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October 19, 1998 (P.M. Session) Back to Transcript Index

1

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

- - - - - - - - - - - - - - - - - -X

:

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.

OCTOBER 19, 1998

2:03 P.M.

(P.M. SESSION)

VOLUME I

TRANSCRIPT OF TRIAL

BEFORE THE HONORABLE THOMAS P. JACKSON

 

 

 

 

 

2

FOR THE PLAINTIFFS: CHRISTOPHER S. CROOK, ESQ.

DAVID BOIES, ESQ.

STEPHEN D. HOUCK, ESQ.

RICHARD L. SCHWARTZ, ESQ.

ALAN R. KUSINITZ, ESQ.

A. DOUGLAS MELAMED, 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.

WILLIAM H. NEUKOM, ESQ.

RICHARD J. UROWSKY, ESQ.

MICHAEL LACOVARA, ESQ.

SULLIVAN & CROMWELL

125 BROAD STREET

NEW YORK, NY 10004

DAVID A. HEINER, ESQ.

THOMAS W. BURT, ESQ.

MICROSOFT CORPORATION

ONE MICROSOFT WAY

REDMOND, WA 98052-6399

COURT REPORTER: DAVID A. KASDAN, RPR

MILLER REPORTING CO., INC.

507 C STREET, N.E.

WASHINGTON, D.C. 20003

(202) 546-6666

 

 

 

 

 

 

 

 

 

 

3

INDEX

PAGE

CONTINUED OPENING STATEMENT BY MR. BOIES 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

1 P R O C E E D I N G S

2 THE COURT: MR. WARDEN, I DON'T KNOW HOW LONG

3 YOUR OPENING IS GOING TO BE, BUT I HAVE AN INVESTITURE

4 THAT I HAVE TO GO TO THIS AFTERNOON OF A NEW COLLEAGUE AT

5 4:00, SO MY THOUGHT WOULD BE THAT I WOULD PUT YOU OVER

6 UNTIL TOMORROW MORNING AND LET MR. BOIES FINISH UP THIS

7 AFTERNOON.

8 MR. WARDEN: THAT'S FINE, YOUR HONOR.

9 THE COURT: ALL RIGHT.

10 CONTINUED OPENING STATEMENT BY COUNSEL FOR PLAINTIFFS

11 MR. BOIES: THANK YOU, YOUR HONOR.

12 BEFORE THE LUNCHEON BREAK, YOUR HONOR, WE WERE

13 TALKING ABOUT THE EXTENT TO WHICH, AND THE WAYS IN WHICH,

14 MICROSOFT USED ITS POWER TO INDUCE AND THREATEN AND

15 REQUIRE COMPANIES TO AGREE TO FAVOR INTERNET EXPLORER AND

16 DISFAVOR NAVIGATOR AND DISFAVOR JAVA. AND WE WERE TALKING

17 ABOUT APPLE, AND I THINK WE HAD JUST LOOKED AT A JUNE 27,

18 1997, MEMORANDUM TO MR. GATES FROM MR. WALDMAN, IN WHICH

19 THEY WERE TALKING ABOUT THE STRONGEST BARGAINING POINT

20 THAT MICROSOFT HAD WAS THE THREAT TO CANCEL MACOFFICE '97

21 AS DOING SO WOULD DO A GREAT DEAL OF HARM TO APPLE

22 IMMEDIATELY.

23 AND THE COURT IS GOING TO HEAR THE TESTIMONY OF

24 MR. TEVANIAN FROM APPLE, AND MR. TEVANIAN WILL TESTIFY

25 ABOUT THE NATURE OF THAT THREAT AND ABOUT HOW SERIOUSLY

 

 

5

1 APPLE TOOK THAT THREAT. BUT HERE AGAIN, WE HAVE

2 CONTEMPORANEOUS MICROSOFT EVIDENCE THAT CONFIRMS THAT THAT

3 THREAT WAS MADE AND THAT THEY KNEW THE SERIOUSNESS OF IT.

4 NOW, HERE IS A DOCUMENT DATED AUGUST 8, 1997,

5 FROM MR. GATES. AND THIS IS A PARTICULARLY SIGNIFICANT

6 DOCUMENT BECAUSE IN THIS DOCUMENT, MR. TEVANIAN FIRST

7 WRITES TO MR. GATES COMPLAINING THAT QUICKTIME, AN APPLE

8 PRODUCT, IS NOT WORKING BECAUSE WINDOWS BREAKS

9 APPLE--APPLE'S QUICKTIME. AND MR. GATES SENDS THIS

10 MEMORANDUM ON TO HIS CHIEF EXECUTIVE. HE'S GOT THREE

11 LINES.

12 FIRST LINE, "I WANT TO GET AS MUCH MILEAGE AS

13 POSSIBLE OUT OF OUR BROWSER AND JAVA RELATIONSHIP HERE."

14 TWO, "IN OTHER WORDS, A REAL ADVANTAGE AGAINST

15 SUN AND NETSCAPE."

16 THIRD LINE, "WHO SHOULD AVI"--THAT'S

17 MR. TEVANIAN--"BE WORKING WITH? DO WE HAVE A CLEAR PATH

18 ON WHAT WE WANT APPLE TO DO TO UNDERMINE SUN?"

19 SO AGAIN, YOU HAVE AN ATTEMPT TO USE THE POWER

20 THAT MICROSOFT HAS IN TERMS OF THE APPLE RELATIONSHIP TO

21 GET APPLE TO AGREE TO DO THINGS THAT WILL UNDERMINE

22 NETSCAPE AND JAVA.

23 AUGUST 21, 1997, THIS IS A MEMORANDUM THAT

24 DISCUSSES MR. GATES'S PRIORITIES. FIRST PARAGRAPH SAYS,

25 "BILL'S TOP PRIORITY IS FOR US TO GET THE BROWSER IN THE

 

