3361 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 XIII 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 8:00 a.m., December 7, 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 3362 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 MICHAEL R. CASHMAN Attorneys at Law 8 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 9 500 Washington Avenue South Suite 4000 10 Minneapolis, Minnesota 55415 (612)339-2020 11 DOUGLAS J. ROVENS 12 Attorneys at Law Zelle, Hofmann, Voelbel, 13 Mason & Gette, LLP 550 South Hope Street 14 Suite 1600 Los Angeles, California 90071 15 (213)895-4150 16 ROBERT J. GRALEWSKI, JR. Attorney at Law 17 Gergosian & Gralewski 550 West C Street 18 Suite 1600 San Diego, CA 92101 19 (619) 230-0104 20 21 22 23 24 25 3363 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JOSEPH E. NEUHAUS Attorneys at Law 4 Sullivan & Cromwell, LLP 125 Broad Street 5 New York, New York 10004-2498 (212)558-3749 6 ROBERT A. ROSENFELD 7 Attorneys at Law Heller Ehrman, LLP 8 333 Bush Street San Francisco, California 94104 9 (415)772-6000 10 STEPHEN A. TUGGY HEIDI B. BRADLEY 11 Attorneys at Law Heller Ehrman, LLP 12 333 South Hope Street Suite 3900 13 Los Angeles, CA 90071-3043 (213) 689-0200 14 DANIEL S. SILVERMAN 15 Attorney at Law Heller Ehrman, LLP 16 4350 La Jolla Village Drive Seventh Floor 17 San Diego, CA 92122-1246 (858) 450-8400 18 19 20 21 22 23 24 25 3364 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 STEVEN J. AESCHBACHER Attorneys at Law 7 Microsoft Corporation One Microsoft Way 8 Redmond, California 98052 (425)882-8080 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3365 1 (The following record was made out of 2 the presence of the jury.) 3 THE COURT: Good morning. 4 MR. CASHMAN: Good morning, Your 5 Honor. 6 MR. GRALEWSKI: Good morning, Your 7 Honor. 8 THE COURT: Okay. What are we working 9 on now? 10 MR. TUGGY: Well, Mr. Cashman sent me 11 an e-mail last night about some evidence that 12 Plaintiffs wanted to show in their opening 13 statements today. And, for most of it, we were 14 able to come to agreement. 15 There is one matter we'd like to bring 16 to your attention. 17 Plaintiffs seek to play the video of 18 testimony by Ms. Stefanie Reichel, a former 19 Microsoft employee. And if it pleases the 20 Court, I'd like to provide you with a copy of 21 the testimony they intend to play. 22 THE COURT: Okay. 23 MR. TUGGY: I apologize. This is in 24 minuscript form. It's rather small type. And 25 I have bracketed the testimony in what I have 3366 1 provided to you. 2 MR. CASHMAN: Since we are the 3 proponent, I think it would be appropriate if 4 -- 5 THE COURT: How did you find type this 6 small? 7 MR. CASHMAN: -- if we make our 8 proffer first, Mr. Tuggy. 9 MR. TUGGY: Mr. Cashman has just said 10 since they are the proponent of the evidence, 11 they'd like to make the proffer first and I'm 12 happy -- 13 THE COURT: Okay. Go ahead. 14 MR. CASHMAN: May it please the Court. 15 Mr. Tuggy has just handed up the transcript for 16 Stefanie Reichel. And the Court will see the 17 bracketed testimony which appears on pages 269, 18 270, and then again on 276. 19 And I will talk more particularly 20 about the testimony in a minute, but the first 21 reason why Plaintiffs believe they should be 22 permitted to use this in the opening statement 23 is, pursuant to their agreement -- the Court 24 will recall from the agreement which the 25 Plaintiffs showed to you yesterday, the parties 3367 1 do have an agreement which says that the 2 parties can use whatever evidence does not have 3 a sustained objection from the Special Master 4 or the Court or which has not been presented to 5 the Court and Special Master with a hearsay or 6 embedded hearsay or foundation objection. 7 The purpose of that agreement is so 8 that the parties could introduce and use -- I 9 should say use evidence such as this in their 10 opening statements without objection from the 11 opponent. 12 And the only issue being whether you 13 have a good faith belief that you are going to 14 be able to use it at trial. 15 And the Plaintiffs believe that they 16 do have such a good faith belief that this 17 evidence will be admissible at trial. 18 So, under the agreement, the 19 Plaintiffs are entitled to use this testimony 20 in their opening statement and request that it 21 be permitted on that basis. 22 Secondly, Microsoft has advised or has 23 undue prejudice claims to the bracketed 24 testimony. And let me provide a little 25 background for the Court. 3368 1 Stefanie Reichel was the account 2 manager for Microsoft Germany. And at the time 3 that -- at the time when she was providing this 4 testimony, I guess the time period she was 5 testifying about, she was the account manager 6 in Germany and she was the account manager for 7 Vobis, which was the largest OEM in Europe and 8 in Germany at that time. 9 And what's very important is what was 10 happening at the time that Ms. Reichel was the 11 Vobis account manager. She was there doing 12 that function from 1991, I believe, to 1994. 13 During that time period, the Federal 14 Trade Commission was conducting its antitrust 15 investigation of Microsoft for its sales and 16 marketing practices. And the FTC had been 17 doing that since 1990. 18 And, as part of those investigations, 19 Microsoft documents were being requested from 20 Microsoft employees. 21 And by 1992, the FTC was focusing on 22 Microsoft's contracts with its OEMs and whether 23 they obstructed sales to OEMs by competing 24 operating systems. 25 So the FTC antitrust investigation was 3369 1 not a secret. In fact, Miss Reichel's 2 superiors at Microsoft talked openly with her 3 about the investigation. 4 Furthermore, at the time this was all 5 going on, in Germany, Microsoft was conducting 6 an internal audit and documents were being 7 reviewed. And so officially there was a 8 corporatewide hold on the destruction of 9 documents at Microsoft. 10 And as we look at the testimony in 11 particular, you'll see that this testimony 12 concerns the spoliation issue and the fact that 13 electronic e-mails are being destroyed. 14 As we look further at the testimony, 15 you'll see that Miss Reichel refers to 16 Mr. Heuls, who is the director of OEM sales for 17 central Europe. 18 And I think that we look at the 19 testimony first on page 269, the question is 20 asked whether Ms. Reichel recalls Mr. Heuls or 21 anyone else suggesting that you should destroy 22 or erase certain kinds of records. And she 23 says he suggested I do that, yes. 24 So there's nothing unfairly 25 prejudicial about that given our spoliation 3370 1 claim and the context in which this important 2 evidence has been provided and how it will be 3 used. 4 Plaintiffs believe that the unduly 5 prejudicial claim for that first testimony has 6 no merit. 7 Then, we continue on to page 270, and 8 Ms. Reichel is asked, And did you destroy 9 certain documents? And then she says, yes, I 10 deleted -- I deleted e-mail, but I deleted 11 other e-mails too. 12 He says, I understand, but this was -- 13 you deleted specific e-mail in response to an 14 expressed concern by Mr. Heuls that he didn't 15 want certain documents around; correct? 16 Answer: Correct. 17 Question: And do you know whether Mr. 18 Heuls gave that instruction to others in the 19 Munich office? 20 Answer: I recall him telling the 21 group as a whole that we should make sure we 22 didn't have anything around, as you said, funny 23 stuff. 24 Now, again, Plaintiffs submit that 25 under the agreement, they're entitled to use 3371 1 this in their opening. 2 And, furthermore, that if it's 3 necessary to reach the undue prejudice 4 objection here, the probative value of the 5 destruction of evidence outweighs any 6 prejudicial effect. 7 Now, Mr. Tuggy is going to tell you 8 that Microsoft objects to the fact that 9 Plaintiffs are not planning to use in their 10 opening lines 2 and 3 on page 270. 11 And, again, this is opening statement, 12 and the Plaintiffs are entitled to use that 13 portion of the designated testimony which they 14 wish to display to the Jury. And there's 15 nothing unfair about the use of testimony as 16 we've indicated in the bracketed material. 17 Turning to page 276. It is the last 18 portion of the testimony that we wish to use in 19 the opening statement. 20 And here the question is, do you 21 recall Mr. Heuls ever saying something to the 22 effect that there are graveyards in East 23 Germany that no one knows about? 24 Yeah, I think I remember hearing make 25 a reference to that. 3372 1 Question: Do you recall him, then, 2 saying something to the effect that forensic 3 experts can restore information to computer 4 hard disks that have been deleted? 5 Answer: I know I've heard that said. 6 I just don't recall where. 7 Question: Do you remember Mr. Heuls 8 saying that in the same context as his remark 9 about the graveyards in East Germany? 10 Answer: Yes, I do recall him saying 11 something like that. 12 Plaintiffs submit that all of this 13 evidence, this testimony, is appropriate under 14 the agreement and that if we reach the 15 substance of the objection, their unfair 16 prejudice objection, that under the authority 17 in Iowa and Rule 5.403 that this evidence, the 18 probative value outweighs any prejudice claims 19 given that Plaintiffs' spoliation claim. 20 This evidence is not meant to simply 21 embarrass or inflame the Jury, but goes right 22 to the spoliation claim. 23 So it's not intended to unfairly 24 inflame or arouse hostility or sympathy, but, 25 rather, to underscore that Microsoft knew that 3373 1 there were -- they had internal audit going on 2 at the time and they knew that there were 3 government investigations looking for relevant 4 evidence, while at the same time Microsoft 5 executives were instructing people, such as 6 Ms. Reichel, to delete e-mails and, therefore, 7 destroy evidence. 8 So Plaintiffs request the right to use 9 this in opening statement without objection 10 from the Defendant. 11 Thank you. 12 MR. TUGGY: Your Honor, three times in 13 Mr. Cashman's argument, he stated that under 14 the parties' agreement when testimony such as 15 this has cleared the Special Master process and 16 the remaining objection is undue prejudice that 17 if a party has a good faith belief that during 18 trial the evidence will be admitted, that it 19 ought to be permissible for use in opening 20 statement. 21 That standard -- and in the agreement 22 it does have a good faith standard. It was 23 handed up to you -- ought to apply as a two-way 24 street. 