuum, but
rather in the context of trial with an
opportunity for any objections by Defendant on
evidentiary grounds, opportunity for
cross-examination of witness, and opportunity
for cross-designations of prior depositions or
The Court relied on the Hartsfield
case in stating that there must be substantial
evidence to show the evidence was in existence;
that such evidence was in the possession of or
under the control of the party charged with
destroying the evidence, the evidence would
have been admissible at trial and the party
responsible for the destruction of the evidence
did so intentionally.
These factual elements have not been
met. This is what the Court stated in its
prior ruling regarding the instruction.
It is not at this time clear by
substantial evidence that these elements
described above would have been met based upon
that evidence in a vacuum.
During the trial, however, the
evidence may demonstrate differently. Whether
the full requirements for spoliation have been
met in this case will be determined based on
evidence and witnesses' testimony at trial.
Therefore, Plaintiffs may be permitted
to discuss evidence in their opening that will
be presented at trial in regard to this issue.
MS. CONLIN: No, Your Honor.
THE COURT: May I have that second
Court was also requested by Plaintiffs
to -- yesterday, with the Defendant present, to
give as soon as possible a ruling on three
exhibits which the Plaintiffs wish to use
during their opening statement.
One was Exhibit 6324; is that correct?
MS. CONLIN: 6324.
THE COURT: Correct.
MS. CONLIN: Yes, Your Honor.
THE COURT: Court's ruling on 6324,
the first paragraph of the document is
admissible. The rest is not admissible, and
the ruling of the Special Master sustained as
to the remainder of the document.
Plaintiffs' Exhibit 5800 was the
second one; is that right?
MS. CONLIN: I hope so, Your Honor.
MR. HAGSTROM: Yes, Your Honor.
THE COURT: First paragraph of page 1
is admissible; the rest is not admissible.
Therefore, the Special Master's ruling on the
rest of it is sustained.
And the last one I have, I was told by
counsel, was Exhibit 7400.
MR. HAGSTROM: Yes, Your Honor.
THE COURT: You're shaking your head
affirmatively back there.
Second and third paragraphs of that
exhibit are inadmissible; the rest is
With that, are you ready for opening
MS. CONLIN: Yes, Your Honor.
THE COURT: We will bring the jurors
MS. CONLIN: Your Honor, may I ask one
thing? If my voice -- how often can I take a
THE COURT: Whenever you need. Just
Same for Defendant. Whenever you need
a break, just turn to me and say.
MR. TULCHIN: Your Honor, would it be
okay just to take a two-minute break right now?
THE COURT: Sure. You want to do
MR. TULCHIN: Before the jury comes
(A recess was taken.)
(The following record was made in the
presence of the jury.)
THE COURT: Members of the jury, at
this time you are going to hear opening
statements. As I stated to you earlier,
opening statements are not evidence. They
merely are an outline of what each party
believes the evidence will show in the case.
They are important in that they give
some order to what is going to be presented, so
for that reason you should pay close attention
to them, but remember it is not evidence.
At this time are Plaintiffs ready to
MS. CONLIN: Yes, Your Honor.
THE COURT: You may proceed.
MS. CONLIN: Your Honor, may it please
the Court, counsel, members of the jury.
Let me see if I can step over the
Good morning. We've been waiting a
very long time to get to this part of the
I want to begin by reintroducing the
people who are here in court. You met
Mr. Hagstrom. He and I are the lead counsel
for members of the class. Angela Dennis is a
legal assistant on my staff, and this is Pat
Larsen. She is one of the class
Mr. Tulchin and Mr. Rosenfeld and
Mr. Green and Ms. Nelles are lawyers on behalf
of Microsoft. Mr. Wallis is the -- one of the
in-house corporate counsel.
The rules say that companies should
compete as vigorously as they can, do
everything they can to win, make the best, the
most innovative, the most creative products,
get the best sales force, and try to win on the
But the rules also say you have to
compete fairly; and if you don't, you have to
be held accountable for the damage that you do
to the competitive process and to the free
market and to consumers.
For the higher prices and the loss of
innovation and the lack of choice that
inevitably results when fair and free
competition do not occur.
The rules also say that monopoly's
cannot abuse their power.
You can't take your monopoly product
and combine it with a nonmonopoly product and
sell them together to make the nonmonopoly
product a monopoly product.
You cannot freeze out competitors and
punish or retaliate against people who
cooperate with your competitors; and if you do,
you will be held accountable for the higher
prices, the lack of innovation, the lack of
choice that you caused by those unlawful acts.
Microsoft did all that and more.
It isn't illegal to be successful. We
applaud that. It isn't illegal to grow your
company from little to huge. That's the
American dream. It isn't illegal to be tough.
It isn't illegal to be ruthless. It isn't
illegal to be aggressive. It isn't illegal to
become or remain a monopoly, as long as you
don't break the rules to do that.
Microsoft did break the rules.
What the law requires of Microsoft is
exactly what the law requires of all companies,
compete fair and square.
Microsoft did not.
I'm going to start -- you all have
very different experiences with respect to
computers. Some of you are very experienced
users, and some of you are not.
Most of you will not know the lingo of
the computer industry. You will by the time
this is over. But right now, I'm going to
start by giving you some of the basics that you
will need to understand what's going on in this
Let's start with some terms, the first
of which is operating system.
An operating system is a software
program that manages the hardware and software
resources of the computer. It's the most basic
part of the software.
It does tasks such as controlling and
allocating computer memory, prioritizing the
tasks that the computer does, controlling
input, controlling output, facilitating
networking and managing files, operating system
Windows, MS-DOS. Those are two types of
operating systems that we'll be dealing with.
Applications. They are the programs
that help you accomplish tasks. They are the
things that do things with the computer.
The applications program at issue in
Comes versus Microsoft are the spreadsheet and
word processing software.
A spreadsheet is an application
commonly used for budgets, forecasting, and
other finance-related tasks. Organizes your
The relationship between the cells are
defined by a formula, and when you make a
change in one cell, it updates all the other
cells. That's the spreadsheet.
Here the spreadsheet at issue is
The word processor, that's the other
application at issue in this case is -- it's
what you use to write letters with. It
manipulates text-based documents.
It's the electronic equivalent of a
pen and paper -- usually -- and an eraser, and
usually most include dictionaries and other
things like that.
Middleware. When Judge Rosenberg was
reading to you from the findings of fact, he
talked to you about middleware, and three of
the type of middleware that he talked to you
about were Netscape Navigator, which is a
browser; RealNetworks Streaming Media,
RealNetworks Player, it's the streaming media;
and Java, which is a group of technologies
invented by Sun. The inventor, actually
Mr. James Gosling, will be one of the witnesses
Those middleware technologies sit
between the operating system and the
applications. They're in the middle. That's
why they're called middleware.
And they can work cross-platform.
They don't care what operating system they're
on. That, of course, is one of the things that
made them a danger to Microsoft's monopoly.
Another term that you will hear a lot
of is OEM, original equipment manufacturer.
Those are the computer makers. That's Gateway,
Dell, Compaq, OEMs.
There are two main channels that
people get their software from. The first is
the OEM channel preloaded on the computer; and
the second is what's called the finished goods
Part of that is retail; Comp USA,
Wal-Mart, wherever you get software in a retail
store. And the other is called volume
I want to take a look at the computer
screen with you just to name the things that
What you see when you look at your
computer screen is the GUI, the Graphical User
I bet not too many of you had heard
about GUI, at the least this kind of GUI, until
you got here.
The little things that you see, those
are the icons, and the -- you do not see the
operating system when you look. You see the
interface, the GUI.
The icons are what you press to
activate the application.
The browser on this, and most, is the
Can we show that, Darin?
I didn't introduce Darin Buchbinder,
who is a technician, who is able to do magic
things. But not as fast as I can talk.
I'm going to try to talk a little bit
more slowly than I ordinarily would, both for
Darin and for the court reporter.
Word processor, that would be Word
right there. And then the spreadsheet is
Excel. Those are the -- that's your GUI.
Let's look at the Microsoft home page.
We're going to a website, and this is what --
you press your browser, you go to the home
page. Usually you go to some URL.
The URL is that address up at the top
that starts usually with www. URL.
And then the tool bar is right at the
top. That's your tool bar. You can't see that
But those are the little things that
give you options in terms of what functions you
want to perform on that website.
I know a lot about your views on
technology and Microsoft and Bill Gates from
your questionnaires, and thank you very much
for filling out the questionnaires, and for
your patience in answering my questions and
those of the Microsoft attorneys.
One of the things that I know about
most of you is that you have positive views
about Microsoft and about Mr. Gates, and this
presents a bit of a problem for me.
We've sued Microsoft, and I am going
to be saying some not very nice things about
Bill Gates, based on the things that he has
said in Microsoft documents and the things that
he has done.
I think that some of what I will have
to tell you will be difficult for you to
accept. All I ask is that you keep an open
mind, that you listen, that you look.
I'm going to be in the course of this
opening statement showing you a lot of
documents, a lot of Microsoft internal
I am going to show you what happened
rather than just telling you, and most of what
I will be showing you are from the documents
that were created by Microsoft's high-level
executives in the course of their business.
When I show you the documents, I will
only be reading portions of it, a sentence, a
paragraph usually at the most; the portions
that I think are relevant and things that I
think you should know at the outset.
You will have the whole document at
the end of the process, and you'll be able to
review all the quotes in context.
I will name the number for you of each
exhibit that I show you. Every exhibit has an
assigned number. They do not go in any
particular order, so if you are interested in
looking at the document, you may wish to make a
note about it and then look at it several
months from now when you have the opportunity
to do that.
Microsoft may wish to read you other
portions of the documents, same documents,
different documents that they think would be
relevant to your determination.
The same is true of depositions. I'm
going to be showing you some short clips from
the depositions of some of the witnesses.
Short clips in the case of those that I show
you, you will hear perhaps not the whole
deposition, but more of the deposition during
the course of the evidence.
You've also seen some of what we call
Demonstrative evidence is not going to
come to you. You won't have -- those little
pictures I showed you at the beginning, you
will not have those. Those are only meant to
give you a visual representation of some of the
concepts. So those will not be going with you
into the jury room.
Let me begin by summarizing for you
what we will prove.
Judge Rosenberg gave you instructions
of the law. He is the only person in the
courtroom who says what the law is. The rest
of us may summarize it, but obviously the law
as provided to you by the Court is what you
will rely on.
We will prove that Microsoft
unlawfully monopolized the world market for
personal computer operating systems. We will
prove that Microsoft unlawfully monopolized the
world market for word processing, and we will
prove that Microsoft unlawfully monopolized the
world market for spreadsheet applications
There are three basic things that we
will prove, three overriding, overarching
things that we will be spending our time
The first issue is we will prove that
Microsoft broke Iowa's Competition Law in
several ways that fall into two main
We were talking about this yesterday.
You probably have been subjected to the world's
record longest preliminary jury instructions,
and a record we expect to stand for a very long
time. So you may not have memorized all of
So I'm going to go back to the two
that define the liability concepts in this
The first is Instruction Number 5.
As I said, we, the classes say, that
Microsoft broke Iowa's Competition Law in two
main ways, the first of which is defined for
you by your Instruction Number 5.
We say basically that Microsoft used
its monopoly power to exclude competition and
And the Court defined that for you as
any company that acquires, maintains, or uses
monopoly power over any part of trade or
commerce for the purpose of excluding
competition or controlling, fixing, or
maintaining prices violates the Iowa
And then he told you the four things
under there that are the elements of that
First, that Microsoft had monopoly
power in the relevant product market, and you
will recall that for the operating system
market between the years 1995 and 1999, that
has already been proven.
The second is that Microsoft willfully
acquired or maintained that power through
conduct designed to exclude competition or
through anticompetitive conduct.
And then the third is that what
Microsoft did that broke the law harmed Iowa
consumers, Iowa class members.
And four, that Iowa class members
suffered damages resulting from the injury.
That's our first main claim.
By shorthand, we're going to call that
the monopolization claim.
The second main claim is set out for
you in Instruction No. 10, and that is that
Microsoft agreed with others to restrain trade
and to harm competition.
The title of that instruction is
Contract, Combination, or Conspiracy.
And basically that means we say that
Microsoft agreed directly, or indirectly, with
other people or entities to accomplish wrongful
A conspiracy is an agreement by two or
more persons to accomplish some unlawful
purpose or to accomplish a lawful purpose by
And I'm not going -- this one -- this
instruction is very, very long. I'm just going
to tell you the four things again and the
things that are important to remember.
First, we will show that Microsoft
entered into a combination -- a conspiracy
combination or agreement, or otherwise
collaborated with one or more persons or
companies to restrict trade or prevent
We have to show, and we will show,
that either that the purpose or the effect of
the conspiracy agreement, and so on, was to
harm competition in any of the personal
computer software markets involved in the case.
That's the three; operating systems, word
processing, spreadsheet. Any of those three
We also say that some of the
combinations were imposed on the other party.
We don't have to show that the other party
voluntarily entered into any kind of a written
What we have to show is that there was
-- that there was a combination or conspiracy,
but we don't have to show that the other party
was voluntarily a member.
Let me give you just an example. An
OEM who agreed to a type of license we're going
to talk about called per processor would be
potentially a part of the conspiracy, even
though they were not necessarily participating
in the wrongful conduct.
So what the Court says to you is
because the Plaintiffs allege that the
combinations between Microsoft and others may
have been imposed or coerced by Microsoft,
they, meaning the class members, do not have to
show that any party who was coerced by
Microsoft shared Microsoft's goal to prevent or
The third thing is that Microsoft
committed one or more exclusionary acts --
that's sort of the overt act requirement --
that had the purpose or effect of unreasonably
And fourth, we must show, and we will
show, that the Plaintiffs were injured by the
restraint of trade.
So first we will show that Microsoft
broke the law. And remember that. That's
already been shown for the period 1995 through
1999 in one market, one of the three; in the
operating system market. That's already been
Second issue is did Microsoft's
wrongful conduct harm Iowa class members.
There's your two.
As I talk with you, I will focus on
Microsoft's acts against competitors.
Microsoft didn't come into Iowa and slap a
higher price tag on computer software.
What Microsoft did was act to destroy
competition by destroying competitors. And not
one or two competitors, dozens.
Any company who threatened their
monopoly power, and by destroying competition,
they harmed Iowa class members.
How did they do it? Though the facts
can be complicated, the overall concepts are
Microsoft used two illegal choke
holds, one on input and one on output.
Input is the sockets. Sockets are in
the operating system. I'm going to talk about
that in a minute. And output is the
In Instruction 4, the Judge told you
about the purpose of Iowa's Competition Law.
He told you that the Iowa Competition
Law presumes that competition in a free market
will result in better goods and services,
including better quality, better service,
better safety, better durability, all at lower
So if Microsoft destroyed Iowans'
opportunity to have competition in a free
market, then Iowans were deprived of those
better goods that would have been better
quality and have had better security, and
Iowans paid higher prices than the lower prices
that competition brings.
Issue 3. What amount of money based
on reasonable estimates will compensate Iowa
class members for overcharges and for security
Class members were harmed in two ways.
They paid too much for Microsoft's monopoly
products. The monopoly overcharge.
A couple of things to know. You will
have these as a part of the experts' testimony,
but the number of licenses here in Iowa for
Windows, the number of licenses in Iowa, we
believe the evidence will show, are 5,148,614.
That's for the operating system.
For Office, which is the office
productivity suite that includes Word and
Excel, the number of licenses 1,838,308.
For Excel, the spreadsheet, 21,304,
and for Word, free standing by itself, 445,435.
When you add that up, it's about seven
and a half million total licenses over the
entire class period.
I also wanted to mention to you the
average overcharge. And again, keep in mind
that this is the average over the class period
and over the period of time -- over the class
period and over the entire class.
The average overcharge for the
operating system is $42.49. For Office it's
$56.94, for Excel $56.51, and for Word $10.55.
Now, again, in the early part of the
class period, you know, the prices were a bit
lower, and then they raised over the course of
time. So this again, for the entire 12 years
and one month, approximately, of the class
The second type of -- that's harm one,
To prove harm one, we will use three
You will recall in our voir dire, we
talked a little bit about economic
methodologies and the two -- the three types of
-- the three ways, the three economic models
that will be used to show you what the
competitive world would have looked like absent
Microsoft's anticompetitive conduct are these
I'm not going to explain them to you.
That is Mr. Hagstrom's duty and responsibility.
I'm just going to tell you what they are.