 

6

1 OCTOBER OS RELEASE FROM APPLE. WE SHOULD DO WHATEVER IT

2 TAKES TO MAKE THIS HAPPEN. IF WE ARE GETTING SHUT OUT, WE

3 SHOULD ESCALATE TO BILL. YOU SHOULD MAKE SURE THAT WE ARE

4 ENGAGING DEEPLY WITH APPLE ON THIS ONE AND RESOLVING ANY

5 AND ALL ISSUES.

6 SO, WHAT YOU HAVE IS, AGAIN, MICROSOFT BEING

7 WILLING TO DO WHATEVER IT TAKES TO REQUIRE APPLE TO PREFER

8 THE MICROSOFT BROWSER TO THE NETSCAPE BROWSER, USE THAT

9 RELATIONSHIP TO USE THE POWER OF MACOFFICE TO USE ALL OF

10 THE RELATIONSHIP THAT THEY HAVE.

11 AND, INDEED, THE SIGNIFICANCE OF THAT, IN PART,

12 IS POINTED OUT BY THE LAST PARAGRAPH, WHERE IT SAYS, THE

13 LAST THREE LINES, "BILL WAS CLEAR THAT HIS WHOLE GOAL HERE

14 IS TO KEEP APPLE AND SUN SPLIT. HE DOESN'T CARE THAT MUCH

15 ABOUT BEING ALIGNED WITH APPLE. HE JUST WANTS THEM SPLIT

16 FROM OTHER POTENTIAL ALLIES."

17 THIS IS NOT BUSINESS AS USUAL, YOUR HONOR. THIS

18 IS AN ATTEMPT BY A COMPANY, MICROSOFT, WITH MONOPOLY

19 POWER, TO USE THAT POWER AND TO USE ALL OF THE INDUCEMENTS

20 THAT IT HAS AVAILABLE, TO TRY TO GET ONE GROUP OF

21 CUSTOMERS TO AGREE NOT TO WORK WITH OTHER CUSTOMERS.

22 IT'S ALWAYS COMPETITION ON THE MERITS THAT THE

23 ANTITRUST LAWS FOSTER, WHERE TWO COMPANIES ARE OFFERING

24 COMPETING PRODUCTS ON THE MERITS, OFFERING BETTER PRODUCTS

25 AND LOWER PRICES, NOT WHERE THEY'RE GETTING TOGETHER IN

 

 

7

1 PRIVATE MEETINGS AND THREATENING ONE COMPANY AND INDUCING

2 ANOTHER COMPANY TO AGREE TO DISFAVOR A THIRD COMPETITOR'S

3 PRODUCTS. THIS IS NOT A SITUATION OF COMPETITION ON THE

4 MERITS. THIS IS A SITUATION, I RESPECTFULLY SUGGEST, YOUR

5 HONOR, OF CLEAR RESTRAINT OF TRADE.

6 AGAIN, THIS IS THE DOCUMENT, THE DATE I CAN'T

7 READ, BUT IT'S SUBSEQUENT TO THE IMMEDIATELY PRECEDING

8 ONE, AND AGAIN IT REPEATS, "MACOFFICE IS THE BIGGEST APPLE

9 CARROT. FROM A BROWSER, MAIL CLIENT AND JAVA PERSPECTIVE,

10 APPLE HAS OTHER OPTIONS AND WILL TRY TO SIT ON THE FENCE.

11 NEGOTIATING FROM A SINGLE POINT CENTERED AROUND MACOFFICE

12 WILL GIVE US BETTER LEVERAGE. BELIEVE APPLE WOULD HAVE A

13 STRONG NEGATIVE REACTION TO IE MOVING INTO THE WINDOWS

14 ORGANIZATION FROM A GENERAL PRINCIPLE AND NDA

15 PERSPECTIVE."

16 AGAIN, WHAT YOU SEE HERE IS MICROSOFT BEING

17 UNWILLING TO COMPETE ON THE MERITS WITH RESPECT TO THE

18 BROWSER OR THE MAIL CLIENT OR THE JAVA. WHAT THEY WANT TO

19 DO IS THEY WANT TO TIE THE RESOLUTION OF THOSE ISSUES TO

20 THE THREAT TO CANCEL MACOFFICE. THEY WANT TO USE THE

21 THREAT THAT THEY HAVE OF CANCELING MACOFFICE TO REQUIRE

22 APPLE TO AGREE TO MAKE IE THE DEFAULT BROWSER AND

23 DISADVANTAGE NETSCAPE.

24 HERE AS LATE AS FEBRUARY 13, 1998--THIS IS

25 FEBRUARY OF THIS YEAR--APPLE WANTS TO KEEP BOTH NETSCAPE

 

 

