8988 1 IN THE IOWA DISTRICT COURT FOR POLK COUNTY ----------------------------------------------- 2 JOE COMES; RILEY PAINT, ) 3 INC., an Iowa Corporation;) SKEFFINGTON'S FORMAL ) 4 WEAR OF IOWA, INC., an ) NO. CL82311 Iowa Corporation; and ) 5 PATRICIA ANNE LARSEN; ) ) TRANSCRIPT OF 6 Plaintiffs, ) PROCEEDINGS ) VOLUME XXXIII 7 vs. ) ) 8 MICROSOFT CORPORATION, ) a Washington Corporation, ) 9 ) Defendant. ) 10 ----------------------------------------------- 11 The above-entitled matter came on for 12 trial before the Honorable Scott D. Rosenberg 13 and a jury commencing at 8:30 a.m., January 18, 14 2007, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 8989 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 MICHAEL E. JACOBS 7 MICHAEL R. CASHMAN Attorneys at Law 8 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 9 500 Washington Avenue South Suite 4000 10 Minneapolis, MN 55415 (612) 339-2020 11 ROBERT J. GRALEWSKI, JR. 12 Attorney at Law Gergosian & Gralewski 13 550 West C Street Suite 1600 14 San Diego, CA 92101 (619) 230-0104 15 KENT WILLIAMS 16 Attorney at Law Williams Law Firm 17 1632 Homestead Trail Long Lake, MN 55356 18 (612) 940-4452 19 20 21 22 23 24 25 8990 1 Defendant by: DAVID B. TULCHIN 2 SHARON L. NELLES JOSEPH E. NEUHAUS 3 JEFFREY C. CHAPMAN Attorneys at Law 4 Sullivan & Cromwell, LLP 125 Broad Street 5 New York, NY 10004-2498 (212) 558-3749 6 HEIDI B. BRADLEY 7 Attorney at Law Heller Ehrman, LLP 8 333 South Hope Street Suite 3900 9 Los Angeles, CA 90071-3043 (213) 689-0200 10 BRENT B. GREEN 11 Attorney at Law Duncan, Green, Brown & 12 Langeness, PC Suite 380 13 400 Locust Street Des Moines, IA 50309 14 (515) 288-6440 15 16 17 18 19 20 21 22 23 24 25 8991 1 RICHARD J. WALLIS Attorney at Law 2 Microsoft Corporation One Microsoft Way 3 Redmond, WA 98052 (425) 882-8080 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8992 1 (The following record was made in the 2 presence of the jury at 8:32 a.m.) 3 THE COURT: If it gets too hot or too 4 cold, please let Carrie know. 5 Okay. You may continue. I believe 6 you're in cross. 7 MR. GREEN: Thank you, Your Honor. 8 Starting out on line 22 page 5322. 9 (Whereupon, the following deposition 10 was read to the jury.) 11 Question: Now, let's talk briefly 12 about OS/2. 13 In the early 1990s, IBM's OS/2 14 operating system was more expensive than 15 Microsoft's operating systems; is that correct? 16 Answer: Yes. 17 Question: And ZEos never licensed 18 OS/2 from IBM, did it? 19 Answer: I don't believe so. 20 Question: And you don't recall there 21 being much customer demand for OS/2 in the 22 early 1990s, correct? 23 Answer: Correct. 24 Question: Now, Mr. Apple, I think you 25 testified on direct examination about minimum 8993 1 commitments. 2 Do you recall that testimony? 3 Answer: Yes. 4 Question: And minimum commitments 5 were the way that Microsoft implemented its 6 volume pricing for software, correct? 7 Answer: They required a minimum 8 commitment from us. 9 Question: And the higher commitment 10 on an OEM, such as ZEos would make, the lower 11 royalty they received -- they had to pay for 12 the software, correct? 13 Answer: Yes. 14 Question: And such volume pricing was 15 common in the industry, correct? 16 Answer: Yes. 17 Question: And ZEos was the one that 18 selected the minimum commitment level that 19 appeared in ZEos's licensing agreement based on 20 ZEos's anticipated volume, correct? 21 Answer: Yes. We had no problem 22 committing volume to get good pricing. 23 Question: Mr. Apple, before we broke, 24 I asked you whether or not ZEos selected the 25 minimum commitment level set out in its license 8994 1 agreement based on ZEos's anticipated sales 2 volume; is that correct? 3 Answer: Yeah. 4 Question: And if you would turn, sir, 5 to Plaintiffs' Exhibit 4421, which is ZEos's 6 license agreement for MS-DOS 4.01 and 3.3 with 7 an effective date of January 1, 1990, and look 8 specifically, Mr. Apple, at page 20 of that 9 agreement. 10 Answer: Okay. 11 Question: Now, the columns of numbers 12 in the middle of the page set out there, do you 13 see where I am? 14 Answer: Yes. 15 Question: And does that represent the 16 quarterly minimum commitment payments that ZEos 17 owed Microsoft under this license agreement? 18 Answer: I believe so. 19 Question: And those quarterly 20 payments represented the royalty rate that ZEos 21 owed per system multiplied by ZEos's projected 22 volume during that quarter, correct? 23 Answer: At a minimum, that's correct. 24 Question: Now, ZEos system royalty 25 for MS-DOS 4.01 was $35, correct? I think that 8995 1 figure is on the next page, correct? 2 Answer: Yes. 3 Question: Is that correct? 4 Answer: I believe so. 5 Question: Now, these quarterly 6 payments here were not in addition to ZEos's 7 royalty payments, were they? 8 Answer: They were ZEos's royalty 9 payments. 10 Question: These quarterly minimum 11 commitment payments were, in fact, ZEos's 12 royalty payments to Microsoft, correct? 13 Answer: As a minimum, that's right. 14 Question: And if -- if ZEos estimated 15 -- if ZEos's projected volume turned out to be 16 exactly right to the unit, ZEos would owe no 17 additional royalty payments for that quarter, 18 correct? 19 Answer: If we wound up selling 20 $185,000 divided by 35, that number of units, 21 then 185 would be correct. 22 Question: And ZEos would not owe a 23 penny more under that unlikely scenario, 24 correct? 25 Answer: Correct. 8996 1 Question: Now, if ZEos sold more 2 units than it had projected, then ZEos would 3 owe an additional per-system royalty for the 4 additional units that ZEos sold beyond its 5 minimum commitments, correct? 6 Answer: That's correct. 7 Question: If ZEos ended up selling 8 less units than it projected, then ZEos could 9 roll its unused minimum commitment into the 10 next quarter, correct? 11 Answer: Yeah, but I believe what 12 happened was we would pay the minimum, because 13 it was the minimum we had to pay, but that 14 would be an allowance toward future payments 15 above and beyond the next 185. 16 Question: So if, for example, ZEos 17 sold only $175,000 worth of MS-DOS under its 18 license agreement, that unused $10,000 could be 19 rolled into the next quarter in the license 20 agreement, correct? 21 Answer: Yes, in the sense that we 22 could then sell $195,000 worth before we had to 23 pay. 24 Question: Before you had to pay an 25 additional amount -- 8997 1 Answer: Additional. 2 Question: -- beyond your minimum 3 commitments, correct? 4 Answer: Correct. 5 Question: And in December 1992, for 6 example, MS-DOS agreed to reduce ZEos's 7 quarterly minimum commitment payments for 8 several quarters to allow ZEos to recoup some 9 unused balances under its minimum commitments, 10 correct? 11 Answer: I'm not positive, but it 12 sounds familiar. 13 Question: Okay. Well, the unused 14 minimum commitments, were those referred to as 15 prepaid balances? 16 Answer: Probably. 17 Question: I don't think this document 18 is in evidence, so let me ask you a couple 19 questions, Mr. Apple. 20 Do you recognize this document? 21 Answer: I don't know that I've seen 22 it before. 23 Question: Does this document amend 24 ZEos's operating system license agreement with 25 Microsoft? 8998 1 Answer: I believe so. 2 Question: And the signature on behalf 3 of ZEos is Martyn Radliff. 4 Answer: Ratcliffe. 5 Question: Ratcliffe? 6 Answer: Yes. 7 Question: And who was Ms. Ratcliffe? 8 Answer: Mister. 9 Question: Who was Mr. Ratcliffe? 10 Answer: He was for a time the 11 president of the company. 12 Question: And do you recognize that 13 as his signature? 14 Answer: I wouldn't know. 15 Question: Now, if you look at the 16 paragraph numbered 1 now, does that refresh 17 your recollection that Microsoft, in December 18 1992, agreed to reduce ZEos's quarterly minimum 19 commitment payments for several quarters in 20 order to allow ZEos to recoup some of the 21 prepaid balances that it had? 22 Answer: That's what this says. I'm 23 not sure how involved I was at -- with this 24 particular letter, but, yes, that's what it -- 25 it says. 8999 1 Question: Well, the letter says that 2 Microsoft is reducing ZEos's minimum commitment 3 payments for, I believe, three-quarters? 4 Answer: For the current and next 5 quarters -- for -- yes, for three total 6 quarters. 7 Question: And the letter states that 8 Microsoft -- 9 Answer: Oh, I'm sorry. For two total 10 quarters. 11 Question: And the letter states that 12 Microsoft is reducing ZEos's quarterly minimum 13 commitment payments to allow ZEos to recoup 14 some prepaid balances, correct? 15 Answer: Yes. 16 Question: Now, one of ZEos's 17 marketing strategies was to target 18 sophisticated users; is that correct? 19 Answer: Yes. 20 Question: And to attract 21 sophisticated users, ZEos advertised very 22 heavily in computer trade magazines, such as PC 23 Magazine, PC World, PC Week and Infoworld; is 24 that correct? 25 Answer: Very heavily in the first 9000 1 two, sporadically in the second two. 2 Question: And were those publications 3 regarded as being widely read in the computer 4 industry at the time? 5 Answer: The first two were widely 6 read by individuals and small business people. 7 The latter two were widely read by IT 8 professionals, if you will. 9 Question: PC Week and Infoworld were 10 widely read by IT professionals, correct? 11 Answer: I believe so. Their 12 circulation was less than 200,000, you know, 13 out of the whole country, but that's still 14 significant. 15 Question: And they were also widely 16 read by people who worked, for example, at 17 software companies; isn't that true? 18 Answer: I presume so. 19 Question: Now, did you read PC 20 Magazine, PC World, PC Week and Infoworld while 21 you were at ZEos? 22 Answer: Occasionally. 