25 Microsoft has 13 items of trade press, 3374 1 which it has precleared through the Special 2 Master. The Special Master has ruled that it 3 is being offered for a proper nonhearsay use, 4 and Plaintiffs object that it's unduly 5 prejudicial and they filed a motion with you 6 that it be excluded for use from opening 7 statements. 8 Microsoft has also gone to the Special 9 Master with testimony by certain executives, 10 one from -- former CEO of Apple, John Sculley, 11 and also an executive at WordPerfect named Pete 12 Peterson. 13 And we asked the Special Master to 14 rule on whether the testimony was admissible 15 for nonhearsay -- what was admissible testimony 16 could be used notwithstanding Plaintiffs' 17 hearsay objections. The Special Master 18 overruled the objections. 19 Plaintiffs object that it's unduly 20 prejudicial, and I just received an e-mail 21 either late last night or early this morning 22 that they plan to raise that with you. 23 If the Plaintiffs agree that this 24 standard ought to apply, the two-way street 25 will allow this evidence in on the theory that 3375 1 they have a good faith belief they can get it 2 admitted during trial and we will address its 3 admissibility through the designation process 4 that we've gone through other witnesses during 5 trial. 6 But the same models apply at this 7 point to the trade press and to the testimony 8 by Sculley and Peterson. 9 So if we're ready to do that now, then 10 let's just apply the agreement that way for 11 both sides and this material can be played. 12 MR. CASHMAN: Your Honor, Mr. Tuggy is 13 mixing apples and oranges. 14 That Plaintiffs -- as we will explain 15 this afternoon when the trade press motion is 16 argued and when the Sculley motion is argued, 17 there are other issues that pertain to those 18 matters. 19 And that's not what's on the table 20 here. And those matters don't concern just 21 claims of unfair prejudice. That concerns 22 plainly inadmissible evidence, and, 23 consequently, that's not the issue. 24 It's really a straightforward matter 25 of the inapplicability of the unfair prejudice 3376 1 objection to this particular testimony that we 2 are focused on here. 3 MR. TUGGY: Your Honor, I'd like to, 4 then, proceed to the merits of this testimony. 5 The first, I think, is rather easy and 6 that is the editing that's been done to the 7 testimony. 8 And that has to do with the testimony 9 designated at page 270. The question that was 10 asked at line 1 was, And did you destroy 11 certain documents? Plaintiffs' delete from the 12 testimony the answer, which is what do you mean 13 by destroy, though? 14 And then the next question, Well, 15 erased from your computer. And then they begin 16 the designation, again, at the answer to that 17 question which was, yeah, I deleted. I deleted 18 e-mail, but I deleted other e-mails too. 19 So what the Plaintiffs have done is 20 they've designated a question and then an 21 answer, not to that question, but to another. 22 It would be similar to if the question 23 were and did you kill your brother. 24 Answer: What do you mean by kill, 25 like he died in the car when I was driving it? 3377 1 Yes, when you had your accident, he died in the 2 car. Yes, he died in the car during the 3 accident. 4 It just has a totally different 5 meaning based on what was removed from the 6 actual testimony given. 7 If the Plaintiffs want to designate a 8 question and designate an answer to be played 9 for the Jury, they should be designating the 10 answer to the question. They shouldn't 11 designate an answer as if it were to a question 12 even though the answer was not to that 13 question. 14 Now, as to whether as a whole this 15 testimony ought to be played in the opening 16 statement, the question is not whether it is 17 ultimately admissible that we will be dealing 18 with during trial. 19 The question is ought this to be 20 played before the Jury, notwithstanding 21 Microsoft's objection that it's unduly 22 prejudicial. 23 And for the following reasons this 24 testimony ought not be played to the Jury, but 25 Plaintiffs ought to be required to establish 3378 1 its admissibility before it's shown to the Jury 2 at all. 3 This testimony involves conduct that 4 occurred in Germany in about the year 1992. 5 At that time, Plaintiffs are unable to 6 show -- it is their obligation and they have 7 not been able to show that in 1992, in Germany, 8 Microsoft had some sort of retention 9 obligation. 10 Plaintiffs reference an FTC antitrust 11 investigation that was occurring in the early 12 1990s. They are unable to point to any 13 requirement in connection with that 14 investigation that Microsoft retain e-mails in 15 Germany in 1992. 16 As has been briefed extensively 17 already, spoliation as an issue is incendiary. 18 Under the Iowa Supreme Court edicts 19 regarding the use of spoliation evidence, the 20 party propounding the evidence has a heavy 21 burden to show that it is relevant and it is 22 appropriate to put before the Jury. 23 At this point, as you can see from the 24 evidence that's being offered, especially 25 evidence relating to graveyards in East Germany 3379 1 that no one knows about, highly incendiary and 2 full of innuendo, very unclear as to what's 3 being referenced. 4 This testimony is going -- Plaintiffs 5 seek to play this testimony to inflame the Jury 6 without the foundation being laid that it is 7 admissible, that in Germany in 1992 there was 8 some sort of retention obligation that applied 9 to Ms. Reichel and Mr. Heuls. 10 And, further, they have not linked 11 this testimony to key evidence they say is 12 missing. Their exhibit list is full of e-mail 13 from Stefanie Reichel. 14 So without laying a proper foundation 15 for the use of this evidence, it is Microsoft's 16 position that Ms. Conlin may reference her 17 spoliation evidence to the extent you've 18 permitted it in her opening, but ought not to 19 be able to put up on-screen testimony that 20 lacks the foundation that this testimony lacks. 21 And, for those reasons, Microsoft 22 respectfully submits that the testimony offered 23 ought not to be shown at all to the Jury in the 24 opening. And to the extent that it is shown, 25 it should not be edited in the way that it's 3380 1 been edited. 2 And it ought -- and if it's going to 3 be permitted based on the agreement, it ought 4 to be a two-way street with Microsoft's trade 5 press. 6 That's all, Your Honor. 7 MR. CASHMAN: Your Honor, the editing 8 claim is a little bit of a misnomer because the 9 Plaintiffs have designated ultimately all of 10 the testimony. 11 What we're talking about is what 12 Ms. Conlin is going to focus on during opening, 13 and she's entitled to focus on the testimony 14 that she thinks is most relevant to her 15 arguments in opening. 16 So that, I submit, takes care of the 17 editing issue. 18 As far as the arguments that Mr. Tuggy 19 raised concerning the fact that this is a 20 German OEM, you'll recall that there was motion 21 in limine by Microsoft seeking to exclude 22 reference to conduct outside the United States. 23 And that motion was denied. 24 And we submit that this issue falls 25 within that very motion and that that argument 3381 1 should be rejected on that basis. 2 Lastly, Mr. Tuggy says that the East 3 German graveyard is highly incendiary. Well, 4 it's not. I mean, it's a fact in the case. 5 And just because the words are what they are, 6 when it's a fact that has been testified to by 7 a witness doesn't mean that it's highly 8 incendiary. She's just talking about facts and 9 what Microsoft executives said to her. 10 So that testimony is not unduly 11 prejudicial given the spoliation claim. And it 12 is the spoliation claim which gives it its 13 probative value that outweighs any alleged 14 prejudice from that comment. 15 So, for those reasons, the Plaintiffs, 16 again, request that they be given the green 17 light to use this testimony in opening 18 statement. 19 MR. TUGGY: I have nothing further, 20 Your Honor. 21 THE COURT: And you're going to link 22 this up somehow in your evidence in chief that 23 the spoliation claim was related to the four 24 elements that you need for spoliation in a way 25 -- you are going to link them? 3382 1 MR. CASHMAN: That is correct, Your 2 Honor. 3 THE COURT: That this event in 1992 4 had something to do with what's going on here 5 in Iowa -- 6 MR. CASHMAN: That is correct. 7 THE COURT: -- during the class 8 period? 9 MR. CASHMAN: That's our intent. 10 THE COURT: That's going to be 11 interesting. 12 MR. TUGGY: And, Your Honor, I think 13 to show it to the Jury, that should be done 14 now. 15 MR. CASHMAN: Well, Plaintiffs don't 16 believe that they're required to prove the 17 admissibility of this document to use it in 18 opening statement. 19 Obviously, we use it at our risk. 20 THE COURT: Well, the risk is not only 21 to you, it's also to the Defendant. To make a 22 claim that may not be admissible at trial, the 23 damage is already done. 24 MR. CASHMAN: Your Honor, Plaintiffs 25 believe that it will be admissible. 3383 1 THE COURT: Very well. 2 Anything else? 3 MR. TUGGY: Nothing further, Your 4 Honor. 5 THE COURT: I'll let you use 269 and 6 270, but 276 is too highly prejudicial to use. 7 It's beyond the pale. 8 MR. TUGGY: Your Honor, may I ask that 9 they be required to include the testimony or 10 the question they removed? 11 THE COURT: Yeah, line 2 will be 12 included on page 270. 13 MR. CASHMAN: So to -- if I understand 14 it, we may use it, but include the testimony at 15 line 2 on that page? 16 THE COURT: You may use lines 4 17 through 7 on 269, lines 1 through 15 on 270, 18 including line 2. You are not going to use 19 anything on 276. It's highly prejudicial at 20 this time. 21 MR. TUGGY: Thank you, Your Honor. 22 MR. CASHMAN: Thank you, Your Honor. 23 THE COURT: Let's -- well, nothing. 24 Next? 25 MR. GRALEWSKI: Your Honor, we have a 3384 1 very discrete issue in Rick Apple testimony 2 that I promised the Court I will be brief on. 3 THE COURT: Very well. 4 MR. SILVERMAN: Your Honor -- 5 THE COURT: Yeah. 6 MR. SILVERMAN: Okay. No, that's 7 fine. 8 MR. GRALEWSKI: Do you have the 9 transcript, Mr. Silverman? 10 MR. SILVERMAN: Yes, I do. 11 MR. GRALEWSKI: Your Honor, I'm going 12 to, if I may, present the Court with two 13 Plaintiffs' exhibits at issue. Mr. Silverman 14 will give you a transcript. 15 THE COURT: Thank you. 16 MR. GRALEWSKI: Last night after 17 court, Your Honor, we had intended to argue 18 this morning testimony regarding Richard 19 Freedman, a Microsoft employee. 