The profit margin method, the rate of
return method, and the price premium method.
That's harm one, the overcharge.
Then the second harm that we say
Microsoft caused Iowa class members, we say
that Microsoft by joining the browser with the
operating system, the conduct that Judge
Rosenberg spoke with you about in the findings
of fact, by putting those two things together,
Microsoft increased the security risks that
people have in using their computers.
By that anticompetitive act, they
raised the security vulnerabilities, and
because of that, consumers, class members had
to spend a lot of time doing things to protect
their data, downloading patches, and making
sure that they had as much safety as they could
That's the second harm that we say
that Microsoft's anticompetitive conduct caused
Iowa class members.
Here are some things to know.
The market for computer software is
worldwide. That means that things that happen
around the world, not just in the United
States, but in Germany and Korea, and things --
other places all affect the market in the
You may wonder, you know, why is
Roxanne talking to us and showing us documents
from Germany and England and Korea. And there
is a two-part answer.
Answer one is what they did everywhere
affects us here in Iowa, worldwide market. And
two is Microsoft did business the same way
The second thing to know is that every
computer must have an operating system. If it
doesn't have an operating system, it isn't
going to do anything. Must have an operating
system; essential part of any computer.
The third thing is that the way that
most people get their operating systems is with
their computer when they buy it, preloaded,
it's already there, and it's almost certain
that the operating system that is already there
will be the Microsoft operating system, not
because class members chose it, but because the
OEM, the computer manufacturer, has a contract
with Microsoft that virtually requires that
they put a Microsoft operating system into the
computer that class members bought.
Not because class members wanted it,
but because Microsoft has a contract with the
The fourth thing to know is what makes
a computer attractive to purchasers is not what
operating system is on it, but what
applications will it run.
The word -- what word processors, what
spreadsheets, what games, what applications
that helps you trace your ancestors or keep
track of collections, or whatever interests you
have. It's the applications that matter.
And the more applications that can run
on a particular operating system, the more
attractive that operating system is.
Judge Rosenberg talked to you about
the applications barrier to entry. Sometimes I
call that the ABTE just to make more acronyms
But the applications barrier to entry
is what protects Microsoft's monopoly product.
The more applications, the more attractive.
We'll talk about that some more.
Five, what Microsoft did to its
competitors is what hurts consumers because it
harms the competitive process.
I'm not going to go to Instruction 8,
but it is Instruction 8 that talks about that.
If Microsoft uses illegal tactics to
destroy competitors, class members ultimately
pay the cost both in terms of higher prices and
Please remember that the tactics do
not have to be illegal by themselves if they
have the effect of achieving or maintaining
Instruction 8 gives you guidance on
all of those factors.
Some of the things that I'm going to
talk with you about happened long ago,
sometimes ten years ago or 15 years ago,
sometimes longer. But what happened long ago
in the market for computer software affects us
For example, one of the first things I
want to talk about is a company called Digital
Research, Incorporated, a company that created
an operating system that competed with
Microsoft's MS-DOS from the late '80s until it
was withdrawn from the market in 1994.
I will tell you why it was withdrawn
later, but if it had survived, Microsoft would
have had competition. And you will see from
the documents that when Microsoft did have
competition, they lowered their prices.
So if DRI -- if DR-DOS, which was the
name of the product that DRI created, if they
had survived, Microsoft would have had
competition, and consumers would have had all
the benefits that competition brings.
One unusual factor, one unusual
feature of this case is that the Judge has
already found that Microsoft violated the
antitrust laws of Iowa.
And, of course, in your deliberations,
as Judge Rosenberg told you, you must accept
those findings of fact. Those issues are
Is that fair? Yes, because Microsoft
already went to trial on those issues. They
presented witnesses, they presented documents,
and they lost. So Microsoft had its chance,
and the Judge says they broke the law.
We still have to prove that
Microsoft's breaking of the law caused harm to
Iowa class members and the amount of the
I'm going to go over with you also
some of the -- Judge Rosenberg read you a list
of acronyms. Oh, my goodness, there are so
many acronyms, so many acronyms in this case.
I have a red notebook that has about a
hundred pages of acronyms in it. I'm going to
need to remember to bring it.
We are not going to go over all of
them. We will try to supply what those things
mean as we go along, but here is a list of some
that we'll be using quite a bit.
I'm going to come back to API.
Application Program Interface is so important
that it deserves more than a one-sentence
Applications we've talked about.
Chicago, Microsoft named it's -- had code names
for its products, and the code name internal to
Microsoft for Windows 95 was Chicago.
You will hear other city names, but
Chicago Windows 95 is one that you'll hear
right off so we thought you needed to know code
Cost of doing business or cost of
goods sold -- I'm sorry, cost of goods sold,
I mentioned DR-DOS. That is an
operating system called DR-DOS, and it was
manufactured by DRI, Digital Research,
FTC, Federal Trade Commission.
FUD, it's used as a noun and a verb,
and it means fear, uncertainty, and doubt.
GUI, we talked about.
ISV. And ISV or ISVs are independent
software vendors. ISVs, we'll just hear that
all the time. Those are the people who write
the applications outside of Microsoft.
Independent software vendors write
MDA is a market development agreement
that is an agreement between Microsoft and
usually an OEM.
We'll talk -- Dr. Noll will talk about
that. Dr. Noll is a professor at Stanford who
has been studying issues of antitrust for many,
many years, decades, and who will be here to
give you the benefit of his experience.
And one of the things he's going to
talk about are the anticompetitive effects of
the market development agreements.
Middleware, we've talked about that.
And Microsoft is obvious, and MS-DOS,
that's Microsoft's first operating system.
NDA, I'm sure some of you have heard
that particular acronym before. That is a
When companies need to share
information confidential to one of them, they
ask the recipient of the information to sign an
NDA, promising that the information that is
provided will be kept secret, NDA.
OEM we've talked about.
OS we've talked about.
OS/2. OS/2 was a competing operating
system. It was initially developed jointly by
IBM and Microsoft, and ultimately marketed by
The joint marketing agreement between
IBM and Microsoft was entered into in 1985, and
we will talk about that later.
Peripherals, printers, mouse,
keyboard. Those are the peripherals.
PPB, prepaid balances. That is a part
of a Microsoft contract with the OEMs with the
computer manufacturers that we believe had an
anticompetitive effect and had an
PC, personal computers.
PM, that is usually -- usually this
means presentation manager. Presentation
manager was the GUI, the Graphical User
Interface for OS/2, IBM's competing operating
IBM's competing operating system
didn't have the Windows GUI, it had a separate
GUI called presentation manager, which was
developed for it, and as I said, which competed
with Microsoft products.
And I put ubiquitous down here not
because I didn't think -- it's a word that I
had heard before, but it is a word used in the
documents and used by the witnesses quite a
bit, and it simply means everywhere, just
I want to return now to these APIs and
talk with you for a while about them.
The APIs in this piece of
demonstrative graphics are the little -- the
little things sticking up, okay, and what --
lots of different items, pieces of software can
expose APIs, meaning that the ISVs, the
independent software developers can see them
and use them.
And what ISVs use the APIs for is to
do the functions needed to be done by the
software they're developing.
They need to be able -- an API set is
what the ISVs develop to.
Let me try another analogy. Think of
a house, okay. And the APIs are the doors into
the house. The house is the operating system,
and the APIs are the way you get into the
operating system to get it to do what you want
it to do.
Microsoft doesn't want any other
company to expose APIs that ISVs, the
independent software developers, the people who
write the software, the applications, could
And why does that matter? Because it
is the APIs, it is these little levers that
protect the applications barrier to entry and
that protect Microsoft's monopoly.
Other APIs, other API sets could serve
as a platform for the ISVs to develop on and
that -- that's what worried Microsoft about
Netscape and Java and Real. They expose APIs.
One of the things that I wanted to
mention also before we begin, I know you think
we've already begun, but really, not yet.
Version numbers. Microsoft and all
other -- not all other -- many software vendors
name their products, and then to distinguish
one from the other, they give them a version
There's Windows 1.0 and Windows 2.0.
Then between the big versions like 1.0 and 2.0,
there are smaller versions like Windows 3.11,
Before Windows 4.0, there was Windows
3.0, Windows 3.1, Windows 3.11. Sometimes to
distinguish between the major releases like
Windows 3.0 and Windows 4.0 they call it like
Windows 3x, meaning any version of Windows 3.0
or Windows 3.
I know that this may seem confusing.
It certainly has been occasionally quite
confusing to me.
And in fact, try to keep firmly in
mind the -- particularly in the beginning when
Windows was only the Graphical User Interface
and MS-DOS was the operating system, it's
sometimes difficult to keep straight -- because
they're coming out at around the same time and
the same people are sometimes in charge of them
and working on them.
So I'll try to remind you which is
which, and you may be better at telling the
difference than -- keeping that straight than I
Let me tell you how I'm going to
approach the task of guiding you through the
evidence and telling you about Microsoft's
conduct, about the people, the products, the
companies over this long period of time.
The first thing I'm going to talk
about are the basics of the case, the class
members, the class period representatives, and
I'm going to give you a very brief
history of computing.
I'm going to talk about the categories
of Microsoft's anticompetitive acts, then the
stories of the competitors Microsoft committed
those acts against, then some of the Court
procedure and the details that may be helpful
for you to know.
Then some of the things we believe
that Microsoft's evidence will be trying to
prove, and then I'm going to sit down.
Mr. Hagstrom will then talk to you
about the two remaining major issues, and that
is causation and damages.
Microsoft's anticompetitive conduct
caused harm to Iowa class members and the
nature and extent of that harm in two areas,
the overcharge and the security problems. This
will take a few days.
I'm not going to commit as to how many
days because, as you have seen, it's a little
unpredictable. Legal issues come up, things
happen that sometimes we get a late start in
the morning or -- after the lunch hour, but
this is the only time that I will have to talk
with you directly for the next several months.
I hope to put the actions of Microsoft
in context and to give you a basic
understanding of the things Microsoft has done
and sort of set them into a framework for you
to use as you view the evidence.
Please, I ask you to be patient with
me and give me a chance to walk you through
these events and how they impacted the market
and how they impacted Iowa class members.
The class representatives. Joe Comes,
he thought he could be here today, but he could
not. He is a Des Moines resident, he and his
wife Jill live here in Des Moines with their
daughter Jackie. He is the person who started
the original lawsuit back in the year 2000.
He will be a witness. He is a small
business owner here.
Pat Larsen, Pat is here. Pat is a
retired -- is retired from Eaton Corporation up
in Spencer, Iowa. She started -- she worked
there 22 years. She started as a factory
worker on the floor, and when she retired she
was a manufacturing product supervisor.
Those are the two individual people.
There are also two small businesses,
two businesses. Riley Paint is a paint
manufacturing business down in Burlington. Sam
Jennison, or other officer of the company, will
be the representative of the Riley Paint
And the other business, which is the
one most of you knew about or rented tuxes
from, that is a -- that's a family business.
It has five locations around Iowa. Mary Jo
Harty is the president, and either she or
another representative of Skeffington's will
occasionally be present.
And those are the four class
representatives, two individuals, two
And they -- these four entities, two
people and the two businesses, represent people
who are not here.
We do not know how many individuals
and businesses are class members. What we know
is how many licenses. That's what we can
If you think about it, you will see
how that's true.
One person with one computer might
have three licenses. People replace their
computers and they get more licenses.
We can't tell you -- we know it's
hundreds of thousands, or we think it's
hundreds of thousands of individuals and
businesses. A big business would have
thousands and thousands of licenses.
So we don't know numbers of entities,
but we do know numbers of licenses, and that is
what I told you, seven and a half million
total, roughly, licenses for all of the
What do the class members do? They
pay attention to what's going on. They at
least scan the pleadings that we send them
hoping to get some clue from the legal
terminology what's happening.
They talk to us as their lawyers.
They answered the interrogatories and request
for production of documents that Judge
Rosenberg told you about.
They sat for their depositions where
Microsoft lawyers could ask them questions, and
they provided answers.
They recognize and accept the
responsibility that they have to represent all
of the individuals and businesses who are not
present here in Court.
These folks are just regular people.
They won't be able to tell you what Microsoft
did to break the law. They haven't looked at
the millions of documents. They're not
They don't know a thing about the
source code. They just know what most people
know about Microsoft and its products and its
I guess that's probably not true
anymore because they have looked at the
pleadings and had their depositions taken and
the like, but they will be here as much as they
can and when they can.
There are two classes.
I'm going to show you, but not read to
you, the definitions of the classes. This is
the operating systems software class.
It names the products that are
covered, the operating system products. It
names and it gives the class period and
indicates that you have to be -- you have to be
at the time of the purchase, you have to reside
in or be incorporated in Iowa and to not be
buying the operating system to resell it to
The second Microsoft applications
software class is indirect purchasers of the
applications that we've talked about, either by
themselves or within the office suites.
Let's look at the products involved.
This is a list of the operating
systems, the products that Microsoft has
provided, and also a list of the applications.
Two are not -- two that we know about
are not on the applications list. Word, Excel,
and Office, of course, are probably familiar to
you, but there's a product called -- or was a
product called Home Essentials that also
included applications, as well as Works.
Microsoft Works at some point have also either
included Word or Excel or both.
The time period is from May of 1994
until June 30 of 2006, 12 years and one month.
And remember, the government case that
Judge Rosenberg told you about covers only a
part of this period. It also is only for the
So the whole class period, there's a
year before the government case started and
then there are years after.
The government case covers '95 through
'99, '94 before and '99 -- some part of '99 to
June of 2006. Those are not covered by the
government case. And only operating systems,
not applications covered by the government
We talked about the two channels
preinstalled or the finished good channels.
Let me talk a little bit about the
history of computers.
I'm going to start in 1974 at a place
called Xerox Palo Alto Research Center. Xerox
Parc, P-a-r-k -- P-a-r-c.
It was an R and D facility, and it was
legendary for developing some of the technology
that's used together, including a thing called
the Alto high-tech -- or high-end workstation.
Keep in mind that -- I really do
expect that you will see me fall down at some
point. Don't worry, I'll get right back up.
The computers were huge. You know,
they were kept in cooled rooms. They were
enormously expensive. And this Xerox Parc
developed a much smaller version, and it
featured the first Windows style operating
It had -- it had a GUI, complete with
icons and pull-down menus and other niceties
that wouldn't appear on the market for almost a
In January of 1975, there's a magazine
called Popular Electronics. It announced the
world's first minicomputer kit, and it said
world's first minicomputer kit to rival
commercial models, meaning, you know, the huge
room size things. Was called the Altair 8800,
the Altair -- it was a build-it-yourself
computer. It cost $500. It was available from
a company called Mits, M-i-t-s, down in
Albuquerque, New Mexico.
It was a sensation. Orders flooded in
from everywhere. Enthusiasts, hobbyists just
Now, let me tell you that it didn't do
anything. I mean, it just sat there and
blinked. But it was so unique, so remarkable
just sitting there blinking that it was
In 1979 a company called VisiCorp
publishes a spreadsheet for Apple.
This is moving -- I'm not going to
fill in the details. There will be witnesses
who will talk to you about this.
But this -- they created a
spreadsheet. The first what is called a killer
app. And a killer app is an application that
is -- does such a useful thing that it drives
the sales of computer.
And so this VisiCalc was the first
commercial spreadsheet for many computers, or
personal computers, and businesses became,
then, interested in buying small computers as
opposed to the big room-sized ones.
IBM, the producer of most of the big
room-size computers, took notice, and by 1980,
it's planning to enter this new field, desktop
This is a new industry growing.
Bill Gates is born in 1955. He's the
middle child of three. His dad is a lawyer.
His mom is a homemaker and volunteer. And by
junior high he discovers computers.
He and his friend Paul Allen worked
together to develop computer languages. How do
you talk to that box? How do you make it
actually do something besides sit there and
And he and Mr. Allen found ways to
communicate with the computer in words rather
than numbers binary code, zeros and ones,
When he's 18 he goes off to Harvard.
Mr. Allen goes to Washington State. And they
write to Mits, the company that manufactured
the Altair 8800, and say that they have a
version of Basic, which is a computer language
-- they don't -- but when Mits expresses
interest in what they say they have, they get
it. They develop it.
Mr. Gates borrows from the deck
programming language. Mits buys the
programming language. Mr. Gates drops out of
Harvard, and he and Allen move to Albuquerque
and found Microsoft in mid-1975. In the
beginning it's a partnership between Paul Allen
and Bill Gates.