23 Question: Now, in its advertisements, 24 ZEos promoted the fact that its products had 25 received favorable reviews and editorial awards 9001 1 from various publications; is that correct? 2 Answer: Yes, it is. 3 Question: And why did ZEos highlight 4 in its advertisements that it had received 5 favorable product reviews and had won editorial 6 awards? 7 Answer: Because, you know, it's one 8 thing to say to yourself that, hey, our product 9 is great, but it's even better if we could 10 quote an unbiased expert source like a 11 magazine's testing laboratory when they say 12 that our computer is great. 13 Question: In your experience, did 14 your customers rely on product reviews and 15 industry awards in helping to decide which 16 products to purchase? 17 Answer: I know that some did because 18 statistically we would see when we won an 19 award, for example, our sales would go up. 20 So I knew that some of those 21 incremental sales that I could track that came 22 in when -- when the award was given, that those 23 people were probably influenced by that award. 24 Question: Well, ZEos in its 25 advertisements commonly quoted from product 9002 1 reviews of its products and also a mention 2 awards that its products had won, correct? 3 Answer: Yes. 4 Question: And ZEos did that because 5 it thought it would be meaningful to ZEos's 6 potential customers, correct? 7 Answer: I -- yes, that we thought it 8 would give the favorable comments an air of 9 credibility coming from a neutral expert party 10 rather than us. 11 Question: And one of the reasons why 12 ZEos's notebook computers were so successful in 13 the early '90s was because they received 14 favorable reviews from leading publications; is 15 that correct? 16 Answer: I believe that was one of the 17 reasons. 18 Question: And ZEos's advertisements 19 were also emphasized that ZEos's computers use 20 only the best components; is that correct? 21 Answer: Yes. 22 Question: And ZEos noted in its 23 advertisements that it included Microsoft 24 operating system software with certain of its 25 computers, correct? 9003 1 Answer: Yes. 2 Question: Now, the price for ZEos's 3 computers in the early 1990s ranged from a low 4 of about eleven ninety-five -- $1,195 to a high 5 of about $3,995; is that correct? 6 Answer: Those would be advertised 7 configurations. When I spoke earlier about 8 choice, one of the things we had was a -- a 9 price list for our salespeople, and for 10 customers that -- that wanted it, that would 11 give a la carte options so that people could -- 12 they could, if they want, order a $20,000 13 computer. But probably the most expensive 14 preconfigured advertised product was about 15 $4,000. 16 Question: All right. So the -- is it 17 fair to say that the preconfigured computers 18 that ZEos advertised between, say, 1991 and 19 1994 ranged in price from about $1,200 to 20 $4,000? 21 Answer: With the possible exception 22 of some servers, but for desktop PCs, that's 23 about right. 24 Question: And the server computers 25 would be even more expensive, correct? 9004 1 Answer: Yes. 2 Question: And in pricing its PCs, at 3 least the PCs that appeared in its 4 advertisements, ZEos typically used price 5 points ending in 95, such as nineteen 6 ninety-five, twenty-two ninety-five, 7 thirty-three ninety-five, and so on; is that 8 correct? 9 Answer: Yes. 10 Question: And the use of such price 11 points was typical among computer 12 manufacturers, was it not? 13 Answer: I believe so. Sometimes a 14 45, $50 increments rather than hundred-dollar 15 increments. 16 Question: But the use of price points 17 generally was common among computer 18 manufacturers, correct? 19 Answer: Well, the use of price points 20 -- everybody had a price on their product. 21 Question: The use of common price 22 points such as a 99 or ending in a 99 or a 95 23 or a 50, that was common -- 24 Answer: Yeah. 25 Question: -- was it not? 9005 1 Answer: Yeah. 2 Question: And I think you testified 3 that the most computers that ZEos ever sold in 4 a year was somewhere between 50,000 and 100,000 5 computers? 6 Answer: No, I -- I -- what I meant 7 was, in the early '90s that was my estimate 8 about how many we might have been selling in a 9 year. If I -- I don't recall the most we ever 10 sold in a year. 11 Question: But, on average, in the 12 early '90s, it would have been between 50,000 13 and 100,000 computers a year? 14 Answer: That's my recollection. 15 Question: Now, how did that value 16 compare to larger OEMs, such as IBM or Compaq, 17 at the time? 18 Answer: Well, compared to larger 19 OEMs, that would be a smaller volume. 20 Question: Much smaller? 21 Answer: It depended on which OEM. 22 Question: Do you -- do you know, for 23 example, how many computers Compaq sold on 24 average in a given year in the early 1990s? 25 Answer: I do not. 9006 1 Question: Far in excess of a hundred 2 thousand dollars -- a hundred thousand units, 3 is that fair? 4 Answer: I would think so. 5 Question: Now, had you ever seen any 6 other computer manufacturer's license agreement 7 with Microsoft? 8 Answer: No. 9 Question: So you don't know what kind 10 of license other OEMs, such as Compaq or IBM, 11 may have had? 12 Answer: Well, in our request for the 13 kind of license that we wanted, we were told 14 that these are the only two options available. 15 We took that to mean available to our 16 competitors as well as to us. 17 Question: But you never saw one of 18 your competitor's license agreements; is that 19 correct? 20 Answer: Correct. 21 Question: And you don't know, for 22 example, what percentage of PCs in the United 23 States as a whole were sold under license 24 agreements with Microsoft that were 25 per-processor license agreements, say, in 1990, 9007 1 correct? 2 Answer: I -- I would -- I would 3 believe that any significant manufacturer 4 presented with the two alternatives we were 5 presented with would have chosen our 6 alternative, so I presume the vast majority. 7 Question: Well, Mr. Apple, we talked 8 before about there being possibly three 9 alternatives, per-copy, per-system, and 10 per-processor. 11 Do you recall that? 12 Answer: Yes. 13 Question: And you recall your 14 testifying that sitting now here in the 15 courtroom ten years later, you don't recall 16 specifically what the difference is between a 17 per-system license and a per-processor license, 18 correct? 19 Answer: That's correct. 20 Question: And you don't know whether 21 a number of other large OEMs may have had a 22 per-system license that operated differently 23 from your per-processor license, do you? 24 Answer: I do not, no. 25 Question: And you don't know, for 9008 1 example, what percentage of PCs were sold in 2 the U.S. in 1990 under a per-system license, do 3 you? 4 Answer: No. 5 Question: And you don't know what 6 percentage of computers were sold in the U.S. 7 in 1991 pursuant to a per-system license, do 8 you? 9 Answer: No. 10 Question: And if I asked you the same 11 question for 1992, your answer would be the 12 same, would it not? 13 Answer: Yes, it would. 14 Question: Now, Mr. Hagstrom asked you 15 a number of questions about computer mice, did 16 he not? 17 Answer: Yes. 18 Question: And in the early 1990s, 19 Microsoft was not the only company that made 20 the computer mice, was it? 21 Answer: No, it was not. 22 Question: Which other companies made 23 computer mice in the early 1990s? 24 Answer: Many. 25 Question: When you started at ZEos in 9009 1 1990, ZEos began purchasing computer mice from 2 Microsoft when it started installing Windows on 3 some of its systems, correct? 4 Answer: Yes. 5 Question: And if you'd look, sir, at 6 Plaintiffs' Exhibit 4437. 7 Answer: Yes. 8 Question: Is that the agreement 9 pursuant to which ZEos acquired mice from 10 Microsoft in 1990? 11 Answer: I believe so. 12 Question: And if you could look, 13 Mr. Apple, at page 17 of this document. 14 Answer: Yes. 15 Question: In 1990, what price did 16 ZEos pay Microsoft for computer mice? 17 Answer: $22.15. 18 Question: So that's $22.15 per unit 19 of computer mice, correct? 20 Answer: Yes. 21 Question: And ZEos wanted a lower 22 price for its computer mice, did it not? 23 Answer: Certainly. 24 Question: And Microsoft was very 25 interested in keeping ZEos's mouse business, 9010 1 wasn't it? 2 Answer: I would think so. 3 Question: And Microsoft expressed an 4 interest to you to discuss its -- Microsoft's 5 mouse pricing in an effort to keep ZEos's 6 Microsoft Windows business, correct? 7 Answer: Well, at what time are you 8 referring to? 9 Question: 1991, when this agreement 10 was about to expire. 11 Answer: I -- I remember speaking to 12 Microsoft about it when the Logitech issue came 13 up. I don't recall if that was exactly '91 or 14 if that's when you're referring to. 15 Question: Mr. Apple, I've handed you 16 what we've marked as Plaintiffs' Exhibit -- 17 what's been marked as Plaintiffs' Exhibit 4468. 18 Have you seen this document before? 19 Answer: I don't recall it, but I -- I 20 probably have. It's addressed to me. 21 Question: Is this document a letter 22 to you from Richard Choulnard at Microsoft 23 dated April 23, 1991? 24 Answer: Yes. 25 Question: And at the time was Richard 9011 1 Choulnard ZEos's -- ZEos's account manager at 2 Microsoft? 3 Answer: Yes. 4 Question: And does this letter 5 discuss ZEos's interest in new mouse pricing? 6 Answer: Well, it expresses 7 Microsoft's interest. 8 Question: Now, this letter is dated 9 April 23, 1991; is that correct? 10 Answer: Yes. 11 Question: And is that about when 12 ZEos's existing mouse agreement was expiring? 13 Answer: I don't recall. 