10927 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 XL 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 8:20 a.m., January 30, 14 2007, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 10928 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 MICHAEL R. CASHMAN MICHAEL E. JACOBS 8 Attorneys at Law Zelle, Hofmann, Voelbel, 9 Mason & Gette, LLP 500 Washington Avenue South 10 Suite 4000 Minneapolis, MN 55415 11 (612) 339-2020 12 ROBERT J. GRALEWSKI, JR. 13 Attorney at Law Gergosian & Gralewski 14 550 West C Street Suite 1600 15 San Diego, CA 92101 (619) 230-0104 16 17 18 19 20 21 22 23 24 25 10929 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 KIT A. PIERSON 7 Attorney at Law Heller Ehrman, LLP 8 333 Bush Street San Francisco, CA 94104 9 (415) 772-6000 10 STEPHEN A. TUGGY Attorney at Law 11 Heller Ehrman, LLP 333 South Hope Street 12 Suite 3900 Los Angeles, CA 90071-3043 13 (213) 689-0200 14 BRENT B. GREEN Attorney at Law 15 Duncan, Green, Brown & Langeness, PC 16 Suite 380 400 Locust Street 17 Des Moines, IA 50309 (515) 288-6440 18 19 20 21 22 23 24 25 10930 1 STEVEN J. AESCHBACHER Attorneys at Law 2 Microsoft Corporation One Microsoft Way 3 Redmond, WA 98052 (425) 882-8080 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10931 1 (The following record was made out 2 of the presence of the jury at 8:40 a.m.) 3 THE COURT: You wanted to make a 4 record? 5 MR. TULCHIN: Your Honor, just two 6 things, if I may. 7 THE COURT: Okay. 8 MR. TULCHIN: First, the Court ruled 9 in November on a motion in limine concerning 10 circumstances under which Novell or DRI 11 acquired beta copies of Windows 3.1, and on 12 January 23 the Court, if I may put it this way, 13 extended that ruling to cover Windows 95 at the 14 request of Plaintiffs' counsel. 15 I would just like to make an offer of 16 proof. We've put it in writing, Your Honor, 17 and we'll file this as to the evidence that we 18 would have used with Mr. Bradford had the 19 rulings not gone the way they did. 20 THE COURT: Had the Court ruled the 21 correct way? 22 MR. TULCHIN: I wasn't going to put it 23 that way, Your Honor, but you know the way we 24 feel about it. 25 Some rulings go for you and some 10932 1 rulings go against you. 2 And we'll file the original of that, 3 Your Honor. 4 And secondly, Your Honor, I don't 5 think this will be a matter of controversy, but 6 at the end of the day on Thursday, Ms. Conlin 7 offered nine Plaintiffs' exhibits into 8 evidence. 9 As to seven of them, we have no 10 objection. 11 As to two, they have to be explained a 12 little bit. 13 Plaintiffs' Exhibit 5473 originally 14 was four pages, and we discussed that exhibit 15 during the course of the examination of 16 Mr. Bradford, and we indicated that we had no 17 objection to the first two pages, and those 18 were the only two pages used. 19 So if the exhibit being offered is 20 5473 in its revised form; namely, only the 21 first two pages, then, of course, we have no 22 objection, and I just wanted to make sure 23 that's what was being offered when Plaintiffs' 24 counsel said 5473. 25 MS. CONLIN: That's correct. 10933 1 MR. TULCHIN: Thank you. 2 In that case there's no objection. 3 Lastly, Your Honor, there's 4 Plaintiffs' Exhibit 2266, and there there was 5 some embedded hearsay that the Special Master 6 and the Court had ruled upon. 7 I've never seen a redacted version of 8 that, but if there's a redacted version that 9 removes the embedded hearsay, which should be 10 removed, as I think everyone agreed, then that 11 we have no objection to either. 12 THE COURT: Okay. 13 MS. CONLIN: Your Honor, I also need 14 to correct the record because it says that I 15 offered -- I had it right in front of me and 16 I've caused it to disappear. 17 The record says that I offered 18 Plaintiffs' Exhibit 1020, and in fact, it is 19 10020 and -- 20 THE COURT: Oh, okay. 10020? 21 MS. CONLIN: Correct. 22 THE COURT: Yeah, I wrote it down that 23 way too. 24 MR. TULCHIN: I think I understood 25 that as well. 10934 1 THE COURT: Okay. That's already been 2 admitted. Okay. It's corrected. 3 Sorry about that. 4 Are you going to do a redacted version 5 on that 2266? 6 MS. CONLIN: You know, Your Honor, I 7 want to look at it and I don't happen -- it's 8 one of the 10,000 I don't happen to have with 9 me this morning, so if I may have a little bit 10 of time to check that. 11 THE COURT: And when you do that, at 12 the appropriate time, then I'll let the jury 13 know that all these have been admitted at that 14 time. 15 MR. TULCHIN: Thank you, Your Honor. 16 THE COURT: You're welcome. 17 MS. CONLIN: One more thing, Your 18 Honor. 19 533 was offered, and, in fact, only 20 one page of that is admissible so we have 21 renumbered Exhibit 533, the one admissible page 22 as 533A, and we offer that at this time. 23 THE COURT: Okay. Could I just 24 substitute it for the 533? 25 MS. CONLIN: Yes, Your Honor. 10935 1 And it's page -- the page that ends in 2 50 is the one that was submitted. 3 THE COURT: Do you want to show it 4 to -- 5 MS. CONLIN: I did, Your Honor. 6 THE COURT: You showed it to 7 Mr. Holley? 8 MS. CONLIN: I did. 9 THE COURT: Okay, I corrected that. 10 MR. TULCHIN: No objection to that, 11 Your Honor, 533A. 12 THE COURT: Okay. That will be the 13 one instead of 533. 14 MR. TULCHIN: Thank you, Your Honor. 15 THE COURT: You're welcome. 16 (An off-the-record discussion was 17 held.) 18 (The following record was made in the 19 presence of the jury at 8:32 a.m.) 20 THE COURT: Everyone else may be 21 seated. 22 Glad you made it on this nice warm 23 morning. 24 Call your next witness. 25 MS. CONLIN: Thank you, Your Honor. 10936 1 We would call Theodore Lieven. 2 THE COURT: Approach and be sworn, 3 sir. 4 THEO LIEVEN, 5 called as a witness, having been first duly 6 sworn, testified as follows: 7 DIRECT EXAMINATION 8 BY MS. CONLIN: 9 Q. Tell us your name, please. 10 A. My name is Theo Lieven. T-h-e-o, 11 Lieven, L-i-e-v-e-n. 12 Q. And where do you live? 13 A. Belgium. 14 Q. What are you currently doing? 15 A. I'm now the president of a venture 16 capital company which invests in young 17 companies and startup, and I'm also the general 18 minister of a nonprofit organization that helps 19 them to make business plans and all that. And 20 I do some other things in my free time, but 21 this is my full-time job. 22 Q. Were you the founder and CEO of the 23 OEM called VOBIS? 24 A. Yes, the cofounder with my partner 25 Rainer Fraling. We formed the company in 1975. 10937 1 Q. And your partner's name is what? 2 A. Rainer, R-a-i-n-e-r, Fraling, 3 F-r-a-l-i-n-g. 4 Q. We may be doing a lot of spelling this 5 morning. 6 A. Okay. 7 Q. The things that you do in your spare 8 time may be of some interest. It's my 9 understanding that you are a student? 10 A. Again, yes. I stopped studying 11 mathematics in 1970 -- in 1975 because after 12 some years of studying mathematics I knew that 13 will be not the right job for me, and at that 14 time the first electronic calculator came out, 15 Hewlett-Packard Texas Instruments, and we sold 16 that to our cofellows at the university in our 17 hometown in Germany. 18 And this was a free-time job the first 19 year, second year, but then it got bigger and 20 bigger, and you know how this industry grew up, 21 and so I couldn't study anymore. 22 And after we sold our shares to The 23 Metro Company in Germany, I thought I should 24 start again -- 25 Q. Okay. When did you sell your shares 10938 1 to the -- 2 A. 1995. And so I had some more time, 3 and I got a master degree in business 4 administration in 2004, and -- no, in 2005, and 5 in economics and 2006, last year, in April, and 6 now I'm working on a Ph.D. in -- at the 7 University of St. Gallen in Switzerland. 8 Maybe you know that; it's quite famous 9 business university, so -- 10 I did it on the other way around. 11 Normally you first study and then you go to 12 work. I first work and then I study. 13 Q. You also are -- well, why don't you 14 tell us a little bit about your background. 15 A. What do you mean by background, family 16 or -- 17 Q. No. The question I'm asking you is 18 supposed to get you to tell the jury about your 19 concert piano playing. 20 A. Yes, this is another story. 21 I intended to become concert pianist 22 until I was -- until the age of 18, but my 23 piano teacher said maybe you are not good 24 enough for this very tough -- it's a business, 25 it's profession. But I never stopped playing 10939 1 piano, and I have later played as an amateur 2 with some famous orchestras also here in the 3 United States, with the Zubin Mehta in Santa 4 Barbara, in the Lincoln Center and Alice Tulley 5 Hall in New York. 6 But this is -- I won't say just for 7 fun, it is very difficult to play in the public 8 piano with orchestra, but I liked it. 9 Q. All right. And you mentioned that you 10 and Mr. Fraling founded a company while you 11 were still in school, and what was its name to 12 begin with? 13 A. The first name was Vero, V-e-r-o. We 14 always liked Latin names, V-e-r-o. But there 15 was a conflict with an older company, so we 16 changed that name in 1980 to VOBIS, V-O-B-I-S. 17 But the same company, only the name that has 18 been changed. 19 Q. And you came Saturday from Belgium, 20 and did we work together on a time line for the 21 jury to help to put your testimony in context? 22 A. Yes, we did. 23 MS. CONLIN: At this time, Your Honor, 24 I would ask that the time line which we have 25 marked Exhibit 1033 be displayed. It's two 10940 1 pages so we'll have to go back and forth. 2 THE COURT: Any objection to its 3 display? 4 MR. HOLLEY: Not to its display, Your 5 Honor. 6 THE COURT: Very well. You may 7 display it. 8 Q. Mr. Lieven, 1975 you founded the 9 company, and then why don't you just sort of 10 walk us through the development of the company, 11 if you would. 