5384 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 XX 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 18, 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 5385 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 MICHAEL R. CASHMAN 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 ROBERT J. GRALEWSKI, JR. Attorney at Law 12 Gergosian & Gralewski 550 West C Street 13 Suite 1600 San Diego, CA 92101 14 (619) 230-0104 15 16 17 18 19 20 21 22 23 24 25 5386 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, NY 10004-2498 (212) 558-3749 6 STEPHEN A. TUGGY 7 HEIDI B. BRADLEY Attorneys at Law 8 Heller Ehrman, LLP 333 South Hope Street 9 Suite 3900 Los Angeles, CA 90071-3043 10 (213) 689-0200 11 12 BRENT B. GREEN Attorney at Law 13 Duncan, Green, Brown & Langeness, PC 14 Suite 380 400 Locust Street 15 Des Moines, IA 50309 (515) 288-6440 16 17 18 19 20 21 22 23 24 25 5387 1 RICHARD J. WALLIS Attorney at Law 2 Microsoft Corporation One Microsoft Way 3 Redmond, CA 98052 (425) 882-8080 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5388 1 (The following record was made out of 2 the presence of the jury at 8 a.m.) 3 MR. CASHMAN: Your Honor, first on the 4 issue that Mr. Tulchin mentioned, I'm not here 5 to argue that and I'm not prepared to argue 6 that, but I can advise that the Plaintiffs are 7 filing a brief on that issue, which we'll do 8 midday, and they'd be prepared to argue it 9 after Court today. 10 THE COURT: Did I not set it for 11 8 o'clock today? 12 MR. TULCHIN: It was, Your Honor. 13 MR. CASHMAN: I didn't know that it 14 was on today, and I don't think anybody on our 15 team had that understanding. 16 MR. TULCHIN: We certainly said this 17 on the record last week, Your Honor. 18 MR. CASHMAN: What I am here to 19 discuss, however -- 20 THE COURT: They're not ready to 21 discuss what you're discussing, I assume. 22 MR. CASHMAN: I think they are, Your 23 Honor, but we'll find out. 24 For the record, this relates to the 25 hearsay objections to -- that Microsoft 5389 1 asserted to Bill Gates' deposition on Friday. 2 We discussed providing additional 3 argument, and on Sunday morning or early Sunday 4 afternoon, Plaintiffs did supply their 5 additional argument, with copy to Microsoft, 6 but I was -- I learned later in the evening 7 that the Plaintiffs' response did not go 8 through to the Court E-mail address. 9 I've provided a copy to the Court of 10 those undeliverable notices. 11 And, further, after learning that our 12 response did not go through, the Plaintiffs 13 again tried to resend it at one o'clock last 14 night. And this morning I learned that again 15 the messages did not go through. 16 I'm giving a copy to Microsoft of what 17 I provided to the Court just before we went on 18 the record, which is a copy of the 19 undeliverable notices from this morning. Those 20 are pages 1 and 2 of what I provided to the 21 Court. 22 The third page of this submission is 23 my cover letter to the Court at 1 a.m. last 24 night with the resend and attachments of our 25 response and the earlier E-mail undeliverable 5390 1 notices. 2 As indicated here, the Plaintiffs 3 submit that all of the hearsay objections for 4 Mr. Gates' testimony should have been overruled 5 for various reasons, but the one that I wish to 6 focus on this morning is the fact that the 7 statements -- whether the statements were made 8 are direct evidence in this case. 9 And if the Court would turn to Exhibit 10 A, which is the response, and I'd direct the 11 Court's attention to the bottom of the first 12 page in particular. 13 THE COURT: Exhibit A of your brief? 14 MR. CASHMAN: Well, A is the response. 15 That was with my E-mail letter explaining why 16 -- that we got it returned. 17 THE COURT: I'm sorry, yeah, I got it. 18 Thank you. 19 Okay, I'm there. 20 MR. CASHMAN: Under the information 21 entitled fourth, Microsoft incorrectly 22 characterizes statements in these three 23 exhibits as hearsay. 24 I go on to point out -- or the 25 Plaintiffs go on to point out that the 5391 1 statements are direct evidence of relevant 2 facts, and that is why they are not hearsay. 3 And I point out that we state, for 4 example, and without limitation, it is clear 5 that all of the statements attributed to 6 Mr. Gates are direct evidence of (a) willful or 7 flagrant conduct by Microsoft; (b) exclusionary 8 conduct by Microsoft; (c) anticompetitive 9 conduct towards Netscape; (d) causation; and 10 (e) a course of conduct that is willful or 11 flagrant, exclusionary, and anticompetitive, 12 closed quote. 13 And I go on to provide some authority 14 there. 15 And in the next paragraph, Plaintiffs 16 point out why the statements -- underscore why 17 the statements are not hearsay because the 18 Plaintiffs are not concerned with whether any 19 of the statements in these three articles are 20 true. 21 And Plaintiffs point out that they're 22 not concerned with whether Microsoft had a 23 business model that worked even if Internet 24 software was free. 25 Plaintiffs are not concerned with 5392 1 whether Microsoft was still selling operating 2 systems. 3 Plaintiffs are not concerned with 4 whether Netscape's business model looked good 5 or not if Internet software was free. 6 Those are all the substance of what 7 was stated in those articles. 8 And Plaintiffs believe, consequently, 9 that all of the statements in the articles -- 10 in the cross-examination, I should say, the 11 testimony concerning the cross-examination of 12 Mr. Gates on those three articles are 13 appropriate. 14 Plaintiffs did receive the Court's 15 ruling which seemed to suggest that Mr. Gates' 16 equivocation about whether he had given the 17 interview in Business Week, for example, was a 18 basis for deeming the testimony inadmissible. 19 And Plaintiffs submit that if that 20 were the standard, then, any time a plaintiff 21 denied -- a party denied receiving or making a 22 statement, that would make the testimony 23 inadmissible, which Plaintiffs do not think is 24 the correct standard. 25 All of this testimony at issue, that's 5393 1 just cross-examination of Mr. Gates, standard 2 cross-examination, and whether or not he admits 3 making this statement doesn't make the 4 testimony inadmissible. 5 So Plaintiffs believe that all this 6 testimony is proper and should be allowed. 7 Furthermore, Plaintiffs submit that 8 even if denial of making a statement attributed 9 to Mr. Gates was the appropriate standard, 10 which Plaintiffs do not think is correct, but 11 even if that were the standard, it should apply 12 only to Exhibit 6156, the Business Week 13 article. 14 Mr. Gates did admit to making 15 statements to the Financial Times. And both of 16 the other exhibits, Plaintiffs' Exhibit 5783 17 and 5777A, concerned a Financial Times article, 18 and it was -- the testimony on both of those 19 exhibits was -- should be permitted because 20 Mr. Gates was just saying, in essence, that the 21 testimony was about which quotations were 22 correct. 23 So to put a finer point on that, even 24 if the standard was that somebody could deny 25 making a statement and make their testimony or 5394 1 cross-examination on that subject inadmissible, 2 the inadmissible testimony here should be 3 limited solely to 152, 20, to 153, 20, and 158 4 through 157, 22, which is the testimony about 5 6156 and 205, 19, through 206, 8. 6 That would be Plaintiffs' alternative 7 position again. 8 Our primary position is that because 9 whether or not these statements were made in 10 sum or substance by Mr. Gates in standard 11 cross-examination and whether or not the 12 statements were made and the statements 13 themselves are the relevant evidence, it is 14 admissible and should be permitted. 15 Thank you. 16 THE COURT: Thank you. 17 Anything further on this? 18 MR. TULCHIN: Yes, Your Honor, if I 19 may briefly. 20 Mr. Cashman is rearguing a motion on 21 which the Court heard I think hours of argument 22 last week. 23 As I understand things on Friday, 24 Mr. Cashman asked the Court for permission to 25 submit something to the Court, a further 5395 1 submission on Saturday. Nothing was submitted 2 on Saturday. 3 And, instead, Mr. Cashman now says 4 that he tried to submit something yesterday, 5 and apparently it bounced back. 6 But the Court has ruled on all these 7 issues, Your Honor. I don't think reargument 8 is now appropriate. 9 Nothing was submitted on Saturday when 10 Mr. Cashman said he would. 11 The rulings have been made, and I 12 think we ought to move on. 13 If the Court wants to hear on the 14 merits of this argument any further, I'm sure 15 Mr. Tuggy will address them, but I just think 16 we ought to resume at 8:30 as -- and not keep 17 the jury waiting and proceed. 18 MR. CASHMAN: Your Honor, if I may. 19 Mr. Tulchin, I believe, has the 20 circumstances incorrect, and he also fails to 21 acknowledge that it's Microsoft which failed to 22 raise these objections in a timely fashion and 23 tried to raise these objections, even though 24 there's a prior order stating that all of the 25 testimony by Mr. Gates in his deposition is an 5396 1 admission. 2 And their failure to raise and argue 3 these objections before the Special Master, 4 their failure to raise and argue these 5 objections when we argued the Gates' testimony 6 earlier, those matters are covered in my 7 submission to the Court, Exhibit A, the first 8 three points. 9 But, furthermore, what I do think is 10 important to point out, as I do in the cover 11 letter to the Court noting that the E-mail 12 didn't go through, that this is 13 cross-examination, and cross-examination is a 14 fundamental right to a fair trial. 15 And there is Iowa authority which 16 emphasizes that cross-examination such as this 17 on issues such as credibility, bias, motive, 18 specific acts of misconduct, et cetera, is 19 fundamental to a fair trial and that a party 20 which is denied that right to fair 21 cross-examination, as would be the case here if 22 this testimony is not permitted, is 23 prejudicial. 