3932 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 XV 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 a.m., December 11, 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 3933 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 RICHARD M. HAGSTROM 7 Attorney at Law Zelle, Hofmann, Voelbel, 8 Mason & Gette, LLP 500 Washington Avenue South 9 Suite 4000 Minneapolis, MN 55415 10 (612) 339-2020 11 DOUGLAS J. ROVENS Attorneys at Law 12 Zelle, Hofmann, Voelbel, Mason & Gette, LLP 13 550 South Hope Street Suite 1600 14 Los Angeles, CA 90071 (213) 895-4150 15 ROBERT J. GRALEWSKI, JR. 16 Attorney at Law Gergosian & Gralewski 17 550 West C Street Suite 1600 18 San Diego, CA 92101 (619) 230-0104 19 KENT WILLIAMS 20 Attorney at Law Williams Law Firm 21 1632 Homestead Trail Long Lake, MN 55356 22 (612) 940-4452 23 24 25 3934 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JOSEPH E. NEUHAUS JEFFREY C. CHAPMAN 4 Attorneys at Law Sullivan & Cromwell, LLP 5 125 Broad Street New York, NY 10004-2498 6 (212) 558-3749 7 ROBERT A. ROSENFELD Attorney at Law 8 Heller Ehrman, LLP 333 Bush Street 9 San Francisco, CA 94104 (415) 772-6000 10 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 BRENT B. GREEN 15 Attorney at Law Duncan, Green, Brown & 16 Langeness, PC Suite 380 17 400 Locust Street Des Moines, IA 50309 18 (515) 288-6440 19 RICHARD J. WALLIS STEVEN J. AESCHBACHER 20 Attorneys at Law Microsoft Corporation 21 One Microsoft Way Redmond, CA 98052 22 (425) 882-8080 23 24 25 3935 1 (The following record was made out of 2 the presence of the jury.) 3 THE COURT: The Court has three 4 motions before it this morning. 5 First is Defendant's emergency motion 6 for an order to show cause. 7 Defendant ready to proceed? 8 MR. HAGSTROM: Your Honor, if I may, 9 we just got that at the end of the day on 10 Friday, and there are some related issues. 11 We'd prefer to put that off till either this 12 afternoon or tomorrow. 13 THE COURT: Denied. 14 Proceed. 15 MR. HOLLEY: Your Honor, this is the 16 third time that the Court has been asked to 17 require that the Plaintiffs produce documents 18 that they were required to produce pursuant to 19 an agreement entered into months and months and 20 months ago. 21 On August 21, the Court entered an 22 order, which was absolutely clear, requiring 23 both parties to produce all materials that 24 their experts reviewed, looked at, or used in 25 preparing their expert opinions. 3936 1 That order was entered on August 21. 2 In response, Plaintiffs produced just 3 three items; backup data for one spreadsheet 4 and two memoranda. 5 When they refused to produce anything 6 else, including the list they were required by 7 the Court's order to produce, which was a list 8 of things that had been destroyed, Microsoft 9 moved to compel again. 10 And on November 28 of this year, the 11 Court entered another order making it even 12 clearer what the Court intended. 13 The Court wrote, and I quote, the 14 intent of the Court's order was to provide 15 Defendant not only material used in preparing 16 the expert opinions or reports, but material 17 that was looked at, read, or reviewed by 18 experts, but was then rejected or not used in 19 preparing the experts' opinions or reports. 20 That was November 28, Your Honor. 21 And here we are several weeks later, 22 and the best that we have from the Plaintiffs, 23 who are represented by a large law firm in 24 Minneapolis, with many, many lawyers working on 25 this matter, is a vague commitment that maybe, 3937 1 just maybe they might be able to get us these 2 documents by the 19th of December. 3 Your Honor, frankly, we cannot 4 determine -- apologize for the interruption, 5 Your Honor. 6 We can think of no conceivable excuse 7 for this sort of delay. 8 The Court has already been troubled on 9 two occasions to tell these people that they 10 must produce these documents. 11 As I said on Friday, we're not 12 operating on the Pony Express here. There's 13 E-mail. There's long-distance telephone calls. 14 And these people need to comply with the 15 Court's orders. 16 Thank you, Your Honor. 17 THE COURT: Response? 18 MR. HAGSTROM: Well, Your Honor, as 19 history of this situation goes, there was a 20 stipulation between the parties that was 21 entered in the spring of this year to -- for 22 each side to produce documents reviewed or 23 relied upon by their experts in forming their 24 opinions. 25 We fully complied with that 3938 1 stipulation. Microsoft contended that we did 2 not. Your Honor entered an order, I guess it 3 was August or September. We went -- I guess it 4 was late August. 5 We went back and found a couple of 6 additional documents that we produced on 7 September 1. 8 Microsoft again moved, and Your 9 Honor's November 28 order seems to change the 10 wording of the stipulation, and it also says 11 that to make clear from my August, whatever the 12 date of the order was, it clarifies that prior 13 order. 14 So since then, we have gone back and 15 talked to our experts. 16 In that process as well, what we've 17 done, Jim Reece talked with Jay Jurata of the 18 Heller Ehrman firm. 19 And as we had a short discussion at 20 the end of the day this past Thursday, I 21 reported to the Court that an agreement had 22 been reached between Mr. Jurata and Mr. Reece. 23 Mr. Reece sent a confirming letter, or 24 E-mail, I should say -- well, one or the other, 25 to Mr. Jurata. 3939 1 As you recall, Mr. Tulchin during that 2 brief discussion at the end of the day on 3 Thursday expressed surprise at that agreement. 4 Within about two or three hours after 5 the letter or E-mail was sent to Mr. Jurata, a 6 response came back from Mr. Jurata basically 7 revoking the agreement. 8 So what clearly happened was an 9 agreement was reached between Mr. Jurata and 10 Mr. Reece, and then Mr. Tulchin went back after 11 the hearing and made sure that that agreement 12 was revoked. 13 Now, in the meantime, we've been in 14 contact with our experts, and we've been 15 confirming with a number of them -- we've got I 16 think it's 11 total experts. We haven't got 17 confirmation from everybody. 18 But we've got a number of them that 19 have gone back and concluded there are no 20 additional documents other than the thousands 21 of documents that they've already identified. 22 So we need to complete that process, 23 and that's why we had proposed to Mr. Jurata 24 December 21. 25 Mr. Jurata reported back to Mr. Reece 3940 1 that well, we'd like a little bit of extra time 2 prior to the holiday break, and he had 3 suggested December 19. 4 So then Mr. Reece wrote back and 5 agreed to that date. 6 And so because we've got some people 7 -- some of the experts have been traveling out 8 of the country, that's one of the primary 9 reasons for additional time. 10 So as I've mentioned, we've confirmed 11 with a number of them that there are no 12 additional documents. 13 So the parties' stipulation should, in 14 fact, be honored, even though the original 15 stipulation from March of this year apparently 16 has not been honored. 17 THE COURT: Anything else, Mr. 18 Hagstrom? 19 MR. HAGSTROM: Well, I guess the 20 additional point, too, is this more recent 21 order suggests a change. 22 It says well, what I meant to say or 23 something like that. 24 So the very fact that there's a 25 suggested change also means that we have to 3941 1 look at the issue again. 2 So it is clearly unfair to put in a 3 change and then be expected to address that 4 within a matter of a few short days. 5 Now, we -- I'm trying to think -- back 6 in July of 2005, we got a motion to compel an 7 order against Microsoft. 8 Microsoft took 15 months to comply 9 with that order. We don't even know if they 10 necessarily fully complied. 11 We got an order compelling them to 12 produce source code. They took four to five 13 months to produce those materials. 14 And so we've proposed an additional 15 couple of weeks to go back to the experts, take 16 a look at this to see if there are any 17 additional documents. 18 So it's entirely reasonable in order 19 to show cause. It is entirely inappropriate, 20 especially given the modification contained in 21 this last particular order. 22 And the parties' most recent 23 stipulation should, in fact, be honored. 24 I have with me a declaration of 25 Mr. Reece that sets out the details of his 3942 1 communication with Mr. Jurata. I can hand that 2 up to you. 3 THE COURT: Thank you. 4 MR. HAGSTROM: So that particular 5 declaration sets out the history and the facts 6 that I've just pointed out. 7 So, in short, this order should be 8 denied. 9 The parties' stipulation that was made 10 between Mr. Jurata and Mr. Reece should be 11 honored. 12 And I'd also like to point out that 13 with regard to the affidavit that Mr. Jurata 14 submitted that was attached to the Microsoft 15 papers, that some -- had some very interesting 16 language in it. 17 I'll just find it, Your Honor. 18 In paragraph four of Mr. Jurata's 19 affidavit attached to their motion papers, it 20 says, at no time did I, or to the best of my 21 knowledge Microsoft, agree to allow the 22 Plaintiffs to further delay the production of 23 the improperly withheld materials until 24 December 19, 2006. 25 That statement is incorrect. 3943 1 If you look at the affidavit of 2 Mr. Reece, it sets forth in detail the 3 telephone communications between he and 4 Mr. Jurata, and the confirming E-mail to Mr. 5 Jurata by Mr. Reece, and the -- in the 6 afternoon or early evening of last Thursday. 7 Then a couple hours later, a very 8 short, abrupt two-sentence E-mail came back 9 from Mr. Jurata, which obviously was the result 10 of Mr. Tulchin's communication -- or through 11 somebody else -- to Mr. Jurata to revoke that 12 agreement. 13 That's all I have, Your Honor. 14 THE COURT: Anything else, Mr. Holley? 15 MR. HOLLEY: Yes, Your Honor. 16 I guess we should have an evidentiary 17 hearing under the Plaintiffs' view of this 18 matter to figure out if Mr. Reece's 19 self-serving effort to create an agreement 20 where none existed should be given any credit 21 by this Court. 22 THE COURT: Call your first witness. 23 MR. HOLLEY: If you'll give me five 24 minutes, Your Honor, I'll get Mr. Jurata here. 25 MR. HAGSTROM: Your Honor, Mr. Reece 3944 1 is out of town. 2 THE COURT: We'll take his testimony 3 some other time, I guess. 4 MR. HOLLEY: Your Honor, just while 5 we're awaiting Mr. Jurata's arrival -- and that 6 obviously is an important point because their 7 defense seems to be that there's an agreement, 8 and we obviously deny the existence of that 9 agreement. 