12 A. Yes. It is quite parallel to the 13 development of that industry. From the first 14 electronic scientific calculator from 15 Hewlett-Packard, it was not a long way to the 16 first personal computer. It was Apple II. It 17 was Commodore Pat 2001, and we grew up with 18 that. 19 So we founded our company at the right 20 moment. We could screw a little bit 21 automatically. We only had to follow the 22 market. 23 And all this milestones which have 24 been in the market, they -- we saw that 25 milestones with the first IBM compatibles, and 10941 1 at one point we said that what others can do to 2 build IBM compatibles, we can do ourselves. 3 And in 1978 -- in 1987, 1988, we 4 decided to build up our own line of computers, 5 of IBM-compatible computers, and the name was 6 High Screen. 7 Q. So you became a computer manufacturer, 8 an OEM, in I think it says 1988. It was 1988? 9 A. Right. The first advertising what we 10 did for High Screen computers was in July 1988. 11 Q. Did you sell other brands of computers 12 as well? 13 A. Before, yes, but we were not very -- 14 we didn't like it too much because they had 15 long time for delivery. They didn't follow the 16 markets fast enough. 17 And then we said what they can do, why 18 can't we do that. And so I flew to Far East. 19 I flew to Silicon Valley to go to Intel, and we 20 asked them can we buy these parts from you or 21 these components. 22 And then to put them together is not 23 very difficult. We need some good technicians. 24 And we -- then we decided to do it ourselves. 25 Q. When you first started you had retail 10942 1 stores? 2 A. The first retail store we have had in 3 1976. The second one in 1981. In 1988 I think 4 we have had 20, and then I think in 1991, we 5 have had hundred, and at the end when I left 6 the company we have had thousand retail stores 7 in all of Europe. 8 Q. So you started out in Germany; 9 correct? 10 A. Yes. 11 Q. And then did you expand into all the 12 countries of Europe? 13 A. No. Ten countries, including Spain, 14 Portugal, Italy, France, Switzerland, Austria, 15 Belgium, Luxembourg, Netherlands, and Poland 16 also. 17 Q. Before you sold the High Screen 18 computers of your own, when someone would come 19 into your store, they could buy computers and 20 various kinds of software as well? 21 A. Software was not a big issue at that 22 time for us so we -- we concentrated on the 23 hardware, and the people bought software from 24 other sources, from distributors or from 25 others. 10943 1 So we bought the box from Commodore, 2 Mac PC 10 or from -- Amstrad is another name in 3 Europe which was very famous. And then we were 4 a retailer for them. But we had nothing to do 5 with the R and D of those computers, with their 6 research and with the development of those 7 computers. 8 Q. Are you familiar with the concept of 9 the Egghead stores here in the United States? 10 A. I knew about that, but this must be in 11 the very first -- in that -- was it in 1980? 12 In the '80s? I don't know. 13 Q. But those stores you would go and you 14 could buy all kinds of computer-related things 15 including computers. By the '90s, was that the 16 kind of retail store that you had? 17 A. Not all kind of computers. We then 18 concentrated on our High Screen computers. 19 This was our IBM-compatible brand for those 20 computers. 21 And sometimes we try to sell also IBM 22 computers, but to be honest, they couldn't 23 compete with ours in pricing. So -- the 24 technology was the same. They bought Intel 25 CPUs. They bought memory chips from Texas 10944 1 Instruments like we did, but we can do it much 2 faster and much cheaper. 3 Q. All right. So but in the -- could you 4 buy -- let's pick a year 1995. 5 If I came to your store, would I be 6 able to buy application software in a box? 7 A. In the mid of 1990s, yes. From 1992 8 on, we saw that there is a demand for 9 application software for our customers. At 10 that time we did applications software a lot. 11 So from 1993 on. 12 Q. And I could buy a High Screen computer 13 of various models; correct? 14 A. I think 15 or 20. We always tried to 15 have a good choice for the customer. 16 Q. When you first produced the High 17 Screen computers, did you bundle or insert an 18 operating system? 19 A. I think the first, very first -- it's 20 called the motherboard where the CPU, where the 21 microprocessors on, which we bought from 22 Taiwan, from Far East. 23 We got a bundled operating system with 24 it, but it was very expensive. So we said we 25 should have -- as the quantities grew up, we 10945 1 should have the contract with somebody to 2 bundle with every computer operating system 3 because without operating system, computer does 4 not run. 5 But this started in one year later, in 6 1989. 7 Q. At the time you first decided you 8 wanted to bundle an operating system with your 9 own computer, the High Screen computer, did you 10 approach Microsoft? 11 A. Of course, this was number one in 12 operating systems. 13 Q. And what was the outcome of that? 14 A. We had negotiations, not myself, but 15 one of our people with them. I think it was 16 somebody from the OEM division from Redmond, 17 from United States. 18 I remember that I signed a contract 19 for a bundling of I think MS-DOS 4.01 and 20 Works. Works was an application software. 21 It's the former Office. 22 I signed it, but it came -- did not 23 come back from United States because they said 24 we don't agree to that price. Prices should be 25 higher. 10946 1 Q. So what did you do next? 2 A. I was a little bit upset, you know. 3 We had all this discussions, I signed it, and I 4 thought it was a fixed deal. 5 And at that time we have been 6 contacted by Digital Research in 1989. They 7 had an operating system then, 3.41, which was 8 similar, even a little bit better than the 9 4.01. And we tested it and it worked, and they 10 offered us to buy their copies. I think the 11 first shipment was 20,000 copies for a price of 12 $15, $14. 13 And we said, okay, we have an 14 alternative to Microsoft, why don't we buy 15 that. So then we bundled for a long time this 16 DR-DOS for our computers. 17 Q. You did bundle Works a little bit 18 later from Microsoft, Works? 19 A. Works, yes, but I think this was a 20 finished good. This was not on OEM basis. 21 Q. When you first used the Digital 22 Research product, DR-DOS 3.41, did you put it 23 on the hard drive? Or why don't you tell us 24 sort of the way in which the operating system 25 was distributed. 10947 1 A. It changed a lot in those seven years, 2 from '88 to '95. 3 At the very beginning you got this 4 five-and-a-quarter-inch diskette, you know that 5 big of one. 6 And when you wanted to boot up the 7 computer you put it in and switched it on, and 8 then you hear that noise from the disk drives, 9 and then it boots up. That was very simple. 10 So you got the diskette from Digital 11 Research, put it in, and then it worked. 12 And then you had to work the computer 13 and could load other applications on it. 14 Q. Did you put the disk into the box with 15 the computer? 16 A. Yes, bought a special separate box 17 with a disk and a manual. I think they were 18 always two diskettes. 19 Q. And then after that there was the 20 master disk or the golden master that you put 21 on the hard drive? 22 A. Then we copied those diskettes 23 ourselves later because it was too expensive. 24 I think it was not convenient for Digital 25 Research. 10948 1 We got -- when there was a new version 2 of something, we got these gold diskettes or 3 these master diskettes which had been the 4 master for all the other copies and we made the 5 copies. 6 And then later on we said, when the 7 hard disk drive was coming in '92 -- '91, '92, 8 we put everything, installed the operating 9 system on this hard disk drive, so we didn't 10 need any more diskettes. 11 The customer didn't need any more to 12 load it up with the floppy disk drive. And 13 when you switched it on, automatically it 14 booted from the hard disk drive. 15 Q. At some point when you began with the 16 master disks, did Digital Research issue or did 17 you buy from Digital Research holograms? 18 A. I think this was later. I think -- 19 there was a point when we had -- when we copied 20 the diskettes ourselves because Digital 21 Research must have been sure that it was a 22 legal copy before they delivered those 23 diskettes to us themselves. 24 So the physical diskette came from 25 them, but then we copied. And to be sure that 10949 1 it's a legal copy, we got holograms from them, 2 and then we had to put the hologram on the 3 diskette. 4 So we got for each set of operating 5 system two holograms because we have copied two 6 diskettes and we put one each on the diskette, 7 and so it worked. It was easier for them and 8 for us. 9 Q. So in '89 and '90, the only operating 10 system that you were using with High Screen 11 computers was DR-DOS? 12 A. Yes, mainly -- there was some who 13 insisted to get a 4.01, but that we bought from 14 distributors in Germany who wanted to have it, 15 and you have to pay I think extra price of 16 $149, but this was only few quantity. 17 The bundling, the bundle with the 18 computer was DR-DOS, the only one. 19 Q. All right. And in this period -- 20 let's say by 1990, do you know what your market 21 share was -- and at that time you were just in 22 Germany; correct? 23 A. Yes. And Austria. We started the 24 first store in 1989, in September, in Austria, 25 in Vienna. 10950 1 Q. What was your market share, 2 approximately? 3 A. I don't know. In Germany, 3, 4 4 percent, not so much. We were just starting. 5 Q. And there was regular and steady 6 growth? 7 A. Sometimes it -- it didn't double, no. 8 But the average was 50, 60 percent from year to 9 year from '88, '89. We sold 50 percent of the 10 company in '89 to The Metro Group. It's the 11 second largest retail group behind I think 12 Wal-Mart in the world. And they were very 13 powerful, and they help us to get rid of this 14 financing problems because that is for young 15 companies is the most difficult to get finance. 16 And then we quick grew like a missile. 