8

1 AND MICROSOFT DEVELOPING BROWSERS FOR MAC, BELIEVING THAT

2 IF ONE DROPS OUT THE OTHER WILL LOSE INTEREST, AND ALSO

3 NOT REALLY WANTING TO PICK UP THE DEVELOPMENT BURDEN.

4 PERFECTLY LOGICAL SENSIBLE POSITION FOR APPLE, AS A

5 CUSTOMER, TO BE IN. THEY WANT TO HAVE TWO SUPPLIERS.

6 "GETTING APPLE TO DO ANYTHING THAT SIGNIFICANTLY

7 MATERIALLY DISADVANTAGES NETSCAPE WILL BE TOUGH. DO AGREE

8 THAT APPLE SHOULD BE MEETING THE SPIRIT OF OUR

9 CROSS-LICENSE AGREEMENT AND THAT MACOFFICE IS THE PERFECT

10 CLUB TO USE ON THEM."

11 AGAIN, EXPLICIT, YOUR HONOR. APPLE DOESN'T WANT

12 TO DISADVANTAGE NETSCAPE. IT WANTS TO KEEP NETSCAPE. IT

13 WANTS TO KEEP THAT PRODUCT. THEY WERE COMPETING ON THE

14 MERITS. IT'S PERFECTLY CLEAR THAT APPLE WOULD STAY WITH

15 BOTH NETSCAPE AND MICROSOFT. MICROSOFT RECOGNIZES THAT

16 GETTING THEM TO CHANGE IS TOUGH, AND MACOFFICE IS THE

17 PERFECT CLUB TO USE ON THEM.

18 LET ME TURN TO ANOTHER AREA, YOUR HONOR, AND THIS

19 IS, AGAIN, RELATING TO INTEL, AND THIS RELATES TO AN INTEL

20 EFFORT IN ITS SO-CALLED ARCHITECTURE LABS, A PART OF INTEL

21 THAT HAS 750 ENGINEERS DEALING IN SOFTWARE.

22 THIS IS AN INTEL MEMO DATED AUGUST 2, 1995. IT

23 SAYS, "ON AUGUST 2, 1995, IN A MEETING OF INTEL AND

24 MICROSOFT EXECUTIVES, BILL GATES TOLD INTEL CEO ANDY GROVE

25 TO SHUT DOWN INTEL ARCHITECTURE LABS. GATES DIDN'T WANT

 

 

9

1 IAL'S 750 ENGINEERS INTERFERING WITH HIS PLANS FOR

2 DOMINATION OF THE PC INDUSTRY. GATES MADE VAGUE THREATS

3 ABOUT SUPPORT FOR OTHER PLATFORMS, AND ON THE SAME DAY HE

4 ANNOUNCED A MAJOR PROGRAM TO SUPPORT DIGITAL EQUIPMENT'S

5 ALPHA MICROPROCESSOR, AN INTEL COMPETITOR. GATES WAS

6 LIVID ABOUT IAL'S INVESTMENTS IN THE INTERNET AND WANTED

7 THEM STOPPED. ALL OF THIS WAS SAID IN THE PRESENCE OF

8 EXECUTIVES FROM BOTH COMPANIES."

9 AGAIN, YOUR HONOR, NOT LOW-LEVEL PEOPLE, BUT THE

10 VERY HIGHEST LEVEL OF MICROSOFT GOING TO THE HIGHEST LEVEL

11 OF A COMPETITOR AND TELLING THE COMPETITOR TO SHUT DOWN A

12 COMPETING SOFTWARE OPERATION, AND THREATENING THAT IF THEY

13 DIDN'T, THERE WAS GOING TO BE RETALIATION.

14 HERE IS BILL GATES'S WRITING AN E-MAIL TO ANDY

15 GROVE, AGAIN COMPLAINING ABOUT SOME OF INTEL'S ACTIVITIES

16 HERE RELATING TO SOMETHING CALLED NSP, NATIVE SINGLE

17 PROCESSING. AND GATES IS COMPLAINING TO GROVE, "I DON'T

18 UNDERSTAND WHY INTEL FUNDS A GROUP THAT IS AGAINST

19 WINDOWS 95."

20 NOW, OF COURSE, IN A COMPETITIVE INDUSTRY WHERE

21 COMPANIES ARE FREE TO MAKE THEIR OWN CHOICES, COMPANIES

22 ARE ALWAYS FREE TO FUND GROUPS, WHETHER IT'S IN FAVOR OF

23 WINDOWS 95 OR NOT. BUT WHAT GATES IS SAYING TO INTEL, AS

24 YOU SAW MICROSOFT SAY TO APPLE AND INTEL BEFORE AND

25 INTUIT, "YOU CANNOT FUND THINGS THAT COMPETE WITH US OR WE

 

 

10

1 WILL RETALIATE."

2 HERE IS SOMETHING THAT'S EVEN CLEARER. JULY 7,

3 1995. THE PRIOR MEMO WAS FROM MR. GATES TO MR. GROVE.