10 The only other point that they seem to 11 be making is that the Court changed its mind. 12 And I don't think that's a fair 13 characterization of the Court's orders. 14 It's been quite clear for a long time 15 what the Court wanted the Plaintiffs to 16 produce. So that really isn't an excuse about 17 why we are here in mid-December still trying to 18 get the Court's order from August complied 19 with. 20 If Your Honor -- I'm afraid it's going 21 to take five minutes for Mr. Jurata to run over 22 here. 23 Can we -- could we move on to one of 24 the other matters that's pending before the 25 Court? 3945 1 THE COURT: Sure. Which motion? 2 There's two other ones. 3 MR. HOLLEY: Your Honor, I'm happy to 4 talk about the finding of fact 65 motion. 5 THE COURT: Okay, proceed. 6 MR. HOLLEY: Your Honor, we received 7 papers in response, this morning from the 8 Plaintiffs, and I doubt the Court has had an 9 opportunity to read them. I just had a very 10 quick opportunity to read through them. 11 The argument seems to be that there's 12 no harm because Ms. Conlin stood up after 13 telling the jury repeatedly that the findings 14 of fact said that Microsoft imposes monopoly 15 power and that she said well, that wasn't so. 16 But as we point out in our opening 17 papers, Your Honor, she said it on multiple 18 occasions. There wasn't any doubt about the 19 statement she was making. 20 For example, in the transcript of 21 September -- excuse me -- December 28, 2006 22 (sic), at 3172, lines 14 and 15, the statement 23 appears, quote, according to the findings of 24 fact, Microsoft imposes monopoly prices, close 25 quote. 3946 1 Couldn't be any more clear, and that 2 statement is absolutely false. 3 It was also on a slide that appeared 4 on the screen that sat there for five minutes 5 in the context of telling the jury that the 6 findings of facts said that Microsoft imposes 7 monopoly prices. 8 So it isn't sufficient to say that 9 it's all right for the Plaintiffs in this case 10 to argue that position. 11 Obviously they're free to argue that 12 position, but what happened, and what has 13 caused so much prejudice to Microsoft, Your 14 Honor, is that the jury was told in no 15 uncertain terms something that the Plaintiffs 16 now admit was simply wrong and should not have 17 been told to the jury. 18 There is no finding of fact that 19 Microsoft imposes monopoly prices. So in those 20 circumstances, Your Honor, it's Microsoft's 21 position that it should be entitled to refer to 22 finding of fact 65, which makes it absolutely 23 clear that Judge Jackson never found that 24 Microsoft imposes monopoly prices. 25 The Plaintiffs make all sorts of 3947 1 arguments about how this will further confuse 2 the jury. 3 Well, it's not going to confuse the 4 jury, it's going to finally make it clear to 5 them that what Ms. Conlin said is wrong. 6 And this is not some subsidiary issue 7 in this case, Your Honor. This is absolutely 8 the crux of this case. 9 Did Microsoft charge prices that were 10 monopoly prices by virtue of the 11 anticompetitive conduct in which Microsoft is 12 alleged to have engaged? That is the issue 13 that the jury needs to find. 14 And quite advertently -- and I'm 15 afraid there's no other conclusion that could 16 be drawn. 17 Quite advertently, the Plaintiffs 18 repeatedly misrepresented to the jury that 19 state of affairs. 20 They told the jury repeatedly that the 21 findings of fact had already concluded this 22 issue. 23 In those circumstances, Your Honor, I 24 think the relief that we're seeking is quite 25 modest. 3948 1 Thank you, Your Honor. 2 THE COURT: Response? 3 MS. CONLIN: Your Honor, Mr. Williams 4 is going to -- 5 MR. WILLIAMS: Thank you, Your Honor. 6 Kent Williams for the Plaintiffs. 7 Your Honor, this morning we filed the 8 resistance to this motion. I don't know if the 9 Court had a -- I do have a copy for Your Honor 10 if I could hand that up. 11 THE COURT: Sure. 12 MR. WILLIAMS: Your Honor, I'd like to 13 start with what defense counsel finished with, 14 which was the notion that this was somehow 15 advertent; that it was not -- it was 16 inadvertent, as was made clear the first time 17 that Microsoft raised an issue about the 18 statements that they are speaking about today. 19 They don't include as part of their 20 motion, Your Honor, the full record on this 21 issue. 22 It was only a few days ago, but Your 23 Honor may recall that during her opening 24 statement, Ms. Conlin did make a misstatement 25 about the findings of fact. And when she made 3949 1 those misstatements, Mr. Tulchin objected, and 2 Your Honor overruled that objection. 3 Later, during a break out of the 4 presence of the jury, there was full-blown 5 argument on this issue. 6 And we include that argument as part 7 of our submission, Your Honor, because 8 Microsoft is not -- it's part of Exhibit A, and 9 it is specifically at page 3215 and goes on to 10 page 3218. 11 And as part of that argument, 12 Mr. Tulchin made the same arguments that you 13 heard from counsel today that Microsoft was 14 prejudiced by these statements. 15 And at that time Microsoft requested 16 an instruction, which was a reminder 17 essentially, that the Court remind the jury 18 that the opening statements of counsel are not 19 evidence. 20 And Your Honor denied that request. 21 But notwithstanding that denial, Your Honor did 22 remind counsel to confine themselves to the 23 words of the findings. 24 And Ms. Conlin took that to heart, and 25 when the jury came back, she very promptly 3950 1 corrected her misstatement, and that 2 misstatement -- that correction, Your Honor, 3 appears at page 3220 of the transcript. 4 And if I may, Your Honor, I'd like to 5 read what that correction was. 6 Here's what she said. I also want to 7 tell you that in speaking with you about 8 monopoly prices, I believe that I did misstate 9 something, and I want to correct the record. 10 I said that Microsoft imposes monopoly 11 prices. That's not in the findings of fact. 12 That is something that we believe evidence will 13 show that Microsoft did, in fact, impose 14 monopoly prices. 15 So whatever prejudice there would have 16 been from these statements. 17 And Microsoft complains about four 18 statements in its motion. Three of those 19 statements, Your Honor, were all made within 20 about a minute of each other. 21 If you look at the record, the 22 misstatements appear on pages 3171 to 3172. 23 That's three misstatements that they complain 24 about. 25 The fourth one, Your Honor, appears on 3951 1 page 3180, and we do take issue with that one. 2 We have read that statement, and we've 3 read the context that it appears in, and we 4 don't believe that it's misleading, and we 5 don't believe that it relates to a finding of 6 fact. 7 So this really boils down to the three 8 statements. It all occurred within about a 9 minute of each other. 10 Mr. Tulchin objected at the time. He 11 was overruled. He asked for an instruction. 12 That was denied. But then Ms. Conlin went back 13 on the record and cleared it up for the jury. 14 And then -- and Microsoft cites no 15 other statements after that correction was 16 made. 17 I'd also note that at the time that 18 corrective statement was made by Ms. Conlin, 19 Microsoft did not object to it, as they say 20 now, a half-hearted or somehow insufficient 21 corrective statement. 22 So we submit on -- first of all, Your 23 Honor, that there is no prejudice. There 24 probably wasn't any to begin with, but even if 25 there was, any prejudice has been cured by the 3952 1 corrective statement. 2 As for the slide that appeared, Your 3 Honor, the slide said Microsoft imposes 4 monopoly prices, and as counsel just conceded, 5 we're perfectly entitled to make that 6 statement. We're perfectly entitled to attempt 7 to prove it. 8 And, again, as Ms. Conlin made clear 9 in her corrective statement, we will prove that 10 as part of the evidence that we will submit at 11 trial in this matter. 12 So on the one hand you have no 13 prejudice to Microsoft; certainly none now. 14 So now let's examine on the other hand 15 what Microsoft proposes to do to cure this 16 prejudice. 17 And it's sort of like the proverbial 18 smashing a hand with a ball-peen hammer. 19 What Microsoft wants to do is to refer 20 to, using their words, a finding of fact for 21 which there is no collateral estoppel, somehow 22 try to imply that we have defensive collateral 23 estoppel, which they don't have with this 24 finding. 25 They say in their papers that we are 3953 1 permitted to dispute the finding, but for that 2 to make any sense at all to the jury would 3 require them to have a grave sophistication 4 that I believe they will not have. 5 And the reason for that, Your Honor, 6 is this. 7 Microsoft also omits from its moving 8 papers the language of the finding in full. 9 In a submission I just handed up, Your 10 Honor, we provide for you the full language of 11 the finding, and when you read it, I think 12 you'll see why it's going to be so confusing to 13 the jury. 14 It appears on pages 3 to 4, and it 15 would probably take Your Honor some amount of 16 time to read through the entirety of the 17 finding. 18 I invite you to do that if you believe 19 it necessary. But I do want to talk about it 20 because it doesn't do what Microsoft wants it 21 to. It doesn't say what Microsoft wants it to 22 say. 23 The first sentence of the finding, 24 Your Honor, says, it is not possible with the 25 available data to determine with any level of 3954 1 confidence whether the price that a profit 2 maximizing firm with monopoly power would 3 charge for Windows 98 comports with the price 4 that Microsoft actually charges. 5 What that means, Your Honor, is that 6 the evidence in the government case that was 7 available did not show whether the price that 8 Microsoft was charging for Windows 98 was the 9 same price that a profit maximizing monopolist 10 would charge. 11 That does not in any way say that it 12 has been established that Microsoft -- let me 13 back up. 14 That does not say that it has not been 15 established that Microsoft imposed a monopoly 16 overcharge. It doesn't say that. 17 It says we don't have the data 18 available -- we, the Court -- to determine 19 whether they charge what a profit maximizing 20 monopolist would charge. 21 So, therefore, what that means is 22 Microsoft could have imposed a monopoly 23 overcharge, but what they impose is less than 24 what a profit maximizing monopolist would 25 charge. 