At around this same period in 1976,
Digital Research, Incorporated, is founded, and
it is founded to develop the operating systems.
DRI's founder is a man named Gary
Kildall. He has a Ph.D. in computer science.
And in 1973, he develops an operating system
called CP/M. That is -- that means control
program for microprocessors. And it's one of
the very first operating systems for these
minicomputers. It becomes very quickly the
standard operating system for 8-bit computers.
I was going to tell you about a bit --
I was going to tell you all kinds of things
about a bit, but let me not do that.
Let me just tell you that a bit is the
smallest unit of storage used in computing --
the computers went from 8 bits to 16 to 32, and
now we're on our way to 64, and this is sort of
Microsoft's initial focus is on these
programming languages, the language --
languages used to write the applications. And,
of course, to use the computer language, you
have to have an underlying operating system,
and Microsoft chooses the then standard CP/M
Gates visits Gary Kildall, the head of
DRI, in November of 1977 and obtains a license
for using CP/M.
In July 1980, July of 1980, IBM comes
calling to Microsoft and asks Microsoft if they
want to develop -- if they're willing to
develop compatible 16-bit versions of its
popular language programs, okay.
They've got them for 8 bit and now
IBM's going to develop a personal computer, and
they come to Gates and Allen and they say, will
you develop languages for a 16 -- a larger,
more powerful, 16-bit computer. And they
agree. But IBM still needs an operating
system. Languages won't do it any good unless
the operating system is there.
IBM goes to Kildall at DRI. There are
some legends about this. But somehow the deal
isn't done. So IBM goes back to Gates.
By April of 1980, there's a guy named
Tim Paterson. He works for Seattle Computing,
and he has developed an operating system. It
is basically a clone of the CP/M, the DRI CP/M
And let me say a moment about clones.
Clones are not bad. What it means is a
different product which mirrors the function of
All PCs are clones of the original IBM
PC. And Paterson's clone is of DRI's CP/M.
He calls it QDOS. That means quick
and dirty operating system. That's what it
He was a cleaver guy. Anyway, he
develops this quick and dirty QDOS, and on --
in January of 1981, Microsoft licenses Mr.
Patterson's QDOS for $25,000 and then
sublicenses it to IBM for use in their --
what's going to be their new PC.
It's not a matter of public knowledge
yet. So Microsoft for -- licenses the QDOS for
$25,000 originally and buys QDOS outright for
another $50,000 and also in 1981.
So Microsoft has QDOS for about -- for
exactly $75,000 and MS-DOS, Microsoft's
operating system, is a clone of QDOS, which is
a clone of CP/M, which was developed by DRI.
And according to the three people who
work on MS-DOS, one of whom is Chris Peters,
from a programmer's point of view, MS-DOS 1.0
was a clone of CP/M.
Then Microsoft gives IBM a royalty
free license for MS-DOS, but Microsoft retains
the ownership rights of MS-DOS so it can -- it
retains the ownership rights and the right to
license it to all of the IBM clones which are
about to come onto the market.
Then you'll hear about PC-DOS. MS-DOS
and PC-DOS are virtually identical; MS-DOS is
the Microsoft product. PC-DOS is also based on
the Microsoft MS-DOS, but is the operating
system in the IBM or in the original IBM
The links from CP/M to QDOS to MS-DOS
are well recognized, and our technical expert,
a man named Andrew Schulman, will explain to
you what those links are.
So Microsoft gets into the operating
system business with Mr. Patterson's product
for about $75,000, and IBM then releases its PC
with the MS-DOS operating system loaded in it.
I want to return to the GUI, the user
During the '80s and early '90s, the
way that people talked to their computer was by
typing in commands. I think you've heard a
little bit about that the character based
Persuading my secretary to leave the
character-based interface was very difficult
because people who knew how to do it really
knew how to do it, and changing was difficult.
You type in characters and numbers.
If you get one wrong, then your computer won't
do what you want it to do.
She didn't get them wrong, but it was
a very slow and difficult thing for most people
to learn, but then Apple commercializes the
Xerox Parc GUI with the little icons, and so
instead of typing commands, all you did, you
had your mouse and you clicked on the icon, and
your computer would do what you wanted it to
do; most of the time.
And here is the first Apple GUI with
the icons. It was revolutionary.
Using your mouse you point and click.
This -- of course, this Apple is great for the
world of Apple computer users, but there is no
Graphical User Interface for the world of IBM
PCs and IBM clones; you know, Compaq, Gateway,
Microsoft comes out with an imitation
of the GUI and calls it Windows -- this is a
screen shot of Windows version -- actually,
that says 1.01, and it comes out in 1985. And
that is the Windows GUI.
For up until 1995, you buy -- you can
buy the Windows GUI separately from Microsoft's
MS-DOS operating system. Two separate
products, the GUI and the operating system.
For a while Windows is pretty crude
and most people prefer to stick with a
character-based -- the character user interface
that allows you to communicate by typing.
But Microsoft improves Windows, and by
the beginning of the 1990s on the PC; and, you
know, the PC is different than the Apple, not
in the same market. Microsoft improves it, and
by the early '90s the Windows is the dominant
GUI on personal computers.
I want to stop for a moment and make
sure that I tell you as clearly as I can that
Iowa class members are not here to criticize
Microsoft for the popularity of its Windows
If Microsoft had simply sold a good,
quality Graphical User Interface product at a
reasonable price, we'd be here applauding --
well, actually we wouldn't even be here, but we
would be applauding Microsoft rather than suing
The reason for this lawsuit is that
Microsoft is not satisfied with the results of
lawful competition. We are here because
Microsoft abuses its dominance in the Windows
GUI and in the operating system and in the word
processing and spreadsheet applications market
to eliminate competition in those markets.
I said I would return to sockets and
plugs, and here we are again.
All right. Microsoft -- this is
Microsoft's operating system, MS-DOS, sitting
under the GUI Windows. Those are the sockets.
Those are -- what Microsoft internally calls
the sockets is the operating system.
The plugs are the various software
applications that need to connect with the
I want to talk about something that's
familiar to all of us, and that is assume --
the evidence will include testimony from Roger
Noll who I told you about. He's an antitrust
economist from Stanford University; has devoted
years to analyzing the harmful effects that
certain practices have on competition and on
consumers, and he will use Microsoft's own
description of the operating system and
applications as sockets and plugs to help you
decide if competition and consumers are hurt by
Microsoft's practices of interfering with the
connections between Microsoft's monopoly
sockets and the GUI and competitors' plugs.
Suppose, for example, that here's this
Xcel Energy Corporation, and it supplies all
the electrical power in a particular area. It
also makes toasters and washing machines and
other kind of things.
But let's stick with the toasters and
blenders. We've got toasters and blenders
To compete, all other toaster
manufacturers would have to know how to plug in
to -- how to use -- how to get access to the
electricity that Xcel has.
The Westinghouse toaster has to have
information in order to make its plug fit into
the socket that will get its electricity from
the Xcel company. If it doesn't know how to
plug into the socket, it won't have any
electricity, and it won't toast your toast.
So it needs information how do we make
our plug, so it plugs into your socket so we
can get your electricity and Xcel has all the
electricity. They can't get electricity but
What if Xcel won't tell it or the
energy company Xcel won't tell it everything it
needs to know? Or what if Xcel tells it things
that aren't true?
Professor Noll will explain why it's
necessary to both competition and lower prices
that Xcel not use its monopoly power over
electricity to give its own toasters an
So its own toasters are the only
toasters who can plug in properly to the
sockets. Otherwise toast -- other toaster
companies, Westinghouse, Black & Decker, and so
on could never have their products work.
At this trial we'll prove that
Microsoft's monopoly over Windows was like the
power company's monopoly over electricity.
Other software companies could not compete
unless they could plug into Microsoft's
And so this analogy, while not
perfect, is very like what's happened here.
Part of what Microsoft did was use its
monopoly power over the operating system to
leverage monopolies in applications, Word,
Excel, Office. And they did that by denying
important information to other companies so
their plugs would not fit properly into the
In a very real sense, we are going to
be going behind Microsoft's corporate walls and
down their corridors and into the offices of
their executives to see hundreds, even
thousands, of these internal documents authored
by its top executives from Bill Gates on down.
Where did we get all of these
documents? They were provided under the
Judge Rosenberg talked to you about
interrogatories. We can ask questions; tell
us. They can ask questions of us. We can say
give us all of the documents that you have that
bear on a particular issue, and they're
required to make a reasonable search and
provide them. We used those discovery
processes; we got documents from other cases.
We will also hear testimony from
witnesses, either from the witness stand, and
I've already talked to you a little bit about
depositions, both by video and ones that we're
going to read to you.
You will hear all of these strange
words, all of these strange acronyms. I'll do
everything that I can to explain them once or
twice or three times, or however many times it
occurs to me to do so.
As you hear all of this strange
language and see it all in the documents, we'll
explain as they come up. We'll try to explain.
Some of them I still haven't figured
out with all of the documents. There's one I
was looking at last night, and I thought um, I
looked in my red notebook and it wasn't there.
We're going to try to find that out before I
talk to you about it.
Now let me talk to you about
Microsoft's illegal tactics, the things that
Microsoft does that destroy competition. What
are the illegal tactics that restrict
competition and harm consumers?
We have created some icons for you.
These are graphical representations. They are
among the things that you will not have in the
jury room. They're only for the purpose of
identifying and helping you to remember what
these tactics are.
I will talk about what they mean as we
go along, but here are these graphical icons
and representations. Here are the things we
say Microsoft did to destroy competition.
One of the things were exclusionary
Microsoft entered into contracts with
OEMs that for all practical purposes prevented
other operating systems from competing.
Tying and bundling, putting products
together in a way that leveraged the monopoly
power and the operating system into other
Buying out the competition. You'll
hear stories a couple of times about Microsoft
just saying, you know, you're competing with
us, stop that, we'll buy you.
Dishonoring contracts. I think that's
self-explanatory. You enter into a contract,
you're supposed to keep your word. If you
don't, in the case of Microsoft when it -- its
anticompetitive; it constitutes an illegal
Vaporware, that may be something that
you've not heard about. That's when you
announce a product that isn't going to come or
-- either isn't going to come at all or isn't
going to come very soon for the purpose of
freezing the market for the purpose of stopping
FUD. Fear, uncertainty, and doubt.
That's not like telling people my competitor's
product -- buy my product, not my competitor's,
because mine is better, and here's what's wrong
with the competitor.
Truthful information, that's not FUD.
FUD is something else, and I'll tell you what
The beta black list, I guess we
haven't even talked about betas. But some of
you, I'm sure, are aware that before a product
is released generally to the market, it's
tested; and usually by the people who are going
to use it, the businesses, the consumers who
are going to use it. Called a -- the product
goes out to some group of people for the
purpose of seeing whether or not it's going to
work. And that's called a beta.
And Microsoft had a black list that
said certain companies trying to plug into
their sockets could not have their betas to
make their products competitive with
Microsoft's products, okay.
I don't think I said that exactly
The beta -- Microsoft would not let
people have their betas if they made products
that competed with Microsoft, not with a
product that was in the beta, but with other
You have to have the beta if you're
going to -- you've got to have the socket if
you're going to plug into it. You've got to
know whether your product is compatible with
the socket with the operating system.
Technical sabotage, that means you can
see the plugs don't fit. There's -- the wires
don't go. And that means Microsoft did things
on purpose to make other people's products not
work with their monopoly operating system.
Undocumented APIs. We talked about
the APIs and the -- some of them Microsoft
doesn't tell other people about. They keep
The DOS Windows merge, that's Windows
95, when they bolted the operating system and
the GUI together, we say they did that in order
to kill DRI, to kill DR-DOS, and OS/2.
Dividing the market. You will hear
evidence that Microsoft, when it has a
competitor, rather than competing fair and
square, would make proposals.
You've already heard about the
Netscape proposal. You'll hear others. You
know, I'll take -- Microsoft generally would
say, in effect, I'll take the big share of the
market and you can have the little share.
As you might suspect, competitors
didn't want the little share; they wanted their
The deception and misinformation, I'm
sure that's very self-explanatory.
Technology espionage, I think that's
Unqual treatment, you understand that.
And threats and intimidation.
These kinds of tactics were part of
Microsoft's formula to destroy competition.
I'm going to talk to you about the
following Microsoft -- these are the
competitors we're going to talk about. These
are not all of them. These are all of them I'm
going to talk about.
Digital Research, Incorporated, which
I've said that's Gary Kildall's group CP/M,
from which QDOS came, from which MS-DOS came,
that's Digital Research.
You will hear from -- actually, you're
going to hear from the guy who wrote DR-DOS.
He's coming from England to talk to you about
how he wrote it and what it did and why it
The story I tell you about DR-DOS will
be the longest because it is in that story that
I'm going to define terms and talk with you
about the tactics. So that will be the
longest, I promise, and then they'll get
GO. GO was the developer of a
notebook computer. I'm going to show that to
you. A little tablet that a man named Jerry
Kaplan thought of in 1987, and that was
released to the market in 1991.
You wrote it -- remember, you were
asked the question did you ever have one of
those. You wrote on it with electronic ink.
Now I'm talking a long time ago. We'll talk
IBM had the operating system called
Then I'm going to talk again to you
about the findings of fact and try to sort them
into some categories. Microsoft's actions
against Netscape, against Intel, against Sun's
Java, against RealNetworks. Sort of go through
them in a way that is, I hope, helpful to you.
Then we're going to talk about the
applications software, Word and Excel, about
RealNetworks, about another operating system
called the BeOS. It was a multimedia operating
system. And then Linux, which is -- you heard
a little bit about Linux in the findings of
fact, the free software, the open-source
And then I'm going to talk about Acer.
Acer was an OEM, an international OEM, usually
in the top ten, and I'm going to try to fit in
together, all of the pieces of the stories into
the Acer story as kind of a summary.
These are, as I said, not all of the
companies, but we think that these are
representative of what Microsoft did.
It has taken me many years to
understand this material. I have had periods
of intense frustration, and I ask you to listen
carefully. And I think for you, as some of you
may get this right off, but those of you who do
not, I just don't want you to think you'll not
get it because you will, because I did.
It's -- I kept going, and pretty soon
I got the pieces together. I could understand
what they were talking about. I think for some
of you that will be easier, and for some of you
it will be not.
For most of us the technical aspects
are difficult, and what makes it harder is the
sheer volume; the sheer volume of companies,
the sheer volume of people, the sheer volume of
products, and the long time period. And the
sheer volume of illegal actions which appear to
be separate, but which we will show you are all
I really wrestled with how best to
present this information to you in a way that
would make sense. I thought about organizing
them chronologically, but Microsoft often had
several competitors under attack at the same
time, so we would be going back and forth.
You know, we'd be going with what
happened to DRI and then what happened to OS/2
and what happened to Lotus, and that seemed too
confusing to me.
Then I thought about organizing them
by illegal tactic. You know, by those icons
that I showed you. But that has the same
problem. You know, they're going back and
forth, and different people are involved.
So I don't think there is any perfect
approach, but by organizing by company it seems
to me likely to be the clearest.
I will point out wherever it seems
necessary what envelope the tactics go in, and
on some of the documents you will see an icon.
Let me make it absolutely clear to you the icon
wasn't on there when it was sent out to other
We have applied the icon, and it won't
be on the document when you get the document.
It's only for your assistance in sorting out
what tactic we believe that that document
Just because -- and I will try to
watch you to see whether or not it seems that I
am helping you to understand or whether I'm
putting you to sleep.
Then I'll drop something or -- just
because I organize this by competitor does not
mean that the issue is what the competitors did
or didn't do or how well their products worked.
The issue is what did Microsoft do to
restrain trade and to eliminate these
competitors, and therefore competition, and
therefore harm Iowa class members.
Keep your eye on the ball, and the
ball is Microsoft's anticompetitive tactics.
Before we begin the stories, I want to
show you an old E-mail because so many of the
documents are E-mail. I wanted to be sure that
you understood how to read these things.
At the top you will see Nathan M. --
from, I know it's very clear to all of you.
But these are called in Microsoft E-mail
aliases, and Nathan M. is Nathan Myhrvold.
In the beginning it was the first name
-- Microsoft was very little. It was the first
name of the person and their last initial.
That was the E-mail alias.
I also want to show you two dates --
Bill Gates, Bill G. is Bill Gates. You will
see him referred to as Bill G. often. And
Steve B., Steve Ballmer. So that's how you
read those -- Paul M. is Paul Maritz, and Peter
N. is Peter Neupert, I think. Subject: Do we
have a future? And two dates.
