1
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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UNITED STATES OF AMERICA, :
:
PLAINTIFF, :
:
V. : C.A. NO. 98-1232
:
MICROSOFT CORPORATION, :
:
DEFENDANT. :
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STATE OF NEW YORK, ET AL., :
:
PLAINTIFFS, :
:
V. : C.A. NO. 98-1223
:
MICROSOFT CORPORATION, :
:
DEFENDANT. :
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MICROSOFT CORPORATION, :
:
COUNTERCLAIM-PLAINTIFF, :
:
V. :
:
DENNIS C. VACCO, ET AL,. :
:
COUNTERCLAIM-DEFENDANTS. :
- - - - - - - - - - - - - - - - - - X WASHINGTON, D.C.
JUNE 9, 1999
2:05 P.M.
(P.M. SESSION)
VOLUME 69
TRANSCRIPT OF TRIAL
BEFORE THE HONORABLE THOMAS P. JACKSON
UNITED STATES DISTRICT JUDGE
2
FOR THE PLAINTIFFS: DAVID BOIES, ESQ.
STEPHEN D. HOUCK, ESQ.
PHILLIP MALONE, ESQ.
MARK S. POPOFSKY, ESQ.
KARMA GIULIANELLI, ESQ.
ANTITRUST DIVISION
U.S. DEPARTMENT OF JUSTICE
P.O. BOX 36046
SAN FRANCISCO, CA 94102
FOR THE DEFENDANT: JOHN L. WARDEN, ESQ.
STEVEN L. HOLLEY, ESQ.
RICHARD J. UROWSKY, ESQ.
CHRISTOPHER MEYERS, ESQ.
MICHAEL LACOVARA, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NY 10004
WILLIAM H. NEUKOM, ESQ.
DAVID A. HEINER, ESQ.
THOMAS W. BURT, ESQ.
MICROSOFT CORPORATION
ONE MICROSOFT WAY
REDMOND, WA 98052-6399
COURT REPORTER: THOMAS C. BITSKO
MILLER REPORTING CO., INC.
507 C STREET, N.E.
WASHINGTON, D.C. 20002
(202) 546-6666
3
INDEX
PAGE
CONTINUED CROSS-EXAMINATION OF GARRY NORRIS 5
DEFENDANT'S NO. 2644 AND 2644A RECEIVED 6
DEFENDANT'S NO. 2685 MARKED 9
DEFENDANT'S NO. 2685 RECEIVED 9
DEFENDANT'S NOS. 2686 MARKED 11
DEFENDANT'S NOS. 2686 RECEIVED 11
DEFENDANT'S NO. 2645 MARKED 18
DEFENDANT'S NO. 2645 RECEIVED 18
DEFENDANT'S NO. 2647 MARKED 28
DEFENDANT'S NO. 2647 RECEIVED 28
DEFENDANT'S NO. 2648 MARKED 34
DEFENDANT'S NO. 2648 RECEIVED 34
DEFENDANT'S NO. 2707 MARKED 60
DEFENDANT'S NO. 2707 RECEIVED 60
DEFENDANT'S NO. 2708 MARKED 64
DEFENDANT'S NO. 2708 RECEIVED 65
DEFENDANT'S NO. 2652 MARKED 66
DEFENDANT'S NO. 2652 RECEIVED 67
DEFENDANT'S NO. 2704 MARKED 72
DEFENDANT'S NO. 2704 RECEIVED 72
DEFENDANT'S NO. 2649 MARKED 73
DEFENDANT'S NO. 2649 RECEIVED 74
DEFENDANT'S NO. 2653 MARKED 82
DEFENDANT'S NO. 2653 RECEIVED 82
REDIRECT EXAMINATION OF GARR7Y NORRIS 84
4
INDEX (CONT'D.)
PAGE
DEFENDANT'S NO. 2203 MARKED 90
DEFENDANT'S NO. 2203 RECEIVED 90
REDIRECT EXAMINATION OF GARRY NORRIS 84
RECROSS EXAMINATION OF GARRY NORRIS 96
5
1 P R O C E E D I N G S
2 THE COURT: MR. PEPPERMAN?
3 MR. PEPPERMAN: GOOD AFTERNOON, YOUR HONOR.
4 GARRY NORRIS, GOVERNMENT'S WITNESS, RESUMED
5 CROSS-EXAMINATION (CONTINUED)
6 BY MR. PEPPERMAN:
7 Q MR. NORRIS, WHEN WE BROKE, I WAS ASKING YOU ABOUT
8 DEFENDANT'S EXHIBIT 2643. IT'S MR. CASSLER'S E-MAIL. AND I
9 JUST HAVE ONE QUESTION ABOUT THE PARAGRAPH AT THE VERY END
10 OF THE E-MAIL UNDERNEATH THE HEADING "SUMMARY." AND I'LL
11 JUST READ THAT PARAGRAPH INTO THE RECORD WHILE YOU'RE
12 READING IT. "THEY WERE SINCERELY APPRECIATIVE OF THE
13 EFFORTS MADE IN THE LAST FEW DAYS. THOUGHMAN'S CALL, YORK'S
14 CALL, SANTELLI'S CALLS, MEETINGS, AND OUR MEETING. I
15 BELIEVE WE'VE TURNED THE CORNER. WE HAVE AN AWFUL LOT OF
16 WORK TO DO, HOWEVER, AND WE MUST FOLLOW THROUGH BEFORE THIS
17 THING IS BEHIND US. JERRY."
18 THIS E-MAIL WAS WRITTEN BY MR. CASSLER ON AUGUST
19 11, 1995, CORRECT?
20 A THAT'S WHAT IT APPEARS TO BE, YES.
21 Q AND THE REFERENCE TO A THOUGHMAN CALL WITHIN THE LAST
22 FEW DAYS, DOES THAT REFRESH YOUR RECOLLECTION AS TO WHETHER
23 THERE WAS A CALL BETWEEN MR. THOUGHMAN AND MR. GATES IN
24 AUGUST?
25 A NO.
6
1 MR. PEPPERMAN: YOUR HONOR, AT THIS TIME I'D LIKE
2 TO OFFER INTO EVIDENCE--I'M NOT GOING TO ASK MR. NORRIS ANY
3 QUESTIONS ABOUT IT--COPIES OF THE SETTLEMENT AGREEMENT
4 SETTLING THE AUDIT. THEY ARE DEFENDANT'S EXHIBIT 2644 AND
5 DEFENDANT'S EXHIBIT 2644A. 2644A WAS PRODUCED BY IBM, BUT
6 IT'S SIGNED ONLY BY MICROSOFT. 2644 IS SIGNED BY BOTH
7 MICROSOFT AND IBM.
8 MR. MALONE: YOUR HONOR, IF I COULD JUST CONFIRM
9 THROUGH THE COURT THAT THE TWO DOCUMENTS ARE IDENTICAL
10 EXCEPT THAT ONE IS SIGNED BY BOTH PARTIES AND THE OTHER IS
11 SIGNED ONLY BY ONE?
12 MR. PEPPERMAN: THEY ARE, YOUR HONOR.
13 MR. MALONE: WITH THAT UNDERSTANDING, NO
14 OBJECTION.
15 THE COURT: DEFENDANT'S 2644 AND 2644A ARE
16 ADMITTED.
17 (DEFENDANT'S EXHIBIT NOS. 2644
18 AND 2644A WERE RECEIVED IN
19 EVIDENCE).
20 MR. PEPPERMAN: YOUR HONOR, FOR THE RECORD AND THE
21 COURT'S BENEFIT, ON PAGE 2, UNDER SECTION 2.A. ARE THE
22 PAYMENTS THAT IBM MADE PURSUANT TO THE SETTLEMENT WHICH
23 REFER TO THE $16.7 MILLION THAT IBM HAD PAID BEFOREHAND AS
24 SET OUT IN MR. BEARD'S LETTER, WHICH WE WENT THROUGH
25 EARLIER, AND ADDITIONAL PAYMENTS OF $14 MILLION THAT IBM WAS
7
1 MAKING PURSUANT TO THIS SETTLEMENT AGREEMENT, FOR A TOTAL OF
2 OVER $31 MILLION.
3 BY MR. PEPPERMAN:
4 Q MR. NORRIS, TURNING BRIEFLY TO IBM'S WINDOWS 95 LICENSE
5 AGREEMENT, IBM FIRST RECEIVED FROM MICROSOFT A DRAFT OF THE
6 WINDOWS 95 LICENSE AGREEMENT IN APPROXIMATELY MARCH 1995; IS
7 THAT CORRECT?
8 A THAT'S CORRECT.
9 Q AND BY MID-JULY 1995, YOU HAD NEGOTIATED SOME 38 OPEN
10 ISSUES RELATED TO THAT DRAFT LICENSE AGREEMENT DOWN TO LESS
11 THAN 10; IS THAT CORRECT?
12 A NO, THAT'S NOT CORRECT. BY JUNE, WE HAD NEGOTIATED
13 SOME 38 ISSUES DOWN TO 10.
14 Q SO THAT OCCURRED IN JUNE OF 1997?
15 A JUNE OF 1995.
16 Q 1995.
17 A BY JUNE OF 1995, WE HAD WHITTLED THE ISSUES DOWN FROM
18 38 TO 10.
19 Q OKAY. NOW, BEGINNING IN JULY OF 1995, MR. SANTELLI
20 REPLACED YOU AS IBM'S LEAD NEGOTIATOR WITH MICROSOFT; IS
21 THAT CORRECT?
22 A THAT IS INCORRECT.
23 Q WELL, DID--FROM MID-JULY ON, WAS IT MR. SANTELLI WHO
24 WAS INVOLVED IN THE DIRECT DISCUSSIONS WITH MICROSOFT AND
25 MEETINGS WITH MICROSOFT ABOUT THE LICENSE AGREEMENT, AND YOU
8
1 WERE INVOLVED IN PREPARING MR. SANTELLI AND OTHER IBM
2 EXECUTIVES FOR THOSE MEETINGS AND DISCUSSIONS?
3 A INCORRECT. WE ASKED MR. SANTELLI TO COME IN TO HELP
4 DELINK THE AUDIT FROM THE WINDOWS 95 LICENSE AGREEMENT SINCE
5 HE HAD A RELATIONSHIP WITH MICROSOFT FROM HIS
6 RESPONSIBILITIES AS GENERAL MANAGER OF PRODUCT AND BRAND
7 MANAGEMENT FOR THE RS600. I WAS INVOLVED ON A DAY-TO-DAY
8 BASIS UP UNTIL WE GOT THE LICENSE, INCLUDING ATTENDING THE
9 SIGNING OF THE WINDOWS 95 LICENSE AGREEMENT.
10 Q NOW, YOU TESTIFIED THAT IBM ULTIMATELY SIGNED A WINDOWS
11 95 LICENSE AGREEMENT ON AUGUST 24, 1995, APPROXIMATELY 15
12 MINUTES PRIOR TO THE LAUNCH OF WINDOWS 95; IS THAT CORRECT?
13 A THAT'S CORRECT.
14 Q AND IBM WAS NEVERTHELESS ABLE TO PARTICIPATE IN THE
15 WINDOWS 95 LAUNCH EVENT ON AUGUST 24, 1995, CORRECT?
16 A THAT'S CORRECT. BY "PARTICIPATE," I DON'T KNOW WHAT
17 YOU MEAN. WE WERE ABLE TO ATTEND, AND WE HAD A BOOTH SET UP
18 WHERE WE HAD TWO OF OUR DISPLAY STATIONS SET UP. WE DIDN'T
19 PARTICIPATE ON STAGE, IF THAT'S WHAT YOU MEAN.
20 Q WELL, IBM HAD FOUR REPRESENTATIVES AT THE LAUNCH EVENT,
21 CORRECT?
22 A YES, WE DID.
23 Q AND ONE OF THEM WAS YOURSELF, SIR, CORRECT?
24 A THAT'S CORRECT.
25 Q AND WINDOWS 95 WAS AVAILABLE ON IBM'S APTIVA 300 AND
9
1 700 SERIES AND THINKPAD COMPUTERS BEGINNING IN SEPTEMBER OF
2 1995, WASN'T IT?
3 A I DON'T KNOW THE EXACT DATES THE FIRST SYSTEMS CAME
4 OUT. THAT--I'D HAVE TO CHECK THE SHIPMENT DATA. I HAVEN'T
5 SEEN THE SHIPMENT DATA.
6 Q WELL, ON THE DAY THAT IBM SIGNED THE WINDOWS 95 LICENSE
7 AGREEMENT WITH MICROSOFT, DID IT ANNOUNCE INTERNALLY THAT
8 WINDOWS 95 WOULD BE AVAILABLE ON THOSE MODELS OF IBM
9 COMPUTERS BEGINNING IN SEPTEMBER 1995?
10 A I DON'T RECALL.
11 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
12 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2685.
13 (DEFENDANT'S EXHIBIT NO. 2685
14 WAS MARKED FOR
15 IDENTIFICATION.)
16 MR. PEPPERMAN: IT'S A TWO-PAGE DOCUMENT. IT
17 CONSISTS OF A COVER NOTE FROM MR. SANTELLI TO MR. KEMPIN
18 WITH A DOCUMENT ATTACHED TO IT.
19 MR. MALONE: NO OBJECTION.
20 THE COURT: DEFENDANT'S 2685 IS ADMITTED.
21 (DEFENDANT'S EXHIBIT NO. 2685
22 WAS RECEIVED IN EVIDENCE.)
23 BY MR. PEPPERMAN:
24 Q MR. NORRIS, THE DOCUMENT ATTACHED TO MR. SANTELLI'S
25 COVER NOTE TO MR. KEMPIN, IS THAT A COPY OF IBM'S INTERNAL
10
1 ANNOUNCEMENT OF WINDOWS 95?
2 A I DO RECALL SEEING THE ANNOUNCEMENT, YES.
3 Q AND THE FIRST TWO PARAGRAPHS OF THAT READ, "IBM
4 ANNOUNCED TODAY THAT IT HAS SIGNED AN AGREEMENT WITH
5 MICROSOFT TO OFFER WINDOWS 95 PRE-LOADED ON IBM DESKTOP AND
6 MOBILE SYSTEMS.
7 "AS A RESULT, WINDOWS 95 WILL BE AVAILABLE ON THE
8 APTIVA PC, IBM PC 300 AND 700 SERIES AND THINKPAD MOBILE
9 COMPUTERS, BEGINNING IN SEPTEMBER."
10 DOES THAT REFRESH YOUR RECOLLECTION AS TO WHETHER
11 IBM ANNOUNCED THAT INTERNALLY ON AUGUST 24, 1995?
12 A YES.
13 Q AND IBM DID ANNOUNCE THAT THEN?
14 A YES.
15 Q NOW, ONCE WINDOWS 95 WAS RELEASED, RETAILERS TOLD IBM,
16 DIDN'T THEY, THAT THEY WOULD NO LONGER BE ORDERING ANY OS/2
17 SYSTEMS, CORRECT?
18 A SOME RETAILERS DID TELL US THAT THEY WOULD SEE DEMAND
19 FOR OS/2 TAPERING OFF AND THAT THEY WOULD WANT MORE WINDOWS
20 95 SYSTEMS.
21 Q WELL, DID RETAILERS TELL IBM ONCE WINDOWS 95 WAS
22 ANNOUNCED THAT THEIR DEMAND WAS GOING TO BE FOR WINDOWS 95
23 ONLY?
24 A I THINK WE DID HAVE A FEW RETAILERS THAT DID, IN FACT,
25 SAY THAT.
11
1 Q WELL, DID RETAILERS GENERALLY--I MEAN, NOT JUST A FEW--
2 THE LARGE MAJORITY OF RETAILERS TELL IBM THAT?
3 A I DON'T KNOW HOW YOU DEFINE LARGE MAJORITY, FEW. WE
4 DID HAVE RETAILERS THAT TOLD US THAT THEY WANTED TO MOVE TO
5 WINDOWS 95.
6 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
7 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2686.
8 (DEFENDANT'S EXHIBIT NO. 2686
9 WAS MARKED FOR
10 IDENTIFICATION.)
11 MR. PEPPERMAN: IT'S A MEMORANDUM FROM SAM
12 PALMISANO TO JOHN THOMPSON DATED SEPTEMBER 12, 1996.
13 MR. MALONE: NO OBJECTION.
14 THE COURT: DEFENDANT'S 2686 IS ADMITTED.
15 (DEFENDANT'S EXHIBIT NO. 2686
16 WAS RECEIVED IN EVIDENCE.)
17 BY MR. PEPPERMAN:
18 Q AND, SIR, MY QUESTION'S ONLY GOING TO BE ABOUT THE
19 PARAGRAPH UNDERNEATH THE HEADING APTIVA SYSTEMS.
20 (PAUSE.)
21 Q OKAY. MR. NORRIS, THE AUTHOR OF THIS DOCUMENT, MR.
22 PALMISANO, WHAT WAS HIS POSITION IN SEPTEMBER OF 1996?
23 A HE WAS THE SENIOR VICE PRESIDENT AND GROUP EXECUTIVE OF
24 THE PERSONAL SYSTEMS GROUP.
25 Q AND WHAT WAS THE RECIPIENT OF THIS DOCUMENT MR.
12
1 THOMPSON'S POSITION AT THAT TIME?
2 A I BELIEVE HIS TITLE WAS SENIOR VICE PRESIDENT AND GROUP
3 EXECUTIVE OF THE SOFTWARE GROUP.
4 Q NOW, THE SENTENCE UNDER--THE FIRST SENTENCE UNDER THE
5 HEADING APTIVA SYSTEMS READS, "ONCE WINDOWS 95 WAS
6 ANNOUNCED, RETAILERS TOLD US THAT THEY WOULD NO LONGER BE
7 ORDERING ANY OS/2 SYSTEMS AS THEIR DEMAND WAS GOING FOR
8 WINDOWS 95 ONLY." IS THAT CONSISTENT WITH YOUR
9 UNDERSTANDING OF WHAT RETAILERS TOLD IBM?
10 A YES.
11 Q NOW, YOU TESTIFIED ON MONDAY THAT IBM'S OPERATING
12 SYSTEM ROYALTIES TO MICROSOFT INCREASED SIGNIFICANTLY FROM
13 1995 TO 1996. DO YOU RECALL?
14 A YES, I DO.
15 Q AND THAT THE REASON FOR THAT INCREASE FROM 1995 TO 1996
16 WAS BECAUSE OF THE OBSOLESCENCE OF WINDOWS 3.11 BY WINDOWS
17 95, CORRECT?
18 A WE WERE STILL SHIPPING WINDOWS 3.11 AND WINDOWS 95 AND
19 OS/2 INTO 1996. I COULDN'T SAY IT WAS DUE TO THE
20 OBSOLESCENCE. YOU'D HAVE TO DEFINE WHAT YOU MEAN BY
21 OBSOLESCENCE.
22 Q WELL, DO YOU UNDERSTAND, SIR, WHAT THE WORD
23 "OBSOLESCENCE" MEANS?
24 A YES, BUT YOU NEED TO DEFINE IF YOU WANT ME--
25 Q WELL, SIR--
13
1 A --TO UNDERSTAND IT IN THE CONTEXT.
2 Q NOW, IT'S TRUE, ISN'T IT, THAT THE REASON WHY THERE WAS
3 A BIG JUMP IN ROYALTIES FOR IBM FROM 1995 TO 1996 IS THAT
4 DEMAND WAS LARGELY FOR WINDOWS 95 SYSTEMS, NOT WINDOWS 3.11
5 SYSTEMS, AND AS A RESULT IBM WAS SELLING MANY MORE COMPUTERS
6 WITH WINDOWS 95 PRE-LOADED THAN WINDOWS 3.1, THAT WINDOWS
7 3.1 WAS OBSOLESCENCE IN THAT--TO THAT EXTENT, CORRECT?
8 A FOR WINDOWS 3.11 TO BE OBSOLETE WOULD MEAN THAT WE'RE
9 NOT--EITHER NOT SHIPPING ANY AT ALL OR VERY FEW. AGAIN, YOU
10 HAVE TO DEFINE WHAT YOU MEAN BY THAT.
11 Q WELL, I ASK YOU TO TAKE A LOOK AT GOVERNMENT EXHIBIT
12 2194, AND MR. METZGER WILL GIVE YOU ANOTHER COPY OF IT. AND
13 I'M GOING TO REFER YOU TO THE PAGE WITH THE BATES NUMBER
14 90365.
15 IT'S CHART 14, AND I'M ONLY GOING TO ASK YOU BOUT
16 THE FIRST BULLET THERE, SIR. LET ME KNOW WHEN YOU'RE READY.
17 (PAUSE.)
18 THE WITNESS: OKAY.
19 BY MR. PEPPERMAN:
20 Q NOW, THE FIRST BULLET SHOWS ROYALTY HISTORY PROJECTIONS
21 1995, ROYALTIES TO MICROSOFT EQUAL $60.8 MILLION; 1996
22 ROYALTY PROJECTIONS TO MICROSOFT EQUALS $250 MILLION, AND IN
23 PARENS, OBSOLESCENCE OF WIN 3.11 BY WIN 95. DO YOU SEE
24 THAT?
25 A I DO.
14
1 Q NOW, WERE YOU INVOLVE IN THE PREPARATION OF THIS?
2 A I BELIEVE I PREPARED THIS CHART.
3 Q WELL, WHAT DID YOU MEAN BY THE WORD "OBSOLESCENCE"
4 THERE, SIR?
5 A I'D BE HAPPY TO EXPLAIN NOW THAT YOU'VE ASKED. THANK
6 YOU.
7 WHEN WE PREPARED THIS PRESENTATION IN 1996, IT WAS
8 FOR SAM PALMISANO TO HELP SAM UNDERSTAND WHAT THE ROYALTIES
9 WOULD GO TO FROM 1995 TO '96. THIS PROJECTION WAS BASED ON
10 WHAT WE EXPECTED TO SHIP IN 1996 VERSUS WHAT WE SHIPPED IN
11 1995. IT INCLUDED A NUMBER OF ELEMENTS.
