11212 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 XLI 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 8:29 a.m., January 31, 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 11213 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 RICHARD M. HAGSTROM 7 Attorney at Law Zelle, Hofmann, Voelbel, 8 Mason & Gette, LLP 500 Washington Avenue South 9 Suite 4000 Minneapolis, MN 55415 10 (612) 339-2020 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11214 1 Defendant by: DAVID B. TULCHIN 2 STEVEN L. HOLLEY SHARON L. NELLES 3 JEFFREY C. CHAPMAN 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 BRENT B. GREEN Attorney at Law 11 Duncan, Green, Brown & Langeness, PC 12 Suite 380 400 Locust Street 13 Des Moines, IA 50309 (515) 288-6440 14 STEVEN J. AESCHBACHER 15 Attorney at Law Microsoft Corporation 16 One Microsoft Way Redmond, WA 98052 17 (425) 882-8080 18 19 20 21 22 23 24 25 11215 1 (The following record was made out of 2 the presence of the jury at 8:29 a.m.) 3 MS. CONLIN: This is 2226, Your Honor, 4 which you've asked about a couple of times and 5 which I'm finally ready to talk about. 6 It is an exhibit offered in connection 7 with the testimony of Mr. Bradford. And here 8 is the status of the exhibit. 9 Defendants objected in total that the 10 exhibit was hearsay and the Special Master said 11 that it was, and we appealed to you and you 12 said it was not. 13 So our appeal was granted and the 14 document in total is not hearsay. 15 The paragraph that begins Mark has a 16 good friend at SCC, that second paragraph, that 17 was offered for the truth, Your Honor. The 18 Special Master overruled the Defendant's 19 objection and there was no appeal. 20 The first paragraph that begins, 21 reported to me in the very first sentence, from 22 that to the end of the paragraph the Special 23 Master ruled was embedded hearsay. So it could 24 only be offered for a nonhearsay purpose. 25 And we offer it under McElroy versus 11216 1 State to explain subsequent conduct, which is 2 listed right in the exhibit. It helps us a 3 lot. It says what they did subsequently and 4 what they intended to do thereafter. 5 So, Your Honor, we offer the entire 6 exhibit. We offer for the truth the -- all 7 after the first paragraph. And we offer the 8 first paragraph beginning reported to me for 9 the nonhearsay purpose of explaining subsequent 10 conduct under McElroy versus State. 11 MR. TULCHIN: Your Honor, if I may. 12 Thank you. 13 Good morning. Ms. Conlin is correct 14 that this document, with the exception of the 15 first paragraph, can come in. 16 As to the first paragraph, as she says 17 beginning with the words reported to me on the 18 first line, all of that was ruled to be 19 embedded hearsay, and I don't know what the 20 nonhearsay purpose could be. 21 This document was shown to 22 Mr. Bradford. It's my recollection that when 23 he saw it, he said he didn't remember any of 24 the events here. And Ms. Conlin, during her 25 examination then, quickly moved on to another 11217 1 subject. 2 So the first paragraph could not now 3 be offered to explain some subsequent conduct 4 about which Mr. Bradford testified. He knew 5 nothing about this when it was shown to him. 6 I don't understand what subsequent 7 conduct the first paragraph is supposedly being 8 used to explain as it pertains to the rest of 9 the document either. And I don't think that 10 this is anything other than embedded hearsay 11 being offered for its truth. 12 If it does come in, this first 13 paragraph, then we're back to the point where I 14 think the jury, at least at some point if it's 15 going to be shown this document or get it 16 during its deliberations, needs an instruction 17 that this is not for the truth. But I don't 18 understand how it could be anything but for a 19 hearsay purpose. 20 THE COURT: The Court -- are you 21 saying I affirmed the Special Master or I 22 reversed -- 23 MS. CONLIN: You reversed the Special 24 Master, Your Honor. 25 THE COURT: As to everything except 11218 1 the first paragraph? 2 MS. CONLIN: Yes. We did not appeal 3 the first paragraph. 4 THE COURT: All right. 5 MS. CONLIN: So that's the one that's 6 at issue. 7 And if I may address the question of 8 whether or not the first paragraph is offered 9 for nonhearsay use under McElroy. 10 What we think, Your Honor, is that the 11 first paragraph is explained -- the subsequent 12 conduct is in the second paragraph. 13 The Court has seen other documents 14 almost exactly like this and permitted them to 15 be offered for the nonhearsay purpose 16 explaining subsequent conduct when the document 17 itself contains the subsequent conduct. We 18 believe that that falls squarely within the 19 Supreme Court's decision and that it is 20 perfectly permissible. 21 We, of course, Your Honor, as you 22 know, do not object to any giving of an 23 instruction in connection with explaining to 24 the jury the -- when there is a nonhearsay use 25 for the document. 11219 1 THE COURT: Anything else on this one? 2 MR. TULCHIN: Only, Your Honor, that 3 if this fits within McElroy, then, I guess 4 McElroy has been expanded to the point where 5 it's hard to see that any embedded hearsay 6 would be excluded, and I don't think that's 7 what McElroy stands for. 8 THE COURT: Anything further? 9 MS. CONLIN: No, Your Honor. 10 THE COURT: Plaintiffs' Exhibit 2266 11 is admitted except for the first paragraph that 12 shall be redacted. 13 Are the other exhibits acceptable that 14 I held and didn't make a ruling on yet, 15 Mr. Holley or Mr. Tulchin? 16 MR. HOLLEY: The only one that -- I 17 looked into the question yesterday, Your Honor, 18 of foundation objections, and Ms. Conlin is 19 correct that in the Special Master process she 20 and Mr. Tuggy agreed that the parties would not 21 assert foundation objections unless they had a 22 good-faith basis to believe that the document 23 was, in fact, authored by the person who 24 purportedly authored. 25 It wasn't our understanding that that 11220 1 stipulation extended to things that didn't go 2 through the Special Master process and came up 3 at trial, but I don't intend to argue about the 4 document that we were talking about yesterday 5 any further. 6 THE COURT: What about those other 7 Plaintiffs' exhibits during Bradford, can I 8 rule on those now? 9 MR. HOLLEY: I'd have to defer to 10 Mr. Tulchin on that, Your Honor. 11 MR. TULCHIN: Your Honor, there was 12 one more, and I think we resolved it, but I 13 didn't bring those materials with me, I'm sorry 14 to say. 15 THE COURT: Oh, okay. 16 MR. TULCHIN: And I can't quite recall 17 -- there was one other exhibit as to which 18 there was a question. I wish I could remember 19 what it was. 20 THE COURT: Let's take care of that 21 after lunch recess. Is that all right? 22 MR. TULCHIN: Sure. 23 THE COURT: Can someone bring you 24 that? 25 MR. TULCHIN: Yes. I'll make sure we 11221 1 get that. 2 THE COURT: Very well. You can get 3 the jury. 4 (The following record was made in the 5 presence of the jury at 8:39 a.m.) 6 THE COURT: Everyone else may be 7 seated. 8 Sir, would you take the stand, please. 9 You're still under oath, sir. 10 THE WITNESS: Yes. 11 THEO LIEVEN, 12 recalled as a witness, having been previously 13 duly sworn, testified as follows: 14 THE COURT: Mr. Holley. 15 CROSS-EXAMINATION (CONT'D) 16 BY MR. HOLLEY: 17 Q. Good morning, Mr. Lieven, how are you? 18 A. Thank you very much. 19 Q. You testified yesterday that Windows 20 for Workgroups was an important product because 21 it was the first version of Windows to include 22 networking capability; correct? 23 A. I think it had some. I don't know 24 whether it was like the later versions was the 25 Windows XP, but it was supposed that it could 11222 1 do that. 2 Q. And that was functionality that VOBIS 3 regarded as valuable to its customers, correct, 4 the -- 5 A. Of course, yes. 6 Q. And that is also true of the CD-ROM 7 support that Microsoft included in Windows 3.0, 8 correct, that was valuable to VOBIS's 9 customers? 10 A. What was that? To write CD-ROMs or -- 11 Q. Or the ability to play CD-ROMs or 12 install software from CD-ROMs. That ability 13 when added to Windows was something that was 14 valuable to VOBIS's customers? 15 A. That's first time with Windows 3.11? 16 Q. No, I said 3.0, but do you think it 17 was 3.11? 18 A. No, no. It was 3.0. It started with 19 that, yes. 20 Q. And my question to you, sir, is that 21 inclusion of support for CD-ROMs and Windows 22 was valuable to VOBIS's customers? 23 A. I don't know whether Microsoft's 24 including was valuable, but it is valuable for 25 customer that he has those functions, yes, of 11223 1 course. 2 I don't know -- hasn't there been 3 other software packages that could do the same 4 to install something on the CD-ROM? I think 5 mainly the CD-ROM drive manufacturers had 6 software with it and that you could install 7 something or that you could play something from 8 normal CDs. That was not exclusively 9 Microsoft, but, of course, it's valuable, 10 whether Microsoft does it or somebody else. 11 Q. And you said yesterday that the 12 emergence of CD-ROM drives spurred an entire 13 revolution in multimedia content; correct? 14 A. Yes, it started 1991, I think slowly, 15 but it has -- I think from 1995 on all 16 computers has -- have had the CD-ROMs, CD-ROM 17 drives. 18 Q. And the ability of PCs to play music 19 and video made them more appealing to people 20 thinking about buying a VOBIS High Screen PC; 21 correct? 22 A. Yes. Not for me. I don't play music 23 or something like that with it, but some people 24 like it, yes. 25 Q. Now, you testified yesterday that 11224 1 Microsoft added support for universal serial 2 bus devices to Windows 95; correct? 3 A. It had to, yes. Otherwise it wouldn't 4 work with the printers. 5 The USB technology has not been 6 developed by Microsoft. It has been by a group 7 of companies to support that, but, of course, 8 Microsoft had to follow that rules of USB. 9 Q. And the inclusion of USB support in 10 Windows 95 that allowed people to plug printers 11 and scanners into their PCs was good for 12 VOBIS's customers; correct? 13 A. Yes, of course. 