14 Question: Well, the -- the agreement 15 was -- it has an effective date of May 22nd, 16 1990; is that correct? 17 Answer: I'm sorry, which -- which 18 exhibit was it? 19 Question: In the mouse agreement, 20 Plaintiffs' Exhibit 4437. 21 Answer: Effective date May 22nd, 22 1990. 23 Question: And it was a one-year 24 agreement, correct? 25 Answer: That's my recollection. 9012 1 Question: And this letter from 2 Mr. Choulnard is dated almost a year later, in 3 April of 1991; is that correct? 4 Answer: Yes. It looks like this 5 letter is dated approximately two months before 6 our agreement was to expire. 7 Question: And Mr. Choulnard writes in 8 that letter, in the first paragraph, I'm still 9 very interested in discussing new Microsoft -- 10 new mouse pricing with you. 11 Unfortunately, we seem to keep missing 12 each other. Since your mouse business is very 13 important to Microsoft, I would like to set up 14 a meeting this Friday, April 26, where I will 15 come out to ZEos with the mouse product 16 manager. 17 Do you see that? 18 Answer: Yes. 19 Question: And do you recall 20 representatives of Microsoft being very 21 interested in discussing with you your concerns 22 about Microsoft's mouse pricing in the spring 23 of 1991, before the existing contract was going 24 to expire? 25 Answer: I -- I honestly don't recall. 9013 1 Question: Now, we -- we looked before 2 under the prior contract ZEos's existing price 3 was $22.15; is that correct? 4 Answer: Yes. 5 Question: And you testified that the 6 price of the Logitech mouse was going to be $3 7 cheaper than Microsoft's existing price, 8 correct? 9 Answer: Well, I'm not sure that this 10 was the time period in which I was talking to 11 Logitech. It may have been a -- a contract 12 later. 13 Question: Oh, it may have been a 14 contract later? 15 Answer: Yes. 16 Question: Well, sir, isn't it true 17 that in response to your concerns about 18 Microsoft's mouse pricing, that Microsoft 19 reduced -- agreed to reduce its mouse prices by 20 $4.15 a unit? 21 Answer: I believe so. 22 Question: And that's why you stayed 23 with Microsoft for mouse business, correct? 24 Answer: We're -- I think we're 25 confusing different episodes. My recollection 9014 1 is that $22 was just flat out a lot of money 2 for a mouse, and we were concerned from -- they 3 wanted about $22 for a mouse. 4 I don't believe that this first 5 renewal is the time period in which I was 6 talking to Logitech. 7 My recollection is that I was talking 8 to Logitech when my -- my Microsoft price was 9 down to 18 or $17 and Logitech was offering 10 something more on the order of $14. 11 Question: Well, do you recall the 12 Microsoft representative with whom you met at 13 COMDEX? 14 Answer: I don't remember. 15 Question: And did you put anything in 16 writing about the meeting with COMDEX -- that 17 meeting at COMDEX? 18 Answer: I don't think so. 19 Question: And did either you or 20 Mr. Herrick send a letter to anyone at 21 Microsoft discussing what happened at that 22 supposed meeting at COMDEX? 23 Answer: I don't recall. I -- I 24 believe I got some correspondence from 25 Microsoft about the $5 that they announced to 9015 1 me at COMDEX. 2 Question: Do you have any document in 3 your possession that indicates that this 4 supposed meeting at COMDEX happened in 1992 and 5 this is not about 1991? 6 Answer: No. 7 Question: And is it possible that 8 Microsoft was -- had an existing price of 9 $22.15 per mouse, and Logitech came in with a 10 price that was $3 less, and ZEos ultimately 11 ended up staying with Microsoft because 12 Microsoft beat Logitech's mouse price by coming 13 in at $4.15 cheaper? Is it possible? 14 Answer: I don't think that's 15 possible. 16 Question: Would you have any 17 documents to rebut that? 18 Answer: No documents, just my memory. 19 Question: Okay. Well, you agree, 20 don't you, that Microsoft ultimately came in 21 with a mouse price of $18 that was $4.15 less 22 than Microsoft's existing price, correct? 23 Answer: Yes. 24 Question: Now, Mr. Hagstrom towards 25 the end of his direct asked you some questions 9016 1 about vaporware. 2 Do you recall that question? 3 Answer: Yes. 4 Question: And you mentioned an 5 operating system from Microsoft called Pen 6 Windows. 7 Do you recall that? 8 Answer: Yes. 9 Question: And Pen Windows actually 10 shipped, did it not? 11 Answer: I'm not sure. I thought it 12 didn't, but perhaps it did. 13 Question: And other software 14 companies other than Microsoft also 15 preannounced their products, do they not? 16 Answer: Yes. 17 Question: I mean, software companies 18 commonly announce the release of their products 19 well before its actually released, correct? 20 Answer: Absolutely. 21 Question: Lotus does that, correct? 22 Answer: Yes. 23 Question: IBM did that, correct? 24 Answer: Yes. 25 Question: WordPerfect did that, 9017 1 correct? 2 Answer: I believe that was common 3 practice. 4 Question: And it's also common in the 5 software industry that sometimes software 6 companies do not meet its -- their anticipated 7 release date and their product release is 8 actually delayed, correct? 9 Answer: Correct. 10 Question: And all of the companies 11 that I mentioned before, Lotus, IBM, 12 WordPerfect, sometimes they announce that a 13 product would be released on a certain date, 14 and then it turned out the release date slipped 15 and the product was released later than that, 16 correct? 17 Answer: That I have no way of 18 knowing. 19 Question: That commonly occurs in the 20 software industry, doesn't it? 21 Answer: If release dates aren't met, 22 I don't know if common is the right term, but 23 it's -- it's been known to happen. 24 (Whereupon, the deposition being read 25 to the jury adjourned.) 9018 1 MR. CASHMAN: Your Honor, may I have a 2 sidebar, please? 3 THE COURT: Yes. 4 (The following record was made out of 5 the presence of the jury at 8:59 a.m.) 6 THE COURT: Go ahead. 7 MR. CASHMAN: Your Honor, the reason 8 I've asked for a sidebar is because an issue 9 came up late last evening and I was only able 10 to confirm some facts this morning right before 11 court started, and this is what's going on. 12 During the testimony that Mr. Apple 13 gave in Minnesota, Mr. Pepperman, the examining 14 attorney for Microsoft, created a demonstrative 15 chart during the course of Mr. Apple's 16 testimony. 17 Microsoft did not designate that 18 demonstrative exhibit as an exhibit in the 19 process that we went through before the Special 20 Master where we were entitled to assert all of 21 our objections and such over the last many 22 months. 23 When we were preparing Mr. Apple's 24 testimony for reading here before the Court, 25 Microsoft did not advise Plaintiffs that they 9019 1 intended to use this demonstrative exhibit 2 until late last night was the first time that 3 we had notice that Microsoft intended to 4 display this demonstrative exhibit, which they 5 had in their possession obviously for two years 6 plus. 7 And they propose -- the reason I 8 stopped at this point is they propose to 9 display one of these demonstrative exhibits 10 beginning with the next testimony. 11 And, again, here again there's no 12 evidence in the record that the demonstrative 13 exhibit was displayed for the long period of 14 time that Microsoft is proposing to display it 15 and others now in Mr. Apple's 16 cross-examination. 17 So Plaintiffs object to the display of 18 these demonstrative exhibits because they were 19 never disclosed during the Special Master 20 process as was required. 21 I have a copy of these demonstrative 22 exhibits for the Court to look at. 23 These were just given to us last 24 night. 25 The first one is Defendant's 3755, and 9020 1 these handwritten notes were written in these 2 charts by Mr. Pepperman during the course of 3 Apple's cross-examination. 4 And there are subsequent exhibits that 5 Microsoft proposes to display, 3756, 3757, and 6 3758 and Plaintiffs oppose the display of any 7 and all four of these exhibits. 8 THE COURT: The figures that are in 9 here are based on the testimony of the witness? 10 MR. CASHMAN: I believe so, Your 11 Honor, but we haven't had enough time to verify 12 that that is all the case. 13 MR. GREEN: Your Honor, first of all, 14 this -- these have been designated in our cross 15 designation for a long period of time. 16 Number two, they were admitted in the 17 Gordon case. 18 Number three, all the figures on there 19 come off of exhibits which were admitted into 20 evidence in the Gordon case. In fact, many of 21 them were Plaintiffs' exhibits which they have 22 already referred to in the direct testimony 23 which they've read today. 24 It comes right from the transcript of 25 the Gordon case. We do not intend to offer 9021 1 them into evidence, but we do feel, such as Mr. 2 Alepin writing things up and that sort of 3 stuff, that they're perfectly legitimate 4 demonstrative evidence which they've been well 5 aware of ever since the Gordon case was tried 6 and ever since we've done our cross 7 designations. 8 They're right in the transcript. 9 They've always been here. They've had these 10 designations for a long, long time. 11 This should come of absolutely no 12 surprise to them. And we think that for the 13 purposes of a demonstrative evidence to -- 14 without them, it isn't going to make any sense, 15 what we've designated for a long, long time and 16 they've known about it. 17 I think the only thing that they -- 18 you know, I don't know what the issue is. 19 They've been here for a long time. And to say 20 that they just found out about this is pretty 21 unfounded. 