This is -- I don't know how to work
this out, but if you see at the top, the top
date is Friday, June 10, 1988.
Can you see that? Yes.
And the bottom date is March 9, 1992.
So there are a number of documents
like that that have two, you know, quite
divergent dates, and the only way that -- we
don't know which one is the correct one, except
by the context of the E-mail and sometimes by
who is there at the time.
Pretty soon that all gets straightened
out and there's just going to be one date, one
date on the documents, but at the beginning
that's not so.
You'll also hear us talking about
Bates numbers, see -- exhibit numbers and Bates
numbers. The X521273, that is a Bates number.
It is a document control number.
In cases like this where a large
number of documents are going to be produced, a
number is applied by the producer so that we
can all keep track, so there's some way of
keeping track of them.
This happens to have two Bates
numbers. You'll see them with six Bates
numbers. You'll see a lot of numbers. You'll
also see a lot of exhibit numbers.
This is the one that counts. It says
Comes versus Microsoft. That is the exhibit
number that counts.
But, Darin, can we go back to that
handwritten one at the bottom?
That's also an exhibit number. We
have to leave those on. Those are deposition
exhibit numbers, and when the depositions are
read to you or when you hear them, those are
the numbers that you'll be seeing and hearing.
The exhibit numbers that matter will
have either Comes versus Microsoft, or just so
you don't get confused they may also say Gordon
versus Microsoft. Most of them will say Comes
Let's change to 1332 just -- now look,
look there's real names on there. It goes back
and forth. Depends on, I think, the E-mail
system in use. But that one is a lot easier.
What I wanted to show you on this,
though, is the redaction.
There will be big holes in some of
your E-mails, and as the Judge told you, don't
be concerned about that. Some material is not
relevant. It's not -- it went to a lawyer so
that's not something that is a part of what you
may consider, so we just take it off.
What I've learned over the course of
time in trying cases, that anything that you
don't get, you want to know why. So there you
There was something else. Oh,
including another E-mail.
Sometimes it is very difficult to tell
what came from whom, but this I wanted to --
this is a usual way.
You see where it says from Joachim
Kempin to Brad Silverberg? That E-mail was
sent -- you see the little hash marks along the
side? That means that that was enclosed in the
E-mail from Brad Silverberg back to Mr. Kempin
and to Mr. Ballmer and Gates and Brad Chase.
That's an enclosed E-mail, but you'll
see a lot of that. Sometimes there are little
carats, little arrows, and usually you can see
what's enclosed E-mail and what came from the
Also, ordinarily you read these back
to front. In other words, the first E-mail is
at the back page, and then the next, and the
next, and the last E-mail is at the very front.
As you look at these hundreds of
E-mails, please remember what the Court told
you in Instruction 23, and that is that
Microsoft is a corporation and can only act
through its officers, its employees, and its
agents, and the action of those people,
Microsoft's officers and employees and agents,
as long as they're within the scope of the
employment, are the actions of the corporation.
Your Honor, I have finished my
introductory remark. I'm ready to begin DRI,
but perhaps we should take a break.
THE COURT: This is the time I told
you we'd break, at 11 o'clock.
Remember the admonition previously
given. You'll be in recess for lunch until 12.
You may go, of course, wherever you wish. You
have to leave your notebooks here, please.
Remember the admonition.
If you'll gather back in the jury
lounge at 12, we'll begin as soon as we can.
See you then.
(A recess was taken from 11 a.m.
to 12 p.m.)
THE COURT: Ms. Conlin, you may
continue with your opening.
MS. CONLIN: Thank you, Your Honor.
The Judge has put a microphone here
just in case I'm not speaking loud enough, and
we all expect that I will knock it off.
All right. DRI. First competitor
As I told you, DR-DOS is a competing
operating system. It was developed in 1988 and
withdrawn in December of 1994.
I'm going to outline evidence about
Microsoft and DR-DOS.
The evidence will prove that Microsoft
did not compete fair and square, and it did not
beat DR-DOS on the merits of its products.
It destroyed DR-DOS by illegal acts,
illegal anticompetitive acts. It maintained
its monopolies by breaking Iowa's Competition
I'm going to talk first about the
things that we will prove.
That's a little outline. It's four
pages long, just FYI. And the first part goes
real fast, and then it slows down a bit.
Exclusionary licensing tactics.
Microsoft says it offers three types of
One is a per copy license. You pay
for each copy as you use it.
The second is called a per system
license. These are the licenses that Microsoft
has with the OEMs.
The second kind is a per system
license, and that is, you pay Microsoft for
every computer of a particular model. Compaq,
Presario, Acer, every model.
It doesn't matter whether the
Microsoft operating system is on the computer
or not, the license is by system.
Until the early 1990s, this was the
equivalent of a per processor license, and that
is the license where you pay Microsoft, the OEM
pays Microsoft for every single computer
shipped out of the company with a particular
kind of processor.
Processor is the CPU. We're going to
talk about that in a minute.
And again, doesn't matter whether or
not Microsoft's operating system is on the
The license requires that the OEM pay
The types of predatory conduct that
Microsoft engaged in in connection with
contracts also happen to fall into three
The first is the per processor license
where the OEM must pay Microsoft for every
computer with a particular kind of CPU. That's
The CPUs that started out with an
8088, and then moved through various -- usually
there is -- there are only a couple in effect.
By that I mean at the same time when
computer makers are making computers, they're
-- they often are using a high-end Intel
processor or Intel-compatible processor and a
So these per processor licenses means
that an OEM could only ship a competing
operating system if they were willing to pay
twice for the Microsoft operating system, not
on the computer and for the competing operating
system on the computer.
The OEM has to pay the maker of the
competing system, for example, DRI, and it
still has to pay Microsoft.
The second type of predatory conduct
in connection with Microsoft exclusionary
licenses is the minimum commitment.
The OEM has to pay for its estimated
number of licenses on a quarterly basis,
whether they sell all those computers or not.
They estimate we're going to sell
100,000 computers in a year. They pay
quarterly. They pay for 25,000 every quarter.
If they don't sell $25,000 -- or 25,000 a
quarter, they still pay. That's the minimum
If they sell fewer than they estimate,
Microsoft can keep the money. Those are called
prepaid balances. I have mentioned PPDs,
And the OEM forfeits that balance,
unless they renew their contract with
The third type of predatory conduct in
connection with exclusionary licenses is the
After DRI comes along, Microsoft's
licenses -- it started out to be a year long,
and they got to be two years, then three years,
and even four years.
So during that time, when a per
processor license, if an OEM wants to ship a
competing product, they'll be paying twice.
Second type of predatory conduct
towards DRI is the tying. Combining by
contract, by pricing, the Windows monopoly
product, a GUI, with a DOS monopoly product and
operating system, or vice versa.
To prevent consumers from using DR-DOS
with Windows, Microsoft began tying the two
together. You'll see reference to the WIN DOS
combo license. And charging prohibitively high
prices to any OEM that wanted to buy Windows
alone; that wanted to take the GUI and use it
You will see from the evidence that
Microsoft charged more for Windows alone than
for Windows and the operating system together.
Third type of illegal conduct is
vaporware. Announcing products that just don't
exist to stall the market.
For example, within a week of DRI's
announcement of their product, DR-DOS 5.0,
Microsoft announced plans to ship its MS-DOS
5.0 within four months.
And Microsoft's executives circled the
globe and talked about MS-DOS 5.0 and deterred
purchasers from trying out DR-DOS.
The product did not come out -- okay,
this is in April, May, of 1990. The product
MS-DOS 5.0 did not come out until June of 1991.
First promised in September, then to
the end of the year. Then kind of moved out in
increments. All the while OEMs are waiting for
the Microsoft product.
And when it came out, it didn't even
include all the features that Microsoft had
promised and that DR-DOS 5.0 had in April, May,
June of 1990.
FUD. That is the next -- the fourth
illegal tactic. Fear, uncertainty and doubt.
Microsoft's FUD strategy was to
portray DR-DOS as full of bugs, full of
technical glitches, and incompatible with
Windows, the GUI, which, of course, translates
the commands to the pictures on the screen.
Neither charge was remotely truthful,
and Microsoft knew it, and I will tell you how
they knew it.
Microsoft's own documents reveal the
predatory intent behind these spurious charges,
which was convince customers that DR-DOS was
too risky a venture. You know, don't try it,
it might be incompatible.
And also the idea was to keep the
market, keep OEMs from taking a risk with a
product that might be incompatible.
Betas, we've just talked about. That
is the prerelease version, goes out to some
people to check it to try it out, see how it's
going to work.
I told you about the beta black list.
DRI was put on the beta black list for Windows
3.1, the GUI product.
DR-DOS is an operating system at -- in
June of 1991, DR-DOS -- DRI merges with Novell.
So Novell, another computer manufacturer --
software manufacturer, also gets put on the
beta black list.
And I will tell you that companies who
do business with DRI stand on a stage with DRI,
promote DRI, put DRI products in their
catalogs, they get on the beta black list.
They can't get their hands on the
betas that they need to make their products
compatible with Microsoft's monopoly operating
The next tactic, illegal tactic is
I'm going to talk to you about four
types -- four things they have named.
First one is a verify DOS. The second
one is called the AARD code, A-A-R-D, named
after its developer Aaron Reynolds.
And that is a type of technical
sabotage which existed in the Christmas beta of
When you put your GUI, your Windows
3.1 beta onto a computer that used the DR-DOS
operating system, a warning message came up.
That's the AARD code.
This is stronger than the typical FUD,
which is words. But Microsoft engaged in
affirmative action to create the strong
appearance of incompatibility when -- and then
marketed that apparent incompatibility against
The third technical incompatibility is
called Bambi. I just was so surprised to learn
they named it after Bambi.
And the fourth is the nested task
Microsoft also uses an illegal tactic
of threats and intimidation against anybody who
consorts with DRI.
And the next illegal tactic is the DOS
Windows merge, which became Windows 95,
In 1993 Microsoft begins to
preannounce the development of a new product
that is supposedly an integrated Windows
operating system and which will simply
eliminate the need for any DOS on the machine.
Microsoft can eliminate all the
competition in the operating system market by
simply incorporating DOS, the operating system,
In other words, Microsoft can use its
uncontested monopoly in the operating system to
swallow the DOS market in one gulp.
It's released in August of 1995, and
this is a type of tying and bundling.
There is a secret to Microsoft's
Windows 95. And what Microsoft describes as an
integrated product is in fact simply the
operating system with Windows bolted to it.
DOS is still in there. You can still
get to it and -- but for Windows 95, DR-DOS
could have survived as an independent product.
There would have been competition in the
operating system market.
Competition; there would have been
choice, there would have been innovation, and
there would have been lower prices.
I'm going to do this in time order
starting with what I call the stagnation of a
standard. That's from 1981 to 1989.
As I indicated to you, by 1985 MS-DOS
is the standard operating system for personal
computers. It has a huge installed base.
The vast majority of -- this is 1985.
The vast majority of PC users use MS-DOS.
With monopoly comes complacency, comes
In November of 1989 Gates told his DOS
developers, in Exhibit 184, while DOS continues
to be our most important and most profitable
product, over the last four years we have done
very little with it technically.
He admits in this document that
Microsoft has abandoned product innovation and
has put little or no effort into improving
It's a monopoly product. People
aren't going to go anyplace else. So there's
no reason to move the product forward.
From April of 1987 to May 1990, that's
the advent of DR-DOS.
Dick Williams, who you will hear from
by deposition, takes the helm of DRI in January
Some OEMs are not very happy with
MS-DOS and with Microsoft's control of the
whole operating system market.
Within 30 days of taking control of
DRI, Williams begins development of DR-DOS.
John Constant, who is an engineer,
and he's in Hungerford, England, begins
development of DR-DOS. And he uses as the base
an existing DRI product called concurrent DOS.
Contrary to Microsoft's public
statements at the time, he does no reverse
engineering of MS-DOS. He uses as his base a
The first product is called DR-DOS
3.31, and it launches in May of 1988.
I've got to move back just a little.
In April 1997, at the spring COMDEX,
the industry's -- you may have heard about it
or read about it. This COMDEX occurs in Las
Vegas, and all of the people interested in
computer software; not all of them, certainly,
but that's the primary meeting place for
Microsoft and IBM in April of 1987
announce this joint development agreement, JDA,
where they are going to produce OS/2, an
operating system, that will be the successor to
the DOS standard, and available by year's end
they say on IBM's new PS2 systems, and this
comes to be known as the DOS is dead
Microsoft and IBM begin the
development process for OS/2.
IBM then takes the laboring ore with
some of the MS-DOS product. They do most of
Version 3.3 and virtually all of MS-DOS 4.0
totally on their own.
And, you know, the product, MS-DOS,
has become so unimportant that there is no beta
testing at all of MS-DOS 4.0 or the MS-DOS
Bill Gates concedes this point in the
memorandum to his executive staff in October,
1988. This is Plaintiffs' Exhibit 37.
DOS 4 is a mess to discuss. Bugs, too
big, strange shell interface. Who wrote it?
DOS 4 has a terrible reputation.
Now, remember, this is the one that
IBM did on their own. But it's going out under
Microsoft's name, so Microsoft bears
responsibility, and its reputation is at stake.
What forces Microsoft to recognize its
error in writing a premature obituary for the
DOS standard is simple. DR-DOS. And
particularly the innovations that DR-DOS comes
up with in DR-DOS 5 and DR-DOS 6.
DR-DOS is better, faster, cheaper than
MS-DOS, according to many people, including
some within Microsoft, and it is fully
compatible with applications that run on
MS-DOS, including Windows.
Microsoft's own internal evaluations
confirm that DR-DOS is a strong competitor to
In April 1989, internal report
entitled DOS and Windows Monthly Summary, which
is Plaintiffs' Exhibit 103 -- this is April of
1989, says, "Initial consensus from DOS program
management is that DRI has a product which
competes very favorably against MS-DOS."
Even Bill Gates views DR-DOS as a
serious competitive threat.
On December 1, 1989, in a letter to a
guy named Jim Cannavino. Mr. Cannavino is at
And remember, they've got this joint
development agreement going on at this time.
Mr. Cannavino is a VP and general
manager of IBM personal systems.
Gates in this letter makes the case
for taking -- for Microsoft taking back control
of MS-DOS. He says in Exhibit 185, "DOS
remains the backbone, though, of both of our
software businesses. It is under extreme
attack by high-quality clones like DR-DOS."
This is Mr. Gates admitting that
DR-DOS is a high quality product.
Monopoly maintenance begins with an
effort by Microsoft to purchase DRI.
Initially rather than deal with the
threat of competition, Microsoft attempts to
pay off DRI to just go out of the DOS business.
In December 1988, Steve Ballmer and
Dick Williams, Dick Williams the president of
DRI, go to a conference in England, and Ballmer
speaks privately with Williams.
Ballmer proposes that DRI sell MS-DOS
as their product instead of DR-DOS and that
each company license the other's company -- the
DRI is not interested, not interested
in a long-term relationship with Microsoft, and
so offers DR-DOS technology for a very high
fee, 30, 40 million -- I can't remember for
sure -- and expected Microsoft to refuse, and
Microsoft did refuse to pay so much cash, and
they just went their separate ways.
So the buying doesn't work, and so
they begin technical sabotage.
At around this same time, Gates
directs his development staff to identify ways
that a Microsoft application can break DR-DOS.
On September 22, 1988 --
I hope you can see this better than I
can. Can you?
Let me read it to you. I've gotten a
magnifying glass to look at some of these.
Some of these are old documents. They've been
faxed, they've been messed with, and they
weren't all that good to begin with.
This is Plaintiffs' Exhibit 21. Again
Mr. Gates writing on September 22, 1988.
"You never sent me a response on the
question of what things an app would do that
would make it run with MS-DOS and not run with
DR-DOS. Is there any version check or API that
they fail to have? Is there features they have
that might get in our way? I am not looking
for something they can't get around. I am
looking for something that their current binary
fails on." Binary source code.
In other words, what can an
application do to check to see if it's running
on MS-DOS or DR-DOS, and if it's running on
DR-DOS, fail, break, stop.
He goes on to say, "This is a fairly
urgent question for me, and I have received
He's clearly saying he wants Microsoft
applications not to run if they're loaded on
Gates receives a reply that day from
Phil Barrett, and he is a guy who runs Windows
development at Microsoft. His title is
development group manager.