3955 1 And then if you read the remainder of 2 the finding, that's underscored by what the 3 finding is clearly about, and it's about 4 whether the Court can rely on pricing data from 5 Microsoft and the prices that Microsoft charges 6 for the notion that Microsoft is charging what 7 a profit maximizing monopolist would charge or 8 even whether it has monopoly power at all. 9 And concludes that even if Microsoft 10 isn't charging what a profit maximizing 11 monopolist would charge, that doesn't mean that 12 Microsoft didn't have monopoly power. 13 That's what this finding is about. 14 It's very sophisticated. It doesn't address 15 the point that they are trying to make. 16 And if the jury were to hear this 17 finding, they would not only be confused about 18 everything I just explained, but they would 19 also be confused about the fact that the data 20 in the government case differed from the data 21 that's available in this case, and they would 22 be wondering, well, what data was shown in the 23 government case and what data was available, 24 and does that data differ from the data that's 25 available here; and if so, why is that, and on 3956 1 and on and on. 2 And, Your Honor, I submit to you that 3 Microsoft knows this. They know that the jury 4 would be confused if the entirety of finding 65 5 were to be read to them, so what they propose 6 to do is to doctor it. 7 What they want to do, and this is made 8 clear on page 6 of their brief -- what they 9 mean by refer to the finding is to pull out the 10 first sentence and the third sentence from this 11 very lengthy finding and read that to the jury. 12 And, Your Honor, we submit to you that 13 if that were to occur, the jury would get a 14 misleading and incorrect impression about what 15 that finding is and what that finding was 16 about, and that is not the way to solve any 17 problem at all that might remain and which we 18 submit to you does not remain from this 19 finding. 20 So, Your Honor, I would again point 21 out that we were not a party to the government 22 proceeding. There is no defensive collateral 23 estoppel with respect to finding 65. 24 And the other thing I would point out, 25 Your Honor, is that when the government case 3957 1 went up on appeal, the Court of Appeals for the 2 D. C. Circuit said Microsoft does not deny that 3 it charged long-term monopoly prices. 4 So it doesn't even fit within the 5 record, that they are trying to somehow correct 6 or ostensibly correct. 7 So if you add all of it together, Your 8 Honor, the fact that there is no prejudice, 9 that it was corrected by Ms. Conlin, that what 10 they are trying to submit to the jury would be 11 far less clear than the very direct correction 12 on the record that Ms. Conlin did make, add in 13 the fact that what they are really seeking is 14 defensive collateral estoppel to which they are 15 not entitled, add in the fact that to make this 16 correction they are trying to doctor a 17 statement, a finding which would only confuse 18 the jury even more. 19 What we're really talking about, Your 20 Honor, is a mountain out of a molehill that has 21 already been fixed. 22 And so, for those reasons, we ask you 23 to deny their motion. 24 THE COURT: Thank you. 25 Anything else? 3958 1 MR. HOLLEY: Your Honor, I guess I can 2 forgive Mr. Williams because he wasn't here, 3 but obviously the rest of us were. 4 The slide and the notion that someone 5 prepared a slide is, of course, completely 6 inconsistent with this notion of inadvertence. 7 It was advertent. They knew what they 8 were doing. 9 There was a slide up on one side 10 during a discussion of the findings of fact, 11 and the finding of fact was on the other slide, 12 and nobody in the jury box was confused, as 13 Mr. Williams is apparently confused, about what 14 the intention of that was. 15 And if there was any confusion, it was 16 eliminated when Ms. Conlin said, and I quote, 17 according to the findings of fact, Microsoft 18 imposes monopoly prices. 19 And with all respect, Your Honor, no 20 half-hearted statement by her that she made a 21 mistake is going to solve that problem for us. 22 Now, Mr. Williams has a theory -- it's 23 a very interesting theory -- about how we 24 intend to doctor finding of fact 65. 25 I have no idea how he purports to know 3959 1 that. He has no idea what we intend to do with 2 finding of fact 65. 3 We would be happy to read it in its 4 entirety to the jury because the point that it 5 makes is that there is no finding of monopoly 6 pricing by Microsoft in the government case. 7 And as I repeat, Your Honor, this is a factor 8 of crucial importance. 9 If this jury believes that the 10 collaterally estopped findings eliminate one of 11 the principal things that the Plaintiffs have 12 to prove, we could not be more prejudiced. It 13 is the crucial issue in this case. 14 Now, the notion that there was no 15 evidence before Judge Jackson about Microsoft's 16 prices is another theory of Mr. Williams, which 17 is interesting, but untrue. 18 I happened to be at that trial; he was 19 not. 20 Franklin Fisher from NIT, who is one 21 of the leading economists in this country, and 22 Professor Warren Boulton, who is one of the 23 Plaintiffs' economists in this case, spent days 24 putting on evidence about Microsoft's pricing. 25 There was no absence of data in the 3960 1 record of the government case about the prices 2 that Microsoft charges. 3 What Judge Jackson meant when he wrote 4 it is not possible with the available data to 5 determine with any level of confidence whether 6 the price of the profit maximizing firm with 7 monopoly power would charge for Windows 98 8 comports with the price that Microsoft actually 9 charges is a conclusion based on substantial 10 evidence. 11 It's not a statement I wish I had 12 evidence and I don't have it, Your Honor. 13 So it's an interesting theory, but 14 unfortunately it's completely inconsistent with 15 the facts. 16 As to the notion that we are asking 17 for, you know, a nuclear bomb to blow up a gnat 18 that is completely overblown, Your Honor. 19 We have suffered substantial prejudice 20 by repeated statements that the Plaintiffs now 21 candidly concede were wrong. 22 They're not arguing that they were 23 correct when they told the jury that Microsoft 24 imposes monopoly prices and that the findings 25 of fact say that. 3961 1 They admit that this was a mistake. 2 Well, it was more than a mistake, and it needs 3 to be dealt with, Your Honor. 4 Thank you. 5 THE COURT: Anything else on this 6 issue? 7 MR. WILLIAMS: Your Honor, a couple of 8 points. 9 I would add that in addition to the 10 corrective statement that Ms. Conlin made at 11 the time, which, again, I reiterate was not 12 objected to, the conclusions of law that Your 13 Honor read to the jury made clear that no 14 monopoly -- that a monopoly overcharge was not 15 established in the government case. 16 The jury has those findings available. 17 They can refer to them whenever they want to, 18 which Your Honor made clear. 19 So again, Your Honor, I submit to you 20 that what they are proposing to do is simply 21 beyond the pale. 22 And I find it very interesting that 23 while they dispute what their own brief says, 24 which is clear on page 6 what they intend to 25 do, they want to pluck out of the findings the 3962 1 things that they want to read. 2 Now they try to cure that obvious 3 problem by saying we'll read the entire finding 4 of fact to the jury. 5 But as I explained earlier, that's not 6 going to cure the problem because it's going to 7 cause more confusion than it would allegedly or 8 supposedly be curing. 9 So again, Your Honor, these statements 10 were made six days ago, roughly. They were 11 made on December 6. 12 There was an issue raised at the time. 13 The issue was promptly cured. It was cured 14 directly. There was no objection by Microsoft 15 to that at the time. 16 There was no objection made to the 17 slide after that correction was made, and so we 18 submit to you that any prejudice was cured. 19 So again for that reason, we would say 20 that -- Your Honor, opposing counsel is correct 21 that I was not present at the hearing. I've 22 been going off the transcript, which sometimes 23 is clearer and sometimes -- than the real 24 thing, and sometimes is not. 25 But this slide makes clear that these 3963 1 are the issues that the jury is going to have 2 to decide. 3 And if you look at the top, it says, 4 what is left for you to decide? 5 What that means is, after you take the 6 findings of fact to which you are bound, and to 7 which Microsoft is bound, which the jury is 8 bound to accept, this is what is left for you 9 to decide. 10 And the very first bullet point says, 11 did Iowa consumers pay more for Microsoft 12 Windows than they would have paid if Microsoft 13 had not broken the law; and if so, how much? 14 That's the classic statement of a 15 monopoly overcharge. 16 So we not only had a curative 17 instruction -- curative statement by Ms. Conlin 18 at roughly the same time, at the end she came 19 out with this slide that would have corrected 20 any lingering misimpression there would have 21 been by the jury, which we submit there was 22 none of. 23 So again, Your Honor, we ask that the 24 motion be denied; that, in fact, it's just 25 going to cause more confusion, and that 3964 1 Microsoft should not be allowed to blow out of 2 proportion a mistake that was made, but that 3 has since long since been corrected. 4 THE COURT: Anything else on this 5 motion? 6 MR. HOLLEY: No, Your Honor. 7 THE COURT: Very well. 8 Proceed to your next one, or what do 9 you want to do? 10 MR. HOLLEY: Your Honor, I think the 11 next one is actually the Plaintiffs' motion, 12 which we have opposed, which is their effort to 13 preclude Microsoft from making reference to the 14 written witness agreements that Plaintiffs 15 represented to the Court that they had and that 16 we still have not seen. 17 As the Court will recall, the Court 18 asked, I'm not sure whether Mr. Hagstrom or 19 Ms. Conlin, to report in five days on the 20 progress in producing these witness agreements. 21 Those five days have expired. 22 We don't have any witness agreements, 23 Your Honor, unless -- unless Ms. Conlin is 24 about to hand them to me. 25 MS. CONLIN: May I hand this up to the 3965 1 Court as well? 2 THE COURT: Yes. 3 MS. CONLIN: Thank you, Your Honor. 4 THE COURT: Thank you. 5 MS. CONLIN: Your Honor, what we have 6 on our agenda for today is this. 7 And there's one other matter, and that 8 is the matter of whether or not the Defendant 9 can in their opening remarks refer to the 10 resellers and any testimony with respect to the 11 resellers. 