22 MR. CASHMAN: Well, just as a matter 23 of correction, these were not admitted in the 24 Gordon case. They were not designated in this 25 case. 9022 1 The first time that we were advised 2 that Microsoft intended to use these 3 demonstratives was last night after 8 o'clock. 4 MR. GREEN: That's just not true, Your 5 Honor. 6 MR. CASHMAN: After 5 o'clock anyway. 7 THE COURT: When were they designated 8 before the -- were they designated? 9 MR. GREEN: Yeah. 10 THE COURT: The demonstrative exhibits 11 were designated? 12 MR. CASHMAN: They were not designated 13 in the Special Master process. 14 And as I advised the Court, that's 15 what I needed to confirm and why I didn't raise 16 it at 8 o'clock this morning. 17 I have confirmed that these were not 18 designated by Microsoft amongst the 10,000 19 exhibits that they did designate. 20 MR. GREEN: They're not designated as 21 an exhibit to be admitted, but they were 22 designated in what we designated as 23 cross-examination in the Apple trial testimony 24 in Gordon. 25 And they've known about that for -- I 9023 1 don't know how long ago those designations took 2 place, but it -- 3 MR. TULCHIN: If I could add this, 4 Your Honor -- 5 THE COURT: Why did you wait until 6 last night -- 7 MR. TULCHIN: Your Honor, we didn't 8 wait -- 9 THE COURT: Why did you bother to let 10 them know last night? 11 MR. GREEN: Maybe we shouldn't have. 12 I don't know. 13 THE COURT: The issue that enters in 14 my mind is if they're going to be admitted all 15 along, why would you even bother to let them 16 know? 17 MR. GREEN: Let me tell you why we did 18 that and then I'll let -- because we decided 19 that our guy -- they've been using their tech 20 guy Darin. 21 And we decided that it would be better 22 to use our guy Chris. And so we just let them 23 know when we were going to call them up. 24 That's what we did last night. 25 MR. CASHMAN: That's just not correct. 9024 1 I may be even to call up to my Treo, the E-mail 2 from Mr. Tuggy in which he acknowledges that 3 these were not designated before the Special 4 Master and he says, you know, his claim is that 5 this is a mistake by Microsoft that the 6 Plaintiffs should overlook essentially. And we 7 don't think that's right. 8 There are -- it's just not fair when 9 these were something that Microsoft knew and 10 should have known about all along. 11 And they didn't designate as part of 12 the process when we had over six phases of 13 document designations. 14 And the additional part of the problem 15 is, we got for the first time then last night 16 from Mr. Glass, an attorney from Microsoft, 17 their revised call-out sheet for where they 18 want to display particular exhibits. 19 And when they want to display one of 20 these demonstratives for -- well, it looks like 21 for 11 pages of testimony, when there's no 22 evidence in the transcript even that these 23 demonstratives were displayed for that period 24 of time. 25 So for the additional reason, it's 9025 1 prejudicial because there's no record of how 2 long these demonstratives were up and how they 3 were used. 4 The best that can be said is that Mr. 5 Pepperman wrote them down and created them 6 during the course of the testimony, but the 7 particulars are not reflected in the 8 transcript. 9 So, again, for that reason and the 10 reason that this wasn't disclosed during the 11 Special Master process, which we've been 12 through that many times now with the Court 13 about what the order required the parties to 14 do, Plaintiffs object to the display of these 15 exhibits. 16 THE COURT: Mr. Tulchin. 17 MR. TULCHIN: Yes. Thank you, Your 18 Honor. 19 I wonder if I could just say two 20 things. 21 The first is I was present in 22 Minnesota and I was present in the courtroom 23 during the examination of Mr. Apple, which was 24 conducted by my colleague Mr. Pepperman. 25 These charts that Mr. Cashman showed 9026 1 you are actually pictures of what Mr. Pepperman 2 drew on the board in the courtroom during the 3 cross-examination. 4 And as the Court will see, the 5 upcoming pages of the transcript are not 6 comprehensible without the numbers that Mr. 7 Pepperman actually drew on this board. 8 These pages have been designated for a 9 very long time and so the Plaintiffs 10 necessarily -- and without action, the 11 Plaintiffs didn't object to this testimony. 12 These are demonstrative exhibits, as 13 Mr. Cashman said. There was never any 14 requirement in this case that demonstratives be 15 put through the Special Master process. 16 The Plaintiffs didn't put their 17 demonstratives through the Special Master 18 process. 19 Indeed, we have an agreement that 20 demonstratives that will be used on direct must 21 be disclosed in advance, but not on cross. 22 So we wouldn't have disclosed 23 demonstratives in the Special Master process, 24 although the Plaintiffs, of course, knew 25 exactly what we were going to be doing in the 9027 1 transcript because we designated these pages. 2 And, again, the pages that you're 3 going to come to in a moment where Mr. Green 4 will be reading the cross and Mr. Gralewski the 5 answer don't make any sense without the numbers 6 that were on the board in Minnesota and that 7 these demonstratives are a picture of. 8 These are exhibits not for admission 9 into evidence. They're demonstratives used on 10 cross as demonstratives were used on direct and 11 cross by Mr. Alepin. 12 You know, no one gave us notice that 13 Mr. Alepin was going to go to the flip sheet on 14 direct and draw pictures. 15 He just did it. And I'm not 16 complaining about it. 17 But, here, they've actually had notice 18 because, again, if you see these pages, you 19 can't read them and understand the cross, which 20 is coming in without objection, unless you 21 actually see the numbers that were on the 22 charts. 23 So it's just a red herring to talk 24 about the Special Master process. That was to 25 be used for exhibits that a party was going to 9028 1 offer into evidence, not for demonstratives, 2 certainly not for demonstratives on cross, 3 which is what this is. 4 MR. CASHMAN: Your Honor, Mr. Tulchin 5 wasn't part of the Special Master process and 6 -- 7 MR. TULCHIN: That's not correct. 8 MR. CASHMAN: -- and I was extensively 9 involved in the Special Master process. 10 And this -- these exhibits fall into 11 what might be characterized as a different 12 category than what Mr. Tulchin is talking about 13 demonstratives where we have an agreement about 14 what happens now because these were created 15 long ago. 16 Microsoft knew about them. They knew 17 or should have known whether they intended to 18 use them. 19 And the whole point of the Special 20 Master process is for disclosure of exhibits 21 that the parties know about and that would be 22 used. 23 And I believe there are other 24 demonstrative exhibits that were disclosed in 25 that process so the parties could vet them with 9029 1 objections and argue about them. 2 With respect to whether Mr. Alepin's 3 testimony makes sense -- 4 MR. GREEN: Apple. 5 MR. CASHMAN: Pardon me, Mr. Apple's 6 testimony -- makes sense on this point, it's 7 not the Plaintiffs' fault that Mr. Pepperman 8 didn't make an adequate record. 9 So that is really a misnomer or red 10 herring, not the fact that these exhibits 11 should have been brought to our attention 12 before last night. 13 And so it's a simple matter, really, 14 Plaintiffs request that they not be displayed. 15 MR. GREEN: Your Honor, that doesn't 16 make any sense. 17 If you follow his logic, he would have 18 had to tell us every time Alepin got up and 19 drew his little charts on the flip chart about 20 that during the Special Master process. 21 Obviously, we weren't told. So it 22 just doesn't make any sense what he's talking 23 about because of the same sort of use of 24 demonstrative evidence. 25 THE COURT: Anything else on this? 9030 1 MR. CASHMAN: I think that's all, Your 2 Honor. 3 THE COURT: Mr. Tulchin, anything 4 else? 5 MR. TULCHIN: No, sir. 6 THE COURT: I'll allow you to use the 7 demonstratives, but they shouldn't be displayed 8 for any longer than necessary for the witness. 9 I think the Jury's entitled to a 10 clearer understanding of what the witness is 11 talking about. 12 So the objection is overruled. 13 MR. GREEN: Thank you, Your Honor. 14 MR. TULCHIN: Thank you. 15 MR. CASHMAN: Thank you, Your Honor. 16 (The following record was made in the 17 presence of the jury at 9:13 a.m.) 18 THE COURT: Excuse the delay. Sorry. 19 You may continue. 20 (Whereupon, the following deposition 21 was read to the jury.) 22 Question: Now, Mr. Apple, what I'd 23 like to do with you next is I'd like to go 24 through with you -- go through with you the 25 royalties that ZEos owed Microsoft under its 9031 1 various license agreements over time and plot 2 those royalties on this chart. 3 And I'd like to start, Mr. Apple, with 4 the royalty owed under Microsoft's Exhibit 4435 5 -- under Plaintiffs' Exhibit 4435. 6 Answer: Yes. 7 Question: Now, this was ZEos's 8 distribution agreement for packaged MS 9 products, correct? 10 Answer: MS-DOS, yes. Correct. 11 Question: I'm sorry. And this is the 12 agreement pursuant to which ZEos acquired 13 MS-DOS prior to its license agreement in 1990, 14 correct? 15 Answer: Correct. 16 Question: And what was the price for 17 packaged MS-DOS under this agreement? 18 Answer: $60. 19 Question: And what was the date of 20 that agreement? 21 Answer: April 2, 1989. 22 Question: Now, ZEos's next agreement 23 for MS-DOS is Plaintiffs' Exhibit 4421, 24 correct? 25 Answer: 4421 is DOS 3.3 and 4.0, yes. 9032 1 Question: And what is the date of 2 that agreement? 3 Answer: The effect date is January 1, 4 1990. 5 Question: And this is ZEos's first 6 license agreement for MS-DOS versions 4.01 and 7 3.3, correct? 