20 Under exacting pressure from Mr. Tuggy 21 and Ms. Bradley, the Plaintiffs selected to 22 forego their appeals in exchange for some small 23 concessions on Microsoft's part, and we decided 24 to fill up the time this morning with Rick 25 Apple's testimony. 3385 1 Your Honor, this testimony is actual 2 trial testimony from the Gordon case in 3 Minnesota that occurred during that case two 4 and half years ago. 5 Rick Apple was a high-level employee 6 at an OEM in Minnesota. 7 Couple preliminary points, Your Honor. 8 When we were meeting and conferring on 9 this testimony, my proposal to Microsoft was 10 that because it was trial testimony on an issue 11 identical to this case, that these issues go 12 away. 13 All of this testimony that we are 14 proffering now came in in the Gordon case 15 without objection by Microsoft. 16 Mr. Tulchin was sitting at counsel 17 table while Mr. Apple was being examined in the 18 Gordon case. Ms. Nelles was there. Mr. 19 Pierson was there. Everybody you see here was 20 there in that case. 21 I sat at counsel table, and 22 Mr. Hagstrom examined the witness in the Gordon 23 case. 24 There are two issues on the 25 Plaintiffs' side, Your Honor. 3386 1 The first has to do with testimony at 2 pages 5253 through 5256. 3 And at this point I will be brief and 4 Your Honor will familiarize yourself, I'm sure, 5 with the testimony as I'm talking. 6 The issue here at page 5253 to 5256 is 7 that the witness is being examined about 8 Plaintiffs' Exhibit 4471, which I handed up, 9 Your Honor. 10 Now, last night when I was preparing 11 these arguments, I gave the two discrete issues 12 nicknames. The nickname for this issue, Your 13 Honor, is having your cake and eating it too. 14 Over the last several days' argument 15 about Mr. Williams, you've heard Mr. Tuggy tell 16 you you can't admit statements by OEMs because 17 they're not reliable. It's just Mr. Williams 18 repeating the statements of the OEMs. 19 Well, what we did, Your Honor, is we 20 subpoenaed in the Gordon case an OEM, and we 21 put him on the stand and we asked him about the 22 effect of Microsoft's per processor contracts. 23 This is a very important issue in the 24 case. It's understandable why Microsoft wants 25 to exclude this testimony. The testimony at 3387 1 5253 to 5256 is highly relevant, is very 2 helpful to the Jury, and explains why in 3 concise terms per processor contracts harmed 4 consumers. 5 Mr. Apple explains that as a result of 6 the per processor contracts, there was less 7 choice and higher prices. 8 So we submit that this testimony and 9 the associated document, which was admitted by 10 Mr. Pepperman, Mr. Tulchin's colleague, in the 11 Gordon case should come in. 12 THE COURT: Was this designated 13 testimony? 14 MR. GRALEWSKI: Absolutely. 15 THE COURT: Okay. 16 Mr. Silverman? 17 MR. SILVERMAN: Yeah, Your Honor. 18 A few minutes. 19 First, if we are going to use 20 nicknames, I think the appropriate nickname for 21 this exhibit and this testimony is you don't 22 get three bites at the apple, according to 23 Mr. Apple because what Mr. Gralewski did not 24 tell you is that this exhibit -- this very 25 exhibit we objected on grounds of hearsay, the 3388 1 Special Master sustained that objection. 2 Plaintiffs then appealed that ruling 3 to Your Honor, making the exact argument 4 they're making here today. And I brought with 5 me their brief, and Your Honor, over 6 Plaintiffs' argument and over their objection, 7 sustained the Special Master's ruling. 8 So to be perfectly frank, I do not 9 believe there's a proper procedural proffer 10 here or ability for Plaintiffs to reargue an 11 issue that's already been argued before, Your 12 Honor, which they lost. 13 And so the exhibit should definitely 14 come out, and the testimony we objected on 15 grounds that the testimony relating to an 16 inadmissible document comes out as well. 17 And the testimony at these three pages 18 all relates to this very exhibit and, 19 therefore, Plaintiffs shouldn't be able to get 20 the testimony in about an inadmissible exhibit, 21 so the testimony comes out as well. 22 So, I mean, it's a very -- on that 23 particular exhibit, it's very basic. The 24 issue's been litigated twice. They've lost it 25 twice. They shouldn't be able to reargue it 3389 1 before Your Honor a third time pressing the 2 same point they've pressed before. 3 MR. GRALEWSKI: May I respond, Your 4 Honor? 5 THE COURT: Yeah. 6 MR. GRALEWSKI: First of all, this is 7 the first time this testimony is being 8 presented to the Court. 9 To the extent Your Honor has ruled on 10 this document, as you know, the parties, 11 because of the volume of evidence, oftentimes 12 don't present or aren't able to present 13 everything having to do with the document. 14 To the extent Your Honor didn't have 15 the context and the testimony before you, I 16 make a motion at this point to reconsider your 17 ruling on PX 4471. 18 I will also note, Your Honor, with 19 respect to reliability, Mr. Pepperman in the 20 Gordon case cross-examined Mr. Apple for ten 21 full pages on this very document. 22 That testimony is at 5308, 10, to 23 5318, 18. 24 THE COURT: What is Mr. Apple's 25 relationship? Is he part of ZEos Financial? 3390 1 MR. GRALEWSKI: Yes, Your Honor. I 2 apologize for not fully explaining. 3 Mr. Apple was a high-level executive 4 at ZEos. There's foundational testimony at the 5 start of this chunk of testimony. 6 He worked very closely with 7 Mr. Herrick, I believe, who signed that letter, 8 and he testifies that he had direct 9 communication and was involved heavily in the 10 negotiations and issues concerning the per 11 processor contract. 12 And once that foundation was laid in 13 the Gordon case, Mr. Pepperman allowed this 14 document to come in without objection. 15 MR. TULCHIN: Your Honor, if I may. 16 The rules in the Gordon case clearly 17 were a little different than the rules here. 18 There's some evidence in Gordon that 19 was admitted that here has been excluded. 20 There was some evidence in Gordon that was 21 excluded that here has been admitted. 22 If the rule is that Mr. Gralewski can 23 argue this same point before the Special Master 24 and lose, appeal it and lose, and come back a 25 third time today to the Court with the same 3391 1 point that because the rules that Judge 2 Peterson used for admissibility in Gordon 3 should somehow govern, then we've thrown this 4 whole process, I think, into a state of chaos 5 because, clearly, that rule should work for 6 Microsoft as well. 7 And there's potentially -- I mean, a 8 ton of material where the rulings here are a 9 little bit different than the rulings in 10 Gordon. And I might just add that, of course, 11 there's no requirement that Minnesota law and 12 Iowa law on evidentiary matters be identical. 13 MR. GRALEWSKI: Your Honor, Mr. -- I'm 14 sorry, Judge Peterson didn't rule on this 15 document. Mr. Tulchin's colleague agreed to 16 admit it and then cross-examine the witness 17 later for ten full pages on the document. 18 MR. TULCHIN: My colleague was not 19 sitting as the Court, Your Honor. He didn't 20 admit it. 21 My colleague was subject to the rules 22 that Judge Peterson had set about evidence in 23 Minnesota. And apparently this fit within 24 those rules. 25 Here, according to Special Master 3392 1 McCormick and the Court on appeal, the Iowa 2 rule is different. 3 THE COURT: So you're appealing from 4 the appeal to me? 5 MR. GRALEWSKI: Your Honor, the 6 testimony has never been presented to Special 7 Master McCormick or Your Honor. 8 The testimony is being presented for 9 the first time now. The testimony concerns the 10 document. To the extent Your Honor didn't have 11 the benefit of the testimony and the full 12 context and the full understanding of who 13 Mr. Apple was when Your Honor ruled, I'm making 14 a motion for reconsideration on 4471. 15 MR. SILVERMAN: Your Honor, very 16 briefly. 17 THE COURT: How many more are we going 18 to have of these? 19 MR. GRALEWSKI: Your Honor, my 20 intention is to have very few. 21 THE COURT: Because otherwise the 22 Special Master system is now being relegated to 23 ridiculousness. 24 I mean, you are just -- now it's a 25 waste of time. 3393 1 MR. GRALEWSKI: I understand. 2 THE COURT: I'm going to review -- if 3 you are going to have me reconsider everything 4 the Special Master and I ruled on every time, 5 this is just -- you know, you guys shouldn't 6 even ask the Special Master. 7 You're making this ten times harder 8 than it is. That's just ridiculous. 9 I'm very, very upset about this 10 constant reconsideration, reconsideration of 11 rulings in a process that both parties have 12 agreed upon. 13 If you didn't like it, you shouldn't 14 have asked for it. I'm sorry. Now I signed an 15 order that you guys wanted me to sign. 16 So you say it's totally admissible to 17 talk about an exhibit that's been ruled by me 18 and the Special Master to be hearsay, it's okay 19 for Mr. Apple to talk about it in his 20 designated portions of testimony. Is that what 21 you're saying? 22 MR. GRALEWSKI: Not exactly, Your 23 Honor. 24 I'm saying that this exhibit is 25 admissible and is not hearsay and testimony 3394 1 about the document should be admitted. 2 THE COURT: Anything else on this? 3 MR. SILVERMAN: Very briefly, Your 4 Honor. 5 We echo your sentiment. There's a lot 6 of appeals we are trying to work through 7 because we are going to be here forever. 8 THE COURT: Let's just talk about 9 this, okay. 10 MR. SILVERMAN: Yeah. 11 Two quick points, Your Honor. 12 The testimony about the inadmissible 13 document literally walks through the exhibit 14 for a truth purpose. That's inappropriate. 15 The document is inadmissible. The 16 testimony should, likewise, be inadmissible. 17 Second, Mr. Gralewski, his motion for 18 reconsideration saying that there was no 19 opportunity to review the context of the 20 testimony with the exhibit. 21 They had the opportunity to do so with 22 the Special Master. They chose not to. 23 They had the opportunity to do so with 24 Your Honor. They chose not to. 25 Mr. Apple's credentials were set forth 3395 1 in the briefing. There's nothing new here. 2 The Special Master and Your Honor's 3 rulings should be affirmed for the third time 4 and the testimony should be excluded. 5 THE COURT: All right. Anything else 6 on this matter? 7 MR. GRALEWSKI: No, Your Honor. 8 THE COURT: It's denied. 9 What's the next one? 10 MR. GRALEWSKI: There's one issue we 11 could take up at the end. 12 THE COURT: Go ahead. 