12 ONE OF THE ELEMENTS OF THE WINDOWS 95 LICENSE
13 AGREEMENT WAS THAT WE WANTED TO BE ABLE TO SHIP WINDOWS 3.11
14 AND WINDOWS 95 ON THE SAME SYSTEM. WE WANTED MICROSOFT TO
15 ALLOW US TO ONLY PAY ONE ROYALTY, WHICHEVER ONE THE CUSTOMER
16 CHOSE TO PAY. AND FOR ABOUT A SIX-MONTH PERIOD OF TIME,
17 MICROSOFT MADE US PAY BOTH ROYALTIES, WINDOWS 3.11 AND THE
18 ROYALTY FOR WINDOWS 95. THAT ROYALTY IS INCLUDED IN THAT
19 PRICE.
20 WE WERE ALSO PAYING THE ROYALTY OUT OF OS/2, AND
21 WE WERE ALSO PAYING ROYALTIES FOR ANY WINDOWS 95 SYSTEMS
22 THAT WE SHIPPED SEPARATELY.
23 SO, IN EFFECT, WE WERE PAYING MICROSOFT TWICE FOR
24 MICROSOFT OPERATING SYSTEMS.
25 Q IS THAT YOUR DEFINITION, SIR, OF WHAT YOU MEANT BY
15
1 OBSOLESCENCE THERE IN THAT BULLET POINT? MY QUESTION WAS:
2 WHAT DID YOU MEAN BY OBSOLESCENCE? IS THAT YOUR ANSWER TO
3 MY QUESTION?
4 A MY ANSWER TO YOUR QUESTION AND WHAT I MEANT BY
5 OBSOLESCENCE OF WIN 3.11 BY WIN 95?
6 Q THAT WAS MY QUESTION, SIR.
7 A EVENTUALLY WINDOWS 95--IT MAY NOT HAVE HAPPENED IN
8 1996--WOULD, IN FACT, MAKE WINDOWS 3.11 OBSOLETE.
9 Q AND THE REASON WHY IBM'S ROYALTIES JUMPED SIGNIFICANTLY
10 FROM 1995 TO 1996 IS BECAUSE THAT'S WHAT ENDED UP HAPPENING,
11 CORRECT?
12 A AGAIN, WHAT ENDED UP HAPPENING WERE A COMBINATION OF
13 THINGS. WE PAID MICROSOFT A ROYALTY ON WINDOWS 3.11 AND
14 WINDOWS 95 WHEN WE SHIPPED IT ON THE SAME SYSTEM FOR ABOUT A
15 SIX-MONTH PERIOD OF TIME, DUAL ROYALTIES FOR THE SAME
16 SYSTEM. WE ALSO PAID MICROSOFT ROYALTIES ON WHAT THEY
17 CALLED DESIGNATED SYSTEMS, WHETHER WE SHIPPED A LICENSE WITH
18 THAT SYSTEM OR NOT. WE ALSO PAID YOU ROYALTIES ON OS/2 AS
19 WELL. SO THERE IS A COMBINATION OF ROYALTIES THAT GO INTO
20 THIS 250 MILLION THAT WE ESTIMATED AT THAT TIME.
21 Q THE SIGNIFICANT JUMP FROM '95 TO '96 WAS BECAUSE THE
22 MIX OF OPERATING SYSTEMS THAT IBM WAS SHIPPING WITH ITS
23 COMPUTERS CHANGED SIGNIFICANTLY IN THAT WINDOWS 95 WAS
24 SHIPPED ON MANY, MANY MORE SYSTEMS THAN WINDOWS 3.1 WAS IN
25 '96, CORRECT?
16
1 A YES, WE SHIPPED MORE WINDOWS 95 SYSTEMS THAN WE DID
2 WINDOWS 3.1.
3 Q AND THAT WAS THE LARGE DRIVING FORCE BEHIND THE
4 SIGNIFICANT INCREASE IN IBM'S ROYALTIES, CORRECT?
5 A I DON'T THINK YOU CAN MAKE THAT POINT WITHOUT MAKING
6 THE POINT ABOUT THE FACT THAT WE WERE PAYING YOU A DOUBLE
7 ROYALTY--
8 Q IF YOU COULD ANSWER MY QUESTION YES OR NO, AND THEN
9 PROVIDE THE CONTEXT.
10 A OKAY. WHAT'S YOUR QUESTION AGAIN?
11 Q THE INCREASE IN SHIPMENTS OF WINDOWS 95 OVER WINDOWS
12 3.1 FROM 1995 TO 1996 WAS THE LARGEST FACTOR CONTRIBUTING TO
13 THE INCREASE IN IBM'S ROYALTIES FROM 1995 TO 1996.
14 A I'M SORRY. I NEED YOU TO REPEAT IT AGAIN. I DON'T
15 UNDERSTAND.
16 Q IBM--THE ROYALTIES THAT IBM PAID TO MICROSOFT INCREASED
17 FROM 1995 TO 1996, DIDN'T IT, SIR?
18 A YES, THEY DID.
19 Q THE LARGEST CAUSING FACTOR OF THAT WAS THAT IBM BEGAN
20 SHIPPING MANY MORE COPIES OF WINDOWS 95 THAN WINDOWS 3.1 IN
21 1996, CORRECT?
22 A IT MAY NOT HAVE BEEN.
23 Q SIR, ALL I CAN GET IS YOUR TESTIMONY. YOUR TESTIMONY
24 IS IT MAY NOT HAVE BEEN?
25 A YES.
17
1 Q OKAY. BUT BY THE FALL OF 1995, SIR, DO YOU AGREE THAT
2 IBM DECIDED THAT IT NEEDED TO REPAIR ITS RELATIONSHIP WITH
3 MICROSOFT, CORRECT?
4 A YES.
5 Q AND PART OF THE REASON WHY IBM DECIDED IT NEEDED TO
6 REPAIR ITS RELATIONSHIP WITH MICROSOFT WAS BECAUSE THE
7 MARKETPLACE HAD GONE STRONGLY IN FAVOR OF WINDOWS 95 RATHER
8 THAN OS/2, CORRECT?
9 A YES. AS A MATTER OF FACT, SPEAKING OF THE MARKETPLACE,
10 WE REALLY HAD NO COMMERCIALLY VIABLE ALTERNATIVE TO WINDOWS
11 95. SO THE FACT OF THE MATTER IS WHILE THE MARKETPLACE MAY
12 HAVE GONE THERE, WE HAD NO PLACE TO GO. THERE WAS NO
13 COMMERCIALLY VIABLE ALTERNATIVE TO WINDOWS 95. YOU HAD TO
14 HAVE WINDOWS 95 TO BE IN THE PC BUSINESS.
15 Q ARE YOU FINISHED?
16 NOW, IN AN EFFORT TO REPAIR THE RELATIONSHIP, IBM
17 REPRESENTATIVES MET AGAIN WITH JOACHIM KEMPIN IN THE FALL OF
18 1995, CORRECT?
19 A YES.
20 Q AND THAT MEETING WAS AT COMDEX IN THE FALL OF 1995,
21 CORRECT?
22 A YES.
23 Q AND AT THAT MEETING, IBM SOUGHT TO GAIN MR. KEMPIN'S
24 CONFIDENCE SO THAT HE WOULD GO TO MR. BALLMER AND MR. GATES
25 WITH THE REQUEST FOR--FROM IBM FOR A CLOSER RELATIONSHIP
18
1 WITH MICROSOFT, CORRECT?
2 A INCORRECT. THAT WASN'T THE ONLY FACTOR. THERE WERE
3 SEVERAL FACTORS AS TO WHY WE WERE HAVING THE MEETING WITH
4 JOACHIM KEMPIN.
5 Q WAS THAT A FACTOR, SIR?
6 A YES.
7 MR. PEPPERMAN: OKAY. I ASK THAT THE WITNESS BE
8 SHOWN AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2645.
9 IT'S AN ELECTRONIC MAIL MESSAGE DATED NOVEMBER 10, 1995,
10 FROM DEAN DUBINSKY TO, AMONG OTHERS, MR. NORRIS.
11 (DEFENDANT'S EXHIBIT NO. 2645
12 WAS MARKED FOR
13 IDENTIFICATION.)
14 MR. MALONE: NO OBJECTION.
15 THE COURT: DEFENDANT'S 2645 IS ADMITTED.
16 (DEFENDANT'S EXHIBIT NO. 2645
17 WAS RECEIVED IN EVIDENCE.)
18 BY MR. PEPPERMAN:
19 Q LET ME KNOW WHEN YOU'RE READY, SIR.
20 (PAUSE.)
21 (WITNESS PERUSING DOCVUMENT.)
22 BY MR. PEPPERMAN:
23 Q. ARE YOU READY, SIR?
24 A. YES.
25 Q. THIS IS AN E-MAIL FROM MR. DUBINSKY DATED NOVEMBER 20,
19
1 1995?
2 A. NOVEMBER 10, 1995.
3 Q. NOVEMBER 10, 1995. NOVEMBER 20TH IS MY BIRTHDAY. THAT
4 IS WHY.
5 AND YOU WERE ONE OF THE RECIPIENTSOF THIS E-MAIL,
6 CORRECT, SIR?
7 A. YES.
8 Q. AND IT DISCUSSES AN UPCOMING MEETING WITH, AMONG OTHER
9 PEOPLE, MR. KEPMPIN OF MICROSOFT TO OCCUR ON NOVEMBER 14,
10 1995, AT COMDEX?