24 So Plaintiffs submit that all of this 25 testimony should be allowed, and the technician 5397 1 is capable of making that happen. 2 So I submit that Mr. Tulchin is just 3 incorrect and fails to acknowledge the real 4 course of events here. 5 Thank you. 6 THE COURT: Thank you. 7 MR. TULCHIN: Your Honor, I don't want 8 to drag this out, but Mr. Cashman ignored what 9 I said, which is just that this has been argued 10 and decided, and I don't think we should have 11 further argument on the merits. 12 THE COURT: Anything further? 13 MR. CASHMAN: Nothing, Your Honor. 14 THE COURT: The order issued by the 15 Court yesterday will remain the same. 16 Let's move on to the order of 17 witnesses and recalling witnesses. 18 MR. TULCHIN: Yes, Your Honor. 19 We have a brief and two affidavits on 20 this subject. If I could hand this up. 21 The affidavits are from Mr. Green and 22 Ed Remsburg, and the memorandum is short. 23 There are a couple of attachments to it. 24 Ms. Conlin did say last week that she 25 proposed to have a number of her witnesses, and 5398 1 she mentioned specifically Ronald Alepin, 2 A-l-e-p-i-n, testify in several segments which 3 she said she could divide up by subject matter 4 so that Mr. Alepin would be called once, 5 perhaps as early as this week, testify on one 6 subject matter, and then after he was excused 7 and other witnesses testify, she would recall 8 Mr. Alepin so that he could testify on a second 9 subject matter. 10 This was something that we hadn't 11 heard about before last Friday, and I think 12 when we discussed it then, we agreed to talk 13 about it this morning briefly. 14 The affidavits of Mr. Green and 15 Mr. Remsburg say similar things. 16 Both of these experienced Iowa 17 lawyers, who together have tried more than 150 18 cases in Iowa courts, say that they've never 19 heard of any such practice; that when a witness 20 is called to the stand, the uniform practice in 21 the Iowa courts is to examine that witness on 22 all subjects. He then may be cross-examined. 23 Perhaps there's redirect, et cetera. 24 But once that witness is excused, all 25 examination of that witness has ceased and the 5399 1 witness may not be recalled to testify about 2 other subject matters. 3 I want to say this, Your Honor. There 4 are cases, of course, where a party is 5 permitted to recall a witness based on 6 subsequent events. 7 For example, there are criminal cases 8 where a witness testifies, and after that 9 witness is excused, the prosecutor learns that 10 the witness perjured himself or herself, or 11 perhaps the defense attorney -- and there's a 12 case of this sort as well -- gets information 13 which could be used to impeach the witness, 14 information which was not available to that 15 lawyer at the time that the witness first 16 testified. 17 And in those special circumstances 18 where new information has come to light, there 19 have been cases where a witness may be recalled 20 to the stand. 21 But we have looked quite extensively 22 and found no case in any Iowa court where a 23 party has been permitted to engage in the 24 practice that Ms. Conlin suggested she would 25 like to adopt in this case; namely, to 5400 1 deliberately segment a witness into a number of 2 different pieces. 3 We've talked about the practical 4 difficulties of cross-examining a witness under 5 those circumstances. 6 It just isn't going to work well to 7 attempt to segment a witness that way. 8 For example, with an expert such as 9 Mr. Alepin, the principal purpose of an expert 10 report is to provide the other side with the 11 opinions and information on which the expert 12 will rely. That is the opinions that he will 13 deliver at trial. 14 We have an expert report from 15 Mr. Alepin. I think we have more than one. 16 The subject matters of his report are 17 actually quite intertwined and not capable of 18 being separated as cleanly as Ms. Conlin 19 suggested. 20 And as both Mr. Green and Mr. Remsburg 21 indicate, they know of no case where this has 22 ever been permitted. 23 I think Ms. Conlin acknowledged last 24 Friday that the usual normal practice is to do 25 things the way all of us normally do them, 5401 1 which is to call a witness. When he or she is 2 finished testifying, he or she is excused, and 3 absent some very special circumstances, for 4 instance, some really legitimate true rebuttal, 5 that witness' testimony has been concluded. 6 Thank you, Your Honor. 7 THE COURT: Response? 8 MS. CONLIN: Your Honor, Microsoft has 9 repeatedly asked for and received the 10 opportunity to argue matters at its 11 convenience. It seems like Plaintiffs should 12 have the same right. 13 We do not have our brief. The brief 14 will be filed this afternoon, or perhaps this 15 morning. But in any event, I will address the 16 issues, but there is no big rush. 17 We cannot get to Alepin this week, and 18 we want the opportunity to show the Court that 19 Microsoft has once again misled it. 20 In fact, in the Gordon case, as we 21 represented to the Court, there is an order 22 permitting us to offer our evidence in 23 chapters, a part of which was to recall 24 particularly expert witnesses. 25 That is a practice sanctioned by the 5402 1 Manual For Complex Litigation, and if there's 2 ever been a complex piece of litigation in the 3 history of litigation in Iowa, this is it, and 4 that's what we wish to do. 5 I would ask the Court for permission 6 to file the brief and to argue from the brief 7 at a time more appropriate, when I've had an 8 opportunity to thoroughly review what exists 9 and when the Court has had an opportunity to 10 review our brief. 11 THE COURT: Will we have your brief 12 soon? 13 MS. CONLIN: Today, Your Honor, as I 14 indicated. 15 THE COURT: After I receive it, we'll 16 take a recess. Then we'll discuss the issue 17 then. 18 MS. CONLIN: Thank you, Your Honor. 19 THE COURT: Anything else? 20 MR. TULCHIN: Not from us, Your Honor. 21 THE COURT: I have an adoption to do 22 at 8:30 so we won't start on time, 23 unfortunately. I apologize for that. 24 (A recess was taken from 8:21 a.m. to 25 8:54 a.m.) 5403 1 MS. CONLIN: Your Honor, we have this 2 question from the juror. 3 THE COURT: Sorry, Carrie. 4 Yes. I forgot about that. 5 MS. CONLIN: [Juror Name] asked what is 6 Blackbird. 7 And I think the parties can agree on a 8 definition of that term, but the issue is 9 whether or not we should be answering questions 10 in the course of the depositions. There will 11 be, I'm sure, a number of terms that the jurors 12 do not understand. 13 It would be -- I would think that we 14 should answer the questions, if we can, when 15 they come up. 16 I mean, these code names, Your Honor, 17 that's going to be a problem before the jurors, 18 and I believe that Ms. Nelles and I can 19 probably agree on a definition for the term 20 Blackbird, but the issue is what -- whether or 21 not that is what the Court wishes to do. 22 I believe that we should answer 23 questions from the jurors, if we can, about 24 things like definitions. 25 THE COURT: Okay. 5404 1 MS. NELLES: Your Honor, I'm just a 2 little bit concerned. 3 I think Ms. Conlin is correct that we 4 can probably come up with an explanation of 5 Blackbird that both sides agree on this 6 particular one. 7 Though, it's certainly -- this is not 8 an acronym like ISV, so it's not a simple 9 definition. 10 But what I'm more concerned about is 11 that we're straying very far from the Court's 12 Preliminary Instruction No. 28, which was 13 asking questions during trial, which very 14 specifically goes to evidence being presented 15 by live witnesses and whether the Court will 16 ask a live witness whether or not -- about a 17 question at the end of the examination. 18 And my concern here is, though I do 19 think we can probably work this particular one 20 out, we're basically, when we're dealing with a 21 deposition, if we're answering these questions, 22 it's the lawyers answering the questions and 23 the lawyers are not competent to give evidence 24 in this case, and perhaps we should, you know, 25 collect these questions as they come and both 5405 1 parties will have an opportunity to try to get 2 them addressed during a witness or collect them 3 and discuss with the Court giving some 4 additional definitions and explanation with the 5 final instructions, but -- 6 Well, this one doesn't concern me too 7 much, though it's definitely not a definition, 8 it's an explanation. 9 I don't think the lawyers should be 10 giving evidence in this case. 11 THE COURT: Anything else on this? 12 MS. CONLIN: Well, what I would 13 suggest, Your Honor, it wouldn't be the 14 lawyers, it would be us agreeing to something 15 and giving it to you. 16 If we can't agree, if there are 17 additional questions that come up that we can't 18 agree on or that are inappropriate, we can 19 handle them as they come, but this one is 20 pretty easy. 21 THE COURT: Anything else on this 22 issue? 23 MS. NELLES: Just that I think we 24 should have a standard procedure and not let 25 this start heading down the slippery slope. 5406 1 THE COURT: Any objection to the Court 2 stating to the jury, and particularly the 3 juror, that the question will be answered 4 during the course of the trial? 5 MS. NELLES: Not at all, Your Honor. 6 THE COURT: Ma'am? 7 MS. CONLIN: No, Your Honor. 8 THE COURT: You can get the jury. 9 MS. CONLIN: Parties have agreed just 10 to go back just a line or two, Your Honor, to 11 pick up. 12 THE COURT: Is that true, Ms. Nelles? 13 MS. NELLES: It is true, Your Honor. 14 (The following record was made in the 15 presence of the jury.) 16 THE COURT: Members of the jury, I 17 apologize for the delay. 18 I had an adoption I had to do at 8:30 19 which I promised to do several months ago. So 20 I had to do that. So I apologize. So, truly, 21 I am at fault here. 22 We'll continue with the deposition 23 testimony. 