13 MR. GRALEWSKI: The last issue I 14 believe is Mr. Silverman's appeal of a trade 15 press issue so I'll allow him to proceed. 16 THE COURT: Mr. Silverman, has this 17 been excluded? 18 MR. SILVERMAN: No, Your Honor. 19 THE COURT: Did the Special Master 20 look at it? 21 MR. SILVERMAN: No. 22 THE COURT: Okay. Go ahead. 23 MR. SILVERMAN: It's Exhibit -- are we 24 talking about 1492A, Bob? 25 MR. GRALEWSKI: Yes. 3396 1 MR. SILVERMAN: If I may approach. 2 THE COURT: 1492? 3 MR. GRALEWSKI: This is a Defendant 4 exhibit, Your Honor. 5 THE COURT: Does this relate to this, 6 too, or is this a different one? This is 7 another portion of Apple? 8 MR. GRALEWSKI: It may. 9 MR. TUGGY: It's another portion of 10 Apple. 11 THE COURT: It is. Oh, okay. 12 MR. SILVERMAN: If I may approach, 13 Your Honor. 14 THE COURT: Yeah. 15 MR. SILVERMAN: This is Defendant's 16 1492A. 17 MR. GRALEWSKI: Your Honor, I 18 apologize. I understand the sensitivity of 19 moving -- 20 With your ruling on 4471 and the 21 related testimony, would it be appropriate to 22 ask the Court that Microsoft not be allowed to 23 designate their cross on the document that 24 we're not allowed to offer our affirmative 25 designations on? 3397 1 THE COURT: It seems reasonable to me. 2 You can't talk about it. It's either hearsay 3 for both or it's not hearsay at all. 4 MR. TUGGY: I agree, Your Honor. 5 THE COURT: Then it's out. 6 Next. 7 MR. GRALEWSKI: Thank you, Your Honor. 8 1492. 9 MR. SILVERMAN: Your Honor, 1492A, 10 Plaintiffs -- this is a -- well, it's an e-mail 11 that includes some trade press. 12 And there's some trade press from PC 13 Weekly, Infoworld, et cetera. 14 The witness, Mr. Apple, is 15 cross-examined by Microsoft's lawyer about this 16 exhibit. 17 And the questioning goes to the 18 credibility of the witness because his initial 19 questioning that he's asked about is as to 20 whether he's aware of any incompatibilities 21 with DR-DOS, and the witness claims he was not 22 aware of incompatibilities, and so 23 Mr. Pepperman, Microsoft's lawyer, proceeds to 24 show him this exhibit which clearly shows in 25 the trade press incompatibilities. 3398 1 And the witness is asked at 5319, 11 2 through 5320, 22, questioning about that very 3 exhibit, specifically he's asked about -- 4 THE COURT: Wait. Is this Apple, I'm 5 sorry? 6 MR. SILVERMAN: Yes, I'm sorry. This 7 is Apple. 8 THE COURT: Page 53 -- 9 MR. SILVERMAN: 5319, line 11. 10 THE COURT: All right. Sorry. Okay, 11 I got it. 12 MR. SILVERMAN: And the witness is 13 asked -- you'll see before 5319, 11. He's 14 asked questioning about awareness of 15 incompatibilities. And he says I'm not aware 16 of any incompatibilities. 17 So Mr. Pepperman then cross-examines 18 him, as he's proper to do, to impact or impugn 19 the witness' credibility, and he specifically 20 asks him about the Infoworld trade press on 21 September 16, 1991, which clearly talks about 22 the incompatibility. 23 And the witness says yes, it's the 24 biggest trade press magazine or trade press 25 weekly there is. We put advertisements in it. 3399 1 I read it periodically, and then he claims he 2 wasn't aware that there's a reference to the 3 incompatibility. 4 THE COURT: Okay. 5 MR. SILVERMAN: Microsoft is clearly 6 permitted in cross-examination for purposes at 7 minimum to impugn the witness' credibility to 8 ask about this trade press and its embedded 9 hearsay. 10 We're not offering to admit it through 11 Mr. Apple. We're simply using it for purposes 12 of context and specifically only to put on the 13 screen and to ask the witness questions 14 relating specifically to the trade press that 15 he's asked about in examination for purposes of 16 context. 17 And the parties have, through the meet 18 and confer process, discussed the issue of 19 context. 20 If the document is not going to be 21 admitted, but it's necessary to give context to 22 the testimony, then you can put it on the 23 screen so that the Jury understands what the 24 witness is looking at when he's testifying. 25 And that's all we want to do with this 3400 1 exhibit through this witness, is to put on the 2 screen the specific snippets in the trade press 3 to give context to the testimony. 4 And the testimony is clearly 5 admissible because, again, it's proper 6 cross-examination by Microsoft's attorney. 7 THE COURT: Snippets are all of the 8 highlighted portion? 9 MR. SILVERMAN: No, it's not all the 10 highlighted portions. 11 THE COURT: What portion are we 12 talking about? 13 MR. SILVERMAN: The specific portion 14 having to do with the Infoworld article on 15 September 16, 1991. I think it's the second 16 paragraph on the first page of the exhibit. 17 THE COURT: All right. Well, the 18 first page of the exhibit September 16th, 1991. 19 Do you want that first paragraph there or the 20 first and second? It starts getting Windows to 21 run. Do you see that? 22 MR. SILVERMAN: Getting Windows to 23 run, that's the area that he's being asked 24 about. 25 But specific -- it's the entire 3401 1 Infoworld section. He's specifically asked 2 about the first paragraph, but the whole 3 Infoworld piece is relevant to the questioning 4 because he's asked generally do you read 5 Infoworld and have you read this particular 6 article. 7 And so the specific piece is asked 8 about in the first paragraph. I think it makes 9 sense for context to put up both paragraphs 10 from Infoworld September '91. 11 THE COURT: Okay. 12 Response? 13 MR. GRALEWSKI: Yes, Your Honor. 14 This is through the backdoor is what 15 this argument is. 16 Talking about, Your Honor, ruling on 17 documents, the Special Master repeatedly 18 through the process has ruled that trade press 19 is inadmissible. Your Honor twice in Phase 1 20 and Phase 2 affirmed those rulings. 21 Mr. Pepperman in cross-examining 22 Mr. Apple never once asks him did you read this 23 article when it came out on September 9th, 24 1991. 25 All they want to do with this article 3402 1 is throw it up on the screen. It's rank 2 hearsay. They don't link the fact that 3 Mr. Apple ever read this particular article. 4 In fact, that question is never asked. 5 They just want to prejudice the Jury by showing 6 them rank hearsay; that it was reported in what 7 one Microsoft witness has called a gossip 8 column, that DR-DOS, suffered from 9 incompatibilities. 10 They shouldn't be allowed to display 11 hearsay to the Jury without linking it up with 12 the witness. 13 And so not only should the document, 14 Your Honor, not be shown, which the Special 15 Master has ruled that trade press is hearsay, 16 but the testimony about the document, where 17 there's no linking should be excluded, that's 18 5319, 8, through 5322, 21. 19 I mean, as you see, at the end of 20 5322, all the witness is doing is answering 21 Mr. Pepperman according to the article. He has 22 no personal knowledge about what's in the 23 article or what's reported. 24 THE COURT: Anything else? 25 MR. SILVERMAN: Briefly, Your Honor. 3403 1 Two points. 2 As a matter of compromise, we are 3 willing to not put the trade press on the 4 screen and just submit the testimony. 5 The testimony is proper 6 cross-examination, as well as the fact that it 7 does, in fact, impugn the witness' credibility 8 because he says he doesn't know about 9 incompatibility. 10 And yet it's very clear that he reads 11 the trade press, he's seen it, and the trade 12 press shows incompatibility. 13 At most, or at worst, it goes to the 14 weight of the evidence, but it's clearly proper 15 cross-examination. The testimony can come in. 16 Second of all, counsel has never 17 objected to the testimony on any of the grounds 18 that he's putting forth this morning, to the 19 Special Master or otherwise. 20 The only objection they ever raised 21 previously is having to do with an inadmissible 22 document. 23 Testimony having to do with an 24 inadmissible document. 25 We are not seeking to admit this 3404 1 document through this witness. So, therefore, 2 their objection on that ground falls away and 3 they have no other objections. 4 To object on grounds of hearsay today 5 and any other grounds is inappropriate because 6 they've never made those objections previously. 7 MR. GRALEWSKI: Very briefly, Your 8 Honor. 9 For the issue of credibility to be 10 relevant, we have a Gacke problem. 11 You have to believe the trade press is 12 true to believe that Mr. Apple's credibility is 13 compromised. 14 This is hearsay. It suffers from 15 Gacke, the Gacke issue, which is you have to 16 believe the trade press for this to be 17 relevant, and they shouldn't be allowed, even 18 if they are not going to put up on the screen 19 to allow the Jury to hear about ruled on trade 20 press without a linking. 21 THE COURT: Anything else? 22 MR. SILVERMAN: Nothing, Your Honor. 23 THE COURT: It's denied. 24 Any other issue? 25 MR. CASHMAN: Your Honor, one real 3405 1 quick issue. 2 Yesterday I said that I would tell you 3 this morning how much time we wanted to file 4 our brief in response to the collateral 5 estoppel brief filed yesterday by Microsoft. 6 And if it would be okay with the 7 Court, we request that we file that on Monday. 8 THE COURT: On the what issue? 9 MR. CASHMAN: Yesterday when Microsoft 10 provided their collateral estoppel. 11 THE COURT: Is this a pressing issue 12 that needs to be decided for this opening? 13 MR. CASHMAN: No, it's not an opening 14 issue, the collateral estoppel you will recall. 15 THE COURT: All right. 16 MR. CASHMAN: Is that okay with the 17 Court? 18 THE COURT: Any objection? 19 MR. TUGGY: No, Your Honor. 20 THE COURT: Very well. You may. 21 MR. CASHMAN: Thank you. 22 THE COURT: Mr. Silverman and 23 Mr. Gralewski? 24 MR. GRALEWSKI: Thank you, Your Honor. 25 THE COURT: Thank you. 3406 1 MR. SILVERMAN: Thank you. 2 THE COURT: You can repeat yourself, 3 Ms. Nelles. Go ahead. 4 MS. NELLES: Thank you, Your Honor. 5 I'm sorry. 6 THE CLERK: We have an issue and we 7 are working on it. 8 THE COURT: Just a minute. We are not 9 going to need them yet. 10 MS. NELLES: Thank you, Your Honor. 11 I think in the mix of people leaving, 12 you asked Mr. Cashman whether or not the 13 collateral estoppel issue is one that relates 14 to the opening statements. 15 And because he asked for some time to 16 put in another briefing on this, and 17 Mr. Cashman said no, it's not an opening issue. 18 In fact, it is an opening issue. It's 19 an issue that very much goes to our opening 20 statement and we do need some resolution on it. 21 It's been fully argued. 