11 A. THAT'S CORRECT.
12 Q. DID YOU ATTEND THAT MEETING?
13 A. NO, I DID NOT.
14 Q. THE LAST SENTENCE OF THE PARAGRAPH UNDER MR. KEMPIN'S
15 NAME ON THE FIRST PAGE, UNDER THE HEADING "MEETING
16 PARTICVIPANTS," THE FIRST ENTRY IS YOKIM KEMPIN. THE LAST
17 SENTENCE IN THAT PARGARPH READS, "IBM MUST GAIN KEMPIN'S
18 CONFIDENCE FOR KEMPIN TO GO ONCE AGAIN TO STEVE BALLMER AND
19 BILL GATES WITH ANY REQUESTS FROM IBM." DO YOU SEE THAT?
20 A. I DO.
21 Q. IN 1994, MR. KEMPIN HAD GONE TO MR. GTAES WITH A
22 REQUEST FROM IBM FOR A FRONT-LINE PARTNERSHIP LIKE
23 COMIPAQ'S, CORRECT?
24 A. THAT'S CORRECT.
25 Q. AND MICROSOFT INFORMED IBM THAT MR. KEMPIN HAD STUCK
20
1 HIS NECK OUT IN DOING SO, CORRECT?
2 A. I NEVER AGREED TO THAT STATEMENT, "STUCK HIS NECK OUT."
3 Q. DO YOU DISAGREE THAT YOU WERE INFORMED OF THAT FACT?
4 A. I BELIEVE I TOLD YOU THAT I WSA INFORMED BY DUBINSKY
5 THAT BABER SAID THAT KEMPIN HAD STUCK HIS NECK OUT.
6 Q. SO YOU WERE INFORMED BY SOMEONE THAT MR. KEMPIN--YOU
7 WERE INFORMED BY MR. DUBINSKY THAT MARK BABER HAD SAID THAT
8 MR. KEMPIN HAD STUCK HIS NECK OUT, CORRECT?
9 A. SECONDHAND, AS YOU PUT IT.
10 Q. IBM HAD ENDED UP REJECTING THAT PROPOSAL, CORRECT?
11 A. THAT'S CORRECT.
12 Q. AND NOW, ONE YEAR LATER, IN NOVEMBER 1995, IBM WANTED
13 MR. KEMPIN TO GO ONCE AGAIN TO MR. GATES WITH A REQUEST FROM
14 IBM FOR A CLOSER RELATIONSHIP BETWEEN THE TWO COMPANOIES,
15 CORRECT?
16 A. THESE ARE DEAN'S RECOMMENDATIONS--INCORRECT--ANSWER IN
17 CONTEXT. THESE ARE DEAN DUBINSKY'S RECOMMENDATIONS AS TO
18 WHAT THE MEETING'S PURPOSE SHOULD BE, AND HIS WORDS HERE SAY
19 IBM'S SUGGESTIONS, "WHAT I SUGGEST YOU DISCUSS." THESE MAY
20 OR MAY NOT HAVE BEEN DISCUSSED IN THE MEETING.
21 Q. IN FALL OF 1995, IBM WANTED A CLOSER RELATIONSHIP WITH
22 MICROSOFT, CORRECT?
23 A. YES.
24 Q. AND ONE OF THE PURPOSES OF MEETING WITH MR. KEMPIN IN
25 NOVEMBER OF 1995 WSA TO TRY TO OBTAIN THAT CLOSER
21
1 RELATIONSHIP WITH MICROSOFT, CORRECT?
2 A. YES.
3 Q. IF YOU WOULD LOOK, SIR, AT THE PAGE IN THIS DOCUMENT
4 THAT HAS THE BATES NUMBER 92562, IT IS THE FOURTH PAGE, THE
5 PARAGRAPH UNDRE "CUSTOMER SATISFACTION"?
6 A. YES.
7 Q. THAT PARAGRAPH READS, "NEITHER IBM OR MICROSOFT IS
8 SATISFIED WITH THE CURRENT RELATIONSHIP AS IT STANDS.
9 MICROSOFT BELIEVES THAT IBM IS OUT TO ANNIHILATE MICROSOFT,
10 AND THIS PERCEPTION, (REALITY), HAS MADE ANY COOEPRATOIN
11 ALMOST IMPOSSIBLE. AT A MINIMUM, MICROSOFT WOULD LIKE IBM
12 TO STOP 'DISPARAGING THEIR PRODUCTS IN PUBLIC.'" DO YOU SEE
13 THAT?
14 A. YES.
15 Q. WAS IT MICROSOFT'S PERCEPTION IN NOVEMBER 1995 THAT IBM
16 WAS OUT TO ANNIHILATE MICROSOFT?
17 A. I DON'T KNOW. WHAT I DO KNOW IS THAT THESE ARE DEAN'S
18 COMMENTS, "ANNIHILATE," "DISPARAGE," AND I DON'T KNOW
19 WHETHER DEAN GOT THOSE COMMENTS FROM MARK BABER OR WHOEVER
20 ELSE AT MICROSOFT MAY HVAE TOLD HIM THIS AS HE PREPARED FOR
21 HTE BRIEFING. I DON'T KNOW.
22 Q. WELL, MR. DUBINSKY WAS THE MICROSOFT RELATIONSHIP
23 MANAGER AT IBM IN 1995, CORRECT?
24 A. YES, AND HE REPORTED TO ME, AND I DISAGREED WITH HIS
25 SUGGESTIONS.
22
1 Q. WELL, HE WAS RESPONSIBLE FOR THE DAY-TO-DAY CONTACT
2 WITH MICROSOFT SINCE HE WAS IN KIRKLAND, WSAHINGTON,
3 CORRECT?
4 A. THAT'S CORRECDT.
5 Q. NOW, MR. DUBINSKY, ACCORDING TO THIS DOCUMENT, BELIEVED
6 THAT MICROSOFT'S PERCEPTION THAT IBM WAS OUT TO ANNIHILATE
7 MICROSOFT WAS IN FACT REALITY, DOESN'T HE?
8 A. HE DOESN'T SAY THAT. HE SAYS MICROSOFT BELIEVES THAT
9 IBM IS OUT TO ANNIHILATE MICROSOFT.
10 Q. AND THIS PERCEPTION, IN PARENS, "(REALITY)," HAS MADE
11 ANY COOPERATION ALMOST IMPOSSIBLE. DOESN'T THAT "REALITY"
12 IN THE PARENTHETICAL THERE APPEAR TO BE MR. DUBINSKY'S
13 EDITORIAL COMMENT OF MICROSOFT'S PERCEPTION?
14 A. I DON'T KNOW THAT.
15 Q. YOU RECEIVED A COPY OF THIS DOCUMENT, DIDN'T YOU, SIR?
16 A. OF COURSE.
17 Q. DID YOU TALK TO MR. DUBINSKY ABOUT IT? HE REPORTED TO
18 YOU, RIGHT?
19 A. YES, HE DID.
20 Q. NOW, IF YOU STRONGLY DISAGREED WITH THAT, DID YOU
21 DISCUSS WITH HIM THIS PARAGARPH?
22 A. I DISCUSSED WITH DEAN DUBINSKY THE ENTIRE SCHEDULED
23 MEETINGS FOR FALL COMDEX, THE KEMPIN MEETING, THE FOLLOW-UP
24 MEETINGS WHICH I CONDUCTED, AND I DISCUSSED THE BRIEFING
25 THAT HE WANTED TO USE AS WELL.
23
1 I ALSO BRIEFED THE SENIOR EXEUCTIVES MYSELF
2 WITHOUT DEAN PRESENT ALONG WITH HARRY NICKEL TO TELL THEM
3 WAHT WE WANTED TO DISCUSS. THESE WERE DEAN'S
4 RECOMMENDATIONS, AND I CERTAINLY DID HAVE CONVERSATIONS WITH
5 DEAN ABOUT THIS DOCUMENT.
6 Q. MR. DUBINSKY WAS DEALING WITH MICROSOFT DAY TO DAY.
7 YOU HAVE TESTIFIED TO THAT, RIGHT, SIR?
8 A. SURE.
9 Q. IT WAS HIS BELIEF THAT MICROSOFT'S PERCEPTION WSA THAT
10 IBM WAS OUT TO ANIHILATE MICROSOFT, CORRECT?
11 A. THE DOCUMENT SAYS MICROSOFT BELIEVES THAT IBM IS OUT TO
12 ANNIHILATE MICROSOFT. IT DOENS'T SAY DEAN BELIEVES THAT.
13 Q. DEAN BELIEVED THAT WAS MICROSOFT'S PERCEPTION, CORRECT?
14 A. I CAN'T ATTEST TO THAT.
15 Q. HE WROTE THAT IN THE DOCUMENT, "MICROSOFT BELIEVES THAT
16 IBM IS OUT TO ANNIHILATE MICROSOFT, AND THIS PERCEPTION HAS
17 MADE ANY COOPERATIONS ALMOST IMPOSSIBLE." ARE YOU SAYING
18 THAT THIS DOES NOT INDICATE THAT HE AT LESAT THOUGHT THAT
19 WAS MICROSOFT'S PERCEPTION?
20 A. IT DOESN'T SAY THAT, COUNSELOR.
21 Q. OKAY. WELL, YOUR TESTIMONY IS WHAT IT IS.
22 MR. MALONE: YOUR HONOR, FOR THE SAKE OF
23 COMIPLETENESS UNDER RULE 106, I WOULD ASK THAT COUNSEL READ
24 THE IMMEDIATELY FOLLOWING TWO PARAGRAPHS OF THE DOCUMENT
25 INTO THE RECORD IMMEDIATELY AFTER HE WAS READNIG ON PAGE
24
1 BATES NUMBER 92562.
2 MR. PEPPERMAN: HAPPY TO READ IT, YOUR HONOR.
3 THE COURT: OKAY.
4 BY MR. PEPPERMAN:
5 Q. "IBM IS CURRENTLY BEING HELD AT ARM'S LENGTH FROM
6 MICROSOFT. IBM IS NOT ALLWOED TO PARTICIPATE IN ANY FUTURE
7 DEVELOPMENT ACTIVITIES. IBM HAS NO VISIBILITY TO MICROSOFT
8 FUTURE STRATEGIES. MICROSOFT CONTROLS ALL ACCESS TO
9 MICROSOFT CONFDIENTIAL INFORMATION, A PROCESS THAT IMPACTS
10 IBM'S ABILLITY TO COMPETE. IBM PAYS TOO MUCH FOR
11 MICROSOFT'S PRODUCTS. MICROSOFT HAS STRUCTURED ITS REALITY
12 PLANS SUCH THAT CUSTOMERS THAT OPENLY PROMOTE MICROSOFT'S
13 PRODUCTS OBTAIN THOSE PRODUCTS AT A MUCH MORECOMPETITIVE
14 RATE. THIS IS CURRENTLY DONE VIA PARTICIPATION,
15 PARTNERSHIPJS AND METHODS SUCH AS MARKET DEVELOPMENT
16 AGREEMENTS OR MDA'S CUSTOMERS THAT ASSIST MICROSOFT IN
17 MAKING NEW MARKETS REAP THE MOST AWARDS."
18 NOW, RETURNING, MR. NORRIS, TO THE PARAGARPH THAT
19 I AM FOCUSSING ON, WHICH READS, "MICROSOFT BELIEVS THAT IBM
20 IS OUT TO ANNIHILKATE MICROSOFT, AND THIS PERCEPTION
21 (REALITY) HAS MADE ANY COOPERTAION ALMOST IMPOSSIBLE," WHOSE
22 PERCEPTION WAS IT THAT IBM WAS OUT TO ANNIHILATE MICROSOFT?
23 THEY SAID IT WASN'T MR. DUBINSKY'S. IT WASN'T MICROSOFT'S.
24 WHOSE WAS IT?
25 A. I DIDN'T SAY THAT.
25
1 Q. WELL, I ASKED YOU WHETHER MR. DUBINSKY WAS REPORTING
2 THAT MICROSOFT HAD THAT PERCEPTION, AND YOU SAID NO.
3 A. COUNSELOR, THAT'S NOT WHAT'S IN THE RECORD.
4 CAN WE HAVE READ BACK WHAT I SAID?
5 Q. WELL, WHOSE PERCEPTION WAS IT, SIR? THE RECORD WILL
6 SAY WAHT IT SAYS. WHOSE PERCEPTION WAS IT THAT IBM WAS OUT
7 TO ANNIHILATE MICROSOFT?
8 A. I'LL READ IT FOR YOU. "MICROSOFT BELIEVES THAT IBM IS
9 OUT TO ANNIHILATE MICROSOFT, AND THIS PERCEPTION (REALITY)
10 HAS MADE ANY COOPERATION ALMOST IMPOSSIBLE."
11 Q. WHAT'S THE PRECEPTION REFERRED TO THERE?
12 A. I DWON'T KNOW.
13 Q. YOU DON'T KNOW WHAT THE PERCEPTION IS REFERED TO THERE?
14 A. I DON'T KNOW.
15 Q. WHEN MR. MALONE WAS GOING THROUGH DOCUMENTS WITH YOU
16 AND ASKING YOU ABOUT YORU UNDERSTANDING OF WHAT MR. DUBINSKY
17 AND OTHERS WROTE, YOU SEEMED TO HAVE NO TROUBLE PROVIDING AN
18 UNDERSTANDING THEN, RIGHT?
19 A. HE DIDN'T SHOW ME THIS DOCUMENT, COUNSELOR.
20 Q. AND IT'S YORU TESTIMONY HERE IN THIS COURT THAT YOU
21 HAVE NO IDEA WHAT THE PERCEPTION IS REFERRED TO IN THAT
22 SENTENCE?
23 A. IF YOU WANT ME TOTAKE A GUESS, MY GUESS IS THAT IT'S
24 MICROSOFT'S PERCEPTION, IF THAT'S WHAT YOU'RE ASKING.
25 Q. WELL, SIR, I AM ASKING YOU AS A RECIPIENT OF HTIS E-
26
1 MAIL, 1995, AS MR. DUBINSKY'S IMMEDIATE SUPERIOR, AS THE
2 PERSON THAT YOU ARE SENDING IN THERE EVERY DAY TO BE THE
3 DAY-TO-DAY MANAGER OF MICROSOFT, WHAT YOU THINK--WHOSE
4 PERCEPTION YOU THINK THAT WAS AND WHAT PERCEPTION IT WAS.
5 A. I THINK IT'S MICROSOFT'S PERCEPTION.
6 Q. ANBD MICROSOFT'S PERCEPTION THNAT IBM WAS OUT TO
7 ANNIHILATE MICROSOFT?
8 A. YES.
9 Q. AND THAT PERCEPTION WAS MAKING COOPERATION BETWEEN THE
10 TWO COMPANIES DIFFICULT, CORRECT?
11 A. NO. THAT PERCPETION--IF YOU'D LIKE ME TO ANSWER IT,
12 I'LL ANSWER IT THIS WAY. THAT PERCEPTION THAT IBM WAS OUT
13 TO--USING THE MICROSOFT'S WORDS--OUT TO ANNIHLATE, AND THIS
14 PERCEPTION HAS MADE ANY COOPERATION ALMOST IMPOSSIBLE,
15 ANNIHILATE THEM HOW? BY COMPETING?
16 Q. MY QUESTION WAS: WAS THIS PERCEPTION MAKING
17 COOPERATION BETWEEN THE COMAPNOIES DIFFICULT?
18 MR. DUBINSKY SAID IT MADE IT ALMOST IMPOSSIBLE.
19 MR. MALONE: OBJECTION, YOUR HONOR. THE DOCUMENT
20 SAYS MR. DUBINSKY REPORTS WHAT MICROSOFT SAID, NOT WHAT HE'S
21 SAYING HIMSELF.
22 THE COURT: THE DOCUMENT SPEAKS FOR ITSELF. IT
23 PURPORTEDLY WAS WRITTEN BY MR. DUBINSKY, WASN'T IT?
24 MR. PEPPERMAN: IT WAS, WRITTEN BY MR. DUBINSKY
25 AND SENT TO MR. NORROW.
27
1 THE COURT: ALL RIGHT. HE CAN'T READ EITHER MR.
2 DUBINSKY'S OR MICROSOFT'S MIND.
3 MR. PEPPERMAN: I WAS JUST ASKINKG FOR HIS
4 UNDERSTANDING, YOUR HONOR. I THINK I HAVE EXHAUSTED IT.
5 THE COURT: IT SAYS WHAT IT SAYS, AND I THINK YOU
6 HAVE EXHAUSTED THAT LINE OF INQUIRY.
7 BY MR. PEPPERMAN:
8 Q. LET'S TURN NOW TO THE 1996 WINDOWS DESKTOP FAMILY
9 AGREEMENT.
10 YOU TESTIFIED ON MONDAY THAT MICROSOFT AND IBM
11 BEGAN NEGOTIATING THE WINDOWS DESKTOP FAMILY AGREEMENT IN
12 APRIL 1996, CORRECT?
13 A. YES. WE RECEIVED AN MDA IN FEBRUARY. WE SIGNED IT IN
14 APRIL, AND I THINK WE RECEIVED THE FAMILY LICENSE AGREEMENT,
15 FIRST DRAFT, IN 1996, APRIL.
16 Q. IN APRIL OF 1996, THAT IS TO THE BEST OF YOUR
17 RECOLLECTION WHEN YO8U RECEIVED FROM MICROSOFT THE FIRST
18 DRAFT OF THE WINDOWS DESKTOP FAMILY AGREEMENT?
19 A. YES. I BELIEVE IT WAS SOMETIME AROUND--APRIL 16TH
20 SEEMS TO RING A BELL FOR SOME REASON.
21 Q. AND MICROSOFT AND IBM ULTIMATELY SIGNED THE WINDOWS
22 DESKTOP FAMILY AGREMEENT IN MID-AUGUST OF 1996, COIRRECT?
23 A. SOMEHOW AUGUST 16TH RINGS A DATE AS WELL.
24 Q. AS ITS NAME SUGGESTS, THE WINDOWS DESKTOP FAMILY
25 AGREEMENT COVERED A NUMBER OF PRODUCTS, CORRECT, INCLUDING
28
1 WINDOWS 95, WINDOWS NT WORKSTATION, WINDOWS 3X, WINDOWS FOR
2 WORKS GROUP, AND MS-DOS, RIGHT?
3 A. AND THE DOS TOOLS.
4 Q. AND THE DOS TOOLS, THAT WHOLE FAMILY OF PRODUCTS.
5 NOW, IT'S TRUE, ISN'T IT, THAT IBM ORIGINALLY
6 PROPOSED TO MICROSOFT A COMBINATION LICENSE COVERING ALL OF
7 MICROSOFT'S OPERATIONG SYSTEMS, DIDN'T IT?
8 A. NO, WE DID NOT.
9 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
10 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2647. IT IS A
11 TWO-PAGED DOCUMENT CONSISTING OF SEVEARL INTERNAL IBM E-
12 MAILS.
13 (DEFENDANT'S EXHIBIT NO. 2647
14 WAS MARKED FOR
15 IDENTIFICATION.)
16 MR. MALONE: NO OBJECTION.
17 THE COURT: DEFENDANT'S 2647 IS ADMITTED.
18 (DEFENDANT'S EXHIBIT NO. 2647
19 WAS ADMITTED IN EVIDENCE.)
20 (WITNESS PERUSING DOCUMENT.)
21 THE WITNESS: OKAY.
22 BY MR. PEPPERMAN:
23 Q. IF YOU COULD START, SIR, BY LOOKING AT THE E-MAIL ON
24 THE BOTTOM OF THE FIRST PAGE WHICH CARRIES OVER TO THE
25 SECOND. ALL OF THE TEXT IS ACTUALLY ON THE SECOND PAGE.
29
1 AND THAT'S THE FIRST E-MAIL CHRONOLOGICALLY IN THIS CHAIN,
2 IS THAT CORRECT?
3 A. YES, THAT'S CORRECT.
4 Q. AND IT'S AN E-MAIL FROM JANE JOKL TO TONY SANTELLI, IS
5 THAT CORRECT?
6 A. YES.
7 Q. AND THE E-MAIL IS DATED FEBRUARY 14, 1996, IS THAT
8 CORRECT?
9 A. THAT'S CORRECT.
10 Q. AND WAS MS. JOKL A PROGRAM DIRECTOR IN THE IBM PC
11 COMPANY AT THE TIME?
12 A. WELL, COST MANAGEMENT.
13 Q. OKAY.
14 AND MR. SANTELLI WAS YOUR BOSS' BOSS AT THE TIME, IS
15 THAT CORRECT?
16 A. THAT'S CORRECT.
17 Q. NOW, MS. JOKL'S E-MAIL STATES: "I'VE BEEN LOOKING AT
18 THE COMPLEXITY OF OUR SOFTWARE PLANS, VERSUS WHERE IT
19 APPEARS THE INDUSTRY IS HEADED. I AM CONCERNED THAT WE WILL
20 NOT BE IN A COMPETITIVE POSITION FROM THE VIEW OF THE
21 CUSTOMER OR FROM THE PERSPECTIVE OF RUNNING THE BUSINESS. I
22 WOULD LIKE TO MAKE THE FOLLOWING PROPOSAL: WHY COULDN'T WE
23 IMPLEMENT AN ACROSS-THE-BOARD MICROSOFT LICENSE FOR ALL
24 PRODUCTS: CDT, MOBILE AND CONSUMER? IN THAT LICENSE WOULD
25 BE WIN95, NT WORKSTATION AND WINDOWS. THIS KIND OF
30
1 COMBINATION LICENSING SEEMS TO BE WHAT THE INDUSTRY,
2 MICROSOFT ARE HEADING TOWARDS FOR THE FUTURE AS MICROSOFT
3 ENCOURAGES THE MOVE TO THE 32 BIT OS. THIS GIVES CUSTOMERS
4 FLEXIBILITY AND HELPS ACCOMMODATE OPERATING SYSTEM DIVERSITY
5 AND EVOLVING CHOICE ACROSS SMALL, MEDIUM AND LARGE
6 BUSINESSES."
7 AND THE E-MAIL CONTINUES ON FOR A COUPLE OF
8 SENTENCES.
9 DO YOU RECALL MS. JOKL SUGGESTING IN FEBRUARY OF
10 1996 THAT IBM PURSUE WHAT SHE REFERS TO HERE AS A
11 COMBINATION LICENSE COVERING WINDOWS 95, WINDOWS NT
12 WORKSTATION AND WINDOWS 3.X?
13 A. YES, I DO.
14 Q. AND MR. SANTELLI ON THE FIRST PAGE FORWARDED MS. JOKL'S
15 E-MAIL TO OZZIE OSBORNE, IS THAT CORRECT?
16 A. THAT'S CORRECT.
17 Q. AND MR. OSBORNE WAS YOUR BOSS AT THE TIME, IS THAT
18 CORRECT?
19 A. THAT'S CORRECT.
20 Q. AND MR. SANTELLI WROTE IN THIS E-MAIL: "THIS IS THE
21 PER SYSTEM SCHEME THAT WE HAVE DISCUSSED. ALSO, WHERE IS MS
22 ON A COMBO LICENSE FOR WINNT/WIN95? JANE, THANKS FOR YOUR
23 CREATIVE INPUT ON THIS. WE'LL PUSH IT."
24 DO YOU SEE THAT?
25 A. YES, I DO. I'M AFRAID TONY, I HATE TO CONTRADICT MY
31
1 BOSS, WAS A LITTLE MISTAKEN IN THE NOTE THAT HE SENT. THE
2 PER SYSTEM SCHEME TONY WAS REFERRING TO WAS THE DESIGNATION
3 OF PER SYSTEM DESIGNATIONS, WHETHER YOU SHIP A LICENSE OR
4 NOT WITH A MICROSOFT OPERATING--WHETHER YOU SHIP A SYSTEM
5 WITH THE MICROSOFT OPERATING SYSTEM OR NOT.
6 ON THE WHERE IS MICROSOFT ON A COMBO LICENSE FOR
7 WINNT/WIN95, THAT WAS THE FIRST TIME I HAD SEEN THAT.
8 Q. WELL, MR. SANTELLI SEEMED TO THINK THAT MS. JOKL'S
9 IDEAS REGARDING A COMBO LICENSE WERE GOOD IDEAS. HE WRITES,
10 "JANE, THANKS FOR YOUR CREATIVE INPUT ON THIS. WE'LL PUSH
11 IT."
12 A. IT DOES APPEAR THAT WAY, YES.
13 Q. AND HE FORWARDS THE E-MAIL TO MR. OSBORNE, IS THAT
14 CORRECT?
15 A. THAT'S CORRECT.
16 Q. AND THIS IS FORWARDED TO YOU WHICH SAYS: "I BELIEVE
17 THIS IS YOUR 'TO DO'. PLEASE, SEND OZZIE/TONY A STATUS."
18 CORRECT?
19 A. CORRECT.
20 Q. AND THAT IS MR. OSBORNE'S ADMINISTRATIVE ASSISTANT
21 FORWARDING IT TO YOU?
22 A. YES.
23 Q. AND THEN A COUPLE OF DAYS LATER SHE SAYS, STATUS,
24 PLEASE, IS THAT CORRECT?
25 A. THAT'S CORRECT.
32
1 Q. AND YOU SAY, WORKING ON PER OUR DISCUSSIONS, CORRECT?
2 A. NO. WORKING PER OUR DISCUSSION.
3 Q. YOU NEVER SAY ANYWHERE ABOUT, I DON'T KNOW WHAT TONY'S
4 TALKING ABOUT, ABOUT THE COMBO LICENSE, DO YOU?
5 A. I DON'T HAVE TO BE THAT EXPLICIT IN THE E-MAIL OTHER
6 THAN SAYING, WORKING PER OUR DISCUSSION.
7 Q. WELL, MR. SANTELLI, YOUR BOSS' BOSS, HAS SAID THAT HE
8 LIKED THE IDEA OF A COMBO LICENSE AND THAT IBM WILL PUSH IT,
9 IS THAT CORRECT?
10 A. I DON'T KNOW THAT HE--HE DOESN'T SAY HE LIKES IT. HE
11 SAYS, WE'LL PUSH IT.
12 Q. AND THIS IS FORWARDED TO YOU AS YOUR "TO DO", RIGHT?
13 A. YES, IT IS.
14 Q. AND YOU DON'T RESPOND BACK: I DON'T KNOW WHAT MR.
15 SANTELLI'S TALKING ABOUT, ABOUT A COMBINATION LICENSE?"
16 A. I DON'T SEE A RESPONSE TO TONY ON THIS E-MAIL.
17 Q. WELL, YOU SAY, WORKING PER OUR DISCUSSION, RIGHT?
18 A. YES.
19 Q. YOU WERE WORKING ON THE COMBINATION LICENSE?
20 A. NO.
21 AND SINCE YOU'VE ASKED, LET ME TELL YOU WHAT I WAS
22 WORKING ON. I PRESENTED TO MICROSOFT A PROPOSAL FOR US TO
23 DO A VOLUME OF ALL OF OUR SYSTEMS THAT WE SHIPPED AND GET A
24 LOWER PRICE ON ALL THE VOLUMES. WE NEVER ASKED FOR A
25 LICENSE FOR ALL OF THE PRODUCTS IN A SINGLE LICENSE. WHAT
33
1 WE ASKED FOR WAS WE WANTED TO COMBINE THE VOLUMES OF WINDOWS
2 95, COMBINE THE VOLUMES FOR WINDOWS NT, COMBINE THE VOLUMES
3 OF WINDOWS FOR WORK GROUP, COMBINE THE VOLUMES FOR WINDOWS
4 3.11, AND THE VOLUMES FOR MS DOS AND GET A LOWER PRICE
5 OVERALL.
6 WE NEVER ASKED FOR A WINDOWS DESKTOP FAMILY DRAFT
7 AGREEMENT THAT REQUIRED US TO SIGN OR NOT GET A LICENSE FOR
8 WINDOWS NT 4.0, THAT REQUIRED US TO SIGN OR NOT GET A MARKET
9 DEVELOPMENT AGREEMENT WORTH $75 MILLION, THAT REQUIRED US TO
10 SIGN A LICENSE THAT RAISED THE PRICE OF WINDOWS 3.11 FROM $9
11 TO $62, WE DIDN'T ASK FOR THAT.
12 Q. WELL, SIR, YOUR BOSS' BOSS HAD SAID TO YOUR BOSS THAT
13 HE THOUGHT THAT IBM SHOULD PUSH THE COMBINATION LICENSE.
14 AND YOUR BOSS THEN SAID, THAT WAS YOUR "TO DO". AND YOUR
15 TESTIMONY IS YOU DIDN'T DO ANYTHING ABOUT IT. YOU IGNORED
16 WHAT YOUR BOSS AND YOUR BOSS' BOSS HAD SAID?
17 A. YES.
18 Q. I BELIEVE YOU MAY HAVE TOUCHED ON THIS. AT THE TIME,
19 IN FEBRUARY OF 1996, IBM ENJOYED THE LOWEST ROYALTIES IN THE
20 INDUSTRY FOR WINDOWS 3.1, IS THAT CORRECT?
21 A. YES, WE DID.
22 Q. AND IBM AT THAT TIME WAS TRYING TO FIND A WAY TO USE
23 ITS CURRENT LOW WINDOWS 3.1 ROYALTIES AS AN INCENTIVE FOR
24 MICROSOFT TO REDUCE IBM'S ROYALTY ON WINDOWS 95 AND WINDOWS
25 NT, IS THAT CORRECT?
34
1 A. THAT IS INCORRECT.
2 WE DID NOT DETERMINE THAT WE NEEDED TO USE THE
3 WINDOWS 3.11 LICENSE AS LEVERAGE OR AS AN INCENTIVE UNTIL
4 MICROSOFT IMPOSED THE DESKTOP FAMILY AGREEMENT UPON US AND
5 THEY TOLD US THAT THE STARTING PRICES FOR DOS WAS GOING TO
6 INCREASE FROM $9 TO $62. AND THAT IF WE DIDN'T SIGN A
7 DESKTOP FAMILY AGREEMENT WE WOULD NOT GET A LICENSE FOR
8 WINDOWS NT 4.0 BECAUSE THERE WAS NO OTHER VEHICLE TO DO IT.
9 AND WE WOULD LOSE THE MARKET DEVELOPMENT AGREEMENT
10 WITH $75 MILLION TO IBM.
11 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
12 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT NO. 2648.
13 IT'S AN E-MAIL FROM TONY SANTELLI TO OZZIE OSBORNE DATED
14 APRIL 9, 1996.
15 (DEFENDANT'S EXHIBIT NO. 2648
16 WAS MARKED FOR
17 IDENTIFICATION.)
18 (DOCUMENT HANDED TO THE WITNESS.)
19 MR. MALONE: NO OBJECTION.
20 THE COURT: ALL RIGHT, DEFENDANT'S EXHIBIT NO.
21 2648 IS ADMITTED.
22 (DEFENDANT'S EXHIBIT NO. 2648
23 WAS ADMITTED INTO EVIDENCE.)
24 (WITNESS IS PERUSING DOCUMENT.)
25 THE WITNESS: OKAY.
35
1 BY MR. PEPPERMAN:
2 Q. NOW, SIR, THIS IS AN E-MAIL FROM MR. SANTELLI TO MR.
3 OSBORNE, IS THAT CORRECT?
4 A. YES, DATED APRIL 9, 1996.
5 Q. AND THAT IS 7 DAYS BEFORE YOU RECEIVED A DRAFT OF THE
6 WINDOWS DESKTOP FAMILY AGREEMENT, IS THAT CORRECT?
7 A. YES, THAT'S CORRECT.
8 Q. AND THE E-MAIL READS: "OZZIE, WE NEED TO FIND A WAY TO
9 LEVERAGE OUR CURRENT WIN3.11 ROYALTIES AS AN INCENTIVE TO
10 REDUCE WIN95 NT ROYALTIES."
11 DO YOU SEE THAT?
12 A. I DO.
13 Q. AND THIS E-MAIL IS FORWARDED TO YOU BY MR. OSBORNE?
14 A. I DON'T SEE THE E-MAIL CONTENT BUT I SEE GARY, 4/9 IN
15 HANDWRITTEN NOTES, SEE ME ON THIS.
16 Q. HANDWRITTEN NOTE, SEE ME ON THIS, ASAP, TODAY?
17 A. THAT'S WHAT THE--THE TODAY IS SCRATCHED OUT BUT, YES,
18 THAT'S WHAT I SEE.
19 Q. DID YOU SEE MR. OSBORNE ABOUT THIS?
20 A. I DO RECALL DISCUSSING THIS WITH OZZIE.
21 Q. AND IBM SOUGHT TO FIND A WAY TO LEVERAGE ITS CURRENT
22 WINDOWS 3.11 ROYALTIES AS AN INCENTIVE TO REDUCE ITS WIN95
23 WINDOWS NT ROYALTIES?
24 A. NOT AT THAT TIME.
25 Q. SO, ONCE AGAIN, YOUR BOSS' BOSS HAD SENT A DIRECTIVE TO
36
1 YOUR BOSS AND YOUR BOSS HAD SAID, COME SEE ME ABOUT THIS AS
2 SOON AS POSSIBLE AND YOU DID NOT PURSUE THAT, IS THAT
3 CORRECT?
4 WHEN YOU THOUGHT THAT YOUR BOSS' BOSS AND YOUR
5 BOSS WERE WRONG AND YOU DIDN'T DO ANYTHING ABOUT IT.
6 A. I DIDN'T SAY THAT.
7 Q. BUT DID YOU DO WHAT YOUR BOSS' BOSS SAID AND BOSS HAD
8 SAID?
9 A. NO.
10 Q. OKAY.
11 A. AND THANK YOU FOR ASKING BUT WE WERE ACTUALLY, HAD
12 ACTUALLY BEGUN TO RECEIVE VERBALLY OR ORALLY FROM THE
13 MICROSOFT TEAM THAT THEY WERE LOOKING AT GIVING IBM THIS NEW
14 AGREEMENT CALLED THE WINDOWS DESKTOP FAMILY AGREEMENT.
15 WHILE WE HAD NOT RECEIVED A HARD COPY YET THEY HAD BEGUN TO
16 DISCUSS IT. MY STRATEGY, WHICH WAS PRETTY WELL RESPECTED BY
17 MY SUPERIORS, WAS TO WAIT UNTIL WE RECEIVED THE LICENSE
18 AGREEMENT AND LET'S UNDERSTAND WHAT THE LICENSE AGREEMENT
19 REQUIRED BEFORE WE DECIDED EXACTLY WHAT LEVERAGE WE HAD AND
20 WHAT LEVERAGE WE DIDN'T. IT WAS THAT SIMPLE.
21 Q. WELL, AT THE TIME IBM REALIZED THAT MICROSOFT WANTED
22 IBM TO MOVE FROM WINDOWS 3.11, IS THAT CORRECT?
23 A. YES. NOT ONLY THAT, THEY WERE PUSHING US VERY HARD TO
24 MOVE AWAY FROM WINDOWS 3.11.
25 Q. AND IBM SAW VALUE IN THAT, CORRECT?
37
1 A. THE ONLY REASON--YES. WE SAW VALUE AND THE ONLY REASON
2 WE SAW VALUE IS BECAUSE WE HAD NO PLACE TO GO. WE KNEW THAT
3 MICROSOFT SAID WE WANT 3.11 OUT OF THE MARKET, YOU'RE NOT
4 GOING TO GET A WINDOWS NT 4.0 LICENSE UNLESS YOU SIGN THE
5 WINDOWS DESKTOP FAMILY.
6 WE HAD NOWHERE TO GO.
7 Q. AND THE VALUE THAT IBM SAW IN THIS WAS THAT IT COULD
8 USE ITS LOWEST IN THE INDUSTRY WINDOWS 3.11 ROYALTY TO GET
9 ROYALTY DEDUCTIONS ON HIGHER PRICED PRODUCTS SUCH AS WINDOWS
10 NT WORKSTATION AND WINDOWS 95, IS THAT CORRECT?
11 A. YES. THE REASON, AGAIN, THAT WE SAW VALUE IN THAT IS
12 BECAUSE MICROSOFT'S FAMILY LICENSE AGREEMENT REQUIRED US TO
13 SIGN IT IN ORDER TO GET AN NT 4.0 LICENSE AND GIVE UP THE
14 MDA REDUCTIONS WORTH SOME $75 MILLION TO IBM.
15 AND ONE OTHER THING I HADN'T MENTIONED, COUNSELOR.
16 WE HAD AN AGREEMENT SIGNED BY IBM AND MICROSOFT THAT DIDN'T
17 EXPIRE UNTIL SEPTEMBER OF 1997 FOR $9 FOR EVERY WINDOWS 3.11
18 LICENSE WE SHIPPED AND MICROSOFT FORCED US TO GIVE THAT UP.
19 Q. WELL, SIR, IBM WAS SUCCESSFUL IN ITS STRATEGY, WASN'T
20 IT? IT WAS ABLE TO REDUCE SIGNIFICANTLY ITS ROYALTIES ON
21 WINDOWS NT WORKSTATION BY ENTERING INTO THE WINDOWS DESKTOP
22 FAMILY AGREEMENT, IS THAT CORRECT?
23 A. I DON'T--IT DEPENDS ON WHAT YOU DEFINE TO BE
24 SIGNIFICANT.
25 Q. WELL, CAN YOU TAKE A LOOK AT DEFENDANT'S EXHIBIT NO.
38
1 2624?