24 (Whereupon, the following video was 25 played to the jury.) 5407 1 Question: Did you personally devote 2 time, Mr. Gates, to studying Netscape and 3 trying to determine what their sources of 4 revenue were? 5 Answer: In what time frame are we 6 talking about? 7 Question: Well, do you recall doing 8 that at all? 9 Answer: I personally didn't make any 10 study of it. But I know that in late '95 when 11 we reviewed a bunch of different competitors, 12 one of those was Netscape, and there was some 13 revenue analysis done as part of that. 14 Question: I want to ask you about 15 Exhibit 353, and this is a December 1, 1996 16 E-mail from you to Mr. Nehru. 17 Do you recall asking Mr. Nehru in or 18 about December 1996 to collect for you 19 information about Netscape revenues? 20 Answer: No. 21 Question: Do you recall sending this 22 E-mail on or about December 1, 1996 to Mr. 23 Nehru? 24 Answer: No. 25 Question: Okay. 5408 1 Do you recall receiving from Mr. Nehru 2 the attached E-mail dated November 27, 1996? 3 Answer: From time to time we do 4 reviews of various competitors, and at least 5 one point in time Netscape was one of the 6 people that we looked at. 7 So it doesn't surprise me, but I don't 8 remember it specifically. 9 Question: On the second page of the 10 exhibit, which is part of Mr. Nehru's November 11 27, 1996 E-mail, he talks about browsers. 12 Answer: What page? 13 Question: Page 2. 14 Answer: Okay. 15 Question: He identifies their sources 16 of Netscape's revenue. He says, browser 17 revenue for the quarter amounted to $45 million 18 (a 32 percent increase over the last quarter) 19 representing 60 percent of total Netscape 20 revenue. 21 Do you have a reason to doubt the 22 accuracy of the information reported there? 23 Answer: Well, I know that Mr. Nehru 24 didn't work for Netscape, so I'm sure he didn't 25 have access to the figures directly. If you're 5409 1 interested in that, you should ask Netscape. 2 Question: Was this the best 3 information you had in December of 1996 as to 4 the proportion of Netscape's revenue that was 5 derived from browsers? 6 Answer: I don't know. 7 Question: Do you recall receiving any 8 other information than this on that subject? 9 Answer: I might have seen an analyst 10 report. It says here we're 70 percent 11 confident about our numbers. 12 Question: Do you recall why it was in 13 this time frame you had asked Mr. Nehru to 14 collect this information for you? 15 Answer: I don't think I did. I 16 already told you that. 17 Question: You have no recollection of 18 asking him for this information? 19 Answer: I'm quite certain I wasn't 20 the one who asked for the information. 21 Question: Do you have any 22 recollection as to who did? 23 Answer: Perhaps Steve. 24 Question: Steve, you mean Steve 25 Ballmer? 5410 1 Answer: Uh-huh. 2 Question: In your memo here -- strike 3 that. 4 In your E-mail here you say, what kind 5 of data do we have about how much software 6 companies pay Netscape. 7 Do you recall asking that question to 8 Mr. Nehru in or about December 1996? 9 Answer: It looks like I sent him that 10 question after he sent out one of these 11 competitive analysis reports. 12 Question: Do you recall -- strike 13 that. 14 Do you have any reason to believe you 15 didn't ask him for this information on December 16 1, 1996? 17 Answer: Now, wait a minute. Now, 18 you're confusing two things. There's the 19 information here enclosed which I didn't ask 20 him for. 21 Question: I understand. 22 Answer: And that's what you've been 23 asking me about earlier. 24 Question: No, sir. 25 Answer: Then there's the question 5411 1 here in my E-mail, I have no idea if he ever 2 responded to that, but that question certainly 3 looks like it came from me. But that's 4 different than -- 5 Question: I understand. I'm not 6 confused. 7 Answer: Okay. 8 Question: Let me straighten the 9 record out here. Your testimony, as I 10 understand it, is you believe that in all 11 likelihood the information initially collected 12 by Mr. Nehru was sought by Mr. Ballmer; is that 13 right. 14 Answer: I know it wasn't -- I'm 15 pretty sure it wasn't me who asked for it. 16 Question: Correct. And then you got 17 this E-mail from Mr. Nehru and you in turn 18 asked him what kind of data do we have about 19 how much software companies pay Netscape; is 20 that right. 21 Answer: That's part of the E-mail I 22 sent to him it looks like, yes. 23 MR. HOUCK: I would like to mark as 24 Exhibit 354 an E-mail from Mr. Gates to various 25 people dated May 19, 1996 on the -- and the 5412 1 subject is some thoughts on Netscape. 2 Question: Is Exhibit 354 a memorandum 3 you prepared on or about May 1996? 4 Answer: It looks like it is. I don't 5 have a specific recollection. 6 Question: On the second page under 7 the heading Netscape you say, during this think 8 week I had a chance to play with a number of 9 Netscape products. This reinforced the 10 impression that I think all of us share that 11 Netscape is quite an impressive competitor. 12 Do you recall what it was that led you 13 to the conclusion that Netscape was an 14 impressive competitor? 15 Answer: I think the memo speaks for 16 itself in terms of outlining that. 17 Question: On Bates number page 954 18 appears the heading browser war. Do you see 19 that? 20 Answer: Uh-huh. 21 Question: What did you mean by your 22 use of that phrase? 23 Answer: I think somebody -- I wasn't 24 the one who created that phrase. I think it 25 was a phrase that some people had used to refer 5413 1 to the competition in the browser space, 2 including that between us as the provider of 3 Windows and Netscape with Navigator. 4 Question: Under the heading of your 5 memo entitled browser war appears the following 6 statement: If we continue to have minimal 7 share in browsers, a lot of our other efforts 8 will be futile. 9 Do you recall what other efforts you 10 had in mind there? 11 Answer: Well, for example, our desire 12 to get advertising revenue from the Search 13 button and the Home Page in the browser. 14 Question: Do you recall anything else 15 you had in mind? 16 Answer: I don't know if Blackbird had 17 been canceled by this point or not. But since 18 it was a superset browser, it would have fit 19 that category. 20 Question: Anything else? 21 Answer: Well, MSN, our online 22 service, because of its dependency on the 23 Blackbird technology. 24 Question: Do you recall any other 25 efforts that you had in mind here? 5414 1 Answer: No. 2 Question: You go on to say, quote, by 3 the end of the year, we have got to get more 4 than 25 percent share so we are taken 5 seriously, close quote. 6 Do you recall why you came to that 7 conclusion? 8 Answer: I don't remember what I was 9 thinking at the time I wrote the memo. 10 Question: Do you recall who you had 11 in mind as taking you seriously? 12 Answer: At the time I wrote the memo? 13 Question: Yes. 14 Answer: No, I don't recall. 15 Question: Do you have any 16 understanding what Microsoft's 1996 revenues 17 were? 18 Answer: No. 19 Question: Do you have any estimate, 20 as you sit here today, as to what Microsoft's 21 after-tax profits were in 1996? 22 Answer: No. 23 Question: Were they on the order of 24 $2 billion approximately? 25 Answer: I told you I don't know. 5415 1 Question: What's your best estimate 2 of what the -- Microsoft's after-tax profits 3 were in fiscal year 1996? 4 Answer: I don't think it's good to 5 guess because it would be very easy to go get 6 the real figure. 7 Question: Isn't it a fact that 8 winning a browser share was a very important 9 goal for Microsoft in 1996? 10 Answer: We were measuring web usage 11 share to see how popular browser was. And we 12 had -- one of our goals was to increase that. 13 MR. HOUCK: I'd like to mark as 14 Exhibit 358 an E-mail from Mr. Gates to Joachim 15 Kempin dated January 5, 1996. 16 Question: Do you recall writing this 17 E-mail, Mr. Gates, on or about January 5, 1996? 18 Answer: No. 19 Question: Do you have any reason to 20 doubt you wrote it? 21 Answer: No. 22 Question: First sentence says, quote, 23 winning Internet browser share is a very 24 important goal to us, close quote. 25 Why did you believe that to be the 5416 1 case in January of 1996? 2 Answer: Are you asking me to 3 reconstruct my state of mind on January 5th? 4 Question: Do you recall why it was, 5 Mr. Gates, that in the beginning of 1996 you 6 came to believe that winning Internet browser 7 share was a very important goal for Microsoft? 8 Answer: I can't say for sure what I 9 was thinking at the time, but I can explain to 10 you why it makes sense to me that I would have 11 written this mail. 12 Question: Am I correct that you have 13 no present recollection of what it was 14 specifically that led you to this conclusion 15 back in January, 1996? 16 Answer: I don't remember my exact 17 thinking in January, 1996. 18 Question: Okay. 19 Answer: I can explain my general 20 recollection of that time period, but I can't 21 reconstruct what I was thinking when I wrote 22 the mail. 23 Question: What is your general 24 recollection of the time period? 25 Answer: We thought that people -- the 5417 1 usage of the Internet was increasing, and it 2 was important for us to build a browser with 3 better features including integration that 4 would be attractive enough that people would 5 choose to use it. 6 Question: Who was Microsoft's 7 principal competitor for browser share in 8 January of 1996? 9 Answer: I think at that stage, 10 Netscape had 80 to 90 percent usage share, 11 which is a particular way of measuring browser 12 hits. 13 Question: I'd like to mark as Exhibit 14 361 -- I'd like to mark as Exhibit 361 an 15 E-mail from Brad Chase to Bill Gates, Paul 16 Maritz, and Steve Ballmer dated September 8, 17 1997. 18 Does Exhibit 361 refresh your 19 recollection that Microsoft from time to time 20 conducts surveys of web professionals? 21 Answer: Do you want me to read this 22 thing? 23 Question: Just answer my question, if 24 you can. 25 You don't have to read the whole thing 5418 1 to answer my question, and I'll point you to 2 one particular page that I want to ask you 3 about. 