12 THE COURT: Let's go one issue at a 13 time. 14 MS. CONLIN: All right. 15 Your Honor, this one is the 16 Plaintiffs' motion to prevent Microsoft from 17 referring to the controversy with respect to 18 witness agreements in its opening statement and 19 to do so in a way that implies to the jury that 20 there was any spoliation. 21 The Plaintiffs filed their initial 22 witness list on July 28, 2006. 23 On September 1, in connection with our 24 effort to loosen the protective order, 25 Mr. Green, in his argument, suggested that the 3966 1 -- what we had asked, Your Honor, the Court 2 will recall, is to have the option of providing 3 to our witnesses who were going to testify the 4 highly confidential documents the Court -- and 5 in his argument with respect to that, he 6 suggested that the people on the witness list 7 were probably not going to come. 8 And in that connection when I 9 responded, I indicated that they had indicated 10 that they were going to come and that they had, 11 and I quote, agreed in writing that they would 12 be available. 13 We then -- I have -- the Court entered 14 its order with respect to the change in the 15 protective order on September 7, Your Honor. 16 The next -- it was not until -- so we have the 17 order at the time we filed our final witness 18 list, which I indicated at the time included 19 potential witnesses. 20 There were people on the list that we 21 had not been able to locate. There were people 22 who had not confirmed whether or not their 23 testimony would be available or they would be 24 available. 25 The second witness list, Your Honor, 3967 1 unlike the first, did not include only those 2 people that we knew for sure had agreed to 3 testify, and I imagine that the same is true of 4 Microsoft. 5 I did not say or imply that all the 6 people on the second list had agreed in writing 7 to testify. Indeed the remark that I made was 8 eight days before we filed that final list. 9 We bring the motion to preclude any 10 mention of this matter and any attempt to imply 11 that this is in any way spoliation of evidence 12 because, first of all, there was no spoliation; 13 and second, this is not evidence. 14 Microsoft has recently stated that if 15 the Plaintiffs no longer have copies of the 16 communication, it may argue that Plaintiffs 17 spoliated the material. 18 I have handed up to the Court our 19 report. The Court asked me to report in five 20 days, which would have been Sunday, I think, 21 and we provide that to the Court today. 22 The Court will see that in connection 23 with the people on the initial witness list, 24 and there were nine people, Your Honor, who 25 were -- well, we had our class representatives, 3968 1 of course, and then on the witness list there 2 were two people who were -- who are expert 3 witnesses, but who also, like Mr. Schulman, 4 have facts that they can testify to as well. 5 And so there were nine remaining. 6 There were actually ten remaining, and one was 7 a mistake which I indicated to the Defendant 8 long ago. It was simply a clerical error. A 9 person was included, Mr. McNeill, to whom I 10 have never spoken. 11 So what we had left, Your Honor, were 12 nine people. Of those nine people, I have been 13 able to provide to the Defendant information 14 from eight of them -- well, actually seven. 15 One is Greg Richardson. Mr. -- all 16 the communication with respect to Mr. 17 Richardson has been done through Mr. 18 Richardson's attorney. He is a current 19 employee of Novell. 20 With respect to Mr. Edwards and Mr. 21 Bradford, what I was able to provide to the 22 Defendant was a confirmation, a recent 23 confirmation by Mr. Bradford that both he and 24 Mr. Edwards had agreed long ago that they 25 would, in fact, come and testify. 3969 1 Microsoft's purported and only reason 2 for seeking E-mails between me and witnesses 3 was to see what witnesses were coming. 4 The Defendant disavowed any interest 5 in work product and insisted that all they 6 sought was any written communication between 7 Plaintiffs' counsel and potential witnesses, 8 revealing the witnesses' willingness to testify 9 and nothing else. 10 They have that information. Nothing 11 has been spoliated, and what possible relevance 12 could such E-mails from a potential witness 13 have? They would not be admissible. 14 The Defendant's resistance to this 15 motion is based entirely on allegations we did 16 not make and evidence we did not use. 17 For example, Ms. Reichel, or any 18 material from the Burst case. 19 Plaintiffs referred only to evidence 20 which indicates intentional spoliation in the 21 context of lawsuits which underlie this one. 22 For example, Mark Johnson's recounting 23 of his destruction -- of the destruction of 24 Mr. Gates' E-mails off of backup tapes, and 25 Mr. Johnson's statement that the company policy 3970 1 not to back up E-mails is to prevent them from 2 being discovered and used in the course of 3 litigation, and then the Allchin and Valentine 4 E-mails, to discard all E-mails after 30 days. 5 Defendant simply cannot bring this to 6 the jury in opening because they are not 7 permitted to bring anything to the jury in 8 opening that they do not believe is likely to 9 be in the record. 10 There is no likelihood that this 11 matter will ever be in the record. 12 The Hartsfield factors cannot be met, 13 the first of which is that the evidence 14 existed. And, of course, as we've indicated, 15 we cannot conceive of how this could be 16 evidence. 17 And it needs to be admissible at 18 trial, and this would not be, and it needs to 19 have been intentionally destroyed, and this was 20 not. 21 There was nothing about this that was 22 intentional destruction of anything that could 23 possibly be evidence. 24 And, of course, it must have something 25 to do with the subject matter. 3971 1 Defendant has told the Court that they 2 wanted to be sure that the witnesses that we 3 listed on the initial list would, in fact, be 4 present. 5 We've been able to provide to them and 6 to the Court the E-mails indicating that with 7 the exceptions that I've noted, Mr. McNeill 8 being a mistake and Mr. Bradford and Mr. 9 Edwards having a later confirmation, and 10 Mr. Richardson's -- the communication with 11 Mr. Richardson being only through his 12 attorneys, given the fact that he is a current 13 Novell employee. 14 We believe it is appropriate to 15 preclude the Defendant from using this material 16 in any way in opening to indicate that the 17 Plaintiffs have spoliated evidence. 18 THE COURT: Mr. Holley? 19 MR. HOLLEY: Your Honor, I just was 20 handed this document, as the Court witnessed, 21 and I haven't had an opportunity to go back and 22 compare the E-mails to the first witness list. 23 I will note that the list that appears 24 with the letter C on the bottom is quite 25 stunning given the representations that have 3972 1 been made to this Court about who's coming to 2 testify in this case. 3 It isn't just a couple of people. 4 It's most of the people on the witness list who 5 either say not located, not attending, unlikely 6 to attend, not confirmed. 7 Now, and I don't have at hand the 8 transcripts about the statements that were 9 made, but this certainly suggests that a whole 10 lot of people that we were told were coming to 11 testify at this trial have no intention of 12 coming and are not coming. 13 It would have been nice to know this a 14 long time ago. 15 So, Your Honor, with the Court's 16 indulgence, I would like to be able to go back 17 and check the statements that the information 18 that we just received and -- against the 19 statements that were made in the past, but we 20 don't withdraw this motion -- or our opposition 21 to this motion. 22 MS. CONLIN: Your Honor, if I just may 23 say one additional thing. 24 As I indicated, when I made the 25 statement, I was talking only about the initial 3973 1 list. 2 The Court entered its order before I 3 filed the final list, and the final list, as I 4 have indicated to the Defendant in both 5 formally -- well, all informally, but both in 6 writing to Ms. Nelles and at other -- and 7 orally, the final witness list, we included 8 many, many people who we simply didn't have 9 confirmation from. We didn't know whether they 10 were coming or not. 11 That's what Defendant did as well, 12 Your Honor, and we would ask that the Defendant 13 provide us with the same kind of list that we 14 have provided them. 15 Some of the people on their list are 16 out of the country or -- you know, they have 17 much more control over the people that they're 18 going to call than we have over the people that 19 we're going to call. 20 Some of these are -- have been 21 eliminated, Your Honor, because of the 22 collateral estoppel ruling and the Court's 23 interpretation of it. 24 There is -- I don't think there's 25 anything unusual about this list. 3974 1 The list about which I made the 2 remark, it was the initial list, and, in fact, 3 all those people had agreed to come, and all 4 those people are, to my knowledge, still 5 intending to be present. 6 THE COURT: Anything else on this? 7 MR. HOLLEY: No, Your Honor. 8 But Microsoft had a good faith belief 9 -- obviously we're the Defendant. We have to 10 respond to the case that the Plaintiffs put on. 11 We can't be asked at this stage to say who 12 we're going to call to testify -- 13 THE COURT: Weren't you given a 14 witness list? 15 MR. HOLLEY: Pardon? 16 THE COURT: You were given a witness 17 list, weren't you? 18 MR. HOLLEY: I think what we now have 19 been handed suggested that this list was 20 largely -- 21 In any case, we did not put people on 22 our witness list without a good faith belief 23 that they would be coming to attend this trial. 24 I have nothing further to say, Your 25 Honor. 3975 1 THE COURT: Anything else? 2 MS. CONLIN: No, Your Honor. 3 THE COURT: Do you want to proceed to 4 your witness? 5 MR. HOLLEY: I do, Your Honor. 6 THE COURT: Call him. 7 MR. HOLLEY: Your Honor, the defense 8 calls Mr. Jay Jurata to the stand. 9 THE COURT: Approach and be sworn. 10 JOHN A. JURATA, JR., 11 called as a witness, having been first duly 12 sworn, testified as follows: 13 THE COURT: Mr. Holley. 14 DIRECT EXAMINATION 15 BY MR. HOLLEY: 16 Q. Mr. Jurata, can you please state your 17 full name for the record sir? 18 A. John A. Jurata, Junior. 19 Q. Can you tell the Court what your 20 educational background is? 21 A. Yes. I received a college degree from 22 Villanova University in 1992, and I received my 23 law degree from the University of San Diego in 24 2000. 