2 A. DO I HAVE THAT ONE ALREADY?
3 Q. YES, I THINK IT'S ALREADY IN EVIDENCE.
4 A. THAT IS 2624?
5 Q. YES, SIR.
6 A. WHAT IS THE SUBJECT OF THAT ONE?A
7 Q. IT'S THE PARTICULAR--
8 THE COURT: IT'S THE MICROSOFT REVIEW AGENDA.
9 THE WITNESS: OH, OKAY, THANK YOU.
10 OKAY, I HAVE IT.
11 BY MR. PEPPERMAN:
12 Q. THE PAGE IS BATES NUMBER 16313, AND IT'S THE THIRD
13 PAGE, SIR.
14 A. OKAY.
15 THE COURT: 313?
16 MR. PEPPERMAN: YES, YOUR HONOR, 16313.
17 THE WITNESS: OKAY.
18 BY MR. PEPPERMAN:
19 Q. THE THIRD BULLET THERE WHICH READS, "COMBINED VOLUMES
20 OF ALL PRODUCTS TO REDUCE ROYALTIES SIGNIFICANTLY ON A
21 HIGHER COST PRODUCT WINDOWS NT."
22 A. HMM-HMM.
23 Q. WAS THAT IBM'S GOAL IN NEGOTIATING THE WINDOWS DESKTOP
24 FAMILY AGREEMENT?
25 A. COUNSELOR, I THINK YOU SHOULD READ THE CHART IN ITS
39
1 ENTIRETY. BUT THE ANSWER IS, NO.
2 Q. ANSWER MY QUESTION YES OR NO. WAS THAT ONE OF IBM'S
3 GOALS IN NEGOTIATING THE WINDOWS DESKTOP FAMILY AGREEMENT?
4 A. NO. NOW, IF I MAY PUT IT INTO CONTEXT. THIS
5 PRESENTATION TO SAM PALMISANO, YOUR HONOR, WAS FOR US TO
6 REVIEW WITH HIM THE WINDOWS DESKTOP FAMILY AGREEMENT AND THE
7 MICROSOFT RELATIONSHIP. AT THE TOP IT READS, WINDOWS
8 DESKTOP FAMILY LICENSE AGREEMENT OVERVIEW. THIRD BULLET:
9 COMBINE VOLUMES OF ALL PRODUCTS TO REDUCE ROYALTIES
10 SIGNIFICANTLY ON A HIGHER COST PRODUCT, WIN NT. THAT WAS
11 OUR ASSESSMENT OF THE DRAFT WE RECEIVED FROM MICROSOFT OF
12 WHAT THEY WANTED TO ACCOMPLISH.
13 Q. THAT WAS NOT YOUR STRATEGY?
14 A. THAT CHART DOESN'T READ STRATEGY. IT SAYS, FAMILY
15 LICENSE AGREEMENT OVERVIEW.
16 Q. WELL, WE SAW AN E-MAIL FROM MR. SANTELLI, YOUR BOSS, TO
17 YOUR BOSS' BOSS TO YOUR BOSS TALKING ABOUT IBM NEEDING TO
18 FIND A WAY TO LEVERAGE OUR CURRENT WINDOWS 3.11 ROYALTIES AS
19 AN INCENTIVE TO REDUCE WINDOWS 95 NT ROYALTIES. AND IT WAS
20 NOT IBM'S STRATEGY TO TRY TO USE ITS LOWER WINDOWS 3.11
21 ROYALTIES TO SIGNIFICANTLY REDUCE ROYALTIES ON WINDOWS NT
22 WORKSTATION.
23 ARE YOU SAYING THAT WAS NOT IBM'S STRATEGY?
24 A. YOU ASKED ME ABOUT A QUESTION ON THIS CHART AND I
25 RESPONDED. THAT THIS CHART READS: WINDOWS DESKTOP FAMILY
40
1 LICENSE AGREEMENT OVERVIEW, AND WHAT WE WERE DOING WAS
2 REPORTING FROM THE DRAFT TO THE AGREEMENT.
3 Q. NOW, WOULD YOU CONSIDER A REDUCTION OF 40 PERCENT TO BE
4 SIGNIFICANT?
5 A. THAT SOUNDS LIKE A SIGNIFICANT REDUCTION, YES.
6 Q. OKAY.
7 MR. PEPPERMAN: CAN WE PUT UP ON THE SCREEN AND
8 HAND TO THE WITNESS A COPY OF GOVERNMENT EXHIBIT NO. 2186?
9 THE WITNESS: THANK YOU.
10 (WITNESS PERUSING DOCUMENT.)
11 BY MR. PEPPERMAN:
12 Q. NOW, SIR, THIS IS THE SUMMARY OF THE WINDOWS DESKTOP
13 FAMILY AGREEMENT THAT YOU PREPARED?
14 A. YES.
15 Q. AND UP AT THE TOP OF THE DOCUMENT IS A SUMMARY OF
16 ROYALTIES?
17 A. HMM-HMM. YES.
18 Q. AND IT INDICATES THAT PRIOR TO ENTERING INTO THE
19 WINDOWS DESKTOP FAMILY AGREEMENT, IBM WAS PAYING MICROSOFT A
20 ROYALTY OF $195 FOR WINDOWS NT WORKSTATION?
21 A. YES, IT DOES.
22 Q. AND IBM WAS ABLE TO REDUCE ITS ROYALTY BY ENTERING INTO
23 THE WINDOWS DESKTOP FAMILY AGREEMENT FOR WINDOWS NT
24 WORKSTATION FROM $195 TO $127, IS THAT CORRECT?
25 Q. YES. NOW, MAY I PUT THAT IN CONTEXT?
41
1 THE $195 PRICE WAS FOR WINDOWS 3.51, A PRODUCT
2 THAT WE WERE NOT SHIPPING ON ANY DESIGNATED SYSTEMS AND IT
3 WAS A PER COPY PRICE, WITH NO VOLUME COMMITMENT.
4 THE PRICE THAT YOU REDUCED IT TO FOR THE 351 WENT
5 TO $147.75. THE $127 PRICE THAT YOU SEE HERE IS FOR THE
6 COST OF WINDOWS NT 4.0, FOR WHICH WE HAD TO SIGN THE FAMILY
7 LICENSE AGREEMENT IN ORDER TO GET THAT PRICE.
8 AND EVEN THAT PRICE, BASED ON THE STUDIES THAT WE
9 DID, WAS NON-COMPETITIVE WITH THE $80 PRICE THAT WE HAD
10 REQUESTED FROM MICROSOFT.
11 Q. SIR, YOU WERE PAYING, PRIOR TO ENTERING INTO THE
12 WINDOWS DESKTOP FAMILY AGREEMENT, $195 FOR WINDOWS NT 3.51,
13 IS THAT CORRECT?
14 A. THAT IS CORRECT.
15 Q. BY ENTERING INTO THE WINDOWS DESKTOP FAMILY AGREEMENT,
16 YOU WERE ABLE TO GET WINDOWS NT WORKSTATION 4.0, A
17 SUBSEQUENT VERSION OF MICROSOFT'S OPERATING SYSTEM SOFTWARE
18 FOR $127, IS THAT CORRECT?
19 A. THAT IS CORRECT AND I WILL EXPLAIN AGAIN, THAT EVEN
20 THAT WAS APPROXIMATELY 40 TO 50 PERCENT HIGHER THAN WHAT WE
21 BELIEVED OUR COMPETITORS WERE PAYING AND THAT WE HAD
22 REQUESTED FROM MICROSOFT. AND WE LOCKED INTO THAT PRICE
23 BECAUSE MICROSOFT SAID, UNLESS YOU SIGN THE FAMILY
24 AGREEMENT, YOU GET NO LICENSE FOR WINDOWS NT 4.0.
25 Q. SO, WHICH COMPETITORS WERE PAYING $80 FOR WINDOWS NT
42
1 WORKSTATION 4.0 AT THE TIME?
2 A. WE HAD A NUMBER OF SOURCES OF INFORMATION THAT TOLD US
3 THAT COMPETITORS SUCH AS COMPAQ, DEC AND HP WERE PAYING LESS
4 FOR WINDOWS NT THAN WE WERE. AND IT WAS SOMEWHERE AROUND
5 THE $80 RANGE.
6 Q. AND IS IT YOUR TESTIMONY--
7 A. MAY I FINISH?
8 Q. SURE.
9 A. ONE OF THE DOCUMENTS THAT YOU'VE CULLED OUT,
10 DEFENDANT'S EXHIBIT NO. 2624, ACTUALLY HAS SOME DATA IN
11 THERE ABOUT THE STUDIES THAT WE DID THAT SHOWED WHAT WE
12 THOUGHT OUR COMPETITORS WERE PAYING, WHICH IS WHY WE WERE
13 ASKING FOR THE $80 PRICE THAT WE DID.
14 AND THERE WERE OTHER DOCUMENTED AREAS THAT WE HAD
15 ASKED TO HAVE SIMILAR TREATMENT, NOT BETTER, BUT SIMILAR
16 TREATMENT SO THAT WE WOULD HAVE A LEVEL PLAYING FIELD WITH
17 OUR COMPETITORS.
18 Q. IS IT YOUR TESTIMONY THAT DEC AND HP PAID $80 A COPY
19 FOR WINDOWS NT WORKSTATION 4.0?
20 A. IT IS MY TESTIMONY THAT WE BELIEVED THAT OUR
21 COMPETITORS HAD PRICES SOMEWHERE IN THE $80 PRICE RANGE.
22 SOME WERE HIGHER, SOME WERE LOWER. WE DIDN'T KNOW EXACTLY.
23 BUT BASED ON THE CONSULTANT DATA THAT WE HAD, THE
24 CONSULTANTS THAT WE HAD HIRED AND THE DATA THAT WE RECEIVED
25 BACK, THAT IS WHAT WE BELIEVED, YES.
43
1 Q. WELL, TRY TO COVER THE BASICS AND SEE--WE HAVE GONE
2 THROUGH THIS AND YOU'VE GIVEN ME YOUR CONTEXT. BEFORE YOU
3 ENTERED INTO THE WINDOWS DESKTOP FAMILY AGREEMENT, YOUR
4 ROYALTY FOR WINDOWS 3.51 WAS $195, IS THAT CORRECT?
5 A. THAT'S CORRECT.
6 Q. AND BY ENTERING INTO THE WINDOWS DESKTOP FAMILY
7 AGREEMENT YOU RECEIVED WINDOWS NT WORKSTATION 4.0 FOR $127,
8 IS THAT CORRECT?
9 A. YES, THAT'S CORRECT.
10 Q. AND WITH THE MDA DISCOUNT, YOUR PRICE FOR WINDOWS NT
11 WORKSTATION 4.0, EFFECTIVE AUGUST 1, 1996, WAS $112.50, IS
12 THAT CORRECT?
13 A. THAT'S CORRECT.
14 Q. SO, IBM HAD REDUCED ITS ROYALTIES FOR WINDOWS NT BY 40
15 PERCENT, FROM $195 TO $112.50, IS THAT CORRECT?
16 A. INCORRECT.
17 Q. WELL, SIR, WILL YOU LOOK AT YOUR DEPOSITION, PLEASE?
18 IN PARTICULAR, PAGE 229, LINES 10 THROUGH 16?
19 A. COUNSELOR, WE ARE COMPARING APPLES AND ORANGES. THAT'S
20 ALL I'M TRYING TO PUT IN CONTEXT.
21 Q. LET'S JUST LOOK AT YOUR DEPOSITION TESTIMONY FIRST.
22 A. OKAY.
23 Q. I THINK THIS WAS A LOT SIMPLER ON MAY 27TH.
24 A. OKAY.
25 WHAT'S THE PAGE?
44
1 Q. PAGE 229, LINES 10 THROUGH 16.
2 A. OKAY.
3 THE COURT: I'M SORRY, WHAT WAS YOUR PAGE AGAIN?
4 MR. PEPPERMAN: I'M SORRY, YOUR HONOR, IT'S PAGE
5 229, LINES 10 THROUGH 16.
6 THE COURT: OKAY, THANK YOU.
7 THE WITNESS: OKAY.
8 I'VE READ IT.
9 BY MR. PEPPERMAN:
10 Q. DO YOU RECALL BEING ASKED THE FOLLOWING QUESTIONS AND
11 GIVING THE FOLLOWING ANSWERS:
12 "QUESTION: WELL, DIDN'T IBM, AS PART OF THE
13 WINDOWS DESKTOP FAMILY AGREEMENT, RECEIVE A REDUCTION IN ITS
14 WINDOWS NT ROYALTY OF APPROXIMATELY 40 PERCENT?
15 ANSWER: AS I RECALL THE COPY PRICE WAS $195, AND
16 IN FAMILY IT WOULD BE $127, SOMETHING LIKE THAT.
17 QUESTION: APPROXIMATELY 40 PERCENT?
18 ANSWER: YES."
19 IS THAT YOUR TESTIMONY ON MAY 27, 1997?
20 A. YES, IT WAS.
21 Q. AND IS THAT YOUR TESTIMONY TODAY?
22 A. NO, IT'S NOT POSSIBLE. OBVIOUSLY, I WENT BACK AND
23 CHECKED AND WHAT I FOUND WAS IN ORDER TO COMPARE APPLES AND
24 APPLES VERSUS APPLES AND ORANGES, IS THAT THE $195 THAT I
25 REFERRED TO ON MAY 27TH, WAS THE PRICE FOR WINDOWS 3.51 PER
45
1 COPY. AND THE $127 WAS THE PRICE FOR WINDOWS NT 4.0 PER
2 SYSTEM.
3 I WENT BACK AND THEN CHECKED THE AGREEMENTS AFTER
4 THE DEPOSITION AND DISCOVERED THAT I WAS INCORRECT. THE
5 PRICE FOR WINDOWS 3.51 WENT FROM $195 TO $147.75. AND SINCE
6 IT WAS A NEW VERSION WE HAD TO HAVE A NEW LICENSE AND THE
7 NEW LICENSE PRICE WOULD BE $127.
8 SO, IF YOU WANT TO COMPARE 3.51 TO 4.0 THAT WOULD
9 BE ACCURATE THAT THE PRICE WAS 40 PERCENT. SO, YES, IN THE
10 DEPOSITION IT WOULD. BUT TO BE PERFECTLY ACCURATE AND
11 COMPARE APPLES TO APPLES, THEN IT WOULDN'T BE.
12 MR. PEPPERMAN: CAN WE PUT GOVERNMENT'S EXHIBIT
13 NO. 2186 BACK UP ON THE SCREEN?
14 BY MR. PEPPERMAN:
15 Q. THIS IS THE SUMMARY THAT YOU PREPARED OF THE WINDOWS
16 DESKTOP FAMILY AGREEMENT AND IT SHOWS WINDOWS NT CLIENT,
17 CURRENT $195. EFFECTIVE AUGUST 1, 1996, $127 MINUS $14.50
18 EQUALS $112.50.
19 NOW, IS IT YOUR TESTIMONY TODAY THAT IBM DID NOT
20 RECEIVE A SIGNIFICANT REDUCTION IN ROYALTIES FOR WINDOWS NT
21 WORKSTATION BY ENTERING INTO THE WINDOWS DESKTOP FAMILY
22 AGREEMENT, IS THAT YOUR TESTIMONY?
23 A. NO. I'M NOT SAYING THAT. I JUST SIMPLY WANTED TO PUT
24 IN CONTEXT THE WINDOWS 3.51 VERSUS WINDOWS 4.0. THERE IS A
25 DIFFERENCE.
46
1 NOTHING ON THIS CHART SAYS ANYTHING ABOUT 3.51 AND
2 4.0. IT SIMPLY SHOWS FOR SIMPLIFICATION PURPOSES PRESENTING
3 TO SAM THAT OUR PRICE FOR WINDOWS NT CLIENT WENT FROM $195
4 TO $127, AND IN THE WORDS THAT GO AROUND THE CHART WHEN YOU
5 PRESENT TO AN EXECUTIVE, YOU TELL THEM.
6 Q. OKAY.
7 NOW, IN NEGOTIATING THE WINDOWS DESKTOP FAMILY
8 AGREEMENT IBM WAS ABLE TO NEGOTIATE THE ROYALTIES FOR
9 WINDOWS 3.11 DOWN CONSIDERABLY FROM MICROSOFT'S INITIAL
10 OFFER, IS THAT CORRECT?
11 A. I'M SORRY, REPEAT THAT, PLEASE.
12 Q. IN NEGOTIATING THE WINDOWS DESKTOP FAMILY AGREEMENT IBM
13 WAS ABLE TO NEGOTIATE THE ROYALTIES FOR WINDOWS 3.11 DOWN
14 CONSIDERABLY FROM MICROSOFT'S INITIAL OFFER, IN APRIL OF
15 1996, IS THAT CORRECT?
16 A. WHAT DO YOU MEAN BY CONSIDERABLY?
17 Q. WELL, WHAT WAS MICROSOFT'S INITIAL OFFER?
18 A. OH, YOU MEAN THE FACT THAT THEY WANTED US TO GO FROM $9
19 TO $62 FOR WINDOWS 3.11?
20 Q. WE'RE GOING TO WORK THROUGH THE NUMBERS, SIR.
21 IN APRIL 1996, WHAT WAS MICROSOFT'S INITIAL OFFER?
22 A. THEIR INITIAL PRICE FOR WINDOWS 3.11 WAS TO INCREASE
23 FROM $9 TO $62.
24 Q. OKAY.
25 AND YOU WERE ABLE TO NEGOTIATE THE $62--CAN YOU
47
1 PUT THAT BACK UP, GOVERNMENT'S EXHIBIT NO. 2186--YOU WERE
2 ABLE TO NEGOTIATE THE ROYALTY DOWN TO $40 FROM MICROSOFT'S
3 INITIAL OFFER OF $62, IS THAT CORRECT?
4 A. YES, THAT'S CORRECT.
5 Q. AND THAT $40 WAS REDUCED FURTHER TO $25.50 BY VIRTUE OF
6 THE $14.50 MDA DISCOUNT THAT IBM RECEIVED IN 1996, IS THAT
7 CORRECT?
8 A. YES, THAT'S CORRECT.
9 Q. AND IBM ALSO--EXCUSE ME--MICROSOFT ALSO AGREED TO GIVE
10 IBM ADDITIONAL ROYALTIES, ROYALTY CREDITS AND REBATES IF
11 IBM'S SHIPMENTS OF WINDOWS 3.11 WERE BELOW DEFINED
12 THRESHOLDS FOR CERTAIN PERIODS OF TIME, IS THAT CORRECT?
13 A. YES, THAT IS CORRECT. THAT NEEDS TO BE PUT IN CONTEXT
14 IN THAT THE THRESHOLD, THE $5 MILLION REBATE THAT MICROSOFT
15 OFFERED TO IBM WAS FROM THE SETTLEMENT AGREEMENT FROM THE
16 AUDIT, WHEREBY, MICROSOFT AND IBM HAD AGREED IN THE
17 SETTLEMENT AGREEMENT THAT WE WOULD WORK ON AN INDUSTRY
18 INITIATIVE TOGETHER AND THAT THAT INDUSTRY INITIATIVE WOULD
19 INCLUDE SOME SORT OF AGREEMENT, DEVELOPMENT AGREEMENT
20 WHEREBY IBM WOULD RECEIVE THE $5 MILLION BACK.
21 OVER THE ENSUING MONTHS, EVERY, ALMOST EVERY
22 DEVELOPMENT AGREEMENT THAT WE PROPOSED TO MICROSOFT DURING
23 MY TENURE WAS REJECTED BY MICROSOFT. NONE OF THEM WERE
24 ACCEPTED. SO, WE DIDN'T MEET THE SPIRIT OF THE SETTLEMENT
25 AGREEMENT.
48
1 MICROSOFT PROPOSED INSTEAD THAT WE LIMIT THE
2 SHIPMENTS OF WINDOWS 3.11 IN ORDER TO GET THIS $5 MILLION
3 BACK.
4 Q. ARE YOU FINISHED, SIR?
5 A. I'M JUST ANSWERING YOUR QUESTION, COUNSELOR.
6 Q. I APPRECIATE THAT, SIR.
7 TRY TO ANSWER MY QUESTIONS, YES, NO, I DON'T KNOW,
8 AND THEN GIVE YOUR CONTEXT.
9 SIR, MR. MALONE COVERED THIS WITH YOU IN SOME
10 DETAIL. THE AGREEMENT PROVIDED THAT IF IBM SHIPMENTS OF
11 WINDOWS 3.11 WERE BELOW 8 PERCENT TOTAL FOR THE PERIOD
12 ENDING DECEMBER 31, 1997, THAT IBM WOULD RECEIVE ONE, THE $5
13 MILLION REBATE THAT YOU MENTIONED; AND ALSO, TWO, A $6
14 REBATE FOR EVERY UNIT OF WINDOWS 3.11 SHIPPED, IS THAT
15 CORRECT?
16 A. YES, THAT'S CORRECT, WHICH MEANT THAT OUR PRICE--I
17 SAID, YES, LIKE YOU ASKED.
18 Q. THANK YOU.
19 A. NOW, I WILL PUT THE CONTEXT AROUND IT. YES, BUT THE
20 PRICE INCREASED FROM $9 TO $25.
21 Q. OKAY.
22 WELL, YOU WERE ABLE TO, YOU MET THE REQUIREMENTS
23 FOR THE ADDITIONAL REBATES BY THE END OF DECEMBER 1997,
24 DIDN'T YOU?
25 A. YES, I BELIEVE WE DID.
49
1 Q. SO, YOU GOT A $6 REBATE FOR EACH UNIT OF WINDOWS 3.11
2 SHIPPED, IS THAT CORRECT?
3 A. YES. IN EFFECT NOW, JUST DOUBLING THE PRICE.
4 Q. AND THAT REDUCED THE ROYALTY PAID FOR WINDOWS 3.11 FROM
5 $25.50 TO $19.50, IS THAT CORRECT?