14 Q. Now I'd like to turn back, if we 15 could, to the chronology of VOBIS's licensing 16 of MS-DOS and DR-DOS, which is sort of where we 17 were yesterday when we stopped at 3 o'clock. 18 The price that VOBIS paid for DR-DOS 5 19 in the February 1991 contract was $9; correct? 20 A. Right. 21 Q. And that was a price that you got that 22 was half of what you had been paying before; 23 correct? You had been paying I think 18 -- 24 A. 18 was at the beginning. Then I think 25 it was 15, 13. It went down with all the 11225 1 payments. Maybe we have a look at the exhibit 2 again, but it went down. It was not from 18 to 3 9. There were steps in between. 4 Q. So as a result of your negotiations 5 with Digital Research, over time the price fell 6 from $18 to $9? 7 A. Right. 8 Q. Now, at the time that you signed the 9 February 1991 contract with Digital Research, 10 they were aware, were they not, that Microsoft 11 had offered you a $9 price for MS-DOS? 12 A. Have they been aware of that? I don't 13 think so. 14 Q. Well, didn't you tell them that, sir? 15 Didn't you show them a Microsoft quote for $9 16 for MS-DOS -- 17 A. I don't think so. I know that story 18 that they have said I have seen. Who did that 19 say, Mr. Giesbrecht or something? But if he 20 says he has seen, he didn't say I have shown 21 him. And I don't run around the world and show 22 papers with prices. 23 Q. I'd like to show you -- 24 MR. HOLLEY: May I approach the 25 witness, Your Honor? 11226 1 THE COURT: You may. 2 Q. -- Defendant's Exhibit 6806. You've 3 seen this document, haven't you? 4 A. Now somebody told me about, but I have 5 -- I don't know, have I seen that? Maybe 6 Mr. Giesbrecht bring that I recall. 7 Q. You know Mr. Giesbrecht; correct? 8 A. I met him not so early with -- had 9 another representative, but I should have met 10 him, yes. He was the general manager of 11 Digital Research in Germany. 12 Q. This is a memo from Mr. Giesbrecht 13 February 1, 1991, to Mr. Dixon, the head of 14 DRI, talking about VOBIS pricing; correct? 15 A. He says MS Windows and Works bundled 16 U.S. 15 not included and MS-DOS 5.0 $9. That 17 is he says, yes. 18 MR. HOLLEY: Your Honor, I move for 19 the admission of Defendant's Exhibit 6806. 20 MS. CONLIN: No objection. 21 THE COURT: It's admitted. 22 Q. Now, here Mr. Giesbrecht is saying to 23 Mr. Dixon, today we saw a quote from Microsoft 24 which included the following, and then the 25 second item is MS-DOS 5 U.S. dollars 9. 11227 1 Is it your testimony that you did not 2 tell Digital Research that Microsoft had 3 offered a $9 price for MS-DOS 5? 4 A. I wonder why he says I saw. Today I 5 saw a quote. What does that mean? Did he see 6 a letter or did he see my writing or something 7 like that? 8 Sometimes it's -- it may be -- it may 9 happen that you tell your second source what 10 prices you have from your first, but you never 11 say the correct price, you know. That is not 12 very usual. But I don't know why he knows that 13 from that he says I saw a quote. What quote 14 should that be? 15 Q. Well, this is a traditional tactic in 16 negotiation, isn't it? 17 You have Vendor Number 1 and Vendor 18 Number 2 and you play them off against one 19 another by suggesting or telling them quite 20 directly that the other guy is giving you a 21 lower price? 22 A. That could happen -- that is what -- 23 when you have two stores, you go to one and you 24 say you are much too expensive, the other one 25 is cheaper. That may happen, yes. 11228 1 Q. Well, and you've done that, haven't 2 you, sir? 3 A. I have done that sometimes in my life, 4 but I am wondering what does that mean? I saw 5 a quote, what does that mean? I gave -- I 6 don't give anybody a quote or something like 7 that. 8 Q. Okay. But you don't deny that you 9 told DRI in February of '91 in order to get a 10 low price for DR-DOS that Microsoft was 11 offering you a very aggressive price for 12 MS-DOS? 13 A. They knew it, yes, so I really can't 14 recall how. Maybe that somebody else told them 15 maybe -- I don't say I don't tell prices to 16 different sources. Sometimes it's technical. 17 You know, you do that for negotiation. 18 Q. And the $9 price that you got out of 19 Digital Research was quite beneficial to VOBIS, 20 wasn't it? 21 A. Of course. 22 Q. All right. Now, yesterday Ms. Conlin 23 showed you Defendant's Exhibit 371, which was 24 the September 12, 1990 contract for both Works 25 and MS-DOS 4.01. 11229 1 Do you remember that contract? 2 A. Yes, I think so. 3 Q. And I believe it was your testimony 4 that even though you had the right to ship 5 MS-DOS 4.01, you never did? 6 A. No, we never did. 7 Q. But that didn't stop you, did it, from 8 taking advantage of the right to ship Works 9 with your -- 10 A. There we were much more interested in. 11 Q. Okay. And I don't -- we talked a lot 12 or you talked a lot yesterday about Works. I 13 just want to make it clear what Works is. 14 Works is an application suite; correct? 15 A. Yes. 16 Q. And it's sort of -- I think you may 17 have referred to it as a baby version of 18 Microsoft Office? 19 A. Yes, it was a home user version. I 20 don't think that it has been used very much in 21 offices. I used it, but it was a small 22 version, yes. 23 Q. So it had a basic word processor and a 24 basic spreadsheet application? 25 A. Yes. 11230 1 Q. And you regarded Works as a very good 2 product for VOBIS; correct? 3 A. Yes, for our customers, for our kinds 4 of customers it was the right product. 5 Q. And you also regarded the price that 6 Microsoft gave you for Works to be quite 7 attractive; correct? 8 A. Reasonable, yes. 9 Q. In fact, you said yesterday that 10 having Works for High Screen computers was like 11 the ability to offer a new car with 100 gallons 12 of gasoline? 13 A. 50. 14 Q. We're down to 50. 15 A. With the Office suite it's 100 16 gallons. But it's a good offer for customers. 17 Q. Okay. And you regarded it at this 18 period of time in 1990, September of 1990, 19 Works was a lot more important to VOBIS than 20 Windows was? 21 A. At that time, yes, in 1991. Windows 22 just started to be important. 23 Q. Now, in 1991, it's correct to say, 24 isn't it, that most customers in Germany, your 25 customers in Germany were still running DOS 11231 1 applications as opposed to Windows 2 applications? 3 A. Yes, that time I'm sure. 4 Q. And as a result, the notion of having 5 a graphical interface like Windows was 6 something of a gimmick, as you said yesterday; 7 right? 8 A. Not gimmick, but people did not see 9 the advantage that time. They didn't see that 10 because they had all the DOS programs. 11 Everything was in DOS, even the Word, Microsoft 12 Word was for DOS or the Excel. There haven't 13 been so many applications for Windows yet. 14 So what you had to do, you were in 15 your Windows application, but you had to open 16 application fields for DOS, the DOS Windows 17 again and -- not the DOS window, but this 18 square on the screen was running DOS under 19 Windows, and that makes no -- not so much sense 20 at the beginning. Later when there were more 21 applications for Windows, it made more sense to 22 have Windows. 23 Q. And I think you had said yesterday in 24 response to a question from Ms. Conlin that it 25 wasn't until 1992 or '93, after the release of 11232 1 Windows 3.1, that it became important to VOBIS 2 to have Windows? 3 A. Yes. Important in the meaning that 4 you have to offer it. Otherwise, you are out 5 of the market. 6 Q. And the reason that you have to offer 7 it or be out of the market is because that's 8 what customers say they want; right? 9 A. Yes. 10 Q. Now, you testified yesterday about a 11 meeting that you had with Mr. Kempin from 12 Microsoft in Hanover, Germany, in March of 13 1991. 14 Do you recall that? 15 A. Yes. 16 Q. And Mr. Kempin was annoyed or at least 17 expressed annoyance because he thought that he 18 was coming to basically ceremonially sign an 19 agreement that had been negotiated. 20 Do you remember him saying that to 21 you? 22 A. I don't know, but -- so I don't know. 23 Q. Okay. Well, he was annoyed, wasn't 24 he? 25 A. I don't recall that. I have read that 11233 1 now in the reporting that he was annoyed, but I 2 had -- didn't have the feeling -- I don't know. 3 So maybe, maybe not. 4 Q. And you didn't really take seriously 5 the back and forth that you had with Mr. Kempin 6 at that meeting; isn't that right? 7 A. That means -- 8 Q. You said yesterday that you didn't 9 think he was serious, and you didn't take him 10 seriously; right? 11 A. Seriously means that he tells the 12 truth about that? 13 Q. No, that you weren't particularly 14 worried or intimidated by anything that he said 15 at the meeting. 16 A. I don't think so. That meeting -- the 17 only thing was do we sign the contract for this 18 -- I think this was for MS-DOS 5.0 that came 19 out that year in 1991, is that -- 20 Q. Yes. 21 A. It was this contract? 22 Q. Right. 23 A. Yes, but it was a question of time, 24 you know, because DOS 5.0 was announced much 25 earlier and it came out so late, and maybe that 11234 1 was the reason that we didn't sign it there on 2 this Hanover show. Maybe we said let's wait a 3 little bit. Let's wait till later. That's the 4 only reason I can see there. But I don't think 5 that was because that we still had to review 6 the whole contract. 7 Q. Now, you pride yourself on being quite 8 a good negotiator, don't you? 9 A. No. My partner was much better. 10 Q. But you're very good, aren't you? 11 A. Sometimes not. I'm too impatient, you 12 know. 13 Q. Well, you've testified before that you 14 regard yourself as a good negotiator. 15 A. Yes. It's to have looked -- from 16 average, yes, but there are much better 17 negotiators than me. 18 Q. Well, you certainly thought that you 19 were a match for Mr. Kempin, didn't you? 20 A. A match, that means -- 21 Q. A match. You were -- 22 A. Yes, I understand. Yes, that's the 23 right word. 24 Q. Okay. And you were not a person and 25 were not a person at the time that you were the 11235 1 CEO of VOBIS who was easily pushed around by 2 other companies; correct? 3 A. By competitors or by suppliers? 4 Q. By either. 