4 Answer: I haven't seen the document 5 before, but it appears to be a specific case 6 where some information is gathered about what 7 the document seems to call web professionals. 8 I don't know what they mean by that term. 9 Question: That wasn't my question. 10 You have no understanding of what's 11 meant by web professionals, sir? 12 Answer: In the context of this 13 document, I don't. I can give you many 14 possible definitions for the term. 15 Question: Okay. 16 Do you have any understanding as to 17 the type of web professionals that were 18 surveyed here? 19 Answer: If I studied the document, I 20 could learn something about that. I haven't 21 read it. 22 Question: Do you have any reason to 23 believe that this document was not sent to you 24 on or about September 8, 1997? 25 Answer: No. 5419 1 Question: Do you recall receiving 2 information in or about April 1997 that many 3 users did not want to have a browser integrated 4 into the operating system? 5 Answer: No. 6 Question: I'd like to mark as Exhibit 7 362 -- do you recall receiving this memorandum? 8 Answer: I think I do. 9 Question: Back on Bates stamp page 10 130 under the heading desktop/web integration. 11 Answer: Yep. 12 Question: The memo states: The 13 concept of unifying the user's desktop and web 14 experience sounds good and reasonable, but it's 15 not clear that this is what users want and 16 certainly is not what they expect. 17 Do you know the basis of the statement 18 made here? 19 Answer: He's talking about how to 20 refine the Desktop/Win integration. 21 It says we need to do a better job. 22 And then he talks about how to do the 23 integration and what he thinks is a different, 24 better way. 25 Question: Do you know the source of 5420 1 the information he reports here to you? 2 Answer: I'm sorry? 3 Question: Do you know what the source 4 of his information was that he's reporting to 5 you here? 6 Answer: No. 7 Question: He says in the next line, 8 quote, many users expect to just get browser 9 improvements with IE4, and I've heard many a 10 remark from users that they don't want to view 11 their folders to look like web pages. 12 Do you know where he obtained that 13 information? 14 Answer: No. 15 Question: Would you agree that it's 16 fair to describe Windows 98 as not a vital 17 upgrade for PC users? 18 THE WITNESS: I'm not sure what you 19 mean by vital. I mean, it -- 20 Question: I'd like to mark as Exhibit 21 363 an E-mail from Brad Chase to Walt Mossberg 22 and Mr. Gates dated May 15, 1998. 23 The last portion of this document, 24 Mr. Gates, purports to be an E-mail from 25 yourself to Mr. Mossberg of the Wall Street 5421 1 Journal where you say -- referring to Windows 2 98 -- you are right that it is not a vital 3 upgrade. 4 Do you see that? 5 Answer: I see the paragraph there. 6 Question: Do you recall sending this 7 E-mail to Mr. Mossberg of the Wall Street 8 Journal? 9 Answer: It looks like the E-mail I 10 sent him. 11 MR. HOUCK: At this time I'm going to 12 turn the examination over to Mr. Boies. 13 Question: Now, at the time that, 14 according to you, reporters were suggesting 15 that Microsoft was on the edge of doom, 16 Microsoft had profits of over $2 billion in 17 after-tax profits; is that correct? 18 Answer: Well, I think it 19 mischaracterizes what I said completely to say 20 that I'm just suggesting it. That's really 21 quite a misstatement. 22 Question: Having heard the question, 23 do you want to change your answer? 24 Answer: I'll add to it if you want. 25 Question: No. Do you want to change 5422 1 your answer? 2 Answer: I'll be glad to add to it. 3 Question: My question, sir, is: Do 4 you want to change your answer? You can say 5 yes or no. 6 Answer: I don't see any reason to 7 change it. I'll be glad to add to it. 8 Question: Were reporters suggesting 9 to you in 1996 that Microsoft was on the edge 10 of doom, as you have used that phrase? 11 Answer: Many reporters suggested 12 that, yes. 13 Question: And in 1996 what were 14 Microsoft's revenues compared to Netscape's 15 revenues? 16 Answer: I don't know Netscape's 17 revenues. 18 Question: Approximately, sir? 19 Answer: Approximately what? 20 Question: Approximately what were 21 Netscape's revenues compared to Microsoft's 22 revenues? 23 Answer: You want me to guess at 24 Netscape's revenues? 25 Question: I want you to give me your 5423 1 best judgment and estimate as a chairman and 2 CEO of Microsoft, sir. 3 If you call it guessing, you can call 4 it whatever you want. What I want is your best 5 estimate under both as you sit here. 6 Answer: I know that Microsoft's 7 revenues would be dramatically higher than 8 Netscape's, but I -- I really don't want to 9 hazard a guess at Netscape's revenue in 10 particular. 11 Question: As you sit here now, can 12 you give me any estimator range at all of what 13 Netscape's revenues were in 1996? 14 Answer: Zero to 200 million. 15 Question: As you sit here now, can 16 you tell me any estimator range of what 17 Netscape's revenues are today? 18 Answer: I think zero to 500 million. 19 Question: Can you be any more 20 specific than that; that is, can you narrow the 21 range at all? 22 Answer: Yeah. 200 million to 500 23 million. 24 Question: Can you narrow the 1996 25 range at all? 5424 1 The 1996 range you gave me was zero to 2 200 million. 3 Answer: 30 million to 200 million. 4 Question: Is that the best you can do 5 as you sit here now? 6 Answer: Well, the chance of my being 7 wrong goes up as I narrow the range. 8 Question: You've given me the very 9 best estimate that you can? That's your 10 testimony? 11 Answer: Well, it's all about 12 probability. I think it's highly probable that 13 their revenue fell into the range I gave you. 14 Question: Did you make any effort in 15 1996 to find out what Netscape's revenues 16 actually were? 17 Answer: Personally? 18 Question: Either personally or 19 through some of the many employees of 20 Microsoft? 21 Answer: Oh, I'm sure there were 22 people at Microsoft who looked at Netscape's 23 revenues during that year. 24 Question: Did they communicate with 25 you as to what those revenues were at all? 5425 1 Answer: Among the thousands and 2 thousands of E-mail messages I get, I'm sure 3 there were some that had for certain periods of 4 time information about that. 5 Question: Did you request any 6 information concerning Netscape's revenues in 7 1996? 8 Answer: I'm sure I was in meetings 9 where the information was presented, but I 10 don't think I was the one who specifically 11 asked for the presentation. 12 Question: Whether you specifically 13 asked for a presentation in a meeting or not, 14 did you ask people to provide you with 15 information concerning Netscape's revenues in 16 1996? 17 Answer: I may have asked some 18 questions about their revenue. 19 Question: Do you recall doing that, 20 sir? 21 Answer: No. 22 Question: Did you receive any answers 23 to your questions about Netscape's revenues? 24 Answer: Although I don't specifically 25 recall it, I'm sure that in most cases I did. 5426 1 Question: It would be usual within 2 Microsoft that if you asked a question, you 3 would receive an answer; is that fair, sir? 4 Answer: No. There's no -- there's 5 lots of questions I ask I don't get answers to. 6 But well over 50 percent I do. 7 Question: When you say that there are 8 lots of questions that you ask people of 9 Microsoft that you don't get answers to, do you 10 mean you don't get any answer at all, they just 11 ignore it? 12 Answer: That happens. 13 Question: Does it happen from people 14 with a sustained career within your company, 15 sir? 16 Answer: If they're busy enough on 17 priorities that I set for them, then, yes. 18 Question: You're the chief executive 19 officer of Microsoft. 20 Does Microsoft have a president? 21 Answer: Depends on the time period 22 that you're asking about. Some time periods, 23 yes; some time periods, no. 24 Question: Does it have one? 25 Answer: Today, yes. 5427 1 Question: Who is that? 2 Answer: Steven Ballmer. 3 Question: How long has Mr. Ballmer 4 been president? 5 Answer: About 30 days. 6 Question: What was his position 7 before that? 8 Answer: Executive vice president. 9 Question: How long had he held that 10 position? 11 Answer: That's a good question. 12 There's been an increase in the grand 13 nature of titles over a period of time. Steve 14 has been a very high level executive for a long 15 time. 16 But I don't think I came up with the 17 use of the term executive vice president until 18 something -- no -- I'm not sure when I started 19 using that term -- when we used that term for 20 his position. 21 Question: Is it fair to say that 22 Mr. Ballmer has been a very high executive, to 23 use your phrase, within Microsoft for several 24 years? 25 Answer: Yes. 5428 1 Question: Did you ever ask 2 Mr. Ballmer to provide you with information 3 concerning Netscape's revenues? 4 Answer: No. I don't remember doing 5 that. It would be a very unusual thing for me 6 to ask Steve. 7 He's -- as we discussed, he's a fairly 8 high level executive, so he doesn't generally 9 go out and work on my behalf gathering numbers. 10 Question: Let me ask you to look at 11 Exhibit 355 and, in particular, the second 12 paragraph of the third page, which reads, 13 quote, our business model works even if all 14 Internet software is free, close quote, says 15 Mr. Gates. Quote, we are still selling 16 operating systems, close quote. Netscape, in 17 contrast, is dependent on its Internet software 18 for profits, he points out. 19 You've testified as to the context in 20 which this statement was made. Did you 21 understand at the time that these words were 22 used, that the publication of these words might 23 well affect Netscape's business? 24 MR. HEINER: Asked and answered. 25 MR. BOIES: Don't think so. 5429 1 Answer: In this interview, I was 2 defending Microsoft in the work we were doing 3 to the reporter. And she was the one who was 4 bringing up Netscape in several of the 5 questions. 