6 A. JUST DOUBLING THE PRICE, YES.
7 Q. AND THAT $19.50, IT WAS REDUCED ALSO BY THE $5 MILLION
8 PAYMENT, IS THAT CORRECT?
9 A. I DON'T SEE IT THAT WAY, COUNSELOR. THE $5 MILLION WAS
10 OWED TO IBM FROM THE SETTLEMENT AGREEMENT.
11 Q. WELL, SIR, ACCEPTING THAT, THE ROYALTY INCREASE WENT
12 FROM $9 TO $19.50 FOR WINDOWS 3.11, IS THAT CORRECT?
13 A. YES.
14 Q. AND MICROSOFT HAD STARTED AT $62, IS THAT CORRECT?
15 A. WHEW.
16 Q. AND YOU HAD NEGOTIATED THAT DOWN TO $19.50, IS THAT
17 CORRECT?
18 A. YES.
19 Q. YOU HAD DONE PRETTY GOOD NEGOTIATING WITH THE ONLY GAME
20 IN TOWN, RIGHT?
21 A. IF YOU WANT TO CALL IT THAT, YES.
22 Q. NOW, LET'S LOOK AT YOUR WINDOWS 95 ROYALTY ON
23 GOVERNMENT'S EXHIBIT NO. 2186.
24 A. OKAY.
25 Q. THIS SHOWS THAT FOR WINDOWS 95 YOUR CURRENT ROYALTY IN
50
1 AUGUST 1996 WAS $46.60, IS THAT CORRECT?
2 A. YES, THAT'S CORRECT.
3 Q. AND THE $46.60 ROYALTY THAT IBM PAID FOR WINDOWS 95 IN
4 AUGUST OF 1996 WAS NOT OUT OF PARITY WITH WHAT OTHER OEMS
5 WERE PAYING WITH THE EXCEPTION OF COMPAQ, IS THAT CORRECT?
6 A. I DON'T AGREE, NO.
7 Q. WELL, IS THAT WHAT MICROSOFT TOLD IBM?
8 A. MICROSOFT TOLD IBM THAT WE HAD, THAT OUR PRICE--THAT
9 THE ONLY PC MANUFACTURER THAT HAD A LOWER PRICE THAN US WAS
10 COMPAQ.
11 AND THAT AS LONG--WHEN IBM DECIDES TO QUIT
12 COMPETING WITH MICROSOFT WE COULD HAVE COMPAQ'S PRICE.
13 Q. WELL, MICROSOFT TOLD YOU THAT THE ONLY OEM THAT HAD A
14 BETTER PRICE THAN IBM ON WINDOWS 95 WAS COMPAQ, IS THAT
15 CORRECT?
16 A. THAT'S WHAT THEY TOLD US.
17 Q. AND COMPAQ HAD DONE JOINT DEVELOPMENT WORK ON WINDOWS
18 95, IS THAT CORRECT?
19 A. YES, THEY DID.
20 Q. AND IBM HAD NOT, IS THAT CORRECT?
21 A. YES, THAT'S CORRECT. HOWEVER, WE DID PROPOSE JOINT
22 DEVELOPMENT PROJECTS DURING MY TENURE OF WHICH AT THE TIME I
23 WAS THERE, NONE OF THOSE WERE ACCEPTED.
24 Q. WELL, NOT ON WINDOWS 95, THE PRODUCT THAT WAS RELEASED
25 ON AUGUST 24, 1995, IS THAT CORRECT?
51
1 A. SURE, WE DID. ON WINDOWS 95 AND WINDOWS NT WE HAD
2 SEVERAL PROJECTS THAT WE PROPOSED.
3 Q. BUT IS IT YOUR POSITION, SIR, IS IT IBM'S POSITION THAT
4 IT SHOULD RECEIVE THE SAME ROYALTY THAT OEMS WHO DO JOINT
5 DEVELOPMENT WORK ON A PRODUCT DO?
6 A. YES, OUR POSITION IS THAT WE DON'T WANT TO BE TREATED
7 WORSE THAN ANY PC MANUFACTURER THAT IS IN SIMILAR, IN A
8 SIMILAR CIRCUMSTANCE AND WE DIDN'T WANT TO BE TREATED ANY
9 BETTER THAN ANY OEM THAT WAS SIMILARLY SITUATED. WE SIMPLY
10 WANTED TO BE ON PAR AS WE HAD REQUESTED.
11 Q. WELL, IBM--COMPAQ HAD DONE JOINT DEVELOPMENT WORK WITH
12 MICROSOFT ON WINDOWS 95 BEFORE THAT PRODUCT WAS RELEASED, IS
13 THAT CORRECT?
14 A. YES, WITH PLUG AND PLAY.
15 Q. IBM HAD NOT, IS THAT CORRECT?
16 A. THAT'S CORRECT.
17 Q. SO, THEY WERE DIFFERENT AT LEAST IN THAT SENSE, IS THAT
18 CORRECT?
19 A. YES, THAT'S CORRECT.
20 MR. PEPPERMAN: YOUR HONOR, THIS IS A CONVENIENT
21 PLACE FOR THE AFTERNOON BREAK, IF IT IS CONVENIENT FOR THE
22 COURT.
23 THE COURT: ALL RIGHT.
24 WE WILL STAND IN RECESS.
25 THE CLERK: ALL RISE.
52
1 (RECESS.)
2 THE COURT: WE ARE BACK ON THE RECORD.
3 BY MR. PEPPERMAN:
4 Q. MR. NORRIS, A FEW FINAL QUESTIONS ABOUT THE WINDOWS
5 DESKTOP FAMILY AGREEMENT.
6 IT'S TRUE, ISN'T THAT AS PART OF THAT AGREEMENT
7 MICROSOFT AGREED TO GRANDFATHER THE FAVORABLE TERMS AND
8 CONDITIONS THAT IBM HAD IN ITS EXISTING WINDOWS 3X AND
9 WINDOWS NT AGREEMENTS OTHER THAN THE ROYALTIES FORWARD
10 THROUGH SEPTEMBER OF 1997?
11 A. YES.
12 Q. AND YOU, SIR, THOUGHT AFTER THE NEGOTIATIONS WERE OVER
13 THAT THE MEMBERS OF YOUR TEAM HAD DONE SUCH A GOOD JOB IN
14 NEGOTIATING THE WINDOWS DESKTOP FAMILY AGREEMENT THAT YOU
15 PROPOSED THAT THEY EACH RECEIVE CASH AWARDS, IS THAT
16 CORRECT?
17 A. YES, THAT'S CORRECT.
18 Q. NOW, I WANT TO TALK BRIEFLY ABOUT WHAT YOU DESCRIBED ON
19 MONDAY AS THE SCREEN RESTRICTIONS IN IBM'S LICENSE AGREEMENT
20 WITH MICROSOFT.
21 DO YOU KNOW WHAT I'M SPEAKING ABOUT, SIR?
22 A. YES.
23 Q. NOW, THOSE RESTRICTIONS DO NOT PREVENT IBM FROM ADDING
24 ICONS TO THE WINDOWS DESKTOP FOR NON-MICROSOFT APPLICATIONS,
25 DO THEY?
53
1 A. NO, THEY DON'T.
2 Q. AND IBM IS ALSO FREE TO ADD ENTRIES FOR NON-MICROSOFT
3 PROGRAMS TO THE WINDOWS START MENU, ISN'T IT?
4 A. I'M SORRY, REPEAT THAT, PLEASE.
5 Q. IBM IS ALSO FREE TO ADD NON-MICROSOFT PROGRAMS TO THE
6 WINDOWS START MENU, ISN'T IT?
7 A. YES.
8 Q. AND USERS OF IBM COMPUTERS ARE FREE TO MAKE WHATEVER
9 CHANGES THEY WANT TO THE WINDOWS DESKTOP ONCE THE SYSTEM IS
10 UP AND RUNNING, IS THAT CORRECT?
11 A. YES, IF THEY HAVE THE CAPABILITIES TO DO THAT.
12 Q. AND YOU MENTIONED ON MONDAY A TUTORIAL FOR NEW
13 COMPUTERS CALLED THE APTIVA WELCOME CENTER, IS THAT CORRECT?
14 A. YES.
15 Q. AND IBM WAS FREE UNDER ITS LICENSE AGREEMENT WITH
16 MICROSOFT TO PUT AN ICON ON THE WINDOWS DESKTOP FOR THE
17 APTIVA WELCOME CENTER, IS THAT CORRECT?
18 A. YES, WE WERE.
19 Q. AND IBM ACTUALLY DID THAT, DIDN'T IT, SIR?
20 A. WE DID A--THE ANSWER IS, YES, NOT EXACTLY IN THAT FORM.
21 BUT WE DID TAKE SOME FORM OF WHAT WAS IN THE
22 WELCOME CENTER AND COME UP WITH SOMETHING CALLED ACCESS
23 APTIVA.
24 WE HAD TO SCRAP THE INVESTMENTS THOUGH THAT WE HAD
25 MADE AND DO SOME NEW DEVELOPMENT WORK THAT COST US A LITTLE
54
1 OVER A MILLION DOLLARS TO MAKE THAT CHANGE.
2 Q. AND IBM PUT AN ICON ON THE DESKTOP FOR ACCESS APTIVA,
3 CORRECT?
4 A. YES.
5 Q. AND DID THE ICON SAY SOMETHING LIKE, YOUR APTIVA
6 ADVENTURE STARTS HERE?
7 A. SOMETHING LIKE THAT, I DON'T REMEMBER EXACTLY WHAT THE
8 WORDS WERE.
9 Q. OKAY.
10 AND MICROSOFT ALSO GAVE IBM PERMISSION TO RUN AN
11 ANTI-VIRUS PROGRAM DURING THE INITIAL WINDOWS STARTUP
12 SEQUENCE, IS THAT CORRECT?
13 A. YES. WE HAD TO ASK PERMISSION FOR EVERY EXCEPTION THAT
14 WE WANTED TO PUT IN PLACE IN ORDER TO PUT ANYTHING IN FRONT
15 OF THE STARTUP SCREEN.
16 Q. AND MICROSOFT GAVE IBM PERMISSION TO RUN THE ANTI-VIRUS
17 PROGRAMS DURING THE INITIAL STARTUP SEQUENCE, IS THAT
18 CORRECT?
19 A. YES, THEY DID.
20 Q. AND IBM IS ALSO FREE AND I BELIEVE DOES DISPLAY THE IBM
21 LOGO FROM THE BIOS BEFORE WINDOWS LAUNCHES, IS THAT CORRECT?
22 A. YES.
23 Q. SO, AS A RESULT, THE FIRST LOGO THAT A USER SEES WHEN
24 HE OR SHE TURNS ON A NEW IBM COMPUTER IS THE IBM LOGO, IS
25 THAT CORRECT?
55
1 A. YES.
2 Q. AND MICROSOFT ALSO GAVE IBM PERMISSION TO CUSTOMIZE THE
3 WINDOWS DESKTOP WALLPAPER WITH AN IBM LOGO OR THE LOGO OF
4 ONE OF IBM'S BRANDS, IS THAT CORRECT?
5 A. YES.
6 Q. AND IBM DOES THAT, DOESN'T IT? IT PUTS EITHER ITS LOGO
7 OR ONE OF THE BRAND LOGOS, SUCH AS APTIVA OR THINKPAD ON THE
8 WINDOWS DESKTOP WALLPAPER, IS THAT CORRECT?
9 A. YES. WE GOT PERMISSION TO DO THAT.
10 Q. AND AFTER YOU LEFT THE PC COMPANY IN MARCH 1997, ARE
11 YOU AWARE THAT MICROSOFT GRANTED IBM ADDITIONAL FLEXIBILITY
12 IN MODIFYING THE WINDOWS STARTUP SEQUENCE?
13 A. I UNDERSTOOD THAT WE DID GET SOME ADDITIONAL
14 EXCEPTIONS, YES.
15 Q. ARE YOU AWARE THAT IN MAY OF 1998, MICROSOFT GAVE IBM
16 PERMISSION TO REPLACE THE REGISTRATION WIZARD IN WINDOWS 98
17 WITH IBM'S OWN REGISTRATION WIZARD?
18 A. YES.
19 Q. AND MICROSOFT ALSO GAVE IBM PERMISSION IN MAY OF 1998
20 TO ADD ITS OWN ISP OR INTERNET SERVICE PROVIDER SIGN-UP
21 PROCESS TO THE WINDOWS 98 STARTUP SEQUENCE?
22 A. YES.
23 Q. OKAY.
24 MOVING TO A DIFFERENT SUBJECT, IBM'S OFFERING OF
25 COMPETITIVE PRODUCTS. ON DIRECT, YOU TESTIFIED AT LENGTH
56
1 ABOUT WHAT YOU PERCEIVED TO BE THE EFFECT OF IBM'S SHIPPING
2 PRODUCTS COMPETITIVE WITH MICROSOFT PRODUCTS ON IBM'S
3 RELATIONSHIP WITH MICROSOFT, IS THAT CORRECT?
4 A. NO. I DIDN'T PERCEIVE IT, IT'S WHAT THEY TOLD US.
5 Q. WELL, IT WAS ALSO YOUR PERCEPTION, TOO, IS THAT
6 CORRECT?
7 A. NO, IT WASN'T. IT WAS WHAT THEY TOLD US.
8 Q. IT WASN'T YOUR PERCEPTION?
9 A. I'M SORRY. MAYBE I MISUNDERSTOOD THE QUESTION.
10 Q. WELL, LET ME ASK A SIMPLER, MORE STRAIGHTFORWARD DIRECT
11 QUESTION.
12 IT'S TRUE, ISN'T IT, SIR, THAT MICROSOFT NEVER
13 TOLD YOU THAT IT WOULD NOT GIVE IBM A WINDOWS LICENSE IF IBM
14 SHIPPED PRODUCTS COMPETITIVE WITH MICROSOFT PRODUCTS?
15 A. THAT'S TRUE, THEY DID NOT TELL US THAT THEY WOULD NOT
16 GIVE US A WINDOWS LICENSE IF WE SHIPPED COMPETITIVE
17 PRODUCTS.
18 IS THAT WHAT YOUR QUESTION WAS?
19 Q. YES, SIR.
20 A. I'M SORRY. LET ME HEAR THE QUESTION AGAIN.
21 Q. WELL, LET ME ASK THE QUESTION AGAIN.
22 MICROSOFT NEVER TOLD YOU THAT IT WOULD NOT GIVE
23 IBM A WINDOWS LICENSE IF IBM SHIPPED PRODUCTS COMPETITIVE
24 WITH MICROSOFT'S PRODUCTS, IS THAT CORRECT?
25 A. THAT'S CORRECT.
57
1 Q. AND YOU REPEATEDLY MENTIONED LOTUS SMART SUITE AS ONE
2 OF THE COMPETITIVE PRODUCTS THAT IBM WAS SHIPPING, IS THAT
3 CORRECT?
4 A. THAT'S CORRECT.
5 Q. NOW, MICROSOFT NEVER SAID THEY WOULD NOT GIVE IBM A
6 WINDOWS LICENSE IF IBM SHIPPED SMART SUITE WITH ITS
7 COMPUTERS, IS THAT CORRECT?
8 A. NO, BUT WHAT THEY DID SAY IN 1995 WAS, KEMPIN SAID, WE
9 WOULD TRADE AUDIT SETTLEMENT IF YOU DON'T SHIP SMART SUITE
10 FOR SIX MONTHS TO ONE YEAR.
11 Q. AND IBM REJECTED THAT AND WENT AHEAD AND SIGNED A
12 WINDOWS 95 LICENSE A COUPLE OF WEEKS LATER, IS THAT CORRECT?
13 A. YES, WE DID.
14 Q. AND DURING YOUR TENURE AS PROGRAM DIRECTOR OF SOFTWARE
15 STRATEGY, IBM SHIPPED LOTUS SMART SUITE WITH IBM COMPUTERS,
16 IS THAT CORRECT?
17 A. YES, WE DID.
18 Q. AND I THINK YOU SAID AT ONE POINT IBM INCLUDED SMART
19 SUITE EITHER BY DROPPING A DISK IN THE BOX OR BY OFFERING IT
20 IN A COUPON WITH ALL OF IBM'S COMPUTERS?
21 A. OR NEARLY ALL, SURE.
22 Q. AND IBM CONTINUES TO INCLUDE SMART SUITE WITH ITS
23 COMPUTERS TODAY, IS THAT CORRECT?
24 A. YES, WE DO.
25 Q. NOW, YOU MENTIONED ON MONDAY SEVERAL MICROSOFT ENABLING
58
1 PROGRAMS. DO YOU RECALL THAT TESTIMONY?
2 A. YES, I DO.
3 Q. AND I BELIEVE YOU LIMITED YOUR TESTIMONY TO THE PC
4 COMPANY, IS THAT CORRECT?
5 A. YES, UNLESS ASKED OUTSIDE OF IT.
6 Q. WERE OTHER PARTS OF IBM ABLE TO PARTICIPATE IN ANY OF
7 THESE ENABLING PROGRAMS?
8 A. YES. THERE WERE OTHER PARTS OF IBM THAT PARTICIPATED
9 IN THE ENABLING PROGRAMS.
10 Q. WHICH OTHER PARTS?
11 A. ISSC, WHICH WAS CALLED THE INTEGRATED SYSTEMS SOLUTION
12 CORPORATION WAS A WHOLLY OWNED SUBSIDIARY OF IBM AT THE
13 TIME. AND THE OTHER ONE THAT I CAN RECALL IS TSS WHICH IS
14 CALLED TECHNOLOGY SUPPORT AND SERVICES.
15 Q. AND THEN WHAT DOES ISSC DO?
16 A. THEY ARE THE SERVICES OR WERE AT THE TIME, THE SERVICES
17 ARM FOR IBM. THEY PROVIDED MULTI-VENDOR INTEGRATED SERVICES
18 FOR CONSULTING, DESIGN, DEVELOPMENT, HARDWARE, SOFTWARE
19 SERVICE INTEGRATION.
20 Q. AND WHAT DOES TSS DO?
21 A. THEY DO ALL OF THAT INCLUDING SOME OF WHAT WE CALL
22 LEVEL I AND LEVEL II SUPPORT, WHICH INCLUDES USER, END-USER
23 HELP.
24 Q. IS TSS A SUBSIDIARY OR A DIVISION OF IBM?
25 A. IT WAS A SUBSIDIARY OF IBM.
59
1 Q. OKAY.
2 AND BOTH THOSE SUBSIDIARIES OF IBM WERE ABLE TO
3 PARTICIPATE IN THE MICROSOFT ENABLING PROGRAMS?
4 A. THEY WERE. THEY WERE UP UNTIL THE TIME--I WAS IN THE
5 JOB IN 1997 AND IN 1997, WE WERE KICKED OUT OF THE PROGRAM
6 FOR ISSC. WE REAPPLIED IN 1998 AND WAS ACCEPTED AND THEN IN
7 THE FALL OF 1998 WE WERE KICKED OUT OF THE PROGRAM AGAIN.
8 Q. WELL, THE FIRST TIME, MARCH OF 1997, THAT'S WHEN YOU
9 WERE PROGRAM DIRECTOR FOR SOFTWARE STRATEGY, IS THAT
10 CORRECT?
11 A. YES.
12 Q. AND AT THE TIME FROM THE FALL OF 1998, THAT'S A YEAR-
13 AND-A-HALF AFTER YOU LEFT YOUR POSITION AS PROJECT DIRECTOR
14 OF SOFTWARE STRATEGIES, IS THAT CORRECT?
15 A. PROGRAM DIRECTOR.
16 Q. PROGRAM DIRECTOR, EXCUSE ME.
17 A. YES.
18 Q. AND NOW, IN MARCH OF 1997, WHEN MICROSOFT DID NOT RENEW
19 ISSC'S MEMBERSHIP IN THESE ENABLING PROGRAMS, DID MICROSOFT
20 INFORM IBM THAT IT WAS CONCERNED THAT IBM WOULD PULL A BAIT
21 AND SWITCH WITH CUSTOMERS?
22 A. NOT TO MY KNOWLEDGE.
23 Q. WELL, WAS A CONCERN EXPRESSED TO YOU THAT ISSC, AS A
24 PARTICIPANT IN THESE ENABLING PROGRAMS, WOULD GET THEIR FOOT
25 IN THE DOOR WITH CUSTOMERS UNDER THE GUISE OF BEING A
60
1 MICROSOFT AUTHORIZED SOLUTION PROVIDER AND THEN ATTEMPT TO
2 SELL TO THE CUSTOMERS UNDER IBM'S SOLUTIONS RATHER THAN
3 MICROSOFT'S SOLUTIONS?
4 A. NOT FROM ISSC. NO.
5 MR. PEPPERMAN: AND I ASK THAT THE WITNESS BE
6 SHOWN AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT NO.
7 2707.
8 (DEFENDANT'S EXHIBIT NO. 2707
9 MARKED FOR IDENTIFICATION.)
10 MR. PEPPERMAN: IT'S A MARCH 1, 1997, E-MAIL FROM
11 DEAN DUBINSKY TO MR. NORRIS.
12 (WITNESS PERUSING DOCUMENT.)