5 A. Sometimes it was tough. It was not so 6 easy. Not all suppliers liked VOBIS. You 7 know, we got very important that time, and all 8 suppliers don't like to have to depend on 9 really big market player. They also like to 10 have other customers. So we always had to 11 convince our suppliers that it makes sense to 12 work together with us. 13 Q. Well, in fact, you got into a big 14 fight with Intel at one point, didn't you, 15 about a banner that you wanted to hang at the 16 Hanover Trade Fair that advertised AMD 17 processors? Do you remember that? 18 A. It could be, but I don't remember. 19 Good idea. 20 Q. All right. So -- you've testified 21 previously that you are not so fast threatened 22 by big companies. 23 Do you remember saying that? 24 A. No, that's true. 25 So it is really -- it would be good 11236 1 idea to show Intel that they are not the only 2 one in the world. That's what I said 3 yesterday. We really liked to have a choice to 4 have the freedom to choose. 5 Q. Now, so we've talked about the DRI 6 contract from 1991. I'd now like to switch 7 gears and talk about the contract that you did 8 sign later in March of 1991, after the Hanover 9 Trade Fair, the CeBIT Fair with Microsoft. 10 That $9 price that you got for MS-DOS 11 was very important to VOBIS; correct? 12 A. It was the condition on which we were 13 ready to sign the contract. 14 Q. It was the condition on which you were 15 ready to sign the contract, and it was also a 16 very good deal in terms of how cheap it was; 17 right? 18 A. Yes, but it would have been cheap as 19 soon as we throw out DR-DOS. Because it was 20 hundred -- it was 200,000 licenses at $9. That 21 means $1.8 million a year. 22 Q. Right. 23 A. But we still have had the holograms 24 from DR-DOS which we have paid yet for, $9. So 25 in total, we have had a price of -- let me 11237 1 check -- at about -- for each machine of $13.50 2 because we never put DR-DOS and Microsoft 3 together in that machine. So either DR-DOS, 4 would we have paid here for $9, plus the 5 200,000, the $9 that we paid for the MS-DOS. 6 So as soon as the customer wants to 7 have also the DR-DOS, the price goes up $9. 8 And a 50/50 relation, that means that the 9 average operating system price for High Screen 10 was $13.50. 11 But that was okay for us because we 12 came from $15, $16, and then -- it was not 9. 13 The number 9 was constructed by Microsoft by 14 dividing the price before 18 by 2 to 9. 15 Because we asked for per copy license $18, 16 100,000, but Mr. Kempin said we have to have 17 this per copy -- per processor license. There 18 is no way around that. So processor license we 19 do, but we can talk about the price. 20 Q. But you testified yesterday and you 21 still believe that the $9 price was not 22 unfavorable to VOBIS? 23 A. No. 24 Q. Because the average was still below 25 what everybody else was paying? 11238 1 A. I don't know that, but $13.50 was 2 reasonable price at that time for operating 3 system -- and we had again a great advantage. 4 We could give customer a choice, and nobody 5 could do that. 6 Q. In fact, you thought that the price 7 that you got from Microsoft was a rock-bottom 8 price? You've used that phrase before, haven't 9 you? 10 A. Yes. That is, $9 is really low. 11 Q. Now, do you think prior to the time 12 that you decided to license MS-DOS 5 there was 13 something wrong with the fact that VOBIS was 14 exclusively using DR-DOS? 15 A. May you ask again because -- 16 Q. Sure, sorry. 17 You testified yesterday that before 18 you decided to start offering this 50/50 19 allocation of DR-DOS and MS-DOS you were 20 exclusively a DR-DOS house. 21 A. Yes. 22 Q. There was nothing wrong with that, was 23 there? That was your choice? 24 A. That was our choice, yes. 25 Q. And you also testified yesterday that 11239 1 having your own retail stores was a big 2 competitive advantage over people like Amstrad 3 and other PC manufacturers that had to persuade 4 people to carry their machines; right? 5 A. Yes, that's what the key point when we 6 were so successful at that time. 7 Q. And part of what you were doing in 8 business was seeking out those sorts of 9 competitive advantages; right? Looking for 10 ways that you could do things that your 11 competitors couldn't do? 12 A. That is what a businessman should do, 13 yes. 14 Q. And if Amstrad came to you and said, 15 hey, you know, this isn't fair, this isn't a 16 level playing field, I want to use your chain 17 of stores, you would have told them to get 18 lost; right? 19 A. You know that this could happen under 20 European law, when you are the monopolist with 21 that. You know that is in telecommunications 22 we have that discussion all day in Germany 23 because there's the old structure of the 24 government phone company, and they still have 25 the infrastructure. They are the only who have 11240 1 the infrastructure, and that is what you sell. 2 If we would be the only one who had 3 that infrastructure to sell PCs, I'm sure under 4 European and German law we could be asked to 5 open our stores for others. I think so. 6 Q. Though you're not an EC competition 7 lawyer; right? 8 A. Pardon? 9 Q. You're not an EC competition lawyer; 10 right? 11 A. Yes, I studied a little bit. I had to 12 in my status for my master of business 13 administration. Especially this European law. 14 Q. Okay. Well, if you could do me a 15 favor, which is when I ask you a question that 16 could be answered yes or no, if you could 17 answer yes or no and then explain if you have 18 to, I think that we could move this process 19 along. 20 Can you do that, do you think, try 21 to -- 22 A. I can say yes or no, yes. 23 Q. Okay, good. Thank you. 24 So let's go back to my question. 25 In the facts as they existed, which 11241 1 was that you had your own retail stores, there 2 were other stores in Germany that sold PCs, if 3 Amstrad came to you and said, we like your 4 distribution network, we want you to let us use 5 it, you would have said no; right? 6 A. No. Maybe I have said yes. Depends 7 on what they pay. If they -- maybe I would 8 said we sell your PCs. Give me good price, you 9 know, we offer to our customers. Why not? 10 Q. It would have to make business sense 11 to you to give up of the competitive advantage 12 you had vis-a-vis other computer manufacturers 13 before you would turn that competitive 14 advantage over; right? 15 A. Of course. 16 Q. Now you also under this March of 1991 17 agreement with Microsoft license the Windows 18 for $15 a copy; correct? 19 A. The Windows is $15, yes. 20 Q. $15. 21 And that was also quite an attractive 22 price, wasn't it? 23 A. I do not know that. I don't know what 24 others have paid. I'm still a little bit 25 surprised that the normal DOS list price was 11242 1 higher than the Windows price. I think it's 2 because Windows was starting. 3 So DOS was 18 at that time and Windows 4 was 15 or something. Maybe also 18. But I'm 5 really surprised that the Windows license was 6 at least not more expensive than the DOS 7 license. 8 Q. But you don't have any view one way or 9 the other about whether Windows price was low 10 or high at $15? 11 A. I don't know that. I can't compare. 12 I don't know what others paid. 13 Q. Well, you testified back in May -- May 14 of 1998, which I appreciate was a long time 15 ago, that it was a very low price. Are you -- 16 A. That's what I said. I'm surprised 17 that they sold that time Windows at a $15 price 18 because the DOS -- the Windows has a better 19 value than the DOS, of course. 20 Nobody would even -- is able to work 21 with DOS today, so -- because Windows is much 22 easier with this graphical user interface. 23 It's a good -- $15 is not too much for 24 that product. 25 Q. Okay. Now, Ms. Conlin asked you some 11243 1 questions about the duration, the length of 2 that March 1991 contract. 3 You actually had no problem with the 4 two-year length of the contract; right? 5 A. Not with $9 and $15. I didn't have 6 any problem. 7 Q. Right. 8 A. Because after we stopped selling the 9 DR-DOS, we didn't have to buy a DR-DOS license 10 anymore, and everything was covered by the 11 MS-DOS license by $9. Do you understand what I 12 mean? 13 Q. No, I do understand. 14 A. Because this average price from $13.50 15 step by step, the less DR-DOS was shipped went 16 down to $9. Until the day when we only bundled 17 MS-DOS 5.0, then the price of DOS was only $9. 18 So my opinion was let's do that 19 contract as long as possible. It's quite 20 favorable. 21 Q. In fact, you said you would have been 22 happy -- at your deposition in '98 you said you 23 would have been happy for this to be applied to 24 your contract; right? 25 A. Five year, I don't know. Five years 11244 1 is a long time. But saying what I said now, I 2 didn't -- I liked it that it was far in the 3 future, and two years or two and a half years 4 in the future, so that we don't have to 5 negotiate with Microsoft any more about that 6 issues. 7 Q. That's a good thing in business. 8 Certainty about component pricing is a good 9 thing; right? 10 A. If the price is good. If the price is 11 high, it's not good. Certainty about high 12 prices -- 13 Q. But it's very nice to lock in a low 14 price for a long time? 15 A. Yes, of course. 16 Q. Now, in this 1991 agreement with 17 Microsoft, there was nothing in there that said 18 that you had to stop shipping or offering 19 DR-DOS; right? 20 A. No. That would be not possible, no. 21 But the structure was -- when I signed that 22 contract, as I told you, $13.50 is not a bad 23 price. But we have had the security if 24 something happens with Digital Research, what 25 always can happen, something can happen with 11245 1 Microsoft, something can happen with Intel, or 2 something can happen with somebody else. 3 Delays or something. 4 We have good contract to stay with 5 MS-DOS in the market with the $9. So there was 6 no clause in there that we have to finish 7 shipping DR-DOS, of course. No, this would 8 have been illegal, I think. 9 Q. Now, the way that you offered this 10 choice in the stores, as I understand it, is 11 that the price for a High Screen computer was 12 however many deutsche marks it was, and then 13 the customer chose MS-DOS or DR-DOS, and it 14 didn't make any difference from their 15 standpoint, the price stayed the same? 16 A. No, the price same. 17 Q. Now, you said I believe yesterday that 18 DR-DOS was popular in the sort of home 19 user/small business segment of the German 20 market; is that right? 