What he learns from Mr. Barrett on
that day is that DR-DOS approaches nearly
In Plaintiffs' Exhibit 34A, he
identifies three differences.
"Here follow the three differences
between DR and MS-DOS that Aaron has been able
to find so far. Except for these differences,
the two OSs behave similarly, including
Even Reynolds -- this is Aaron
Reynolds, who is one of Microsoft's software
developers, can only find three differences
between these two operating systems in all the
hundreds of APIs that exist, all the hundreds
of calls. And that includes even those that
Microsoft keeps secret beyond documented ones,
which we'll talk about later.
He goes on to say, Mr. Barrett goes on
to say, "The bottom line is that given Aaron's
current findings, an application can identify
"However, most apps usually have no
business making the calls that will let them
decide which DOS, MS or DR, they are running
Truer words were never spoken. There
is simply no legitimate reason for an app to do
this, and this is Barrett's attempt to put up a
stop sign to prevent this kind of conduct.
Next comes the warning messages. As I
told you, the market for software is worldwide,
and so I'm going to talk to you a little bit
DRI is making in roads in Korea where
a lot of computers are produced.
Early on they considered DR-DOS
Here's what happens. Microsoft sends
people to Korea, and in open-forum seminar they
tell OEMs, representatives of OEMs, that DR-DOS
is a copy of MS-DOS, and anybody that uses the
product will be sued by Microsoft. Needless to
say, kind of discourages people from buying
Gates also decides that Microsoft
products should test whether DR-DOS is running
despite Mr. Barrett's reservations that I told
First, his idea is to crash it, make
it stop, but then he changes focus and wants to
warn the user about using DR-DOS instead of
And he writes on February 8, 1989, in
a memo to his executive staff about DR-DOS.
That's a little bit better.
"I want to make sure we get the
message implemented in all of our products.
Languages are important, Windows is important,
applications are important. How can we spread
the message about getting this done, including
the localized versions? I guess we have to
localize the message. Russ, please let me know
what your action plan for this is."
Localized version is one that speaks
the language of a locality. And Russ is Russ
Warner, who is at that time in charge of
The message they're talking about, and
that goes into Microsoft products, warns people
that they are running what Microsoft calls an
untested DOS. In other words, not Microsoft
DOS, not MS-DOS.
Within three months Microsoft products
are shipping with the DOS clone check.
Mr. Schulman will talk to you about
that. The code is verify DOS.
And in May 1989, Mark Chestnut, who is
Microsoft's -- I'm going to give you the
The titles change. They have
different meanings at different times, but I
thought you should at least know that the
people who are talking are people who have
roles to play, significant roles to play in the
production of these products.
Mr. Chestnut is Microsoft MS-DOS
product manager. And he confirms in May of
1989 that this warning has been implemented.
DRI competitive response. This is
Plaintiffs' Exhibit 109.
The first Microsoft product with the
nontested DOS warning code, QuickPascal, was
Tom Reeve and Cindy Kasen in have
committed to implementing it in all new MS
application and language releases from this
point forward, including international.
And the warning is not a bit subtle.
This is Plaintiffs' Exhibit 3228.
The warning says, "Microsoft
QuickPascal has been tested for use only with
MS-DOS and PC-DOS operating systems."
PC-DOS is the IBM one.
"Your use of this product with another
operating system may void valuable warranty
protection provided by Microsoft on
By August of 1989 the warning is
implemented in foreign versions of Windows, as
evidenced by this message, by the Microsoft
Korean subsidiary. This is Plaintiffs' Exhibit
I'm going to read it to you just as
it's there, written by a person for whom
English is not his first language.
He says, "Bill Gates ordered to all
application business units to include checking
routines of operating environments, and if it
is Microsoft DOS, nothing will happen. But if
it is non-MS-DOS, such as DR-DOS, application
will display messages saying that, quote, this
application has been developed and tested for
Since you use different environment,
this application may not work correctly."
The question from MS-CH -- that's the
Microsoft Korean subsidiary -- is, "How to
check the DOS is MS-DOS or clone. MS-CH wants
to include such routine in Hangeul Windows so
that Hangeul Windows can run only Hanguel
MS-DOS. Could you tell me to whom I can ask to
resolve this problem?"
Other language products, such as
Microsoft QuickC, Programmers Workbench, and
6.0 setup have similar messages.
And it makes DOS -- DR-DOS users
wonder what kind of a risk are they taking not
using MS-DOS, and that, of course, is what
This is Microsoft's first type of FUD
Exclusionary licenses. Despite
Microsoft's action, DRI does make headway,
significant headway, into several substantial
And Gates thinks how to protect
Microsoft's DOS monopoly and the emerging power
of its Windows GUI.
On May 18, 1989, Gates writes his
executive staff addressing operating system
He says, "The DOS gold mine is
shrinking and our costs are soaring, primarily
due to low prices, IBM share, and DR-DOS.
Making Windows a strong product benefits our
"I believe people underestimate the
impact DR-DOS has had on us in terms of
On August 6, in an E-mail directed
only to Mr. Ballmer, who is then his -- then.
And for a long time, his top lieutenant, Gates
writes in Plaintiffs' Exhibit 135, "DOS being
fairly cloned has had a dramatic impact on our
pricing for DOS. I wonder if we would have it
around 30 to 40 percent higher if it wasn't
cloned. I bet we would."
So this is Bill Gates admitting in an
internal document to Steve Ballmer what the
effect of competition is on Microsoft's
profits. We'd have it 30 to 40 percent higher
if it was not for DR-DOS.
This is good for consumers, including
Joachim Kempin, whose name I am
hopefully now pronouncing correctly, is someone
who you'll hear quite a bit about. He is the
worldwide director of OEM sales for Microsoft.
He is the person in charge of selling to the
computer manufacturers, the OEMs.
He knows that despite Microsoft's lack
of innovation, Microsoft's DOS monopoly permits
it to maintain a steady price, notwithstanding
a rapid decline in the price of other
components of the personal computer.
Microsoft not only wants to exclude
DR-DOS and the lower prices that DR-DOS and
competition entails, Microsoft is searching for
a way to maintain higher prices, even though
it's, as Mr. Gates says, they're not doing much
to improve the product.
On February 9, 1990, Kempin tells us
that DOS monopoly prices are bucking the trend
of other computer components.
This is Plaintiffs' Exhibit 222.
Can you do anything about that, Darin?
Is there any way to make that a bit bigger or
I'm not sure that helps.
Here is what he says: "OEM
manufacturers are increasingly sensitive to
added costs. OEMs are pressuring us more and
more to accept the fact that operating system
software needs to follow their economy of scale
model, expressed in percentage of SRP per.
Today we are asking for two to three times as
much money for MS-DOS as we did five years
Let me explain what he's saying there.
Expressed in percentage is clear. SRP,
suggested retail price. Per means per unit per
computer. And he says, "...expressed in
percentage of SRP per. To date we are asking
for two to three times as much money for MS-DOS
as we did five years ago."
In five years, Microsoft has increased
its price -- the price it sells MS-DOS to OEMs
by two to three times, according to the guy who
knows for sure, because he's in charge of
selling MS-DOS to OEMs.
Let me talk about tying.
Before obtaining monopoly power in the
GUI market with Windows, Microsoft sort of
threatened and intimidates OEMs into accepting
licenses that exclude DR-DOS.
One thing they offer is very low
bundled prices for MS-DOS and Windows together.
DR-DOS is identified early as a threat
in the Vobis account. Vobis was the largest
OEM, the largest computer manufacturer in
Germany. Maybe in Europe.
Theo Lieven is its CEO. We expect
Mr. Lieven to come to trial from Germany and
tell you about how Microsoft drove DRI out of
The Microsoft OEM status report,
you'll see lots of these. Microsoft does
status reports on a monthly basis and covers
the whole world and says what's going on.
In November of 1980 -- and they're
done to and for Mr. Kempin.
Here is Exhibit 4459. It is the
November 1989 status report.
Here is what it says: "Also, they are
interested in having Windows 3 on their
computer systems as soon as the product is
released. At this time we still offer DOS and
Windows on per system level. If there is any
danger, we will offer the DOS-WIN combo
license." Two together.
In this report Microsoft admits that
it is contractually tying the two product
Microsoft also uses another method of
tying by giving OEMs more favorable minimum
commitment packages for DOS and Windows
combined as opposed to Windows alone.
When closing a license with Acer --
Acer International is one of the -- usually one
of the top ten OEMs in the country.
When closing a license with Acer in
November 1989 where DR-DOS is a threat, Jeff
Lum, L-u-m, who is the international VP of
Microsoft, proposes crediting some prepaid
monies on MS-DOS.
PPDs are also known as UPBs.
They owe money -- Microsoft got some
of Acer's money on the Microsoft MS-DOS
contract. What they're doing here is saying to
Acer, we will give you -- we will credit some
of the money that you owe for MS-DOS on
Windows, okay, to the new Windows contract.
This is Plaintiffs' Exhibit 169.
"If we want to attract them using
UPBs, we could apply some of the UPB to the new
Windows license that is about to be signed,
which has a totally separate minimum
commitment" -- he says "min commit schedule."
After -- as I mentioned earlier, in
the beginning Windows 1.0 and Windows 2.0, not
much of a product.
Along comes Windows 3.0, and they've
-- you know, third generation, it's much
better. And once it launches and starts to
become popular, what was once a carat becomes a
great big stick. We are at DR-DOS on the rise.
As I said, even though -- even despite
all of this, DR-DOS does show strong growth,
especially in the OEM channel DRI's management
reports for the fiscal year ending August 31,
1989 -- this is Exhibit 143.
General purpose operating systems
revenue grew 43 percent from 1988. This
included significant growth through OEM
channels, 62 percent over 1988, attributable
primarily to DR-DOS.
The company expects a minimum growth
rate of 24 percent in 1990 as new functionality
is provided with DR-DOS and it gains even more
widespread OEM acceptance worldwide.
So now we are to May 1990, July 1990.
This is -- during this time DR-DOS 5.0 is
released, and this is when the real competition
By the late 1980s, PC users' two
biggest complaints are, first, not enough
memory. Those of you who were using computers
in this time probably remember the very serious
problems we had running applications. They'd
hit the memory limit and down everything would
And second, limitations on hard disk
size. The problem lays in the operating
system's inability to take advantage of
increased memory size and increasingly large
Despite the fact that users have been
complaining about these problems for years,
Microsoft gives no indication that it is
interested in solving them.
In June 1990 -- remember this date --
June 1990, DR-DOS provides advanced features
that mitigate these problems, not suggesting to
you that they're solved, but DR-DOS provides a
way for people to get access to more memory,
and it includes numerous other improvements as
It's just a tremendous breakthrough.
Not only does the product include the memory
management features that Mr. Constant will tell
you about, it has expanded disk drive
capabilities, and it features innovative things
like online help, the ability to sort file
directory listings in a number of ways, a file
transfer utility, and a very easy-to-use setup
program, you know, how you get the -- how you
install the product.
MS-DOS does not provide any of these
features in June 1990.
When DR-DOS 5.0 ships in the United
States, comparable features in MS-DOS do not
appear until June of 1991, a year later.
When DR-DOS comes out, it receives
praise and endorsement from everywhere,
including from within Microsoft itself.
On April 15, 1991, Phil Barrett --
Phil Barrett, head of the department that is in
charge of MS-DOS, receives the following review
from one of his subordinates. This is
Plaintiffs' Exhibit 682.
"Last Thursday you asked me for a
user's view of DR-DOS 5.0. When I worked for
David Wiese's brother Ira, I used DR-DOS 5.0
with a huge number of apps. I found it
incredibly superior to MS-DOS 3.31 and IBM-DOS
Those are the products on the market
at the time DR-DOS 5.0 comes out.
"1. DOS compatibility. The most
important reason to use any version of DOS is
to run DOS apps. DR-DOS 5.0 runs every DOS app
I know. DR-DOS 5.0 works successfully with
Windows 2.11, WIN 386, 2.11 again, and Windows
3.0 and 3.0A.
And here is the reviewer's conclusion.
"DR-DOS is vastly superior to MS PC-DOS 3.31
and 4.01. It is about as good as MS-DOS 5.0.
Both have nearly identical features, 386 UMB
memory" -- UMB means upper memory block --
"upper memory management, command history, help
included in utilities, format optional
installation, high compatibility with existing
DOS apps. I don't see any real cutting-edge
advantage of one over the other."
Now, this is April 15, 1991, so Mr. --
this guy whose name is Percy T. has access to
the -- by this time to the beta of MS-DOS 5.0,
but it is not yet released to the public, 5.0
is, and it's almost a year after DR-DOS comes
on the market.
And this guy, Percy T., is well
qualified to make this assessment. That's why
Phil Barrett, who is in charge of the
department, asks him to do it, and he will tell
you, he, Barrett, will tell you by deposition
that's why he asked him to do it.
Monopoly maintenance. Microsoft knows
it is facing a legitimate and credible threat,
and it simply declares war.
In May 1990, Microsoft's executive
staff attends an annual executive staff
retreat, and they clearly discuss monopoly
This is Plaintiffs' Exhibit 280, and
it says, "Desktop" -- you can see that. "On
the desktop, we have a strategic win today
(monopoly). We must keep the desktop."
And this was not some random thought.
It is a presentation by, among others, John
Shirley, the outgoing CEO and president of
Microsoft; Brad Silverberg, whose name you will
hear a lot, he's an incoming executive from
Borland taking charge of MS-DOS and Windows,
made to, among others, Bill Gates and Steve
The focus is still on defending and
extending the DOS market monopoly a year later,
and this would be in 1991.
Then Microsoft's president is a guy
named Mike Hallman, and he gathers a collection
of E-mails from all of his executives listing
their top ten priorities.
And the obsession over monopoly power
is just a little bit startling.
This is Plaintiffs' Exhibit 567. It's
from a guy named Rick Macintosh, and he is in
MS sales for North America.
He says, "Keep and expand the system
franchise. Identify the minimum acceptable DOS
penetration, i.e., 95 percent, and absolutely
attain it and keep it."
Exhibit 570 is from Scott Oki. You
will hear from him by deposition. He's senior
VP for sales and marketing.
He says, "Maintain control of the
desktop systems platform. DOS is still the
gold mine. It is the cash cow that allows us
to invest in other potential cash cow
And then Silverberg, in an Exhibit
563, who is the vice president of personal
systems group says, "Protect and expand the
system franchise so that Windows is the
dominant standard. Windows needs to own both
stand-alone machines, as well as client
Now let's talk about the exclusionary
The most effective tactic Microsoft
uses in defeating any operating system
competitor is these exclusionary licensing
tactics with the OEMs. And the three ways that
they exclude other operating systems, not just
DR-DOS, but also OS/2.
During this '90-'91 period, Microsoft
-- Microsoft licenses do not say right out you
can only load MS-DOS. They utilize a
collection of devices to create the same
effect; per processor licenses, minimum
commitments, long terms.
Exclusionary licenses are the key to
Microsoft's defeat of both DR-DOS and OS/2. It
is another competing -- Microsoft sort of
creates a wall of these per processor licenses.
You'll hear Microsoft say that these
licenses did not cover all OEMs and that DRI
and IBM could compete for OEMs that were
covered when the licenses expired. Then they
made the licenses longer.
And besides that, they have these
prepaid balances that you can only get back if
you renew your license, and then if all else
fails, you got FUD and vaporware and all of
these other tactics.
The processor of a computer is also
called the chip, and it -- or the CPU. It
really is the computer.
All the other parts, the monitor, the
keyboard, even the memory, are peripherals,
just peripherals that work with the computer.
What the processor does is process.
It processes instructions.
Instructions are loaded into memory, and the
processor is told where in the memory to start
It reads an instruction and carries it
out and then moves onto the next one.
And, of course, it does it a lot
faster than I'm talking.
The instructions are simple. This is
a basic item, like move or add.
The important CPU family in this case
is, of course, the Intel and the
Intel-compatible processors because that's what
most PCs use. All PCs use either the Intel
processor or an Intel-compatible processor.
The first processor is 8086, then
8088, then 80286, which led to 80386. And I'm
telling you these numbers because you will see
You'll see talk in the documents about
a 286. That's the number of the processor. Or
Again, the number of a processor.
Then after 486 you get the Pentium.
At any given time there's a high end
and a low end usually on the market.