17 We could -- every year was 50, 60 percent, and 18 this was a great time until '93. 19 I think average was 60 percent year, 20 per year. 21 Q. All right. Did there come a time when 22 you were the largest OEM in Germany? 23 A. I think by 1992 it may be or 19- -- we 24 have been number three in Europe in 1994 or 25 something. And number 15 worldwide in 1995 or 10951 1 something like that. I didn't follow that. 2 Sometimes it is nice to say we are the 3 biggest, but when it grows automatically, you 4 have other concerns than those reports every 5 year. 6 Q. All right. Now, in 1989, when you 7 first loaded the operating system -- let me 8 back up a minute and let's go to Exhibit 5272. 9 MS. CONLIN: May I approach, Your 10 Honor? 11 THE COURT: Yes. 12 MS. CONLIN: Darin, can we see 5272 -- 13 well, wait a minute. 14 Q. Do you see that number in front of 15 you? 16 A. Yes. 17 Q. Would you tell the jury just briefly 18 for the purpose of identification only what 19 that document is? 20 A. This is an advertising page from a 21 weekly magazine in Germany. The name of the 22 magazine is Stern. It means something like -- 23 written S-t-e-r-n. 24 Q. Did your company place this ad? 25 A. Yes, we placed this ad I think in the 10952 1 second half of 1989. 2 Q. And in the ad, do you compare DR-DOS 5 3 point -- I'm sorry, DR-DOS 3.41 with MS-DOS 4 4.01? 5 A. Yes. 6 MS. CONLIN: Your Honor, we would 7 offer Exhibit 5272. 8 MR. HOLLEY: Objection, Your Honor. 9 Hearsay, unless there's some nonhearsay purpose 10 for this. 11 THE COURT: Sustained. 12 MS. CONLIN: Well, Your Honor, perhaps 13 we should approach for just a moment, and I can 14 explain to the Court and counsel what the 15 purpose of this exhibit is. 16 (Off-the-record sidebar discussion was 17 held.) 18 Q. Rather than displaying the document, 19 I'm just going to ask you some questions from 20 that period. 21 In Germany, are their rules different 22 than in the United States concerning comparing 23 two products? At this time in 1989. 24 A. Yes. It was not allowed to compare 25 products in advertising, even if you tell the 10953 1 truth. 2 Q. And as a result of running the ad that 3 is 5272, did someone file a complaint against 4 you or was there some process? 5 A. I don't remember whether it went to a 6 process, but we have got a letter who said we 7 should stop that. And I think we said, okay, 8 we stop it because it's -- 9 Q. All right. Now, did you have visits 10 from representatives of Microsoft? 11 A. Yes, frequently because we contact 12 them ourselves. We signed that one contract, 13 which was not re-signed from Redmond. 14 Q. So you signed that contract, but I'm 15 talking about now after that contract came back 16 and was disapproved, did you continue to see 17 people from Microsoft? 18 A. Of course, yes. 19 Q. And what did they seek to do? 20 A. They recognized that we were quite 21 successfully bundling the Digital Research 3.41 22 with our computers. They saw that we grew up. 23 And then they asked us why don't you bundle our 24 MS-DOS 4.01 with it. 25 And because we were very interested in 10954 1 the Works 2.0, this application package, they 2 said we can offer you a good contract for both 3 together, for MS-DOS 4.01 plus Works 2.0, but 4 we said we only like Works 2.0 and we would 5 like to stay with the DR-DOS 4.01. 6 Q. All right. Now, during this time 7 frame, are you competing with other OEMs or are 8 you the only sort of retail outlet? 9 A. This was really unique. We had been 10 the only one of the OEMs who had their own 11 retail stores that made us so successful and so 12 fast because we had no delay between 13 manufacturing and -- the delay was one day. 14 They went by truck from the factory directly 15 into our retail stores. 16 Q. Let's look at Exhibit 144. That 17 should be the next in order. 18 And this is a document that I showed 19 you. It is an internal Microsoft document. 20 And you did not see it before I showed it to 21 you; correct? 22 A. No. 23 Q. This is dated September, 1989. 24 MS. CONLIN: And we would offer 25 Exhibit 144. 10955 1 MR. HOLLEY: Objection, Your Honor. 2 This witness has never seen this document and 3 he is being asked to speculate about it. 4 MS. CONLIN: No, I'm just going to 5 read to him from the section that I highlighted 6 and tabbed for the Defendant, which deals 7 directly with VOBIS, Your Honor. 8 As I do the examination, my intention 9 is to look at the Microsoft documents that 10 pertain to VOBIS while -- so to put everything 11 into the context of this time line. 12 MR. HOLLEY: I have to object to that, 13 Your Honor. 14 I don't know why this witness -- he 15 has testimonial knowledge about what he knows. 16 He doesn't know what's in Microsoft documents. 17 He shouldn't be asked to speculate about that. 18 THE COURT: Well, the exhibit's 19 admitted. 20 Continue. 21 MS. CONLIN: Thank you, Your Honor. 22 Would you put up Exhibit 144, please? 23 Q. And this is, as I indicated, an 24 internal Microsoft document. It is a report 25 from Joachim Kempin -- did you meet Mr. Kempin? 10956 1 A. Yes. 2 Q. Did you meet Mr. -- how do you 3 pronounce this next name? 4 A. Schindler. 5 The next is Jochen Haink. Jochen 6 Haink. 7 Q. And then Mr. Schindler, and he was the 8 salesperson who called? 9 A. He was our closest representative from 10 the OEM division from Microsoft. 11 Q. And this is a report from September of 12 1989, and we can move to the page ending 434 13 and see that they are reporting on VOBIS. 14 Let me read that. 15 As of September 1989, in the internal 16 Microsoft documents it says, VOBIS has signed 17 for DR-DOS. We'll undertake all efforts to 18 bring them back into our camp, and it looks 19 like that VOBIS wants to continue business with 20 us. 21 Is it correct that you did want to 22 continue business with Microsoft? 23 A. Yes. We were very interested in the 24 Works 2.0, as I said. 25 Q. Next steps, turn them away from DR-DOS 10957 1 and make them Market Pack DOS. Pursue DOS-WIN 2 bundle deal. 3 Did Microsoft offer you a deal if you 4 purchased the DOS product and the Win product 5 together in a bundle? 6 A. They started to do that, but Windows 7 was not an issue at that time. It was, I 8 think, Windows 2.11 it was -- it could not 9 compare to any graphical user interface that 10 was in the market then. So we weren't -- we 11 never were interested in 2.11. 12 Q. All right. So we need to explain that 13 for a moment, I think, Mr. Lieven. 14 When you say Windows was not an issue, 15 do you mean that it wasn't very popular at the 16 time? 17 A. No, it was quite unstable. I used the 18 Windows 2.0, but I deleted it after half a day. 19 The 2.11 was a little bit better. 20 Some of our employees used it. But we didn't 21 see the demand in the market for that. 22 Q. Until -- 23 A. So for bundling in 10,000 of copies, 24 we said no, that is too expensive for that 25 product. 10958 1 Q. All right. Let's turn now to the 2 contract, which is Plaintiffs' Exhibit 371. 3 And this is a contract. If you'll 4 turn, Mr. Lieven, to the page that is 13 in the 5 document and it is 56 in the Bates stamps. 6 Is that your signature? 7 A. Yes, it is. 8 Q. And the person who signs for Microsoft 9 is Mr. Hallman? 10 A. Yes. 11 Q. And you sign on September 12, 1990, 12 and he signs on October 1, 1990. 13 A. Yes. 14 Q. And I think we put it on a time line 15 with your signature at September -- well, we 16 didn't put it at -- but September 1990. 17 MS. CONLIN: And we would offer at 18 this time, Your Honor, Plaintiffs' Exhibit 371. 19 MR. HOLLEY: No objection, Your Honor. 20 THE COURT: Admitted. 21 Q. This is -- now on the front says this 22 is for Microsoft MS Version 4.01 and Microsoft 23 Works Version 2. 24 Of those products, Mr. Lieven, which 25 one were you interested in? 10959 1 A. At that time only the Works 2.0. 2 Q. Did you ever bundle MS-DOS 4.01? 3 A. I don't -- no, we did not, no. We -- 4 Q. And so you continued to bundle with 5 your operating systems -- I beg your pardon. 6 You continued to bundle with your 7 computers DR-DOS? 8 A. Right. 9 Q. Whatever was the current version? 10 A. Right. 11 Q. We're going to have to look at some of 12 these, so we might as well start. 13 Let's turn to page 16. And you have 14 -- in this first contract on page 16, do you 15 see the minimum commitment schedule? 16 A. Yes. 17 Q. And what is the total first period 18 minimum commitment for your first contract? 19 A. It's for 600,000 U.S. dollars. 20 Q. All right. And then the price for the 21 products, if you turn to the next page, you 22 will see at the top the product is Microsoft 23 MS-DOS Version Number 4.01, and the price is 24 $20? 25 A. Yes, it is. 10960 1 Q. But you didn't put this on your 2 computers? 3 A. No. It was triggered. You know, it 4 said that we have to pay the royalties for that 5 as soon as we start to ship it. So we had 6 control over paying this royalties as soon as 7 we ship it with our computers. But we never 8 did, so we didn't have to pay these $20. We 9 only used the license for the Works. 10 Q. All right. And that is on page ending 11 60 -- well, it ends lots of different ways, but 12 it's page 20 in the document, and that's 13 Microsoft Works Version Number 2, and for that 14 you paid $17; correct? 15 A. Yes. 16 Q. And we think this -- is this your very 17 first contract with Microsoft? 18 A. That's the first contract, yes. The 19 first which had been signed by both sides. 20 Q. When you first started loading the 21 Works product, was it a popular product or was 22 it just beginning? 23 MS. CONLIN: Oh, I'm sorry. 24 A. No, I think from -- at that time when 25 we signed that -- we have bought it before as 10961 1 in the retail product, as you could do. You 2 could buy it from Microsoft distributors and 3 put it with extra price I think of 399 deutsche 4 mark. That's at about $250. 5 You could put it in the box if the 6 customer likes it, but then we said let's 7 bundle it with every computer. I think that 8 started in 1990. 