21 A. No. We, our High Screen computers 22 have been more popular in that home and small 23 office market. The DR-DOS, there's no 24 difference between the operating system in the 25 home or small business or in the big business 11246 1 market. There is no difference. 2 Q. Do you know what the relative 3 popularity of DR-DOS was in Europe versus Japan 4 and the United States? 5 A. I don't know. 6 Q. Well, do you know of any OEM of any 7 size in Japan or the United States that ever 8 did what you did, which is installed DR-DOS on 9 its PCs? 10 A. There have been some, I think so. 11 Especially when we started that and when we had 12 some success. Others started to do the same, 13 but I don't -- I don't know. 14 Q. Well, Escom -- 15 A. Let's have a look at the reports from 16 Digital Research. We can see there have been 17 some other big players in there, 20,000 or 18 something like that. 19 Q. In the United States or in Japan? 20 A. I don't -- so let's have a look. 21 Q. I agree with you, let's look. 22 A. Has Digital Research ever had a 23 Japanese version? So what you don't have you 24 can sell in Japan. 25 Q. That's going to require me to find 11247 1 that document. 2 Maybe you have it up there. 3 A. Maybe. 4 Q. I'm trying to remember what the number 5 was. I think it's 10030. 6 MR. HOLLEY: Your Honor, just one 7 moment. 8 THE COURT: Sure. 9 A. I have it. 10 Q. We both found ours at the same time. 11 I don't mean to short-circuit this, 12 but I do note that at the top of this document 13 it says sales report Europe. So I'm afraid 14 that we're not going to find anything. So this 15 isn't going to help us. 16 But do you know whether -- can you 17 give me the name of any significant OEM in 18 Japan or the United States that preinstalled 19 DR-DOS on its PCs? 20 A. United States should be in here, but I 21 would have to look for that. Japan, I can't -- 22 I don't know -- do not know that market so -- 23 Q. All right. Let's switch to the topic 24 of something that you talked to Ms. Conlin 25 about, minimum commitments in Microsoft license 11248 1 agreements. 2 It's correct, is it not, that VOBIS 3 never found itself in the situation where at 4 the end of a contract term it had committed to 5 license operating systems that it hadn't 6 actually licensed? 7 A. I think with operating systems, that's 8 right. 9 I think we have one time had a little 10 bit lower sales in Works, but operating systems 11 we all -- sometimes we even renewed the 12 contracts because we have run out of the 13 licenses. Because we have had more than we 14 have had in our minimum commitment. That was 15 because we grew so fast. 16 We always underestimated that at the 17 beginning to try to do that and to see that we 18 get that number, because otherwise, you know, 19 you lose that, the money. You have to 20 negotiate to get a credit in the next season 21 with the next contract. 22 Q. But you -- VOBIS never found itself in 23 that position -- 24 A. No. 25 Q. -- of having to try to roll them over? 11249 1 A. Didn't have that problem. 2 Q. Okay. And just again so the court 3 reporter doesn't kill you and me, you need to 4 wait until I -- even if you know what I'm going 5 to say, if you could wait for me to finish 6 asking my question and then talk because it's 7 hard to type two people talking at the same 8 time. 9 A. Okay. I'll try. 10 Q. Thank you, I appreciate that, and I'm 11 sure she does too. 12 The price that VOBIS paid for 13 Microsoft operating systems was to some extent 14 a function of how many you agreed to take; 15 correct? 16 A. I think so. That should be. 17 Q. And the way that these minimum 18 commitments were determined was to multiply the 19 agreed price times the number of copies that 20 you committed to take? That's how that number 21 was constructed; correct? 22 A. Yes, that was the total -- the minimum 23 commitments guided by the quota or something 24 like that, but this quantity times the price 25 per license gives the minimum commitment. 11250 1 Q. Now, you said in the case of Works 2 that you sort of overshot the target at one 3 point and you committed to more copies of Works 4 than you actually used; is that correct? 5 A. Right. 6 Q. And in that instance, Microsoft agreed 7 to roll that over into the next contract? 8 A. I think so, so -- anything else would 9 be -- would have been very unfriendly, you 10 know, but I think we -- we put that credit over 11 to some other contract. 12 Q. Those sorts of accommodations to good 13 customers are routine in business, aren't they? 14 A. Of course. Good customers always get 15 a credit or rebate or -- I don't know what 16 would have happened if we had no more contract 17 with them. I don't think we would have got 18 money back, refunds. I don't know. Because 19 they were not obliged to do that from the 20 contract. 21 Q. But that was not a situation that you 22 ever faced? 23 A. No, at that time not. 24 Q. Now, I believe that you testified 25 yesterday that you weren't familiar with these 11251 1 sorts of provisions, these minimum commitment 2 provisions in any other software vendor license 3 agreements. Did I understand that correctly? 4 A. I don't see any from that size, no. 5 Q. Well, you had one in your contract 6 with Novell, right, for NetWare? 7 A. Maybe, but small quantity, 1,000 or 8 what -- 9 Q. So the numbers were smaller but the 10 concept was the same? 11 A. Maybe. It's possible. 12 Q. Well, why don't we look at that 13 contract. 14 MR. HOLLEY: Your Honor, may I 15 approach the witness? 16 THE COURT: You may. 17 Q. I'd like to show you an agreement that 18 you signed on behalf of Vobis October 1, 1993. 19 It's a Novell license agreement. And feel free 20 to look at as much of it as you'd like. 21 A. Yes. 22 Q. But what I'm interested in appears on 23 page 24. The page numbers are kind of hard to 24 read. Let me see, the whole thing is kind of 25 hard to read. 11252 1 Why don't you just -- maybe it's 2 easiest to take a look at the third page from 3 the end. It has a production number that ends 4 9574. 5 A. Yes, I've got it. 6 Q. And in this contract, there's a 7 reference to a volume commitment for 8 manufacturing products. Do you see that? 9 A. Yes. 10 Q. And then it says, nonrefundable 11 manufacturing products royalty schedule. Does 12 looking at this refresh your recollection that 13 Novell had contracts that required 14 nonrefundable payments on a particular schedule 15 for products that -- 16 A. Yes, of course. That is very often 17 that, you know. That is -- but, you know, this 18 was a box business, a red box purchase. It's a 19 volume commitment for red box purchases. So 20 what we paid we got something for. We got red 21 boxes. We put it in inventory, and we could 22 sell at any time. So this money would never 23 have been lost for us. It's different from 24 your contracts. 25 Q. In -- 11253 1 A. You see it says volume commitment for 2 red box purchases and -- 3 Q. Well, at some point those red boxes 4 aren't worth anything, right, because they 5 become obsolete? 6 A. That is my risk. You know, I've never 7 asked Microsoft to keep me risk free in this 8 business, you know, and when you commit 9 yourself to do something, it's by risk to do 10 that. So nobody asked Microsoft to keep them 11 risk free. 12 But the only thing was if I buy 13 something, I want to use it any time. Even if 14 the value is zero I can sell it for $1, or I 15 can give it for free as a gift to customers for 16 do them a favor. 17 Q. I appreciate that, and as a practical 18 matter, in the operating system business, 19 because you conservatively estimated your 20 requirements, you never paid Microsoft for 21 something you didn't use; right? 22 A. No, this isn't practice. This was 23 what we did, but this question or the 24 theoretical question what you asked me with 25 this contract. But others do the same 11254 1 contract. This is a different contract from 2 that what we did with Microsoft. 3 Q. I just want to be clear that we 4 understand each other as to why. 5 The distinction that you see is that 6 in the Novell contract you were literally 7 getting boxes of software as opposed to a pure 8 intellectual property license from Microsoft; 9 is that what you're saying? 10 A. No, that's not what I say. With the 11 boxes, it's my property. I can do what I want. 12 With your contract, if I have let me 13 say licenses in my inventory. That's what we 14 talk about. I may not use them anymore except 15 you'll give me credit for the next contract. 16 That's the difference. 17 With Novell it says end of contract 18 and you have still inventory, you are not 19 allowed anymore to sell it. We talk about it, 20 and if you are nice and you do a new contract, 21 you get credit, of course. But from the 22 contract you are not allowed, and that's what 23 Microsoft says. That you have a good policy 24 with good customers, of course you should do 25 that. 11255 1 Q. All right. Let's move into this 2 period post March 1991 when you've licensed the 3 250,000 copies of DR-DOS and you also have a 4 contract for DR-DOS 5 and you also have a 5 contract for MS-DOS 5, and you're offering them 6 both in VOBIS stores and the customer gets to 7 choose. 8 And you testified yesterday that your 9 expectation was that they would stay at roughly 10 50/50? 11 A. Right. 12 Q. That isn't what happens, is it? 13 A. At the beginning, yes. 14 Q. But over time what happened, 15 customers, individual customers, making choices 16 started buying more and more and more MS-DOS 17 relative to DR-DOS? 18 A. Relatively. But in quantity, the 19 DR-DOS even went up. 20 So I think at the beginning, we have 21 had per month $10,000, DR-DOS 10,000 MS-DOS. 22 Then after three months later, I think it was 23 13,000, 14,000 so -- the growth of the company. 24 We sold about 20,000 PCs a month, but 25,000. 25 So then we're 50,000 for MS-DOS but still 11256 1 10,000 DR-DOS. 2 Half year later it was, I think, 3 25,000 MS-DOS and I think 11,000 DR-DOS. So 4 the DR-DOS sales was quite stable. 5 The absolute numbers even grow up. 6 Relatively you are right. You could say all 7 the new customers we got from the growth of the 8 company, they bought MS-DOS. But it's not how 9 it worked, but from the numbers. 