4 HERE IS MR. GATES REPORTING TO HIS CHIEF EXECUTIVES ABOUT

5 AN IN-PERSON DINNER THAT HE HAD WITH ANDY GROVE. IT

6 BEGINS BY SAYING, "I SPENT THREE HOURS IN SAN JOSE

7 WEDNESDAY NIGHT HAVING DINNER WITH ANDY GROVE."

8 HE GOES ON TO SAY, "THE MAIN PROBLEM BETWEEN US

9 RIGHT NOW IS NSP"--THE NATIVE SINGLE PROCESSING FROM THE

10 PREVIOUS DOCUMENT--"WE ARE TRYING TO CONVINCE THEM TO

11 BASICALLY NOT SHIP NSP."

12 AGAIN, WHAT YOU HAVE IS MICROSOFT TRYING TO TELL

13 ANOTHER COMPANY WHAT PRODUCTS IT CAN AND CANNOT SHIP.

14 NOW, ULTIMATELY, INTEL AGREED, AND PART OF THE

15 PRESSURE WAS THAT--AND THE EVIDENCE WILL SHOW THAT

16 MICROSOFT WENT AROUND TO ALL THE OEM'S, AND AS WE SAW IN

17 CONNECTION WITH THE TIE-IN AND THE OEM FORECLOSURE

18 DOCUMENTS, THE OEM'S ARE DEPENDENT ON MICROSOFT. AND IN

19 THE DOCUMENTS THAT WE PREVIOUSLY SAW, WHAT MICROSOFT TOLD

20 THE OEM'S WAS, "YOU GOT TO START FAVORING THE MICROSOFT

21 BROWSER AND SHUTTING OUT THE NETSCAPE BROWSER." HERE,

22 WHAT MICROSOFT DID WAS WENT TO THE OEM'S AND SAID, "WE

23 DON'T WANT YOU TO HAVE ANYTHING TO DO WITH INTEL AND NSP,"

24 AND THE OEM'S FELL INTO LINE, AND INTEL BACKED OFF.

25 AND YOU HAVE A GATES MEMORANDUM--AGAIN, THIS IS A

 

 

11

1 MEMORANDUM FROM MR. GATES PERSONALLY--OCTOBER 18, 1995,

2 AND HE SAYS, "PAUL," DIRECTING THIS TO PAUL MARITZ, "INTEL

3 FEELS WE HAVE ALL THE OEM'S ON HOLD WITH OUR NSP CHILL."

4 THAT'S REFERRING TO WHAT THEY DID.

5 MR. GATES CONTINUES, QUOTE, "FOR EXAMPLE, THEY

6 FEEL HEWLETT-PACKARD IS UNWILLING TO DO ANYTHING RELATIVE

7 TO MMX EXPLOITATION OR THE NEW AUDIO SOFTWARE INTEL IS

8 DOING USING WINDOWS 95 UNLESS WE SAY IT'S OKAY."

9 WHAT MICROSOFT HAS DONE IS IT HAS GOTTEN THE

10 OEM'S, AND IT HAS TOLD THEM THEY'RE NOT SUPPOSED TO DO

11 ANYTHING IN CONNECTION WITH SOFTWARE AND INTEL UNLESS

12 MICROSOFT APPROVES.

13 MR. GATES GOES ON. HE DOESN'T SAY, "WELL, THIS

14 IS AGAINST COMPANY POLICY." HE DOESN'T SAY, "THAT'S A BAD

15 THING TO DO." IT WOULD BE WRONG, THAT'S FOR SURE. WHAT

16 HE SAYS IS, "THIS IS GOOD NEWS BECAUSE IT MEANS OEM'S ARE

17 LISTENING TO US."

18 AND THEN HE GOES ON--THIS IS VERY

19 INTERESTING--"ANDY," REFERRING TO ANDY GROVE, "BELIEVES

20 INTEL IS LIVING UP TO ITS PART OF THE NSP BARGAIN," ITS

21 PART OF THE NSP BARGAIN--THAT IS, THE BARGAIN THAT THEY

22 WON'T SHIP NSP--"AND THAT WE SHOULD LET OEM'S KNOW THAT

23 SOME OF THE NEW SOFTWARE WORK INTEL IS DOING IS OKAY."

24 IN OTHER WORDS, YOUR HONOR, AS MR. GATES IS

25 ADMITTING, THEY MADE THIS BARGAIN WITH INTEL, AND NOW WHAT

 

 

12

1 INTEL IS SAYING IS, "OKAY, WE HAVE AGREED TO GIVE YOU WHAT

2 YOU WANT, NOW WILL YOU TELL THE OEM'S IT'S OKAY TO WORK

3 WITH US IN SOME OTHER SOFTWARE."

4 AND MR. GATES FINISHES, "IF INTEL IS NOT STICKING

5 TOTALLY TO ITS PART OF THE DEAL, LET ME KNOW."

6 THE BURDEN OF THE ANTITRUST LAWS IS THE

7 COMPETITORS ARE NOT SUPPOSED TO GO AND MAKE BARGAINS AND

8 MAKE DEALS AS TO WHAT THEY WILL SHIP AND WHAT THEY WILL

9 NOT SHIP, WHO THEY WILL COMPETE WITH AND WHO THEY WILL

10 COMPETE AGAINST, WHAT COMPETITOR THEY FAVOR AND WHAT

11 COMPETITOR THEY DISFAVOR. AND YET, WHAT YOU SEE IS A

12 CONSISTENT PATTERN OF MICROSOFT DOING THIS WITH OEM'S,

13 WITH ISP'S, WITH ICP'S, WITH INTEL, WITH APPLE, WITH

14 INTUIT, USING ITS MONOPOLY POWER, USING ITS LEVERAGE, AND

15 USING EVERYTHING THAT IT HAS TO THREATEN AND INDUCE

16 COMPETITORS AND CUSTOMERS TO AGREE NOT TO DO WHAT THE

17 ANTITRUST LAWS SAY THEY ARE SUPPOSED TO DO, WHICH IS TO

18 COMPETE AND MAKE PURCHASING DECISIONS ON THE MERITS.

19 NOW, ONE OF THE THINGS THAT YOU MAY HEAR FROM

20 MICROSOFT, AND I CERTAINLY SUGGESTED THIS WHEN THEY WERE

21 ARGUING THAT THEY OUGHT TO TAKE THE DEPOSITIONS OF THOSE

22 PROFESSORS UP AT HARVARD AND MIT, IS THAT THERE WERE SOME

23 MISTAKES MADE BY NETSCAPE. AND I SUPPOSE IT IS PROBABLY

24 SO THAT EVERY COMPANY MAKES MISTAKES. NO COMPANY IS

25 PERFECT. AND WE HAVE CERTAINLY SEEN A LOT OF DOCUMENTS

 