8 Answer: I believe so, yes. 9 Question: And this is the license 10 agreement that went into effect when you joined 11 ZEos in January 1990, correct? 12 Answer: Yeah. I believe the 13 agreement hadn't been actually reached at that 14 point, but I believe it was put into place 15 retroactively. 16 Question: Retroactively to January 1, 17 1990, correct? 18 Answer: Correct. 19 Question: And by entering into this 20 license agreement with Microsoft, ZEos was able 21 to save a lot of money, was it not? 22 Answer: Yes. 23 Question: Now, what was ZEos's 24 royalty for MS-DOS 4.01 under the January 1990 25 license agreement? 9033 1 Answer: You don't have a page number, 2 do you? 3 Question: Yes, I do. Page 21. 4 Answer: $35. 5 Question: So for MS-DOS 4.01, ZEos 6 had a $25 savings by going from the packaged 7 DOS under the April 1989 agreement to a license 8 agreement under the January 1990 agreement, 9 correct? 10 Answer: Not exactly, no. The 11 packaged DOS was all in one solution that 12 included everything we needed. The MS-DOS 13 license we had additional cost of manuals and 14 disks and manufacturing time. 15 Question: Well, what did it cost ZEos 16 to manufacture a manual per manual? 17 Answer: Well, the manual and disk set 18 that we gave with DOS was probably 8 to $10. 19 Question: It cost ZEos for each unit 20 eight to $10 to manufacture -- to copy the 21 manual and the disk that went in the box? 22 Answer: I believe that's about right. 23 Question: You were given a copy of 24 the manual, were you not? 25 Answer: I'm sure we were. 9034 1 Question: And all you had to do is 2 make a copy of it and put it in a box, correct? 3 Answer: Yeah. It was a pretty thick 4 book. 5 Question: Well, did you go to Kinko's 6 to have it copied? Wasn't there a cheaper way 7 to do it? 8 Answer: No. We had it produced -- it 9 was a thick, perfect bound book, is my 10 recollection. 11 Question: Well, assuming that's the 12 case -- 13 Answer: Okay. 14 Question: -- how much did it cost 15 simply to download the operating system from 16 the master disk onto the machine as part of the 17 manufacturing process? 18 Answer: Oh, just -- just a few 19 minutes of time. 20 Question: And so that was -- costs in 21 the pennies, if that, correct? 22 Answer: That's correct. 23 Question: So you're saying your cost 24 of goods sold was 8 to $10 per unit? 25 Answer: Yeah. 9035 1 Question: But you were still saving 2 $25 -- you had a $25 royalty savings by going 3 from the packaged product to the licensed 4 product, correct? 5 Answer: That's right. 6 Question: So you were saving 15 to 7 $17 per copy by entering into a license 8 agreement with Microsoft, correct? 9 Answer: Per computer where the 10 customer wanted the DOS. The other difference 11 is we were paying the $35 on every computer, 12 only the $60 where the customer actually got 13 the product. 14 Question: I'm going to limit my 15 questions here to customers that actually 16 acquired Microsoft operating system software, 17 because, after all, that's who the Plaintiffs 18 are in this action. 19 Is that fair? 20 Answer: Well, close license 21 agreement, everybody required the software, 22 because we were required to put it on the 23 computer. 24 Question: But you weren't required to 25 put it on the computer. You owed a royalty 9036 1 whether or not you put it on a computer, but 2 you weren't required to put it on the computer, 3 were you? 4 Answer: My recollection is you're 5 correct, but I'm not so sure about that. 6 Question: Well, turn to the next page 7 of Plaintiffs' Exhibit 4421. Actually, page 8 23. And there's a reference there to MS-DOS 9 shell 1.0. 10 Do you see where I am? 11 Answer: Yes. 12 Question: And you testified that that 13 was a user interface that went with MS-DOS, 14 correct? 15 Answer: Correct. 16 Question: And under this license 17 agreement, did ZEos owe an additional royalty 18 for MS-DOS shell? 19 Answer: Yes. 20 Question: And was that royalty $2? 21 Answer: Correct. 22 Question: So if ZEos wanted to 23 install both MS-DOS 4.01 and Shell 1.0, the 24 royalty that ZEos owed was $37, correct? 25 Answer: Yes. 9037 1 Question: Now, if you would look, 2 sir, at page 25 of this license agreement. 3 Answer: Okay. 4 Question: And ZEos there had a 5 per-copy license for MS-DOS 3.3, correct? 6 Answer: Yes. 7 Question: And ZEos's royalty for 8 MS-DOS 3.3 was $37, correct? 9 Answer: Yes. 10 Question: I'd like to turn next to 11 Plaintiffs' Exhibit 4422. 12 Now, is Plaintiffs' Exhibit 4422 13 ZEos's license agreement for MS-DOS 4.01 and 14 Windows 3.0 dated June 1, 1990? 15 Answer: Correct. 16 Question: And that's six months after 17 the license agreement we just looked at, 18 Plaintiffs' Exhibit 4421? 19 Answer: That's right. 20 Question: And this agreement 21 superseded, or replaced Plaintiffs' Exhibit 22 4421; is that correct? 23 Answer: Yeah. It's actually five 24 months, and, yes. 25 Question: If you would turn to page 9038 1 21 of this agreement. 2 Answer: Yes. 3 Question: What is ZEos's total 4 royalty under this agreement for both MS-DOS 5 4.01 and Shell 1.0? 6 Answer: $29. 7 Question: So in five months, ZEos's 8 royalty for MS-DOS 4.01 and Shell 1.0 decreased 9 from $37 in January of 1990 to a total of $29 10 in June '90; is that correct? 11 Answer: Yes. 12 Question: And that's a savings of $8 13 per system, correct? 14 Answer: Yes. 15 Question: And if you'd look at page 16 23 of Plaintiffs' Exhibit 4422. 17 Answer: Yes. 18 Question: Does that page set out 19 ZEos's royalty for Windows 3.0 in June 1990? 20 Answer: Yes. 21 Question: And what is that royalty? 22 Answer: $25. 23 Question: I'd like you to turn next, 24 Mr. Apple, to Plaintiffs' Exhibit 4424. 25 Answer: Yes. 9039 1 Question: Now, is this an amendment 2 to the license agreement we were just looking 3 at, Plaintiffs' Exhibit 4422? 4 Answer: Yes. 5 Question: And this amendment gave 6 ZEos a license for MS-DOS 5.0; is that correct? 7 Answer: Yes. 8 Question: And the date of this 9 agreement is January 1991; is that correct? 10 Answer: Amendment. Yes. 11 MR. GREEN: I'm sorry. Amendment. 12 Question: And what was ZEos's royalty 13 for MS-DOS 5.0 in January 1991? 14 Answer: $29. 15 Question: Now, MS-DOS 5.0 was an 16 improvement over MS-DOS 4.01, was it not? 17 Answer: I don't know. 18 Question: Well, did you testify 19 earlier that customers were reluctant to obtain 20 MS-DOS 4.01? 21 Answer: DOS 4.0 was slow to catch on. 22 For -- for some number of months, customers 23 wanted 3.3. 24 Question: Well, did MS-DOS 5.0 25 contain additional features that MS-DOS 4.01 9040 1 did not? 2 Answer: I don't know. 3 Question: Do you remember whether 4 MS-DOS 5.0 was generally considered a 5 meaningful upgrade over MS-DOS 4.01? 6 Answer: I honestly don't remember the 7 difference between the two. 8 Question: Well, it's true, though, 9 isn't it, that ZEos's royalty did not increase 10 from MS-DOS 4.01 to MS-DOS 5.0, correct? 11 Answer: Well, it didn't, but the 12 other -- there's more going on than just 13 version changes. 14 Question: Well, I'm asking you, 15 looking at the royalty -- 16 Answer: Okay. 17 Question: -- the royalty that ZEos 18 owed per system did not increase from MS-DOS 19 4.01 in June 1990 to MS-DOS 5.0 in January '91; 20 is that correct? 21 Answer: Yes, it is. 22 Question: I'd like for you to look 23 next at Plaintiffs' Exhibit 4425. 24 Is this an amendment to ZEos's license 25 agreement dated January 1992? 9041 1 Answer: Yes, it is. 2 Question: And if you'd look at page 3 10 of Plaintiffs' Exhibit 4425 -- 4 Answer: Yes. 5 Question: -- what was ZEos's MS-DOS 6 5.0 royalty in January 1992? 7 Answer: $21. 8 Question: So in one year from January 9 1991 to January 1992, ZEos's royalty for MS-DOS 10 5.0 decreased by $8? 11 Answer: Per unit, that's right. 12 Question: I'd like you to look next 13 at Plaintiffs' Exhibit 4426. 14 Answer: Okay. 15 Question: Is this an amendment to 16 ZEos's license agreement with Microsoft dated 17 September of 1992? 18 Answer: Yes. 19 Question: And if you'd look at page 2 20 of this amendment, does this amendment give 21 ZEos the right to license Windows 3.1? 22 Answer: Yes. 23 Question: And what was ZEos's royalty 24 for Windows 3.1 in September 1992 under this 25 agreement? 9042 1 Answer: $25. 2 Question: Was Windows 3.1 considered 3 an improvement over Windows 3.0? 4 Answer: It was assumed to be. I 5 don't know the difference. 6 Question: Did ZEos's royalty change 7 at all from Windows 3.0 in June of 1990 to 8 Windows 3.1 in September 1992? 9 Answer: No. 10 Question: And, finally, I'd like you 11 to look at Plaintiffs' Exhibit 4428. 12 Answer: Yes, 4428. 13 Question: Now, is this an amendment 14 to ZEos's license agreement dated January 1993? 15 Answer: Yes. 16 Question: And if you look at page 12 17 of this amendment, does this amendment give 18 ZEos a license for MS-DOS 6.0? 19 Answer: Yes. 20 Question: And what was ZEos's royalty 21 for MS-DOS 6.0 in January 1993 under this 22 amendment? 23 Answer: $21. 24 Question: So, in other words -- I'll 25 withdraw. 9043 1 Was MS-DOS 6.0 considered an 2 improvement over MS-DOS 5.0? 3 Answer: I don't know. 4 Question: Well, it's true, though, 5 isn't it, that ZEos's MS-DOS royalty did not -- 6 did not increase from MS-DOS 5.0 in January 7 1992 to MS-DOS 6.0 in January of '93? 8 Answer: Well, the royalty per unit 9 did not increase, but we were -- our total 10 royalty payments increased substantially. 11 Question: Because you were selling 12 more machines, correct? 13 Answer: Yes, we were farther up the 14 volume scale. 15 Question: Well, it's volume-based 16 pricing. I'm just looking at your royalties 17 for MS-DOS. 18 Answer: Yes. 19 Question: And is it true that over 20 the three-year period we've been looking at, 21 January 1990 to January 1993, that ZEos's 22 MS-DOS royalties decreased by $16 from $37 to 23 $21; is that right? 