10 So relatively you are right, but in 11 absolute figures, DR-DOS, some months it really 12 grew. 13 Q. It was the case, though, that over 14 time, steadily until mid 1992, the relative 15 proportion of MS-DOS and DR-DOS got quite out 16 of kilter so that -- 17 A. Yes, U.S. I think 30 percent or 20 18 percent to 80 percent. 19 Q. 20 to 80, right. 20 Okay. And at that point, in mid 1992, 21 you decided that the costs in terms of the sort 22 of associated manuals and backup diskettes of 23 offering DR-DOS was too high relative to the 24 benefit you were getting from having a second 25 product to offer? 11257 1 A. I don't think -- it's not the manual, 2 it's not so much. But it's an issue. But we 3 still had that holograms. We didn't have any 4 extra cost if a customer asks for DR-DOS. We 5 have had these $9 times 250,000 before, so -- 6 but you are right. 7 So it's my decision later to say we 8 don't need DR-DOS necessarily anymore. You are 9 right, that decision was made. You know how it 10 worked with Bill Gates and then the European 11 discussion we said from October on 1992, 12 there's no more DR-DOS. 13 Q. And that's because, as you testified 14 earlier, when 90 percent of the people who are 15 coming in the front door of a VOBIS store know 16 about MS-DOS and are asking for MS-DOS, there's 17 really no point in keeping DR-DOS around; 18 right? 19 A. No. What economics you say 20 transaction costs is too high then. 21 I mean, you know, we are not able to 22 swim against the river of the market because as 23 long as DR-DOS was really known, you know, in 24 the 1989 decision, then it was quite easy to 25 get DR-DOS. You don't have to convince people 11258 1 too much. 2 But then when there was no more DR-DOS 3 in the market except with us, it was difficult 4 to swim against the stream in the river. Why 5 should we do all that? We had to advertise it 6 again. We had to save some space in our 7 brochures for DR-DOS. This made no sense, you 8 are right. 9 Q. And it was the case, was it not, that 10 because people were asking for MS-DOS, it was 11 getting hard to sell DR-DOS because there were 12 always questions about it that you didn't have 13 with MS-DOS? 14 A. Of course people want to know the 15 difference, but if people ask, I think we told 16 them the differences, and I think then they 17 would buy maybe DR-DOS, I think so. 18 There was still some advantages of 19 DR-DOS 5.0 against MS-DOS 5.0, but the question 20 didn't came up anymore. 21 And I think also our store managers, 22 they had other things to do than to think the 23 whole day about the decision of the customer 24 whether it's DR-DOS or MS-DOS, so -- and MS-DOS 25 5.0 worked. So there were no problems with it, 11259 1 so didn't have to think about that, and 2 everybody had MS-DOS, so why not VOBIS. 3 Q. Are you familiar with the phrase, at 4 least it's popular in the United States, that 5 nobody ever got fired for buying IBM? 6 A. I know that, yes. 7 Q. And that was also true in your 8 business in 1992 with regard to operating 9 systems. As you've said before, nobody ever 10 made a mistake by selling Microsoft operating 11 system? 12 A. Well, at the end there has been only 13 one operating system anymore. That was MS-DOS. 14 So you couldn't make a mistake because you 15 didn't have a choice. You can make a mistake 16 when you have a choice, but when you don't have 17 a choice anymore, you can't make a mistake. 18 Q. Okay. But answer the question that I 19 asked you, if you would, please. 20 A. Wasn't that the question? 21 Q. In 1992 you still had a choice, there 22 was still DR-DOS 5 or 6, whatever it was at 23 that point, and you said in May 1998, that in 24 that context one never made a mistake selling a 25 Microsoft operating system. 11260 1 A. No, that's true. That's true. 2 Q. Now, in the conversation that you had 3 with Mr. Gates at Chez Nico in London in the 4 fall of 1992, you were anxious to transform the 5 business of VOBIS from I think what you called 6 it yesterday was a stupid white box? 7 A. The box mover, yes. 8 Q. Mover, right. Okay. 9 A. I like it. So there be a box mover 10 and every box brings you $100, not bad. 11 But in this business people thought 12 you should be a solution provider. That was -- 13 that was -- that time people asked for that. 14 And okay, we said we'd do some solutions and 15 now we make strategic alliance. That is what 16 we discussed with Mr. Gates. 17 Q. And that you thought would be quite 18 beneficial to VOBIS to be associated not only 19 with Microsoft as a company, but with Mr. Gates 20 personally? 21 A. Of course. I don't go to London -- of 22 course to have a nice lunch, and Chez Nico is 23 always nice, but I wouldn't have gone there if 24 there wouldn't be a benefit to talk to 25 Mr. Gates and get some extra marketing like 11261 1 this photography or some exposure to the 2 public. 3 Q. And the willingness of Mr. Gates to 4 promote this Luigi Colani-designed computer 5 that you had was important to you, wasn't it? 6 A. Yes. It was not that company could 7 survive or not survive on that decision of 8 Mr. Gates, but it helped. 9 Q. It gave you an advantage vis-a-vis 10 your competitors to be able to say that you had 11 an alliance with Microsoft? 12 A. Yes. 13 Q. And that was something, that sort of 14 cache that you got from Microsoft that you 15 couldn't get from Novell and DRI; right? 16 A. What product was that? 17 Q. I said cache, but what I meant was -- 18 A. This gift or what? 19 Q. Well, no. I mean, this sort of -- 20 this kind of nice association. You know, this 21 good publicity that you got from being 22 affiliated with Microsoft was not something 23 that you felt you could get from Novell DRI? 24 A. Digital Research didn't have a 25 Mr. Gates, you know. That is -- maybe was 11262 1 Steve Jobs it would have been possible, but at 2 that time I don't think he was so much in 3 business with Apple. But, of course, Mr. Gates 4 is something. It's somebody who you can -- if 5 you can have a photography with him, everybody 6 says oh, he knows Mr. Gates. So of course. 7 Q. Now, you said yesterday, I thought I 8 heard you say yesterday that whereas the price 9 of other components of PCs were dropping in 10 this time frame that we've been talking about, 11 the price of Microsoft operating systems was 12 going up. Did you say that? 13 A. I think from version to version, yes. 14 I think then the 3.1, 3.11 was a little bit 15 more, but there was no tendency to lower the 16 prices for Microsoft's operating systems. 17 Q. But the -- 18 A. I think from -- that Windows 95 even 19 was much more. It was something like $40. But 20 the prices, from the tendency they went up with 21 Microsoft operating systems. 22 Q. But the prices that VOBIS paid from 23 '90, '91 '92, were actually going down? 24 A. I think these were special discounts 25 for VOBIS, of course. 11263 1 The other way we did, the other way 2 around, we told also Mr. Kempin that we have a 3 good price with DR-DOS. So I think that we 4 hadn't paid their prices that low, Microsoft 5 prices, without the alternative of Digital 6 Research. And after this contract ended, the 7 price went up. I think the MS-DOS went up to 8 10, then to 11, and then 14. Step by step the 9 prices went up. 10 Q. So your low introductory prices didn't 11 last forever? 12 A. Unfortunately not. 13 Q. Okay. 14 A. End of '93 I think it was finished. 15 So we had to negotiate again. 16 Q. Okay. Now, you testified yesterday 17 about a period of time following July 1994 when 18 VOBIS got a letter from Microsoft saying if you 19 want to terminate your license, you can. Do 20 you remember talking about that with Ms. 21 Conlin? 22 A. Yes. There was a letter with period 23 of three months, I think, that you could do 24 that. 25 Q. And, in fact, VOBIS informed Microsoft 11264 1 Germany in September of 1994 that it was 2 terminating all of its licenses with Microsoft; 3 correct? 4 A. This I can't recall. I don't think 5 that we canceled the contracts without 6 negotiating a new one. This is like suicide, 7 you know. That we couldn't do because 8 Microsoft, we need the product. The processor 9 license or prepayment or not, but we had to buy 10 Microsoft products, of course. 11 And we have negotiated with Microsoft 12 is what the story with this 400 or whatever, or 13 500,000 licenses at a price of, what is that, 14 23 instead of both products together separately 15 together to 63. 16 Q. Well -- 17 MR. HOLLEY: May I approach the 18 witness, Your Honor? 19 THE COURT: Yes. 20 Q. I'd like to show you, Mr. Lieven, a 21 letter that you wrote to Mr. Bengt Akerlind at 22 Microsoft. It's dated November 2, 1994. 23 This is a letter you recognize, isn't 24 it? 25 A. Yes. 11265 1 Q. Okay. And this is a letter in which 2 you -- first of all, let's remind the jury, 3 Mr. Akerlind was one of the lieutenants to 4 Mr. Kempin in the OEM licensing group at 5 Microsoft; correct? 6 A. Yes. 7 Q. And you say in the third paragraph of 8 this letter, we have terminated the contract 9 G1503364 in September vis-a-vis Mr. Eschenlohr, 10 Microsoft Germany. 11 Mr. Eschenlohr by his letter of 12 September 28, 1994, confirmed the termination 13 of the existing contract by submitting 14 proposals for a new license agreement. 15 So does this refresh your recollection 16 that you did, in fact, terminate your Microsoft 17 license agreement? 18 A. Yes. You had to. This old contracts 19 you had to I think terminate until September 30 20 -- 30 of September, 1994. 21 But as you see here, there have been 22 proposals for new contract. That did not mean 23 that we cut off any relationship to Microsoft. 24 But this contract -- these contracts that have 25 been covered by the consent decree, those 11266 1 contracts we have canceled. We have terminated 2 that. 3 Q. And I'd like to show you -- I want to 4 show you what this contract is that your letter 5 is referring to. 6 MR. HOLLEY: Your Honor, may I 7 approach the witness? 8 THE COURT: You may. 9 Q. I'd like to show you, Mr. Lieven, what 10 have been marked as Defendant's Exhibit 6810 11 through 6814 and ask you whether this is the 12 contract with amendments that was in force at 13 the time that VOBIS exercised its right to 14 terminate under the consent decree? 