13 MR. PEPPERMAN: I'M ONLY GOING TO BE ASKING YOU,
14 SIR, ABOUT MR. DUBINSKY'S E-MAIL AND IN PARTICULAR, THE LAST
15 PARAGRAPH OF IT.
16 MR. MALONE: NO OBJECTION, YOUR HONOR.
17 THE COURT: DEFENDANT'S EXHIBIT NO. 2707 IS
18 ADMITTED INTO EVIDENCE.
19 (DEFENDANT'S EXHIBIT NO. 2707
20 IS ADMITTED INTO EVIDENCE.)
21 THE WITNESS: OKAY.
22 BY MR. PEPPERMAN:
23 Q. MR. NORRIS, YOU RECEIVED THIS E-MAIL FROM MR. DUBINSKY
24 IN MARCH OF 1997?
25 A. YES, SIR.
61
1 Q AND THAT'S THE MONTH THAT YOU--AT THE END OF THAT MONTH
2 YOU LEFT YOUR POSITION AS PROGRAM DIRECTOR FOR SOFTWARE
3 STRATEGY?
4 A. YES, THAT'S CORRECT.
5 Q. AND THIS IS AN E-MAIL AT OR AROUND THE TIME WHEN IBM
6 WAS LEARNING THAT MICROSOFT WAS NOT GOING TO RENEW ISSC'S
7 MEMBERSHIP IN THE ENABLING PROGRAMS?
8 A. YES, WE WERE BEGINNING TO HEAR RUMORS THAT MICROSOFT
9 MIGHT NOT RENEW THOSE MEMBERSHIPS.
10 Q. LOOK AT THE LAST PARAGRAPH OF THIS E-MAIL. AND IT
11 READS, WHAT MICROSOFT IS ANGLING FOR HERE IS AN "EXECUTIVE
12 COMMITMENT" FROM IBM THAT IBM WILL NOT BAIT AND SWITCH
13 CUSTOMERS UNDER THE GUISE OF THE MICROSOFT SOLUTION
14 PROVIDERS PROGRAM. SUGGEST THAT THIS BE ESCALATED
15 IMMEDIATELY BEFORE THE LETTER IS PASSED TO IBM.
16 DO YOU KNOW WHAT MR. DUBINSKY WAS REFERRING TO
17 ABOUT BAIT AND SWITCH CUSTOMERS UNDER THE GUISE OF THE
18 MICROSOFT SOLUTION PROVIDER PROGRAMS?
19 A. YES, I THINK I DO. IN THE PC COMPANY, AS I TESTIFIED
20 ON MONDAY, WE HAD CONSISTENTLY ATTEMPTED TO GAIN MEMBERSHIP
21 INTO THOSE PROGRAMS, THE CERTIFIED SOLUTION PROGRAM AND
22 OTHERS.
23 ISSC WAS ONE OF THE ARMS OF IBM THAT HAD ACCESS TO
24 THAT PROGRAM UNDER A PRACTICE THAT HAD ABOUT 80 PEOPLE IN IT
25 CALLED, THE CONSULTING PRACTICE FOR MICROSOFT TECHNOLOGIES.
62
1 THAT PRACTICE ENGAGED ONLY IN SALES AND SERVICE ENGAGEMENTS
2 AFTER THE CUSTOMER HAD DECIDED THAT THEY WANTED A MICROSOFT
3 SOLUTION. SO, ONCE THE CUSTOMER HAD DECIDED, THE CONSULTING
4 PRACTICE FOR MICROSOFT TECHNOLOGIES WITHIN ISSC WOULD BECOME
5 ENGAGED.
6 DEAN INFORMED ME THAT MICROSOFT WAS VERY CONCERNED
7 THAT BAIT AND SWITCH WOULD BE DONE FROM THE PC COMPANY, IF A
8 PC COMPANY PERSON WENT IN WITH MICROSOFT AND THEY PROPOSED A
9 MICROSOFT SOLUTION AND THEN THE PC COMPANY PERSON WOULD GO
10 BACK AND PROPOSE SOMETHING OTHER THAN WHAT HAD ALREADY BEEN
11 DECIDED UPON, WHAT WAS PROPOSED BY THE MICROSOFT PERSON.
12 Q. WELL, WAS THE CONCERN THAT IBM WOULD GET ITS FOOT IN
13 THE DOOR WITH CUSTOMERS UNDER THE AUSPICES OF BEING A
14 MICROSOFT AUTHORIZED SOLUTION PROVIDER AND THEN SELL THE
15 CUSTOMER NOT ON MICROSOFT SOLUTIONS BUT IBM SOLUTIONS?
16 A. THAT WAS THE CONCERN FROM THE PSG SIDE. I THINK YOU
17 HAD ASKED ME ABOUT ISSC AND AS I SAID JUST NOW, ISSC ONLY
18 GOT ENGAGED AFTER THE CUSTOMER DECIDED ON THE MICROSOFT
19 PLATFORM THAT THEY WANTED.
20 AND ONCE THEY WERE ENGAGED THEN THEY ONLY DID
21 ENGAGEMENTS BASED ON MICROSOFT SOLUTIONS.
22 Q. WELL, THE CONCERN I DESCRIBED WAS MICROSOFT'S CONCERN,
23 IS THAT CORRECT?
24 A. YES.
25 Q. NOW, ANOTHER COMPETITIVE PRODUCT THAT YOU MENTIONED
63
1 THAT IBM SHIPPED WAS NETSCAPE NAVIGATOR, IS THAT CORRECT?
2 A. THAT'S CORRECT.
3 Q. AND WHEN DID IBM BEGIN SHIPPING NETSCAPE NAVIGATOR WITH
4 ITS COMPUTERS?
5 A. IT WAS SOMETIME IN 1996, I BELIEVE.
6 Q. AND IBM STILL SHIPS NETSCAPE NAVIGATOR WITH ITS
7 COMPUTERS TODAY?
8 A. YES, WE DO.
9 Q. AND MICROSOFT NEVER SAID THAT IT WOULD NOT GIVE IBM A
10 WINDOWS LICENSE IF IBM SHIPPED NETSCAPE NAVIGATORS WITH ITS
11 COMPUTERS?
12 A. THAT'S CORRECT.
13 BUT THEY DID SAY THAT THERE WOULD BE MDA REPERCUSSIONS.
14 Q. WELL, MICROSOFT NEVER INCLUDED IN AN MDA, DID IT, SIR,
15 A MILESTONE THAT REQUIRED IBM TO STOP SHIPPING NETSCAPE
16 NAVIGATOR, DID IT?
17 A. THAT'S CORRECT.
18 Q. AND YOU TESTIFIED YESTERDAY, I BELIEVE, ABOUT SEVERAL
19 MEETINGS BETWEEN REPRESENTATIVES OF MICROSOFT AND IBM IN
20 FEBRUARY AND MARCH OF 1997, AT WHICH INTERNET EXPLORER WAS
21 DISCUSSED, IS THAT CORRECT?
22 A. YES.
23 Q. AND ONE OF THOSE MEETINGS OCCURRED ON FEBRUARY 19,
24 1997, IS THAT CORRECT?
25 A. THAT'S CORRECT.
64
1 Q. AND MR. MALONE SHOWED YOU GOVERNMENT EXHIBIT NO. 2163,
2 WHICH YOU IDENTIFIED AS YOUR HANDWRITTEN NOTES OF THOSE
3 MEETINGS?
4 A. I DON'T SEE THE DOCUMENT BUT, YES.
5 Q. MR. METZGER WILL HAND YOU ANOTHER COPY OF THE DOCUMENT.
6 A. OKAY.
7 (WITNESS IS HANDED DOCUMENT.)
8 THE WITNESS: THANK YOU.
9 BY MR. PEPPERMAN:
10 Q. NOW, MR. MALONE, IN HIS EXAMINATION OF YOU, POINTED YOU
11 TO CERTAIN COMMENTS ON THE THIRD PAGE OF THIS DOCUMENT,
12 COMMENTS THAT YOU ATTRIBUTED TO BENGT AKERLIND OF MICROSOFT,
13 IS THAT CORRECT?
14 A. YES.
15 MR. PEPPERMAN: NOW, I ASK THAT THE WITNESS BE
16 SHOWN AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT NO.
17 2708, IT'S A FEBRUARY 20TH, 1997, E-MAIL FROM MR. NORRIS TO
18 SEVERAL PEOPLE AT IBM.
19 (DEFENDANT'S EXHIBIT NO. 2708
20 WAS MARKED FOR
21 IDENTIFICATION.)
22 MR. MALONE: NO OBJECTION, YOUR HONOR.
23 THE COURT: DEFENDANT'S EXHIBIT NO. 2708 IS
24 ADMITTED INTO EVIDENCE.
25 (DEFENDANT'S EXHIBIT NO. 2708
65
1 IS ADMITTED INTO EVIDENCE.)
2 (WITNESS EXAMINES DOCUMENT.)
3 THE WITNESS: OKAY.
4 BY MR. PEPPERMAN:
5 Q. NOW, MR. NORRIS, THIS IS YOUR E-MAIL DATED FEBRUARY
6 20TH, 1997, IS THAT CORRECT?
7 A. YES, THAT'S CORRECT.
8 Q. AND THAT'S THE DAY AFTER YOUR MEETING WITH MR. AKERLIND
9 OF MICROSOFT?
10 A. YES.
11 Q. AND YOU SENT THIS E-MAIL TO ROD ATKINS, BRIAN CONNORS,
12 AND STEPHEN WARD, IS THAT CORRECT?
13 A. YES.
14 Q. NOW, MR. CONNORS IS A VICE PRESIDENT IN THE PERSONAL
15 SOFTWARE DIVISION?
16 A. CONSUMER DIVISION.
17 Q. CONSUMER DIVISION. HE IS A VICE PRESIDENT THOUGH, IS
18 THAT CORRECT?
19 A. YES.
20 Q. AND WHAT WERE MR. ATKINS' AND MR. WARD'S POSITIONS?
21 A. ROD ATKINS WAS THE GENERAL MANAGER OF THE COMMERCIAL
22 DESKTOP BRAND AND STEVE WARD WAS THE GENERAL MANAGER OF THE
23 THINKPAD BRAND.
24 Q. SO, WERE THESE PEOPLE WITH MANAGERIAL RESPONSIBILITY
25 WITHIN IBM'S VARIOUS BRANDS OF COMPUTERS?
66
1 A. YES.
2 Q. AND YOU ALSO COPIED THIS E-MAIL TO SAM PALMISANO AND
3 OZZIE OSBORNE, AMONG OTHERS, IS THAT CORRECT?
4 A. YES, THAT'S CORRECT.
5 Q. AND THIS E-MAIL SUMMARIZES THE RESULTS OF YOUR FEBRUARY
6 19TH, 1997, MEETING WITH BENGT AKERLIND AT MICROSOFT?
7 A. IN PART, YES.
8 Q. AND THIS E-MAIL DOESN'T MENTION ANY OF THE STATEMENTS
9 OR QUOTES THAT YOU ATTRIBUTED TO MR. AKERLIND IN YOUR
10 HANDWRITTEN NOTES, IS THAT CORRECT?
11 A. NO, IT DOESN'T.
12 Q. OKAY.
13 ANOTHER MEETING THAT MR. MALONE COVERED WITH YOU
14 WAS A MEETING WITH MICROSOFT THAT OCCURRED ON MARCH 27,
15 1997, IS THAT CORRECT?
16 A. YES, HE DID.
17 Q. AND MR. MALONE SHOWED YOU GOVERNMENT EXHIBIT NO. 2168,
18 WHICH YOU IDENTIFIED AS YOUR HANDWRITTEN NOTES OF THOSE
19 MEETINGS, IS THAT CORRECT?
20 A. YES.
21 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
22 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT NO. 2652.
23 (DEFENDANT'S EXHIBIT NO. 2652
24 WAS MARKED FOR
25 IDENTIFICATION.)
67
1 MR. PEPPERMAN: DEFENDANT'S EXHIBIT NO. 2652 IS A
2 MARCH 31, 1997, E-MAIL FROM DEAN DUBINSKY TO OZZIE OSBORNE
3 AND MR. NORRIS ENTITLED, MICROSOFT MEETINGS, 3-37-96.
4 MR. MALONE: NO OBJECTION, YOUR HONOR.
5 THE COURT: DEFENDANT'S EXHIBIT NO. 2652 IS
6 ADMITTED INTO EVIDENCE.
7 (DEFENDANT'S EXHIBIT NO. 2652
8 WAS ADMITTED INTO EVIDENCE.)
9 (WITNESS IS PERUSING DOCUMENT.)
10 THE WITNESS: OKAY.
11 BY MR. PEPPERMAN:
12 Q. YOU RECEIVED A COPY OF THIS E-MAIL, DIDN'T YOU, SIR?
13 A. YES, I DID.
14 Q. NOW, THE SUBJECT OF THIS E-MAIL SAYS MICROSOFT MEETINGS
15 3-27-96. THE YEAR IS IN ERROR, IS THAT CORRECT, IT SHOULD
16 BE 1997?
17 A. THAT'S CORRECT.
18 Q. AND THIS IS MR. DUBINSKY'S SUMMARY OF THE MARCH 27,
19 1997, MEETING BETWEEN THE IBM PC COMPANY AND MICROSOFT?
20 A. IT APPEARS TO BE A PARTIAL SUMMARY, YES.
21 Q. AND IN THE FIRST PARAGRAPH OF THIS E-MAIL IT READS, I
22 THE MORNING SESSION MICROSOFT PRESENTED THE IBM PC COMPANY
23 WITH AN INVITATION TO PARTNER WITH MICROSOFT, TO PREPARE THE
24 MARKET AND COOPERATE IN THE LAUNCH OF INTERNET EXPLORER 4,
25 IE 4.0?
68
1 NOW, IS THAT THE PROPOSAL GENERALLY THAT MICROSOFT
2 MADE TO IBM AT THE MARCH 27, 1997, MEETING?
3 A. NO, IT'S NOT. I THINK DEAN IS REFERRING HERE TO THE
4 MORNING SESSION WHERE--I AM SORRY, THERE WERE TWO PROPOSALS.
5 Q. RIGHT.
6 A. THE FIRST ONE WAS IN THE MORNING SESSION WITH YAKIM AND
7 YUSEF, WHERE THEY DISCUSSED THE PROPOSAL TO DROP INTERNET
8 EXPLORER 4.0 DISKETTES IN THE BOX AND PAY FOR THE COST OF
9 GOODS SOLD PRIOR TO IE 4.0 BEING INCLUDED IN THE NEXT
10 RELEASE OF THE SOFTWARE.
11 Q. JUST ONE QUICK QUESTION. YOU SAID THIS WAS PARTIAL
12 SUMMARY OF THE MEETING. WHEN YOU RECEIVED THIS E-MAIL FROM
13 MR. DUBINSKY, DID YOU RESPOND BACK TO HIM THAT HE HAD LEFT
14 THINGS OUT OF HIS SUMMARY?
15 A. I CALLED HIM AND I TALKED TO HIM, YES.
16 Q. AND DID MR. DUBINSKY SEND A SUPPLEMENTAL E-MAIL
17 PROVIDING OTHERS WITH GREATER DETAIL ABOUT THE MEETING?
18 A. NO.
19 Q. OKAY. NOW, THE THIRD PARAGRAPH OF THIS DOCUMENT READS,
20 IN A SMALLER AFTERNOON SESSION DISCUSSION COVERED THE TOPICS
21 OF THE MORNING PROPOSAL AND IE 4 BROADCAST PC, MDA 96, NET
22 PC, KIRKLAND PROGRAMMING CENTER, WINDOWS 95, WINDOWS NT AND
23 THE MICROSOFT SOLUTION PROVIDER PROGRAMS. BELOW ARE THE
24 DETAILS.
25 NOW, THAT SMALLER AFTERNOON SESSION, THAT IS THE
69
1 SECRET DISCUSSIONS THAT YOU DISCUSSED MONDAY, IS THAT
2 CORRECT?
3 A. THAT'S CORRECT.
4 Q. NOW, BESIDE THE HEADING IE 4, THE DOCUMENT READS, IE 4,
5 THE IBM PC COMPANY AND MICROSOFT AGREED TO ARRANGE FOR BOTH
6 TECHNICAL AND MARKETING MEETINGS TO DEVELOP IMPLEMENTATION
7 PLANS FOR THE LAUNCH OF IE 4. THIS WOULD TAKE PLACE IN
8 PARALLEL AS MICROSOFT PREPARED THE MEMORANDUM OF
9 UNDERSTANDING EXPECTED IN TWO WEEKS.
10 MICROSOFT ALSO REQUESTED A MEETING IN APRIL WITH
11 IBM PC COMPANY EXECUTIVES IN EUROPE TO DISCUSS THE ROLL-OUT
12 PLAN IN THE EUROPEAN MARKET.
13 IS THAT A SUMMARY OF THE DISCUSSIONS RELATING TO
14 IE 4 FROM THE SECRET AFTERNOON DISCUSSIONS?
15 A. ABSOLUTELY NOT.
16 Q. AND DID MR. DUBINSKY SEND ANY OTHER E-MAIL SUMMARIZING
17 THIS MEETING?
18 A. NO. IN FACT, I DISCUSSED IT WITH MR. DUBINSKY'S
19 COUNSELOR AND RELATIVE TO THE MATTERS THAT WERE DISCUSSED IN
20 MY HANDWRITTEN NOTES DEAN SAID I WILL LET YOU AND OZZIE
21 HANDLE THAT.
22 Q. NOW, THIS DISCUSSION WAS A DISCUSSION OVER THE
23 TELEPHONE?
24 A. YES.
25 Q. THERE'S NO E-MAIL, NO DOCUMENTS?
70
1 A. NO.
2 Q. ALL RIGHT.
3 THE PROPOSAL DISCUSSED HERE ABOUT IE 4 RELATES TO
4 IBM'S PARTICIPATION IN THE IE 4 LAUNCH, IS THAT CORRECT?
5 A. YES, IT DOES.
6 Q. AND THE IE 4 LAUNCH ULTIMATELY OCCURRED IN SEPTEMBER OF
7 1997, IS THAT CORRECT?
8 A. THAT'S MY UNDERSTANDING.
9 Q. AND IBM PARTICIPATED IN THAT LAUNCH IN SEPTEMBER OF
10 1997, IS THAT CORRECT?
11 A. YES, WE DID.
12 Q. AND IBM PARTICIPATED IN THAT LAUNCH NOTWITHSTANDING THE
13 FACT THAT IBM WAS SHIPPING NETSCAPE NAVIGATOR WITH ITS
14 COMPUTERS?
15 A. ONCE MICROSOFT UNDERSTOOD WE WEREN'T GOING TO DO AN
16 EXCLUSIVE DEAL, AND THEY STILL LET US PARTICIPATE.
17 Q. SO, YOU WERE ABLE TO PARTICIPATE IN THE LAUNCH EVENT
18 EVEN THOUGH YOU WERE STILL SHIPPING NETSCAPE NAVIGATOR,
19 CORRECT?
20 A. YES.
21 Q. AND IT WAS IMPORTANT TO IBM TO PARTICIPATE IN THE
22 LAUNCH EVENT, WASN'T IT?
23 A. IT WAS IMPORTANT TO MICROSOFT AND IBM FOR US TO
24 PARTICIPATE.
25 Q. NOW, YOU ALSO TESTIFIED ABOUT MICROSOFT'S OFFERING IBM
71
1 ROYALTY REDUCTIONS OR SOFT DOLLARS IN EXCHANGE FOR PROMOTING
2 INTERNET EXPLORER, IS THAT CORRECT?
3 A. THAT'S CORRECT.
4 Q. NOW, MICROSOFT ULTIMATELY GAVE IBM A $1 MILLION ROYALTY
5 REDUCTION TO FUND INTERNET EXPLORER PROMOTIONAL ACTIVITIES,
6 IS THAT CORRECT?
7 A. YES, THEY DID.
8 Q. AND MICROSOFT DID THAT NOTWITHSTANDING THE FACT THAT
9 IBM WAS SHIPPING NETSCAPE NAVIGATOR WITH ITS COMPUTERS, IS
10 THAT CORRECT?
11 A. YES, THEY DID.
12 Q. AND MICROSOFT ALSO GAVE IBM PERMISSION TO MODIFY
13 WINDOWS SUCH THAT IF THE USER CLICKED ON THE IE ICON ON THE
14 DESKTOP, THE USER WOULD GO TO IBM'S INTERNET SERVICE
15 PROVIDER RATHER THAN MICROSOFT'S INTERNET REFERRAL SERVER,
16 IS THAT CORRECT?
17 A. THAT'S CORRECT.
18 Q. AND MICROSOFT GAVE IBM THE FREEDOM TO DO SO,
19 NOTWITHSTANDING THE FACT THAT IBM WAS STILL SHIPPING
20 NETSCAPE NAVIGATOR WITH ITS MACHINES, IS THAT CORRECT?
21 A. YES, THAT'S CORRECT.
22 Q. NOW, I BELIEVE YOU TESTIFIED TO THE BEST OF YOUR
23 KNOWLEDGE THAT THE IE 4 LAUNCH EVENT TOOK PLACE ON SEPTEMBER
24 OF 1997?
25 A. YES.
72
1 Q. AND IT'S TRUE, ISN'T IT, THAT A MONTH BEFORE THAT IN
2 AUGUST OF 1997, IBM ANNOUNCED IT SIGNED A NEW LICENSE FOR
3 NETSCAPE NAVIGATOR?
4 A. I DON'T KNOW THE EXACT ANNOUNCED DATE OF THE LICENSE.
5 I'M SORRY.
6 MR. PEPPERMAN: I ASK THE WITNESS BE SHOWN AND I
7 OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT NO. 704.
8 (DEFENDANT'S EXHIBIT NO. 2704
9 WAS MARKED FOR
10 IDENTIFICATION.)
11 (WITNESS PERUSES DOCUMENT.)
12 MR. PEPPERMAN: AND MY ONLY QUESTION--I OFFER THIS
13 DOCUMENT. EXCUSE ME.
14 MR. MALONE: NO OBJECTION, YOUR HONOR.
15 THE COURT: DEFENDANT'S 2704 IS ADMITTED.
16 (DEFENDANT'S EXHIBIT NO. 2704
17 WAS RECEIVED IN EVIDENCE.)
18 BY MR. PEPPERMAN:
19 Q. MY ONLY QUESTION FOR YOU ON THIS DOCUMENT, MR. NORRIS,
20 IS WHETHER THIS REFRESHES YOUR RECOLLECTION THAT IBM
21 ANNOUNCED A NEW LICENSING AGREEMENT FOR NETSCAPE NAVIGATOR
22 ON AUGUST 18TH, 1997?
23 A. YES; IT DOES.
24 Q. AND NOTWITHSTANDING THIS ANNOUNCEMENT, IBM WAS STILL
25 ABLE TO PARTICIPATE IN THE IE 4.0 LAUNCH EVENT. CORRECT?
73
1 A. YES; THAT'S CORRECT.
2 Q. NOW YOU LEFT THE IBM PC COMPANY TO TAKE YOUR NEW
3 ASSIGNMENT ON APPROXIMATELY MARCH 30TH, 1997?
4 A. MARCH 30TH, 1ST OF APRIL; YES.
5 Q. NOW IS IT YOUR TESTIMONY THAT WHEN YOU LEFT THE IBM PC
6 COMPANY, THE PROPOSAL ON THE TABLE FROM MICROSOFT WAS THAT
7 IBM MAKE INTERNET EXPLORER THE EXCLUSIVE BROWSER ON THE PC
8 COMPANY'S LINES?
9 A. YES; IT'D MAKE IBM--THE IE 4.0 BROWSER, THE EXCLUSIVE
10 BROWSER ON THE IBM PC COMPANY APTIVA SYSTEMS AT THE TIME,
11 INCLUDE THE $10 SMARTSUITE THAT ARE IN MY NOTES. IN
12 EXCHANGE, WE WOULD RECEIVE THE SOFT DOLLARS IN THE MDA
13 REDUCTIONS. WE WOULD HAVE TO MAKE THE SYSTEMS NEUTRAL,
14 MEANING THAT NO COMPETITIVE SOFTWARE WOULD BE OFFERED, AND
15 ALSO THE COMMERCIAL DESKTOP LINE OF PRODUCTS HAD A PROPOSAL
16 ON THE TABLE ALSO, SUCH THAT IF NT WORK STATION AND
17 SMARTSUITE, IF WE DID NOT DO NT WORK STATION AND SMARTSUITE,
18 WE WOULD, IN RETURN, GET THE KIRKLAND PROGRAMMING SET OF
19 BENEFITS LIKE THE WINDOWS 95, BACK OFFICE, AND WINDOWS NT
20 SOURCE CODE.
21 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
22 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2649.