9 Q. September of '90 is when we saw the 10 contract? 11 A. Yes. 12 Q. Was that when -- 13 A. Yes. 14 Q. Okay. Stop a minute. 15 When you signed the contract, was that 16 the first time that you started to bundle Works 17 with every computer? 18 A. Without contract, we couldn't do that, 19 so we first signed the contract -- maybe there 20 was obviously delay of four weeks or something. 21 The deal was fixed, and then the 22 contract came later, but it was that time that 23 we bundled this Works with all our computers. 24 Q. And why did you do that? 25 A. Because it was a good product, you 10962 1 know. It was application software. People had 2 a good product, not the best one, but a good 3 product, a reasonable product, for a very low 4 price, and this made our computers much more 5 attractive. 6 Q. And when you started bundling the 7 Works, were you the only company bundling Works 8 with your computers? 9 A. I think so. Not in France. I've seen 10 that idea in France. Somebody did it there, I 11 think -- I thought this is a good idea to give 12 them hundred of gallons of fuel with their car. 13 So all cars look the same, and our car had 14 hundreds of gallons of fuel with it. So for a 15 little bit higher price maybe, but it was great 16 advantage for our customers. 17 And so we could differentiate from the 18 others, but it was very important with those -- 19 you know, those boxes. All the computers 20 looked the same. 21 Q. All right. And did your company 22 bundling of Works increase the popularity of 23 Works? 24 A. Yes, a lot. Of course. 25 Q. Did you sort of create the customer 10963 1 demand? 2 A. I think so. Yes. I think so. 3 Q. I want to look with you now at 4 Plaintiffs' Exhibit 4547. That's this big one. 5 We're going to just tell the jury at this time 6 what this pile of stuff is. 7 What is this? 8 A. These are copies of our monthly 9 brochures that have been circulated in Germany 10 at the beginning, 2 million copies and 4 11 million at the end, 10 or 12 million copies in 12 Germany, and also in Austria and then in other 13 countries every month. 14 Q. So this is a -- these are copies of 15 like a small magazine or a -- 16 A. Eight page or 12 page, sometimes 16. 17 Q. All that's in it is ads for your 18 computer? 19 A. Yes. 20 Q. And when did you start producing that? 21 A. This brochures? 22 Q. Yes. 23 A. The first came out I think in '86, 24 '87, but then from '88 on, we made that 25 monthly. We put that in the newspapers. It's 10964 1 like in the U.S. the same when you get the 2 Sunday newspapers, you have a lot of those 3 brochures with that. 4 Q. So this was one of those that we all 5 love so very much? 6 A. Yes. 7 Q. And in this -- it's called VOBIS Denk? 8 A. Yeah, Denk Zettel. That means -- it's 9 difficult to explain, but it means something. 10 It's sort of a -- it has something to do -- 11 Denk means think. And this fits very good to 12 the information technology. And Zettel means 13 paper. Think paper. 14 Q. And did you in creating the time line 15 rely on the times when you began advertising a 16 product and stopped advertising a product? 17 A. It was very crucial, you know. 18 Because when we say something here 19 what we have in the store, it should be in the 20 store. So the whole supply chain must be very 21 tight. It is very tight. It's just in time. 22 And this was quite time sensitive. 23 Q. All right. So in order to establish 24 dates of when things happened, when you started 25 distributing Microsoft products or when you 10965 1 stopped distributing other products, these 2 advertisements tell us what you had in your 3 store? 4 A. Yes. It's a complete -- what's the 5 name -- diary. It's a notebook where you write 6 -- that you can see it from that. 7 MS. CONLIN: Your Honor, we would 8 offer Plaintiffs' Exhibit 4547 for the purposes 9 of establishing the time line and for no other 10 purpose. 11 MR. HOLLEY: With that limitation, no 12 objection, Your Honor. 13 THE COURT: Very well, it's admitted. 14 Q. Why don't we talk for a moment about 15 the DR-DOS products as they came out and your 16 view as the CEO of a computer manufacturer as 17 to the quality and the comparison between the 18 two products, beginning -- the first one you 19 loaded was DR-DOS 3.41; correct? 20 A. Yes. 21 Q. And at that time, the Microsoft 22 product operating system in the market was 23 4.01? 24 A. Yes, it was. 25 Q. How did those two compare? 10966 1 A. I did compare them. We talked about 2 this comparison before. 3 There were some points that 3.41 was 4 more powerful. You have had password security, 5 for instance, which is now it's -- everything 6 has password security. But this was new in 7 1988, and Digital Research has had -- 8 There were some things that were 9 better with 3.41 than 4.01. 4.01 I think was 10 not the best Microsoft product. 11 Q. And then DR-DOS 5.0 is released on -- 12 in June of 1990, and how does that compare with 13 4.01? 14 A. This was much better than every 15 operating system that we have had before. 16 It was much more powerful, and you 17 could see that a lot of people, engineers had 18 worked on that. 19 This was a really breakthrough also 20 for us because with 3.41 people said, okay, 21 it's a substitute for 4.01. We don't know why. 22 But with the 5.0, with all the press releases 23 and the tests what they did and they said it's 24 much better than 4.01, we were back. We were a 25 leader again. 10967 1 Q. Did you feel like loading DR-DOS 5.0 2 onto your computers provided you with a 3 competitive advantage? 4 A. I didn't understand that correctly. 5 Q. You loaded DR-DOS 5.0. 6 Did that provide VOBIS with an 7 advantage as -- 8 A. Yes, of course. 9 Q. Why? 10 A. Because in all -- in the computer 11 magazines, they have tested 5.0 DR-DOS 12 before. 13 Q. Stop a minute. 14 Just tell us -- without talking about 15 that sort of thing, just tell us why it was a 16 competitive advantage. Can you do it without 17 talking about the testing? 18 A. It was better. That's -- we thought 19 it was better and better choice for the 20 customer. 21 Q. All right. And then the next product 22 that came out was the Microsoft MS-DOS 5.0? 23 A. Right. 24 Q. What about the comparison between 25 MS-DOS 5.0 and DR-DOS 5.0? 10968 1 A. Then they were quite equal again. 2 Then it made sense to say to the customers, you 3 have the choice. Because then we felt quite 4 comfortable that we say, okay, you decide what 5 you like. 6 Q. And three months after Microsoft 7 released MS-DOS 5.0, then along comes DR-DOS 8 with DR-DOS 6.0, and how did that compare with 9 MS-DOS 5.0? 10 A. I think they were -- I wouldn't say 11 equal, but there were some points I think they 12 were a little bit more sophisticated, but we 13 still couldn't say this one is better or the 14 other one. So we still said let's have the 15 customer the choice. They should decide what 16 operating system is installed on the computer. 17 Q. Right. 18 Turn now, if you would, to Exhibit 19 448, which is again a Microsoft document which 20 talks about VOBIS, and which we would offer at 21 this time. 22 THE COURT: Any objection? 23 MR. HOLLEY: Just the same objection, 24 which is this witness has never seen this 25 document and is being asked to speculate about 10969 1 it. 2 THE COURT: It's admitted. 3 MS. CONLIN: Thank you, Your Honor. 4 Q. Mr. Lieven, go to the last page, 5 please. 6 This is one of the E-mails of course 7 that goes back to front. 8 And we'll look down at the very last 9 one there. That is from Sergio Pineda, 10 November 6, 1990. 11 Now on the date of the November 6, 12 1990, VOBIS is only shipping DR-DOS; correct? 13 A. This was -- 14 Q. November of 1990. 15 A. Yes. 16 Q. So Mr. Pineda writes to Manfred 17 Schindler, and who is Mr. Schindler again? 18 A. He was our representative who visited 19 us in our office. 20 Q. And the subject is the status of 21 VOBIS, and Mr. Pineda writes you, I'd like to 22 provide -- I'd like you to provide me with the 23 status of VOBIS. Steve Ballmer wants to know 24 what we're doing here and how close we are to 25 signing a deal with them. 10970 1 Mr. Lieven, do you know who 2 Mr. Ballmer was? 3 A. Of course. 4 Q. Did you know that he was very 5 interested in whether or not you signed a deal? 6 A. Of course, sure, because we sold 7 exclusively at that time the Digital Research 8 DOS. He must have been interested in us. 9 Q. Did you know that Mr. Ballmer was 10 interested in what VOBIS was doing in 1990? 11 A. So if he was not interested, he made 12 his wrong -- his job wrong. So he has to be 13 interested in us because we grew every year 14 with 60 percent, and we sold only Digital 15 Research. 16 Q. All right. Let's turn then to the 17 first page of the document and look at the 18 response from Mr. Schindler on November 7, 19 1990, to Mr. Pineda and to Joachim Kempin, and 20 Mr. Kempin was the worldwide director of OEM 21 sales? 22 A. Yes, he was. 23 Q. And again, status of VOBIS, and he 24 summarizes, you wanted me to summarize the 25 license status re DOS with VOBIS. Current 10971 1 license status. License agreement for Works 2 2 signed. Works is already shipping. 3 Penetration, our products on all VOBIS computer 4 systems, more than 50 percent. 5 And then he says, license agreement 6 for Windows 3, agreement in principal, Windows 7 will ship within two weeks. 8 And at that time, you had -- did not 9 have a contract for Windows; correct? 10 A. No. 11 Q. You had a handshake-type agreement? 12 A. Yes. 13 We treated as the same as Works, and 14 they said you can either put Works together 15 with it or either Windows. 16 Q. So it kind of went on your contract 17 for Works? 18 A. I think so because -- I don't remember 19 the royalty reports anymore, but at that time 20 it was a mutual understanding that we could 21 ship Windows with all our computers. 22 Q. Windows or Works, not both? 23 A. Yes. No, not both. You can see that 24 also from the advertising that we always said 25 either Windows or Works. 