25 Q. And are you the member, sir, of any 3976 1 bars? 2 A. Yes. I am a member of the bars of 3 District of Columbia, the state of Virginia, 4 and various federal courts. 5 Q. And can you tell me what your 6 professional affiliation is? 7 A. Yes. I am an attorney. I'm an 8 associate at the law firm of Heller Ehrman. 9 Q. And how long have you been an 10 associate at Heller Ehrman? 11 A. I have been an associate of Heller 12 Ehrman for approximately six years. 13 Q. Mr. Jurata, how long have you been 14 working on the case captioned Joe Comes, et al. 15 against Microsoft Corporation? 16 A. I've been working on a variety of 17 Microsoft matters for the past six years. I 18 can't recall specifically when I started 19 working on this case. Approximately -- I would 20 say approximately two years ago. 21 Q. Did you have occasion last week, 22 Mr. Jurata, to interact with Mr. Reece from the 23 Zelle, Hofmann firm about the production of 24 expert materials in this case? 25 A. Yes, I did. 3977 1 Q. Can you tell the Court whether you 2 agreed with Mr. Reece that the Plaintiffs would 3 have until December 19 to produce those 4 materials? 5 A. No, I did not. 6 Q. Did you ever suggest to him that you 7 had the authority to reach such an agreement on 8 behalf of Microsoft? 9 A. No, I did not. 10 MR. HOLLEY: I have nothing further 11 Your Honor. 12 THE COURT: Cross? 13 CROSS-EXAMINATION 14 BY MR. HAGSTROM: 15 Q. Mr. Jurata, last Thursday, did you 16 have telephone discussions with Mr. Reece? 17 A. Yes, I did. 18 On Wednesday -- after the Court gave 19 its ruling, I wrote Mr. Reece a letter that 20 basically requested that he produce the 21 materials that were ordered by the Court by 22 December 6. 23 December 6 came and went, and on the 24 evening of December 6 I sent Mr. Reece a letter 25 basically stating that Microsoft intended to 3978 1 seek judicial assistance since there was not a 2 response to our letter. 3 Mr. Reece sent me a letter -- 4 Q. Just a second, Mr. Jurata. 5 That evening, did you receive an 6 E-mail from Mr. Reece? 7 A. Yes, I received an E-mail later on 8 from Mr. Reece saying that he was going to send 9 me a letter. And he sent me a letter on 10 Thursday, the next day, at which point, after I 11 received the letter, I called Mr. Reece. 12 Q. And when you called Mr. Reece, did you 13 reach him, or did you leave a voice mail 14 message? 15 A. I believe I left him a voice mail 16 message to call me back, at which point he did. 17 Q. And did you -- what did you discuss at 18 that point? 19 A. Well, when Mr. Reece called me back, I 20 basically told him that the letter -- the 21 letter that he had sent was very vague. 22 It said that Plaintiffs -- Plaintiffs 23 were hoping to produce materials in 24 approximately two -- in approximately two 25 weeks. It was very vague. 3979 1 So basically what I told Mr. Reece, 2 and I started out my conversation by basically 3 saying that Microsoft was trying to get 4 additional information from him so that 5 Microsoft could decide whether or not to seek 6 the assistance of the Court. 7 And so I basically asked Mr. Reece two 8 questions during that call. 9 I asked him when Plaintiffs could 10 confirm that they could produce the materials 11 by, and I also asked Mr. Reece if he would 12 agree in advance that Microsoft could take the 13 depositions of any of Plaintiffs' experts whose 14 -- who produced additional materials if 15 Microsoft had a good faith basis to do so. 16 Mr. Reece -- 17 Q. Excuse me. 18 Did Mr. Reece suggest a December 21st 19 date for production of any additional materials 20 that Plaintiffs' experts might have? 21 A. Yes. In response to my first 22 question, he said December 21st date and was -- 23 Q. Did you also, then, suggest during one 24 of those telephone conversations that because 25 of the holiday break that you would like to 3980 1 have a couple of additional days, and you 2 suggested a December 19th date? 3 A. That is an incomplete statement. 4 Q. Did you or did you not suggest a 5 December 19th date? 6 A. I asked Mr. Reece -- 7 Q. Yes or no? 8 A. Yes, in the context of -- 9 Q. Thank you. 10 MR. HOLLEY: Your Honor, I object. 11 You have to let -- you can make him answer yes 12 or no, but he's obviously entitled to explain 13 his answer, and Mr. Hagstrom is seeking to cut 14 him off. 15 MR. HAGSTROM: Your Honor, Mr. Holley 16 can come back on his examination. 17 THE COURT: You may finish your 18 answer. Go ahead. 19 A. As I -- as soon as I got done the 20 first phone call with Mr. Reece, I was getting 21 ready to report to my team, and I recognized 22 the date that he told me, December 21st, was 23 the last day of court before the holidays. 24 So I called Mr. Reece immediately 25 back, within 30 seconds, and I basically said 3981 1 before I report what you are proposing, do you 2 realize that December 21st is the last day of 3 Court before the holidays, and how certain was 4 that date? Could you do it any faster? 5 And he said well, I don't know. 6 I said -- I said, you know, could you 7 do it any faster? Could you do it December 8 19th? Could you do it any other date? And 9 basically that was the context for the December 10 19th date. 11 Q. And Mr. Reece subsequently sent you a 12 confirming letter via E-mail agreeing to the 13 December 19th date; is that correct? 14 A. Mr. Reece sent an E-mail later in the 15 day agreeing to that date, but made no mention 16 about the request that Plaintiffs agree to 17 depositions of these experts, which he 18 categorically denied, and said Plaintiffs would 19 not agree to when we had our conversation. 20 Q. So Mr. Reece did send you a letter 21 confirming the December 19th date; is that 22 correct? 23 A. Yes, he did. 24 Q. And subsequent to receiving that 25 E-mail, did you get a communication from one of 3982 1 your co-counsels directing you to send an 2 E-mail back to Mr. Reece? 3 A. I discussed with my team what response 4 that I should send back to Mr. Reece. 5 Q. Who directed you to send a response 6 back to Mr. Reece? 7 A. I believe that I recommended that we 8 send a response back. 9 Q. So nobody suggested that you send a 10 response back to Mr. Reece? 11 A. I'm the one who initially made that 12 recommendation. Other members of the team 13 agreed with that recommendation. 14 Q. Who worded that response? 15 A. I wrote the initial draft of that 16 response, and it was edited by other members of 17 our team. 18 Q. Which other members of your team? 19 A. I believe that I had conversations 20 with Mr. Rosenfeld, Mr. Tulchin, and Ms. 21 Nelles. 22 Q. Now, did you have any involvement in 23 the original stipulation with regard to the 24 production of expert materials? 25 A. Yes, I believe that I drafted -- I did 3983 1 the initial draft of that stipulation. 2 MR. HOLLEY: Your Honor, I object to 3 this line of questioning. 4 The only question before the Court is 5 the question of Mr. Reece's conflicting sworn 6 statements and Mr. Jurata's sworn statement 7 about what was said in a discussion last week. 8 It should not be open to the Plaintiffs, 9 through this witness, to try to contradict the 10 Court's orders, so I object to this line of 11 questioning. 12 THE COURT: Sustained. 13 Q. And, Mr. Jurata, on Thursday, 14 December 7th, at about 5:07 p.m., you did 15 receive an E-mail from Mr. Reece stating John, 16 we are in agreement to December 19, the date 17 you suggested, as the date by which we intend 18 to provide any additional documents from 19 experts. 20 If we are running into any problems 21 with a particular expert because they are out 22 of the country or for some other reason, we 23 will notify you in advance, but we hope not to 24 have any such problem, Jim? 25 A. Yes, I received that, and that's what 3984 1 caused the E-mail to go back to Mr. Reece 2 saying that we were going to seek -- we were 3 going to bring the matter to the Court's 4 attention. 5 Q. And, of course -- well, let me ask you 6 this. When did you receive that E-mail? 7 A. Sometime late in the afternoon on the 8 7th. 9 Q. So you received the E-mail shortly 10 after it was sent? 11 A. I can't recall exactly what time -- 12 what time it was sent, but I imagine I replied 13 to that E-mail within -- no more than two hours 14 after it was sent. 15 Q. But you had read the E-mail shortly 16 after it was sent at 5:07 p.m.? 17 A. I read the E-mail sometime late in the 18 afternoon. Whether it was 5:15, 5:30, 19 6 o'clock, I can't tell you sitting here today. 20 Q. But it took you two hours to put 21 together the nine- or ten-word response to that 22 E-mail? 23 A. No. I believe I stated that I sent 24 the response about two hours after the E-mail 25 was sent. 3985 1 You know, how long it was after I 2 received it, I'm not sure. 3 I do recall that when I received it, I 4 was very -- I was very upset because I believed 5 that to be a complete mischaracterization of 6 the phone call that we had. 7 Q. Did you tell Mr. Reece that you had no 8 authority to act on behalf of Microsoft? 9 A. Absolutely. And Mr. Reece said the 10 same thing for Plaintiffs. 11 MR. HAGSTROM: Nothing further, Your 12 Honor. 13 THE COURT: Any redirect? 14 MR. HOLLEY: No, Your Honor. 15 THE COURT: You may step down. 16 Any other witnesses? 17 MR. HOLLEY: None for the Defendant, 18 Your Honor. 19 THE COURT: Plaintiffs have any 20 witnesses? 21 MR. HAGSTROM: Your Honor, as I 22 mentioned, Mr. Reece is out of town. 23 THE COURT: Very well. 24 MR. HAGSTROM: So we'd like to bring 25 him as soon as possible. 3986 1 THE COURT: When will he be here? 2 MR. HAGSTROM: I can check his 3 schedule. Possibly we can get him here 4 tomorrow. 5 THE COURT: Anything else? 6 MR. HOLLEY: Not on this point from 7 the Defendant, Your Honor. 8 THE COURT: Very well. I'll let you 9 bring him in tomorrow. 10 MS. CONLIN: Your Honor, the only 11 remaining thing is the reseller depositions as 12 far as I know. 13 MR. TULCHIN: May I be heard on that, 14 Your Honor, just procedurally? 15 THE COURT: On what? 16 MR. TULCHIN: I think Ms. Conlin is 17 referring to a motion that came to us at, I 18 believe, around 11 p.m. last night. 19 MS. CONLIN: Excuse me, Mr. Tulchin. 20 I understand that Mr. Holley and 21 Mr. Gralewski have agreed that this should not 22 be taken up this morning but rather this 23 afternoon. 24 MR. TULCHIN: Could I just finish, 25 Your Honor? 3987 1 I believe this came to us at around -- 2 THE COURT: I don't even know what 3 you're talking about. What motion? 4 MR. TULCHIN: The Plaintiffs made a 5 motion to bar me from referring to some 6 testimony in my opening statement. 