23 (DEFENDANT'S EXHIBIT NO. 2649
24 WAS MARKED FOR
25 IDENTIFICATION.)
74
1 MR. MALONE: NO OBJECTION, YOUR HONOR.
2 THE COURT: DEFENDANT'S 2649 IS ADMITTED.
3 (DEFENDANT'S EXHIBIT NO. 2649
4 WAS RECEIVED IN EVIDENCE.)
5 THE WITNESS: OKAY.
6 BY MR. PEPPERMAN:
7 Q. MR. NORRIS, THIS IS AN E-MAIL FROM SOMEONE NAMED SCOTT
8 BOSWORTH TO A NUMBER OF PEOPLE AT IBM, AND IT'S CC'ED TO
9 JERRY KOZEL, CORRECT?
10 A. YES.
11 Q. AND THE E-MAIL IS DATED APRIL 21ST, 1997, CORRECT?
12 A. YES.
13 Q. AND THAT'S APPROXIMATELY THREE WEEKS AFTER YOU LEFT
14 YOUR POSITION AS PROGRAM DIRECTOR FOR SOFTWARE STRATEGIES?
15 A. THAT'S CORRECT.
16 Q. NOW THE FIRST PARAGRAPH OF THIS DOCUMENT READS: "A FLAG
17 WAS RAISED LAST WEEK REGARDING POTENTIAL PCCO EXCLUSIVE
18 BUNDLING OF INTERNET EXPLORER; WANTED TO CATCH UP--CATCH YOU
19 UP ON THE FACTS REGARDING PCCO AND CONSUMER DIVISION PLANS.
20 I SPOKE LAST WEEK WITH JERRY KOZEL, BRAND MANAGEMENT FOR
21 APTIVA LINE. JERRY, PLEASE FEEL FREE TO JUMP IN. TO
22 SUMMARIZE, 1) THERE IS NO PROPOSAL ON THE TABLE FROM
23 MICROSOFT TO EXCLUSIVELY BUNDLE IE ON THE PC COMPANY LINE."
24 DO YOU SEE THAT?
25 A. YES. I DO.
75
1 Q. NOW, WERE YOU AWARE THAT AT LEAST BY THE THIRD WEEK OF
2 APRIL 1997, THERE WAS NO PROPOSAL ON THE TABLE FROM
3 MICROSOFT TO MAKE INTERNET EXPLORER THE EXCLUSIVE BROWSER ON
4 PC COMPANY LINES?
5 A. NO. I GUESS AFTER I LEFT, THEY TOOK IT OFF THE TABLE.
6 Q. DO YOU KNOW WHO SCOTT BOSWORTH IS?
7 A. I HAVE NO IDEA.
8 Q. WELL, MR. KOZEL--YOU KNOW WHO IT IS, RIGHT?
9 A. SURE, I DO.
10 Q. AND YOU WOULD EXPECT MR. KOZEL TO BE INFORMED OF WHAT
11 THE STATUS IS IN NEGOTIATIONS WITH MICROSOFT, WOULDN'T YOU?
12 A. ESPECIALLY IF IT AFFECTS HIS PRODUCT LINE, WHICH WAS
13 APTIVA. SURE.
14 Q. NOW, YOU ALSO TESTIFIED, AND I DON'T KNOW WHETHER IT
15 WAS ON MONDAY OR WHETHER IT WAS YESTERDAY, ABOUT MILESTONES
16 IN IBM'S MDAS RELATING TO THE WINDOWS HARDWARE DESIGN GUIDE.
17 CORRECT?
18 A. YES.
19 Q. AND YOU AGREE, DON'T YOU, SIR, THAT CERTAINLY ONE OF
20 THE PURPOSES OF THOSE GUIDELINES IS TO INSURE THAT USERS
21 HAVE A BETTER EXPERIENCE USING THE HARDWARE WITH MICROSOFT
22 SOFTWARE?
23 A. THAT CERTAINLY WOULD BE ONE BUT IT WOULDN'T BE ONE
24 WHERE WE EXPECTED THAT MICROSOFT WOULD DICTATE THE PC
25 MANUFACTURER'S HARDWARE DESIGN.
76
1 Q. WELL, YOU UNDERSTAND THAT ONE OF THE PURPOSES OF THE
2 GUIDELINES FROM MICROSOFT'S PERSPECTIVE IS THAT THE HARDWARE
3 AND SOFTWARE WORK TOGETHER IN A WAY THAT'S BENEFICIAL FOR
4 THE USER. CORRECT?
5 A. YES.
6 Q. NOW, ONE OTHER THING YOU TESTIFIED ABOUT YESTERDAY IS A
7 PROPOSAL MADE TO, MADE BY MICROSOFT TO IBM, CONCERNING THE
8 BROADCAST PC. CORRECT?
9 A. UH-HUH.
10 Q. AND THAT PROPOSAL--
11 A. YES.
12 Q. --THAT PROPOSAL INVOLVED IBM BEING MICROSOFT'S, QUOTE,
13 ""FIRST CHAIR" PARTNER," CLOSE QUOTE, FOR
14 BROADCAST PC. CORRECT?
15 A. YES.
16 Q. AND CORRECT ME IF I'M WRONG. IBM'S BROADCAST PC WAS
17 GOING TO BE A HIGH-END CONSUMER COMPUTER THAT INCLUDED A TV
18 TUNER OR A DIRECT TV TUNER, THAT WOULD ALLOW USERS TO VIEW
19 BROADCAST OR SATELLITE TELEVISION FROM THEIR COMPUTER?
20 A. AND ACCESS THE INTERNET AND SERVE AS A HOME SERVER, I
21 BELIEVE.
22 Q. THIS WAS GOING TO BE A HIGH-END APTIVA MODEL?
23 A. I DON'T RECALL--NO, NO. I DON'T RECALL THAT AT ALL.
24 WHAT I'M TRYING TO RECALL IS JUST THE SPECIFIC CONFIGURATION
25 OF THE BROADCAST PC. IT WAS A CONCEPT AT THE TIME, AND
77
1 WHILE I WAS THERE IN THE JOB WE WERE STILL WORKING THROUGH
2 WHAT THE CONCEPT OF THAT BROADCAST PC WAS GOING TO BE.
3 Q. BUT THE CONCEPT WAS THAT THERE WAS GOING TO BE A
4 SPECIFIC MODEL OF APTIVA THAT WAS GOING TO BE THE BROADCAST
5 PC. CORRECT?
6 A. THE BROADCAST PC WAS GOING TO BE A MODEL OR A SET OF
7 MODELS, THAT THE IBM PC COMPANY WOULD CARRY, AND WE WOULD
8 GET TIME TO MARKET ADVANTAGES BECAUSE OF BEING THE "FIRST
9 CHAIR", AND IN EXCHANGE FOR THAT, WE WOULD GET, WE WOULD
10 HAVE TO DO THINGS LIKE THE NEUTRAL SYSTEM THAT I DISCUSSED
11 EARLIER, AND THAT WERE IN MY NOTES.
12 Q. BUT THE BROADCAST PC WAS NOT GOING TO BE ALL OF IBM
13 COMPUTERS. IT WAS GOING TO BE A SUBSET OF THEM, EITHER A
14 SPECIFIC MODEL OR A LINE OF COMPUTERS. CORRECT?
15 A. THAT'S CORRECT.
16 Q. AND IT WAS IBM'S HOPE TO INTRODUCE THIS MODEL OR LINE
17 OF MODELS IN TIME FOR THE CHRISTMAS 1997 SEASON. CORRECT?
18 A. YES.
19 Q. AND THE PROPOSAL GENERALLY UNDER CONSIDERATION WAS THAT
20 MICROSOFT WOULD PROVIDE THE SOFTWARE AND THE DRIVERS AND IBM
21 WOULD PROVIDE THE HARDWARE FOR THESE BROADCAST PC SYSTEMS.
22 CORRECT?
23 A. I THINK THAT WAS GENERALLY THE, THE PROPOSAL; YES.
24 Q. AND THEN THE THOUGHT WAS THAT THE TWO COMPANIES WERE
25 GOING TO JOINTLY PROMOTE THE PRODUCT. CORRECT?
78
1 A. THAT'S CORRECT.
2 Q. AND MAYBE DIRECT TV WOULD PROMOTE IT AS WELL, CORRECT?
3 A. THAT'S CORRECT.
4 Q. AND THERE IS EVEN SOME CONSIDERATION THAT THIS SPECIFIC
5 PRODUCT WAS GOING TO BE COBRANDED BETWEEN MICROSOFT AND IBM.
6 CORRECT?
7 A. THAT'S CORRECT.
8 Q. AND NOW WAIT. YOU TESTIFIED, I THINK YOU TESTIFIED
9 YESTERDAY, AND YOU TESTIFIED AGAIN TODAY, THAT IN THE FIRST
10 QUARTER OF '97, MORE SPECIFICALLY AT THE MARCH 27TH MEETING,
11 THAT MICROSOFT OFFERED IBM A SPECIAL PRICE ON A PACKAGE OF
12 SOFTWARE IF IBM REMOVED COMPETITIVE SOFTWARE AND THAT, IN
13 EXCHANGE, IBM WAS GOING TO BE THE "FIRST CHAIR" FOR THE
14 BROADCAST PC. CORRECT?
15 A. THAT'S CORRECT.
16 Q. NOW MICROSOFT'S CONCERN, SIR, WASN'T IT, THAT IT DIDN'T
17 WANT TO JOINTLY PROMOTE THE BROADCAST PC, THAT MODEL OR LINE
18 OF MODELS, IF THEY INCLUDED COMPETITIVE SOFTWARE. CORRECT?
19 A. THAT WAS CERTAINLY ONE OF THEIR CONCERNS BUT THE
20 PROPOSAL WAS IN FACT FOR US TO REMOVE THE OBJECTIONABLE
21 APPLICATIONS, AS BENGT TERMED IT, ON ALL OF THE APTIVA
22 SYSTEMS. IN EXCHANGE, WE GOT THE RIGHT TO BE THE "FIRST
23 CHAIR" FOR THE BROADCAST PC.
24 Q. WELL, I ASK YOU TO TAKE A LOOK AT DEFENDANT'S EXHIBIT
25 2652.
79
1 A. DO I HAVE, HAVE THAT? THIS ONE RIGHT HERE?
2 Q. YES. THAT'S ONE I MARKED. IT'S MR. DUBINSKY'S MARCH
3 27TH--MARCH, EXCUSE ME, 31ST MEMO DISCUSSING THE MARCH 27TH
4 MEETING. NOW, I'M JUST GOING TO FOCUS YOU, SIR, ON THE
5 SENTENCES BESIDE BROADCAST PC. NOW, THE FIRST COUPLE
6 SENTENCES READ:
7 "MICROSOFT PROPOSED A PRELOAD BUNDLE PROVIDING THE
8 FUNCTIONS REQUESTED BY APTIVA, WHILE REMOVING THE
9 MICROSOFT CONCERN OF PROMOTING BPC SYSTEMS WITH
10 COMPETITIVE OFFERINGS. IBM WILL EVALUATE THE
11 PRELOAD WHILE MICROSOFT WILL CONSIDER THE IMPACT
12 OF SWITCHING WORLD BOOK FOR THEIR OFFER OF
13 ENCARTA."
14 DO YOU SEE THAT?
15 A. I DO SEE THAT.
16 Q. NOW, IT'S TRUE, ISN'T IT, THAT WHAT MICROSOFT WAS
17 OBJECTING TO WAS THE COMPETITIVE APPLICATION ON THE--WHAT'S
18 DESCRIBED HERE AS THE BPC SYSTEMS. CORRECT?
19 A. THAT'S INCORRECT. MICROSOFT WAS OBJECTING TO ALL OF
20 THE OBJECTIONABLE APPLICATIONS THAT WE WERE PRELOADING ON
21 ALL THE SYSTEMS AT THAT TIME, AND THE PROPOSAL ON THE TABLE
22 WAS TO REMOVE THOSE OBJECTIONABLE APPLICATIONS. IN RETURN,
23 WE'D GET THOSE MDA SOFT DOLLAR REDUCTIONS AND WE WOULD GET
24 THE--EXCUSE ME--THE BROADCAST PC "FIRST CHAIR", AND YOU'RE
25 FORGETTING--THIS WAS ONE HUGE DEAL--AND THE KIRKLAND
80
1 PROGRAMMING CENTER WOULD GET THE RIGHTS TO THE BACK, THE
2 BACK OFFICE SOURCE CODE, THE WINDOWS NT SOURCE CODE, WINDOWS
3 95 SOURCE CODE, ADDED SUPPORT AND THE T1 LINE.
4 Q. WELL, FOCUSING ON THESE SENTENCES HERE--NOW, LET ME SEE
5 IF THIS IS CORRECT. LET ME SPELL IT OUT. MICROSOFT DID NOT
6 WANT TO SHIP COMPETITIVE SOFTWARE ON THE BROADCAST PC BUT
7 APTIVA SAID IT WANTED SPECIFIC FUNCTIONS FOR THE BROADCAST
8 PC. SO IB--SO MICROSOFT OFFERED IBM A PACKAGE OF SOFTWARE
9 TO PROVIDE APTIVA WITH THOSE FUNCTIONS. CORRECT?
10 A. NO, THAT'S--
11 Q. IS THAT WHAT HAPPENED?
12 A. THAT'S INCORRECT. AGAIN, WE WANTED MICROSOFT TO PUT
13 WHATEVER THE OFFER WAS THAT THEY HAD ON THE TABLE, AND,
14 FINALLY, IN THIS MEETING THEY DID AND THAT'S WHEN THEY
15 LISTED OUT THE APPLICATIONS THAT THEY WOULD PUT IN THE
16 PROPOSAL, WHAT THE PRICE WOULD BE, AND WHAT NEUTRAL SYSTEM
17 MEANT, AND WHAT WE WOULD GET IN EXCHANGE, AND THEN WHAT THEY
18 WANTED IN EXCHANGE, AND THOSE INCLUDED ELEMENTS OF
19 EXCLUSIVITY FOR IE 4.0, REMOVING THE OBJECTIONABLE
20 APPLICATIONS WHICH I LISTED IN MY NOTES, WORLD BOOK NOTES,
21 IE SMARTSUITE, AND I THINK I'M MISSING ONE, IN RETURN FOR
22 WHICH WE WOULD GET THE MDA DOLLARS AND WE WOULD GET THE SOFT
23 DOLLAR REDUCTIONS, THE LAUNCH, THE PROMINENT POSITION AT THE
24 LAUNCH.
25 Q. WELL, SIR, IS IT YOUR TESTIMONY THAT MICROSOFT'S OFFER
81
1 OF ALL THOSE APPLICATIONS YOU LISTED--AND THE OFFER WAS FOR
2 $10, WASN'T IT, SIR?
3 A. YES.
4 Q. MICROSOFT WAS OFFERING IBM ALL THOSE APPLICATIONS FOR
5 ALL OF IBM'S COMPUTERS?
6 A. AS LONG AS WE REMOVED THE OBJECTIONABLE APPLICATIONS,
7 YES.
8 Q. ALL THOSE APPLICATIONS FOR $10 FOR A COMPUTER THAT
9 COULD BE INSTALLED IN EVERY THINKPAD--
10 A. NO, NO, NO. I SAID CONSUMER, NOT--
11 Q. EVERY CONSUMER?
12 A. YES.
13 Q. WELL, YOU'D AGREE, WOULDN'T YOU, SIR, THAT MR.
14 DUBINSKY'S DESCRIPTION OF THE BROADCAST PC PROPOSAL IS MORE
15 IN LINE WITH WHAT I'M SAYING THAN WHAT YOU'RE SAYING?
16 A. HIS, HIS NOTES ARE WHAT HIS NOTES SAY.
17 Q. NOW, IBM, IN ANY EVENT, WHATEVER THE OFFER WAS, IBM
18 REJECTED MICROSOFT'S OFFER, DIDN'T IT?
19 A. YES; WE DID.
20 Q. NOW, DID THAT REJECTION PUT A STOP TO THE COMPANY'S
21 DISCUSSIONS CONCERNING THE BROADCAST PC?
22 A. I THINK THE DISCUSSIONS CONTINUED.
23 MR. PEPPERMAN: I ASK THAT THE WITNESS BE SHOWN
24 AND I OFFER INTO EVIDENCE DEFENDANT'S EXHIBIT 2653. THIS IS
25 AN IBM DOCUMENT ENTITLED "IBM-MICROSOFT JOINT DEVELOPMENT,"
82
1 DATED MAY 22ND, 1997.
2 (DEFENDANT'S EXHIBIT NO. 2653
3 WAS MARKED FOR
4 IDENTIFICATION.)
5 MR. MALONE: NO OBJECTION.
6 THE COURT: DEFENDANT'S 2653 IS ADMITTED.
7 (DEFENDANT'S EXHIBIT NO. 2653
8 WAS RECEIVED IN EVIDENCE.)
9 BY MR. PEPPERMAN:
10 Q. MR. NORRIS, THIS IS A LONG DOCUMENT. I THINK THAT THE
11 VARIOUS COMPONENTS OF IT ARE EACH SELF-CONTAINED.
12 A. OKAY.
13 Q. MY ONLY QUESTION IS GOING TO BE ABOUT THE PAGE THAT HAS
14 THE BATES NUMBER 86557 AND IT'S ENTITLED "BROADCAST PC" AT
15 THE TOP.
16 (WITNESS PERUSES DOCUMENT.)
17 A. OKAY.
18 Q. NOW, MR. NORRIS, THIS DOCUMENT IS DATED MAY 22ND, 1997.
19 CORRECT?
20 A. THAT'S CORRECT.
21 Q. AND THAT'S APPROXIMATELY TWO MONTHS AFTER THE MARCH
22 27TH, 1997 MEETING. CORRECT?
23 A. THAT'S CORRECT.
24 Q. NOW, UNDER THE HEADING, "STATUS," THE DOCUMENT READS:
25 "IBM IS CURRENTLY MICROSOFT'S "FIRST CHAIR"
83
1 PARTNER FOR BROADCAST PC. IBM IS CONTRIBUTING
2 HARDWARE, INTEGRATION, AND A RETAIL CHANNEL FOR
3 THE COMPLETE PRODUCT."
4 DO YOU SEE THAT?
5 A. YES. I DO.
6 Q. WERE YOU AWARE THAT IN MAY OF 1997, IBM WAS MICROSOFT'S
7 "FIRST CHAIR" PARTNER FOR BROADCAST PC?
8 A. NO.
9 Q. IN ANY EVENT, PRIOR TO THIS TIME IBM HAD REJECTED
10 MICROSOFT'S PROPOSAL, CORRECT, REGARDING--THE PROPOSAL
11 REGARDING REMOVING APPLICATIONS FROM IBM'S APTIVA COMPUTERS.
12 CORRECT?
13 A. WE DID REJECT THE PROPOSAL THAT WAS MADE REGARDING WHAT
14 BENGT TERMED AS THE OBJECTIONABLE APPLICATIONS. WE REJECTED
15 THE PROPOSAL ON EXCLUSIVITY FOR IE 4.0, AND WE REJECTED THE
16 PROPOSAL ON THE BPC, IF IT WAS TIED TO THE EXCLUSIVITY.
17 YES.
18 Q. AND THIS DOCUMENT WOULD SUGGEST THAT NEVERTHELESS, AS
19 OF MAY 22ND, 1997, IBM WAS MICROSOFT'S "FIRST CHAIR" PARTNER
20 FOR BROADCAST PC. CORRECT?
21 A. THAT'S WHAT IT SAYS.
22 Q. ARE YOU AWARE THAT IBM GAVE MICROSOFT PROTOTYPES OF THE
23 BROADCAST PC IN JULY OF '97?
24 A. NO.
25 Q. ARE YOU AWARE THAT MICROSOFT AND IBM CONTINUED TO WORK
84
1 ON THE BROADCAST PC INITIATIVE UNTIL OCTOBER OF '97?
2 A. NO.
3 Q. ARE YOU AWARE THAT THE INITIATIVE NEVER CAME TO MARKET
4 BECAUSE THE TECHNOLOGY WASN'T GOING TO BE READY FOR THE
5 CHRISTMAS 1997 SEASON?
6 A. NO.
7 MR. PEPPERMAN: THAT'S ALL THE QUESTIONS I HAVE,
8 YOUR HONOR.
9 THE COURT: ALL RIGHT. MR. MALONE, WHAT IS YOUR
10 ESTIMATE OF YOUR--
11 MR. MALONE: YOUR HONOR, I BELIEVE I CAN BE BRIEF.
12 I WOULD VERY MUCH LIKE TO FINISH TODAY AND CAN BE AS BRIEF
13 AS NECESSARY TO ACCOMPLISH THAT, IF POSSIBLE.
14 THE COURT: ALL RIGHT.
15 MR. MALONE: I COULD PROBABLY DO IT IN 10 TO 15
16 MINUTES.
17 THE COURT: ALL RIGHT. LET'S TAKE A 10-MINUTE
18 RECESS.
19 (RECESS.)