Under per processor licenses, an OEM
has to pay to Microsoft a royalty, a license
fee on every single machine with that processor
that ships out the door, no matter what's on
The per processor license means that
an OEM could only ship a competing operating
system by paying twice.
The OEM pays Microsoft, and -- you
know, this is the OEM who wants to ship DR-DOS,
pays Microsoft, pays DRI.
Microsoft's licenses also require the
OEM to make large minimum commitments with
Microsoft's pricing structure rewards
OEMs for -- that make sort of overoptimistic
predictions about what they're going to sell.
So OEMs regularly have these very large prepaid
And when their licenses expire, they
have paid Microsoft hundreds of thousands,
sometimes millions of dollars, for licenses
that have not shipped on any computer. And, of
course, they don't get that back unless they
renew their license.
And then Microsoft is willing to give
them some of the money that they've already
paid for licenses that have not shipped. They
credit those sometimes at their discretion on a
new per processor license.
The stranglehold on OEMs is tightened
by the -- by extending the terms. Longer and
longer and longer licenses -- license terms.
Microsoft's own documents show that
the reason for these tactics is to cut out, cut
off, block out DR-DOS.
OEMs simply cannot afford to license
DR-DOS even if they think it's a superior
product, even if they think it's something
their customers would want to buy.
85 percent of folks at this time get
their operating system with their computer. It
comes on the computer when you buy it.
The per processor license is the most
effective weapon in Microsoft's arsenal against
When competition for accounts
increases after DR-DOS 5.0 hits the market,
Jeff Lum, we've heard of him before, he is the
group manager for North America OEM sales.
Directs his sales team -- this is July 23,
Comes -- DR-DOS 5.0 is released in the
United States about June of 1990.
This is Plaintiffs' Exhibit 338. And
he is directing all of his sales team.
"All DOS 5.0 amendments need to be
finalized. Push for all processors if you
don't have it for DOS today, or else add 15
percent for per machine basis."
Okay. So sign the per processor
license or pay 15 percent more for your
operating systems for every computer.
Chestnut, Mark Chestnut, testifies
that in many -- in the many months leading up
to the launch of MS-DOS 5.0, the repeated
objective is to have the per processor DOS 5
licenses for any OEM account that was in the
business of manufacturing desktop PCs.
You won't believe this, but I have
apparently skipped some of this, so I will make
it up as I go along.
I'm sure Darin knows that I've
There's a woman named Stephanie
Reichel, and she's over in Germany, and she
works on the Vobis account, okay. And she is
the Microsoft representative to the Vobis
Mr. Lieven is pretty resistant, to say
the least, to the idea of the per processor
license. He wants to offer his customers a
choice, and he likes DR-DOS. He thinks it's a
superior operating system.
So Ms. Reichel -- Mr. Chestnut, Mark
Chestnut says that in the many months leading
up to the launch of MS-DOS 5.0, everybody's
supposed to get these per processor licenses,
and Stephanie Reichel says this is an order
that comes directly from Kempin, the head of
worldwide OEM sales.
Repeated entries in Microsoft's OEM
status reports reveal starkly the awareness
that why we're doing this, folks, is to get
Here are just a few of the entries.
And I'm telling you, there are dozens and
dozens of these, and the reason that I think
it's important for you to realize this is
because Microsoft's going to have other excuses
for these licenses.
I want you to remember that when
they're talking to each other, when they're
writing their reports, there's one reason
mentioned for per processor licenses.
Here is Exhibit 409 from October of
Opus agreement has finally been signed
by Redmond. Opus is an OEM; Redmond is
Another DRI prospect bites the dust
with a per processor DOS agreement.
Exhibit 410. This has to do with
Hyundai Electronics, Inc., called HEI.
"DRI is still alive. We are pushing
them to sign the amendment on processor based
license. This will block out DR once signed."
Here is Exhibit 484 from December 10
"Congratulations are in order for
John, DRI killer, McLaughlan (no, he isn't
having another baby) who signed a $2.5 million
agreement with Acbek (Sun Moon Star). The
agreement licenses DOS 5 per processor on a
worldwide basis for three years (they will be
replacing DR-DOS which they currently ship
outside the United States."
Here is Plaintiffs' Exhibit 485 from
December 11 1990.
This is about an OEM called Trigem.
Their new license agreement is per
86/286/386 -- the three processor numbers --
processor system license for DOS 3, 4, and 5.
"No more DR-DOS from Trigem."
Here is Plaintiffs' Exhibit 539.
Again a month or so later from HEI.
DRI visited Hyundai executives and the
pricing issue was raised again. "The new
license is a per processor deal which allowed
us to completely kick out DRI."
Here is Plaintiffs' Exhibit 647 from
March 31, 1991.
Liuski, which has been an MS-DOS PP --
that means packaged product -- customer for
several years now at a run rate of
approximately 25,000 to 27,000 per year has
signed a license for MS-DOS 4.01 and 5.0.
The per processor license is a
one-year license at a one-year minimum of
18,000 units per year at a royalty rate of $35.
On the surface, this would seem like a
decrease in revenues. They currently pay $50
for MS-DOS PP, packaged product.
Remember there are COGS, cost of goods
sold, in the $50. The reason for the
conversation -- that's what it really says.
The reason -- yes, the reason for the
conversation -- I think that must mean
"The reason for the conversion to
royalty is to retain their loyalty to MS-DOS.
They were seriously considering DRI product,
thus we needed to be more aggressive."
You see a lowering of the price there
because of competition.
Exhibit 710, March 1991.
Budgetron is the one account in Canada
where DRI's presence was very strong.
Budgetron's market is strictly the low end VAR,
value-added reseller or dealer, who would
endure DRI DOS for a lower-priced machine.
This new contract guarantees MS-DOS on every
processor manufactured and shipped by Budgetron
there for excluding DRI.
Ron Hosogi during this time frame is
director of OEM sales -- and he's not Kempin.
Kempin is above him.
He states Microsoft's licensing
attacked succinctly, in Plaintiffs' Exhibit
379. "We are forcing them not ship any DRI
Indeed, Microsoft makes getting a per
processor license the top priority, top
priority even sacrificing income to get it.
Why? So after driving competitors out of the
market, they can charge higher prices than in a
Microsoft insists that OEMs were free
to depart from the per processor license and
that price differentials between the two
license types per processor per system were
That's just not so. Microsoft is well
aware also of the price points and margin
pressure that OEMs feel.
OEMs work on a very small margin.
You'll hear that from lots of people. And
Microsoft obviously knows that a dollar or two
is very important to OEMs because when they
come out with their incentives -- when they
come out with their -- I thought that was the
When they come out with their
incentives, they vary -- you know, an incentive
can be 50 cents a machine -- by Microsoft, what
Microsoft pays in this market development fund,
up to 5.50.
So what I'm saying to you is,
Microsoft may poo-poo the idea that a dollar a
buck is important to OEMs, but they know that's
not true. A dollar per unit is very meaningful
in a small margin business, and Microsoft knows
OEM executives and developers say that
even if the price differentials were slight,
they'd still have to go with per processor.
Indeed, Microsoft itself emphasizes
these price differentials in its negotiations
We have a surprising lack of price
sheets, you know, the price -- the negotiations
for price in our documents. We just do not
find very many, you know, of these price quotes
But here is a letter to AST -- that's
an OEM -- dated September 14, 1990.
This is Plaintiffs' Exhibit 520. The
letter is from Jeff Daniels. He's the -- he's
an OEM account manager.
Did I tell you -- it's September 14,
He says, "Microsoft has a per
processor price, per system price, and a per
copy price. Our per processor price has the
lowest royalty rate. This agreement is based
on paying royalties for every processor
shipped. MS-DOS does not have to ship out with
Per processor agreements list all
processors in the back of the licenses from
8086, 8088, to 80486."
Then you see he lists the prices for
100,000, 250,000 and 500,000. This is the
number of PCs sold in a year.
Now, under the per processor license,
if you sign up for 100,000, you pay $24 per
unit. If you sign up for the per system, you
pay $37 per unit. That's a $13 a unit
The per copy, $45. So that's an $8
When you get out -- and it runs about
the same. Between per processor, every
processor you pay for to per system in this
price quote is $13 at 250. It's $7.50 if you
buy 500,000 -- if you license 500,000 a year.
That's a lot more than a dollar or two
a system. That's a big, big difference for the
OEMs, and it holds true across the board in
this price quote that we found.
Microsoft is even more aggressive when
the OEM -- when they know that the OEM is
trying to get some wiggle room, so they can
load some DR-DOS.
Here's one. Commodore Business
Machines is very interested in DR-DOS.
Microsoft knows that.
On September 26, 1990, Commodore
receives the following letter from the
Microsoft account manager.
"If you were to take your consumer
machines to DRI, this is what would happen.
Your DOS contract would go from a per processor
agreement to a per copy agreement when it
expires at the end of January.
If you choose to take your consumer
business to DRI, your unit volume decreases 75
percent, and you no longer have a per processor
agreement. Therefore, your new price on all
DOS products will jump to $30 per copy."
When you see this exhibit, it is 402,
you will see that he then offers Commodore a
per processor license for $6, $6 per machine
for the computer that accounts for most of
This is a low end computer so there is
a difference between those two. $30 minus 6 is
$24. Not the 1 or $2 that Microsoft says.
You can see DRI's predicament and the
power of Microsoft's economic coercion.
The presence of DR-DOS in the
marketplace makes Microsoft compete on features
and price as we see from Microsoft's own
internal documents, but ultimately rather than
that kind of fair competition, please
understand fair competition, fine. This is not
When they cannot win on fair
competition on features on price, they resort
to unfair and illegal tactics like these
exclusionary contract terms.
The minimum commitments again directed
toward excluding competition. The OEM pays at
one per unit rate, you know, for 100,000 and a
lesser one for 250,000.
As I've told you, they have to pay
whether it ships or not, and if their shipment
falls short, Microsoft keeps the money, but you
pay less money, obviously, if you say you're
going to buy more.
That component is a volume pricing
component. The per processor is not a volume
license. We'll talk about that.
But Microsoft gives the money back,
the money that they get on these minimum
commitments, or credits the money to the next
contract. Microsoft manipulates minimum
commitments to its advantage.
Here is an Exhibit 302, which is a
discussion of prepaid balances from the
worldwide OEM in the fourth quarter of 1990.
And it contains the following
admission. "Prepaid balances have become a
byproduct of the way we conduct our OEM
business. They are well-understood by our
OEMs. They also have definite benefits tying
customers to us. We can use prepaid balances
to encourage OEMs to license more of our system
products, increase our market penetration, and
create opportunities for increased sales of our
You see here what they're talking
about is taking the prepaid balance they get
from the OEM and crediting that on the purchase
of applications, and of course it has the
advantage of also blocking out DRI.
As with per processor licenses,
Microsoft's OEM status reports reveal that
Microsoft is using those minimum commitments to
block out DRI.
Plaintiffs' Exhibit 4393 from Hyundai
Electronics, says, "The DRI threat still lives,
especially in the export section which needs a
low-priced DOS for XTs to be shipped to the
Eastern Block. We will maintain and utilize
HEI's UPB situation to keep out DRI."
UPB, PPB, those are the prepaid
Here is Plaintiffs Exhibit 1332.
"Will sign WIN and DOS per processor license
this Friday. This will include all of
Compuadd's notebooks (386sx up) which they had
never licensed for WIN. The only concession we
had to make was to let them recoup $500,000."
This is 500 they paid for stuff they
didn't ship prepaid this quarter.
OEMs know the truth. Theo Lieven of
Vobis will tell you that Microsoft was quite
flexible in permitting recoupment because then
they knew the customer would make a new
contract with them. If the customer walked
away, they would forfeit all that minimum
And then finally, the third tactic is
increased license duration.
By 1990, the standard license goes
from one year to two years during the push for
5.0, the one that comes out in June of 1991,
but they start licensing clear back in a year
earlier. Microsoft increases the average
license duration to three years.
Microsoft's price guidelines indicate
a one dollar discount for an OEM agreeing to
add that year on, and a one dollar penalty. So
$2 difference between two years and three years
in terms of license agreement.
I'm sorry, between one year and two
Microsoft understands the blocking
effect this has against DR-DOS.
Here is Plaintiffs' Exhibit 353 for an
OEM called Printaform. "The new contract is
for a three-year term so that we don't have to
worry about low-end competition. This will be
the first OEM in Mexico bundling Windows 3.0 on
its system, and we eliminated DRI's chances
with Printaform for at least three years."
Robert Frankenberg, a name that you
will hear, was the CEO of Hewlett-Packard
during this time frame, and he addresses this
whole issue of long-term contracts.
He says HP was offered a four-year
contract and just felt they had no choice. But
even a big OEM like HP has got to have the
operating system. So they agreed to the four
-- a four-year per processor contract every HP
machine to get the best price for -- from
In his deposition, Mr. Lieven draws an
act analogy. Here's what he says --
(Whereupon the following video was
MR. LIEVEN: When you -- when you --
when you -- today decide to buy your milk for
the next three years from one supplier to make
prepayments. You'll never go to another
grocery -- or to another store to have a look.
MS. CONLIN: I don't know if you heard
what he said, but when he comes, we'll make him
slow down a little bit.
He says when you go -- when you agree
to buy your milk for three years from the same
supplier and you make a payment, you just don't
ever go to another grocery store to have a
look. You got all your milk.
These powerful anticompetitive license
terms to OEMs present an almost insurmountable
barrier to any competitor, and certainly to
Okay. Let's talk about vaporware.
Could we take just a few moments, Your
Honor? I know we're close to the end, but if
we could just maybe have a little stand up and
I could have a little -- or do you want me to
just press on?
THE COURT: Do you want a break?
MS. CONLIN: I was thinking maybe just
to stand up for a second.
THE COURT: Why don't we take a brief
recess. Ten minutes okay?
MS. CONLIN: Oh, it's only after one.
See, I'm thinking it's after two.
I'm having such a good time, Your
THE COURT: Why don't we take a
Remember the admonition previously
(The following record was made out of.
the presence of the jury.)
MR. TULCHIN: If I may, Your Honor, of
course during Ms. Conlin's opening, I'm doing
everything I can to not interrupt.
There was at least one document used
-- I thought there was one. I'm being told now
we better double-check.
I thought there was a document used
that was not in evidence because during the
Special Master process an objection was
sustained as to it.
But I apologize for taking your time.
I'm told we better double-check to make sure
this is right.
THE COURT: Okay.
MR. TULCHIN: Thank you, Your Honor.
(A recess was taken from 1:18 p.m.
to 1:33 p.m.)
(The following record was made in
the presence of the jury.)
THE COURT: Sorry about that. You may
MS. CONLIN: Thank you, Your Honor.
Vaporware. Beginning with DR-DOS 5.0,
Microsoft makes preemptive preannouncements of
MS-DOS long before the next version is going to
be available. These announcements are false,
they're misleading, and this is the practice
commonly known as vaporware.
The point of vaporware is to freeze
the market so users don't buy the competitor's
real product but wait for a product that may or
may not ever appear.
Microsoft understands vaporware very
well. On January 5, Nathan Myhrvold confesses
to what Microsoft had done with its original
Windows clear back in Windows 1.0.
Here's what he says in Plaintiffs'
Exhibit 52. And as I said, he's talking about
the original Windows.
Microsoft preannounced Windows, signed
up the major OEMs, and showed a demo to freeze
the market and prevent VisiOn from gaining any
momentum. It sure worked. VisiOn died,
VisiCorp died, and DOS kept on chugging.
With that context, on April 23, 1990,
April 23, 1990, at a conference in England
called the which conference, w-h-i-c-h, with a
question mark after it. DRI announces DR-DOS
5.0. DR-DOS 5.0 simply catches Microsoft
Until DR-DOS is released, Microsoft
does not, does not intend to release a new DOS
Mark Chestnut, who is the product
manager for MS-DOS 5.0, says that as of
November 1989, the plan was to release only a
4.1 upgrade in 1990.
Do we have Mr. Chestnut speaking.
(Whereupon the following videotape was
MR. CHESTNUT: As I said, I didn't
have any expectation that we would have a 5.0
product shipping in '90 after shipping a 4.1
product in '90 at that point.
MS. CONLIN: So Microsoft -- keep in
mind also, Microsoft has just taken back DOS
development from IBM and four months prior to
the announcement of DR-DOS 5.0.
Now, not actually having any product
doesn't stop Microsoft. It goes right ahead
and preannounces MS 5.0 to influential trade
press. And trade press is like PC World and
Info World, Computer World.