6 The -- you know, the last part there 7 doesn't even seem to be a quote, so I'm not 8 sure what I said, actually. 9 Question: When you were talking to 10 the reporter, you knew that it was likely that 11 the reporter would publish at least some of 12 what you told the reporter; correct, sir? 13 Answer: Yes. 14 Question: When you used the words 15 with this reporter that are set forth in here, 16 did you understand that if those words were 17 published, it might well affect Netscape's 18 business? 19 Answer: I've already testified I 20 don't remember using those words. So trying to 21 reconstruct my state of mind around using those 22 words when I don't remember using those words 23 is not going to be possible. 24 Question: Let me be sure I understand 25 your testimony. 5430 1 It's your testimony that you do not 2 remember making this statement to the reporter? 3 That's your testimony? 4 Answer: That's right. 5 Question: Do you have any reason to 6 doubt that you made this statement to the 7 reporter? 8 Answer: Well, it seems like we're 9 going over this again and again. 10 I think there were a series of 11 questions from her about -- you know, that 12 Netscape -- that Microsoft might not have the 13 future because of what was going on in the 14 Internet. And although I don't remember my 15 specific answer, I do remember her asking a lot 16 of questions along those lines. 17 Question: My question now, sir, is 18 not what the reporter asked you, my question is 19 whether you have any reason to doubt that you 20 said the words that the reporter attributes to 21 you? 22 Answer: Do you mean the ones in 23 quotes? 24 Question: Let's begin with the ones 25 in quotes, sir. 5431 1 Do you have any doubt or any reason to 2 doubt that you told this reporter in words or 3 in substance that Microsoft's business model 4 works even if all Internet software is free 5 because you were still selling operating 6 systems? 7 Answer: I don't remember saying that. 8 Question: Do you have any reason to 9 doubt that you said that in words or in 10 substance to this reporter in 1996? 11 Answer: I'd want to go back and look 12 at the transcript to find out if I did or not. 13 Question: My question is whether 14 sitting here you have any reason to doubt that 15 you said these words. 16 Answer: I don't remember saying those 17 words. 18 Question: I know that that's what you 19 said. 20 Now I'm asking you a different 21 question, which is whether you have any reason 22 to doubt that you said these words. 23 And if you don't understand the 24 question, you can simply tell me you don't 25 understand the question. 5432 1 Answer: I'm not sure what my memory 2 can hold except for knowing whether I remember 3 if I said it or not. I don't remember not 4 saying it. That's kind of unusual memory to 5 have. But I think that's what you're saying: 6 Is there a specific memory in my head when I go 7 look up my memory where it says I never said 8 these words. And I don't have a memory of that 9 either. 10 Question: Do you have a memory of 11 stating the substance of what is attributed to 12 you even if you don't remember saying the exact 13 words? 14 Answer: No. 15 Question: Do you have any reason to 16 doubt that you said the substance of what is 17 attributed to you? 18 Answer: I have no recollection of 19 saying what is in the substance of that quote. 20 Question: Is what is in the substance 21 of this paragraph inconsistent with what you 22 told people publicly in 1996? 23 Answer: I'm not sure what -- you're 24 asking me to recall everything I said during 25 that year and compare it for consistency with 5433 1 this particular sentence here? 2 MR. BOIES: Move to strike the answer 3 as nonresponsive. 4 THE WITNESS: And I did answer, which 5 is -- 6 MR. BOIES: Read the question back, 7 please. 8 (Requested portion of the record was 9 read.) 10 THE WITNESS: I think you're asking me 11 for -- to check for consistency with all the 12 statements I gave during that 12-month period, 13 and I'm not able to do that. 14 Question: Is what is stated in this 15 paragraph, the second paragraph on page 3 of 16 Exhibit 355, consistent with what you said 17 publicly in 1996? 18 THE WITNESS: Well, you'd have to 19 understand the context of what her question -- 20 what she defined the word Internet software to 21 be when she was asking these questions. 22 And sitting here right now, I don't 23 know when she was asking her questions how she 24 defined Internet software. 25 I'm sure I would have asked her what 5434 1 she meant by it in order to respond. 2 Question: But you don't remember what 3 you said; is that what your testimony is? 4 Answer: I don't remember what the -- 5 in this context, she had -- she had defined 6 what the term Internet software meant. 7 Question: Is it your testimony that 8 at the present time, you simply don't know what 9 this paragraph means, it's unclear to you? 10 Answer: I think to understand -- to 11 decide if that sentence taken out of the 12 context of the interview, if it's -- to 13 understand what it means, you have to decide 14 what you mean by the term Internet software. 15 So if you want to tell me a definition 16 of Internet software, then I can say to you, 17 yes, this seems correct to me or, no, it 18 doesn't seem correct to me. 19 Question: My question to you, sir, 20 is: As you sit here now, you don't have any 21 knowledge of what is meant by the term Internet 22 software in this quotation; is that what you're 23 telling me? 24 Answer: I'm not sure what it was 25 meant during -- what was meant by it during the 5435 1 interview. There are many definitions you 2 could have for that term Internet software. 3 Question: And as you look at this 4 paragraph, which says, quote, our business 5 model works even if all Internet software is 6 free, close quote, says Mr. Gates. Quote, we 7 are still selling operating systems, close 8 quote. Netscape, in contrast, is dependent on 9 its Internet software for profits he points 10 out. 11 Now, it's your testimony that in that 12 context you do not know what is meant by 13 Internet software? 14 Answer: Well, to give this statement 15 internal consistency, it must have been in this 16 interview I wasn't including operating systems 17 in the term Internet software, so the 18 interviewer must have defined it that way, and 19 I was including some products that Netscape was 20 working on in that definition. 21 Question: Browsers perhaps, do you 22 think? 23 Answer: Well, if you want to ask me 24 about browser revenue, I'd be glad to. I can't 25 comment on whether browse -- how browsers 5436 1 relate to this interview that I don't remember. 2 I'll be glad to answer any question about 3 browsers. 4 Question: Well, let me ask a question 5 about browsers, sir. 6 Do you have any doubt in your mind 7 that the reference to Internet software in this 8 paragraph is a reference to browsers? 9 Answer: Internet software -- I can't 10 think of a definition of it that would be 11 specifically just browsers. 12 Question: Would it include browsers? 13 Answer: Most definitions of it would, 14 yes. 15 Question: Would it be clear to you, 16 sir, that the reference to Internet software 17 here in this paragraph includes browsers? 18 Answer: Well, when you talk about 19 browsers, you have to think of different 20 revenue streams. And it's not clear if in this 21 interview that distinction had been drawn 22 between the different potential revenue streams 23 generated by a browser. 24 Question: When you say this 25 interview, you mean the interview of you? 5437 1 Answer: That's right. 2 Question: Right. 3 Let me try to put my question in a way 4 that maybe it will be more understandable. 5 Is it clear to you from the context 6 that's here that when a reference is made to 7 Internet software, that reference includes 8 browsers? 9 Answer: Well, outside of the quotes, 10 if you look what the author wrote, she seems to 11 have a very broad definition of Internet 12 software. She seems to be including electronic 13 mail and groupware, perhaps even database -- 14 looks like database is included in her 15 definition. 16 MR. BOIES: Move to strike the answer 17 as nonresponsive. 18 Question: Mr. Gates, with respect to 19 the quotation that is attributed to you, do you 20 have any doubt that Internet software, as used 21 there, includes browsers? 22 Answer: If the distinction had been 23 made about the revenue streams, then, yes, it 24 probably does. 25 Question: Probably does include 5438 1 browsers? 2 Answer: If the distinction had been 3 made about the different revenue streams. 4 Question: If the distinction had been 5 made in this interview of you you're saying? 6 Answer: That's right. 7 Question: And it's your testimony 8 that you just don't remember whether or not 9 that distinction was made? Is that your 10 testimony? 11 Answer: That's right. 12 Question: In 1996 did you tell people 13 publicly that Microsoft would do fine if 14 Internet software or browsers were free but 15 that Netscape would not do fine if Internet 16 software or browsers were free? 17 Answer: What do you mean by Internet 18 software? 19 Question: What I mean is what you 20 refer to as Internet software in these various 21 quotations. 22 Answer: I'm afraid we're not going to 23 be able to know what my state of mind was when 24 I gave that interview. If you want to define 25 it, I'll be glad to answer the question. 5439 1 Question: Do I take it that your 2 testimony is that you simply have no 3 recollection whatsoever as to what you meant by 4 these words in 1996? 5 Answer: No. It wasn't what I meant. 6 I responded to a reporter's question, and I've 7 already said to you that she must have given me 8 a reason to understand what she meant in her 9 questions in order for me to be able to answer 10 them. 11 Question: Do you remember asking her 12 what she meant by those terms? 