20 THE COURT: ALL RIGHT, MR. MALONE.
21 MR. MALONE: THANK YOU, YOUR HONOR.
22 REDIRECT EXAMINATION
23 BY MR. MALONE:
24 Q. GOOD AFTERNOON, MR. NORRIS.
25 A. AFTERNOON, MR. MALONE.
85
1 Q. I WILL TRY TO BE BRIEF. IF YOU WOULD, PLEASE, DO YOU
2 STILL HAVE IN FRONT OF YOU DEFENDANT EXHIBIT 2653, THE LAST
3 DOCUMENT THAT I BELIEVE THAT YOU WERE SHOWN?
4 A. YES.
5 Q. IF YOU WOULD, PLEASE TAKE A LOOK AT THAT, AND I WOULD
6 LIKE TO DIRECT YOUR ATTENTION TO A FEW OTHER PAGES IN THIS
7 DOCUMENT THAT YOU WERE NOT SHOWN BY MR. PEPPERMAN. IF YOU
8 WOULD LOOK AT THE THIRD PAGE OF THE DOCUMENT, THE ONE WITH
9 THE BATES NUMBER 86554 AT THE BOTTOM, DO YOU SEE THAT?
10 A. YES.
11 Q. AND IT READS:
12 "WHAT WE NEED FROM MICROSOFT, AUTHORIZE IBM AS A
13 WORLDWIDE SERVICES AND SUPPORT PROVIDER, MICROSOFT
14 SOLUTION PROVIDER, AUTHORIZED SUPPORT CENTER,
15 AUTHORIZED TECHNICAL EDUCATION CENTER."
16 DO YOU SEE THOSE?
17 A. YES, I DO.
18 Q. AND ARE THOSE THE ENABLING PROGRAMS YOU DESCRIBED IN
19 YOUR TESTIMONY YESTERDAY, TO WHICH IBM HAD OVER TIME BEEN
20 TRYING TO GAIN ACCESS?
21 A. THAT THE PC CO. HAD TRIED TO GAIN ACCESS, AND WASN'T
22 ABLE TO DURING MY TERM.
23 Q. TURN IF YOU WOULD, PLEASE, TO THE PAGE WITH THE BATES
24 NUMBER 86564, WHICH IS ABOUT HALFWAY THROUGH THE DOCUMENT.
25 "PUBLIC VISIBILITY OF JOINT DEVELOPMENT ACTIVITIES," DO YOU
86
1 SEE THAT?
2 A. YES, I DO.
3 Q. AND UNDER "STATUS" THERE THE DOCUMENT READS:
4 "MICROSOFT HAS BEEN CONSISTENT IN LIMITING IBM'S
5 PUBLIC VISIBILITY. RECENT EXAMPLES INCLUDE BILL
6 GATES' FAILURE TO RECOGNIZE IBM WHEN PRESENTING
7 BROADCAST PC AT WINHEC 97 AND MICROSOFT'S REFUSAL
8 TO INCLUDE IBM IN SCALEABILITY DAYS, DESPITE OUR
9 PARTICIPATION IN THE WOLFPACK PROGRAM."
10 WAS CONSISTENT LIMITATION OF IBM'S PUBLIC
11 VISIBILITY BY MICROSOFT SOMETHING THAT YOU EXPERIENCED
12 DURING YOUR TWO YEARS AS PROGRAM DIRECTOR FOR SOFTWARE
13 STRATEGY?
14 A. YES, IT WAS.
15 Q. TURN, IF YOU WOULD, PLEASE, TO THE PAGE NUMBERED 86569,
16 ENTITLED "COMPETITIVE BUSINESS TERMS." DO YOU SEE THAT?
17 A. YES, I DO.
18 Q. AND THAT READS, UNDER DESCRIPTION:
19 "IBM CURRENTLY PAYS A HIGHER ROYALTY FOR MICROSOFT
20 OPERATING SYSTEMS THAN OUR LEADING COMPETITORS.
21 THIS IS ESTIMATED AT $5 TO $15 PER COPY FOR
22 WINDOWS 95 AND FROM $25 TO $40 PER COPY FOR
23 WINDOWS NT. THESE HIGHER COSTS PUT IBM AT A
24 COMPETITIVE DISADVANTAGE. IN ADDITION, IBM HAS
25 LESS FLEXIBLE TERMS AND CONDITIONS. WE NEED TO
87
1 HAVE THE SAME BUSINESS TERM AS HP AND DELL, AND
2 COMPAQ AFTER THEIR FRONTLINE PARTNERSHIP ENDS."
3 DO YOU SEE THAT?
4 A. YES, I DO.
5 Q. AND IS THAT AN ACCURATE DESCRIPTION OF WHAT YOU
6 PERSONALLY OBSERVED ABOUT IBM'S BUSINESS TERMS WITH
7 MICROSOFT DURING YOUR TWO YEARS IN THE PC CO.?
8 A. YES, AND EVEN A LITTLE BIT MORE ON THE WINDOWS NT.
9 Q. LOOK, IF YOU WOULD, PLEASE, AT NEAR THE END OF THE
10 DOCUMENT NEXT, TWO PAGES FROM THE END, 86572, "JOINT SALES
11 CALLS" OR "IBM PC HARDWARE SALES." DO YOU SEE THAT?
12 A. YES.
13 Q. AND THAT READS:
14 "WITH RARE EXCEPTION, MICROSOFT WILL NOT MAKE
15 JOINT SALES CALLS WITH IBM FOR THE SALE OF PC
16 HARDWARE, WHILE THEY FREELY MAKE JOINT SALES CALLS
17 WITH COMPAQ, HP, AND OTHER COMPETITORS. THIS
18 GIVES COMPETITORS AN OPPORTUNITY TO CREATE AND/OR
19 REINFORCE CUSTOMER CONCERNS ABOUT IBM'S
20 RELATIONSHIP WITH MICROSOFT AND IBM'S CREDIBILITY
21 AS A PC SUPPLIER."
22 HOW, IF AT ALL, IS THAT CONSISTENT WITH WHAT YOU
23 PERSONALLY OBSERVED DURING YOUR TWO YEARS IN THE PC CO.?
24 A. IT'S CONSISTENT, AS I DISCUSSED IN MY TESTIMONY ON
25 MONDAY, THAT THE TREATMENT WAS THE SAME, THAT IT REINFORCED
88
1 THE CUSTOMERS THAT IBM MAY OR MAY NOT BE ABLE TO GIVE THE
2 SAME TYPE OF SUPPORT TO CUSTOMERS VERSUS CUSTOMERS BUYING
3 FROM COMPAQ AND MICROSOFT AND FROM HP AND MICROSOFT.
4 Q. I'D LIKE TO ASK YOU ABOUT ONE OTHER PAGE IN THIS
5 DOCUMENT THAT RELATES TO SOMETHING MR. PEPPERMAN WAS ASKING
6 YOU ABOUT RIGHT BEFORE HE FINISHED, AND THAT IS WHAT
7 MICROSOFT WAS SAYING TO YOU THAT YOU HAD TO DO, "YOU" THE PC
8 CO., THAT YOU HAD TO DO WITH REGARD TO INTERNET EXPLORER
9 4.0.
10 IF YOU WOULD, PLEASE, LOOK AT THE PAGE NUMBERED
11 86566 OF THIS DOCUMENT THAT'S DATED MAY 22ND OF 1997. THE
12 TOP IS "JOINT PROMOTION OF IE 4.0." YOU SEE DOWN UNDER
13 "STATUS" THE SECOND ASTERISK POINT SAYS:
14 "MICROSOFT IS CURRENTLY PLANNING TO EXCLUDE OEM'S
15 WHO ARE SHIPPING NETSCAPE FROM THE PUBLIC LAUNCH
16 ACTIVITIES. WE HAVE, HOWEVER, BEEN ABLE TO GET
17 CLIENT SYSTEMS INVITED, SINCE THIS BRAND DOESN'T
18 SHIP NETSCAPE."
19 DO YOU SEE THAT?
20 A. YES, I DO.
21 Q. I WOULD LIKE TO ASK YOU SOMETHING ELSE ABOUT INTERNET
22 EXPLORER 4.0, FOLLOWING UP ON WHAT MR. PEPPERMAN WAS JUST
23 ASKING YOU. DO YOU STILL HAVE DEFENDANT'S EXHIBIT 2649
24 THERE IN FRONT OF YOU? THAT'S THE APRIL 21ST, 1997 E-MAIL
25 FROM SCOTT BOSWORTH. AND IF WE COULD HAVE THAT PROJECTED
89
1 UP, PLEASE. IT'S A TWO-PAGE E-MAIL FROM MR. BOSWORTH.
2 A. YES, I HAVE IT.
3 Q. FIRST I'D LIKE YOU TO LOOK AT A PART OF THIS E-MAIL
4 THAT MR. PEPPERMAN DID NOT ASK YOU ABOUT. IT'S THE LAST
5 PARAGRAPH ON THE SECOND PAGE, WHERE IT BEGINS "FINALLY." DO
6 YOU SEE THAT?
7 A. YES.
8 Q. AND THERE MR. BOSWORTH WRITES:
9 "FINALLY, IT IS NO SECRET THAT MICROSOFT HAS
10 SERIOUS MARKETING LEVERS/CONTROL WHEN IT COMES TO
11 THE PC MANUFACTURERS. JERRY ARTICULATED THAT PC
12 CO. HAS SUFFERED IN THE PAST BECAUSE OF THE POOR
13 IBM RELATIONSHIP WITH MICROSOFT, PARTICULARLY WITH
14 RESPECT TO COMPAQ AND THEIR `FRONTLINE
15 PARTNERSHIP' WITH MICROSOFT."
16 IS THAT CONSISTENT WITH WHAT YOU PERSONALLY EXPERIENCED
17 DURING YOUR TIME IN THE PC CO.?
18 A. IT'S VERY CONSISTENT.
19 MR. MALONE: NOW I'D LIKE TO SHOW YOU A SERIES OF E-MAILS
20 LEADING UP TO MR. BOSWORTH'S APRIL 21ST, 1997 E-MAIL, AND
21 THIS WILL BE GOVERNMENT EXHIBIT 2203 THAT I WOULD ASK BE
22 SHOWN TO YOU. FOR THE RECORD, THIS IS A SERIES OF E-MAILS,
23 THE TOP ONE BEING FROM SCOTT BOSWORTH, DATED APRIL 18TH,
24 1997, THREE DAYS BEFORE DEFENDANT'S EXHIBIT 2649, ALSO TO
25 JERRY KOZEL.
90
1 (GOVERNMENT EXHIBIT NO. 2203
2 WAS MARKED FOR
3 IDENTIFICATION.)
4 MR. MALONE: AND I WOULD OFFER 2203 INTO EVIDENCE.
5 MR. PEPPERMAN: NO OBJECTION, YOUR HONOR.
6 BY MR. MALONE:
7 Q. FIRST, IF YOU WOULD, PLEASE, MR. NORRIS, TAKE--
8 THE COURT: MR. MALONE?
9 MR. MALONE: I'M SORRY, YOUR HONOR. EXCUSE ME.
10 THE COURT: GOVERNMENT'S 2203 IS ADMITTED.
11 (GOVERNMENT EXHIBIT NO. 2203
12 WAS RECEIVED IN EVIDENCE.)
13 MR. MALONE: THANK YOU. I WILL TRY NOT TO GO
14 QUITE SO FAST.
15 BY MR. MALONE:
16 Q. MR. NORRIS, IF YOU WOULD, PLEASE, ONCE YOU'VE HAD A
17 CHANCE TO LOOK OVER THIS, DIRECT YOUR ATTENTION TO THE
18 THIRD, FINAL PAGE OF GOVERNMENT EXHIBIT 2203. DO YOU SEE
19 THAT?
20 A. YES, I DO.
21 Q. AND THE TOP E-MAIL THERE IS A--APPEARS TO BE A MARCH
22 12TH, 1997 E-MAIL FROM OZZIE OSBORNE TO AN E-MAIL ALIAS, BUT
23 THEN CC'D TO, AMONG OTHER PEOPLE, ROBERT STEPHENSON. IS
24 THAT CORRECT?
25 A. YES, THAT'S CORRECT.
91
1 Q. WHO WAS MR. STEPHENSON AT THIS TIME?
2 A. BOB WAS THE SENIOR VICE PRESIDENT AND GROUP EXECUTIVE
3 OVER THE GROUP.
4 Q. WHAT GROUP WAS THAT?
5 A. THIS WAS THE PERSONAL SYSTEMS GROUP AND/OR THE SERVER
6 GROUP. I'M TRYING TO REMEMBER AT THE MOMENT.
7 Q. AND JUST SO WE'RE CLEAR, THE E-MAIL IS DIRECTED, IT
8 BEGINS "IRVING." CAN YOU TELL FROM THE E-MAIL ADDRESS WHO
9 IT'S BEING--I THINK THE TWO--
10 A. YES, I CAN TELL YOU WHO.
11 Q. GOOD. THANK YOU. IT'S A LITTLE UNCLEAR.
12 A. THAT'S TO IRVING LADOSKY BERGER, WHO WAS THE GENERAL
13 MANAGER OF THE INTERNET DIVISION FOR IBM.
14 Q. OKAY, AND THERE MR. OSBORNE WRITES:
15 "LAST WEEK MICROSOFT DISCUSSED THE POTENTIAL FOR
16 IBM PC CO. TO BE PART OF THE IE 4.0 LAUNCH AND
17 ROLLOUT. IN ORDER FOR US TO BE PART OF IT, THEY
18 WANT US TO USE IE 4.0 EXCLUSIVELY."
19 DO YOU SEE THAT?
20 A. YES, I DO.
21 Q. AND HOW, IF AT ALL, IS THAT CONSISTENT WITH WHAT
22 MICROSOFT WAS TELLING YOU IN THE MARCH 1997 TIME FRAME?
23 A. VERY CONSISTENT.
24 Q. IN THE NEXT E-MAIL DOWN AT THE VERY BOTTOM HERE, IT
25 APPEARS TO BE AN APRIL 14TH, 1997 E-MAIL TO MR. PALMISANO.
92
1 IS THAT CORRECT?
2 A. YES.
3 Q. THE SUBJECT IS "PC CO. AND NETSCAPE/JAVA DECISION."
4 AND IF YOU WOULD, PLEASE, LOOK DOWN AT THE SECOND SENTENCE
5 WHERE THE AUTHOR IN MID-APRIL WRITES:
6 "IT HAS JUST COME TO MY ATTENTION THAT THE PC CO.
7 BRAND MANAGERS ARE MEETING ON WEDNESDAY TO
8 DETERMINE IF THE PC CO. SHOULD EXCLUSIVELY LOAD
9 MICROSOFT INTERNET EXPLORER 4.0 INSTEAD OF
10 OFFERING BOTH NETSCAPE AND MICROSOFT."
11 DO YOU SEE THAT?
12 A. YES, I DO.
13 Q. AND HOW IS THAT CONSISTENT, IF AT ALL, WITH WHAT
14 MICROSOFT WAS TELLING YOU IT WANTED YOU TO DO DURING THIS
15 TIME FRAME?
16 A. VERY CONSISTENT.
17 Q. MR. NORRIS, I'D LIKE TO ASK YOU ABOUT ONE OTHER THING,
18 AND THAT IS AN EXHIBIT YOU WERE SHOWN YESTERDAY, DEFENDANT'S
19 EXHIBIT 2626. WE WILL PROVIDE YOU ANOTHER COPY JUST TO SAVE
20 TIME.
21 A. OKAY, I'VE GOT IT.
22 Q. THIS WAS ONE OF THE DOCUMENTS YOU HAD NOT SEEN, THAT
23 WERE REPRESENTED TO BE DRAFTS OF THE IBM/MICROSOFT ALLIANCE
24 PROPOSAL FROM 1994.
25 A. YES.
93
1 Q. LOOK, IF YOU WOULD, PLEASE, AT PAGE 8 OF THE DOCUMENT,
2 THE ONE THAT HAS THE BATES NUMBER MX 184191.
3 A. YES, I'M THERE.
4 Q. IT SAYS "CHICAGO MARKETING DEVELOPMENT PLAN" AT THE
5 TOP.
6 A. AND I'D JUST LIKE TO--
7 THE COURT: WHAT'S YOUR BATES NUMBER, AGAIN?
8 MR. MALONE: I'M SORRY, YOUR HONOR. IT'S MX
9 6184191. IT'S PAGE 8 OF THE DOCUMENT ITSELF.
10 THE COURT: OKAY.
11 BY MR. MALONE:
12 Q. JUST IT NOTES IN HEADING AT THE TOP, UNDER ACTIVITIES
13 OF LAUNCH AND PRODUCT MARKETING PLANS, "THE PARTICIPATION BY
14 IBM IN ANY OR ALL OF THE ACTIVITIES IDENTIFIED BELOW WILL
15 RESULT IN DOLLAR REDUCTIONS AGAINST THE CHICAGO ROYALTY
16 RATE."
17 DO YOU SEE THAT?
18 A. YES, I DO.
19 Q. AND "CHICAGO" IN THIS CONTEXT REFERRED TO WINDOWS 95?
20 A. YES, THAT'S CORRECT.
21 Q. DO YOU SEE, SEVEN BULLET POINTS DOWN, THE ENTRY "PC 95
22 SHIPPING AT CHICAGO LAUNCH"?
23 A. YES.
24 Q. MINIMUM WOULD BE 75 PERCENT OF DESKTOPS AND PORTABLES,
25 EXCEED WOULD BE 90 PERCENT OF DESKTOPS AND PORTABLES, FAR
94
1 EXCEED WOULD BE 100 PERCENT OF DESKTOPS AND PORTABLES.
2 A. YES, I SEE IT.
3 Q. DO YOU HAVE AN UNDERSTANDING FROM THE DOCUMENT OF WHAT
4 "PC 95 SHIPPING AT CHICAGO LAUNCH" REFERS TO?
5 A. I BELIEVE I DO, BASED ON THE MDA THAT WE HAD BEFORE,
6 YES.
7 Q. AND WHAT'S THAT UNDERSTANDING, BASED ON THE ACTUAL MDA?
8 A. THAT THE PC'S THAT THE PC CO. WOULD SHIP WITH WINDOWS
9 95 WOULD BE ELIGIBLE FOR MINIMUM, EXCEED, OR FAR EXCEED
10 BASED ON THE NUMBER OF DESKTOPS AND PORTABLES THAT WE
11 SHIPPED, RANGING FROM 75 TO 100 PERCENT OF OUR SYSTEMS.
12 Q. WHILE THERE ARE NO DOLLAR NUMBERS HERE, IF IBM HAD
13 AGREED TO SHIP 75 OR 90 PERCENT OR EVEN 100 PERCENT OF ITS
14 DESKTOP PC'S WITH WINDOWS 95, WHAT IF ANY IMPACT WOULD THAT
15 HAVE HAD IN REDUCING OR ELIMINATING YOUR SHIPMENTS OF OS/2?
16 A. IT WOULD HAVE HAD THE IMPACT OF REDUCING OR ELIMINATING
17 OS/2 SHIPMENTS.
18 Q. I'M GOING TO ASK YOU ABOUT JUST TWO MORE ENTRIES HERE,
19 THOUGH THERE ARE OTHERS. IF YOU'D LOOK AT THE VERY LAST
20 BULLET POINT ON THE FIRST PAGE, "REFERENCE TO CHICAGO IN IBM
21 ADVERTISING"--
22 A. ON WHICH PAGE? I'M SORRY.
23 Q. ON THE PAGE WE WERE JUST ON, PAGE 8, SIR.
24 A. ALL RIGHT.
25 Q. EXCEED, HERE IT SAYS "CHICAGO IS THE ONLY OS MENTIONED
95
1 IN THE ADVERTISEMENT."
2 A. YES.
3 Q. AND THEN BELOW THAT, FAR EXCEED, "STATEMENT THAT
4 CHICAGO IS SUPERIOR TO OTHER OS'S." WHAT, IF ANY, IMPACT ON
5 IBM'S ABILITY TO SHIP-SELL OS/2 WOULD IT HAVE HAD IF YOU HAD
6 EITHER ONLY MENTIONED WINDOWS 95 IN YOUR ADS OR SAID THAT
7 WINDOWS 95 WAS BETTER THAN OTHER OPERATING SYSTEMS?
8 A. WELL, WE CERTAINLY WOULD NOT HAVE SHIPPED OS/2 FOR MUCH
9 LONGER, HAD WE DONE THAT.
10 Q. THE LAST POINT THAT I WANT TO ASK YOU ABOUT, TOP OF THE
11 NEXT PAGE, PAGE 9, IT SAYS "PC 95 SHIPPING WITHIN ONE MONTH
12 OF CHICAGO LAUNCH," WHEREAS THE ONE WE LOOKED AT BEFORE WAS
13 "PC SHIPPING AT CHICAGO LAUNCH," AND AGAIN, "MINIMUM, 75
14 PERCENT, EXCEED, 90 PERCENT, FAR EXCEED, 100 PERCENT OF
15 DESKTOPS AND PORTABLES."
16 IN ORDER TO EARN ANY MDA ROYALTIES THAT ARE
17 SIMILAR TO THIS, WHAT IF ANYTHING--WHAT IF ANY IMPACT WOULD
18 THAT HAVE HAD ON IBM'S ABILITY TO SHIP OS/2?
19 A. IT WOULD HAVE FORCED US TO REDUCE, ELIMINATE OR DROP
20 OS/2.
21 MR. MALONE: I HAVE NO MORE QUESTIONS, YOUR HONOR.
22 MR. PEPPERMAN: I'LL BE VERY BRIEF, YOUR HONOR.
23 THE COURT: SURE.
24 RECROSS EXAMINATION
25 BY MR. PEPPERMAN:
96
1 Q. MR. NORRIS, JUST LOOKING AT THE PAGE OF DEFENDANT'S
2 EXHIBIT 2626 THAT MR. MALONE LAST COVERED WITH YOU--
3 A. SAME DOCUMENT?
4 Q. YES, SIR.
5 A. OKAY.
6 Q. THE PAGE WITH THE BATES NUMBER 6184191.
7 A. YES.
8 Q. AT THE TOP UNDER "GOALS" THIS DOCUMENT READS:
9 "THE GOALS FOR THIS MARKETING PLAN ARE TO POSITION
10 IBM `CHICAGO READY' PC'S IN THE MARKET EARLY,
11 ESTABLISH EARLY MARKET MOMENTUM FOR CHICAGO AND
12 ESTABLISH THE IBM PC AS THE INDUSTRY LEADING
13 PLATFORM FOR CHICAGO."
14 NOW THE REFERENCE IN THIS DOCUMENT TO "PC 95" THAT
15 MR. MALONE POINTED OUT TO YOU, THAT'S A REFERENCE TO
16 MICROSOFT'S PC 95 INITIATIVE, NOT TO CHICAGO, CORRECT, SIR?
17 A. WHAT STATEMENT ARE YOU READING FROM NOW?
18 Q. VARIOUS BULLETS THAT MR. MALONE POINTED TO, SUCH AS "PC
19 95 SHIPPING AT CHICAGO LAUNCH," "PC 95 PRESS RELEASE," THE
20 REFERENCES TO PC 95 ARE NOT TO CHICAGO, ARE THEY?
21 A. PC 95 SHOULD BE A REFERENCE TO THE PC 95 GUIDELINES AND
22 LOGO.
23 Q. AND THAT DEALS WITH HARDWARE COMPLIANCE, CORRECT?
24 A. YES.
25 Q. AND WOULD DEAL WITH WHETHER THE HARDWARE THAT WAS
97
1 SHIPPED AT THAT TIME WAS CERTIFIED AS BEING COMPLIANT WITH
2 WINDOWS 95, CORRECT?
3 A. THAT'S CORRECT.
4 MR. PEPPERMAN: NO FURTHER QUESTIONS, YOUR HONOR.
5 MR. MALONE: NOTHING FURTHER.
6 THE COURT: CAN WE LET MR. NORRIS GO HOME?
7 MR. MALONE: HAPPILY, YOUR HONOR.
8 THE WITNESS: I WOULD APPRECIATE IT.
9 (WITNESS EXCUSED.)
10 THE COURT: WE'LL START AT 10 O'CLOCK TOMORROW
11 MORNING, AND THAT WILL BE PROFESSOR FELTON. IS THAT
12 CORRECT?
13 MR. MALONE: (NODDING HEAD UP AND DOWN.)
14 THE COURT: ALL RIGHT.
15 (WHEREUPON, AT 4:53 P.M., THE HEARING WAS
16 ADJOURNED UNTIL 10:00 A.M, THE FOLLOWING DAY.)
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