22 And I thought yesterday Your Honor had 23 suggested that you were going to rule on this 24 today, which -- and we would respectfully 25 request that we get this resolved as soon as 3407 1 possible. 2 THE COURT: Very well. 3 MR. CASHMAN: Your Honor, if I may. 4 Ms. Nelles wasn't in the courtroom 5 yesterday, I don't believe, when we discussed 6 this, but yesterday for the first time, and 7 without notice, the Plaintiffs were handed this 8 memorandum, Microsoft memorandum, concerning 9 the impact of collateral estoppel on 10 evidentiary issues. 11 I've read it. And nowhere does this 12 brief say we're seeking relief in relation to 13 opening statements or otherwise. 14 And, at the end of the day, I asked 15 the Court for permission to tell the Court 16 today how much time we'd like to provide a 17 response to this briefing. And all I was 18 requesting this morning is that we be given 19 until Monday to file our response to this. 20 And we can have any argument that's 21 necessary or appropriate following the 22 submission of that brief. 23 THE COURT: As I recall, you were 24 going to give me something today. 25 MR. CASHMAN: Well, we could look at 3408 1 the transcript. I asked for permission to 2 provide -- to tell you -- 3 THE COURT: I tell you what, I'm 4 finding it's an important issue and needs to be 5 decided now. How's that? That ends the 6 discussion. Okay? No brief Monday. This can 7 be decided now. 8 So get your authorities and at 9:30 we 9 are going to talk about it. 10 Recess till 9:30. 11 MS. NELLES: Thank you, Your Honor. 12 (Recess was taken from 8:52 a.m. to 13 9:42 a.m.) 14 THE COURT: Mr. Cashman, are you ready 15 to proceed? 16 MR. HAGSTROM: Your Honor, I'm going 17 to be handling this. 18 THE COURT: Okay. What do you got? 19 MR. HAGSTROM: First of all, I guess 20 I'd like to define the issue here. 21 As I -- 22 THE COURT: There's only one issue. 23 Can you present any further evidence when 24 you've used collateral estoppel offensively. 25 That's the issue. 3409 1 MR. HAGSTROM: Well, as Your Honor 2 indicated yesterday, what Ms. Conlin was doing 3 with regard to the opening statements, she 4 identified the finding of fact for the Jury, 5 read from that, and then the issue arose as to 6 whether or not she could interpret the finding 7 of fact. 8 Microsoft objected to that, and then 9 during the break, at 11 o'clock, we discussed 10 the fact that if there's going to be additional 11 evidence on a particular subject, that it would 12 be appropriate for her to so explain that; that 13 the finding of fact with the additional 14 evidence would show something like causation, 15 for instance, might go to the issue of damages, 16 might go to the issue of willful and flagrant. 17 And, for instance, Your Honor, in 18 colloquy with Ms. Conlin mentioned that several 19 times. 20 Like at 3198, you can state in your 21 opening statement the collaterally estopped 22 facts. In doing so, I would hope that you are 23 going to say that they will help with other 24 facts to prove another fact such as causation 25 or injury or something like that. 3410 1 And so it's my understanding that's 2 what the issue is here. 3 THE COURT: I just told you what the 4 issue was. Did you not hear me? 5 The issue at trial and the issue 6 before me right now is can you present any 7 additional supplementary evidence which already 8 has been established by the findings of fact? 9 In other words, if there's a finding 10 of fact. And on the board yesterday they had a 11 quotation that was exactly in the finding of 12 fact. Are you going to represent that 13 quotation again during the trial? 14 MR. HAGSTROM: It's not our intent to 15 do that. 16 THE COURT: Why did you put it on the 17 board? It seems like a waste of time. 18 MR. HAGSTROM: Well, as I understood, 19 what Ms. Conlin was doing was to try to put 20 certain of these facts in context. 21 When Microsoft raised the objection, 22 Ms. Conlin went through the opening to readjust 23 that issue so that that will not continue to 24 happen. 25 THE COURT: Okay. Now, do you intend 3411 1 to relitigate those facts which have already 2 been collaterally estopped by this Court? 3 MR. HAGSTROM: Absolutely not, Your 4 Honor. 5 THE COURT: So you are just going to 6 rely upon those facts; is that correct? 7 MR. HAGSTROM: Well, those facts and 8 other evidence to prove -- 9 THE COURT: Well, to your other 10 issues, yes. 11 But as to those facts and their 12 preclusive effect on those issues of the 13 government case, you're going to stay with 14 those; right? 15 MR. HAGSTROM: We're not intending to 16 relitigate those findings of fact. Obviously, 17 there is additional evidence since we brought a 18 motion for summary judgment, for instance, on 19 -- motion for partial summary judgment. 20 Your Honor denied that. Microsoft 21 denies liability. Microsoft denies damages. 22 Microsoft denies the willful and flagrant 23 issue. So there are a number of issues that 24 obviously need to be litigated. 25 Microsoft takes the issue that the 3412 1 government case only involved operating 2 systems. We believe that the facts can be used 3 for all purposes. And there's plenty of case 4 law on that because they are established facts 5 so they can be used for purposes of the 6 applications claims, but, those facts, with 7 other evidence, with testimony, prior 8 testimony, with live witnesses, with experts, 9 will be utilized by Plaintiffs to prove all of 10 their cause of action. 11 THE COURT: Will these -- 12 MR. HAGSTROM: But, again, we are not 13 intending to relitigate these facts. 14 As I stated, and I think as Ms. Conlin 15 made clear yesterday, the only issue or purpose 16 of pulling up some documents with regard to, 17 for instance, a quote, like I think one was the 18 Hewlett Packard letter, to put that particular 19 fact in context. 20 But that's not to say that letter may 21 not -- that's not to say that letter may not 22 have some purpose for some other issue in the 23 case. You know, I want to make that clear. 24 We're not going to relitigate the facts, 25 though. 3413 1 THE COURT: Okay. So now we are back 2 to square one. So you are going to bring in 3 all the evidence that supports those facts? 4 MR. HAGSTROM: No. Let me give you an 5 example. 6 There is a finding of fact that talks 7 about Bill Gates' Internet tidal wave 8 memorandum. There is a quote in one of the 9 findings of fact from that memorandum. It's a 10 lengthy memorandum. 11 There are also other quotes in that 12 memorandum, or statements in that memorandum, 13 that go to other issues in the case, such as 14 causation. 15 THE COURT: That were not quoted in 16 the findings of fact? 17 MR. HAGSTROM: Correct. 18 THE COURT: Okay. 19 MR. HAGSTROM: So I want to be clear, 20 so that with a document like that, we are 21 intending to use that because it has evidence 22 that can be used for another purpose. 23 THE COURT: All right, I understand 24 that. 25 MR. HAGSTROM: Okay. I mean, that's 3414 1 -- I mean, that's the way we intend to proceed. 2 THE COURT: All right. 3 MR. TULCHIN: We object to that, Your 4 Honor. It's on the same grounds that we've 5 discussed before. 6 And yesterday, from 12:00 to 2:30, 7 Ms. Conlin put up a great number of findings of 8 fact and also put up before the Jury a number 9 of documents that underlie those findings of 10 fact. 11 This memorandum that Mr. Hagstrom just 12 referred to was not one of those. But using 13 that as an example, when the Plaintiffs, in our 14 judgment, move for collateral estoppel on the 15 particular finding of fact that refers to that 16 document, I think they made their choice about 17 whether they can use that document in evidence 18 in this case. 19 Once collateral estoppel was granted 20 there, the underlying document ought not to be 21 used in evidence. 22 And the problem, Your Honor, again, as 23 we've discussed, is that the Plaintiffs, of 24 course, will say that all the documents 25 underlying the findings of fact can be used for 3415 1 another purpose. They will say that every 2 document goes to the question of willfulness. 3 They already have said that. 4 Ms. Conlin, when she was using those 5 documents yesterday, kept saying, well, this 6 goes to willfulness. But, of course, that 7 means that all the same conduct underlying the 8 government case comes back in purportedly for 9 another reason. 10 And to use the Gates memo about the 11 Internet tidal wave, if the Plaintiffs are 12 going to put that into evidence and have 13 witnesses, for instance, experts, make 14 arguments about what that means or what 15 consequence something in there has for 16 causation or willfulness, then, of course, 17 Mr. Gates must be free when he's here and on 18 the stand to talk about the same document and 19 what he meant as opposed to what an expert says 20 he meant about a particular portion of that 21 document. 22 And we do then go back to square one 23 where everything that happened in the 24 government case gets relitigated. 25 Of course, we oppose the motion for 3416 1 collateral estoppel partly for this reason. 2 But once the Court ruled and granted 3 that motion as to 146 findings, again, in our 4 judgment, the Plaintiffs have made their choice 5 and ought not to put back into evidence a great 6 deal of material that pertains to those 7 findings. 8 THE COURT: Well, that makes no sense 9 to me whatsoever. 10 You have a memorandum, and the Court 11 in DC quoted from one specific portion of it 12 and used it for a finding of fact, but did not 13 quote from other portions of it and did not use 14 it for any other finding of fact. 15 You're saying the fact that they used 16 one part of that exhibit collaterally estops 17 using any other part of that exhibit for any 18 other reason whatsoever? That makes no sense 19 to me at all. 20 MR. TULCHIN: No, Your Honor. With 21 all respect, what we do then is we get on a 22 very slippery slope. 23 That document which underlies a 24 particular finding of fact now comes into 25 evidence, presumably the entire document, and 3417 1 it will be difficult, if not impossible, to 2 segregate one piece of the document as being -- 3 unless the Court's ruling is that simply, the 4 only thing now that's covered by collateral 5 estoppel is what's quoted in the finding, but, 6 otherwise, the document and what it says and 7 what directions, for instance, it contains then 8 becomes the subject of litigation. 