13 Answer: I feel pretty sure I wouldn't 14 have used the term unless there was some 15 understanding of what she understood the term 16 to mean. 17 Question: Why is that, sir? 18 Answer: I'm just saying it's not 19 typical for me to use a term with a reporter 20 where it's a very open unended term that can be 21 used in a lot of different ways without any 22 understanding between myself and the reporter 23 of -- in that context, in that series of 24 questions, what's being referred to. 25 Question: Well, I'd like to draw a 5440 1 distinction, if I could, between having any 2 understanding at all, which could come from a 3 variety of sources, and asking the reporter for 4 a definition. 5 Did you ask the reporter for a 6 definition of what was meant by Internet 7 software? 8 Answer: All I can say, not recalling 9 the specifics in the interview is that it's 10 very unlikely I would make a statement like 11 that without some common understanding between 12 myself and the reporter of what that term, 13 which out of context is incredibly ambiguous, 14 what it meant in the context of her series of 15 questions. 16 Question: And just to be sure I 17 understand it. 18 What you're saying is that you don't 19 remember what the definition was and you don't 20 even remember that there was a definition, but 21 you believe there must have been a definition 22 or you wouldn't have been using these words. 23 Is that fair? 24 Answer: There must have been a common 25 understanding. I wouldn't say a definition. 5441 1 Question: How would that common 2 understanding have been arrived at other than 3 through a definition? 4 Answer: Well, somebody can give 5 examples. I'm just saying it doesn't have to 6 be a formal definition for two people to have a 7 context in a conversation of what a word means. 8 That is, neither one has to say I define the 9 word as follows. So maybe I interpreted your 10 use of the word definition too strictly. 11 Question: Okay. 12 Answer: So if you define definition 13 for this conversation in a loose way, then I'll 14 understand what you mean. 15 Question: That is, what you need in 16 order to understand the question is to have me 17 define what is meant by definition? 18 Answer: At least loosely. 19 Question: What I mean by definition 20 is what you meant by definition when you said 21 that you wouldn't have answered this question 22 unless you had a definition of the word. 23 Answer: Common understanding -- I 24 used the word common understanding, and I'll 25 stick with that. 5442 1 Question: In 1996 was there a common 2 understanding of what was meant by Internet 3 software? 4 Answer: In a context-free sense, 5 absolutely not. 6 Question: Was there a common 7 understanding of what was meant by an Internet 8 browser? 9 Answer: The whole notion of what the 10 browser -- what features it would contain or 11 what it would mean or all that was very 12 uncertain in 1996. 13 Question: Let me ask you a different 14 question. 15 Do you believe that the publication of 16 this article and, in particular, the 17 publication of a statement attributed to you, 18 whether accurately attributed to you or not, 19 that quote, our business model works even if 20 all Internet software is free, close quote, 21 says Mr. Gates. Quote, we are still selling 22 operating systems. What does Netscape's 23 business model look like if that happens? Not 24 very good, close quote. 25 Do you believe that the publication of 5443 1 that statement affected Netscape? 2 Answer: I know when people have been 3 quoted in the press, competitors, saying how -- 4 what trouble Microsoft is in and how much 5 better their products are, that it's rarely had 6 a direct effect on our business. 7 I think somehow people rely on more 8 analytical observers. 9 MR. BOIES: I'll move to strike the 10 answer as nonresponsive. 11 Would you read the question again, 12 please? 13 (Requested portion of the record was 14 read.) 15 THE WITNESS: What do you mean 16 affected Netscape? 17 Question: Are you telling me that you 18 don't understand the question, sir? 19 Answer: Yes, that's what I'm saying 20 to you. 21 Question: Okay. By affected 22 Netscape, I mean adversely affected Netscape. 23 Answer: Like hurt their feelings, 24 somebody cried, or somebody in reading the 25 article smiled? 5444 1 Question: Are you saying that you 2 don't understand what I mean by adversely 3 affected Netscape? 4 Answer: No, I don't know what your 5 criteria is. 6 I think it's likely somebody may have 7 read it and disagreed with it. 8 Question: Do you think it adversely 9 affected Netscape's business prospects? 10 Answer: I think the general work that 11 we were doing to do strong Internet software 12 had an effect on Netscape, but I don't think 13 quotations like that had any direct effect. 14 Question: Now, you putting in the 15 word direct effect, and I know that you're a 16 very precise person from the statement you've 17 already made today. 18 So I'm going to ask you what you mean 19 by the use of the word direct there that you 20 put in the answer that wasn't in the question. 21 What do you mean by direct? 22 Answer: Well, I said earlier that 23 there are analytical observers like analysts, 24 and they tend to look at technology companies 25 and deliver pronouncements about them. 5445 1 And, you know, some of them will be 2 positive about a company, and some will be 3 negative about a company. 4 It's possible in looking at the 5 general activities of Microsoft, one of those 6 analysts formed a certain conclusion about 7 Netscape and published that conclusion and that 8 that might have had an effect. 9 And so you could say that analysts may 10 have had an effect. And analysts look at what 11 Microsoft does, primarily in the products, not 12 as much what we say is what we do in shipping 13 our products. 14 Question: What I'm asking you about, 15 of course, right now is the effect of what you 16 were saying or what was attributed to you. 17 And I do want to come to the effect 18 that your products had on Netscape as well. 19 But right now I want to talk about the 20 effect of what was attributed to you. 21 And what I'm asking you is whether you 22 believe that the publication of statements like 23 this attributed to you adversely affected 24 Netscape's business prospects. 25 Answer: I'm not aware of any specific 5446 1 effect. And my general experience is that when 2 competitors have made statements about us, that 3 doesn't have an effect, rather that the people 4 who do analysis or the actual products get 5 shipped are what cause effects on our business. 6 Question: Do you think that the 7 effect on Microsoft's business of competitors 8 saying things about Microsoft is comparable to 9 the effect on Netscape's business of Microsoft 10 saying things like this about Netscape? 11 Answer: Are we now talking about what 12 was published or what was said? 13 Question: Well, we're talking about 14 what was published here. 15 Answer: Okay. Well, then, stick to 16 that. 17 Question: That's what I am, sir, 18 because I understand that your testimony is 19 that you just don't remember saying any of 20 these quotations that these publications have 21 attributed to you. 22 Answer: No. 23 Question: That's why I'm asking about 24 what is written here because there's no doubt 25 -- you have no doubt that this was actually 5447 1 published, do you, sir? 2 Answer: I believe it was published. 3 Question: Okay. So at least we know 4 that The Financial Times published, quote, our 5 business model works even if all Internet 6 software is free, close quote, says Mr. Gates. 7 Quote, we are still selling operating systems. 8 What does Netscape's business model look like 9 if that happens? Not very good, close quote. 10 Now, I asked you whether you thought 11 that the publication of that adversely affected 12 Netscape's business prospects. And you then 13 gave me an answer that talked about the effect 14 on Microsoft of criticism of Microsoft. 15 Do you recall that? 16 Answer: Well, that wasn't all that I 17 said. We can read back what I said. 18 Question: If you would like to have 19 it read back, it's okay with me. I don't need 20 to have it read back. But if -- I've got as 21 much time as I need to finish the examination, 22 sir, and I'm prepared to spend as many days 23 here as I have to to do that. 24 I think the record is quite clear as 25 to what your answer was, and I think it is 5448 1 quite clear that you kept going back to 2 Microsoft's experience, and that's the only 3 point I'm trying to get you to focus on. 4 Now, do you recall that enough to 5 answer the question, or do we need to go back? 6 Either way's okay with me. 7 Answer: Go ahead and ask a question, 8 and then I'll decide. 9 Question: Do you think -- because 10 you're the one that brought up the effect on 11 Microsoft of criticism. 12 Do you think that the effect on 13 Microsoft of criticism of it is comparable to 14 the effect on Netscape of a publication of 15 statements attributed to you like, quote, our 16 business model works even if all Internet 17 software is free, close quote, says Mr. Gates. 18 Quote, we are still selling operating systems. 19 What does Netscape's business model look like 20 if that happens? Not very good, close quote. 21 Answer: So you're supposing a case 22 where I personally criticized Microsoft? 23 Question: I'm not supposing anything 24 at all, sir. 25 Answer: That's what you suggested. 5449 1 Question: No. Sir, let me try to be 2 clear. And perhaps I'm not being clear. 3 Answer: Who's doing the criticism in 4 your hypothetical? 5 Question: Well, I think the only 6 person that has mentioned the word criticism 7 today is you; that I think it came out of your 8 answer when you were talking about criticism of 9 Microsoft. 10 Now, if I've misremembered your 11 testimony about that, I will stand corrected by 12 the record. 13 But my recollection is that I asked 14 you whether you thought the publication of 15 statements like this would adversely affect 16 Netscape's business prospects. 