2566 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 X 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., December 1, 14 2006, 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 2567 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, Iowa 50309 (515)283-1111 6 RICHARD M. HAGSTROM 7 Attorney at Law Zelle, Hofmann, Voelbel, 8 Mason & Gette, LLP 500 Washington Avenue South 9 Suite 4000 Minneapolis, Minnesota 55415 10 (612)339-2020 11 RORBERT J. GRALEWSKI, JR. Attorney at Law 12 Gergosian & Gralewski 550 West C Street 13 Suite 1600 San Diego, California 92101 14 (619)230-0104 15 Defendant by: DAVID B. TULCHIN 16 SHARON L. NELLES JOSEPH E. NEUHAUS 17 Attorneys at Law Sullivan & Cromwell, LLP 18 125 Broad Street New York, New York 10004-2498 19 (212)558-3749 20 ROBERT A. ROSENFELD Attorney at Law 21 Heller Ehrman, LLP 333 Bush Street 22 San Francisco, California 94104 (415)772-6000 23 24 25 2568 1 BRENT B. GREEN Attorney at Law 2 Duncan, Green, Brown & Langeness, PC 3 Suite 380 400 Locust Street 4 Des Moines, Iowa 50309 (515)288-6440 5 RICHARD J. WALLIS 6 Attorney at Law Microsoft Corporation 7 One Microsoft Way Redmond, California 98052 8 (425)882-8080 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2569 1 THE COURT: Good morning, Ladies and 2 Gentlemen of the jury. 3 We will proceed with the remainder of 4 the instructions. There's not that many left. 5 However, at the end of that, I am 6 going to take a short recess to allow the 7 parties to have a few moments to prepare before 8 opening statements, and also there's a few 9 matters of law I have to take up with them 10 prior to that, so I thought we'd just get this 11 done first, take a short break, and then have 12 them come back for opening, all right. 13 We're at page -- duplicate page 14 numbers, but you want the last 66, all right. 15 It would be paragraph 352. 16 The technology agreement further 17 provides that any other Internet browsers 18 bundled in the Mac OS system software sold by 19 Apple shall be placed in folders in the 20 software as released. 21 In other words, Apple may not position 22 icons for non-Microsoft browsing software on 23 the desktop of new Macintosh PC systems or Mac 24 OS upgrades. 25 Moreover, the agreement states that 2570 1 Apple will not be proactive or initiate actions 2 to encourage users to swap out Internet 3 Explorer for Macintosh. Both Apple and 4 Microsoft read this term to prohibit Apple from 5 promoting non-Microsoft browsing software. 6 The agreement even states that Apple 7 will encourage its employees to use Microsoft 8 Internet Explorer for Macintosh for all 9 Apple-sponsored events and will not promote 10 another browser to its employees. 11 Pursuant to this provision, Apple's 12 management has instructed the firm's employees 13 to not use Navigator in demonstrations at trade 14 shows and other public events. 15 Also, with regard to the promotion of 16 browser technology, the agreement requires 17 Apple to display the Internet Explorer logo on 18 all Apple-controlled web pages where any 19 browser logo is displayed. 20 Finally, the agreement grants 21 Microsoft the right of first refusal to supply 22 the default browsing software for any new 23 operating system product that Apple develops 24 during the term of the agreement. 25 355. Apple increased its distribution 2571 1 and promotion of Internet Explorer not because 2 of a conviction that the quality of Microsoft's 3 product was superior to Navigator's or that 4 consumer demand for it was greater, but rather 5 because of the in terrorem effect of the 6 prospect of the loss of Mac Office. 7 To be blunt, Microsoft threatened to 8 refuse to sell a profitable product to Apple, a 9 product in whose development Microsoft had 10 invested substantial resources and which was 11 virtually ready for shipment. 12 Not only would this ploy have wasted 13 sunk costs and sacrificed substantial profit, 14 it also would have damaged Microsoft's goodwill 15 among Apple's customers, whom Microsoft had led 16 to expect a new version of Mac Office. 17 The predominant reason Microsoft was 18 prepared to make this sacrifice, and the sole 19 reason that it required Apple to make Internet 20 Explorer its default browser and restricted 21 Apple's freedom to feature and promote 22 non-Microsoft browsing software was to protect 23 the applications barrier to entry. 24 More specifically, the requirements 25 and restrictions relating to browsing software 2572 1 were intended to raise Internet Explorer's 2 usage share to lower Navigator's share, and 3 more broadly, to demonstrate to important 4 observers, including consumer developers, 5 industry participants, and investors that 6 Navigator's success had crested. 7 Had Microsoft's only interest in 8 developing the Mac OS version of Internet 9 Explorer been to enable organizational 10 customers using multiple PC operating system 11 products to standardize on one user interface 12 for web browsing, Microsoft would not have 13 extracted from Apple the commitment to make 14 Internet Explorer the default browser or 15 imposed restrictions on its use and promotion 16 of Navigator. 17 356. Microsoft understands that PC 18 users tend to use the browsing software that 19 comes preinstalled on their machines, 20 particularly when conspicuous means of easy 21 access appear on the PC desktop. 22 By guaranteeing that Internet Explorer 23 is the default browsing software on the Mac OS, 24 by relegating Navigator to less favorable 25 placement, by requiring Navigator's exclusion 2573 1 from the default installation of the Mac OS 8.5 2 upgrade, and by otherwise limiting Apple's 3 promotion of Navigator, Microsoft has ensured 4 that most users of the Mac OS will use Internet 5 Explorer and not Navigator. 6 Although the number of Mac OS users is 7 very small compared to the Windows installed 8 base, the Mac OS is nevertheless the most 9 important consumer oriented operating system 10 product next to Windows. 11 Navigator needed high usage share 12 among Mac OS users if it was ever to enable the 13 development of a substantial body of 14 cross-platform software not dependent on 15 Windows. 16 By extracting from Apple terms that 17 significantly diminish the usage of Navigator 18 on the Mac OS, Microsoft severely sabotaged 19 Navigator's potential to weaken the 20 applications barrier to entry. 21 357. The cumulative effect of the 22 stratagems described above was to ensure that 23 the easiest and most intuitive paths that users 24 could take to the web would lead to Internet 25 Explorer, the gate controlled by Microsoft. 2574 1 Microsoft did not actually prevent 2 users from obtaining and using Navigator, 3 although it tried to do as much in June 1995, 4 but Microsoft did make it significantly less 5 convenient for them to do so. 6 Once Internet Explorer was seen as 7 providing roughly the same browsing experience 8 as Navigator, relatively few PC users showed 9 any inclination to expend the effort required 10 to obtain and install Navigator. 11 Netscape could still carpet-bomb the 12 population with CD-ROMS and make Navigator 13 available for downloading. In reality, 14 however, few new users (ones not merely 15 upgrading from an old version of Navigator to a 16 new one) had any incentive to install, much 17 less download and install, software to 18 replicate a function for which OEMs and IAPs 19 were already placing perfectly adequate 20 browsing software at their disposal. 21 The fact that Netscape was forced to 22 distribute tens of millions of copies of 23 Navigator through high-cost carpet-bombing in 24 order to obtain a relatively small number of 25 new users only discloses the extent of 2575 1 Microsoft's success in excluding Navigator from 2 the channels that lead most effectively to 3 browser usage. 4 360. According to estimates that 5 Microsoft executives cited to support their 6 testimony in this trial, and those on which 7 Microsoft relied in the course of its business 8 planning, the shares of all browser usage 9 enjoyed by Navigator and Internet Explorer 10 changed dramatically in favor of Internet 11 Explorer after Microsoft began its campaign to 12 protect the applications barrier to entry. 13 These estimates show that Navigator's 14 share fell from above 80 percent in January 15 1996 to 55 percent in 1997 and that Internet 16 Explorer's share rose from around 5 percent to 17 36 percent over the same period. 18 In April 1998, Microsoft relied on 19 measurements for internal planning purposes 20 that placed Internet Explorer's share of all 21 browser usage above 45 percent. These figures 22 are broadly consistent with the ones AOL relied 23 on in evaluating its acquisition of Netscape. 24 AOL determined that Navigator's share 25 had fallen from around 80 percent at the end of 2576 1 1996 to the mid-50 percent range in July 1998 2 and that Internet Explorer's share had climbed 3 to between 45 and 50 percent of the domestic 4 market by late 1998. 5 372. In summary, the estimates on 6 which Microsoft and AOL relied and the 7 measurements made by AdKnowledge and the 8 University of Illinois provide an adequate 9 basis for two findings. 10 First, from early 1996 to the late 11 summer of 1998, Navigator's share of all 12 browser usage fell from above 70 percent to 13 around 50 percent, while Internet Explorer's 14 share rose from about 5 percent to around 50 15 percent. 16 Second, by 1998, Navigator's share of 17 incremental browser usage had fallen below 40 18 percent while Internet Explorer's share had 19 risen above 60 percent. 20 All signs point to the fact that 21 Internet Explorer's share has continued to rise 22 and Navigator's has continued to decline since 23 the last -- late summer of 1998. 24 It is safe to conclude, then, that 25 Internet Explorer's share of all browser usage 2577 1 now exceeds 50 percent and that Navigator's 2 share has fallen below that mark. 3 376. Including Internet Explorer with 4 Windows at no additional charge likely helped 5 the usage share of Microsoft's browsing 6 software. It did not, however, prevent OEMs 7 from meeting demand for Navigator which 8 remained higher than demand for Internet 9 Explorer well into 1998. 10 Moreover, bundling Internet Explorer 11 with Windows had no effect on the distribution 12 and promotion of browsing software by IAPs or 13 through any of the other channels that 14 Microsoft sought to preempt by other means. 15 Had Microsoft not offered distribution 16 licenses for Internet Explorer and other things 17 of great value to other firms at no charge, had 18 it not prevented OEMs from removing the 19 prominent means of accessing Internet Explorer 20 and limited their ability to feature Navigator, 21 and had Microsoft not taken all the other 22 measures it used to maximize Internet 23 Explorer's usage share at Navigator's expense, 24 its browsing software would not have weaned 25 such a large amount of usage share from 2578 1 Navigator, much less overtaken Navigator in 2 three years. 