And succeeds in having articles about
MS-DOS 5.0 -- doesn't ship till a year later,
but on April 30, one week after DR-DOS is
announced in England, out comes articles in
influential trade press about MS-DOS 5.0.
Mr. Chestnut, Mark Chestnut summarizes
what he's done to make that happen in a memo to
Microsoft executives on May 2, 1990, titled
DR-DOS 5.0 competitive analysis, and one of the
entries is competitive response to DR-DOS 5.0.
This is Plaintiffs' Exhibit 276.
On the PR side, he says, "We have
begun an aggressive leak campaign for MS-DOS
5.0. The goal is to build in anticipation for
MS-DOS 5.0 and diffuse potential excitement
momentum from DR-DOS 5.0 announcement.
At this point, we are telling the
press that a major new release from Microsoft
is coming this year which will provide
significant memory relief and other important
This was picked up by the major
weeklies in the U.S. and was the page 1 story
in PC Week on 4-30. See attached articles.
Mr. Chestnut is real busy following
the DRI April 1990 announcement. By April 30,
this is the day where we have the page 1 story
Chestnut meets with two OEMs, Tandon and AST,
to predisclose MS-DOS 5.0 and its supposed
availability in September of 1990, three, four
months later and he's also interested in
finding out what DR-DOS's features are.
Here's a summary of the Tandon meeting
from Plaintiffs Exhibit 274.
He says, "We dismissed the engineering
and support people and discussed DRI. At
first, they were very hesitant to divulge any
competitive information but after asking a few
roundabout questions we were able to find out
that DRI has been very aggressive in trying to
sell Tandon DRI DOS," he says, "and had been
there recently with a full presentation and
demonstration. Peter and Eric" -- these are
the Tandon guys in the unit -- "assured us that
our DOS 5.0 product was, quote, as good as
DRI's current version, but according to Peter
we still had some work to do in the following
areas in order to be competitive."
And he mentions three.
CPU management. They advised us to
take a close look at concurrent DOS because DRI
is leveraging that technology in their product.
Concurrent DOS is a DRI product.
Second, memory management. DRI
appears to be way ahead of Microsoft in this
And three is compatibility. DRI
claims to work much better with existing
applications than our current product is,
Now, keep in mind that what is
happening here is Tandon is comparing the
existing DR-DOS 5.0 product with a nonexistent
MS-DOS 5.0 product and still finds the MS-DOS
product -- pretend product is not as good as
the existing DR-DOS product.
By May 4 -- April 23, DRI announces
DR-DOS 5.0. April 30, trade press on MS-DOS
By May 4, Mr. Chestnut has prepared a
DR-DOS backgrounder that goes out to the entire
OEM sales force of Microsoft, and it has a
feature comparison between the nonexistent
MS-DOS 5.0 and the existing DR-DOS 5.0.
OEM sales also receives a DOS 5 -- an
MS-DOS 5 PowerPoint slides and speaking points,
and this talks about the product in detail and
promises availability in August or September of
1990. This is May 4.
Then Chestnut circles the globe. He
meets with OEMs in Korea, Taiwan, England
France, Italy, and the Netherlands. Lots and
lots of people hear about MS-DOS 5.0, and they
hear that it's going to be out by September of
Chestnut admits that his presentations
and promised delivery date would certainly
prompt OEMs to rely on them. Of course, that's
what he wants them to do and cause them to
postpone any decision to move to DR-DOS.
He admits that if he had told them the
truth that MS-DOS would not be available until
June of 1991. He says I'm sure they would have
been less excited. Let's look at what
Mr. Chestnut said in his testimony.
(Whereupon the following videotape was
QUESTIONING ATTORNEY: Was part of the
-- it said you were successful in gaining OEM
enthusiasm. Was part of the enthusiasm that
you were gaining for the fact that it was going
to be shipping to them in September 1990? That
that was their belief?
MR. CHESTNUT: I'm sure some of the
enthusiasm was based on the fact that it was a
relatively near term release.
QUESTIONING ATTORNEY: And the fact
that it was being disclosed as a relatively
near term release was at least, in part, what
made your seminary successful in defusing the
threat from DRI's new release, correct?
MR. CHESTNUT: It would be reasonable
to probably assume that.
QUESTIONING ATTORNEY: I don't want to
just assume it. I mean but do you think that?
MR. CHESTNUT: I don't know. I
honestly don't know. I mean, it certainly
would have been less well received if we had
said, oh, it was going to ship in 1992, are you
excited or what, you know. They probably
wouldn't be very excited.
QUESTIONING ATTORNEY: What if you had
said it was going to ship in June of 1991, it
being June of 1990 when you were talking with
MR. CHESTNUT: At the time I had no
reason to state that because that wasn't the
QUESTIONING ATTORNEY: Well, of
course, that wasn't the schedule, but do you
think they would have been more or less excited
about the product if you had been there saying
that this will ship to you in June 1991?
MR. CHESTNUT: Had I said that, I'm
sure they would have been less excited.
MS. CONLIN: Of course that's true,
and that's why Microsoft sends Chestnut around
the world, to tell them to expect MS-DOS 5.0 in
September, in three or four months.
The directive also goes forth from
Joachim Kempin to the entire domestic and
international sales force, fog the marketplace
with MS-DOS 5.0 vaporware.
On May 14, 1990, and this is the day
that DRI announces -- formally announces DR-DOS
in the United States, Kempin writes in
Plaintiffs' Exhibit 283
, "They are trying to
put the heat on us. We are distributing to you
a comparison between MS-DOS 5.0 and their
version. Inform your customers as discussed
and keep them at bay."
There is a comparison chart that you
will see done in May of 1990 comparing DR-DOS
5.0 with MS-DOS 5.0 MS-DOS 5.0 does not exist.
When Microsoft tells you that its own
internal schedules reflect the truth of the
preemptive announcements its executives are
making, look at the internal records
Microsoft's own internal records that show that
such schedules don't reflect reality and
Microsoft knows it.
Let me shift for a moment to Windows
3.0. That ships in May of 1990. Just right
around the time when DR-DOS 5.0 is coming out.
And just as Microsoft begins its vaporware
announcements about MS-DOS 5.0.
After Microsoft releases a product,
they often do what's called a postmortem, and
they go through -- this is a particularly --
it's a lengthy report, and they go through, you
know, what went right, what went wrong, and
what could have been better, and that sort of
The Windows 3.0 postmortem contained
the following remarkable admissions here --
this is Plaintiffs' 3193. Plaintiffs' Exhibit
Under schedule, it says, "Set by Bill
G. before feature definitions are outlined.
Problem motivating people to achieve fake ship
And then down a little further, "lying
to people on the team about schedules. Morale
hit to the team."
The MS-DOS 5.0 postmortem report, and
this is written by a guy named Mike Dreyfus.
He is a software engineer. It all reveals the
fake schedule for MS-DOS 5.0. This is Exhibit
"Some individuals produced estimates
that represented best-case scenarios rather
than realistic ones and then were surprised to
see their best-case guesses show up on schedule
On April 17, 1990, Microsoft's
preeminent DOS architect, he's a guy named
Gordon Letwin, he calls a guy named Glenn
Stephens in Hungerford, England.
Mr. Stephens is the head of DRI
development April 17, 1990, Mr. Letwin from
Microsoft calls Mr. Stephens in England who is
DRI's head of development.
And he wants to recruit Mr. Stephens
to come to Microsoft, and he talks with
Mr. Stephens about Mr. Stephens joining
Microsoft for about an hour, and Mr. Stephens
we hope will testify by video, but is this the
one we don't have a video for? I'm sorry, that
we don't have the video for you. We'll get it.
But this is what he says about that
conversation with Mr. Letwin of Microsoft.
"Stephens testifies my impression was
they weren't working on anything. Actually,
one of the things they were asking for me to
work on, if I went over there, was a file
system. Since that is a core component of the
DOS operating system to not already have an
engineer assigned to that tells me there's
nobody working on it."
So Stephens concludes from the
conversation with the person directly involved
in the production of MS-DOS that as of
April 17, 1990, Microsoft has nothing much
going on with respect to MS-DOS.
Now they do get a rough beta into the
field in about June 15. Microsoft knows that
it's not a completed product. It doesn't have
the features to compete with DR-DOS 5.0, and
they still have lots of things to add.
At an MS-DOS 5.0 plan overview given
to IBM on June 15, Eric Straub, who is one of
the key developers for MS-DOS, discloses in
Plaintiffs Exhibit 5126 that they have
currently under consideration -- and this is
for MS-DOS 5.0 -- upper memory block support in
EMM 386, a task switcher called winoldapp and a
file transfer utility.
Now, these are major features. This
is not a line code, these are major features
that take considerable time to develop and
test. They're complicated, they're advanced
features, and Microsoft doesn't have them yet.
Back to the Microsoft postmortem
report for MS-DOS 5.0 Microsoft admits that it
is scrambling to identify and create features
that match DR-DOS 5.0 already out.
This is Plaintiffs' Exhibit 5387
"One of the most important stimulants
for adding features was competitive pressure
from DR-DOS 5.0 which we first learned of in
the spring of 1990. The DR-DOS feature set led
us -- led us to add UMB support, task swapping,
"Unfortunately, it took us some time
to revise our schedules to match the changing
product. We adjusted the schedule outward in
small increments and the end dates lost clarity
and credibility inside and outside the team."
After Microsoft released Windows 3.1,
they transferred Phil Barrett over to look at
the MS-DOS 5.0.
His assessment of the team plan is not
(Whereupon the following videotape was
MR. BARRETT: The schedules have not
been really well thought through. There was a
lot of engineering work that had to be done.
Testing, test plans. There's no beta test
plan. There was just a lot of stuff that
needed to be done. A lot of activities that
needed to be completed in order to ship a
product had not even been completed and not
even been started at that point.
MS. CONLIN: I don't know why that
didn't move, but I hope that you heard what he
said, which is, when he gets over there in May
of 1990, they don't have a beta test plan, they
don't have features, they're just a lot of
activities that needed to be completed in order
to ship a product hadn't been begun.
The ship date moves from the original
promise date to a new promise delivery date
which is now -- goes from September to the end
In mid summer the trade press begins
to report this new sort of end of the year
date, but Microsoft does keep telling the world
to expect MS-DOS 5.0 before the end of the year
And Chestnut says he's the source for
these stories that say to the OEMs and other
members of the trade, expect MS-DOS 5.0 by the
end of the year.
On July 24, 1990, Silverberg, Brad
Silverberg submits his DOS 5.0 plan edition
since 6-90 and reveals a list of new features
still being added.
And at that point, this is July 24,
1990 at that point, the shipment two OEMs is --
begins to be listed as TBD, to be determined.
By the end of August, 1990, Microsoft
knows that its tactics are working and indeed
OEMs are licensing MS-DOS 5.0. Ten months
before its release.
Chestnut does a self-evaluation in his
performance review for the period ending
June 15, 1990, and here's what -- this is
Plaintiffs' Exhibit 5134.
Here's what he says, "During this
evaluation, I discovered early on DRI's plans
for DR-DOS 5.0 and implemented a competitive
response plan which included (1) contacting all
major resellers in the U.S. and informing them
early on about our product plans for DOS 5
We think that means retail upgrade.
"(2) Getting the word out to OEMs
earlier than planned about our plans for DOS 5
I met with a number of OEMs personally and
provided a presentation script to the domestic
and international OEM sales group. By the end
of March, virtually all of our OEMs worldwide
were informed about DOS 5 which diffused DRI's
ability to capitalize on a window of
opportunity with these OEMs."
Skipping 3 and going to 4. Taiwan
visit and OEM seminar in June. "Two days
before DRI's seminar there to announce DR-DOS
This isn't very complete, but he goes
over there and has a seminar, and he plans it
-- gets it on board two days before DRI's long
planned seminar to announce DR-DOS 5.0. So
he's there two days ahead of that.
By the fall of 1990, Microsoft has
locked up computer makers worldwide in per
processor licenses for a product that does not
-- that is not shippable or shipping, and that
won't be shipped until June of 1991.
By September, however, Microsoft's PR
people are trying to keep a lid on these false
dates, and by this time, Microsoft has admitted
that the product that they told OEMs in June
would ship by September has now moved to the
end of the year.
But internally they know the end of
the year isn't likely either. This is from
their outside PR group called Waggener Edstrom,
and it's Plaintiffs' Exhibit 381, and it says,
"What to acknowledge about MS-DOS 5.0.
"With MS-DOS 5.0, we have already
acknowledged a great deal more than we had with
And these are the things. "Will ship
by the end of the year (could be proven
incorrect) and has additional planned features
not in the first beta release."
And then, "What we shouldn't say in
order to provide flexibility and some measure
of deniability -- we shouldn't say when the
product will ship."
This is dated September 11, the month
Chestnut tells people originally in his
round-the-world visits the product's going to
Now, even the end of the year promise
is raising a lot of suspicions in the press and
media investigators are concerned about the
truthfulness of what Microsoft is telling them,
and one of them is a guy named Paul Sherer of
And he begins pressing for interviews,
and then on October 17, nineteen -- October 17,
1990, he gets through to Mark Chestnut and
Chestnut talks to him.
This is an internal Microsoft E-mail
from Chestnut to his superiors and others in
Microsoft after he talks to the press. Paul
Sherer, here's what he says.
"I'm afraid that this guy is going to
write that we are being open about the DOS 5
beta because we are trying to preempt DR-DOS 5
sales. I tried real hard to present a
different point of view, but I don't think he
bought it. I'm concerned that this article may
make us look bad. Can you guys follow up and
see if we need to do some damage control?
This was the toughest interview I've done. I
felt like Richard Nixon giving his I am not a
Sherer doesn't buy Chestnut's I am not
a crook speech, and there is an article.
And then on November 5, 1990, PC Week
reprints a letter by Brad Silverberg.
Let me go back just for a moment.
After Chestnut talks to Sherer, Sherer
puts an article in that says basically they're
announcing this product in order to -- they are
announcing MS-DOS to freeze DR-DOS, and then
Brad Silverberg, who is in charge of the MS-DOS
development, VP writes a letter to PC Week to
respond to PC Week's article that they get from
Chestnut. They don't get it from Chestnut,
they interview him for it. Here's what Mr.
Silverberg says in his letter.
"This is in response to your October
22 story alleging that Microsoft released
information about the upcoming Microsoft MS-DOS
Version 5.0 in an attempt to create fear,
uncertainty, and doubt regarding DRI's DR-DOS
5.0. The feature enhancements of MS-DOS
Version 5.0 were decided and developed long
before we heard about DR-DOS 5.0. There will
be some similar features."
As for the timing of the leaks, it was
not an orchestrated Microsoft plan, nor did the
leaks come from Microsoft. In the past, users
expressed frustration when we neither
acknowledged that a new product was in
development nor gave a sense of our direction
for the release. Thus, to serve our customers
better, we decided to be more forthcoming about
Now I've already showed you the
evidence that directly contradicts what
Mr. Silverberg tells the world in his letter to
the editor on October 22.
First of all, he says Microsoft does
not add features as a result of DR-DOS. Well,
they did, and they say they did.
This is the 5387 Mr. Dreyfus. One of
the most important stimulants for adding
features was competitive pressure from DR-DOS.
Number two, Microsoft does in fact,
and remember Chestnut's aggressive leak
campaign? That's what they're doing. He,
Chestnut, is contacting the press. When
Silverberg says there was no orchestrated
Microsoft plan, that is plainly false based on
Microsoft's own internal documents, some of
which you have already seen.
Exhibit 276 is the Chestnut document.
On the PR side we have now begun an aggressive
leak campaign. The goal is to build
anticipation for MS-DOS 5.0 and diffuse
potential excitement for -- from the DR-DOS
So that's the second point in
Silverberg's letter that is just flat out
false. And then Microsoft discloses MS-DOS 5.0
plans to preempt DR-DOS not to serve its
customers better, and Mark Chestnut will admit
On October 1, 1990, five months after
Microsoft begins its campaign of vaporware
against DR-DOS Nathan Myhrvold -- Mr. Myhrvold
you'll hear -- there are two Myhrvolds, Cameron
Nathan is sort of a technology guru,
and you'll hear about Cameron later in
connection with ISVs. He's sort of the head of
what Microsoft calls evangelists.
But this is Nathan, and he's the -- he
is the -- here, I'll give you his title. The
VP of advanced technology and business
He sends the following memo to the
Microsoft executive staff. He's the one who I
showed you his memo earlier about how Microsoft
used vaporware to defeat vision. And here,
he's now talking about how Microsoft could use
preannouncement to crush the demand for a
different competitive product.