24 Answer: Yes. 25 Question: And that's a decrease of 9044 1 about 43 percent, is it not? 2 Answer: Yeah. 3 Question: In other words, in this 4 three-year period, ZEos's royalty for MS-DOS 5 decreased by about 43 percent even though 6 Microsoft over that same period continued to 7 release new versions of its MS-DOS product, 8 correct? 9 Answer: Yes. 10 Question: All right. Mr. Apple, to 11 do the next part of this exercise, I'm going to 12 hand you this useful document that I created. 13 I hope you can read my handwriting. 14 Answer: Oh, yes. 15 Question: Now, Mr. Apple, what I'm 16 going to do next is I'm going to hand you some 17 copies of some advertisements in PC World -- 18 Answer: Okay. 19 Question: -- that were provided to me 20 by Plaintiffs' counsel in this action for 21 possible use with your testimony. 22 And the first one I'm handing you is a 23 PC World advertisement dated July 1991, which 24 I've marked for identification as Defendant's 25 Exhibit 3749. 9045 1 Answer: Thank you. 2 Question: And, Mr. Apple, what I'm 3 going to do is I'm going to try to identify 4 machines from these various advertisements that 5 came preinstalled standard with both MS-DOS and 6 Windows so that we have an apple-to-apple 7 comparison, pardon the pun. 8 Could you look, sir, at this 9 advertisement, and I believe it's the sixth 10 page. 11 Answer: All right. 12 Question: And let me know what the 13 advertised price for ZEos's 386SX computer was 14 in July 1991. 15 Answer: $2,295. 16 Question: And it's true, isn't it, 17 that in July 1991, the ZEos 386SX came 18 preinstalled with MS-DOS 4.01 and Windows 3.0? 19 Answer: It did for most customers. 20 Question: It did for most customers? 21 Answer: The advertisement -- I don't 22 offhand see DOS and Windows in the ad. 23 Question: Well, let me -- let me show 24 you another document that I've marked as 25 Defendant's Exhibit 3748. 9046 1 It's another advertisement, and ask 2 you to look at the third page of that document 3 and see if that refreshes your recollection 4 that some of ZEos's 386 computers came with 5 MS-DOS 4.01 and Windows 3.0 in July of '91, if 6 you look at the third page. 7 Answer: Yes. 8 Question: So at least some of ZEos's 9 386SX computers came with MS-DOS 4.01 and 10 Windows 3.0 in July of 1991, correct? 11 Answer: Oh, absolutely. 12 Question: And what was ZEos's royalty 13 for MS-DOS 4.01 in July 1991, if you look at 14 the chart? 15 Answer: For DOS 4.01? 16 Question: Yes. 17 Answer: In July of '91? 18 Question: Yes. 19 Answer: I'm not sure that was still a 20 product in July of '91. 21 Question: Well, we just were looking 22 at this advertisement, which is dated July 1991 23 and advertises MS-DOS 4.01 on it. 24 Answer: Okay. Well, the DOS 4.01 25 royalty was $37. 9047 1 Question: If you look beneath it in 2 the chart below -- 3 Answer: Or, I'm sorry, $29. 4 Question: And what was the Windows 5 3.0 royalty in July 1991? 6 Answer: $25. 7 Question: Now, during his opening 8 statements, one of the Plaintiffs' lawyers, 9 Mr. Crew, referred to the operating system as 10 the computer's brain, and that's why I have it 11 there. 12 But what I would like you to give me, 13 sir, for that column is the total of MS-DOS 14 4.01 and Windows 3.0. 15 Answer: With the hard goods or -- 16 Question: No. Just the total for the 17 royalties. 18 Answer: Royalties. $54. 19 Question: And that total royalty for 20 MS-DOS 4.01 and Windows 3.0 in July of 1991 21 represented about 2.4 percent of the purchase 22 price of the PC, correct? 23 Answer: Well, that's a little apples 24 and oranges. One is our cost, and the other is 25 our selling price. 9048 1 Question: What I'd like -- what I'm 2 comparing -- 3 Answer: Okay. 4 Question: -- it's my examination -- 5 Answer: Okay. 6 Question: Is the percentage that 7 ZEos's total operating system royalties 8 represented of the advertised purchase price of 9 your computer. 10 Answer: Exactly right. 11 Question: And that's 2.4 percent? 12 Answer: (Witness nods head.) 13 (Whereupon, the reading of the 14 deposition adjourned to the jury.) 15 MR. GREEN: You are nodding your head 16 affirmatively. 17 (Whereupon, the reading of the 18 deposition continued to the jury.) 19 Question: And, Mr. Apple, I'd like to 20 hand you another PC World advertisement 21 provided by Plaintiffs' counsel. This one for 22 January 1992. 23 Answer: Thank you. 24 Question: And I'd like you to look at 25 what I believe is the fourth page of this 9049 1 advertisement. 2 Answer: Okay. 3 Question: And I'm looking here for 4 packages of ZEos's 386SX-20 computer, which in 5 January 1992 were -- were advertised as coming 6 with both Windows and MS-DOS, and by my review, 7 that is Packages 3 and 4; correct? 8 Answer: Yes. 9 Question: And what is the price for 10 Package Number 3? 11 Answer: 19.95. 12 Question: And what is the price for 13 Package Number 4? 14 Answer: 22.95. 15 Question: And, Mr. Apple, just so the 16 -- the record is clear, the advertisement that 17 you're reading from I've had that marked as 18 Defendant's Exhibit 3750, correct? 19 Answer: Correct. 20 Question: And if you could look, sir, 21 at the chart that I gave you, what was ZEos's 22 MS-DOS 5.0 royalty in January 1992? 23 Answer: $21. 24 Question: And what was ZEos's Windows 25 3.0 royalty in January 1992? 9050 1 Answer: $25. 2 Question: And what was the total 3 royalty that ZEos paid per system for both 4 MS-DOS 5.0 and Windows 3.0 in January 1992? 5 Answer: $46. 6 Question: And that total royalty of 7 $46 represents 2 percent of the purchase price 8 of Package Number 4 of the ZEos 386SX-20, 9 correct? 10 Answer: Yes. 11 Question: And it represents 2.3 12 percent of the purchase price of the ZEos 13 386SX-20 Package Number 3, correct? 14 Answer: Correct. 15 Question: Plaintiffs -- counsel only 16 gave me three advertisements, so this is the 17 last one, July 1992. 18 Okay. I'm handing the witness an 19 advertisement dated July 1992 that I've marked 20 for identification as Defendant's Exhibit 3751. 21 Now, if you'd look, Mr. Apple, at page 22 4 of this advertisement. 23 Answer: Yes. 24 Question: And what I'm going to do, 25 actually, for simplicity's sake, is I'm going 9051 1 to focus only on ZEos's 486s. 2 And if you look at the ZEos 486s -- 3 well, first of all, is it true that for these 4 various computers, Packages 2, 3, and 4 came 5 with both MS-DOS 5.0 and Windows 3.1? 6 Answer: Yes. 7 Question: And if you look at the 8 table in the middle of the document, ZEos's 9 average advertised purchase price for a ZEos 10 486 computer for Packages 2 through 4 range 11 from $1,895 to $3,395? 12 Answer: Yeah. I don't -- I don't 13 know if I should explain these ads a little 14 bit, but these are -- because we custom built 15 everything, these were just recommended 16 starting points. 17 Question: I'm just asking about 18 the -- 19 Answer: Okay. 20 Question: -- the -- the standard 21 configurations that ZEos advertised -- or I 22 should say the configurations that ZEos 23 advertised. 24 Answer: Yes. 25 Question: And for Packages 2 through 9052 1 4, which included both Windows 3.1 and MS-DOS 2 5.0, the purchase prices advertised here for 3 ZEos 486 SX computers ranged from $1,895 to 4 $3,395, correct? 5 Answer: Correct. 6 Question: And what was ZEos's royalty 7 for MS-DOS 5.0 in July 1992? 8 Answer: $21. 9 Question: And what was ZEos's royalty 10 for Windows 3.1 in July 1992? 11 Answer: $25. 12 Question: And what was the total 13 royalty for both MS-DOS 5.0 and Windows 3.1 in 14 July 1992? 15 Answer: $46. 16 Question: And so that represents 17 between 1.4 percent and 2.4 percent of the 18 purchase price of the -- of the ZEos 486 19 computers advertised in July 1992 with both 20 MS-DOS 5.0 and Windows 3.1, correct? 21 Answer: For this high-end line, 22 correct. 23 Question: So to sum up, in the 24 one-year period we've been looking at between 25 July 1991 and July 1992, ZEos's combined 9053 1 royalty for MS-DOS and Windows, what 2 Plaintiffs' counsel has referred to as the 3 computer's brain, was between 1.4 percent and 4 2.4 percent of the total purchase price 5 advertised for ZEos's computers in these 6 advertisements, correct? 7 Answer: Yes. 8 MR. PEPPERMAN: I have no further 9 questions. 10 REDIRECT EXAMINATION 11 BY MR. HAGSTROM: 12 Q. Good morning, Mr. Apple. 13 I think in the series of questions 14 that Mr. Pepperman has asked you about these 15 advertisements, you mentioned that there's more 16 going on here. 17 Do you recall saying something like 18 that? 19 Answer: Yes. 20 Question: And what did you have in 21 mind when you said that? 22 Answer: Well -- well, the chart that 23 we constructed, one of the reasons the costs 24 were going down was not so much because of 25 version changes, in my opinion, but we were 9054 1 offering Microsoft quite a bit more as time 2 went on. 3 In 1989, for example, total company 4 sales for ZEos, the year before I got there, 5 was about $20 million. 6 Two years later, the total company 7 sales were about $200 million. So we were a 8 ten times bigger customer to Microsoft, and I 9 think that's a lot of what drove this, not 10 really the version changes. 11 Question: So was Mr. Pepperman 12 comparing apples and apples to use -- not to 13 use a pun? 14 Answer: Yeah, we certainly were not 15 the same customer in 1990 as we were in, say, 16 '92, '93. 17 Question: So I think you testified 18 earlier that there were volume discounts with 19 Microsoft? 