3 377. In late 1995 and early 1996, 4 Navigator seemed well on its way to becoming 5 the standard software for browsing the web. 6 Within three years, however, Microsoft had 7 successfully denied Navigator that status and 8 had thereby forestalled a serious potential 9 threat to the applications barrier to entry. 10 Indeed Microsoft's Kumar Mehta felt 11 comfortable expressing to Brad Chase in 12 February 1998 his personal opinion that "the 13 browser battle is close to over." 14 Mehta continued, "We set out on this 15 mission two years ago to not let Netscape 16 dictate standards and control of the browser 17 APIs. All evidence today says they don't. 18 394. In a further effort intended to 19 increase the incompatibility between Java 20 applications written for its Windows JVM and 21 other Windows JVMs, and to increase the 22 difficulty of porting Java applications from 23 the Windows environment to other platforms, 24 Microsoft designed its Java developer tools to 25 encourage developers to write their Java 2579 1 applications using certain key words and 2 compiler directives that could only be executed 3 properly by Microsoft's version of the Java 4 runtime environment for Windows. 5 Microsoft encouraged developers to use 6 these extensions by shipping its developer 7 tools with the extensions enabled by default 8 and by failing to warn developers that their 9 use would result in applications that might not 10 run properly with any runtime environment other 11 than Microsoft's and that would be difficult, 12 and perhaps impossible, to port to JVMs running 13 on other platforms. 14 This action comported with suggestion 15 that Microsoft Thomas Reardon made to his 16 colleagues in November 1996: "We should just 17 quietly grow j (Microsoft's developer tools) 18 share and assume that people will take more 19 advantage of our classes without ever realizing 20 that they are building win32-only Java apps. 21 Microsoft refused to alter its 22 developer tools until November 1998, when a 23 Court ordered it to disable its key words and 24 compiler directives by default and to warn 25 developers that using Microsoft's Java 2580 1 extensions would likely cause incompatibilities 2 with non-Microsoft runtime environments. 3 396. Determined to induce developers 4 to write Java applications that relied on its 5 version of the runtime environment for Windows 6 rather than on Sun-compliant ones, Microsoft 7 made a large investment of engineering 8 resources to develop high-performance Windows 9 JVM. 10 This made Microsoft's version of the 11 runtime environment attractive on its -- on its 12 technical merits. To hinder Sun and Netscape 13 from improving the quality of Windows JVM 14 shipped with Navigator, Microsoft pressured 15 Intel, which was developing a high-performance 16 Windows compatible JVM, to not share its work 17 with either Sun or Netscape, much less allow 18 Netscape to bundle the Intel JVM with 19 Navigator. 20 Gates was himself involved in this 21 effort. During the August 2, 1995 meeting at 22 which he urged Intel to halt IAL's development 23 of platform-level software, Gates also 24 announced that Intel's cooperation with Sun and 25 Netscape to develop a Java runtime environment 2581 1 for systems running on Intel's microprocessors 2 was one of the issues threatening to undermine 3 cooperation between Intel and Microsoft. 4 By the spring of 1996, Intel had 5 developed a JVM designed to run well on 6 Intel-based systems while complying with Sun's 7 cross-platform standards. 8 Microsoft executives approached Intel 9 in April of that year and urged that Intel not 10 take any steps toward allowing Netscape to ship 11 this JVM with Navigator. 12 397. By bundling its versions of the 13 Windows JVM with every copy of Internet 14 Explorer and expending some of its surplus 15 money power -- sorry -- surplus monopoly power 16 to maximize the usage of Internet Explorer at 17 Navigator's expense, Microsoft endowed its Java 18 runtime environment with the unique attribute 19 of guaranteed, enduring ubiquity across the 20 enormous Windows-installed base. 21 As one internal Microsoft presentation 22 from January 1997 put it, the company's 23 response to cross-platform Java entailed 24 "increased IE share integration with Windows." 25 Partly as a result of the damage that 2582 1 Microsoft's efforts against Navigator inflicted 2 on Netscape's business, Netscape decided in 3 1998 that it could no longer afford to do the 4 engineering work necessary to continue bundling 5 up-to-date JVMs with Navigator. 6 Consequently, it announced that 7 starting with Version 5.0, Navigator would 8 cease to be a distribution vehicle for JVMs 9 compliant with Sun's standards. 10 400. Recognizing ISVs as a channel 11 through which Java runtime environments that 12 complied with Sun's standards could find their 13 way onto Windows PC systems, Microsoft induced 14 ISVs to distribute Microsoft's version instead 15 of a Sun-compliant one. 16 First, Microsoft made its JVM 17 available to ISVs separately from Internet 18 Explorer so that those uninterested in bundling 19 browsing software could nevertheless bundle 20 Microsoft's JVM. 21 Microsoft's David Cole revealed the 22 motivation for this step in a message he wrote 23 to Jim Allchin in July 1997: "We've agreed 24 that we must allow ISVs to redistribute the 25 Java VM standalone without IE. ISVs that do 2583 1 this are bound into Windows because that's the 2 only place the VM works, and it keeps them away 3 from Sun's APIs." 4 401. Microsoft took the further step 5 of offering valuable things to ISVs that agreed 6 to use Microsoft's Java implementation. 7 Specifically, in the first wave 8 agreements that it signed with dozens of ISVs 9 in 1997 and 1998, Microsoft conditioned early 10 Windows 98 and Windows NT betas, other 11 technical information, and the right to use 12 certain Microsoft seals of approval on the 13 agreement of those ISVs to use Microsoft's 14 version of the Windows JVM as the default. 15 Microsoft and the ISVs all read this 16 requirement to obligate the ISVs to ensure that 17 their Java applications were compatible with 18 Microsoft's version of the Windows JVM. 19 The only effective way to ensure 20 compatibility with Microsoft's JVM was to use 21 Microsoft's Java developer tools, which in turn 22 meant using Microsoft's methods for making 23 native calls and (unless the developers were 24 especially wary and sophisticated) Microsoft's 25 other Java extensions. 2584 1 Thus, a very large percentage of the 2 Java applications that the first wave ISVs 3 wrote would run only on Microsoft's version of 4 the Windows JVM. 5 With that in mind, the first wave ISVs 6 would not have any reason to distribute with 7 their Java applications any JVM other than 8 Microsoft's. 9 So in exchange for costly technical 10 support and other blandishments, Microsoft 11 induced dozens of important ISVs to make their 12 Java applications reliant on Windows-specific 13 technologies and to refrain from distributing 14 to Windows users JVMs that complied with Sun's 15 standards. 16 The record contains no evidence that 17 the relevant provision in the first wave 18 agreements had any purpose other than to 19 maximize the difficulty of porting Java 20 applications between Windows and other 21 platforms. 22 Microsoft remained free to hold the 23 first wave ISVs to this provision until a Court 24 enjoined its enforcement in November 1998. 25 402. In addition to the first wave 2585 1 agreements, Microsoft entered an agreement with 2 at least one ISV that explicitly required it to 3 redistribute Microsoft's JVM to the exclusion 4 of any other and to rely upon Microsoft's 5 native methods to the exclusion of any other 6 methods. Such agreements were also prohibited 7 by the November 1998 injunction. 8 404. As discussed above, Microsoft's 9 effort to lock developers into its 10 Windows-specific Java implementation included 11 actions designed to discourage developers from 12 taking advantage of Java class libraries such 13 as RMI. 14 Microsoft went further than that, 15 however. In pursuit of its goal of minimizing 16 the portability of Java applications, Microsoft 17 took steps to thwart the very creation of 18 cross-platform Java interfaces. 19 The incorporation of greater 20 functionality into the Java class libraries 21 would have increased the portability of the 22 applications that relied on them while 23 simultaneously encouraging developers to use 24 Sun-compliant implementations of Java. 25 In one instance of this effort to 2586 1 stunt the growth of the Java class libraries, 2 Microsoft used threats to withhold Windows 3 operating system support from Intel's 4 microprocessors and offers to include Intel 5 technology in Windows in order to induce Intel 6 to stop aiding Sun in the development of Java 7 classes that would support innovative 8 multimedia functionality. 9 405. In November 1995, Microsoft's 10 Paul Maritz told a senior Intel executive that 11 Intel's optimization of its multimedia software 12 for Sun's Java standards was inimical to 13 Microsoft as Microsoft's support for non-Intel 14 microprocessors would be to Intel. 15 It was not until 1997, though, that 16 Microsoft prevailed upon Intel to not support 17 Sun's development of Java classes that would 18 have allowed developers to include certain 19 multimedia features in their Java applications 20 without sacrificing portability. 21 406. In February 1997, one of Intel's 22 competitors called AMD, solicited support from 23 Microsoft for its 3DX technology, which 24 provided sophisticated multimedia support for 25 games. 2587 1 Microsoft's Allchin asked Gates 2 whether Microsoft should support 3DX despite 3 the fact that Intel would oppose it. Gates 4 responded: "If Intel has a real problem with 5 us supporting this, then they will have to stop 6 supporting Java Multimedia the way they are. I 7 would gladly give up supporting this if they 8 would back off from their work on Java which is 9 terrible for Intel." 10 Near the end of March Allchin sent 11 another message to Gates and Maritz. In it he 12 wrote, "I am positive that we must do a direct 13 attack on Sun (and probably Oracle)... Between 14 ourselves and our partners, we can certainly 15 hurt their (certainly Sun's revenue) base.... 16 We need to get Intel to help us. Today, they 17 are not." 18 Two months later, Eric Engstrom, a 19 Microsoft executive with the responsibility for 20 multimedia development, wrote to his superiors 21 that one of Microsoft's goals was getting 22 "Intel to stop helping Sun create Java 23 Multimedia APIs, especially ones that run well 24 (i.e. native implementations) on Windows. 