7 This was a matter that the Special 8 Master considered. The evidentiary 9 admissibility of this testimony was considered 10 by the Special Master, and I believe that he 11 ruled on this a couple of weeks ago. I think 12 it was around the 28th of November. 13 The motion that came to us by E-mail 14 late last night came after, I'm thankful to 15 say, I was asleep. 16 I saw a reference to it on my E-mail 17 this morning. 18 And I was just going to make the point 19 that certainly if there's a proper effort to 20 bar mention of this testimony in an opening 21 statement, it should have come long before 22 around 11 p.m. on a Sunday evening, the day 23 before I'm scheduled, I understand, to begin my 24 opening. 25 This was decided a couple weeks ago, 3988 1 and we're all living under circumstances where 2 something like this should be acted on 3 promptly. Otherwise, I think it puts the 4 Defendant in the unfair position of when it 5 seemed clear that I could refer to this in the 6 opening. 7 Since the Special Master had ruled on 8 the admissibility of the testimony, it puts us 9 in the unfair position of trying to rejuggle an 10 opening statement when, if the Plaintiffs 11 really wanted to block this to make this appeal 12 from the Special Master's ruling, they could 13 have, and should have, made this motion ten 14 days ago or more. 15 THE COURT: Was there an appeal on the 16 Special Master's ruling? 17 MR. TULCHIN: Apparently, Your Honor, 18 that's apparently what this is, although I 19 think they call it something else. 20 They just say it's a motion to prevent 21 Defendant from referring to reseller testimony 22 in the opening. But, as I say, in essence, 23 it's an appeal. 24 THE COURT: Mr. Holley, is it true 25 that there's some agreement to hear this 3989 1 tomorrow? 2 MS. CONLIN: Wrong Steve, Your Honor. 3 I think it was Steve -- 4 MR. HOLLEY: Can't be me unless I'm 5 hallucinating. 6 THE COURT: Oh, I'm sorry. Who was 7 it? 8 MR. HAGSTROM: Your Honor, I think it 9 was Mr. Tuggy and Mr. Gralewski had talked 10 about handling this this afternoon with the 11 understanding that Mr. Tulchin would not be 12 getting into that issue today. 13 MR. TULCHIN: I've made no such 14 agreement along those lines. 15 MR. HAGSTROM: Mr. Gralewski is here. 16 Perhaps he can address the issue. 17 MR. GRALEWSKI: Your Honor, I spoke 18 with Mr. Tuggy last night when I was connecting 19 in the Dallas-Fort Worth airport, and we agreed 20 that our position is that so long as it's heard 21 before Mr. Tulchin begins his opening, that's 22 fine with Plaintiffs. 23 We don't need to take the matter up 24 this morning, and it will be a very brief 25 discussion. 3990 1 MR. HOLLEY: Your Honor, I don't mean 2 to engage in sort of, you know, he said she 3 said, but I have spoken to Mr. Tuggy about 4 this. He can come over here if we have to go 5 through this again. 6 Mr. Gralewski told him that he wanted 7 this matter heard. Mr. Tuggy did not agree 8 that we were going to do it this afternoon. 9 He took the position that it was a 10 little bizarre to being served with these 11 things at 11 o'clock on a Sunday night. But 12 that doesn't constitute an agreement to hear it 13 this afternoon. 14 And for the reasons that Mr. Tulchin 15 says, we object to that. 16 THE COURT: You object to it being 17 heard at all or this afternoon? 18 MR. HOLLEY: At all, Your Honor, and 19 definitely this afternoon, yes. 20 THE COURT: When did the Special 21 Master rule? 22 MR. GRALEWSKI: I don't know the exact 23 date. 24 Your Honor, they're approximately 25 correct, I would think. 3991 1 However, what led us to believe that 2 Mr. Tulchin was going to refer to these in his 3 opening -- and again I don't have the exact 4 date -- was that under our agreement they 5 provided us an additional line of testimony 6 from one of the resellers, and it was at that 7 point, which I believe is subsequent to the 8 Special Master's ruling, that we then believed 9 that it would be an issue. 10 And all I can say is that everyone has 11 a lot on their plate. This certainly isn't the 12 first time that the parties have brought 13 motions -- I recall last week Microsoft 14 presenting a motion, handing it to us, and 15 wanting to argue about it right away. 16 I was trying to do my best to give 17 them advance notice, and so I served them with 18 a courtesy copy last night at 11 and said let 19 me know when you want to hear this, so long as 20 it's taken up before Mr. Tulchin's opening, 21 that's fine by us. 22 THE COURT: Anything else? 23 MR. HOLLEY: No, Your Honor. I think 24 we've made our points. 25 THE COURT: As soon as you and Mr. 3992 1 Tuggy are ready to hear it, we'll hear it prior 2 to the opening statement. Just so I can figure 3 out what's going on because I have no idea what 4 it's about. 5 MR. GRALEWSKI: Thank you, Your Honor. 6 THE COURT: I think the Court should 7 at least have the benefit of knowing what it's 8 about first. 9 Anything else? 10 Ready for the jury? 11 MR. HAGSTROM: Can we take two 12 minutes? 13 THE COURT: Sure. 14 At the break, the Court will rule on 15 the three motions here this morning. 16 (A recess was taken from 1:05 p.m. 17 to 1:12 p.m.) 18 (The following record was made in the 19 presence of the jury.) 20 THE COURT: Members of the jury, I 21 apologize for the delay. We had some matters. 22 We were working diligently, so we weren't just 23 lollygagging. 24 I apologize. Please blame me, not the 25 attorneys or the parties. 3993 1 You may proceed. 2 MR. HAGSTROM: Thank you, Your Honor. 3 Good morning everyone. I hope 4 everyone had a good weekend. 5 When we left on Friday we were 6 discussing various factors that indicate 7 monopoly pricing. 8 And just to refresh your memory here, 9 the fact is that Professor Mackie-Mason has 10 considered and will be discussing with you. 11 So let's take a look at where we left 12 off. 13 We had gone through the first three 14 factors, and let's take a look at where we are 15 with the next factor. 16 Did Microsoft keep prices for obsolete 17 products high? 18 Now, usually when a technology 19 product, or any other product for that matter, 20 becomes outdated, the price drops. It's common 21 sense, isn't it? 22 Some of us remember back when there 23 were VHS tapes, you know, VCRs. Those were 24 kind of the standards for watching home movies. 25 And when those first came out, they 3994 1 were the machines, and so forth, you can recall 2 were actually quite expensive. 3 Then along came DVDs. And when those 4 DVD players came out, they were quite 5 expensive. And then, of course, the prices for 6 the VCRs dropped. 7 And then the next innovation was DVD 8 progressive scan, I think it was. And so those 9 were more expensive. And the old DVD players 10 dropped in price, and the VCRs were pretty 11 cheap by then. 12 And then I think now it's -- they've 13 even got high definition DVD players. So now 14 you can get the original DVD players pretty 15 cheap, and even the progressive scans pretty 16 cheap. 17 But as Professor Mackie-Mason will 18 discuss with you, that type of progression of 19 older products or obsolete products becoming 20 much cheaper didn't necessarily happen with 21 Microsoft products. 22 For instance, when Microsoft released 23 Windows 95, older versions of Windows became 24 obsolete. 25 Instead of lowering its prices for the 3995 1 early engineer versions, such as Windows 3x 2 versions, Microsoft actually raised the price 3 of the older Windows versions. 4 And you'll hear that this is evidence 5 of monopoly pricing. 6 Now, Microsoft raised the price of 7 Windows 3x and MS-DOS to make those product 8 prices higher, and Microsoft presumably did 9 this to get buyers to purchase Windows 95 10 rather than the older products. 11 Let's take a look at Plaintiffs' 12 Exhibit 2557, which says, our goal in fiscal 13 '97 is to drive sales of 32-bit Windows 14 desktops by convincing 16-bit Windows users 15 that now is the time to upgrade. 16 Now the 16-bit Windows includes the 3x 17 series, and the 32-bit Windows was Windows 95. 18 Now let's look at a few pages later in 19 this same document. 20 Tactics, pricing. Make the Win 3x and 21 WFW upgrade more expensive than Win 95. Price 22 25 percent higher than Win 95. 23 WFW is Windows for Workgroup, 24 something like this, and that was an older 25 version that preceded Windows 95. So Microsoft 3996 1 made the older products actually higher than 2 the new product. 3 And additionally, you can take a look 4 at finding of fact number 62, and the Federal 5 Court found that this happened with regard to 6 the release of Windows 98 as well. 7 In the middle it says, one would 8 expect a firm in a competitive market to pay 9 much closer attention to the price charged by 10 other firms in the market. 11 Another indication of monopoly power 12 is the fact that Microsoft raised the price 13 that it charged OEMs for Windows 95, with 14 trivial exceptions, to the same level as the 15 price it charged for Windows 98 just prior to 16 releasing the new product. 17 In a competitive market, one would 18 expect the price of an older operating system 19 to stay the same or decrease upon the release 20 of a newer, more attractive version. 21 So while prices of older products 22 typically fall with new innovations, 23 Microsoft's prices did not. 24 Normal competitive business cannot do 25 that. Just think what happens when a new model 3997 1 car comes out and the 2007 models come out. 2 You don't see the manufacturers with regard to 3 the 2006 models raise them by 10 percent or 4 something like that. Obviously they wouldn't 5 sell. 6 And, of course, the difference is, 7 there's a lot of competition between the car 8 manufacturers. 9 So did Microsoft keep prices for 10 obsolete products high? Professor Mackie-Mason 11 will tell you that the answer is yes. 12 Next factor. Did Microsoft make 13 profits on the products in question that 14 exceeded competitive profits? 15 Remember the memo to Bill Gates, the 16 one that said there's a huge value to having a 17 monopoly? 18 And I asked you to keep in mind why 19 Microsoft would violate the antitrust laws and 20 risk the consequences from those violations if 21 its goal was, as Microsoft claims, to lower 22 prices. 23 Let's take a look at Microsoft's 24 monopoly profits. 25 Remember I mentioned that there were 3998 1 three damages methods that are being used by 2 Doctor Netz, and one of those is the profit 3 margin method. 4 And in addition to using this method 5 to prove overcharge damages, which we'll get 6 into a little bit later, Professor Mackie-Mason 7 looked at the profit margins for purposes of 8 causation as well. 9 In this particular demonstrative, it 10 shows what Microsoft's profit margins were 11 during the class period. 