20 Answer: Yes. Our understanding was 21 that if we could commit to more volume with 22 Microsoft, we could get better prices. And I 23 believe that's, in fact, what happened, a 24 better royalty rate on the -- this per -- 25 per-processor agreement that we had. 9055 1 Question: And as you went through 2 these contracts and amendments, were the 3 minimum commitments to Microsoft substantially 4 increasing? 5 Answer: I believe they were. 6 Question: Take a look at Exhibit 7 4425, Exhibit B, page 3. 8 Answer: Yes. 9 Question: Does it show that the 10 minimum commitment for that period was now up 11 to almost 2.6 million? 12 Answer: Correct. 13 Question: And in the prior 14 agreements, it was several hundred thousand 15 dollars less than that? 16 Answer: Yes. In fact, maybe almost 17 $2 million less than that. 18 Question: Now, in going through these 19 prices that Mr. Pepperman showed you from those 20 contracts and just setting aside the volume 21 pricing issue, what type of price tests were 22 you seeing in computer hardware components that 23 you were using in your machines? 24 Answer: From Intel, for example, a 25 microprocessor might be introduced with a cost 9056 1 to me of $400. 2 Within two years I might expect to see 3 that at $100 or maybe less, to the point where 4 it might even not be sold at all. 5 Question: So a 75 percent decrease 6 was not out of the question? 7 Answer: No, not at all. 8 Question: If you'll also take a look 9 at 4428, page 12. 10 Answer: Yes. 11 Question: What was the Windows price 12 per license, per-processor license? 13 Answer: 4428, page 12? 14 Question: Yes. 15 Answer: Is referring to DOS 6. 16 Question: Oh, I'm sorry. What was 17 the DOS 6 price? 18 Answer: $21. 19 Question: And do you know, have the 20 Windows prices stayed the same during this time 21 frame? 22 Answer: No. There was, actually, a 23 new version of Windows phased in somewhere in 24 this time frame that was more expensive than 25 Windows 3.1. 9057 1 Question: Based upon your experience, 2 actually considering the volume changes -- if 3 there had been no volume change, did you have 4 experience as to whether or not the Microsoft 5 pricing on the operating system software and 6 Windows combined was going up, staying 7 relatively the same, or going down? 8 Answer: Well, you know, it's -- in 9 January of '90 we were paying Microsoft $37 for 10 a fully functional computer. 11 Six months later it was $54. We saw 12 dramatic decreases in hardware price, never saw 13 a dramatic decrease in Microsoft pricing. In 14 fact, saw an increase on the next version of 15 Windows that -- that isn't on here. 16 Question: Now, early in his 17 examination, Mr. Pepperman was asking you about 18 whether or not ZEos actually licensed DR-DOS. 19 Do you recall that? 20 Answer: Yes. 21 Question: Was ZEos looking or 22 investigating DR-DOS as a potential alternative 23 at some point in time? 24 Answer: When I arrived in January of 25 '90, before this per-processor issue was -- was 9058 1 the only practical alternative, the company was 2 very interested in DR-DOS as not the primary 3 product, but as an alternative for those who 4 wanted to save a little bit of money. 5 Question: And after, I think the term 6 of the one letter we looked at used forced -- 7 Mr. Herrick used the word forced? 8 Answer: Yes. 9 Question: After Microsoft forced ZEos 10 into the per-processor license, was there any 11 reason to continue to look at licensing DR-DOS? 12 Answer: No. The only attraction to 13 us would have been as a lower-cost alternative. 14 By definition, it was impossible at 15 that point for DR-DOS to be a lower-cost 16 alternative. 17 Question: Do you recall Mr. Pepperman 18 asked you some questions about the mouse issue, 19 and I think in early -- in 1990, I think it 20 was, he showed you an example of where the 21 pricing went down by, I think it was $4.15. 22 Do you recall that? 23 Answer: Yes. 24 Question: But you didn't think it 25 related to the COMDEX issue; is that right? 9059 1 Answer: I didn't think so. I think 2 that was our -- our volume increasing. 3 Question: Now, with regard to mice, 4 didn't Mr. Pepperman ask whether, in fact, 5 there were many mice competitors? 6 Answer: They were. 7 Question: And what's the effect when 8 there are many competitors competing for a 9 company's business like yours? 10 Well, what's the effect of the 11 competition in mice? 12 Answer: The effect was to drive costs 13 down. In mice, in particular, costs went down 14 dramatically. 15 Question: Now, with regard to the 16 operating system, once you had the 17 per-processor licenses in place with Microsoft, 18 did you really have any competitive 19 alternatives to that? 20 Answer: The only chance for us to 21 sell another operating system was something 22 like Novell NetWare, where it served really a 23 pretty different purpose and -- and had a 24 different customer, different use, and was a 25 lot more money, anyway, so that the extra, you 9060 1 know, $54 that the customer was paying maybe 2 wasn't as painful to the customer because it 3 was a pretty painful purchase to begin with. 4 Question: Well, in your experience, 5 was price competition eliminated for OS 6 software as a result of long-term per-processor 7 license agreements like you had with Microsoft? 8 Answer: Yeah. It was -- it was 9 impossible -- Microsoft was the name brand. 10 That is the product most people wanted. But it 11 was impossible for a lesser-known company to 12 enter the market at a lower price, to enter the 13 OEM market. 14 Question: And Mr. Pepperman asked you 15 a question, and I think I have it quoted 16 precisely. 17 The customers who wanted Microsoft's 18 operating system software on their machines did 19 not receive higher prices as a result of ZEos's 20 agreements with Microsoft; isn't that correct? 21 And you answered, I believe so. 22 Based upon your experience with 23 dealing with mice and computer hardware, 24 including hardware and other computer 25 components, what was your experience when there 9061 1 was multiple competitors competing for your 2 business? 3 Answer: I answered the question, of 4 course, in the context of the reality that we 5 faced. My experience in those components where 6 we had competition, cost went down a lot 7 faster. 8 We talked earlier in the day about 9 Western Digital and CD and hard drive guys 10 coming in and trying to underbid each other. 11 That's what competition did in the business. 12 Question: The DR-DOS pricing for 13 operating system software, did you have an 14 understanding that that was higher, lower, the 15 same as Microsoft's operating system software? 16 Answer: My recollection and 17 assumption is that it would be low. 18 Question: Are you aware, did -- in 19 the releases of Microsoft's operating systems 20 that ZEos received, didn't Microsoft have to 21 fix bugs in its operating systems? 22 Answer: Certainly. Any -- any 23 complex piece of software like -- like an 24 operating system is -- is going to have bugs. 25 And, in fact, these days there's a built-in 9062 1 ability to go out on the Internet and -- and 2 get fixes. 3 Question: And Mr. Pepperman also 4 asked you about the free public domain 5 operating system software. 6 Do you recall that? 7 Answer: Yes. 8 Question: Could ZEos's customers 9 install that public domain software on their 10 systems after they purchased from you? 11 Answer: Yes. 12 Question: But if it was during the 13 time of the per-processor license agreement 14 between Microsoft and ZEos, what was the effect 15 of that? 16 Answer: Well, they would have been 17 paying for Microsoft software, but once they 18 had their computer, they could install anything 19 they wanted on it. 20 (Whereupon, the reading of the 21 deposition to the jury adjourned.) 22 THE COURT: Let's take a recess for 23 ten minutes. 24 Remember the admonition previously 25 given. 9063 1 Leave your notebooks here. 2 We'll be back in ten minutes. 3 Thank you. 4 (A recess was taken from 9:48 a.m. 5 to 10:01 a.m.) 6 (The following record was made out of 7 the presence of the jury.) 8 MR. CASHMAN: Before the Jury comes 9 in, Your Honor, maybe we should discuss this 10 question that came from the Juror Number 12 11 yesterday about whether Mark Chestnut is still 12 to this day an employee of Microsoft. My 13 understanding he is not. 14 MR. TULCHIN: Your Honor, like any 15 deposition testimony, it is what it is. And I 16 don't think an answer should be given to this 17 question because this was deposition testimony 18 of Mr. Chestnut. 19 Questions were asked at the time in 20 1998. There were lots of pieces of information 21 that one might imagine could be elicited from 22 Mr. Chestnut for the period covering the last 23 nine years, including where he's currently 24 employed, but it's just not the way this 25 process should work. 9064 1 THE COURT: Anything else? 2 MR. CASHMAN: Nothing on that, Your 3 Honor. 4 THE COURT: Okay. 5 MR. CASHMAN: I just -- before we 6 resume, I just want to hand up -- because we're 7 going to play the videotape deposition 8 testimony of Richard Freedman next, and I would 9 give the Court the transcript. 10 THE COURT: Will you finish 11 Chestnut -- or, I mean, Mr. Apple? 12 MR. CASHMAN: Mr. Apple, pardon me. 13 THE COURT: Will you finish Mr. Apple? 14 MR. TULCHIN: Pretty soon. 15 MS. NELLES: Very close. 16 THE COURT: Okay. I didn't know we 17 were that close. 18 MR. CASHMAN: And a copy for 19 Microsoft. And two copies for the court 20 reporter. 21 (The following record was made in the 22 presence of the jury at 10:04 a.m.) 23 THE COURT: You may continue, sir. 24 MR. CASHMAN: Thank you, Your Honor. 25 (Whereupon, the reading of the 9065 1 deposition continued to the jury.) 2 Question: Mr. Apple, would you take a 3 look at -- in your notebook, and I believe that 4 it's Plaintiffs' Exhibit 4470. 