25 Engstrom proposed achieving this goal 2588 1 by offering Intel the following deal: 2 Microsoft would incorporate into the Windows 3 API set any multimedia interfaces that Intel 4 agreed to not help Sun incorporate into the 5 Java class libraries. 6 Engstrom's efforts apparently bore 7 fruit, for he testified at trial that Intel's 8 IAL subsequently stopped helping Sun to develop 9 class libraries that offered cutting-edge 10 multimedia support. 11 407. Had Microsoft not been committed 12 to protecting and enhancing the applications 13 barrier to entry, it might still have developed 14 a high-performance JVM and enabled Java 15 developers to call upon Windows APIs. 16 Absent this commitment, though, 17 Microsoft would not have taken efforts to 18 maximize the difficulty of porting Java 19 applications written to its implementation and 20 to drastically limit the ability of developers 21 to write Java applications that would run in 22 both Microsoft's version of the Windows runtime 23 environment and versions complying with Sun's 24 standards. 25 Nor would Microsoft have endeavored to 2589 1 limit Navigator's usage share to induce ISVs to 2 neither use nor distribute non-Microsoft Java 3 technologies, and to impede the expansion of 4 the Java class libraries, had it not been 5 determined to discourage developers from 6 writing applications that would be easy to port 7 between Windows and other platforms. 8 Microsoft's dedication to the goal of 9 protecting the applications barrier to entry is 10 highlighted by the fact that its efforts to 11 create incompatibility between its JVM and 12 others resulted in fewer applications being 13 able to run on Windows than otherwise would 14 have. 15 Microsoft felt it was worth 16 obstructing the development of 17 Windows-compatible applications where those 18 applications would have been easy to port to 19 other platforms. 20 It is not clear whether, absent 21 Microsoft's interference, Sun's Java efforts 22 would by now have facilitated porting between 23 Windows and other platforms enough to weaken 24 the applications barrier to entry. 25 What is clear, however, is that 2590 1 Microsoft had succeeded in greatly impeding 2 Java's progress to that end with a series of 3 actions whose sole purpose and effect were to 4 do precisely that. 5 409. To the detriment of consumers, 6 however, Microsoft has done much more than 7 develop innovative browsing software of 8 commendable quality and offer it bundled with 9 Windows at no additional charge. 10 As has been shown, Microsoft also 11 engaged in a concerted series of actions 12 designed to protect the applications barrier to 13 entry, and hence its monopoly power from a 14 variety of middleware threats, including 15 Netscape's web browser and Sun's implementation 16 of Java. 17 Many of these actions have harmed 18 consumers in ways that are immediate and easily 19 discernible. They have also caused less 20 direct, but nevertheless serious and 21 far-reaching, consumer harm by distorting 22 competition. 23 410. By refusing to offer those OEMs 24 who requested it a version of Windows without 25 web browsing software, and by preventing OEMs 2591 1 from removing Internet Explorer -- or even the 2 most obvious means of invoking it -- prior to 3 shipment, Microsoft forced OEMs to ignore 4 consumer demand for a browserless version of 5 Windows. 6 The same actions forced OEMs either to 7 ignore consumer preferences for Navigator or to 8 give them a Hobson's choice of both browser 9 products at the cost of increased confusion, 10 degraded system performance, and restricted 11 memory. 12 By ensuring that Internet Explorer 13 would launch in certain circumstances in 14 Windows 98 even if Navigator were set as the 15 default, and even if the consumer had removed 16 all conspicuous means of invoking Internet 17 Explorer, Microsoft created confusion and 18 frustration for consumers and increased 19 technical support costs for business customers. 20 Those Windows purchasers who did not 21 want browsing software -- businesses, or 22 parents and teachers, for example, concerned 23 with the potential for irresponsible web 24 browsing on PC systems -- not only had to 25 undertake the effort necessary to remove the 2592 1 visible means of invoking Internet Explorer and 2 then contend with the fact that Internet 3 Explorer would nevertheless launch it in -- 4 launch in certain cases. 5 They also had to (assuming they needed 6 new, nonbrowsing features not available in 7 earlier versions of Windows) content themselves 8 with a PC system that ran slower and provided 9 less available memory than if the newest 10 version of Windows came without browsing 11 software. 12 By constraining the freedom of OEMs to 13 implement certain software programs in the 14 Windows boot sequence, Microsoft foreclosed an 15 opportunity for OEMs to make Windows PC systems 16 less confusing and more user-friendly, as 17 consumers desired. 18 By taking the actions listed above and 19 by enticing firms into exclusivity arrangements 20 with valuable inducements that only Microsoft 21 could offer and that the forms reasonably 22 believed they could not do without, Microsoft 23 forced those consumers who otherwise would have 24 elected Navigator as their browser to either 25 pay a substantial price (in the forms of 2593 1 downloading installation, confusion, degraded 2 system performance, and diminished memory 3 capacity) or content themselves with Internet 4 Explorer. 5 Finally, by pressuring Intel to drop 6 the development of platform-level NSP software, 7 and otherwise to cut back on its software 8 development efforts, Microsoft deprived 9 consumers of software innovation that they very 10 well may have found valuable had the innovation 11 been allowed to reach the marketplace. 12 None of these actions had 13 pro-competitive justifications. 14 411. Many of the tactics that 15 Microsoft has employed have also harmed 16 consumers indirectly by unjustifiably 17 distorting competition. 18 The actions that Microsoft took 19 against Navigator hobbled a form of innovation 20 that had shown the potential to depress the 21 applications barrier to entry sufficiently to 22 enable other firms to compete effectively 23 against Microsoft in the market for 24 Intel-compatible PC operating systems. 25 That competition would have conduced 2594 1 to consumer choice and -- that competition 2 would have conduced to consumer choice and 3 nurtured innovation. 4 The campaign against Navigator also 5 retarded widespread acceptance of Sun's Java 6 implementation. 7 This campaign, together with actions 8 that Microsoft took with the sole purpose of 9 making it difficult for developers to write 10 Java applications with technologies that would 11 allow them to be ported between Windows and 12 other platforms, impeded another form of 13 innovation that bore the potential to diminish 14 the applications barrier to entry. 15 There is insufficient evidence to 16 find that, absent Microsoft's actions, 17 Navigator and Java already would have ignited 18 genuine competition in the market for 19 Intel-compatible PC operating systems. 20 It is clear, however, that Microsoft 21 has retarded, and perhaps altogether 22 extinguished, the process by which these two 23 middleware technologies could have facilitated 24 the introduction of competition into an 25 important market. 2595 1 412. Most harmful of all is the 2 message that Microsoft's actions have conveyed 3 to every enterprise with the potential to 4 innovate in the computer industry. 5 Through its conduct toward Netscape, 6 IBM, Compaq, Intel, and others, Microsoft has 7 demonstrated that it will use its prodigious 8 market power and immense profits to harm any 9 firm that insist on pursuing initiatives that 10 could intensify competition against one of 11 Microsoft's core products. 12 Microsoft's past success in hurting 13 such companies and stifling innovation deters 14 investment in technologies and businesses that 15 exhibit the potential to threaten Microsoft. 16 The ultimate result is that some 17 innovations that would truly benefit consumers 18 never occur for the sole reason that they do 19 not coincide with Microsoft's self-interest. 20 Ladies and gentlemen, we'll take a 21 short break. Remember the admonition 22 previously given. 23 We'll come get you as soon as we can. 24 Leave your notebooks there. 25 (The following record was made out of. 2596 1 the presence of the jury.) 2 THE COURT: You may be seated. 3 Stand by and I'll get my papers for 4 this next part. 5 There were two matters that I believe 6 needed to be cleared up before the opening 7 statements. One was request by the Plaintiffs 8 and a resistance by the Defendant that the 9 Plaintiffs mentioned spoliation, or evidence 10 regarding spoliation in the opening statement; 11 is that correct? 12 MS. CONLIN: That's correct, Your 13 Honor. 14 THE COURT: Any further record on that 15 before the Court rules? 16 MR. TULCHIN: No, Your Honor. 17 We've submitted some papers, and I 18 think that we've said what we needed to. 19 THE COURT: Ma'am? 20 MS. CONLIN: No, Your Honor, nothing 21 further. 22 THE COURT: In denying Plaintiffs' 23 motion for spoliation instruction, which the 24 Court did for the preliminary instructions, and 25 stating that the Court find that there has been 2597 1 no showing by substantial evidence of the facts 2 necessary to justify such a destruction, the 3 Court simply meant that the evidence set forth 4 by Ms. Conlin in support of her motion for 5 spoliation instruction was insufficient 6 evidence for the Court to make a threshold 7 determination. 8 And that the four requirements for the 9 instruction on spoliation have been met, and 10 consequently, that a preliminary instruction on 11 spoliation should not be given. 12 The evidence advanced by counsel in 13 support of her motion consisted of exhibits and 14 deposition or other testimony from differing 15 sources, cases, and proceedings. 16 It remains to be seen, if at all, if 17 all or any of the supporting documentation 18 would be admissible or admitted at trial in 19 this matter. 20 It is best that the Court not view the 21 supporting proffered evidence in a vacuum, but 22 rather in the context of trial with an 23 opportunity for any objections by Defendant on 24 evidentiary grounds, opportunity for 25 cross-examination of witness, and opportunity 2598 1 for cross-designations of prior depositions or 2 testimony. 3 The Court relied on the Hartsfield 4 case in stating that there must be substantial 5 evidence to show the evidence was in existence; 6 that such evidence was in the possession of or 7 under the control of the party charged with 8 destroying the evidence, the evidence would 9 have been admissible at trial and the party 10 responsible for the destruction of the evidence 11 did so intentionally. 12 These factual elements have not been 13 met. This is what the Court stated in its 14 prior ruling regarding the instruction. 