17 And my recollection is that you gave 18 me an answer, a substantial portion of which 19 included a statement that it had been your 20 experience that criticism of Microsoft didn't 21 really affect your business. 22 Answer: No, I didn't say that. I 23 said statements by competitors, whether 24 critical or otherwise, I didn't think explained 25 what happened to our business, but, rather, 5450 1 other factors could explain what happened to 2 our business. 3 Question: Okay. Let me use 4 statements. And if I misremembered the word 5 criticism, I apologize. 6 Do you think that the effect on 7 Microsoft's business of statements about 8 Microsoft by its competitors is comparable to 9 the effect on Netscape's business of the 10 publication of statements like, quote, our 11 business model works even if all Internet 12 software is free, close quote, says Mr. Gates. 13 Quote, we are still selling operating systems. 14 What does Netscape's business model look like 15 if that happens? Not very good, close quote. 16 MR. NEUKOM: If you read that one more 17 time -- that's seven times. Come on. 18 MR. BOIES: I wish this question had 19 been answered simply. I think it could have 20 been. 21 Answer: I gave you a very simple 22 answer that I was not aware of any effect on 23 their business by the publication. 24 Question: And that may have answered 25 my question, sir. 5451 1 But because I know that you're a 2 person that uses words very precisely, I need 3 to be sure that we haven't missed something 4 between the question and the answer. 5 My question was whether you believed 6 that this publication affected Netscape's 7 business prospects. 8 You said you didn't know of any 9 effect. 10 And I just wanted to be sure that your 11 answer was meant to apply to the full breadth 12 of my question. 13 Answer: The full breadth of your 14 question? 15 Question: Yes, sir. And if that's 16 confusing to you, as I say, I will put the 17 question as many times as I need to to be sure 18 that I get it clear to you. 19 My question -- and unfortunately, I'm 20 going to have to quote it again. 21 MR. HEINER: There's no need. There's 22 really no need. 23 Question: But my question, sir, is 24 whether you believe that the publication of 25 statements like the statement in The Financial 5452 1 Times that, quote, our business model works 2 even if all Internet software is free, close 3 quote, says Mr. Gates. Quote, we are selling 4 operating systems. What does Netscape's 5 business model look like if that happens? Not 6 very good, close quote, adversely affects 7 Netscape's business prospects. 8 Answer: I told you, I'm not aware of 9 any effects on Netscape by the publication of 10 that statement. 11 Question: Have you finished your 12 answer? 13 Answer: Yes. 14 THE COURT: At this time -- could you 15 stop it, please? 16 There's a problem with her real time, 17 so she has to work on that. 18 So it's probably a good time for a 19 break. 20 We'll take a 10-minute recess and 21 we'll come back. 22 If you could start it a few lines, if 23 you want. 24 Remember the admonition. 25 All rise. 5453 1 (A recess was taken from 10:03 a.m. 2 to 10:21 a.m.) 3 THE COURT: Ladies and gentlemen, 4 there was a question by one of the jurors and I 5 neglected to address it in regard to Blackbird. 6 The question will be answered during 7 the course of the trial, okay? 8 Now, we're back. 9 (Whereupon, the following video was 10 played to the jury.) 11 Question: Do you believe that the 12 publication of that statement adversely affects 13 Netscape's business prospects, whether you are 14 aware of precisely what those effects are or 15 not? 16 Answer: Well, I'm not absolutely 17 sure, but I did explain to you that in the 18 analogous situation the effect has not come 19 from that but from other factors. 20 Question: And what is the analogous 21 situation that you refer to? 22 Answer: Statements by competitors 23 about Microsoft. 24 Question: And do you believe that 25 statements by competitors about Microsoft are 5454 1 analogous in terms of their effect on Microsoft 2 to statements like this about Netscape? 3 Answer: I'm not absolutely sure what 4 you mean by like this, but in general, yes. 5 Question: By like this, I mean the 6 quotation The Financial Times article. 7 Answer: I don't know what it means to 8 be like that. 9 Question: Is that because you don't 10 understand the word like or because you don't 11 understand what it means to be like something? 12 Answer: Neither. 13 Question: What is it then? 14 Answer: I stated in quite a broad way 15 that statements by competitors about us have 16 not been a factor to explain future 17 developments in our business prospect, but 18 rather other factors explain any changes in our 19 business prospects. And I'll say that broadly 20 about competitive statements by competitors. 21 Question: Statements by competitors 22 about Microsoft? 23 Answer: That's right. 24 Question: Now, what I'm asking about 25 is not statements about Microsoft by 5455 1 competitors. But I'm asking about statements 2 about Netscape. And the question that I most 3 recently asked that I thought was simpler than 4 it is turning out to be is whether you believed 5 that statements about Microsoft by its 6 competitors would have an analogous effect on 7 Microsoft to statements like the one published 8 in The Financial Times in 1996 in June that 9 we've been looking at. 10 MR. BOIES: Let me see if I can bring 11 it to a close because I don't think this should 12 be as difficult as it appears to have become. 13 And let me see if I can identify what I think 14 we're in agreement on. 15 Question: The statement was published 16 in The Financial Times, correct? 17 Answer: I think it was. 18 Question: You have said that 19 statements that have been published about 20 Microsoft by its competitors do not, in your 21 view, adversely affect Microsoft's business; 22 correct? 23 Answer: Yeah. I've said that other 24 factors like what happens with products or 25 other observers less directly involved in my 5456 1 view explain whatever change in our business 2 prospects happen. 3 Question: Now, my question is whether 4 you believe that that is true for Netscape as 5 well; that is, that statements about Netscape 6 by its competitors, including Microsoft, do not 7 affect Netscape's business prospects. 8 Answer: Well, I think it's pretty 9 hard -- you know, you don't have a world where 10 you can say hold everything else the same; the 11 analysts' comments, what happens with products 12 and just take out one thing. 13 So your whole notion here that I'm 14 supposed to ascribe to you as certain 15 cause-and-effect relationships is really quite 16 absurd. 17 Question: Well, let me ask you a 18 question, Mr. Gates. Do you have any doubt 19 that the publication of this statement 20 attributed to you in The Financial Times 21 adversely affected Netscape's business 22 prospects? 23 Answer: In the world I live in, 24 people look to unbiased observers to judge 25 things about products and financial prospects 5457 1 and things of that nature. 2 But we're not going to be able to run 3 the experiment of keeping everything the same 4 and having the world with some statement and 5 the world without some statement and determine 6 the ultimate cause and effect. 7 Question: Would you read the question 8 back, please. 9 (Requested portion of the record was 10 read.) 11 Question: May I have an answer to 12 that, please, sir? 13 Answer: I told you before I'm not 14 aware of any effect on Netscape's business 15 prospects by that statement. 16 Question: My question right now is 17 whether you have any doubt that there were such 18 effects; that is, do you have any doubt that 19 regardless of whether you can identify them as 20 you sit here now and tell me what they are, do 21 you have any doubt that your being said to have 22 said these words hurt Netscape's business 23 prospects? 24 Answer: I think while we can't run 25 the experiment that held everything else the 5458 1 same, that is, the comments of analysts, the 2 quality of products, all those things going on, 3 and didn't have that comment published, that 4 their business prospects would have been the 5 same. 6 That's my belief, but we don't get to 7 run that experiment. 8 Question: Do you believe that the 9 publication of statements like this by you or 10 statements like this attributed to you affected 11 what analysts wrote about Netscape? 12 Answer: Analysts do their own 13 thinking and come to their own conclusions. 14 They might look at statements in order to 15 consider various hypotheses. But they're 16 particularly good at ignoring statements made 17 about one company who's competing with another 18 company. 19 Question: Does that mean that it's 20 your testimony that you believe that analysts 21 analyzing Netscape would have ignored this 22 statement attributed to you? 23 Answer: No. I didn't say that. I 24 said it might get them to consider. I said the 25 opposite. In fact, I said it might get to 5459 1 consider certain hypotheses, but they would do 2 their own thinking and come to their own 3 conclusions based on factors completely 4 independent of that. 5 They're in the business of talking 6 about objective analysis. 7 Question: Is one of the objective 8 analyses that they're in the prospect or 9 business of doing -- is figuring out what the 10 effect of Netscape is going to be if certain 11 actions that Microsoft takes? 12 Answer: A financial analyst who's 13 assigned to Netscape would have that as one of 14 the things they would do. 15 Question: And did you in 1996 make a 16 conscious effort to try to affect what 17 financial analysts analyzing Netscape did and 18 thought? 19 Answer: I personally didn't, no. 20 Question: Did Microsoft? 21 Answer: Microsoft, I'm sure, made 22 analysts aware of what we were doing with our 23 products, including the innovative work we were 24 doing. And I'm sure that had an effect. 