9 I mean, for example, Your Honor, the 10 Intel -- if we can back up one step. 11 Some of the findings that Ms. Conlin 12 was arguing to the Jury about yesterday 13 pertained to the Intel native signal processing 14 event where there are findings pertaining to 15 Microsoft's efforts to get Intel to stop 16 writing this NSP software. 17 And, of course, in the government 18 case, it was a hotly contested issue as to why 19 Microsoft sought to get Intel to stop writing 20 this software. I wasn't at the government 21 case, but, if I remember correctly, part of the 22 issue was that Microsoft believed that the NSP 23 software did not work well, did not function 24 well, and was not compatible with Microsoft's 25 software. 3418 1 So Judge Jackson ruled against 2 Microsoft on that issue and found that the 3 purpose for Microsoft seeking to put a stop to 4 this NSP was an anticompetitive purpose instead 5 of a business efficiency purpose. 6 Once those documents now go back in, 7 and Ms. Conlin showed portions of some of those 8 documents, there are other portions of those 9 documents that relate squarely to the 10 justification that Microsoft proposed in the 11 government case to Judge Jackson as to what was 12 really going on with Intel. 13 Now that the document is in evidence, 14 is it the Court's ruling that the Plaintiffs 15 have as a matter of law a document in evidence 16 about which no comment can be made, even if the 17 document contains exactly the justification 18 that Microsoft believed was correct, but Judge 19 Jackson once rejected? 20 The finding is one thing. We accept 21 that if there's a finding and the Court has 22 granted collateral estoppel, that's the end of 23 it. 24 But once the underlying document comes 25 in, it's no longer the end of it. The Jury has 3419 1 in front of it the full document, and 2 presumably one, then, can use it in evidence as 3 one could use any other document. 4 Now, Mr. Holley was addressing this 5 yesterday, and perhaps I jumped in, and I 6 shouldn't have, but that's the path we're going 7 down. 8 Every document that underlies the 9 findings could be said to pertain to some other 10 issue. Every one could be, because, of course, 11 here we have this issue of willful and flagrant 12 conduct, which was never an issue in the 13 government case. There was no request for 14 damages. It was an equitable enforcement case. 15 And, by definition, whether conduct 16 was willful and flagrant, in order to explore 17 that, one has to understand the entire 18 ramifications of that conduct. 19 So if that piece of evidence about 20 native signal processing comes in, it also has 21 in that e-mail or document evidence that we 22 could use on willfulness, on whether conduct 23 was willful or flagrant. Because, after all, 24 in the government case, Microsoft believed that 25 it had a pro-competitive justification for its 3420 1 conduct. 2 The Court ruled against us, but now if 3 the document comes back in, there is evidence 4 which we will say goes to show nonwillful 5 conduct. And we're back to square one where 6 everything gets litigated and the Plaintiffs 7 have the benefit of the 146 findings. 8 THE COURT: What if you have a 9 document, let's say, that says, just for an 10 extreme example, one document that says A stole 11 money from B and also says D stole money from 12 E? The findings of fact in the first case 13 found the first one, A stole money from B. 14 That's all they found. 15 Now, this case is did D steal money 16 from E. Are you saying the document can't come 17 in at all? 18 MR. TULCHIN: In that case, I don't 19 think you'd have collateral estoppel on the A 20 stole money from B. 21 THE COURT: That's right. Let's say 22 -- no. Let's say the first case found A stole 23 money from B. 24 MR. TULCHIN: Right. 25 THE COURT: So you can't relitigate 3421 1 that again? 2 MR. TULCHIN: Correct. 3 THE COURT: Now, you got -- they want 4 to bring in the whole document again or the 5 document where D stole money from E. 6 Are you saying they can't bring it in 7 for that purpose if that's an issue in this 8 case? 9 MR. TULCHIN: Well, here's what I'm 10 saying, Your Honor. 11 The Court could instruct the Jury in 12 that case that A stole money from B, that that 13 fact has been established and must be accepted 14 by the Jury and the parties in that case as an 15 established fact. 16 THE COURT: Okay. 17 MR. TULCHIN: The document could then 18 come in to show that D stole money from E or -- 19 I forget what your hypothetical was. 20 THE COURT: D, E, yeah. 21 MR. TULCHIN: Or what -- 22 THE COURT: D from E, yeah. 23 MR. TULCHIN: Whatever it was. 24 THE COURT: Whatever it was. 25 MR. TULCHIN: Here -- and, Your Honor, 3422 1 I just want to step back a bit. 2 I know the Court doesn't want any of 3 us to relitigate this thing from scratch. 4 But in this case, what we argued from 5 the outset is that the 12 acts that the DC 6 circuit found to be anticompetitive, which are 7 the conclusions that the Court has given the 8 Jury, that those be read to the Jury as 9 established facts. 10 And had that been the case -- that is, 11 we are back to your hypothetical -- if the 12 Court had simply told the Jury here are the 12 13 acts or 12 events or 12 types of Microsoft 14 conduct found to be anticompetitive, to violate 15 the Iowa Competition Law, then we wouldn't be 16 having this debate because the Plaintiffs 17 wouldn't have finding number -- I forget what 18 the number is about NSP, but 213, or whatever 19 the number was. 20 And they wouldn't be able both to get 21 the advantage of Judge Jackson's rather 22 ascorbic language in which he not only rejects 23 -- he doesn't refer to Microsoft's arguments in 24 the government case about native signal 25 processing. 3423 1 What he does is say in a very, I 2 think, rough tones and leaving no doubt, that 3 Microsoft's conduct there was, let's say, left 4 something to be desired. It was -- it was poor 5 conduct, and it was anticompetitive. 6 So by getting that finding, what we 7 say is that once they have that finding from 8 Judge Jackson, which is well more than simply 9 saying that Microsoft's conduct when it came to 10 native signal processing was anticompetitive. 11 They have these long paragraphs from 12 Judge Jackson. That by getting the benefit of 13 that, they ought not be able to get in the 14 underlying evidence. 15 And once Ms. Conlin has shown the Jury 16 a piece of that document, then I think I agree 17 with Your Honor, once that's in, surely the 18 Defendant must be able to refer to other pieces 19 of the same document. 20 So the argument we're making here is 21 that either the document comes in and then it's 22 open season -- and some of them have now been 23 shown to the Jury -- or none of that underlying 24 evidence, that is, the evidence that directly 25 underlies a particular finding, should come in 3424 1 at all. 2 And, frankly, Your Honor, I mean, we 3 can -- I think we can go with it either way. 4 That is, whichever way the Court rules is the 5 way the game will be played. 6 What the Plaintiffs have offered, and 7 what Mr. Cashman said yesterday, and I do think 8 -- I'm waiting for his authority. 9 What Mr. Cashman said yesterday is 10 that they can have it both ways. Mr. Cashman 11 said collateral estoppel is a one-way street, 12 and what the Plaintiffs were asking for is 13 permission from the Court to get the findings. 14 In this case, for example, the Intel NSP 15 findings, to use the underlying documents. 16 They may say it's for willfulness, 17 but, of course, everything goes to willfulness 18 and at the same time to bar Microsoft from 19 litigating any of the issues that pertain to 20 that finding. 21 And, of course, our position is that 22 can't be the outcome. 23 MR. HOLLEY: Your Honor, can I provide 24 one more specific example of why what happened 25 yesterday afternoon is a problem? 3425 1 Ms. Conlin referred to Finding of Fact 2 160 which says, consequently, in late 1995, or 3 early 1996, Microsoft set out to bind Internet 4 Explorer more tightly to Windows 95 as a 5 technical matter. 6 The intent was to make it more 7 difficult for anyone, including system 8 administrators and users, to remove Internet 9 Explorer from Windows 95 and to simultaneously 10 complicate the experience of using Navigator 11 with Windows 95. 12 As Brad Chase wrote to his superiors 13 near the end of 1995, quote, we will bind the 14 shell to the Internet Explorer so that running 15 any other browser is a jolting experience, 16 closed quote. 17 And instead of just relying on that 18 finding, she put up on the screen Plaintiffs' 19 Exhibit 4601. And I'd like to hand the Court, 20 with permission, a copy of Plaintiffs' Exhibit 21 4601. 22 Because if the issue is willfulness, 23 this document contains a lot of information 24 about Microsoft's good faith belief that there 25 was a pro-competitive benefit for including 3426 1 Internet Explorer in Windows, including the 2 concept of shell integration. 3 And what that meant was that you could 4 look at information on the Internet and look at 5 information on your local computer and you'd 6 have a common navigational method of doing 7 that. 8 If we're going to be accused of 9 engaging in willful and flagrant behavior and 10 in designing Windows in a way that had a purely 11 anticompetitive purpose, and they're going to 12 be entitled to introduce documents that 13 underlie Finding of Fact Number 160, how can it 14 be fair to prevent us from pointing out that 15 throughout that document, in the sections that 16 I've highlighted for the Court, Microsoft 17 describes the pro-consumer benefits of the 18 design of Windows that was chosen. 19 Either this finding of fact is binding 20 for all purposes, including the question of 21 willfulness, or we're going to go behind it. 22 And both sides are going to have to be able to 23 argue about whether or not this evidence 24 demonstrates willfulness. 25 THE COURT: As you pointed out, 3427 1 though, in earlier argument, the DC circuit 2 didn't find willfulness. 3 MR. HOLLEY: That's correct, Your 4 Honor. 5 THE COURT: So was the issue not 6 precluded? It's not collaterally estopped. 7 MR. HOLLEY: Okay. That is why in the 8 Setter case and in the in re: Aircraft disaster 9 at Stapleton Airport case, the Court says you 10 can't have it both ways. 11 If all this evidence about the 12 aircraft disaster in Denver was going to come 13 in whether Continental Airlines should be hit 14 with punitive damages, the Court said then we 15 are not going to have collateral estoppel. 16 But we do have collateral estoppel in 17 this case. And we accept the Court's decision 18 in that regard. And, as Mr. Tulchin says, we 19 are happy to play by the rules. 