15 It is not at this time clear by 16 substantial evidence that these elements 17 described above would have been met based upon 18 that evidence in a vacuum. 19 During the trial, however, the 20 evidence may demonstrate differently. Whether 21 the full requirements for spoliation have been 22 met in this case will be determined based on 23 evidence and witnesses' testimony at trial. 24 Therefore, Plaintiffs may be permitted 25 to discuss evidence in their opening that will 2599 1 be presented at trial in regard to this issue. 2 Anything further? 3 MS. CONLIN: No, Your Honor. 4 THE COURT: May I have that second 5 pile, please? 6 Court was also requested by Plaintiffs 7 to -- yesterday, with the Defendant present, to 8 give as soon as possible a ruling on three 9 exhibits which the Plaintiffs wish to use 10 during their opening statement. 11 One was Exhibit 6324; is that correct? 12 MS. CONLIN: 6324. 13 THE COURT: Correct. 14 MS. CONLIN: Yes, Your Honor. 15 THE COURT: Court's ruling on 6324, 16 the first paragraph of the document is 17 admissible. The rest is not admissible, and 18 the ruling of the Special Master sustained as 19 to the remainder of the document. 20 Plaintiffs' Exhibit 5800 was the 21 second one; is that right? 22 MS. CONLIN: I hope so, Your Honor. 23 MR. HAGSTROM: Yes, Your Honor. 24 THE COURT: First paragraph of page 1 25 is admissible; the rest is not admissible. 2600 1 Therefore, the Special Master's ruling on the 2 rest of it is sustained. 3 And the last one I have, I was told by 4 counsel, was Exhibit 7400. 5 MR. HAGSTROM: Yes, Your Honor. 6 THE COURT: You're shaking your head 7 affirmatively back there. 8 Second and third paragraphs of that 9 exhibit are inadmissible; the rest is 10 admissible. 11 With that, are you ready for opening 12 statements? 13 MS. CONLIN: Yes, Your Honor. 14 THE COURT: We will bring the jurors 15 in, please. 16 MS. CONLIN: Your Honor, may I ask one 17 thing? If my voice -- how often can I take a 18 little rest? 19 THE COURT: Whenever you need. Just 20 tell me. 21 Same for Defendant. Whenever you need 22 a break, just turn to me and say. 23 MR. TULCHIN: Your Honor, would it be 24 okay just to take a two-minute break right now? 25 THE COURT: Sure. You want to do 2601 1 that? 2 MR. TULCHIN: Before the jury comes 3 in. 4 (A recess was taken.) 5 (The following record was made in the 6 presence of the jury.) 7 THE COURT: Members of the jury, at 8 this time you are going to hear opening 9 statements. As I stated to you earlier, 10 opening statements are not evidence. They 11 merely are an outline of what each party 12 believes the evidence will show in the case. 13 They are important in that they give 14 some order to what is going to be presented, so 15 for that reason you should pay close attention 16 to them, but remember it is not evidence. 17 At this time are Plaintiffs ready to 18 proceed? 19 MS. CONLIN: Yes, Your Honor. 20 THE COURT: You may proceed. 21 MS. CONLIN: Your Honor, may it please 22 the Court, counsel, members of the jury. 23 Let me see if I can step over the 24 cords. 25 Good morning. We've been waiting a 2602 1 very long time to get to this part of the 2 proceedings. 3 I want to begin by reintroducing the 4 people who are here in court. You met 5 Mr. Hagstrom. He and I are the lead counsel 6 for members of the class. Angela Dennis is a 7 legal assistant on my staff, and this is Pat 8 Larsen. She is one of the class 9 representatives. 10 Mr. Tulchin and Mr. Rosenfeld and 11 Mr. Green and Ms. Nelles are lawyers on behalf 12 of Microsoft. Mr. Wallis is the -- one of the 13 in-house corporate counsel. 14 The rules say that companies should 15 compete as vigorously as they can, do 16 everything they can to win, make the best, the 17 most innovative, the most creative products, 18 get the best sales force, and try to win on the 19 merits. 20 But the rules also say you have to 21 compete fairly; and if you don't, you have to 22 be held accountable for the damage that you do 23 to the competitive process and to the free 24 market and to consumers. 25 For the higher prices and the loss of 2603 1 innovation and the lack of choice that 2 inevitably results when fair and free 3 competition do not occur. 4 The rules also say that monopoly's 5 cannot abuse their power. 6 You can't take your monopoly product 7 and combine it with a nonmonopoly product and 8 sell them together to make the nonmonopoly 9 product a monopoly product. 10 You cannot freeze out competitors and 11 punish or retaliate against people who 12 cooperate with your competitors; and if you do, 13 you will be held accountable for the higher 14 prices, the lack of innovation, the lack of 15 choice that you caused by those unlawful acts. 16 Microsoft did all that and more. 17 It isn't illegal to be successful. We 18 applaud that. It isn't illegal to grow your 19 company from little to huge. That's the 20 American dream. It isn't illegal to be tough. 21 It isn't illegal to be ruthless. It isn't 22 illegal to be aggressive. It isn't illegal to 23 become or remain a monopoly, as long as you 24 don't break the rules to do that. 25 Microsoft did break the rules. 2604 1 What the law requires of Microsoft is 2 exactly what the law requires of all companies, 3 compete fair and square. 4 Microsoft did not. 5 I'm going to start -- you all have 6 very different experiences with respect to 7 computers. Some of you are very experienced 8 users, and some of you are not. 9 Most of you will not know the lingo of 10 the computer industry. You will by the time 11 this is over. But right now, I'm going to 12 start by giving you some of the basics that you 13 will need to understand what's going on in this 14 courtroom. 15 Let's start with some terms, the first 16 of which is operating system. 17 An operating system is a software 18 program that manages the hardware and software 19 resources of the computer. It's the most basic 20 part of the software. 21 It does tasks such as controlling and 22 allocating computer memory, prioritizing the 23 tasks that the computer does, controlling 24 input, controlling output, facilitating 25 networking and managing files, operating system 2605 1 Windows, MS-DOS. Those are two types of 2 operating systems that we'll be dealing with. 3 Applications. They are the programs 4 that help you accomplish tasks. They are the 5 things that do things with the computer. 6 The applications program at issue in 7 Comes versus Microsoft are the spreadsheet and 8 word processing software. 9 A spreadsheet is an application 10 commonly used for budgets, forecasting, and 11 other finance-related tasks. Organizes your 12 data. 13 The relationship between the cells are 14 defined by a formula, and when you make a 15 change in one cell, it updates all the other 16 cells. That's the spreadsheet. 17 Here the spreadsheet at issue is 18 Excel. 19 The word processor, that's the other 20 application at issue in this case is -- it's 21 what you use to write letters with. It 22 manipulates text-based documents. 23 It's the electronic equivalent of a 24 pen and paper -- usually -- and an eraser, and 25 usually most include dictionaries and other 2606 1 things like that. 2 Middleware. When Judge Rosenberg was 3 reading to you from the findings of fact, he 4 talked to you about middleware, and three of 5 the type of middleware that he talked to you 6 about were Netscape Navigator, which is a 7 browser; RealNetworks Streaming Media, 8 RealNetworks Player, it's the streaming media; 9 and Java, which is a group of technologies 10 invented by Sun. The inventor, actually 11 Mr. James Gosling, will be one of the witnesses 12 before you. 13 Those middleware technologies sit 14 between the operating system and the 15 applications. They're in the middle. That's 16 why they're called middleware. 17 And they can work cross-platform. 18 They don't care what operating system they're 19 on. That, of course, is one of the things that 20 made them a danger to Microsoft's monopoly. 21 Another term that you will hear a lot 22 of is OEM, original equipment manufacturer. 23 Those are the computer makers. That's Gateway, 24 Dell, Compaq, OEMs. 25 There are two main channels that 2607 1 people get their software from. The first is 2 the OEM channel preloaded on the computer; and 3 the second is what's called the finished goods 4 channel. 5 Part of that is retail; Comp USA, 6 Wal-Mart, wherever you get software in a retail 7 store. And the other is called volume 8 purchasing. 9 I want to take a look at the computer 10 screen with you just to name the things that 11 you see. 12 What you see when you look at your 13 computer screen is the GUI, the Graphical User 14 Interface. 15 I bet not too many of you had heard 16 about GUI, at the least this kind of GUI, until 17 you got here. 18 The little things that you see, those 19 are the icons, and the -- you do not see the 20 operating system when you look. You see the 21 interface, the GUI. 22 The icons are what you press to 23 activate the application. 24 The browser on this, and most, is the 25 Internet Explorer. 2608 1 Can we show that, Darin? 2 I didn't introduce Darin Buchbinder, 3 who is a technician, who is able to do magic 4 things. But not as fast as I can talk. 5 I'm going to try to talk a little bit 6 more slowly than I ordinarily would, both for 7 Darin and for the court reporter. 8 Word processor, that would be Word 9 right there. And then the spreadsheet is 10 Excel. Those are the -- that's your GUI. 11 Let's look at the Microsoft home page. 12 We're going to a website, and this is what -- 13 you press your browser, you go to the home 14 page. Usually you go to some URL. 15 The URL is that address up at the top 16 that starts usually with www. URL. 17 And then the tool bar is right at the 18 top. That's your tool bar. You can't see that 19 very well. 20 But those are the little things that 21 give you options in terms of what functions you 22 want to perform on that website. 23 I know a lot about your views on 24 technology and Microsoft and Bill Gates from 25 your questionnaires, and thank you very much 2609 1 for filling out the questionnaires, and for 2 your patience in answering my questions and 3 those of the Microsoft attorneys. 4 One of the things that I know about 5 most of you is that you have positive views 6 about Microsoft and about Mr. Gates, and this 7 presents a bit of a problem for me. 8 We've sued Microsoft, and I am going 9 to be saying some not very nice things about 10 Bill Gates, based on the things that he has 11 said in Microsoft documents and the things that 12 he has done. 13 I think that some of what I will have 14 to tell you will be difficult for you to 15 accept. All I ask is that you keep an open 16 mind, that you listen, that you look. 17 I'm going to be in the course of this 18 opening statement showing you a lot of 19 documents, a lot of Microsoft internal 20 documents. 