10972 1 Q. And the underlying operating system he 2 says is DR-DOS, and skipping -- well, let's 3 read this. 4 VOBIS is happy that we appear a loyal 5 partner for those deals. 6 You were happy with Microsoft at that 7 time for this product; correct? 8 A. Yes. Works 2.0 was a very good 9 product. 10 Q. And then it says, DOS 3 and DOS 4 11 packages finished goods sold when customer 12 demands it, volume neglectible, less than 2,000 13 something. But 2,000 units? 14 A. Some, yes. 15 Q. And that's what you told us earlier, 16 you sell a packaged product? 17 A. Right. This is a retail product. 18 Q. They intend to license DOS 5 because 19 their relation to DRI is not in best shape. 20 Was that true? 21 A. I can't remember so -- my relation 22 with DR-DOS at that time was very good so -- 23 Q. All right. And then let's look at the 24 one from Mr. Kempin. He responds to Mr. 25 Schindler. 10973 1 He says, this needs attention. Jeff, 2 use your influence to pressure them to sign up 3 for DOS 5.0. The slip did not help us. They 4 are the last holdout. 5 Were you aware that you were the last 6 OEM in Germany that had not signed up for 7 MS-DOS 5.0? 8 A. I'm not surprised because we have been 9 the most important one who bundled the DR-DOS 10 with it, and if others are not -- were not 11 interested in doing that, maybe all they signed 12 yet a contract for 5.0. And we said, wait, 13 let's see terms and conditions and then we see 14 whether we sign a contract for it. I'm not 15 surprised that we have been the last one. 16 Q. And at that time when they're asking 17 you to sign the contract for MS-DOS 5.0, it 18 isn't out yet; correct? 19 A. It isn't out? 20 Q. Out. It has not been released into 21 the market? 22 A. No, no. It was a not preliminary -- 23 not preliminary, but it was a ready-to-go 24 contract. So to have one in the pocket that 25 you are ready when it comes out and you decide 10974 1 to choose it; that you don't have negotiations 2 that moment when it comes out, but you have 3 ready the conditions before. 4 Q. All right. At the top, it's back from 5 Mr. Schindler, it says, VOBIS sells more than 6 100,000 systems over 12 months. We simply 7 cannot sign them on DOS 4. 8 And that's because you weren't 9 thinking the product was too good? 10 A. We thought our choice was 5.0 is 11 better for the customer. 12 Q. All right. MS-DOS is interesting. My 13 plan is to include a per system option in a 14 separate license agreement without any 15 obligation to pay until the product becomes 16 available, but this will be tough. 17 Is that what you were telling us 18 about, you would have the contract and it would 19 not go into effect until the release of the 20 product? 21 A. Yes or until we decide to -- with 5.0 22 we knew that we would offer that to our 23 customers, and this was we called a trigger 24 contract. It was triggered as soon as we 25 decide to put it with our computers. 10975 1 Q. Let's look now at Exhibit 5208. And 2 that too is a Microsoft -- Microsoft E-mails 3 all about VOBIS. And -- 4 MS. CONLIN: I would offer, Your 5 Honor, at this time the Microsoft E-mails that 6 are 5208. 7 Maybe you would like to see a copy. 8 MR. HOLLEY: Again, Your Honor, I 9 object to this witness being shown internal 10 Microsoft documents he's never seen. 11 THE COURT: Overruled. It's admitted. 12 MS. CONLIN: Thank you, Your Honor. 13 Q. And you have seen these documents, but 14 only when I showed them to you when you came; 15 correct? 16 A. Yes. 17 Q. I want to look at the one from Brad 18 Cole dated Tuesday, December 4, 1990, to Jeff 19 Lum. Subject: 5.0 marketing plan feedback. 20 He says to Jeff Lum and Sergio Pineda, 21 I thought VOBIS was almost closed. What are 22 the issues? I really want to get VOBIS on 23 MS-DOS. 24 One of my first days here Steve B. 25 told me to eat, sleep, and drink VOBIS so I 10976 1 will be on everyone to let me know what is 2 going on with the account and try to learn more 3 about how I can help you turn them around. 4 And then if we look up to the response 5 from Mr. Schindler, he says, VOBIS sells in 6 calendar year approximately 200 computer 7 systems. 8 And so that was about what you were 9 selling toward the -- in 1990? 10 A. Yes. It was projection I think for 11 1992. So end of December we said next year 12 will be 200,000. 13 Q. And current negotiations, license 14 Windows/Works per processor. One royalty for 15 either Windows or Works. 16 That's what you were talking about? 17 A. The current license that we had, yes. 18 Q. All right. And DOS 5 per processor. 19 Here VOBIS GM, Theo Lieven, does not intend to 20 change his confession abruptly. 21 Because you speak German and Mr. 22 Schindler speaks German, do you think he meant 23 confession? We looked it up on your 24 dictionary. 25 A. Change his mind or something is a much 10977 1 better word for that. Confession is not a 2 confession so -- 3 Q. All right. So we just think that 4 means decision-making of some sort? 5 A. Yes, right. 6 Q. Change his mind abruptly. 7 He thinks about a 50 percent 8 penetration in calendar year '91. Of course, 9 DOS 5 in German can be shipped by VOBIS not 10 before April. 11 So this is in December of 1990, and he 12 is predicting that the German version of MS-DOS 13 5.0 will be available in April. But it was 14 not; right? 15 A. I think in June, two months later. 16 End of June. 17 Q. Let's turn now, if we could, to the -- 18 to a big document that just keeps us updated in 19 terms of what's going on inside of Microsoft, 20 and this is 491, which is a report to Mr. 21 Kempin from Jeff Lum dated December 15th, 1990, 22 and it is the November European OEM sales 23 status report. 24 MS. CONLIN: I think, Your Honor, we 25 would offer Plaintiffs' Exhibit 491. 10978 1 THE COURT: Any objection? 2 MR. HOLLEY: Same objection as 3 previously, Your Honor. 4 THE COURT: It's admitted. 5 Q. Would you turn please to page 12, and 6 we are just going to deal with what they say 7 about you inside Microsoft. 8 And it says VOBIS. The existing 9 license agreement has an annual minimum 10 commitment of 3,000 per system units of Works. 11 THE COURT: Was that 30,000 or 3,000? 12 MS. CONLIN: What did I say? 13 THE COURT: Three. 14 MS. CONLIN: Okay. 15 Q. I will amend the record to say 30,000 16 per system units of Works. 17 And at this time, that's your only 18 contract; correct -- 19 A. Yes. 20 Q. -- with Microsoft? 21 They exceeded this within three 22 months. So things are going well? 23 A. Right. 24 Q. Now, Manfred is working on a per 25 processor deal for 200,000 PCs annually for 10979 1 either Works or Windows at 15 -- user chooses 2 -- at $15. Any additional Works or Windows 3 copy costs them additional $15. 4 So you would -- if you went -- I'm not 5 sure I understand what that means. Do you? 6 A. Yes, that means we bundle minimum of 7 200,000 either Windows or Works. If we are 8 selling 300,000, maybe we sell 100,000 Works 9 more, we pay another 100,000 times $15. I 10 think that's what that is. It is -- at the end 11 it isn't quite per copy after we have fulfilled 12 this 200,000. 13 Q. All right. Any additional -- or I'm 14 sorry. 15 VOBIS wants to focus on selling both 16 products per PC. Additionally, we are close to 17 an agreement in principal on DOS 5 on 200 PCs 18 annually. Royalty negotiations are ongoing. 19 We have to consider that VOBIS will not 20 immediately stop DR-DOS and replace it with 21 MS-DOS, but they may commit to replace 50 22 percent or more to start. 23 Was it correct that you would -- even 24 if you signed a contract with Microsoft you did 25 not intend to replace all of DR-DOS? 10980 1 A. That's right. And that was a problem 2 because we were not willing to pay for every PC 3 MS-DOS license because we knew there are some 4 people, some customers who decide to buy the 5 Digital Research. That was big issue at that 6 time. 7 Q. All right. And in deciding whether or 8 not to sign with Microsoft, were you concerned 9 about permitting -- continuing to load DR-DOS 10 as well as MS-DOS? 11 A. Concerned -- what does that mean 12 concern that I -- 13 Q. Let me explain. 14 A. Thought about to discontinue Digital 15 Research, no, no. 16 Q. Okay. But did you want to continue 17 Digital Research? 18 A. Yes, of course. 19 Q. Why? 20 A. It's a good product, you know, and -- 21 when you have a store for maybe radios or 22 something like that, why are you going to sell 23 only one, one brand? So it's better to have 24 two brands and let the customer decide. He's 25 the one who is the -- the sale customer is the 10981 1 king. So he should decide what operating 2 system is best for him. 3 And so we wanted to offer both because 4 some advantages were on the Microsoft side and 5 some advantages, others were on the Digital 6 Research side, and so we offered both. 7 And to give customer choice in itself 8 is an advantage against competition. 9 Q. To be able to offer -- 10 A. Right. 11 Q. -- choice? 12 A. Yes. 13 Q. All right. How did the computers in 14 your store equipped with DR-DOS do in the 15 marketplace? Did you sell plenty of them? 16 A. With DR-DOS, the time when we only 17 bundled DR-DOS, it was 100 percent. It was -- 18 I think the last quarter of 1990 must have been 19 something like 40,000 or something like that. 20 It worked very well. It was highly accepted by 21 the customers in Germany. 22 Q. They liked it? 23 A. Yes. 24 Q. And was it a well-known product, 25 DR-DOS, in -- 10982 1 A. I think it was a stand-up product at 2 that time for our portion of the market. We 3 haven't been in the professional market so 4 much. We were in the home and the home office 5 business. So this for private customers, 6 individuals. And in this portion, we were -- I 7 think, the Digital Research 5.0 was standard at 8 that time. 9 Q. Did your selling of it make it 10 standard? 11 A. I think we have had some followers, 12 yes. They -- I've seen it in their 13 advertising. 