15 A. This is first page, yes -- G1503364 16 that's a contract. 17 Q. And just so we're clear, if you look 18 at the signature page five pages in, that's 19 your signature dated December 17, 1993; 20 correct? 21 A. What I found is my signature on page 22 3788. There has been an amendment, I think, on 23 April 29, '94. But it's my signature, it is. 24 Q. Okay. Now I want to make sure that 25 you and I are on the same page. 11267 1 So the original contract was signed on 2 the fifth page on 17 December, 1993, and then 3 there are -- after that there are four 4 amendments; correct? 5 A. Maybe, yes. 6 Q. So do you recognize all of these 7 documents as the contract in force at the time 8 that VOBIS exercised its right to terminate its 9 Microsoft license agreement? 10 A. What I'm wondering is here is 11 amendment signed by me at 16th of May, 1995 12 with the same Microsoft license numbers 13 G1503364. 14 So what I think that this license 15 number still stayed the same all the time. 16 Also for the later contracts we made after this 17 termination. 18 So it wasn't the termination of the 19 contracts 3364, but of the terms and 20 conditions, which have been offended by the -- 21 which have been forbidden, I will say, by the 22 parties -- the Department of Justice. 23 So we still had this contract, this 24 licenses, but terms and conditions, that what I 25 terminated. Or what I wanted to say to that; 11268 1 that we terminated the old terms and conditions 2 to negotiate with new proposals. Under the 3 same license number new terms and conditions. 4 MR. HOLLEY: Your Honor, I'd now 5 offer -- 6 A. So what I want to make clear -- excuse 7 me -- is that we never wanted to cut off the 8 relationship to Microsoft. This would have 9 been suicide, in 1994 yet. And after with the 10 expectation of Windows 95, that would have 11 killed us. 12 Q. Well, let's address that in one 13 moment. The first thing I'd like to do is -- 14 A. Yeah, but I must get a recollection of 15 what really happened there, you know. It was 16 not a termination of the contract. 17 Q. Okay. Well, we'll -- 18 A. Because here, what I have here is from 19 May 1995, you know. It's -- we made another 20 Amendment Number 4 into the same Microsoft 21 license numbers. So this was not terminated. 22 Q. We'll get to that in just one moment. 23 MR. HOLLEY: Your Honor, I'd now like 24 to move the admission of Defendant's Exhibits 25 6810 through 6814. 11269 1 MS. CONLIN: No objection. 2 THE COURT: They are admitted. 3 Q. Let's go back to Defendant's Exhibit 4 6808. This is your letter to Mr. Akerlind of 5 November 2, 1994. 6 You say in the third paragraph that 7 the letter that was sent to Microsoft Germany 8 was -- and I'm now quoting -- therefore 9 sufficient for us to affect the termination via 10 Microsoft German subsidiary. 11 So at this time in early November 12 1994, it was your belief that you had 13 terminated this license; correct? 14 A. What this letter is about, if you read 15 the other paragraphs, it was to clear that I 16 really had terminated something. You say the 17 contract, but it has not been terminated. But 18 the terms and conditions -- 19 And Mr. Akerlind didn't know that, 20 because you see here, I told Mr. Akerlind that 21 I believed in telling this Mr. Eschenlohr, his 22 representative, this is terminated, whatever is 23 terminated. 24 But terminated means for me that we 25 didn't want to stay anymore with the 11270 1 prepayments and the per processor license. 2 But, of course, I thought from -- from 3 effective December 31, 1994, this practice is 4 terminated for us. 5 Q. Well, do you still have up there 6 Defendant's Exhibit 626 that Ms. Conlin showed 7 you yesterday? It's this IBM confidential 8 memorandum dated December 6, 1994. 9 A. 628? 10 Q. No, sorry, sir, 626. Defendant's 11 Exhibit 626. 12 A. I have it. 13 THE COURT: Was that admitted? 14 MR. HOLLEY: I'm about to ask that it 15 be admitted, Your Honor. 16 THE COURT: Oh, okay. 17 Q. If that's too big a problem, I can 18 probably find it -- 19 A. No, I think I can find it. It's in 20 sequence, I think. I have 638 and then 584 and 21 then I have -- 626. I don't mix that up. 22 Yes, I have it. 626. 23 Q. Terrific. 24 So I'd like to ask you to look at the 25 top of the fourth page, which is the part that 11271 1 Ms. Conlin directed your attention to 2 yesterday. 3 It's headed OEM, and it says -- then 4 the paragraph starts VOBIS Microcomputer AG. 5 Do you see that? 6 A. Yes. 7 Q. And what it says here in the last 8 sentence is, on November 29 the board of 9 directors of VOBIS decided to cancel, quote, 10 all existing contracts for operating systems 11 from Microsoft, closed quote. 12 Does reading that refresh your 13 recollection that, in fact, you didn't just 14 cancel some terms and conditions, you actually 15 canceled the contracts? 16 A. You know, this was the November 29 17 press release. And you know how difficult it 18 is now to discuss what happened there. And to 19 the press, I said we canceled the contracts and 20 now we bundle OS/2. But we didn't cancel the 21 contracts because I have seen that here that 22 under the same contract numbers we made new 23 contracts later. 24 So cancel the contract and cancel term 25 of conditions under a special contract is a 11272 1 different thing. I couldn't explain that to 2 the press, you know. 3 So this is from the press release. I 4 know the press release said we have canceled 5 all contracts from Microsoft and now from 1st 6 of January, 1995 we bundle OS/2 with this. 7 Q. Why did you issue a press release 8 saying something that wasn't true? 9 A. It is true. It is not precise enough, 10 but it doesn't say the untruths. Of course we 11 have canceled that practice with Microsoft. We 12 did. 13 Q. Okay. The next statement is also 14 true, isn't it? It says, however, it is 15 possible this move is a price negotiating ploy 16 with Microsoft. 17 A. That is the writer's opinion, but it's 18 wrong. 19 Q. Isn't that exactly what you did -- 20 A. We -- 21 Q. Excuse me, sir, just let me finish my 22 question. 23 You publicly picked a fight with 24 Microsoft about the termination of these 25 contracts in order to negotiate the best 11273 1 possible price for Windows 95? 2 A. No, we didn't do that. We -- first of 3 all, to show you that we didn't use that as a 4 negotiation strategy, we bundled OS/2 until I 5 think one and a half years, nearly until May 6 1996. That means 16 months, 18 months from 7 this report or memorandum from IBM we bundled 8 OS/2. And that I think shows that it has not 9 been for negotiation with Microsoft. 10 We really were a little bit upset that 11 time with Microsoft, that's true. But was not 12 anymore for negotiation. It was a really 13 fundamental question that we had with 14 Microsoft, and the question was will there be 15 the possibility to get those per copy licenses 16 that we always asked for. 17 It was not a negotiation with pricing 18 or something like that. 19 MR. HOLLEY: Your Honor, I think I may 20 have failed to do so, but I'd move for the 21 admission of Defendant's Exhibit 626. 22 MS. CONLIN: No objection. 23 THE COURT: It's admitted. 24 Q. Now, one of the reasons that you could 25 bundle OS/2 was because IBM was basically 11274 1 giving it away; isn't that right? 2 A. I don't know what we paid for that, 3 but it was not so much. 4 Q. Well, in fact, Microsoft -- excuse 5 me -- IBM provided VOBIS with marketing funds 6 exceeding the royalties that it charged for 7 OS/2? 8 A. Maybe. 9 Q. Well, maybe or did it? 10 A. I don't know. If you have it in your 11 files, it may be. I can't say no. 12 Q. But I'm interested in your testimony 13 and not what's in a file. 14 It is true, is it not -- 15 A. I can't recall that. 16 Q. Okay. 17 A. But -- I can't recall that. 18 Q. All right. Well, let's look at a 19 document that Ms. Conlin showed you yesterday, 20 Plaintiffs' Exhibit 9578. And this is an 21 E-mail from Mr. Akerlind to Mr. Kempin. 22 And if you could tell me when you find 23 that, please. 24 A. 9578? 25 Q. 9578, yes, sir. 11275 1 A. Yes, there it is. I got it. 2 Q. You have it, great. 3 So in the second paragraph here -- 4 MR. HOLLEY: And maybe we could put 5 this up and highlight that. 6 Q. So it says, IBM is getting very 7 aggressive with OS/2. It says, they go in with 8 -- I'm skipping the next sentence. They go in 9 with an aggressive offer on a broad basis. The 10 offer typically includes low royalties (five to 11 $15 for DOS and OS/2 Warp excluding Windows. 12 Windows is offered as an option for around 25 13 to $30). At the same time they offer huge 14 marketing funds that in many cases completely 15 cover for the royalties. 16 In the same time they offer -- excuse 17 me -- in the case the customer shows interest, 18 IBM sweetens the deal to the point that nobody 19 can resist. 20 And this is correct, isn't it, that 21 IBM was so anxious to market OS/2 against 22 Windows 95 that it was using the huge capital 23 of the IBM Corporation to pay people to take 24 OS/2? 25 A. I would like it would have been like 11276 1 that. 2 If they had convinced, let me see, at 3 30 percent of the industry, the world would be 4 different now. At least the only one who have 5 been convinced has been VOBIS, nobody else. 6 Unfortunately. 7 Q. Okay. And the reason why the other 8 people weren't convinced appears in Plaintiffs' 9 Exhibit 2228 that you were shown yesterday; 10 right? 11 If you could find that one for me. 12 A. Triple 8? 13 Q. I'm sorry, 2228. 14 A. Okay, I've got it. 15 Q. Then this is -- this is a document 16 that Ms. Conlin showed you. It's a memo from 17 Mr. Kempin to the 1995 worldwide regional 18 director meeting attendees. It's dated January 19 31 of 1995. And it's -- the page I'm 20 interested in is page 5 and the heading OS/2 21 units sold. Frankly, those are the two 22 paragraphs there. 23 A. Yes. 24 Q. Now, Ms. Conlin didn't show you this 25 first paragraph, but I'd like to talk about it 11277 1 a little bit. 2 It says, OS/2 Warp remains a niche 3 product. All the feedback I have from Germany 4 says this is an ultra hard product to sell and 5 causes end user returns because of 6 incompatibilities, missing drivers, and missing 7 apps and it does not work well on 4 megabytes. 