20 But, they can't have it both ways. 21 They elected collateral estoppel. They thought 22 they were going to gain a strategic advantage, 23 and now they have to live with the consequences 24 of that. 25 THE COURT: So you're saying if 3428 1 there's something in an exhibit that's already 2 been collaterally estopped, but there's another 3 portion in the exhibit that goes to another 4 issue, they can't use the whole exhibit? 5 MR. HOLLEY: But that's not what 6 Ms. Conlin was doing yesterday. That's a 7 different and interesting question, Your Honor. 8 But what she was doing yesterday was 9 engaging in a process that I regard as 10 bolstering. 11 She was saying there is a finding that 12 says X, and here is a piece of the document to 13 somehow, you know, increase the effect of that 14 document. She wasn't saying there's something 15 else in this exhibit that isn't addressed in 16 Finding 160. That's a very different thing. 17 And if Microsoft did something that 18 went to its willfullness, the finding of fact 19 has that effect. 20 The document doesn't make what 21 Microsoft did any more or less willful. But if 22 they're going to be able to introduce these 23 documents to argue that our behavior was 24 flagrant, then we've got to be allowed to look 25 at the portions of the document that show that 3429 1 we had a good faith reason to believe that what 2 we were doing was pro-competitive. 3 Otherwise we're fighting with, you 4 know, one and a half hands tied behind our 5 backs. I mean, they get to pile on and we have 6 to say nothing. 7 THE COURT: Anything else? 8 MR. HOLLEY: No, Your Honor. 9 THE COURT: Mr. Tulchin? 10 MR. TULCHIN: No, sir. 11 THE COURT: Mr. Hagstrom? 12 MR. HAGSTROM: Just briefly, Your 13 Honor. 14 I hear sort of a parade of horribles 15 type argument, but the findings of facts are 16 established in this case. 17 Microsoft is precluded from disputing 18 them. It's precluded from collaterally 19 attacking them. 20 This whole issue arose because of what 21 Mr. Holley has called bolstering. And there's 22 not going to be any more putting up documents, 23 you know, that have the quotations in them that 24 are in the same findings of fact. 25 But Your Honor is absolutely correct 3430 1 that when your example of A stole from B and D 2 from E, if there's some other fact in the 3 document that's for a purpose in this case, the 4 document, of course, must be used. 5 And to be clear, there was, you know, 6 a ton of evidence in the Department of Justice 7 case, and we had a pretrial procedures order in 8 this case that adopted discovery and so forth 9 from all of the related cases and the MDL. And 10 the MDL pulled in all of the discovery and 11 testimony from the DOJ case. 12 We've designated just a portion of the 13 DOJ case testimony and exhibits. So to the 14 extent there is something there that goes to an 15 issue other than, you know, these particular 16 findings, we intend to use it. And we believe 17 that that is entirely fair. 18 It's contemplated by the pretrial 19 procedures order. And, in fact, we didn't take 20 additional discovery because of that. 21 So it would be ludicrous to suggest 22 that we can't use that testimony or 23 documentation from the government case. 24 As I indicated, we're not going to be 25 challenging the findings. And Microsoft is 3431 1 precluded from challenging the findings. This 2 whole -- as I indicated, this whole issue came 3 up because of what Mr. Holley has termed 4 bolstering. 5 They objected. Your Honor made known 6 your ruling on that issue yesterday shortly 7 after 11 o'clock, and so that's just not going 8 to be going on. 9 MR. HOLLEY: Your Honor, briefly. 10 It continued all afternoon. And all 11 Ms. Conlin did differently in the afternoon 12 than what she did in the morning was to say 13 that this goes to the question of willfulness. 14 And, then, apparently that, in their 15 view, blows the door wide open to introducing 16 all of the evidence that underlies one of the 17 findings of fact because somehow, in their 18 view, that evidence goes to a different issue 19 in the case. 20 Well, if that's true, then it's hard 21 to understand what the purpose of collateral 22 estoppel is. It certainly isn't going to save 23 any judicial resources. 24 And if they're going to seek to 25 explain from additional evidence what the 3432 1 findings of fact really mean, then it isn't 2 fair for us to be precluded from offering the 3 same explanation if it goes to willfulness or 4 causation or some other issue in the case. 5 THE COURT: Anything else? 6 MR. HOLLEY: No, Your Honor. 7 THE COURT: Mr. Hagstrom? 8 MR. HAGSTROM: Your Honor, this is 9 offensive collateral estoppel. We were not a 10 party to the prior litigation. And based upon 11 the pretrial procedures orders, we're entitled 12 to use additional evidence. We are not 13 challenging the findings. 14 Microsoft is precluded from 15 challenging those findings. And to the extent 16 there is evidence that goes to another issue, 17 we intend to use it. But that does not open 18 the door to relitigation of the findings of 19 fact. 20 Thank you. 21 THE COURT: So do you intend to 22 continue to put up exhibits that have exact 23 quotations that are in the findings of fact? 24 MR. HAGSTROM: As I indicated earlier, 25 we do not intend to do that. 3433 1 MR. TULCHIN: If Mr. Hagstrom is 2 conceding that it shouldn't have been done, 3 Your Honor, then I just would request some 4 instruction to the Jury that they should ignore 5 or try to remove from their thinking each of 6 the documents they were shown yesterday. 7 THE COURT: Anything else? 8 MR. HAGSTROM: We object to such an 9 instruction. 10 THE COURT: Okay. 11 No further argument? 12 Okay. I'm going to find that the 13 facts that have been collaterally estopped are 14 so estopped. 15 The underlying evidence for those 16 findings cannot be used to support that finding 17 again. The underlying document or evidence may 18 be used to address a different fact which has 19 not been collaterally estopped, which is to be 20 determined by the fact finder, in this case the 21 jury, but not for the sole purpose of 22 bolstering a fact already established. It must 23 be used for a different reason. 24 When it's used for that reason, to 25 establish a different fact, such as -- I'm not 3434 1 even going to venture to guess -- the Defendant 2 may then defend against those portions of the 3 exhibit or evidence that are offered for other 4 purposes not established by the collaterally 5 estopped findings of fact. 6 MR. HAGSTROM: Thank you, Your Honor. 7 THE COURT: Mr. Tulchin, did you get 8 -- do you want me to reread that or did you get 9 it? 10 MR. TULCHIN: I think I have got it, 11 Your Honor. Thank you. 12 THE COURT: Okay. I can reread it if 13 you want. 14 Anything else before the Jury comes 15 back? I told them to come back at 10.30. Is 16 that all right? 17 MS. CONLIN: Sure. 18 THE COURT: Okay. So we'll wait until 19 they get back. We'll recess until then. 20 (A recess was taken from 10:13 a.m. 21 to 10:30 a.m.) 22 MR. HAGSTROM: Your Honor, I think 23 Microsoft handed up its objections and 24 exceptions. Can I just do that as well? 25 THE COURT: To what? 3435 1 MR. HAGSTROM: We served them and 2 filed them as well. 3 THE COURT: Oh, that. What did we do 4 with theirs? Did we file it? 5 MR. HAGSTROM: I think they were 6 handed up. 7 THE COURT: Did you guys file it? 8 MR. HOLLEY: I believe we did, Your 9 Honor. I hope that was all right. 10 MR. GREEN: Yeah. I gave a copy to 11 Carrie. 12 THE COURT: To file, okay. 13 MR. GREEN: We filed one and I gave a 14 copy to you. 15 THE COURT: You still know where the 16 clerk's office is, Chris? 17 MR. GREEN: Yeah. I keep wandering in 18 the criminal division. 19 THE COURT: For good reason. 20 MR. WALLIS: I'm glad you said that. 21 THE CLERK: All rise. 22 (The following record was made in the 23 presence of the jury at 10:31 a.m.) 24 THE COURT: Everyone else may be 25 seated. 3436 1 We are going to stay on the regular 2 schedule. I apologize for that. So I will 3 break at 11:00 as I told you. I apologize for 4 the break this morning. 5 Please don't blame the parties. If 6 you want to blame somebody, blame me. It was a 7 matter of law that the Court needed to take up 8 which only the parties, the attorneys, and the 9 Court could decide. 10 So please do not hold that against 11 anyone except me if you want to. 12 MS. CONLIN: May it please the Court. 13 Good morning. 14 You probably would like to know where 15 we are, so let me tell you. 16 I have a little bit more to discuss 17 with you about the findings of fact, and then, 18 as I indicated, we have -- I want to talk to 19 you about the applications. 20 And then there are three short stories 21 about Real and Be and Linux. 22 I have combined the Acer story that I 23 mentioned with the application story and cut a 24 whole bunch of it out. 25 And then we'll be talking a little bit 3437 1 about a concept called spoliation. So that's 2 where we are in terms of mine. 3 Then Mr. Hagstrom is going to talk to 4 you about the two other issues, which are 5 causation and damages. 6 So I would expect that we may take 7 today and tomorrow and perhaps some part of 8 Monday as well for our opening statement. 9 As I indicated, this is a record- 10 breaking case in every way. And certainly the 11 length of the opening statements is unusual. 12 But the case is unusual and, you know, 13 the decade and a half or so that we are 14 covering and the number of products. 15 I hope you will find that when you 16 begin to hear the evidence, which we are also 17 going to try to present in the -- you know, in 18 the order that I'm doing this. 19 Now, I will tell you from experience 20 that that's not going to work out. You know, 21 people can come when they can come and there 22 will be problems. But hopefully this will give 23 you a framework through which to view the 24 evidence. 25 This, as the Court told you, is not 3438 1 the evidence. This is my attempt to help you 2 and guide you through the evidence when we get 3 to that, which I'm sure you're hoping will be 4 in this year. And so are we. 5 Yesterday, at the end of the day, 6 there was a little stopping with respect to 7 Apple. You will recall we discussed the threat 8 to cancel the Office, Mac Office by Microsoft. 9 And I had said something to which there was an 10 objection, and I wanted to return for a moment 11 to that issue. 12 This is Finding of Fact 344, and I had 13 indicated that if Microsoft would refuse to 14 produce Mac Office, that that would be the end 15 of Apple. 