14 Q. All right. And along about this time, 15 Windows 3.0 is released. We're now in May -- 16 well, it's released on May 22nd, 1990, and does 17 it begin to sort of increase dramatically in 18 popularity? 19 A. Yes. We really thought -- I don't 20 know how many DR-DOS we install on it, but I 21 think at the end, it has been something like 22 450,000. It was incredible success. 23 Q. All right. I was talking about 24 Windows. 25 A. Windows. 10983 1 Q. Windows, uh-huh. 2 DR-DOS -- we're going to go back to 3 DR-DOS, but I just want to orient the jury to 4 what's going on in the market with Windows. 5 You told them earlier that the first 6 releases of the Windows product were not 7 terribly popular. 8 A. The 4.01. 9 Q. No. Windows. 10 A. Windows, yes. I'm sorry, yes. 11 Q. Okay. 12 A. The first, 2.0, 2.11. It started with 13 3.0. Then it got interesting and it could 14 compete a little bit with other graphical user 15 interface, like the Mac OS. So then it started 16 slowly. 17 Q. All right. Now was Windows the only 18 graphical user interface available for the 19 Intel-compatible PCs? 20 A. I think there has been a Gem, G-e-m, 21 but I didn't like it so much. 22 So it was not necessary at that time 23 to have this -- today we all use Windows, but 24 at that time all the software was still on the 25 DOS basis or the Word for DOS, the Excel for 10984 1 DOS. 2 And there was no need to have a 3 graphical -- it was a little bit at the 4 beginning, it was not a gimmick, but it was for 5 -- first for the earlier adopters that we said, 6 people who want to have the newest one. 7 And there was no need for us to sign 8 the contract for Windows at the beginning, 9 especially for the 3.0. 3.1 was better and 10 3.11 later was much more important. 11 Q. All right. So it increases in 12 popularity, and at some point it becomes very 13 important for you to be able to get a Windows 14 contract; correct? 15 A. Yes. Later in '92, '93, of course. 16 Q. Let's look at Exhibit 10030. Do you 17 have it in front of you? 18 A. Yes, I have. 19 Q. And again this is not a document 20 you've seen except when you came here and we 21 looked at it together. 22 It is titled OEM sales by month, and 23 it is an internal DRI document, and it reports 24 the sales not only to you, but to other 25 companies as well? 10985 1 MS. CONLIN: Your Honor, at this time 2 we would offer Plaintiffs' Exhibit 10030. 3 MR. HOLLEY: Objection. Lack of 4 foundation. 5 THE COURT: Sustained. 6 Q. Well, I wonder if you could use this 7 to refresh your recollection? 8 MR. HOLLEY: How could that happen, 9 Your Honor? 10 MS. CONLIN: Well, we can refresh 11 recollection with any document or thing. 12 Maybe we should talk about this for a 13 moment, Your Honor. 14 May we do that? 15 We're going to go into the back room. 16 Just look at your paper. Don't chat with the 17 jury. 18 (The following record was made out of 19 the presence of the jury at 9:31 a.m.) 20 MS. CONLIN: So I don't understand 21 your objection. 22 MR. HOLLEY: There's nobody here to 23 testify about this document. 24 MS. CONLIN: Of course there is not. 25 You want me to bring someone from -- 10986 1 MR. HOLLEY: Well, Mr. Bradford was 2 here. He worked at this company. Maybe he 3 could have established a foundation for this, 4 but this witness does not know anything about 5 this document, how it was prepared or whether 6 these numbers are accurate. 7 He may remember how many copies of 8 operating systems he licensed from DRI in which 9 case he's entitled to testify about that, but I 10 don't understand this process of showing a 11 witness documents that he's never seen before 12 and asking him: Do you see that? That isn't 13 testimony. 14 MS. CONLIN: You should have been here 15 when Mr. Tulchin examined Mr. Bradford. 16 In any event, Your Honor, we have a 17 stipulation on this that we have honored 18 throughout this process. The stipulation says 19 that a document that comes from a company is a 20 business record unless there's a really good 21 reason to doubt its authenticity. 22 We have followed that stipulation from 23 the beginning of that process until today. 24 THE COURT: Was this -- did this go 25 through the Special Master process? 10987 1 MS. CONLIN: It did not, Your Honor. 2 It did not go through the Special Master 3 process. It was, however, used by the 4 Microsoft lawyer to examine Mr. Lieven in the 5 course of his deposition in the Caldera case. 6 That's where it came from. 7 THE COURT: Mr. Holley. 8 MR. HOLLEY: Well, it's true that my 9 partner Mr. Steinberg used this document, but 10 that doesn't constitute any sort of an 11 agreement that it is a business record. 12 MS. CONLIN: We have that agreement. 13 That's what I'm saying to you. We had a 14 stipulation. We have a stipulation that says 15 that if it is a business record, foundation is 16 waived unless there's a really good reason to 17 doubt the authenticity of the document. 18 THE COURT: Is there such a 19 stipulation? 20 MR. HOLLEY: Perhaps there is, Your 21 Honor, in which case I withdraw my objection. 22 It seems to me that this is a strange way to 23 examine witnesses. 24 He knows what he knows and he should 25 be asked about what he knows from his own 10988 1 personal experience. He should not be used as 2 some conduit for his interpretation of 3 documents he's never seen before. 4 MS. CONLIN: Well, he has them all at 5 this point, and that is exactly the way in 6 which other examinations in this lawsuit have 7 been conducted. In any event, if you're 8 withdrawing your objection, then there's 9 nothing more to say. 10 MR. HOLLEY: Well, I would like to 11 consult with someone about whether the 12 stipulation says what Ms. Conlin says it says. 13 I continue to believe that Mr. Lieven should be 14 asked questions about what he knows based on 15 being the CEO of VOBIS. He should not be here 16 as some person interpreting documents that he 17 saw for the first time when he landed in Des 18 Moines from Germany. He doesn't know about 19 those things. 20 THE COURT: Well, the objection is 21 foundation. 22 MR. HOLLEY: Yes. I guess I need 23 to -- with the Court's indulgence, I would like 24 to consult with Mr. Tuggy about exactly how 25 that stipulation operates. 10989 1 THE COURT: What do we do in the 2 meantime? 3 MS. CONLIN: Do you want to just 4 withdraw this, your objection on this one? 5 MR. HOLLEY: Yeah, I'll withdraw my 6 objection on this one, Your Honor. 7 THE COURT: Okay. Thank you. 8 MS. CONLIN: What time do you want to 9 take a break, Your Honor? 10 THE COURT: Another 10 minutes, is 11 that okay? 12 MS. CONLIN: Thank you, Your Honor. 13 (The following record was made in the 14 presence of the jury at 9:35 a.m.) 15 THE COURT: Mr. Holley? 16 MR. HOLLEY: I'm sorry, Your Honor. 17 THE COURT: Mr. Holley, do you wish to 18 make any record on 10030? 19 MR. HOLLEY: I'm going to withdraw my 20 objection to it, Your Honor. 21 THE COURT: Very well. It's admitted. 22 You may continue. 23 MS. CONLIN: Thank you, Your Honor. 24 Q. Mr. Lieven, let's look at this 25 document, and tell the jury over the period of 10990 1 time beginning -- I think you first appear -- I 2 think this document goes from August 1989 and 3 it says how many copies of the DR-DOS product 4 you bought from DRI month by month; correct? 5 A. Right, yes. 6 Q. And in August of '89, how many did you 7 buy according to this document? 8 A. 20,000. 9 Q. And then in November? 10 A. 25. 11 Q. And then in January of 1990? 12 A. 50,000. So it's increasing 13 dramatically all the time. 14 Q. And in June of '90? 15 A. Another 50,000. 16 Q. In September of '90? 17 A. 100,000. 18 Q. And the next is a couple of pages 19 over, and that would be in February of 1991? 20 A. Yes, it was quarter million, 250,000. 21 Q. How did you get the product, the 22 DR-DOS product, at this time? When you paid 23 for 250,000, what did you get? 24 A. We didn't -- we made it much more 25 simple. So we didn't get the diskettes anymore 10991 1 because we offered them that we will copy the 2 diskettes so they don't have to pay for them. 3 So it was easier for them. 4 And then we said, okay, but then you 5 have to put on each diskette a hologram. A 6 hologram is this piece of sticker that you 7 can't copy because it's with three-dimensional 8 thing so it's impossible to cheat with them. 9 So we got, I think, 500,000 holograms. 10 Q. 250-, is that -- 11 A. Yes, but twice because for each set of 12 DOS was -- I think it was twice. So it was 13 package of two. I think so. I don't think 14 that it fit on one diskette at that time. But 15 every diskette that we shipped has to have 16 hologram from Digital Research. 17 Q. So when you buy your 250-, what you 18 get is the master disk? 19 A. Right. 20 Q. And a hologram for each diskette? 21 A. Yes. 22 Q. You, the OEM, produce the disks of 23 DR-DOS? 24 A. We copied them from the master disk, 25 yes. 10992 1 Q. And who is in charge of the technical 2 aspects of VOBIS at this time? 3 A. This was Mr. Dahmen at that time. All 4 the time he was because he's genius in that. 5 Q. All right. And his name is? 6 A. Heinz Willi so -- should I spell that? 7 It's H-e-i-n zet. 8 Q. Z. 9 A. Z. Zet z, yes. Heinz. Zulu. I can 10 put it in the alpha language if you like. 11 And then Willi is Whiskey, India, 12 Lima, Lima, India. 13 And then Dahmen is Delta, Alpha, 14 Hotel, Mike, Echo, November. 15 Q. All right. That's pilot's language; 16 correct? 17 A. Yes. 18 Q. So did we all get that? 19 Okay. So that pilots who fly all over 20 the world and use different languages as their 21 native tongue can communicate with -- 22 A. Yes, you have to. 23 Q. And you are also a pilot? 24 A. Yes. 25 Q. But you didn't fly yourself here? 10993 1 A. Here not, no. No, that makes no 2 sense. That is too expensive. It is much 3 cheaper to go by United Airlines or something. 4 Q. Let's turn next to Exhibit -- now, we 5 were in February of 1991. 6 MS CONLIN: Can we go down a little 7 bit, Darin, please? 8 Q. So February 1991 you buy your 250- 9 holograms for DR-DOS 5.0. 