21 I am going to show you what happened 22 rather than just telling you, and most of what 23 I will be showing you are from the documents 24 that were created by Microsoft's high-level 25 executives in the course of their business. 2610 1 When I show you the documents, I will 2 only be reading portions of it, a sentence, a 3 paragraph usually at the most; the portions 4 that I think are relevant and things that I 5 think you should know at the outset. 6 You will have the whole document at 7 the end of the process, and you'll be able to 8 review all the quotes in context. 9 I will name the number for you of each 10 exhibit that I show you. Every exhibit has an 11 assigned number. They do not go in any 12 particular order, so if you are interested in 13 looking at the document, you may wish to make a 14 note about it and then look at it several 15 months from now when you have the opportunity 16 to do that. 17 Microsoft may wish to read you other 18 portions of the documents, same documents, 19 different documents that they think would be 20 relevant to your determination. 21 The same is true of depositions. I'm 22 going to be showing you some short clips from 23 the depositions of some of the witnesses. 24 Short clips in the case of those that I show 25 you, you will hear perhaps not the whole 2611 1 deposition, but more of the deposition during 2 the course of the evidence. 3 You've also seen some of what we call 4 demonstrative evidence. 5 Demonstrative evidence is not going to 6 come to you. You won't have -- those little 7 pictures I showed you at the beginning, you 8 will not have those. Those are only meant to 9 give you a visual representation of some of the 10 concepts. So those will not be going with you 11 into the jury room. 12 Let me begin by summarizing for you 13 what we will prove. 14 Judge Rosenberg gave you instructions 15 of the law. He is the only person in the 16 courtroom who says what the law is. The rest 17 of us may summarize it, but obviously the law 18 as provided to you by the Court is what you 19 will rely on. 20 We will prove that Microsoft 21 unlawfully monopolized the world market for 22 personal computer operating systems. We will 23 prove that Microsoft unlawfully monopolized the 24 world market for word processing, and we will 25 prove that Microsoft unlawfully monopolized the 2612 1 world market for spreadsheet applications 2 software. 3 There are three basic things that we 4 will prove, three overriding, overarching 5 things that we will be spending our time 6 proving. 7 The first issue is we will prove that 8 Microsoft broke Iowa's Competition Law in 9 several ways that fall into two main 10 categories. 11 We were talking about this yesterday. 12 You probably have been subjected to the world's 13 record longest preliminary jury instructions, 14 and a record we expect to stand for a very long 15 time. So you may not have memorized all of 16 them yet. 17 So I'm going to go back to the two 18 that define the liability concepts in this 19 lawsuit. 20 The first is Instruction Number 5. 21 As I said, we, the classes say, that 22 Microsoft broke Iowa's Competition Law in two 23 main ways, the first of which is defined for 24 you by your Instruction Number 5. 25 We say basically that Microsoft used 2613 1 its monopoly power to exclude competition and 2 control prices. 3 And the Court defined that for you as 4 any company that acquires, maintains, or uses 5 monopoly power over any part of trade or 6 commerce for the purpose of excluding 7 competition or controlling, fixing, or 8 maintaining prices violates the Iowa 9 Competition Law. 10 And then he told you the four things 11 under there that are the elements of that 12 anticompetitive claim. 13 First, that Microsoft had monopoly 14 power in the relevant product market, and you 15 will recall that for the operating system 16 market between the years 1995 and 1999, that 17 has already been proven. 18 The second is that Microsoft willfully 19 acquired or maintained that power through 20 conduct designed to exclude competition or 21 through anticompetitive conduct. 22 And then the third is that what 23 Microsoft did that broke the law harmed Iowa 24 consumers, Iowa class members. 25 And four, that Iowa class members 2614 1 suffered damages resulting from the injury. 2 That's our first main claim. 3 By shorthand, we're going to call that 4 the monopolization claim. 5 The second main claim is set out for 6 you in Instruction No. 10, and that is that 7 Microsoft agreed with others to restrain trade 8 and to harm competition. 9 The title of that instruction is 10 Contract, Combination, or Conspiracy. 11 And basically that means we say that 12 Microsoft agreed directly, or indirectly, with 13 other people or entities to accomplish wrongful 14 acts. 15 A conspiracy is an agreement by two or 16 more persons to accomplish some unlawful 17 purpose or to accomplish a lawful purpose by 18 unlawful means. 19 And I'm not going -- this one -- this 20 instruction is very, very long. I'm just going 21 to tell you the four things again and the 22 things that are important to remember. 23 First, we will show that Microsoft 24 entered into a combination -- a conspiracy 25 combination or agreement, or otherwise 2615 1 collaborated with one or more persons or 2 companies to restrict trade or prevent 3 competition. 4 We have to show, and we will show, 5 that either that the purpose or the effect of 6 the conspiracy agreement, and so on, was to 7 harm competition in any of the personal 8 computer software markets involved in the case. 9 That's the three; operating systems, word 10 processing, spreadsheet. Any of those three 11 markets. 12 We also say that some of the 13 combinations were imposed on the other party. 14 We don't have to show that the other party 15 voluntarily entered into any kind of a written 16 agreement. 17 What we have to show is that there was 18 -- that there was a combination or conspiracy, 19 but we don't have to show that the other party 20 was voluntarily a member. 21 Let me give you just an example. An 22 OEM who agreed to a type of license we're going 23 to talk about called per processor would be 24 potentially a part of the conspiracy, even 25 though they were not necessarily participating 2616 1 in the wrongful conduct. 2 So what the Court says to you is 3 because the Plaintiffs allege that the 4 combinations between Microsoft and others may 5 have been imposed or coerced by Microsoft, 6 they, meaning the class members, do not have to 7 show that any party who was coerced by 8 Microsoft shared Microsoft's goal to prevent or 9 exclude competition. 10 The third thing is that Microsoft 11 committed one or more exclusionary acts -- 12 that's sort of the overt act requirement -- 13 that had the purpose or effect of unreasonably 14 restraining competition. 15 And fourth, we must show, and we will 16 show, that the Plaintiffs were injured by the 17 restraint of trade. 18 So first we will show that Microsoft 19 broke the law. And remember that. That's 20 already been shown for the period 1995 through 21 1999 in one market, one of the three; in the 22 operating system market. That's already been 23 proven. 24 Second issue is did Microsoft's 25 wrongful conduct harm Iowa class members. 2617 1 There's your two. 2 As I talk with you, I will focus on 3 Microsoft's acts against competitors. 4 Microsoft didn't come into Iowa and slap a 5 higher price tag on computer software. 6 What Microsoft did was act to destroy 7 competition by destroying competitors. And not 8 one or two competitors, dozens. 9 Any company who threatened their 10 monopoly power, and by destroying competition, 11 they harmed Iowa class members. 12 How did they do it? Though the facts 13 can be complicated, the overall concepts are 14 simple. 15 Microsoft used two illegal choke 16 holds, one on input and one on output. 17 Input is the sockets. Sockets are in 18 the operating system. I'm going to talk about 19 that in a minute. And output is the 20 distribution channels. 21 In Instruction 4, the Judge told you 22 about the purpose of Iowa's Competition Law. 23 He told you that the Iowa Competition 24 Law presumes that competition in a free market 25 will result in better goods and services, 2618 1 including better quality, better service, 2 better safety, better durability, all at lower 3 prices. 4 So if Microsoft destroyed Iowans' 5 opportunity to have competition in a free 6 market, then Iowans were deprived of those 7 better goods that would have been better 8 quality and have had better security, and 9 Iowans paid higher prices than the lower prices 10 that competition brings. 11 Issue 3. What amount of money based 12 on reasonable estimates will compensate Iowa 13 class members for overcharges and for security 14 problems? 15 Class members were harmed in two ways. 16 They paid too much for Microsoft's monopoly 17 products. The monopoly overcharge. 18 A couple of things to know. You will 19 have these as a part of the experts' testimony, 20 but the number of licenses here in Iowa for 21 Windows, the number of licenses in Iowa, we 22 believe the evidence will show, are 5,148,614. 23 That's for the operating system. 24 For Office, which is the office 25 productivity suite that includes Word and 2619 1 Excel, the number of licenses 1,838,308. 2 For Excel, the spreadsheet, 21,304, 3 and for Word, free standing by itself, 445,435. 4 When you add that up, it's about seven 5 and a half million total licenses over the 6 entire class period. 7 I also wanted to mention to you the 8 average overcharge. And again, keep in mind 9 that this is the average over the class period 10 and over the period of time -- over the class 11 period and over the entire class. 12 The average overcharge for the 13 operating system is $42.49. For Office it's 14 $56.94, for Excel $56.51, and for Word $10.55. 15 Now, again, in the early part of the 16 class period, you know, the prices were a bit 17 lower, and then they raised over the course of 18 time. So this again, for the entire 12 years 19 and one month, approximately, of the class 20 period. 21 The second type of -- that's harm one, 22 the overcharge. 23 To prove harm one, we will use three 24 economic methods. 25 You will recall in our voir dire, we 2620 1 talked a little bit about economic 2 methodologies and the two -- the three types of 3 -- the three ways, the three economic models 4 that will be used to show you what the 5 competitive world would have looked like absent 6 Microsoft's anticompetitive conduct are these 7 three. 8 I'm not going to explain them to you. 9 That is Mr. Hagstrom's duty and responsibility. 10 I'm just going to tell you what they are. 11 The profit margin method, the rate of 12 return method, and the price premium method. 13 That's harm one, the overcharge. 