 

13

1 FROM MICROSOFT ABOUT THE BUGS IN THE MICROSOFT SYSTEMS,

2 BUT I THOUGHT IT WAS USEFUL TO JUST KEEP IN PERSPECTIVE

3 WHAT MICROSOFT WAS SAYING ABOUT NETSCAPE, NOT IN THIS

4 LITIGATION, BUT WHILE THEY WERE COMPETING AGAINST

5 NETSCAPE.

6 AND FIRST--AND THIS IS KIND OF INTERESTING FOR

7 THE DATE--JANUARY 11TH, 1995, THE COURT WILL RECALL

8 MR. GATES SAYING AT HIS DEPOSITION THAT WE PLAYED AT THE

9 BEGINNING, THAT HE JUST DIDN'T HAVE ANY IDEA ABOUT WHAT

10 NETSCAPE WAS DOING IN THE FIRST HALF OF 1995. HE WAS

11 ACTUALLY FOLLOWING IT, AS THE DOCUMENTS WILL SHOW, QUITE

12 CLOSELY.

13 INDEED, HERE IS A SITUATION WHERE DAN ROSEN

14 REPORTS TO HIM ABOUT JIM BARKSDALE, WHO IS GOING TO BE OUR

15 FIRST WITNESS, LEAVING AT&T WIRELESS TO GO TO WORK AS

16 CHIEF EXECUTIVE OFFICER OF NETSCAPE. AND DAN ROSEN WRITES

17 TO GATES THAT THIS IS GOING TO MAKE NETSCAPE AN EVEN

18 BIGGER COMPETITIVE THREAT THAN THEY HAD ANTICIPATED.

19 THAT'S IMPORTANT FOR TWO REASONS: ONE, IT MAKES CLEAR

20 THEY ARE ALREADY ANTICIPATING IN JANUARY OF 1995 NETSCAPE

21 AS A COMPETITIVE THREAT; AND SECOND, IT'S RECOGNIZING THAT

22 THE INCREASED MANAGEMENT DEPTH THAT'S BEING BROUGHT IN IS

23 GOING TO BE IMPORTANT.

24 AND BILL GATES WRITES BACK NOT "I DON'T CARE

25 ABOUT NETSCAPE," BUT "I AM REALLY SURPRISED. BARKSDALE IS

 

 

14

1 A VERY GOOD MANAGER AND VERY EXPERIENCED. NETSCAPE IS

2 GETTING MORE AND MORE IMPORTANT FOR US TO WATCH."

3 THIS IS STEVE BALLMER, NOT NECESSARILY A PERSON

4 KNOWN TO GIVE OUT COMPLIMENTS TO COMPETITORS TOO FREELY,

5 QUOTE, "HAVE NO CONFUSION IN YOUR HEAD: JOB ONE FOR US

6 RIGHT NOW IS THE INTERNET AND DEFEATING NETSCAPE, SAYS

7 MICROSOFT EXECUTIVE VICE PRESIDENT STEVE BALLMER. THEY

8 ARE SIMPLY OUR SMARTEST COMPETITOR."

9 THIS IS BILL GATES WRITING TO HIS TOP EXECUTIVES,

10 "DURING THIS THINKWEEK, I HAD A CHANCE TO PLAY WITH A

11 NUMBER OF NETSCAPE PRODUCTS. THIS REINFORCED THE

12 IMPRESSION THAT I THINK ALL OF US SHARE, THAT NETSCAPE IS

13 QUITE AN IMPRESSIVE COMPETITOR. THEY ARE MOVING AT FULL

14 SPEED."

15 AND IN DECEMBER OF 1996, AGAIN, BILL GATES, "I

16 THINK ON THE UI"--USER INTERFACE--"FRONT AND THE

17 TECHNOLOGY FRONT, NETSCAPE HAS TAKEN THE BASIC IE 4 IDEA

18 AND IS EXECUTING ON IT FAR BETTER THAN WE ARE."

19 SO, YOU HAVE A FORMAL COMPETITOR IN NETSCAPE,

20 COMPETITOR WITH A GOOD PRODUCT, WITH A BIG HEAD START, AND

21 THEN YOU HAVE THE EFFECTS OF MICROSOFT'S CONDUCT. I WANT

22 TO SHOW THE COURT JUST A FEW CHARTS THAT DEMONSTRATE SOME

23 OF THAT EFFECT.

24 LET ME GO TO EXHIBIT 5.

25 EXHIBIT 5 SHOWS NETSCAPE'S SHARE AT THE TOP AND

 

 