12 And let me make sure you understand 13 that these are numbers for the entire class 14 period. So it's the profit margins by year, 15 but averaged over the course of the entire 16 class period. 17 So that you can see up there with -- 18 you've got 72 percent on the operating system, 19 64 percent on the office suites, 67 percent on 20 word processors, 73 percent on spreadsheets, 21 and then this over there on the yellow bar, 22 that's negative 12 percent, and that's 23 Microsoft's competitive products. 24 Let me just comment about that 25 particular negative 12 percent number. 3999 1 That is basically the other software 2 products that Microsoft produces in the 3 aggregate. 4 So we're not saying that every 5 Microsoft product, other than the monopolized 6 products, lose money. But the fact of the 7 matter is, because it's an average, there's 8 certainly good products; in other words, 9 profitable products, within that group, and 10 there's also products that lose money. 11 And, you know, the aggregate of all of 12 those other products over the class period is a 13 negative 12 percent profit margin. 14 So despite -- so when we look at the 15 two groups, we've got the monopolized products 16 on the right where you see the red bars, and on 17 the left you've got the other products where 18 Microsoft faces competition. 19 That's the difference between the two 20 groups. 21 Microsoft has monopoly power in these 22 four product areas and the others it does not. 23 So we've got the same resources at the 24 company, same management. 25 What's the difference between the two 4000 1 product groups? Market share monopoly power. 2 Now, so were these monopolies -- 3 monopolized products, were they popular as 4 compared to the other products? Was there 5 meaningful choice with regard to those products 6 as compared to the other products? 7 Let me just talk to you a minute about 8 the concept of popular. 9 Microsoft may suggest that these 10 monopolized products were popular and that's 11 why there's a monopoly position. In other 12 words, why they have over 90 percent of each of 13 these particular products. 14 It may suggest that Microsoft has 90 15 percent of each of these product markets 16 because people chose those particular products 17 as opposed to some other products. 18 But remember the inputs and outputs 19 that Ms. Conlin and I have discussed. 20 You'll hear, for instance, how 21 Microsoft has foreclosed or prevented competing 22 products from getting into the distribution 23 channels. 24 Well, you'll also hear about how the 25 fact that over 85 percent or approximately 85 4001 1 percent of operating systems software is sold 2 preinstalled through the OEM channel. 3 So if competitive products can't get 4 on those machines, how can people choose them? 5 So you have -- consumers really have 6 the choice of do we buy a computer that's got 7 the preinstalled operating system on it, 8 Windows, for instance, or are we not -- or do 9 we not? 10 So it's the choice of purchasing the 11 computer with the operating system 12 preinstalled, Windows, or not buying a computer 13 at all. 14 So you have to ask yourself whether or 15 not that's a true choice. 16 Whereas if you go to a grocery store 17 and you're buying a loaf of bread and you 18 decide well, we have a choice between one brand 19 versus another. It's right there on the shelf. 20 Do you have that sort of choice? And 21 without that choice, is it fair to say that 22 indeed these products are popular? 23 So the question is, what explains this 24 large difference between the profit margins 25 between the monopolized products and the other 4002 1 Microsoft products? In other words, the 2 products where Microsoft actually faces 3 competition. 4 And I think, is it simply a 5 coincidence? 6 I think Professor Mackie-Mason will 7 tell you that the suggested response is the 8 fact of the anticompetitive conduct that 9 Microsoft has monopolized these products to 10 exclude competitors. 11 Now, remember the Windows 98 example I 12 showed you, I think it was last -- must have 13 been last Friday afternoon. 14 It was the $49 price versus the $89 15 price. 16 Microsoft could have charged half as 17 much and still made a huge monopoly profit. 18 Instead, Microsoft took advantage of its 19 illegal conduct and charged nearly double. In 20 other words, the $89 price. 21 So the extra monopoly charge came 22 right out of class members' pockets. 23 Now, keep in mind we're not saying 24 that it's illegal for a company to earn a 25 profit. What we are saying, it's illegal for a 4003 1 company to engage in anticompetitive conduct 2 and then charge -- overcharge consumers. 3 So the question is, did Microsoft make 4 profits on products at issue that exceeded 5 competitive profits? The answer is yes. 6 Let's take a look at the next factor. 7 Did Microsoft engage in punitive price 8 discrimination? 9 So, in other words, when Microsoft 10 considers -- excuse me. 11 When a customer of Microsoft considers 12 or threatens to consider a competitor's 13 product, did Microsoft respond to the pressure 14 by reducing prices as you would expect in a 15 competitive market, or did Microsoft do 16 something else such as punishing that potential 17 customer with higher prices? 18 The evidence will show that Microsoft 19 set prices where it wanted them to be rather 20 than as a result of normal competitive 21 pressures. 22 In fact, the evidence will show that 23 Microsoft engaged in punitive price 24 discrimination. 25 So price discrimination is charging 4004 1 different prices to different customers for the 2 same product, but where the price difference is 3 not supported by a cost differential based upon 4 the cost in actually supplying the customers. 5 Microsoft did this, in other words, 6 the discriminatory prices, by charging higher 7 prices to OEMs who sold or considered selling 8 competing operating systems software and 9 applications. 10 In a competitive market, suppliers 11 can't do that. 12 For instance, if you have a customer 13 that goes to Supplier A and the supplier says 14 okay, I'll sell you these at $10 per unit, and 15 the customer finds out that that supplier is 16 also selling the identical thing to another 17 customer at $8 per unit, what's that customer 18 going to do? 19 He's going to tell the supplier, look, 20 I want the same deal that your other customer 21 is getting at $8 per unit, and if the -- if 22 that supplier doesn't reduce the price, what's 23 going to happen? 24 That customer is going to go to 25 another supplier to get the $8 deal, so that 4005 1 original supplier loses the sale. 2 But this is in stark contrast to what 3 they see that Microsoft has done. 4 The evidence shows that Microsoft 5 actually dramatically -- charged dramatically 6 different prices to different customers for the 7 same, for instance, operating system product, 8 and they weren't based upon cost justifications 9 between the two customers. 10 So why would Microsoft do this? 11 The evidence will show that it was 12 done as punishment. 13 Now, Ms. Conlin told you about some of 14 the contracts between Microsoft and OEMs. And, 15 for example, Microsoft punished Gateway and IBM 16 by charging them higher prices than other OEMs 17 such as Compaq, Dell, and Hewlett Packard. 18 Why? Because Gateway and IBM were not 19 being cooperative. 20 Let's take a look at finding of fact 21 130. 22 So once again we have a finding that 23 is established in this case. 24 The finding says, the discriminatory 25 treatment that the IBM PC company received from 4006 1 Microsoft on account of the software directions 2 of its parent company also manifest itself in 3 the royalty price that IBM paid for Windows. 4 Let me just explain something about 5 this first sentence. 6 The IBM PC company. As you know, IBM 7 makes, you know, the hardware, the personal 8 computers. But IBM also has its software 9 division. So that's what this is talking 10 about. 11 So in the latter half of the 1990s, 12 IBM, along with Gateway, paid significantly 13 more for Windows than other major OEMs like 14 Compaq, Dell, and Hewlett Packard, that were 15 more compliant with Microsoft's wishes. 16 So let's take a look at more 17 specifically what happened with regard to IBM. 18 Ms. Conlin, as you may recall, talked 19 to you a little bit about this in connection 20 with Microsoft's illegal conduct in the 21 applications market. 22 Let's take a look at finding of fact 23 116. Just focus at the end of that finding. 24 When IBM refused to abate the 25 promotion of those -- of its own products that 4007 1 competed with Windows and Office, Microsoft 2 punished the IBM PC company with higher prices, 3 a late license for Windows 95, and the 4 withholding of technical and marketing support. 5 So that's correct. Microsoft punished 6 IBM. You might have heard of IBM referred to 7 as big blue. You know, one of the most 8 successful computer companies over the course 9 of time. 10 So despite IBM's reputation, its 11 strength in the computer industry, it was 12 forced to pay Microsoft more than other 13 computer makers, more than other OEMs for the 14 same Windows products because Microsoft didn't 15 like the fact that IBM was competing with 16 Microsoft in the applications market with 17 regard to the SmartSuite office suite product. 18 I want to just mention one other thing 19 about finding of fact 116. 20 And you'll note that the Federal Court 21 found that Microsoft leveraged the fact that 22 the PC company needed to license Windows at a 23 competitive price and on a timely basis and the 24 fact that the company needed Microsoft's 25 support in many more subtle ways. 4008 1 In the instructions that Judge 2 Rosenberg gave you, one of them was concerning 3 leveraging. 4 MR. TULCHIN: Objection, Your Honor. 5 These -- the finding does not refer to 6 the concept of leverage as its used in the 7 instructions. 8 THE COURT: Evidence will speak for 9 itself. So will the instruction. 10 Continue your opening. 11 MR. HAGSTROM: One of the concepts 12 that will be discussed by Professor Noll and 13 Professor Mackie-Mason is the concept of 14 leveraging. 15 And leveraging is the concept where if 16 Microsoft illegally used its monopoly power in 17 the operating systems market to gain an unfair 18 competitive advantage or destroy a competitor 19 in the applications market and thereby attempt 20 to gain a monopoly in the second market. 