14 Then the second harm that we say 15 Microsoft caused Iowa class members, we say 16 that Microsoft by joining the browser with the 17 operating system, the conduct that Judge 18 Rosenberg spoke with you about in the findings 19 of fact, by putting those two things together, 20 Microsoft increased the security risks that 21 people have in using their computers. 22 By that anticompetitive act, they 23 raised the security vulnerabilities, and 24 because of that, consumers, class members had 25 to spend a lot of time doing things to protect 2621 1 their data, downloading patches, and making 2 sure that they had as much safety as they could 3 get. 4 That's the second harm that we say 5 that Microsoft's anticompetitive conduct caused 6 Iowa class members. 7 Here are some things to know. 8 The market for computer software is 9 worldwide. That means that things that happen 10 around the world, not just in the United 11 States, but in Germany and Korea, and things -- 12 other places all affect the market in the 13 United States. 14 You may wonder, you know, why is 15 Roxanne talking to us and showing us documents 16 from Germany and England and Korea. And there 17 is a two-part answer. 18 Answer one is what they did everywhere 19 affects us here in Iowa, worldwide market. And 20 two is Microsoft did business the same way 21 everywhere. 22 The second thing to know is that every 23 computer must have an operating system. If it 24 doesn't have an operating system, it isn't 25 going to do anything. Must have an operating 2622 1 system; essential part of any computer. 2 The third thing is that the way that 3 most people get their operating systems is with 4 their computer when they buy it, preloaded, 5 it's already there, and it's almost certain 6 that the operating system that is already there 7 will be the Microsoft operating system, not 8 because class members chose it, but because the 9 OEM, the computer manufacturer, has a contract 10 with Microsoft that virtually requires that 11 they put a Microsoft operating system into the 12 computer that class members bought. 13 Not because class members wanted it, 14 but because Microsoft has a contract with the 15 computer maker. 16 The fourth thing to know is what makes 17 a computer attractive to purchasers is not what 18 operating system is on it, but what 19 applications will it run. 20 The word -- what word processors, what 21 spreadsheets, what games, what applications 22 that helps you trace your ancestors or keep 23 track of collections, or whatever interests you 24 have. It's the applications that matter. 25 And the more applications that can run 2623 1 on a particular operating system, the more 2 attractive that operating system is. 3 Judge Rosenberg talked to you about 4 the applications barrier to entry. Sometimes I 5 call that the ABTE just to make more acronyms 6 for you. 7 But the applications barrier to entry 8 is what protects Microsoft's monopoly product. 9 The more applications, the more attractive. 10 We'll talk about that some more. 11 Five, what Microsoft did to its 12 competitors is what hurts consumers because it 13 harms the competitive process. 14 I'm not going to go to Instruction 8, 15 but it is Instruction 8 that talks about that. 16 If Microsoft uses illegal tactics to 17 destroy competitors, class members ultimately 18 pay the cost both in terms of higher prices and 19 less security. 20 Please remember that the tactics do 21 not have to be illegal by themselves if they 22 have the effect of achieving or maintaining 23 monopoly power. 24 Instruction 8 gives you guidance on 25 all of those factors. 2624 1 Some of the things that I'm going to 2 talk with you about happened long ago, 3 sometimes ten years ago or 15 years ago, 4 sometimes longer. But what happened long ago 5 in the market for computer software affects us 6 today. 7 For example, one of the first things I 8 want to talk about is a company called Digital 9 Research, Incorporated, a company that created 10 an operating system that competed with 11 Microsoft's MS-DOS from the late '80s until it 12 was withdrawn from the market in 1994. 13 I will tell you why it was withdrawn 14 later, but if it had survived, Microsoft would 15 have had competition. And you will see from 16 the documents that when Microsoft did have 17 competition, they lowered their prices. 18 So if DRI -- if DR-DOS, which was the 19 name of the product that DRI created, if they 20 had survived, Microsoft would have had 21 competition, and consumers would have had all 22 the benefits that competition brings. 23 One unusual factor, one unusual 24 feature of this case is that the Judge has 25 already found that Microsoft violated the 2625 1 antitrust laws of Iowa. 2 And, of course, in your deliberations, 3 as Judge Rosenberg told you, you must accept 4 those findings of fact. Those issues are 5 decided. 6 Is that fair? Yes, because Microsoft 7 already went to trial on those issues. They 8 presented witnesses, they presented documents, 9 and they lost. So Microsoft had its chance, 10 and the Judge says they broke the law. 11 We still have to prove that 12 Microsoft's breaking of the law caused harm to 13 Iowa class members and the amount of the 14 damages. 15 I'm going to go over with you also 16 some of the -- Judge Rosenberg read you a list 17 of acronyms. Oh, my goodness, there are so 18 many acronyms, so many acronyms in this case. 19 I have a red notebook that has about a 20 hundred pages of acronyms in it. I'm going to 21 need to remember to bring it. 22 We are not going to go over all of 23 them. We will try to supply what those things 24 mean as we go along, but here is a list of some 25 that we'll be using quite a bit. 2626 1 I'm going to come back to API. 2 Application Program Interface is so important 3 that it deserves more than a one-sentence 4 definition. 5 Applications we've talked about. 6 Chicago, Microsoft named it's -- had code names 7 for its products, and the code name internal to 8 Microsoft for Windows 95 was Chicago. 9 You will hear other city names, but 10 Chicago Windows 95 is one that you'll hear 11 right off so we thought you needed to know code 12 names. 13 Cost of doing business or cost of 14 goods sold -- I'm sorry, cost of goods sold, 15 COGS, C-O-G-S. 16 I mentioned DR-DOS. That is an 17 operating system called DR-DOS, and it was 18 manufactured by DRI, Digital Research, 19 Incorporated. 20 FTC, Federal Trade Commission. 21 FUD, it's used as a noun and a verb, 22 and it means fear, uncertainty, and doubt. 23 GUI, we talked about. 24 ISV. And ISV or ISVs are independent 25 software vendors. ISVs, we'll just hear that 2627 1 all the time. Those are the people who write 2 the applications outside of Microsoft. 3 Independent software vendors write 4 applications. 5 MDA is a market development agreement 6 that is an agreement between Microsoft and 7 usually an OEM. 8 We'll talk -- Dr. Noll will talk about 9 that. Dr. Noll is a professor at Stanford who 10 has been studying issues of antitrust for many, 11 many years, decades, and who will be here to 12 give you the benefit of his experience. 13 And one of the things he's going to 14 talk about are the anticompetitive effects of 15 the market development agreements. 16 Middleware, we've talked about that. 17 And Microsoft is obvious, and MS-DOS, 18 that's Microsoft's first operating system. 19 NDA, I'm sure some of you have heard 20 that particular acronym before. That is a 21 nondisclosure agreement. 22 When companies need to share 23 information confidential to one of them, they 24 ask the recipient of the information to sign an 25 NDA, promising that the information that is 2628 1 provided will be kept secret, NDA. 2 OEM we've talked about. 3 OS we've talked about. 4 OS/2. OS/2 was a competing operating 5 system. It was initially developed jointly by 6 IBM and Microsoft, and ultimately marketed by 7 IBM. 8 The joint marketing agreement between 9 IBM and Microsoft was entered into in 1985, and 10 we will talk about that later. 11 Peripherals, printers, mouse, 12 keyboard. Those are the peripherals. 13 PPB, prepaid balances. That is a part 14 of a Microsoft contract with the OEMs with the 15 computer manufacturers that we believe had an 16 anticompetitive effect and had an 17 anticompetitive purpose. 18 PC, personal computers. 19 PM, that is usually -- usually this 20 means presentation manager. Presentation 21 manager was the GUI, the Graphical User 22 Interface for OS/2, IBM's competing operating 23 system. 24 IBM's competing operating system 25 didn't have the Windows GUI, it had a separate 2629 1 GUI called presentation manager, which was 2 developed for it, and as I said, which competed 3 with Microsoft products. 4 And I put ubiquitous down here not 5 because I didn't think -- it's a word that I 6 had heard before, but it is a word used in the 7 documents and used by the witnesses quite a 8 bit, and it simply means everywhere, just 9 everywhere. 10 I want to return now to these APIs and 11 talk with you for a while about them. 12 The APIs in this piece of 13 demonstrative graphics are the little -- the 14 little things sticking up, okay, and what -- 15 lots of different items, pieces of software can 16 expose APIs, meaning that the ISVs, the 17 independent software developers can see them 18 and use them. 19 And what ISVs use the APIs for is to 20 do the functions needed to be done by the 21 software they're developing. 22 They need to be able -- an API set is 23 what the ISVs develop to. 24 Let me try another analogy. Think of 25 a house, okay. And the APIs are the doors into 2630 1 the house. The house is the operating system, 2 and the APIs are the way you get into the 3 operating system to get it to do what you want 4 it to do. 5 Microsoft doesn't want any other 6 company to expose APIs that ISVs, the 7 independent software developers, the people who 8 write the software, the applications, could 9 write to. 10 And why does that matter? Because it 11 is the APIs, it is these little levers that 12 protect the applications barrier to entry and 13 that protect Microsoft's monopoly. 14 Other APIs, other API sets could serve 15 as a platform for the ISVs to develop on and 16 that -- that's what worried Microsoft about 17 Netscape and Java and Real. They expose APIs. 18 One of the things that I wanted to 19 mention also before we begin, I know you think 20 we've already begun, but really, not yet. 21 Version numbers. Microsoft and all 22 other -- not all other -- many software vendors 23 name their products, and then to distinguish 24 one from the other, they give them a version 25 number. 2631 1 There's Windows 1.0 and Windows 2.0. 2 Then between the big versions like 1.0 and 2.0, 3 there are smaller versions like Windows 3.11, 4 okay. 5 Before Windows 4.0, there was Windows 6 3.0, Windows 3.1, Windows 3.11. Sometimes to 7 distinguish between the major releases like 8 Windows 3.0 and Windows 4.0 they call it like 9 Windows 3x, meaning any version of Windows 3.0 10 or Windows 3. 