15

1 MICROSOFT'S SHARE AT THE BOTTOM. AND THIS IS SOME DATA

2 ACCORDING TO A COMPANY CALLED ADKNOWLEDGE, AND IT RELATES

3 TO BROWSER USAGE.

4 AND WHAT YOU SEE IS STARTING IN JANUARY OF 1997

5 UNTIL AUGUST OF 1995, NETSCAPE'S SHARE STARTS HIGH AND

6 COMES DOWN, STARTS AROUND 75 PERCENT, COMES DOWN TO ABOUT

7 50 PERCENT. MICROSOFT STARTS ABOUT 20 PERCENT AND GOES

8 UP.

9 NOW, THAT'S IMPORTANT.

10 AND THE NEXT CHART WILL ALSO SHOW MICROSOFT'S OWN

11 ESTIMATE OF ESSENTIALLY THE SAME THING.

12 THIS IS MICROSOFT'S ESTIMATE, AND THIS IS

13 GOVERNMENT EXHIBIT 14, AND IT SHOWS BOTH ACTUAL AND

14 PROJECTED MARKET SHARES THAT MICROSOFT HAS FOR BROWSER,

15 AND IT SHOWS MICROSOFT'S SHARE CLIMBING SHARPLY AND THEN

16 CONTINUING TO CLIMB AS IT'S PROJECTED TO GO UP TO

17 SOMEWHERE BETWEEN 59 AND 67 PERCENT, DEPENDING ON THE

18 INTERNAL ESTIMATE.

19 NOW, THAT'S IMPORTANT, YOUR HONOR, BUT EVEN MORE

20 IMPORTANT IS TO SHOW HOW THAT SHARE BREAKS DOWN.

21 THE COURT WILL REMEMBER THAT WHEN WE WERE TALKING

22 ABOUT AMERICA ONLINE AND ISP'S, WE TALKED ABOUT HOW

23 MICROSOFT WAS PREPARED TO DO WHATEVER IT TOOK TO GET AOL,

24 IN PARTICULAR, TO SIGN AN EXCLUSIVE OR ALMOST EXCLUSIVE

25 AGREEMENT. AND THE COURT WILL RECALL THAT ONE OF THE

 

 

16

1 MICROSOFT PEOPLE SAID THAT THEY GAVE AWAY SO MUCH ACCESS

2 TO AOL THAT IT WAS LIKE, QUOTE, "PUTTING A BULLET THROUGH

3 THE HEAD OF MSN," WHICH WAS MICROSOFT'S ONLINE SERVICE

4 PROVIDER, AND WHAT YOU HAD WAS MICROSOFT BEING WILLING TO

5 SACRIFICE ONE OF ITS CHILDREN, MSN, IN ORDER TO GAIN AN

6 ADVANTAGE IN THE BROWSER WAR, AND THIS SHOWS YOU WHY

7 MICROSOFT WAS PREPARED TO DO THAT.

8 THE BOTTOM BLUE LINE IS MICROSOFT'S SHARE OF THE

9 BROWSER MARKET, ACCORDING TO ADKNOWLEDGE, FOR ISP'S THAT

10 MICROSOFT CLASSIFIES--NOT ME OR SOMEBODY ELSE, BUT

11 MICROSOFT CLASSIFIES--AS HAVING IE PARITY; THAT IS,

12 INTERNET EXPLORER AND NAVIGATOR ARE TREATED IN PARITY.

13 WHAT YOU SEE IS A LITTLE CHANGE BUT NOT A HECK OF

14 A LOT OF CHANGE, CERTAINLY NOT COMPARED TO THE OTHER

15 LINES. THE RED LINE IS WHAT SHOWS WHAT HAPPENS WITH

16 MICROSOFT'S SHARE OF ALL ISP'S; AND THE TOP LINE, THE

17 SOLID BLUE LINE, SHOWS MICROSOFT'S SHARE OF AOL AND

18 COMPUSERVE, THE TWO BIGGEST ONLINE SERVICE PROVIDERS, THE

19 ONES THAT MICROSOFT GAVE THE BEST DEAL TO, GOT THE MOST

20 EXCLUSIVE DEALING ARRANGEMENTS FROM, THE SERVICE PROVIDERS

21 THAT THEY WERE PREPARED TO PUT A BULLET THROUGH THE HEAD

22 OF MSN IN ORDER TO GET IT.

23 NOW, THIS REFLECTS THE SAME KIND OF DATA IN A

24 DIFFERENT CHART. THAT CAME FROM ADKNOWLEDGE. THIS COMES

25 FROM MICROSOFT'S INTERNAL DOCUMENTS.

 

 