8 Only banks and insurance companies, long-time 9 big blue accounts who have written some mission 10 critical apps to the OS/2 API continue to 11 demand it. The rest is curiosity. 12 And that was correct, wasn't it, other 13 than Deutsche Bank and a couple of other large 14 insurance companies and banks, nobody wanted 15 OS/2? 16 A. Except VOBIS customers. They liked 17 it. 18 Q. Okay. 19 A. We have long time -- even with Windows 20 95 we offered Package 1. Package 1 was OS/2 21 plus Windows 3.1 or 3.11 from you later. Again 22 when we had the contract. 23 Package 2 was Windows 95. 24 Q. Do you use OS/2 today? 25 A. Today not, no. Today, no. But at 11278 1 that time I used it. I liked it a lot. 2 Q. When did you stop? 3 A. When Windows 95 came out. I was a 4 Package 2 user. 5 Q. Now, if you look back at Defendant's 6 Exhibit 6810. That's the contract that we -- 7 A. Yes, okay. 8 Q. Look at Section 14 entitled audits and 9 investigations. That's on page 4. It has the 10 control number 33768. I'm sorry, audits and 11 inspection. 12 You were aware, were you not, 13 Mr. Lieven, that the contract that you signed 14 with Microsoft gave Microsoft the right as is 15 specified in Section 14(b) of this contract to 16 audit the books and records of VOBIS to 17 determine whether or not it was in compliance 18 with the terms of the agreement. 19 A. Yes, of course. 20 Q. Now, in the context of your public 21 spat with Microsoft about terminating the 22 contract and announcing that you were going to 23 go with OS/2, it wasn't particularly remarkable 24 that Microsoft having had the contract ended 25 wanted to know whether it had been paid what it 11279 1 should have been paid; right? 2 A. If they had done that with all their 3 license partners, yes, I would say this could 4 be a reason. But I think they have choosen 5 separate customers where they made that audits. 6 I don't know. I really don't know. 7 Q. You don't know, right, so if -- 8 A. I felt it really as a tit for tat. 9 Q. That's what you -- 10 A. It's my opinion, so I don't know. 11 Q. Fair enough. 12 If I told you that Microsoft routinely 13 audits people who terminate their contracts, 14 you'd have no basis to disagree with that, 15 would you? 16 A. No. 17 Q. Now, you knew from the outset of the 18 Deloitte & Touche audit that you owed some 19 amount of money to Microsoft? 20 A. I did know that, but how much license 21 did we pay -- how many licenses did we buy from 22 Microsoft? 2 million. So what did we pay? 2 23 million times with all this Word and Excel 24 times $40, $18 million. That should be and 25 sometimes in -- some questioning about the 11280 1 quantities with our complicated system of the 2 removable hard disk drives. 3 There was a reason why agreed to pay 4 something. We can't discuss. I don't have the 5 manpower to go through all this fights and to 6 see whether this is exact number or not. So I 7 pay you $3 million and then we forget it. 8 Q. And that's, in fact, what happened, in 9 March of '95, in order to put all this behind 10 you -- 11 A. Right. 12 Q. -- you paid $3 million and said let's 13 forget about this? 14 A. Yes, when we signed the new contract. 15 When we were back in line again. 16 THE COURT: We're going to take a 17 recess right now for ten minutes. 18 Remember the admonition previously 19 given. You may leave your notebooks here. 20 (A recess was taken from 9:49 a.m. 21 to 10:03 a.m.) 22 THE COURT: Everyone else may be 23 seated. 24 Sir, you're still under oath. 25 MR. HOLLEY: I neglected to offer 11281 1 Defendant's Exhibit 6807, which is the Novell 2 agreement with VOBIS dated October 1, 1993. 3 THE COURT: Any objection? 4 MS. CONLIN: No, Your Honor. 5 THE COURT: Admitted. 6 MR. HOLLEY: And also Defendant's 7 Exhibit 6808, which is the letter from 8 Mr. Lieven to Bengt Akerlind at Microsoft dated 9 November 2, 1994. 10 THE COURT: Any objection? 11 MS. CONLIN: No, Your Honor. 12 THE COURT: Admitted. 13 BY MR. HOLLEY: 14 Q. Yesterday you testified about an 15 episode that occurred in the fall of 1994 with 16 a replicator called Buhl. Do you recall that? 17 A. Yes. 18 Q. And it was your testimony that you 19 couldn't say that whatever occurred vis-a-vis 20 Buhl and VOBIS and Microsoft was intentional; 21 right? 22 A. I don't know. Nobody could talk to 23 those people. I don't know whether it was in 24 their office in Redmond. Maybe somebody was 25 ill, was not there, couldn't get the verify. 11282 1 But it's strange, you know, in these quantities 2 not to give a verify. 3 The system of the replicators only 4 could work if there's a precise procedure how 5 it has to be done. As soon as the material is 6 ready to ship that there is, yes or no. But 7 there has to be a no-no. But there hasn't been 8 a go, and without a go from Redmond, Mr. Buhl 9 was not able to ship to us. 10 Q. But I just want to focus on my 11 question. 12 You said yesterday -- and I think 13 these are exactly your words -- I can't say 14 that it was intentional, and that's correct? 15 A. That's correct. 16 Q. Okay. And then you also testified 17 about a situation in which Heinz-Willi Dahmen 18 went to a USB Plugathon in the Bay area; 19 correct? 20 And it was your testimony that the 21 fact that you didn't have a Win 95 -- copy of 22 the Win 95 beta in advance of that Plugathon is 23 not something that you can say was 24 intentionally designed to hurt VOBIS; correct? 25 A. No, that's true. 11283 1 But what I said is what it did to me 2 -- and this was my example with the flickering 3 of the light. That means if it would have been 4 intentionally and I couldn't prove that, 5 there's no evidence for that, but it seems to 6 me that it could be very expensive for us. 7 What I felt is Microsoft can kill you 8 if they want. That was my impression. And 9 this -- you must follow me with that because as 10 a CEO of a company with 3,000 people, to run 11 out of that material, that is a death for the 12 company, and that is what I felt. 13 I really was very sad and very angry. 14 That was the hardest time in my life. Because 15 I played with my company because I thought -- 16 and that's what people told me, I had this 17 small thing with processor license. For me it 18 was very important, you know. 19 Q. Well, this was a very high stake's 20 game in which you were engaged; correct? 21 A. It was. 22 Q. You were toe-to-toe with Microsoft, 23 and there were people on your board of 24 directors who questioned whether you were 25 engaging in the correct strategy? 11284 1 A. Some people like to go the most 2 easiest way. Most easiest way was to follow 3 Microsoft. 4 Q. Now, you testified yesterday that 5 instead of just letting VOBIS send all of this 6 equipment all the way to the Bay area and not 7 be able to do anything with it, Mr. Akerlind 8 actually intervened and made sure that 9 Mr. Dahmen could test your hardware with 10 Windows 95? 11 A. Yes. I think that's what Mr. Dahmen 12 told me; that Mr. Akerlind, if he didn't do 13 that officially, he asked please help them. So 14 at the end I think that's nice. So Mr. 15 Akerlind is a very nice person. So maybe 16 because he is a nice person, he did it. 17 Q. Now, in March of 1995, VOBIS entered 18 into a new license agreement with Microsoft? 19 A. Right. 20 Q. And as we said earlier, part of that 21 sort of new deal was to resolve the disputes 22 about the audit and to enter into -- and you 23 have to give me an audible answer because the 24 shaking of the head won't be on the record. 25 A. Okay. 11285 1 Q. So part of the new agreement in 19 -- 2 March of 1995 was to resolve the dispute about 3 the audit; correct? 4 A. This was part of it, yes. But this 5 was not the main thing so this was -- I think 6 my CFO has discussed this before with people of 7 Deloitte and said when we pay 3 million so we 8 get rid of that problems. 9 But the most important issue was the 10 new contract for me; was the situation have the 11 procedure that we can do a new per system 12 contract and explain to that to remove the hard 13 disk drives, and they agreed that we do that, 14 okay. 15 Q. And the reason that that was important 16 to VOBIS, this deal pursuant to which you could 17 put a sticker or some kind of hologram sticker 18 on the machine, was that it allowed you to 19 reduce the number of models that you had to 20 keep in the store; right? 21 A. Right. We could make out of one box 22 ten different model by putting the specific 23 hard disk drive in. 24 Q. And that was an accommodation that 25 Microsoft made to VOBIS to deal with your -- 11286 1 the specific way in which you did business? 2 A. Yes, because we could do that in our 3 stores. You can't do that if you are a vendor 4 and your production line is maybe, like we say, 5 an island, and you give that like Dell, you 6 know. They give -- Dell is a different thing. 7 No, like Amstrad. They did it in England and 8 then send it over to continental Europe, and 9 then it is distributed to the dealers. 10 They can't do that because how can 11 they handle that? But because all the 12 inventory was ours, we could do it, and we 13 could do it with our own people in the stores. 14 Q. Now, your -- VOBIS's relationship with 15 Microsoft improved quite substantially after 16 March of 1995; correct? 17 A. Yes. I think you read that in my 18 deposition 1998. 19 Q. Right. You said it was like the story 20 of the prodigal son from the Bible? 21 A. Right. 22 Q. Who goes away, and then when he comes 23 back he's more loved than all the other 24 children who stayed home? 25 A. I felt like that. I was invited to a 11287 1 private Microsoft party, the only other 2 non-Microsoft person have been invited to a 3 party in 1995, and everybody -- I think the 4 name who invited me, was responsible was 5 Mr. Kampermann, K-a-m-p-e-r, mann, m-a-n-n. 6 And he invited me personally, and when 7 I came there everybody was very surprised that 8 Mr. Lieven come here who has made this trouble 9 half a year before. It was only half a year 10 after we settled all that. 11 Q. Now, even when you were having this, 12 you know, public spat with Microsoft about 13 licensing OS/2 in the fall of 1994, it was 14 always your intention to license Windows 95 15 when it came out in August of 1995; correct? 