This is Plaintiffs' Exhibit 411.
He says, "The purpose of announcing
early like this is to freeze the market at the
OEM and ISV levels in this respect it is just
like the original Windows announcement. This
time we have a lot better development team so
the time between announce and ship will be a
lot smaller. Nevertheless, we need to get our
message out there."
And Microsoft conducted dozens of
briefings with reporters under NDAs,
nondisclosure agreements, but Microsoft
acknowledges that these NDAs with the press are
Here is Plaintiffs' Exhibit 381 on
September 11, 1990, which recommends -- we
recommend we acknowledge the frustration NDAs
can entail and allow them, meaning the trade
press, to write stories prior to the product
announcement based on information already
rumored in the weeklies and by beta testers.
I'll tell you how rumors get started
in a little bit.
I'm going to talk a little more about
the NDAs later.
Let's move to tying.
As an aside, Microsoft also makes a
significant change in Windows with the 3.0
In the past, if you got a game and it
needed a part of Windows to run the Windows run
team -- runtime, the game ISV, the game
developer could ship the Windows runtime with
In Windows 3.0, Windows had to be
resident on the machine. No more shipping with
games. You had to have Windows 3.0 on the
machine to use the Windows GUI with any app.
And, of course, this opens a huge new
market for Windows as a stand-alone
application. And, of course, nothing
anticompetitive about that. But now if a user
wants to play a game and wants to use Windows,
they've got to buy Windows.
Windows in 1990 is also a separate
product, a separate application running on top
of DOS. And it launches in May of 1990, right
before Microsoft -- right before the time DRI
And Microsoft helps its new version of
Windows along at this time by giving OEMs a
price break if they licensed both the monopoly
operating system and Windows GUI together.
I mentioned Stephanie Reichel before.
She's the OEM account manager who deals with
Mr. Lieven and Vobis, and she will tell you
that she informed three of her OEM accounts
IPC, Actebis and Peacock that the price of
Windows alone would be higher than the price of
Windows and DOS combined. A practice designed
solely to exclude DR-DOS.
Now think about that.
Other Microsoft employees make similar
offers. Buy the two products together. And
then, of course, you're not going to be buying
DR-DOS. And we will sell those two products to
you for less than we will sell you Windows
And the underlying idea is if you buy
Windows alone, then you can also -- you'd also
have a need for an operating system; and it
might not be MS-DOS, it might be DR-DOS.
Vobis, major seller in Europe,
actually one of the major sellers of DR-DOS in
He starts using, when it first comes
out, 3.31 is the first DR-DOS product, he
starts loading that immediately, and he loads
that and then he loads DR-DOS 5.0.
Beginning in 1989, Microsoft tries to
get Vobis to drop DR-DOS and becomes
increasingly alarmed as other OEMs look at what
-- you know, Vobis is being successful by
offering DR-DOS and Microsoft fears that that
will be inspirational to other OEMs.
Microsoft's concern about Vobis
loading DR-DOS extends to the highest levels of
Steve Ballmer tells Brad Chase on the
day that Brad Chase becomes the MS 5.0 product
manager to eat, sleep, and drink Vobis until
Vobis -- until DRI is out of the account.
Mr. Lieven, stubborn. He is not -- he
refuses to cave in. And he'll tell you one of
the reasons is he wanted to offer his customers
a choice, and he believed that DR-DOS was a
Finally, Mr. Kempin himself, the head
of worldwide OEM sales, meets with Mr. Lieven,
and he reports that meeting in a March 26, 1991
memo that he sends to other Microsoft
executives. And this is Plaintiffs' Exhibit
Interestingly enough, Amstrad and
other German companies have been noticing
Vobis' success and its DRI bundling.
Lieven himself mentioned to us that he
could influence DRI in their product
development, et cetera. I took the opportunity
to negotiate in Germany, sign our offer as is.
This is an agreed-upon package deal or if you
change any component, we will too.
Second option. Scratch the DOS
clause, pay $35 for Windows instead of 15. You
have until 4-1-91 to consider. The proposal
In my judgment, they will hurt if they
do not ship WIN, and paying $35 for it is out
of the question.
Kempin tells Lieven it will cost more
to license Windows alone than it will to
license MS-DOS and Windows together, and two
days later Mr. Lieven, who needs to have WIN,
signs the license for MS-DOS.
Microsoft -- this is not over yet.
Microsoft, however, just has not made him stop
At the time he signs the MS-DOS 5.0
license agreement, he's still got copies of
DR-DOS. DR-DOS does its licensing a bit
different, and they have holograms that
Mr. Lieven has, and I think he has quite a
number of them left. So he goes on because
he's already paid for those holograms. He's
already paid for those DR-DOS holograms.
And so he -- he goes on shipping
DR-DOS to his customers after he signs this
agreement. This agreement doesn't say you
can't ship it. It just says you got to pay.
So Microsoft invites him to come to
Redmond, Washington, to headquarters, and
during the visit, Mr. Kempin offers to pay
Mr. Lieven between 50,000 and $100,000 in cash
to stop selling DR-DOS.
Stephanie Reichel, the Vobis account
manager, testifies that both Bill Gates and
Steve Ballmer were aware of the cash payment.
Lieven accepts it. Microsoft funnels that
money through a marketing fund, disguising the
And the idea is to keep Mr. Lieven
from shipping any DR-DOS.
So what's happened here is Microsoft
has, one, a new per processor agreement from
Vobis worth about $18 million for MS-DOS and
Windows preloaded on 400,000 Vobis computers.
You'll see the contracts. They're not so easy
And Vobis has further agreed to bundle
25,000 copies of Windows for work groups, the
different Windows. And this is long before
that product was launched.
So in less than a year, Vobis turns
around from selling about 50/50, 50 percent
DR-DOS, 50 percent MS-DOS, to selling 100
You know, I'm not sure he said 100
percent. 90 percent, 95 -- most.
When Vobis renegotiates its MS-DOS
license after DR-DOS is dead, Microsoft nearly
doubles the price.
All right, FUD.
Compatibility, as we've discussed, is
an essential requirement of competing operating
systems. And it's market perceptions that
matter so much, you know, what does -- how does
the market perceive the product, and Microsoft
is aware of the potency of a FUD campaign.
When closing a license with Acer in
September 1989, Jeremy Butler, who is the
senior vice president of international
business, plays the FUD card to great effect
This is Plaintiffs' Exhibit 151. He
says, "It only takes a couple of reports about
noncompatibility to give the kiss of death to a
PC. We've seen that on the hardware side as
well as on the operating system side."
So even though prior to DR-DOS 5.0,
Mr. Chestnut will tell you he disagrees with
taking a little thing and blowing it up into a
big thing to create FUD.
And he's the guy who pulls together
FUD sheets. These are FUD sheets to distribute
to the field on DR-DOS.
In September 1990, in Plaintiffs'
Exhibit 382, this is E-mails that Mr. Chestnut
is sending to the field.
"The following is a summary of
compatibility problems that we have verified
with DR-DOS 5.0 based on internal testing and
results from an outside test lab. This is a
technical summary of confirmed problems with
DR-DOS 5.0. This information is being provided
to assist in disproving DRI's claims that
DR-DOS 5.0 is 100 percent compatible with
MS-DOS. It is, however, very confidential
information and should be provided to customers
only under nondisclosure."
I want to show you what Kempin says
back. Okay. Love, try to get it into
publications as soon as possible. That's one
of the reasons I said to you earlier that they
know that these nondisclosures aren't --
Mr. Kempin is saying okay, get it out there.
Microsoft account managers are
directed to share what they claim are serious
problems with OEMs considering a switch to
And so Chestnut hires an outside
testing lab, and he says to beat DR-DOS to
death, and much to Microsoft's dismay, they
find it to be nearly perfectly compatible with
important products including Windows 3.0. And
that's the biggy, does it work with Windows
Microsoft keeps secret the independent
test that confirm DR-DOS's compatibility.
Now they do some of their own tests.
And I will tell you that DRI can't recreate
what Microsoft says it's done, and there are
some that are easily patched. I'll tell you in
a minute why that didn't happen. It didn't
happen in a timely fashion.
Mr. Kempin admits that as of April
1991, DR-DOS is a far superior product to
MS-DOS for the proceeding nine months.
As the launch of MS-DOS finally
approaches, Microsoft realizes they're going to
have to continue their FUD campaign, and a guy
named Sergio Pineda takes over from Chestnut.
Chestnut moves on, and Mr. Pineda
becomes the MS-DOS product manager, and in May
of 1991 he circulates to all OEM account
managers a thing that he calls the DOS
And here is the theme of the campaign
in Exhibit 7461.
"Any degree of incompatibility is
enough to create fear, uncertainty and doubt
among end users when it comes time to buy new
systems. This suggests that PC OEMs will take
on a big risk if they ship DR-DOS with their
And then Waggener Edstrom advises on
October 15, 1990, in Exhibit 425, "Over the
next couple months, Katherine and I are going
to be in touch with a lot of editors regarding
MS-DOS 5.0. We'll basically be covering all
the key editors. We recommend that we
informally plant the bug of FUD in their ears."
And then she gives some examples.
Have you heard about problems with
DR-DOS? That security feature is a neat idea
and, gosh, such a feature would be great, but
it's just too easily circumvented.
Gee, it's unfortunate that DR-DOS
can't be loaded high all the time; MS-DOS 5.0
can." We'll do this very tactfully she says.
And if Digital Research came to
Microsoft for help making DR-DOS work with
Windows, would Microsoft help them? Maybe not?
In line with this, Pineda -- I hope
I'm pronouncing his name close to correctly --
specifically focuses the FUD attack on future
versions of Windows.
Now, we know DR-DOS 5.0 is compatible
with the then existing Windows.
So they got to move on. In
Plaintiffs' Exhibit 500, he says, "How should
we sell against DRI? For OEMs committed to
shipping Windows, only we can ensure 100
percent compatibility with future versions of
DOS and Windows."
Now, at this time Microsoft has in
hand a report from that outside testing lab
that tested DR-DOS with Windows and found the
And you'll have that whole technical
testing -- they did it twice. In the first one
-- we're talking about the first one.
Steve Ballmer -- this is Exhibit 5332,
Mr. Ballmer asks on July 31, 1991, is DR in
compatible with Windows in any mode in any way?
And Mr. Pineda answers the next day, repeating
Mr. Ballmer's question, but typing it better.
Is DR-DOS incompatible with Windows in any mode
in any way? And his answer is in an Info World
article dated 5-27-91.
Info World found DR-DOS memory manager
is not compatible with Windows enhanced mode.
However, NSTL tested DR-DOS with Windows and
found the two compatible.
NSTL is there -- it's a lab they hired
to beat DR-DOS to death. And of course
Microsoft does not publicize what NSTL has
Here's 617. This is the NSTL,
National Software Testing Laboratory's contract
to test DR-DOS. It is Exhibit 617.
They're supposed to test DOS -- DR-DOS
with networking software, a memory manager -- I
think that's -- I don't want to mislead you. I
believe that is an -- those are E-mails, not
the actual testing -- not the contract.
It's what they're saying they want
NSTL to do. To test DR-DOS with networking
software a memory manager, DOS and WIN apps and
anything else you can think of that might raise
some degree of incompatibility.
So NS -- NTSL knows what its
assignment is, find some problems.
In July of 1991, Silverberg outlines
the FUD plan to fellow executives.
He says in Exhibit 851, "We are
engaged in a FUD campaign to let the press know
about some of the bugs. We'll provide info a
few bugs at a time to stretch it out."
Brad Chase, whose group product
manager for MS-DOS 5.0, states by E-mail, "The
purpose of a slow leak campaign is to short" --
this is Exhibit 847 -- "to short-circuit Novell
DOS before it gets off the ground and to make
it hard for customers or OEMs (IBM) to consider
Let me stop for a moment. Novell DOS
is DR-DOS. I mentioned to you there was the
merger in 1991. So they're talking about --
and this E-mail is sent right about at the time
that DRI and Novell merge.
Back to NSTL and their massive efforts
to find problems with DR-DOS. They test 34
applications on DR-DOS 5.0.
Of those, they report 29 worked
without problems in a variety of networked and
stand alone environments.
They report that the remaining five
applications fail. Here is something that you
really need to understand.
They tested -- MS-DOS has the same or
even greater incompatibilities with some of the
same products which would make you wonder if
it's the other product, but -- or if it's
Mr. Schulman, who will be coming, who
is our technical -- one of our technical
experts, will talk to you about the tests that
were done with MS-DOS that showed major
And he'll also help us to understand
that nothing about what Microsoft is doing with
respect to DR-DOS helps consumers, helps Iowa
class members at all. And that's not what it's
supposed to do.
Finally, we've talked about the
exclusionary contracts, the warning, FUD
vaporware, but Microsoft can't keep DRI at bay
forever with these tactics. They got to get a
product on the market, so they do.
MS-DOS 5.0, which has no significant
feature advantage over DR-DOS 5.0, just comes
much later -- as they near the release to
manufacturing, the RTM date, internal
development records indicate that Microsoft
knows it's going to be shipping a product with
major bugs. Severe bugs.
That is already very, very late. They
go ahead and ship it.
Now, one of the things that was
surprising to me was -- to learn that all
software has bugs, and every time you ship a
piece of software, you have to make a tradeoff.
How bad are the bugs? How often will
they appear? If we try to fix them, will it
make some other worse bug. So all software has
bugs, but the software, this software is -- has
got what Microsoft internally I think maybe the
whole computer industry calls show stopping
bugs. Bad bugs.
Putting a software product into the
market with show stopping bugs is not
What -- I tell you this show because
they're out there talking about what a terrible
product DR-DOS is and how people should not use
it, and they ship into the market a product
that destroys people's data. And I'm not
guessing about this. This is Microsoft's
June 11, 1991, within one week -- this
June 11, 1991, is when Microsoft ships finally
MS-DOS 5.0, and within a week, Microsoft
product support services crying out for
additional support, they just got a flood of
And this is Plaintiffs' Exhibit 7587,
and here's what this says, "We're currently
hearing from numerous callers, approximately
150 a day, who are experiencing severe
incompatibilities with MS-DOS 5.0 to the point
that PSS, product support services, is unable
to get the operating system to work
successfully on their machines.
"Problems range from occasional hangs
to total lockups of their machines that require
the removal of hard drives in order to boot
from a floppy. In these cases the uninstall
does not allow them to return to the previous
version of DOS and they can ultimately lose all
information from the hard drive."
This is a very, very bad thing, and of
course it has nothing to do with DR-DOS.
DR-DOS is not on these machines. This is
MS-DOS crashing and taking the data with it.
By August 3, 1991, Microsoft decides
to do what they call a silent release of DOS
5.0. It's going to be called DOS, MS-DOS 5.0
small a, to address some of the data corrupting
bugs in DOS 5.
The silent release means they're just
going to put it out there and not tell people,
not announce that it's going out there.
They put it into the market and then
there are -- they place the silent release into
the marketplace without ever acknowledging that
users are in fact being harmed by MS-DOS 5.0,
and all the while they keep up the steady drum
beat of FUD against DR-DOS.
Your Honor, I've got -- I'm about to
start a whole new series of years, so perhaps
this would be, if the Court doesn't mind, a
couple of minutes early.
THE COURT: Not at all.
Ladies and Gentlemen of the jury,
we'll adjourn for the weekend.
Remember the admonition previously
given to you.
We'll reconvene 8:30 a.m. on Monday.
That's December 4; is that right? Hope so.
So we'll see you then, and have a good
weekend and drive safely. You're excused.
All rise. Leave your notebooks here,
we'll lock them up.
(Proceedings adjourned at 2:30 p.m.)
CERTIFICATE TO TRANSCRIPT
The undersigned, Official Court
Reporters in and for the Fifth Judicial
District of Iowa, which embraces the County of
Polk, hereby certifies:
That she acted as such reporter in the
above-entitled cause in the District Court of
Iowa, for Polk County, before the Judge stated
in the title page attached to this transcript,
and took down in shorthand the proceedings had
at said time and place.
That the foregoing pages of typed
written matter is a full, true and complete
transcript of said shorthand notes so taken by
her in said cause, and that said transcript
contains all of the proceedings had at the
times therein shown.
Dated at Des Moines, Iowa, this
day of , 2006.
Certified Shorthand Reporter(s)