17

1 AND YOU WILL REMEMBER THAT MICROSOFT, WHEN IT WAS

2 DEALING WITH ISP'S, REQUIRED THEM TO REPORT REGULARLY ON

3 WHAT THEIR SHIPMENTS WERE, AND THE PURPOSE WAS TO ALLOW

4 MICROSOFT TO KEEP TRACK OF HOW PEOPLE WERE SHIPPING ITS

5 BROWSER COMPARED TO NETSCAPE'S BROWSER.

6 NOW, FIRST, THESE FIRST TWO BARS RIGHT HERE, WHAT

7 THAT COMPARES IS THE WEIGHTED AVERAGE MICROSOFT SHARE OF

8 BROWSER SHIPMENTS FROM ISP'S. ALL THE ISP'S THAT ARE

9 TRACKED IN THESE PARTICULAR MICROSOFT DOCUMENTS TAKE A

10 WEIGHTED AVERAGE. IF YOU LOOK AT ISP'S WHERE IE WAS THE

11 DEFAULT BROWSER--THAT IS, WHERE THERE WAS AN EXCLUSIVE OR

12 NEAR EXCLUSIVE ARRANGEMENT TO MAKE IE THE DEFAULT

13 BROWSER--94 PERCENT OF THE BROWSERS THOSE ISP'S SHIP ARE

14 INTERNET EXPLORER. ON THE OTHER HAND, FOR PEOPLE WHERE IE

15 WAS NOT THE DEFAULT BROWSER, THEY ONLY SHIP LESS THAN 14

16 PERCENT.

17 SAME THING WITH BROWSER USAGE. OVER 60 PERCENT

18 IE BROWSER USAGE AMONG CUSTOMERS OF ISP'S WERE THEY HAVE A

19 SPECIAL DEAL, LESS THAN 20 PERCENT WHERE THEY DON'T HAVE A

20 SPECIAL DEAL.

21 AND THIS CHART, TOGETHER WITH THE PREVIOUS

22 EXHIBIT, YOUR HONOR, DEMONSTRATES IN ONE WAY--IT DOESN'T

23 TAKE ALL THE THINGS INTO ACCOUNT, BUT IT DEMONSTRATES ONE

24 IMPACT THAT MICROSOFT'S CONDUCT IS HAVING, AN IMPACT THAT

25 ISN'T RELATED TO WHETHER THEY MADE MISTAKES, ISN'T RELATED

 

 

18

1 TO THE QUALITY OF THE BROWSERS. IT'S RELATED TO THE

2 NATURE OF THE RESTRICTIONS THAT MICROSOFT WAS IMPOSING.

3 NOW, WE SAID FROM THE BEGINNING, YOUR HONOR, THAT

4 THERE IS AN URGENCY HERE, AND THE REASON WE SAID THERE IS

5 AN URGENCY, EVEN THOUGH THESE LINES ARE NOT MOVING

6 PARTICULARLY--WELL, THEY ARE ACTUALLY MOVING PRETTY

7 SHARPLY, BUT THEY'RE NOT MOVING AS SHARPLY AS THESE LINES

8 ARE, AND THE REASON IS THE ORIGINAL MARKET SHARE CHARTS,

9 AND IN MOST OF THE MARKET SHARE CHARTS THAT THE COURT HAS,

10 ARE CHARTS THAT MEASURE TOTAL BROWSER USAGE. THAT MEANS

11 THAT IT'S AN INSTALLED-BASE MEASUREMENT. WHAT THAT MEANS

12 IS THAT IT INCLUDES IN THE MARKET SHARE FOR NETSCAPE

13 EVERYBODY THAT GOT THE BROWSER ONE, TWO, THREE YEARS AGO,

14 WHEN NETSCAPE'S SHARE WAS VERY HIGH.

15 WHAT'S IMPORTANT, OF COURSE, IS WHAT'S HAPPENING

16 FOR PEOPLE WHO ARE GETTING THEIR BROWSERS NOW. AND WHAT

17 THIS SHOWS, FROM MICROSOFT'S OWN DOCUMENTS, TAKING WHAT

18 MICROSOFT CLASSIFIES AS THE TOP ACCOUNTS, 76 PERCENT ARE

19 GETTING THE MICROSOFT BROWSER AS OF MAY, AND THEY PROJECT

20 THAT AT THE END OF THIS YEAR THAT WILL GO TO 88 PERCENT,

21 SO THAT IF YOU JUST LOOK AT NEW USERS, THESE ARE THE

22 PEOPLE THAT ARE BEING FORECLOSED BY THE BUNDLING, BY THE

23 TIE-IN, BY THE SCREEN RESTRICTIONS, BY THE FORECLOSURE OF

24 THE OEM CHANNEL, BY THE FORECLOSURE OF THE ISP CHANNEL;

25 WHEN YOU STRIP OUT THE INSTALLED-BASE EFFECT OF HAVING THE

 

 

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1 OLD PEOPLE WHO HAVE BEEN USING NETSCAPE FOR A LONG TIME

2 AND HAVEN'T SHIFTED--AND REMEMBER: THE MICROSOFT

3 DOCUMENTS ALL SAID, "WE ARE NOT GOING TO GET THESE PEOPLE

4 TO SHIFT ON THE MERITS. WE ARE ONLY GOING TO GET THEM TO

5 SHIFT AS WE UPGRADE THEM TO A NEW OPERATING SYSTEM TO

6 WHICH WE HAVE BUNDLED OR TIED THE BROWSER."

7 BUT AS THAT HAPPENS OVER TIME, WHAT HAPPENS IS

8 THAT MICROSOFT GETS THE OVERWHELMING MAJORITY OF ALL NEW

9 USERS, AND NETSCAPE IS RELEGATED TO A SMALLER SHARE OF AN

10 EVER DECLINING GROUP OF PEOPLE; THAT IS, PEOPLE WHO HAVE

11 HAD THEIR COMPUTERS FOR MORE THAN A COUPLE OF YEARS.

12 MICROSOFT GOT A COMPANY CALLED GIGA INFORMATION

13 GROUP RESEARCH TO DO SOME RESEARCH ON ACTUAL AND PROJECTED

14 MARKET SHARES, AND THEY THEN TOOK THESE MARKET SHARES, AND

15 THEY GAVE THEM TO PERSPECTIVE CUSTOMERS TO CONVINCE THE

16 CUSTOMERS THAT THEY OUGHT TO GO WITH MICROSOFT BECAUSE

17 MICROSOFT IS GOING TO PREVAIL, AND NOT TO NETSCAPE. AND

18 WHAT THIS CHART DEMONSTRATES IS WHERE THE FUTURE OF THE

19 BROWSER MARKET IS GOING IN THE ABSENCE OF SOME KIND OF

20 INTERVENTION. AND WHAT THE PREVIOUS CHART SHOWS IS IT'S

21 GOING THERE VERY, VERY FAST.

22 WHAT I HAVE TRIED TO DO, YOUR HONOR, IS GO

23 THROUGH, IN AN AMOUNT OF TIME APPROPRIATE FOR AN OPENING,

24 SOME OF OUR EVIDENCE. THERE IS A GREAT DEAL MORE

25 EVIDENCE. I THINK FOR EVERY DOCUMENT THAT WE USED THERE

 