10 And so let's look at what's going on 11 over at Microsoft. 12 And we'll look at Exhibit 584, 13 Plaintiffs' Exhibit 584, which is mail from 14 Sandy Duncan to Jeff Lum dated February 28, 15 1991, which we would offer at this time. 16 THE COURT: What number? 17 MS. CONLIN: 584. Plaintiffs' Exhibit 18 584. 19 MR. HOLLEY: Same objection, Your 20 Honor, about the use of this Microsoft internal 21 document. 22 THE COURT: It's admitted. 23 Q. Mr. Lieven, the reason I wanted to 24 call this to your attention is because 25 Mr. Duncan -- did you know Mr. Duncan who was 10994 1 in Europe for Microsoft? 2 A. I don't think so. Kempin and 3 Schindler were our persons we talked to at this 4 time. 5 Q. How about Mr. Lum? 6 A. I met him, but he was not the contact 7 person for us, so we did it -- because he 8 didn't speak German. It was easier to speak to 9 Schindler or to speak to Mr. Kempin, especially 10 for our people. Everybody speaking English. 11 So it was easier that we have had the German 12 speaking representatives with us in our 13 offices. 14 Q. All right. And the German -- along in 15 here comes Stefanie Reichel as well. Did she 16 speak German? I don't think she's right here 17 yet. 18 A. She, yes, I think she speaks naturally 19 German, mother language. Yes, I think so. 20 Q. We're on February 28, 1991. So this 21 is just shortly after you make your purchase of 22 the 250- DRI holograms; right? 23 A. (Witness indicated affirmatively.) 24 Q. And he says, Mr. Duncan talks to 25 Mr. Lum about a company called Amstrad. Do you 10995 1 know Amstrad? I think you mentioned it 2 earlier. 3 A. Yes. 4 Q. Tell the jury please what Amstrad is. 5 A. Amstrad was a quite famous English 6 company. They have had their own computers 7 first. Many goods of this home computers came 8 from England. But then they switched over to 9 -- also to IBM compatibles in the end of the 10 '80s. So they were a competitor of us. 11 Q. Did they sell in Germany? 12 A. Yes. 13 Q. What Mr. Duncan says is, I now have 14 details about DR at Amstrad. They want to put 15 DR-DOS on the PC 5000, 8086 model only in 16 Germany. They're doing this because they want 17 to, quote, test the market and they think they 18 are okay in Germany because of VOBIS. They 19 also are tied on other machines due to their 20 per processor DOS agreement. 21 And we'll talk about that last 22 sentence in connection with another exhibit, 23 but did Amstrad start loading DR-DOS in 24 Germany? 25 A. I really don't know. They were not 10996 1 very important for us. I don't know the 2 numbers they sold, but -- I think so. I don't 3 know. 4 Q. All right. 5 A. I didn't recognize it to be. 6 Q. Were they just starting out in Germany 7 at this time? Had they just expanded or had 8 they been there? 9 A. They had been there for a long time 10 with home computers in the early '80s, until I 11 think '85, and then when the home computer went 12 down, maybe you remember Commodore 64 on the 13 home computers. They went off -- they went 14 away from the market and then the IBM 15 compatibles, they were the more important. 16 And then they switched also to the 17 same strategy like us, buy components, put them 18 together and put an Amstrad sticker on them. 19 Q. All right. Did they ever become a 20 serious competitor to you? 21 A. Every competitor is serious. 22 Q. Okay. All right. 23 A. But I didn't recognize them. 24 Q. By that do you mean that -- 25 A. That they were a threat or something. 10997 1 Q. All right. 2 A. Because we had one advantage. We have 3 had our own retail stores. And this was very 4 big advantage because we didn't have to go to 5 dealers and convince them would you please buy 6 our Amstrad computers. We didn't have to 7 convince our salespeople, we said here is your 8 High Screen, sell it. 9 Q. So the ability to sell your own 10 computers in your own store was -- 11 A. This was the story. This was the real 12 strategy behind it, and there was that time 13 very good. 14 Q. You indicated that you had learned of 15 this strategy in France? 16 A. The bundling strategy I have learned 17 from in France. There was one company, I think 18 the name was MPC, Mike, Papa, Charlie. And 19 they have -- I've seen that, they have had DOS 20 and Works I think together. And I saw it on a 21 computer in 1988. And I said, wow, that's not 22 a bad idea. 23 As I explained to you, you have two 24 cars. The cars look the same. One car has 25 hundred gallons of fuel with it. So what car 10998 1 do you buy? 2 Q. Okay. 3 A. The most important thing is that you 4 get this fuel for a lower price what you bundle 5 with your car. If you pay the normal retail 6 price to Microsoft or whatever, it makes no 7 sense; that people can go to the gas station 8 when they get the car plus low extra price they 9 get this value of fuel. That is big advantage 10 to them. 11 Q. The idea of the retail stores, I know 12 that you started out as retail stores -- 13 A. Yes. 14 Q. -- right? 15 And then you decided what the heck, 16 we'll just put them together ourselves. And 17 then did anybody else do that before you, to 18 the best of your knowledge? 19 A. In Germany, no. We have had one 20 company that tried to copy us. That was Escom, 21 E-s-c-o-m. 22 Q. That was after you, though? 23 A. After you, yes. 24 They tried really -- what we did next 25 month they did it. They try to copy us, yes. 10999 1 Q. All right. Were they a significant 2 competitor to you? 3 A. Not 1990, 1991, but from 1992, yes, 4 they -- we felt competition, yes. 5 MS. CONLIN: Your Honor, should I do 6 one more document or should I -- 7 THE COURT: Let's take our recess now. 8 Remember the admonition previously 9 given. You can leave your notebooks here. 10 We'll be in recess for ten minutes. 11 All rise. 12 (A recess was taken from 9:47 a.m. 13 to 10:02 a.m.) 14 THE COURT: Everyone else may be 15 seated. 16 Sir, if you'd take the stand. You're 17 still under oath. 18 BY MS. CONLIN: 19 Q. Have you ever testified in a jury 20 trial before? 21 A. In a jury trial not, no. 22 Q. Let's see if we can clarify this issue 23 of how many DRI licenses you bought in February 24 of 1991. 25 Can you tell the jury as you have 11000 1 thought about this, more explanation would be 2 useful? 3 A. Yes. As I said, that we didn't buy 4 the diskettes anymore from Digital Research. 5 They had to make sure that any copy 6 that we sell with the computer is a legal copy, 7 and therefore we got counted amount of 8 holograms. And I think I made a mistake 9 because for each copy you got one hologram. 10 Either there were two diskettes or no 11 diskettes whatever. When there were diskettes, 12 there were two. You put the hologram on the 13 first diskette, diskette number one. If there 14 are no diskettes, you put the hologram on the 15 machines. Like you see on all the notebooks. 16 If you turn, you see on the dark side, you see 17 the hologram of Microsoft. So that is how it 18 works. 19 It is sure that every computer has a 20 hologram anywhere, maybe on one diskette or 21 maybe on the case or on the downside of the 22 notebook; that sure that there is a legal copy 23 of the operating system in there. And these 24 were 250,000 in February 1991. 25 Q. And if there was no diskette, what did 11001 1 you get? 2 A. We got the gold disk. All the 3 computers have been sold with hard disk drive 4 or CD-ROM, and this started in 1991, 1992, it 5 started slowly. But then you didn't need any 6 more diskette, which was quite expensive. You 7 know, diskette at that time cost one and a half 8 dollar and the CD-ROM later cost only 60 cents. 9 And even then after that you didn't 10 need anymore the CD-ROM, because you could 11 preinstall it on the computer, like it is done 12 today, and then you put the hologram on the 13 machine, on the backside or downside or 14 whatever, so -- 15 Q. All right. 16 A. Okay. 17 Q. When you bought your 250- licenses 18 from DRI in February of 1991, was there any 19 limit in terms of the time that you needed to 20 use them by? 21 A. No, it was a per copy, you know, 22 because we could use it immediately or within 23 12 months or -- they were never lost. 24 This hologram was the right to sell a 25 computer with Digital Research DOS, at that 11002 1 time 5.0, and we could do it whatever time. 2 Q. So you had the use of those holograms, 3 once you bought them, the use of the licenses 4 once you bought them, it went on until you ran 5 out of holograms? 6 A. Yes, of course. 7 Q. And that -- in 19 -- February of 1991, 8 250,000 licenses is what you bought? 9 A. Yes. 10 Q. And each of those licenses had with it 11 one hologram? 12 A. Yes. 13 Q. All right. Now, when you had your 14 250- licenses for DR-DOS 5, when DR-DOS 6 came 15 out, could you use those for DR-DOS 6? 16 A. Yes, of course. It's only the master 17 disk, or the gold disk as we called it, that 18 was exchanged. But it was for all the licenses 19 the same. So it was the proof that the license 20 is valid, and we paid the royalty for it. 21 Q. Did you have to pay any more when 22 DR-DOS 6.0 came out in September of 1991? 23 A. I don't know. I think we paid $9 for 24 the 250,000, and I wonder if we paid more for 25 6.0. But 6.0 didn't -- did we sell so many of 11003 1 them? I don't know. 2 Q. Well, as we walk through this I think 3 that it will help to refresh your recollection 4 because 6.0 came out in September of -- yes, 5 DR-DOS 6.0 is released, VOBIS begins shipping 6 DR-DOS 6.0 or MS-DOS 5.0. 7 A. It was in '91? 8 Q. Yes. 9 A. Then we sold a lot of them. So that 10 was the same price. 11 I think then it is -- I mixed it up 12 with 7.0 when we bought some thousand 400. 13 That was a little bit cheaper. But the 6.0 14 then was the same contract, yes. It's $9, same 15 price. 16 Q. Well, here, we have another document. 17 Do you see Exhibit 9026? It looks like this, 18 Mr. Lieven. 19 A. Yes, 9026, I have it. 20 Q. Perfect. And 9026 -- 9026 is a 21 license agreement. Do you see your signature 22 on that, Mr. Lieven? 