16 And, in fact, what the finding of fact 17 that's already been proven says is that had 18 Microsoft announced -- I'm sorry, let's start 19 at the beginning. 20 In 1997, Apple's business was in steep 21 decline, and many doubted that the company 22 would survive much longer. 23 And then there's another sentence in 24 the middle that I had eliminated because -- it 25 just explains why people thought they were in 3439 1 steep decline. 2 And then it says, had Microsoft 3 announced in the midst of this atmosphere that 4 it was ceasing to develop new versions of Mac 5 Office, a great number of ISVs, customers, 6 developers, and investors, would have 7 interpreted the announcement as Apple's death 8 notice. 9 I was beginning, then, to discuss with 10 you Java. 11 Java, as you will recall, is a system 12 of technologies designed to make 13 cross-platform, APIs available to developers. 14 Meaning that they'll run on all different 15 operating systems. 16 And Microsoft views the development of 17 cross-platform APIs as a threat to the 18 applications barrier to entry. 19 Finding of Fact 394 describes 20 Microsoft's efforts to neutralize Java. 21 One tactic is to create 22 incompatibilities in the Java Virtual Machine, 23 JVM, Java Virtual Machine. 24 To increase incompatibility between 25 Java applications written for Microsoft's 3440 1 Windows JVM, and other companies' JVMs, and to 2 make porting from Windows to other platforms 3 difficult, Microsoft designs its Java developer 4 tools, the things that ISVs use to write 5 applications. 6 Microsoft designs those tools to 7 encourage the applications developers to use 8 certain key words and compiler directives in 9 writing their applications that run properly 10 only on Microsoft's version of the Java runtime 11 for Windows. 12 And then Microsoft ships these 13 developer tools with these extensions turned on 14 and fails to warn developers that if they use 15 the Microsoft tools to create their Java 16 applications, those applications might not run 17 properly on any Java runtime except 18 Microsoft's. 19 This also makes porting, moving, those 20 particular applications from the Microsoft 21 Windows to another platform difficult, if not 22 impossible. 23 This is the path that Thomas Reardon 24 of Microsoft suggests in November of 1996. He 25 writes, we should just quietly grow J plus 3441 1 plus -- that's Microsoft's developer tools. We 2 should just quietly grow J plus plus share, and 3 assume that people will take more advantage of 4 our classes without ever realizing they are 5 building Win 32 only Java apps. 6 Microsoft refuses to alter its 7 developer tools until November of 1998 when a 8 court orders it to warn developers that 9 Microsoft Java extensions will most likely 10 cause incompatibilities with any non-Microsoft 11 platform. 12 The findings of fact and other 13 evidence will show that what has happened here 14 is Microsoft sends out its developer tools to 15 the ISVs, to the applications developers, so 16 they can write applications. 17 Those tools will build applications 18 that are run properly only on Windows. It 19 doesn't -- Microsoft doesn't tell developers 20 that. 21 And so the developers may think they 22 are writing cross-platform applications when, 23 in fact, by using the Microsoft developer 24 tools, they are building applications that run 25 properly only on the Windows platform. 3442 1 Finding of Fact 396 explains that 2 Microsoft also persuades ISVs to write 3 applications relying on its own version of the 4 Java runtime environment. 5 You will be hearing many different 6 types of Java. The JRE, the JVM, the Java 7 class libraries. And, again, experts will talk 8 with you about what all that means. But this 9 has to do with the Java runtime environments. 10 Microsoft persuades ISVs to write 11 applications relying on its version of the Java 12 runtime environment rather than Sun-compliant 13 ones by making large investments to develop a 14 high-performance JVM, a really good Java 15 Virtual Machine. 16 And that is attractive technically. 17 To stop Sun and Netscape from 18 improving the quality of their Java Virtual 19 Machine, Microsoft successfully pressures 20 Intel, the chip maker, not to share Intel's 21 work of developing a high-performance Java 22 Virtual Machine with Sun or Netscape, nor to 23 allow Sun or Netscape to bundle the Intel JVM 24 with Navigator. 25 As the finding of fact indicates, 3443 1 Gates himself is involved in this effort. 2 Finding of Fact 397 explains 3 Microsoft's decision to bundle its version of a 4 Java Virtual Machine with every copy of 5 Internet Explorer. And that Internet Explorer, 6 you will recall, is in this time frame bundled 7 with Windows, with the operating system. 8 By expending some of its monopoly 9 power to maximize Internet Explorer use at 10 Navigator's expense, Microsoft gives its Java 11 runtime environment the unique quality of 12 guaranteed enduring ubiquity, meaning present 13 everywhere, across the enormous Windows 14 installed base. 15 In Finding of Fact 397, also the Court 16 says, in part, due to the damage that 17 Microsoft's efforts have caused, Netscape 18 decides in 1998 that it cannot afford to bundle 19 up-to-date Java Virtual Machines with Navigator 20 and announces its decision starting with 21 Navigator version 5.0. 22 So the Sun Java Virtual Machine that 23 was bundled with the Navigator isn't going to 24 be bundled with the Navigator anymore, in part, 25 due to the damage Microsoft's efforts caused. 3444 1 In Finding of Fact 400, that explains 2 that Microsoft recognizes that the independent 3 software developers are one channel that can be 4 used to get JREs on the Windows PC. 5 So Microsoft persuades independent 6 software vendors to distribute Microsoft's 7 version of the Java runtime environment instead 8 of the Sun-compliant one. 9 In Finding of Fact 401, this talks 10 about first wave agreements. 11 In the first wave agreements, it signs 12 with dozens of ISVs in 1997 and 1998. 13 Microsoft conditions early Windows 98 betas. 14 You will recall we talked about the 15 importance of getting betas to make your -- 16 whatever the ISV is developing compatible with 17 Microsoft's Windows 98. 18 Microsoft conditions getting the early 19 Windows 98 betas technical information, and 20 Microsoft seals of approval on the ISVs 21 agreement to make Microsoft's Java Virtual 22 Machine the default Java Virtual Machine. And 23 by using Microsoft tools, a very large 24 percentage of these ISVs write applications 25 that will only run on Microsoft's Java Virtual 3445 1 Machine. 2 Therefore, first wave ISVs just don't 3 have any reason to distribute any Java Virtual 4 Machine with their applications other than the 5 Microsoft ones. 6 Those portions of the first wave 7 agreements have the sole purpose of increasing 8 the difficulty of porting applications between 9 Windows and other platforms. 10 The reason is -- the reason Microsoft 11 insists on this is to increase the difficulty 12 of moving applications from Microsoft's Java 13 Virtual Machine to any other Java Virtual 14 Machine. 15 Microsoft holds the independent 16 software vendors to those provisions until the 17 Court enjoins it -- until the Court makes it 18 stop in November of 1998. 19 In Finding of Fact 404, that explains 20 that Microsoft's efforts to lock developers, to 21 lock the ISVs into its Windows-specific Java 22 Virtual Machine include actions to discourage 23 developers from taking advantage of Java class 24 libraries, such as RMI. That is remote method 25 invocation. 3446 1 Again, don't worry about what that 2 means at this point in time. 3 In one example of Microsoft's effort 4 to stunt the growth of Java class libraries, 5 Microsoft threatens Intel that it will withhold 6 Windows operating system support for Intel 7 chips. 8 It also offers -- we got the carrot 9 and the stick here. It also offers to include 10 Intel technology right in Windows if Intel 11 stops helping Sun in developing Java classes 12 that would support innovative multimedia 13 functionality. 14 We believe that this finding of fact, 15 together with other evidence that we'll present 16 to you, will, again, show that Microsoft's 17 conduct in connection with these matters was 18 willful and flagrant. 19 In Finding of Fact 405, in November of 20 1995, Microsoft's Paul Maritz told a senior 21 Intel executive that Intel's -- making Intel's 22 multimedia software work best on Sun, on the 23 Sun's -- on Sun's Java is as hostile to 24 Microsoft as it would be to Intel for Microsoft 25 to support other processors, other 3447 1 microprocessors, other chips. 2 It takes until 1997 for Microsoft to 3 prevail on Intel to stop helping Sun's 4 development of those Java classes. 5 In Finding of Fact 406, the Court 6 talks about in February of 1997 AMD, which is 7 an Intel competitor, seeks Microsoft's support 8 for its 3 DX technology. 3 DX technology 9 provides sophisticated support for gaming, for 10 games that people play on their computers. 11 Mr. Allchin asks Gates if Microsoft 12 should support this 3 DX technology despite the 13 fact that Intel would oppose it. 14 And Gates says, if Intel has a real 15 problem with us supporting this, then they will 16 have to stop supporting Java multimedia the way 17 they are. I would gladly give up supporting 18 this if they would back off from their work on 19 Java, which is terrible for Intel. 20 Mr. Allchin responds, I'm positive 21 that we must do a direct attack on Sun, and 22 probably Oracle -- that's another company. 23 Between ourselves and our partners, we can 24 certainly hurt their -- certainly Sun's revenue 25 base. We need to get Intel to help us. Today 3448 1 they are not. 2 Two months later, Eric Engstrom, a 3 Microsoft executive with -- his responsibility 4 is the multimedia development. He wrote to his 5 superiors that one of Microsoft's goals was 6 getting, quote, Intel to stop helping Sun 7 create Java multimedia APIs, especially ones 8 that run well, that is, native implementations 9 on Windows. 10 Engstrom proposed achieving this goal 11 by offering Intel the following deal. 12 Microsoft would incorporate into the 13 Windows APIs any multimedia interfaces. I 14 mean, multimedia APIs that Intel didn't give to 15 Sun. 16 Engstrom's efforts apparently bore 17 fruit for he testified at the government trial 18 that Intel's architectural labs subsequently 19 stopped helping Sun to develop class libraries