 

20

1 ARE MANY MORE. CERTAINLY, FOR EVERY DEPOSITION CLIP THAT

2 WE HAVE USED THERE ARE MANY MORE.

3 WHAT WE ARE GOING TO BE DOING OVER THE TRIAL IS

4 TRYING TO SHOW THE COURT THE EVIDENCE THAT EXISTS, THE

5 DOCUMENTS, THE TESTIMONY, THE EXHIBITS, AND THE FACTS, THE

6 FIGURES, AND THE STATISTICS. WE WOULD ASK THE COURT, AS

7 THE EVIDENCE COMES IN BOTH FROM OUR SIDE AND FROM THE

8 OTHER SIDE, TO DO WHAT I KNOW THE COURT WILL, WHICH IS TO

9 LOOK AT THAT EVIDENCE IN CONTEXT; AND WHEN SOMEBODY

10 ATTACKS THE EVIDENCE, TO ASK YOURSELF, "IS THAT A TACT

11 CONSISTENT WITH THE CONTEMPORANEOUS RECORDS? IS IT

12 CONSISTENT WITH COMMON SENSE? IS WHAT I'M BEING TOLD

13 SOMETHING THAT CAN BE SQUARED FROM THE WRITTEN RECORD THAT

14 PEOPLE LEFT BEHIND AT THE TIME THAT THEY WERE ACTUALLY

15 DOING THESE THINGS?"

16 THANK YOU VERY MUCH.

17 THE COURT: ALL RIGHT. WHAT'S YOUR PLEASURE,

18 MR. WARDEN? DO YOU WANT TO START NOW, OR WOULD YOU PREFER

19 TO DEFER UNTIL TOMORROW MORNING?

20 MR. WARDEN: TOMORROW MORNING WOULD BE FINE, YOUR

21 HONOR.

22 THE COURT: ALL RIGHT. I HAVE RECEIVED A THIRD

23 MOTION--I DON'T RECALL WHO IS THE MOVANT--TO DEAL WITH

24 CONFIDENTIAL INFORMATION THAT MIGHT COME INTO EVIDENCE.

25 I THINK, PERHAPS, THE BEST WAY TO DO THAT IS TO

 

 

21

1 ALLOW BOTH SIDES TO RESPOND TO THESE MOTIONS AND THEN,

2 PERHAPS, SET ASIDE FOR ONE DAY FOR HEARING ALL OF THEM.

3 MR. WARDEN: THAT'S FINE, YOUR HONOR.

4 MR. BOIES: YOUR HONOR, I HAVE ONE HOUSEKEEPING

5 MATTER. WE HAVE BEEN ASKED BY THE PRESS WHETHER WE COULD

6 MAKE AVAILABLE TO THEM THE DOCUMENTS AND MATERIALS THAT WE

7 USED IN THE OPENING TODAY. THAT STUFF IS OBVIOUSLY NOT IN

8 EVIDENCE YET, BUT IT HAS BEEN USED IN COURT, AND I WASN'T

9 SURE HOW TO INTERPRET THE COURT'S ORDER.

10 MR. WARDEN: OUR POSITION IS, IF IT'S NOT IN

11 EVIDENCE, IT'S UNDER THE DISCOVERY PROTECTIVE ORDER; AND

12 WHEN IT COMES INTO EVIDENCE, IT'S UNDER THE FINAL PRETRIAL

13 ORDER.

14 THE COURT: FAIR ENOUGH. THAT'S A BRIGHT-LINE

15 RULE, AND I THINK WE WILL ADHERE TO IT.

16 MR. BOIES: THANK YOU, YOUR HONOR.

17 MR. HOLLEY: YOUR HONOR, MAY I RAISE ONE ISSUE

18 ABOUT THIS CONFIDENTIALITY POINT?

19 THE COURT: SURE.

20 MR. HOLLEY: WITH NETSCAPE, WE HAVE AGREED,

21 SUBJECT TO YOUR HONOR'S APPROVAL, THAT WE WILL REDACT

22 CERTAIN DOCUMENTS TO TAKE OUT INFORMATION THAT WE AGREE

23 WITH NETSCAPE IS PROPRIETARY AND SHOULD NOT BE DISCLOSED

24 IN OPEN COURT, AND WE PROPOSE TO USE THE REDACTED VERSIONS

25 OF THOSE DOCUMENTS, BUT I DIDN'T WANT TO DO THAT UNLESS

 

 

22

1 YOUR HONOR--

2 THE COURT: THAT'S PERFECTLY ALL RIGHT. THAT'S

3 FINE.

4 MR. HOLLEY: THANK YOU, YOUR HONOR.

5 THE COURT: ALL RIGHT. WE WILL SEE YOU TOMORROW

6 MORNING AT 10:00.

7 (WHEREUPON, AT 2:35 P.M., THE HEARING WAS

8 ADJOURNED UNTIL 10:00 A.M., THE FOLLOWING DAY.)

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