16 A. Yes. 17 Q. And that was because it was your 18 perception that Windows 95 was something that 19 consumers were going to want? 20 A. Yes. It was said long time before 21 that Windows 95 will be the first real good 22 Microsoft product. I'm sorry but -- 23 Q. I only represent them. I don't -- 24 A. But the first Microsoft product that 25 could compete, which was the great first GUI, 11288 1 the graphical user interface, that was the 2 Apple Macintosh with the mouse, you know. 3 This was -- long time Microsoft could 4 not compete with that with the Windows 3, 3.1, 5 but Windows 95, and you see the success of 6 Windows 95, that really did something different 7 than the versions before, and everybody knew 8 that. 9 And I knew that if it we are out of 10 Windows 95, we are out of business, and that's 11 why I have been so afraid about all that in 12 fall '94 and beginning of '95. We had to get 13 any solution. 14 So I feel a little bit, I won't say 15 pushed, but we had to find a solution anyway. 16 Q. Now, in New York anyway, people lined 17 up around stores starting at midnight to be 18 there, you know, when the product was out. Did 19 that happen in Germany at your stores too? 20 A. Not that way. This is American way. 21 But in Germany, it is different. So nobody 22 wakes up during night to go to store to buy 23 Windows operating system. 24 I don't know how many people have been 25 personally invited by Microsoft, but today it's 11289 1 the same when there's a new Harry Potter book 2 or something like that. It's organized, you 3 know. But that's marketing. That's marketing. 4 And Microsoft was always very good. There has 5 never been bad marketing. 6 Q. And Windows 95 was an extremely 7 popular product with VOBIS customers; correct? 8 A. Yes. 9 MR. HOLLEY: I have no further 10 questions, Your Honor. 11 THE COURT: Redirect? 12 MS. CONLIN: Yes, Your Honor. 13 REDIRECT EXAMINATION 14 BY MS. CONLIN: 15 Q. I'm not sure, Mr. Lieven, that we've 16 been clear about the question of whether or not 17 the Plaintiffs' class is paying you, and when 18 we -- you and I -- first talked and E-mailed 19 back and forth, did I offer to pay for your 20 time? 21 A. No, I didn't know that witness gets 22 money, so I haven't asked for that. And if you 23 didn't -- hadn't talked about that on Sunday, I 24 never had asked you so for any -- so in Germany 25 we say witness has to come to say and to swear 11290 1 whatever. So no further questions of the 2 witness. 3 Q. All right. Well, the jury understands 4 that I can't make people come, and so do you 5 know that I thought you were retired and not -- 6 A. Yes, yes. 7 Q. -- and not earning any income for your 8 time? That's what I thought. 9 A. Yes. 10 Q. All right. If you had been retired, 11 as I thought you were, then I couldn't replace 12 income on behalf of the Plaintiffs' class 13 because you wouldn't have had any. 14 A. No. 15 Q. So I did not offer you -- 16 A. No. 17 Q. -- any money? 18 A. I didn't ask so. I have been 19 surprised about that. 20 Q. And now I have. 21 A. But as you know, I don't get any 22 wages. Whether I'm here or not, my money is 23 working at the bank so. I don't lose anything 24 to be here, except maybe the flight expenses, 25 but we can talk about that so. 11291 1 Q. And I'm sure we will. 2 A. So I have come here without any 3 refunds. So that's what I want to say with 4 that. 5 Q. All right. 6 I think that clarifies it. 7 In talking with Mr. Holley, he 8 suggested to you that the price you were paying 9 for MS-DOS 5.0 in 1992 and '93 was a 10 rock-bottom price. Remember that? 11 A. If you -- yes, if you count that are 12 200,000 copies per $9, that is really a low 13 price. 14 Q. And when you got that rock-bottom 15 price for MS-DOS 5.0, DRI was a competitor for 16 your business, correct? Remember, this is 17 19 -- 18 A. 1991, until 1992, yes, that we have 19 both the choice of 5.0 DR-DOS or MS-DOS. But 20 what does it mean competitor to us, DR -- 21 MS. CONLIN: I wonder, Darin, if we 22 could put up 10033A. 23 Q. We're going to wait just a moment for 24 the time line because I think that helps us to 25 put the whole thing in perspective. 11292 1 MS. CONLIN: We can use it on that. 2 Can you blow it up a little bit? 3 Q. We've talked about this, but to be 4 sure that this is in perspective, in 1989 you 5 were shipping DR-DOS exclusively; correct? 6 A. Right. 7 Q. And 1990 you were shipping DR-DOS 8 exclusively? 9 A. Also 1990, yes. 10 Q. Okay. And then in the middle of 1991, 11 that is when you had this good contract with 12 Microsoft for $9 for MS-DOS; correct? 13 A. Yes. It was not only the price, it 14 was also the Windows MS-DOS 5.0. If they had 15 offered us the same price for Windows 4.01, we 16 hadn't shipped it. 17 Q. And why would that be? 18 A. Windows 4.01 is like I think 19 Mr. Holley said yesterday, it was written by 20 IBM. I think he meant that's not good for -- 21 has not been so good. But I think there's a 22 reason why it hasn't been so good. 23 That time people, unfortunately, 24 didn't say take so much care about operating 25 system. That was a problem. Their thought was 11293 1 only to boot the computer up and then it works. 2 But this was a mistake. And therefore the 4.01 3 was not really good. And if Microsoft had 4 offered us this $9 for the 4.01, we had to 5 refuse. Even $1 we had to refuse. But the 6 trigger was the 5.0. 7 Q. Okay. And what I'm getting at, 8 though, is the rock-bottom prices, the $9 for 9 MS-DOS 5.0, that came at a time that you were 10 then loading DR-DOS as well; correct? 11 A. Yes. 12 Q. And when you were loading -- when you 13 stopped loading DR-DOS as an alternative, did 14 your prices go up for MS-DOS or down? 15 A. I think in the '94 contract it was $10 16 and then $11, and then there was so many 17 amendments, and then I saw $14. So it went up. 18 Q. You did mention that you thought that 19 the MS-DOS 4.0 was a very -- not a good 20 product? 21 A. The 4.0 didn't work. So they 22 immediately released the 4.01, which was not 23 better, but at least it let the computer boot 24 up so -- 25 Q. That was good. 11294 1 A. Some progress. 2 MS. CONLIN: May I approach the 3 witness, Your Honor? 4 THE COURT: You may. 5 Q. Let me show you a document that is 6 marked Plaintiffs' Exhibit 37 that is already a 7 part of the record, and I will show it to you 8 for the purpose of establishing that you are 9 not the only one who thought that 4.0 was not 10 the greatest operating system in the world. 11 This is Plaintiffs' Exhibit 37. It is 12 from Mr. Gates to a number of Microsoft 13 executives. It's dated October 31, 1988, 14 and -- 15 MS. CONLIN: It's already in. 16 Q. October 38 -- I'm sorry, October 31, 17 1988. 18 And in the middle of the first 19 paragraph, Mr. Gates says, DOS 4 is a mess to 20 discuss -- bugs, too big, strange shell 21 interface, who wrote it? DOS 4 has a terrible 22 reputation. 23 Do you see that? 24 A. Yes. 25 Q. So you were not alone in your view? 11295 1 A. That's interesting to see that. 2 Q. What Mr. Gates says, was that also 3 your experience? 4 A. Yes. 5 Q. DOS 4 is a mess? 6 A. Yes. That was the reason why we 7 didn't take that. So we had Mr. Dahmen. He 8 was a genius. He knew that it was not good. 9 He said, put your fingers away from that 10 because of the bugs and all this strange 11 things. 12 And I listen to my employees, you 13 know. 14 Q. Sure. 15 Mr. Holly asked you questions about 16 volume discounts and per processor licenses. 17 Was the per processor license like the 18 volume discount? 19 A. So Microsoft didn't have, I think, a 20 volume discount like that. They didn't have a 21 price list that said from there to there. And, 22 you know, we are comparing now, now apples and 23 oranges, you know, because maybe that there 24 have been distinctions between volumes in the 25 per processor license, whether you bought 11296 1 500,000, 400,000, 300,000. 2 What makes sense is $1; maybe you get 3 from 400- to 500- this $1, from 300- to 400- 4 maybe $2. Then the smaller the quantities are, 5 the discount is a little bit bigger. 6 But to switch from that per processor 7 license to a really per copy license where 8 really the quantities make sense because there 9 they are very flexible, they were in totally 10 different price range. It doubled. As soon as 11 you were out of the per processor license and 12 you were in the per copy license, the prices 13 doubled. And that makes no sense. Even the 14 same quantity. That makes no sense. I've 15 never -- never understood that. 16 Q. So the discount, the significant 17 discount depended on your willingness to load 18 or pay for every processor that you shipped for 19 every computer that was out the door? 20 A. Yes. 21 Q. That was the -- 22 A. That was -- it never has been written 23 somewhere, but this was the effect of that. 24 Q. He also used an analogy to minimum 25 commitments, I believe the Vienna orchestra. 11297 1 A. No. I think Mr. Holley did that. 2 Q. Yes. 3 A. With the tickets. 4 Q. Yes, he did. 5 A. I had some time to think about that so 6 it's nice. And I like analogies and -- but it 7 was not the same. 8 You said when you buy in advance, what 9 you can do is your seat for one season. You 10 pay what, I don't know, $800 may be good. 11 Lincoln opera is 800. Broadway theater may be 12 less. And you don't go there anymore, you lose 13 that. You lose that money. It's the same as 14 when you make the minimum commitment from 15 Microsoft and you don't use the licenses. But, 16 you know, the tickets -- there are two things. 17 First of all, this is not a very good 18 example because the ticket you can give away. 19 You are allowed to give away a ticket. We have 20 never been allowed to give away unused 21 Microsoft licenses. It would be very good. So 22 that's the first difference. 23 But second difference, I think, to 24 show that what is with the per processor 25 license to make that analogy right with the 11298 1 theater ticket. 2 Imagine -- I don't know whether you're 3 married or whatever, but guess you are married, 4 and you like to go to dinner. After dinner you 5 go to theater, to Broadway.