21 That type of conduct can be found to 22 be illegal. 23 Now, the evidence will show that IBM 24 had a product called SmartSuite, and that 25 competed with Microsoft's Office. 4009 1 And IBM, of course, had its own line 2 of IBM computers, and IBM preinstalled on those 3 computers, among other things, the Windows 4 operating system. 5 But they also wanted to add the 6 SmartSuite office product, but Microsoft didn't 7 like that, so Microsoft took actions that will 8 be described to you to prevent or otherwise 9 restrict IBM from installing the office suite 10 products and competing with the Microsoft 11 Office product. 12 So if a competitor like IBM has to 13 withdraw or virtually withdraw from the office 14 suite market to get the Windows operating 15 system, what will happen to Microsoft's price 16 for Office? 17 Professor Mackie-Mason will tell you 18 that the effect of that type of conduct is to 19 keep the price for Office higher than it would 20 be in a competitive market. 21 So did Microsoft gain -- engage in 22 punitive price discrimination? The evidence 23 will show you that the answer is yes. 24 The next factor is did Microsoft 25 compete on price when it sold products that 4010 1 faced effective competition? 2 Let me just explain. 3 You've heard the term high prices. 4 You know, some may call them high prices, some 5 might call them low prices. But for purposes 6 of this case, whatever you call the price is 7 what we're talking about in terms of the 8 overcharge is the fact that the prices actually 9 charged are higher than they would have been in 10 a competitive market. 11 MR. TULCHIN: Objection. 12 Again, Your Honor, that is not the law 13 and it's not the Court's instruction. It's the 14 difference between the prices that were charged 15 and the prices that would have been charged in 16 the absence of the alleged conduct. 17 THE COURT: Sustained. 18 MR. HAGSTROM: So the point here is 19 Professor Mackie-Mason will come in and talk to 20 you about the fact that because of the 21 exclusionary conduct, Microsoft was able to 22 charge prices that were higher than they were 23 -- would have been in a competitive market. 24 MR. TULCHIN: Same objection. 25 THE COURT: Sustained. 4011 1 MR. HAGSTROM: You may be wondering 2 how we can show that Microsoft's prices were 3 and are higher than they would have been in a 4 competitive market. 5 MR. TULCHIN: Same objection, Your 6 Honor. 7 THE COURT: Sustained. 8 MR. HAGSTROM: Your Honor, we intend 9 to present evidence on this issue. 10 THE COURT: Proceed. 11 MR. HAGSTROM: The competitive market 12 does not exist. It did not exist because of 13 the anticompetitive market. 14 Since Microsoft eliminated competition 15 in the product market at issue, we can take a 16 look at what Microsoft does when competition 17 does exist. 18 When Microsoft faces competition, it, 19 in fact, does compete on price. 20 In fact, when Microsoft has faced 21 competition in the operating systems and 22 applications markets, Microsoft competed by 23 actually lowering prices. 24 Microsoft's top executives recognized 25 that when it faced effective competition it 4012 1 would have to compete on price or lose sales. 2 Mr. Gates made this very point in a 3 1994 memo to his top executives. Take a look 4 at Plaintiffs' Exhibit 2156. 5 Ideally, we should be able to discount 6 prices where it is really necessary because of 7 competition and not in other cases. 8 He's saying that when you have a 9 monopoly, you lower prices only when it's 10 really necessary because of competition. 11 The evidence shows that when Microsoft 12 faces effective competition, it lower prices. 13 Let's take a look at this next memo. 14 This is from February 1998, and it's 15 Plaintiffs' Exhibit 2841. 16 We would absolutely never drop price 17 unless absolutely forced to do so. 18 In another document, Plaintiffs' 19 Exhibit 564, Bernard Vergnes writes, we could 20 assume that when our market share is dominant 21 and reaches levels well-above the 50 percent, 22 we couldn't probably gain much from reduced 23 prices. However, we should consider the price 24 weapon in cases where our market share is low 25 and we face better entrenched heavy 4013 1 competition. 2 So what Mr. Vergnes is suggesting was 3 once Microsoft reached a market share well- 4 above the 50 percent level, it didn't have to 5 worry so much about competing in price. 6 When Microsoft had lower market share, 7 however, he says Microsoft would compete on 8 price. 9 Let's take a look at another document. 10 In 1991, Mr. Gates explained that high 11 market share allows Microsoft to charge higher 12 prices, but if Microsoft is a distant number 13 two in the market, it has to lower prices. 14 Let's take a look at Exhibit 596. 15 He says, with a market where we are a 16 distant number two, it is a mistake not to do 17 the deal even at $50. If we were number one in 18 this market, I would agree that anything less 19 than $90 is too low, but we are not. 20 Mr. Gates is talking about Microsoft 21 Word in this document before Microsoft had 22 foreclosed all of its competitors in the market 23 for word processing software. 24 His statement is a classic sign, as 25 Professor Mackie-Mason will tell you, of 4014 1 illegal monopoly pricing. Compete on price 2 when necessary, but when the monopoly is 3 achieved, charge more. 4 Microsoft's strategy in the 5 applications market was to compete on price 6 when necessary. 7 Let's take a look at Exhibit 1342. 8 When necessary, meet Lotus price 9 pressure in mass merch channel. Don't lose 10 deals on price. Match competition when 11 necessary to win business. 12 Again, remember Windows 98 -- let's go 13 back to that series of slides for just a 14 moment. 15 First, when Microsoft released Windows 16 98, Microsoft considered pricing 98 upgrade so 17 that it would sell at retail for $49, but 18 ultimately Microsoft decided to approximately 19 double that price to $89. 20 The reason, Microsoft had monopoly 21 power. 22 Finding of fact 63, and I won't put 23 that up here, but finding of fact 63 discusses 24 this particular scenario between the $49 and 25 $89 pricing. 4015 1 Let's look at another example. 2 This is Plaintiffs' Exhibit 135. 3 In this particular E-mail, Bill Gates 4 wrote, DOS being fairly cloned has had a 5 dramatic impact on our pricing for DOS. I 6 wonder if we would have it around 30 to 40 7 percent higher if it wasn't cloned? I bet we 8 would. 9 What Mr. Gates is suggesting, he's 10 referring to DR-DOS, and DR-DOS being fairly 11 cloned -- that's fair -- DR-DOS has had a 12 dramatic impact on our pricing, Microsoft's 13 pricing, for MS-DOS. And he's suggesting if we 14 didn't have to compete on price with DR-DOS, 15 our price for MS-DOS would be 30 to 40 percent 16 higher. 17 Now, Ms. Conlin went through and 18 previewed some of the evidence on DR-DOS and 19 the activities that Microsoft took to foreclose 20 DR-DOS from the marketplace. And this type of 21 information provides you some pretty good 22 insight as to why that was important to 23 Microsoft to eliminate DR-DOS. 24 Let's take a look at another 25 Plaintiffs' exhibit. 4016 1 I believe people underestimate the 2 impact DR-DOS has had on us in terms of 3 pricing. 4 So again, this is the same type of 5 description by Mr. Gates that, in fact, DR-DOS 6 is having an adverse effect on Microsoft's 7 ability to charge much higher prices. 8 Now, Microsoft contemplated decreasing 9 their margins if OS/2 threatened their hold on 10 the operating systems market. 11 As Ms. Conlin told you, Microsoft 12 prevented OS/2 from succeeding but was ready to 13 decrease prices if OS/2 was able to survive. 14 Let's look at Mr. Kempin's E-mails, 15 Plaintiffs' Exhibit 690. 16 Apologize, but that's a little bit 17 hard to read. 18 Decrease in margin only if people vote 19 to buy retail OS/2 from IBM, which I doubt. 20 All key OEMs are committed to DOS 5.0 and Win 21 3x for the next two to three years. Most of 22 them per processor or at least per system. 23 This will give us time to respond technically. 24 So what this is telling you -- 25 remember the per processor and per system 4017 1 licenses that Ms. Conlin spoke to you about. 2 They are the chokehold on the distribution 3 channel, the output. 4 And what Mr. Kempin is suggesting 5 here, he's referring to the -- if people vote 6 to buy retail OS/2 from IBM. 7 So what he's talking about is if IBM 8 tries to put OS/2 into the finished goods 9 channel at the retail level, you know, Best Buy 10 or something like that, if OS/2 does that, go 11 out there and lower prices on the Microsoft 12 products so we can get OS/2 out of the retail 13 channel as well. 14 In the last sentence there, this will 15 give us time to respond technically. 16 So Mr. Kempin is recognizing that 17 Microsoft had to do some catch-up with regard 18 to OS/2, and Ms. Conlin showed you some E-mails 19 and internal correspondence from Mr. Gates and 20 others stating that OS/2 was, in fact, ahead 21 technically in some aspects. 22 And remember Ms. Conlin spoke to you 23 about Linux. 24 In various developing countries, when 25 Microsoft has been faced with competition 4018 1 through some government programs; in other 2 words, governments in these developing 3 countries have been looking for ways to get 4 computers to their population, and they were 5 considering installing Linux on PCs, Microsoft 6 responded on price, as Ms. Conlin spoke to you 7 about. 8 Competition from Linux forced 9 Microsoft to respond to these developing -- in 10 these developing countries by reducing prices. 11 Remember Plaintiffs' Exhibit 8562. 12 Under no circumstances lose against 13 Linux. And the underlining is in the original 14 document, as is the bold font. 15 So competition also forced Microsoft 16 to create the EDGI program that Ms. Conlin 17 mentioned. 18 So when Microsoft is faced with 19 effective competition, it is forced to compete 20 on price. That's just good old common sense. 21 Now, Professor Mackie-Mason will show 22 you that when Microsoft faced effective 23 competition in the products at issue, then it 24 competed on price to avoid losing customers and 25 losing market share. 4019 1 So when competition is effective, 2 customers for these products respond to price 3 competition. 4 Microsoft, of course, went to great 5 lengths to ensure that potential competitors in 6 the market at issue were not effective, and 7 they wanted to ensure that no competition could 8 adversely affect Microsoft's pricing in these 9 markets. 10 So did Microsoft compete on price when 11 it sold products that faced effective