5 I presume that you did not receive a 6 copy of this e-mail when it was prepared in 7 1991; is that correct? 8 Answer: That's correct. 9 Question: And if you look, this 10 indicates that in November of 1991, Gregt, who 11 may be Greg Truex, who we've seen earlier today 12 in documents, and a man by the name of Ted 13 apparently visited ZEos during that time frame? 14 Answer: Yes. 15 Question: And do you recall a meeting 16 with them? 17 Answer: I -- I don't. 18 Question: Now, you mentioned the 19 COMDEX conference. 20 What is COMDEX? 21 Answer: COMDEX was, at the time, the 22 largest trade show for hardware and software 23 manufacturers. 24 Question: And what time of the year 25 is that usually held? 9066 1 Answer: It was in November. 2 Question: So it was sometime in the 3 time frame of this e-mail? 4 Answer: If it was this year, if it 5 was the year of '91. 6 Question: Okay. When you say if this 7 year, because you're not quite sure if the 8 Logitech issue came up in this year? 9 Answer: Correct. 10 Question: Okay. 11 If you take a look at the fourth 12 paragraph down, it starts with the word during. 13 Answer: Yes. 14 Question: During the last half a day, 15 we discussed with ZEos's Greg Herrick and Rick 16 Apple. 17 Do you see that? 18 Answer: Yes. 19 Question: And you see one of the 20 items is the expiring MS-mouse agreement? 21 Answer: Yes. 22 Question: Now, if we turn the page 23 and look at the second full paragraph, there's 24 a reference to expiring MS-mouse agreement. 25 Do you see that? 9067 1 Answer: Yes. 2 Question: Now, in that document, in 3 this paragraph it refers in the third sentence, 4 do you see that, Logitech has offered ZEos a 5 300 BPI mouse with the ZEos logo for $12? 6 Answer: Yeah. That's -- that's the 7 mouse. 8 Question: Okay. And Mr. Pepperman 9 was showing you an earlier contract that had 10 expired by this time that had a price of about 11 $24 in it? 12 Answer: Yeah, $22, that's right. 13 Question: And that -- the renewed 14 contract then went down to, what was it, do you 15 recall? 16 Answer: 18 -- 18 and change. 17 Question: So was the Logitech price 18 still cheaper than what Microsoft was selling 19 you similar mouses at? 20 Answer: Yes. 21 Question: But as a result of the 22 discussions that you had with Microsoft 23 concerning raising the operating system price, 24 were you able to take advantage of this -- were 25 you economically able to take advantage of this 9068 1 Logitech $12 price? 2 Answer: No. The -- the savings were 3 wiped out. 4 Question: How would you describe the 5 relationship between Microsoft and ZEos? 6 Answer: Tense. 7 Question: Can you explain that 8 further? 9 Answer: Well, as I explained earlier 10 in the day, we needed them to exist, yet we 11 were very uncomfortable with a lot of the 12 requirements for doing business with them. 13 The per-processor agreement, the whole 14 concept we didn't like; paying for product we 15 didn't ship, that customers didn't want. 16 This whole thing with the -- with the 17 mouse I thought was very heavy-handed. I had 18 never heard of a $5 savings that we were 19 getting by -- on Windows by including a 20 Microsoft mouse. 21 And, suddenly, rather than being 22 competitive in mice, they found a way to make 23 the competitor's product more expensive. It 24 was -- it was -- we just didn't like the way 25 they treated us as a customer. 9069 1 Question: Now, I think Mr. Pepperman 2 was suggesting to you that, in fact, Microsoft 3 beat Logitech's price. 4 Do you recall that? 5 Answer: Yes. 6 Question: Did Microsoft beat 7 Logitech's price? 8 Answer: No. 9 Question: Did Mr. Pepperman or 10 anybody from Microsoft call you to discuss this 11 case? 12 Answer: No. 13 Question: Would you have been 14 available to talk to them if they had? 15 Answer: Yes. 16 Question: And I think you mentioned 17 five or six conversations with Plaintiffs' 18 attorneys. 19 Answer: Yes. 20 Question: Were -- well, can you 21 describe what probably five out of six of those 22 were? 23 Answer: Five out of six would have 24 been, I don't want to do this. I'm a busy guy, 25 and -- 9070 1 Question: And -- and ultimately you 2 were subpoenaed? 3 Answer: Correct. 4 (Whereupon, reading of the deposition 5 to the jury adjourned.) 6 MR. CASHMAN: No further questions for 7 redirect. 8 (Whereupon, reading of the deposition 9 to the jury continued.) 10 RECROSS-EXAMINATION 11 BY MR. PEPPERMAN: 12 Question: First, Mr. Apple, I'd like 13 you to take a look at Plaintiffs' Exhibit 4470, 14 which is the internal e-mail that Mr. Hagstrom 15 showed you. 16 Answer: Yes. 17 Question: Now, this is an internal 18 Microsoft e-mail, is it not? 19 Answer: It looks to be. 20 Question: And it's an e-mail from 21 Greg Truex reporting on a meeting he had with 22 -- a meeting he and Ted Hadem had out in ZEos 23 in St. Paul, correct? 24 Answer: Yes. 25 Question: So what we're dealing with 9071 1 here is an e-mail that was only circulated 2 within Microsoft, correct? 3 Answer: It wasn't circulated to me. 4 Question: And this was not something 5 on which you were copied or anyone at ZEos was 6 copied? 7 Answer: For sure not me. I assume 8 not others at ZEos. 9 Question: And it doesn't appear that 10 anyone outside of Microsoft was copied on this 11 e-mail, correct? 12 Answer: Kellyw and Ronh. I don't 13 know who they are. 14 Question: Ron Hasogie? Have you ever 15 met Mr. Hasogie? 16 Answer: I don't recall having met 17 him. 18 Question: And you'd agree this is an 19 internal Microsoft e-mail, correct? 20 Answer: I believe so, yes. 21 Question: And the Microsoft people 22 are talking candidly about the ZEos account, 23 are they not? 24 Answer: Yes. 25 Question: On the second page of this 9072 1 document where it talks about the expiring 2 MS-mouse agreement, is there any reference 3 there to proposing an additional charge for the 4 Windows device drivers if ZEos doesn't purchase 5 mice from Microsoft? 6 Answer: It says price is the key, but 7 it does not talk to other amounts. 8 Question: But there's no reference 9 here to an extra charge for mouse -- mice 10 device drivers, is there -- or mouse drivers, I 11 should say? 12 Answer: I don't see it. 13 Question: Now, Mr. Hagstrom asked you 14 about my -- my handwritten charts, and you 15 noted that part of the reason why ZEos's 16 royalties were declining was because of ZEos's 17 volume was going up, correct? 18 Answer: Yes. 19 Question: And you testified that as 20 ZEos's volume went up, ZEos's minimum 21 commitments increased also, correct? 22 Answer: Yes. 23 Question: Now, I just want to be 24 clear so the Jury doesn't misunderstand it, 25 those minimum commitment payments were not in 9073 1 addition to the royalty payments that ZEos made 2 to Microsoft, were they? 3 Answer: No. They were the royalty 4 payments. 5 Question: And what those minimum 6 commitment payments were -- were royalty rates 7 that I put on my chart multiplied by ZEos's 8 projected volume for any given quarter, 9 correct? 10 Answer: That's right. 11 Question: Now, Mr. Hagstrom asked you 12 some questions about demand for Microsoft 13 software. 14 Is it true that the demand for Windows 15 by customers increased over time in the 1990s? 16 Answer: I believe so. 17 Question: And by 1995, when Microsoft 18 released Windows 95, the demand for Windows was 19 much higher than it was in the early 1990s, 20 correct? 21 Answer: Well, by then we'd had five 22 years of virtually no competition. Certainly. 23 Question: And Windows 95 was 24 considered to be a great improvement over the 25 combination of MS-DOS 6.0 and Windows 3.1, 9074 1 correct? 2 Answer: In general, it -- it was a 3 new operating system. 4 Question: And customer demand for 5 Windows 95 enabled ZEos to sell more PCs, did 6 it not? 7 Answer: Well, my last active day at 8 ZEos was about a week after the Windows 95 9 launch. 10 Question: Well, the Windows 95 launch 11 was August 24, 1995. Does that sound correct? 12 Answer: Yes. 13 Question: And did you live, sir, in a 14 suburb of Minneapolis, correct? 15 Answer: Correct. 16 Question: At the time you worked in 17 St. Paul, is that true? 18 Answer: About half time in St. Paul 19 and the other half I would commute to Idaho. 20 Question: But you were in the 21 Minneapolis-St. Paul area, were you not? 22 Answer: Yes. 23 Question: And isn't it true that on 24 the night before Windows 95 was released, 25 customers in Minnesota lined up outside stores 9075 1 to get an opportunity to buy Windows 95 after 2 midnight? 3 Answer: I believe that's true. 4 (Whereupon, reading of the deposition 5 to the jury concluded.) 6 MR. GREEN: Nothing further, Your 7 Honor. 8 MR. CASHMAN: Your Honor, at this time 9 Plaintiffs have some exhibits to offer. 10 May I approach? 11 THE COURT: Yes. 12 MR. CASHMAN: I'm handing up to the 13 Court a hard copy of exhibits and two CDs. 14 THE COURT: Thank you. 15 MR. CASHMAN: Plaintiffs move for the 16 admission of Plaintiffs' Exhibits 4421, 4422, 17 4423, 4424, 4425, 4426, 4427, 4428, 4429, 4430, 18 4435, 4437, 4438, 4439, 4440, 4470A. 19 Plaintiffs respectfully move these 20 into evidence. 21 MR. GREEN: No objection, Your Honor. 22 THE COURT: Admitted. 23 MR. CASHMAN: Thank you, Your Honor. 24 MR. GREEN: Your Honor, at this time 25 Microsoft would like to move into evidence the 9076 1 following exhibits, which I will give copies to 2 everyone. 3 Plaintiffs' Exhibit 4431, Plaintiffs' 4 Exhibit 4468, Defendant's Exhibit 3748, 5 Defendant's Exhibit 3749, Defendant's Exhibit 6 3750, Defendant's Exhibit 3751, Defendant's 7 Exhibit 3747A. 8 THE COURT: Any objection? 9 MR. CASHMAN: No objection, Your 10 Honor. 11 THE COURT: They're all admitted. 12 May this witness step down? 13 MR. CASHMAN: Your Honor, the 14 Plaintiffs now wish to c