11 I know that this may seem confusing. 12 It certainly has been occasionally quite 13 confusing to me. 14 And in fact, try to keep firmly in 15 mind the -- particularly in the beginning when 16 Windows was only the Graphical User Interface 17 and MS-DOS was the operating system, it's 18 sometimes difficult to keep straight -- because 19 they're coming out at around the same time and 20 the same people are sometimes in charge of them 21 and working on them. 22 So I'll try to remind you which is 23 which, and you may be better at telling the 24 difference than -- keeping that straight than I 25 have been. 2632 1 Let me tell you how I'm going to 2 approach the task of guiding you through the 3 evidence and telling you about Microsoft's 4 conduct, about the people, the products, the 5 companies over this long period of time. 6 The first thing I'm going to talk 7 about are the basics of the case, the class 8 members, the class period representatives, and 9 so on. 10 I'm going to give you a very brief 11 history of computing. 12 I'm going to talk about the categories 13 of Microsoft's anticompetitive acts, then the 14 stories of the competitors Microsoft committed 15 those acts against, then some of the Court 16 procedure and the details that may be helpful 17 for you to know. 18 Then some of the things we believe 19 that Microsoft's evidence will be trying to 20 prove, and then I'm going to sit down. 21 Mr. Hagstrom will then talk to you 22 about the two remaining major issues, and that 23 is causation and damages. 24 Microsoft's anticompetitive conduct 25 caused harm to Iowa class members and the 2633 1 nature and extent of that harm in two areas, 2 the overcharge and the security problems. This 3 will take a few days. 4 I'm not going to commit as to how many 5 days because, as you have seen, it's a little 6 unpredictable. Legal issues come up, things 7 happen that sometimes we get a late start in 8 the morning or -- after the lunch hour, but 9 this is the only time that I will have to talk 10 with you directly for the next several months. 11 I hope to put the actions of Microsoft 12 in context and to give you a basic 13 understanding of the things Microsoft has done 14 and sort of set them into a framework for you 15 to use as you view the evidence. 16 Please, I ask you to be patient with 17 me and give me a chance to walk you through 18 these events and how they impacted the market 19 and how they impacted Iowa class members. 20 The class representatives. Joe Comes, 21 he thought he could be here today, but he could 22 not. He is a Des Moines resident, he and his 23 wife Jill live here in Des Moines with their 24 daughter Jackie. He is the person who started 25 the original lawsuit back in the year 2000. 2634 1 He will be a witness. He is a small 2 business owner here. 3 Pat Larsen, Pat is here. Pat is a 4 retired -- is retired from Eaton Corporation up 5 in Spencer, Iowa. She started -- she worked 6 there 22 years. She started as a factory 7 worker on the floor, and when she retired she 8 was a manufacturing product supervisor. 9 Those are the two individual people. 10 There are also two small businesses, 11 two businesses. Riley Paint is a paint 12 manufacturing business down in Burlington. Sam 13 Jennison, or other officer of the company, will 14 be the representative of the Riley Paint 15 Company. 16 And the other business, which is the 17 one most of you knew about or rented tuxes 18 from, that is a -- that's a family business. 19 It has five locations around Iowa. Mary Jo 20 Harty is the president, and either she or 21 another representative of Skeffington's will 22 occasionally be present. 23 And those are the four class 24 representatives, two individuals, two 25 businesses. 2635 1 And they -- these four entities, two 2 people and the two businesses, represent people 3 who are not here. 4 We do not know how many individuals 5 and businesses are class members. What we know 6 is how many licenses. That's what we can 7 figure out. 8 If you think about it, you will see 9 how that's true. 10 One person with one computer might 11 have three licenses. People replace their 12 computers and they get more licenses. 13 We can't tell you -- we know it's 14 hundreds of thousands, or we think it's 15 hundreds of thousands of individuals and 16 businesses. A big business would have 17 thousands and thousands of licenses. 18 So we don't know numbers of entities, 19 but we do know numbers of licenses, and that is 20 what I told you, seven and a half million 21 total, roughly, licenses for all of the 22 products involved. 23 What do the class members do? They 24 pay attention to what's going on. They at 25 least scan the pleadings that we send them 2636 1 hoping to get some clue from the legal 2 terminology what's happening. 3 They talk to us as their lawyers. 4 They answered the interrogatories and request 5 for production of documents that Judge 6 Rosenberg told you about. 7 They sat for their depositions where 8 Microsoft lawyers could ask them questions, and 9 they provided answers. 10 They recognize and accept the 11 responsibility that they have to represent all 12 of the individuals and businesses who are not 13 present here in Court. 14 These folks are just regular people. 15 They won't be able to tell you what Microsoft 16 did to break the law. They haven't looked at 17 the millions of documents. They're not 18 technical experts. 19 They don't know a thing about the 20 source code. They just know what most people 21 know about Microsoft and its products and its 22 activities. 23 I guess that's probably not true 24 anymore because they have looked at the 25 pleadings and had their depositions taken and 2637 1 the like, but they will be here as much as they 2 can and when they can. 3 There are two classes. 4 I'm going to show you, but not read to 5 you, the definitions of the classes. This is 6 the operating systems software class. 7 It names the products that are 8 covered, the operating system products. It 9 names and it gives the class period and 10 indicates that you have to be -- you have to be 11 at the time of the purchase, you have to reside 12 in or be incorporated in Iowa and to not be 13 buying the operating system to resell it to 14 somebody else. 15 The second Microsoft applications 16 software class is indirect purchasers of the 17 applications that we've talked about, either by 18 themselves or within the office suites. 19 Let's look at the products involved. 20 This is a list of the operating 21 systems, the products that Microsoft has 22 provided, and also a list of the applications. 23 Two are not -- two that we know about 24 are not on the applications list. Word, Excel, 25 and Office, of course, are probably familiar to 2638 1 you, but there's a product called -- or was a 2 product called Home Essentials that also 3 included applications, as well as Works. 4 Microsoft Works at some point have also either 5 included Word or Excel or both. 6 The time period is from May of 1994 7 until June 30 of 2006, 12 years and one month. 8 And remember, the government case that 9 Judge Rosenberg told you about covers only a 10 part of this period. It also is only for the 11 operating systems. 12 So the whole class period, there's a 13 year before the government case started and 14 then there are years after. 15 The government case covers '95 through 16 '99, '94 before and '99 -- some part of '99 to 17 June of 2006. Those are not covered by the 18 government case. And only operating systems, 19 not applications covered by the government 20 case. 21 We talked about the two channels 22 preinstalled or the finished good channels. 23 Let me talk a little bit about the 24 history of computers. 25 I'm going to start in 1974 at a place 2639 1 called Xerox Palo Alto Research Center. Xerox 2 Parc, P-a-r-k -- P-a-r-c. 3 It was an R and D facility, and it was 4 legendary for developing some of the technology 5 that's used together, including a thing called 6 the Alto high-tech -- or high-end workstation. 7 Keep in mind that -- I really do 8 expect that you will see me fall down at some 9 point. Don't worry, I'll get right back up. 10 The computers were huge. You know, 11 they were kept in cooled rooms. They were 12 enormously expensive. And this Xerox Parc 13 developed a much smaller version, and it 14 featured the first Windows style operating 15 system. 16 It had -- it had a GUI, complete with 17 icons and pull-down menus and other niceties 18 that wouldn't appear on the market for almost a 19 decade. 20 In January of 1975, there's a magazine 21 called Popular Electronics. It announced the 22 world's first minicomputer kit, and it said 23 world's first minicomputer kit to rival 24 commercial models, meaning, you know, the huge 25 room size things. Was called the Altair 8800, 2640 1 the Altair -- it was a build-it-yourself 2 computer. It cost $500. It was available from 3 a company called Mits, M-i-t-s, down in 4 Albuquerque, New Mexico. 5 It was a sensation. Orders flooded in 6 from everywhere. Enthusiasts, hobbyists just 7 went crazy. 8 Now, let me tell you that it didn't do 9 anything. I mean, it just sat there and 10 blinked. But it was so unique, so remarkable 11 just sitting there blinking that it was 12 terribly popular. 13 In 1979 a company called VisiCorp 14 publishes a spreadsheet for Apple. 15 This is moving -- I'm not going to 16 fill in the details. There will be witnesses 17 who will talk to you about this. 18 But this -- they created a 19 spreadsheet. The first what is called a killer 20 app. And a killer app is an application that 21 is -- does such a useful thing that it drives 22 the sales of computer. 23 And so this VisiCalc was the first 24 commercial spreadsheet for many computers, or 25 personal computers, and businesses became, 2641 1 then, interested in buying small computers as 2 opposed to the big room-sized ones. 3 IBM, the producer of most of the big 4 room-size computers, took notice, and by 1980, 5 it's planning to enter this new field, desktop 6 personal computers. 7 This is a new industry growing. 8 Bill Gates is born in 1955. He's the 9 middle child of three. His dad is a lawyer. 10 His mom is a homemaker and volunteer. And by 11 junior high he discovers computers. 12 He and his friend Paul Allen worked 13 together to develop computer languages. How do 14 you talk to that box? How do you make it 15 actually do something besides sit there and 16 blink? 17 And he and Mr. Allen found ways to 18 communicate with the computer in words rather 19 than numbers binary code, zeros and ones, 20 words. 21 When he's 18 he goes off to Harvard. 