25 Question: Did you or others at 5460 1 Microsoft, to your knowledge, do things with 2 the purpose of affecting what analysts 3 analyzing Netscape wrote or thought? 4 Answer: Well, our primary focus is 5 going out and talking about our products and 6 what they do for customers. 7 If the customer or the analyst asks us 8 a question about Netscape or asks for a 9 comparison, it's not unusual to give them an 10 answer. 11 Question: Did you or, to your 12 knowledge, others at Microsoft, do things for 13 the purpose of affecting what analysts 14 analyzing Netscape wrote or thought? 15 Answer: We certainly let people know 16 about the good work we were doing. The primary 17 purpose of that wasn't to affect Netscape, but 18 certainly one of its effects would have been to 19 affect how they viewed the competition between 20 Microsoft and Netscape. 21 Question: In addition to talking 22 about your good works, was one of the purposes 23 of talking about giving away Internet software 24 for free to affect the way analysts looked at 25 Netscape? 5461 1 Answer: Well, I doubt you can ascribe 2 too much effect purely to the talking about it. 3 Question: I would certainly agree 4 that the fact that you did it and talked about 5 it was a lot more effective than just talking 6 about it. 7 But right now I am focusing on the 8 talking about it. 9 Answer: That's again one of these 10 experiments we can't run where you say what if 11 we refuse to answer all questions about 12 Netscape, but we did what we did. My view is 13 that the work and the products and everything, 14 that the talking is not the key element in how 15 our business prospects or other people's 16 involved. 17 Question: Do you think, Mr. Gates, 18 that Microsoft's giving away of its Internet 19 Explorer browser for free adversely affected 20 Netscape's business? 21 Answer: Well, as I've said earlier, 22 we don't give away all the aspects of the 23 browser. 24 We do let Windows users have the 25 browsing functionality as part of Windows, but 5462 1 we derive significant revenue from things like 2 the search button and the home page. 3 Question: Have you told people that 4 Microsoft was going to give the browser away 5 for free and that indeed it would be forever 6 free? 7 Answer: I said that it would be a 8 feature of Windows and available to people who 9 used Windows. In that sense, yes. 10 Question: Well, you may have said 11 that. But what I'm now asking you about is 12 whether you also said that Microsoft was going 13 to give the browser away for free and that it 14 would be forever free. 15 Did you say that, sir? 16 Answer: When I was talking about 17 Windows and the future of Windows, I did say 18 that was one of the features that would come in 19 Windows at no extra charge and that it wouldn't 20 become an extra charge feature. 21 Question: You may very well have said 22 that, and I accept that you said that. 23 But my question to you, sir, is 24 whether you said that Microsoft was going to 25 give the browser away for free and it would be 5463 1 forever free. 2 Did you say that? 3 Answer: I don't know why -- what 4 distinction you're drawing. 5 Question: I'm talking about the 6 statement. 7 Answer: The word the browser when I 8 talked about it being free and forever free was 9 talking about the browser functionality of 10 Windows. 11 Question: Okay. 12 But when you talked about it, you used 13 the word browser not browser functionality; 14 correct, sir? 15 Answer: I don't remember the exact 16 words. It's very possible I used that 17 shorthand. 18 Question: And you talked about the 19 browser being forever free, did you not, sir? 20 Answer: Are you asking me about exact 21 words? 22 Question: Yes. I'm asking you about 23 exact words. 24 Answer: Or are you asking me to 25 explain what I said? 5464 1 Question: I'm asking you about the 2 exact words. Did you say the exact words that 3 the browser was going to be forever free? 4 Answer: If you're asking me about 5 exact words, I don't recall the exact words 6 that were used. 7 Question: Is it your testimony that 8 you do not, as you sit here now, recall saying 9 that the browser would be forever free? 10 Answer: Those exact words? 11 Question: Those exact words. 12 Answer: I would want to see the 13 context and be reminded about that. I don't 14 remember using those exact words. 15 Question: Okay. 16 Do you remember using the words 17 forever free, those exact words? 18 Answer: Those two words? 19 Question: Yes. 20 Answer: I'm sure I used those before 21 I was five years old. 22 Question: Really? With respect to 23 what? 24 Answer: Forever free. I wanted to be 25 forever free. 5465 1 Question: All right. Did you ever 2 use those with respect to the browser? 3 Answer: If you're asking is there a 4 sentence that if you did a string search would 5 have exactly those words in it, I'm not sure. 6 I did say that we would keep -- I did deliver 7 that intent; that is, that the browsing 8 functionality in Windows was not something that 9 we intended at some time in the future to 10 charge extra for. 11 Question: And what you're telling me 12 is you don't remember whether you just used the 13 words forever free? That's what you're saying? 14 Answer: I may have. 15 Question: You may have? 16 Answer: The general notion of the 17 Windows browser functionality staying free in 18 the future was certainly communicated by me. 19 Question: Okay. Thank you. 20 In 1996 did you believe that Netscape 21 posed a serious threat to Microsoft? 22 Answer: They were one of our 23 competitors. 24 Question: Were they a serious 25 competitor in your view, sir? 5466 1 Answer: Yes. 2 Question: Did you believe that 3 Netscape's browser was a serious threat to your 4 -- that is Microsoft's -- operating system's 5 business? 6 Answer: Well, you have to think about 7 what work we were going to do to improve our 8 software and then what Netscape and others were 9 going to do to improve their software. You 10 can't just look at it statically. It's more 11 the work than -- the new things you do than the 12 history. 13 Question: Did you believe that by 14 1996, that Netscape and Netscape's Internet 15 browser was a serious alternative platform to 16 the platform represented by Microsoft's Windows 17 operating system? 18 Answer: Well, as was articulated by 19 Marc Andreessen and other people from Netscape, 20 if we didn't do new product work, that was a 21 very likely outcome. 22 Question: What was a very likely 23 outcome? 24 Answer: That the value of the Windows 25 platform would be greatly reduced. 5467 1 Question: Did you believe that it was 2 in Microsoft's interest to convince financial 3 analysts that Netscape was not going to be 4 financially viable? 5 Answer: I never had a goal to do 6 that, and my only comments about Netscape's 7 business would have come in response to direct 8 questions about that topic from reporters. 9 Question: Well, let me ask you to 10 look at what has been previously marked as 11 Exhibit 354, which is a memorandum from you in 12 May of 1996. And the last paragraph begins, 13 quote, at some point financial minded analysts 14 will begin to consider how much of a revenue 15 stream Netscape will be able to generate, 16 closed quote. 17 Why was that important to you in this 18 internal memorandum, which, obviously, is not 19 something which you're merely responding to a 20 reporter's inquiry, but it is something that is 21 involved in your internal deliberations within 22 Microsoft? 23 Answer: Who said it was important? 24 It doesn't say -- I mean, it's one of many 25 sentences in the memo. 5468 1 Question: Is it your testimony that 2 this is an unimportant sentence, sir? 3 Answer: I don't think it's any more 4 important than any of the other sentences in 5 here. 6 Question: Is it any less important 7 than any of the other sentences? 8 Answer: Yeah. It's not germane to 9 the primary topic of the memo. 10 Question: If it wasn't germane to the 11 primary topic of the memo and if it wasn't 12 particularly important, why did you include it, 13 Mr. Gates? 14 Answer: It's merely an observation 15 that I put into this rather extensive memo that 16 talks about our plans in doing innovative 17 products and, it's tacked on as the last 18 paragraph. And you didn't read the whole 19 paragraph, but it says at some point. So it 20 seems to be a prediction about that. 21 Question: Yes, I agree, it seems to 22 be a prediction. And I think I did read the at 23 some point. 24 But my point to you is this is a 25 memorandum that you were sending to a number of 5469 1 the top executives of Microsoft; correct, sir? 2 Answer: All product people. 3 Question: Well, let's see. We have 4 Mr. Ballmer. 5 Answer: It's not to him. 6 Question: He's getting a copy? 7 Answer: That's right. 8 Question: Okay. 9 And what was Mr. Ballmer's position in 10 May of 1996? 11 Answer: Executive vice president. 12 Question: How many executive vice 13 presidents did Microsoft have at that time? 14 Answer: One, two, three, four. 15 Question: And who were the others? 16 Answer: Bob Herbold, Pete Higgins, 17 and Paul Maritz -- no, no, no. Maybe -- no, I 18 think it's just four. 19 Question: So that this memorandum 20 went to all four of the executive vice 21 presidents; correct, sir? 22 Answer: It went to Paul Maritz. It 23 was copied to the other people there. 24 Question: It was either addressed or 25 copied to all four of the executive vice 5470 1 presidents? 2 Answer: They're among the recipients, 3 yes. 4 Question: Let's go through who the 5 other recipients are. 6 It is addressed to executive vice 7 president Paul Maritz. And below you at this 8 time, was executive vice president the highest 9 position in the company? 10 Answer: Yes. 11 Question: Okay. And beneath 12 executive vice presidents, what was the next 13 level? 14 Answer: Senior vice presidents. 15 Question: And how many senior vice 16 presidents were there? 17 Answer: I couldn't te