23 A. Yes, I do. 24 Q. And the date is February 8th? 25 A. '91, yes. This I think is the 250,000 11004 1 licenses. 2 Q. Yes. 3 MS. CONLIN: We would offer 4 Plaintiffs' Exhibit 9026. 5 MR. HOLLEY: No objection, Your Honor. 6 THE COURT: It's admitted. 7 Q. Let's look at -- the last page, I 8 believe, is for 250,000. 9 MS. CONLIN: Right in the middle, if 10 you could highlight that. 11 Q. All right. It says, DR-DOS 5.0, 12 including ViewMax, in German, English, French 13 and Italian. 14 A. Yes. 15 Q. And it says 13.50 and that's -- 16 A. It's deutsche marks. The exchange 17 rate was 1.5 at that time. So it's $9. 18 Q. All right. So this is the contract 19 that you signed with DRI to get these 250- 20 DR-DOS's? 21 A. Yes. 22 Q. Let's look now at what's going on 23 around this time, the same time in February and 24 March of 1991 with respect to Microsoft. 25 Are you receiving regular visits from 11005 1 Microsoft representatives? 2 A. Yes, we did, of course. 3 Q. And are they wanting you to license 4 MS-DOS 5.0? 5 A. Of course. They wanted us. 6 Q. And let's talk about the CeBIT 7 conference. And tell the jury what CeBIT is. 8 A. This is still the I think world -- the 9 largest computer fair in Germany. It's in 10 Hanover. It's the IT part of the Hanover fair. 11 It's always in March every year, and I think 12 it's biggest computer show. It's even bigger 13 than Las Vegas or CES. So it's most important 14 for every OEM to be there and for any 15 manufacturer to be there at that show. 16 Q. When you talk about Las Vegas, you 17 mean the COMDEX? 18 A. COMDEX forum. 19 Q. The jury has heard about that. 20 Let's look at Plaintiffs' Exhibit 607. 21 Plaintiffs' Exhibit 607 is a Europe 22 trip report from Joachim Kempin to Jeremy 23 Butler dated March 26, 1991, with copies to 24 Mr. Gates, Mr. Hallman, Mr. Vergnes. 25 A. It's French, yes. 11006 1 Q. Who was Mr. Vergnes? 2 A. He was, I think, the European head of 3 Microsoft. 4 MS. CONLIN: Your Honor, I 5 misidentified the exhibit. It's Plaintiffs' 6 Exhibit 638, and Mr. Hagstrom says I've been 7 saying 607 for some reason. But it's 638. I 8 have it in front of me. 9 So, Your Honor, at this time we would 10 offer Plaintiffs' Exhibit 638. 11 MR. HOLLEY: Your Honor, we object to 12 this. There has been redactions of this 13 document to create 638A. I wouldn't object to 14 that being admitted, but 638 I do object to. 15 There's embedded hearsay. 16 MS. CONLIN: Your Honor, I believe 17 that Mr. Holley is right, and it will be 638A 18 that we show the jury, I hope. Let me -- 19 THE COURT: Make sure. 20 MS. CONLIN: May I take a moment to 21 check with Mr. Buchbinder? 22 THE COURT: Sure. 23 MS. CONLIN: He's ahead of me. 24 THE COURT: Do you have the correct 25 one? 11007 1 MS. CONLIN: Yes. 2 THE COURT: It's admitted then. 3 Q. This is Mr. Kempin's document, and I 4 know that you've seen it recently when you 5 came, and he talks about his meeting with you, 6 and I thought it might be useful to look at it 7 while we're talking about the meeting. 8 Do you remember your meeting with 9 Mr. Kempin at CeBIT? 10 A. Yes, I do. 11 Q. What was the tenor -- do you know 12 tenor? 13 A. Yes. 14 Q. -- of the meeting? 15 A. Microsoft got a little bit unpatient 16 to say like that. That they finally not had 17 yet a contract for DOS. 18 Q. MS-DOS? 19 A. MS-DOS, yes. Their DOS, of course. 20 Still I think they knew that we bought 21 250,000 licenses from Digital Research. And 22 Germany is small, and I think somebody told 23 them that we are not married to Digital 24 Research, but it will be difficult to get us in 25 their Microsoft camp back, as they said. 11008 1 And Kempin got unpatient a little bit, 2 and he said now please sign here, and you don't 3 have to take it now, but as soon as MS-DOS 4 comes out, you will also offer that. 5 But the question was we had enough -- 6 we had sufficient Digital Research licenses. 7 250,000 was enough for the whole year. So why 8 should we pay twice the license that we have 9 paid to Digital Research and another license to 10 Microsoft? And that was the issue that we were 11 discussing about that. 12 Q. At around this time, is it important 13 for an OEM to be able to sell Windows? 14 A. It start at that time, yes. I think 15 it was Windows 3.1 and it was better. It was 16 quite stable, yes. 17 Q. All right. Well -- 18 A. At least that we could offer it. That 19 if a customer asks, yes, we have it. If you 20 like it, you get it. 21 Q. When you are competing with other 22 companies, with other OEMs, is it important for 23 you to have access to the same kind of software 24 that other OEMs may be loading? 25 A. Not all software, but Windows got more 11009 1 and more important that time. 2 Q. All right. Well, let's look at what 3 Mr. Kempin reports to Mr. Gates and others. 4 He says -- we're just going to look at 5 this second paragraph. 6 He says, interesting enough, Amstrad 7 and other German companies have been noticing 8 VOBIS' success and its DRI bundling. 9 Was that true? 10 A. I think, yes, because reports that 11 said VOBIS now is number two, I think, behind 12 IBM. I think in 1992 we were ahead of IBM. 13 And this is, of course -- it's a message, it's 14 a signal to all the other competitors. 15 Q. So you got to be number two in the 16 German market bundling DR-DOS exclusively? 17 A. So it didn't keep it away from that. 18 I don't know whether it helped us, but I'm sure 19 it help, but I can't prove it so -- but we 20 didn't make a mistake with DR-DOS. And I'm 21 sure that because it was better than 4.1 that 22 people appreciated that; that they said, okay, 23 VOBIS has a better product than others offer so 24 I buy a High Screen computer. 25 Q. And that High Screen computer had 11010 1 DR-DOS on it? 2 A. Yes. 3 Q. And he says, after talking to Manfred, 4 it was obvious that Lieven -- not spelled 5 correctly -- was reneging on the deal. 6 Reneging, do you know that? 7 A. Yeah. We talked and talked again 8 about those things, those terms and conditions. 9 I think that's what it means. 10 Q. Well, it means that when you -- that 11 you had already made an agreement with 12 Microsoft and that you went back on it, that 13 you did not keep your word, that's what -- 14 A. No, that's not true. We were still 15 discussing the terms and conditions -- I told 16 you, why pay $18 for DOS, MS-DOS, as the same 17 time we had yet paid $9 for the DR-DOS. That 18 makes no sense. So this quantity, 200,000 19 times $18, it's $3.6 millions a year. That's a 20 lot of profit that we lose because of also 21 licensing MS-DOS. 22 So we were still in the stage of 23 negotiations. 24 Q. So you did not renege on a deal? 25 A. No. We said we would like to have 11011 1 MS-DOS also together with DR-DOS, but let's 2 talk about the terms and conditions. 3 Q. All right. Round two, he says. I 4 took the opportunity to negotiate in German, 5 sign our offer as is -- this is an 6 agreement-upon package deal, or if you change 7 any component, we will too. 8 Second option, scratch the DOS clause, 9 meaning no, you don't have to buy MS-DOS; 10 right? 11 A. Uh-huh. 12 Q. And then pay $35 for Windows instead 13 of 15. Is that the offer that he made to you? 14 A. Yes, that's Mr. Kempin's way to 15 negotiate. 16 Q. So what he said to you is you can buy 17 MS-DOS and Windows together for $15; is that 18 right? 19 A. No, that's not right. That means -- 20 either $9 DOS plus 15 Windows. That means 24. 21 Or only Windows for 35. I think that's what it 22 means. 23 Q. So the $15 was for Windows, but in 24 order to get the $15 price you had -- 25 A. We had also to choose the DOS. 11012 1 Q. MS? 2 A. Of course, MS-DOS. 3 Q. So I want to be sure I understand. 4 In order to get Windows, you had to 5 also buy DOS and together they would cost $24 6 or you could pay $35 for Windows alone? 7 A. Yes, that is -- was his offer. I 8 didn't take it serious because -- 9 Q. You didn't -- 10 A. It's a little bit unusual not to say 11 -- it's a little bit nasty, you know, to offer 12 us half of the package for three times the 13 price, you know, or two-thirds of the package 14 -- two-thirds of the package for Windows was 15 $15. Together with DOS we paid 15, but without 16 DOS we paid 35. I don't think he himself took 17 it serious because we never would have done 18 that. 19 Q. That's what he says. Let's read on. 20 He gave you until March -- I beg your 21 pardon -- April 1st, 1991, to consider. And 22 this was toward the end of March, is that when 23 the CeBIT is? 24 A. Yes, the CeBIT is always mid of March, 25 20's or something. 11013 1 Q. So you have until April 1st to 2 consider. If no contract is signed, seize 3 shipping Windows by 5-1-91. 4 They are shipping without a license, 5 and there's an exclamation point there. 6 Was that true? Were you shipping 7 without a license? 8 A. No, the agreement was I think not 9 written down in that contract, but there was a 10 mutual understanding that either Works or 11 Windows we could ship with our computers, but 12 there was no separate contract for Windows. 13 They wanted to put that in this new 14 contract to get the situation in written order, 15 not only in oral understanding. That was their 16 idea behind it. 17 Q. All right. So your license was a 18 license -- 19 A. Of course we sold Windows for one and 20 a half year. Without license, I don't think 21 Microsoft allows that. I don't think so. 22 Q. All right. You were paying for it? 23 A. Yes, of course. 24 Q. They knew that you were paying for it? 25 A. Yes. We paid it to them, so they 11014 1 should knew -- know. 2 Q. They are shipping without a license. 3 Submit royalty reports for Win and 4 Works and pay up. They have a valid Works 5 license at $25. The proposal showed impact. 6 Meaning you reacted to it? 7 MR. HOLLEY: Objection, Your Honor. 8 Leading. 9 THE COURT: Sustained. 10 Q. I'm sorry. When Mr. Kempin says the 11 proposal showed impact, do you know what he 12 meant? 13 MR. HOLLEY: Objection. Calls for 14 speculation. 15 THE COURT: Overruled. 16 He may answer.