22 Mr. Allen goes to Washington State. And they 23 write to Mits, the company that manufactured 24 the Altair 8800, and say that they have a 25 version of Basic, which is a computer language 2642 1 -- they don't -- but when Mits expresses 2 interest in what they say they have, they get 3 it. They develop it. 4 Mr. Gates borrows from the deck 5 programming language. Mits buys the 6 programming language. Mr. Gates drops out of 7 Harvard, and he and Allen move to Albuquerque 8 and found Microsoft in mid-1975. In the 9 beginning it's a partnership between Paul Allen 10 and Bill Gates. 11 At around this same period in 1976, 12 Digital Research, Incorporated, is founded, and 13 it is founded to develop the operating systems. 14 DRI's founder is a man named Gary 15 Kildall. He has a Ph.D. in computer science. 16 And in 1973, he develops an operating system 17 called CP/M. That is -- that means control 18 program for microprocessors. And it's one of 19 the very first operating systems for these 20 minicomputers. It becomes very quickly the 21 standard operating system for 8-bit computers. 22 I was going to tell you about a bit -- 23 I was going to tell you all kinds of things 24 about a bit, but let me not do that. 25 Let me just tell you that a bit is the 2643 1 smallest unit of storage used in computing -- 2 the computers went from 8 bits to 16 to 32, and 3 now we're on our way to 64, and this is sort of 4 geometric progression. 5 Microsoft's initial focus is on these 6 programming languages, the language -- 7 languages used to write the applications. And, 8 of course, to use the computer language, you 9 have to have an underlying operating system, 10 and Microsoft chooses the then standard CP/M 11 operating system. 12 Gates visits Gary Kildall, the head of 13 DRI, in November of 1977 and obtains a license 14 for using CP/M. 15 In July 1980, July of 1980, IBM comes 16 calling to Microsoft and asks Microsoft if they 17 want to develop -- if they're willing to 18 develop compatible 16-bit versions of its 19 popular language programs, okay. 20 They've got them for 8 bit and now 21 IBM's going to develop a personal computer, and 22 they come to Gates and Allen and they say, will 23 you develop languages for a 16 -- a larger, 24 more powerful, 16-bit computer. And they 25 agree. But IBM still needs an operating 2644 1 system. Languages won't do it any good unless 2 the operating system is there. 3 IBM goes to Kildall at DRI. There are 4 some legends about this. But somehow the deal 5 isn't done. So IBM goes back to Gates. 6 By April of 1980, there's a guy named 7 Tim Paterson. He works for Seattle Computing, 8 and he has developed an operating system. It 9 is basically a clone of the CP/M, the DRI CP/M 10 operating system. 11 And let me say a moment about clones. 12 Clones are not bad. What it means is a 13 different product which mirrors the function of 14 the original. 15 All PCs are clones of the original IBM 16 PC. And Paterson's clone is of DRI's CP/M. 17 He calls it QDOS. That means quick 18 and dirty operating system. That's what it 19 means. 20 He was a cleaver guy. Anyway, he 21 develops this quick and dirty QDOS, and on -- 22 in January of 1981, Microsoft licenses Mr. 23 Patterson's QDOS for $25,000 and then 24 sublicenses it to IBM for use in their -- 25 what's going to be their new PC. 2645 1 It's not a matter of public knowledge 2 yet. So Microsoft for -- licenses the QDOS for 3 $25,000 originally and buys QDOS outright for 4 another $50,000 and also in 1981. 5 So Microsoft has QDOS for about -- for 6 exactly $75,000 and MS-DOS, Microsoft's 7 operating system, is a clone of QDOS, which is 8 a clone of CP/M, which was developed by DRI. 9 And according to the three people who 10 work on MS-DOS, one of whom is Chris Peters, 11 from a programmer's point of view, MS-DOS 1.0 12 was a clone of CP/M. 13 Then Microsoft gives IBM a royalty 14 free license for MS-DOS, but Microsoft retains 15 the ownership rights of MS-DOS so it can -- it 16 retains the ownership rights and the right to 17 license it to all of the IBM clones which are 18 about to come onto the market. 19 Then you'll hear about PC-DOS. MS-DOS 20 and PC-DOS are virtually identical; MS-DOS is 21 the Microsoft product. PC-DOS is also based on 22 the Microsoft MS-DOS, but is the operating 23 system in the IBM or in the original IBM 24 computers. 25 The links from CP/M to QDOS to MS-DOS 2646 1 are well recognized, and our technical expert, 2 a man named Andrew Schulman, will explain to 3 you what those links are. 4 So Microsoft gets into the operating 5 system business with Mr. Patterson's product 6 for about $75,000, and IBM then releases its PC 7 with the MS-DOS operating system loaded in it. 8 I want to return to the GUI, the user 9 interface. 10 During the '80s and early '90s, the 11 way that people talked to their computer was by 12 typing in commands. I think you've heard a 13 little bit about that the character based 14 interface. 15 Persuading my secretary to leave the 16 character-based interface was very difficult 17 because people who knew how to do it really 18 knew how to do it, and changing was difficult. 19 You type in characters and numbers. 20 If you get one wrong, then your computer won't 21 do what you want it to do. 22 She didn't get them wrong, but it was 23 a very slow and difficult thing for most people 24 to learn, but then Apple commercializes the 25 Xerox Parc GUI with the little icons, and so 2647 1 instead of typing commands, all you did, you 2 had your mouse and you clicked on the icon, and 3 your computer would do what you wanted it to 4 do; most of the time. 5 And here is the first Apple GUI with 6 the icons. It was revolutionary. 7 Using your mouse you point and click. 8 This -- of course, this Apple is great for the 9 world of Apple computer users, but there is no 10 Graphical User Interface for the world of IBM 11 PCs and IBM clones; you know, Compaq, Gateway, 12 so on. 13 Microsoft comes out with an imitation 14 of the GUI and calls it Windows -- this is a 15 screen shot of Windows version -- actually, 16 that says 1.01, and it comes out in 1985. And 17 that is the Windows GUI. 18 For up until 1995, you buy -- you can 19 buy the Windows GUI separately from Microsoft's 20 MS-DOS operating system. Two separate 21 products, the GUI and the operating system. 22 For a while Windows is pretty crude 23 and most people prefer to stick with a 24 character-based -- the character user interface 25 that allows you to communicate by typing. 2648 1 But Microsoft improves Windows, and by 2 the beginning of the 1990s on the PC; and, you 3 know, the PC is different than the Apple, not 4 in the same market. Microsoft improves it, and 5 by the early '90s the Windows is the dominant 6 GUI on personal computers. 7 I want to stop for a moment and make 8 sure that I tell you as clearly as I can that 9 Iowa class members are not here to criticize 10 Microsoft for the popularity of its Windows 11 GUI. 12 If Microsoft had simply sold a good, 13 quality Graphical User Interface product at a 14 reasonable price, we'd be here applauding -- 15 well, actually we wouldn't even be here, but we 16 would be applauding Microsoft rather than suing 17 it. 18 The reason for this lawsuit is that 19 Microsoft is not satisfied with the results of 20 lawful competition. We are here because 21 Microsoft abuses its dominance in the Windows 22 GUI and in the operating system and in the word 23 processing and spreadsheet applications market 24 to eliminate competition in those markets. 25 I said I would return to sockets and 2649 1 plugs, and here we are again. 2 All right. Microsoft -- this is 3 Microsoft's operating system, MS-DOS, sitting 4 under the GUI Windows. Those are the sockets. 5 Those are -- what Microsoft internally calls 6 the sockets is the operating system. 7 The plugs are the various software 8 applications that need to connect with the 9 socket. 10 I want to talk about something that's 11 familiar to all of us, and that is assume -- 12 the evidence will include testimony from Roger 13 Noll who I told you about. He's an antitrust 14 economist from Stanford University; has devoted 15 years to analyzing the harmful effects that 16 certain practices have on competition and on 17 consumers, and he will use Microsoft's own 18 description of the operating system and 19 applications as sockets and plugs to help you 20 decide if competition and consumers are hurt by 21 Microsoft's practices of interfering with the 22 connections between Microsoft's monopoly 23 sockets and the GUI and competitors' plugs. 24 Suppose, for example, that here's this 25 Xcel Energy Corporation, and it supplies all 2650 1 the electrical power in a particular area. It 2 also makes toasters and washing machines and 3 other kind of things. 4 But let's stick with the toasters and 5 blenders. We've got toasters and blenders 6 there. 7 To compete, all other toaster 8 manufacturers would have to know how to plug in 9 to -- how to use -- how to get access to the 10 electricity that Xcel has. 11 The Westinghouse toaster has to have 12 information in order to make its plug fit into 13 the socket that will get its electricity from 14 the Xcel company. If it doesn't know how to 15 plug into the socket, it won't have any 16 electricity, and it won't toast your toast. 17 So it needs information how do we make 18 our plug, so it plugs into your socket so we 19 can get your electricity and Xcel has all the 20 electricity. They can't get electricity but 21 from Xcel. 22 What if Xcel won't tell it or the 23 energy company Xcel won't tell it everything it 24 needs to know? Or what if Xcel tells it things 25 that aren't true? 2651 1 Professor Noll will explain why it's 2 necessary to both competition and lower prices 3 that Xcel not use its monopoly power over 4 electricity to give its own toasters an 5 advantage. 6 So its own toasters are the only 7 toasters who can plug in properly to the 8 sockets. Otherwise toast -- other toaster 9 companies, Westinghouse, Black & Decker, and so 10 on could never have their products work. 11 At this trial we'll prove that 12 Microsoft's monopoly over Windows was like the 13 power company's monopoly over electricity. 14 Other software companies could not compete 15 unless they could plug into Microsoft's 16 sockets. 17 And so this analogy, while not 18 perfect, is very like what's happened here. 19 Part of what Microsoft did was use its 20 monopoly power over the operating system to 21 leverage monopolies in applications, Word, 22 Excel, Office. And they did that by denying 23 important information to other companies so 24 their plugs would not fit properly into the 25 sockets. 2652 1 In a very real sense, we are going to 2 be going behind Microsoft's corporate walls and 3 down their corridors and into the offices of 4 their executives to see hundreds, even 5 thousands, of these internal documents authored 6 by its top executives from Bill Gates on down. 7 Where did we get all of these 8 documents? They were provided under the 9 discovery process.