NO. 98-1233 :
:
MICROSOFT CORPORATION, ET AL. :
DEFENDANTS :
______________________________________
WASHINGTON, D. C.
OCTOBER 19, 1998
(A.M. SESSION)
TRANSCRIPT OF PROCEEDINGS
BEFORE THE HONORABLE THOMAS P. JACKSON
COURT REPORTER: PHYLLIS MERANA
6816 U. S. COURTHOUSE
3RD & CONSTITUTION AVE., N.W.
WASHINGTON, D. C.
281-6648
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1
FOR THE UNITED STATES: PHILLIP MALONE, ESQ.
2 DAVID BOIES, ESQ.
U. S. DEPT. OF JUSTICE
3 ANTITRUST DIVISION
SAN FRANCISCO, CA.
4
FOR THE DEFENDANT: JOHN WARDEN, ESQ.
5 RICHARD J. UROWSKY, ESQ.
STEVEN L. HOLLEY, ESQ.
6 RICHARD PEPPERMAN, ESQ.
SULLIVAN & CROMWELL
7 125 BROAD STREET
NEW YORK, NEW YORK
8
FOR THE STATE OF NEW YORK: STEPHEN HOUCK, ESQ.
9 ALAN R. KUSINITZ, ESQ.
N. Y. STATE DEPT. OF LAW
10 120 BROADWAY, SUITE 2601
NEW YORK, NEW YORK
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1 I N D E X
2 OPENING STATEMENT BY MR. HOUCK PAGE 11
3 OPENING STATEMENT BY MR. BOIES PAGE 31
4
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2 THE DEPUTY CLERK: CIVIL ACTIONS 98-1232 AND
3 98-1233, UNITED STATES VERSUS MICROSOFT AND STATE OF NEW
4 YORK, ET AL. VERSUS MICROSOFT.
5 MR. MALONE, STEVEN HOUCK AND DAVID BOIES FOR THE
6 GOVERNMENT.
7 JOHN WARDEN, STEVEN HOLLEY, RICHARD UROWSKY AND
8 WILLIAM NEUKOM FOR THE DEFENDANT.
9 THE COURT: ALL RIGHT. GENTLEMEN, WE HAVE GOT
10 SOME PRELIMINARY MATTERS THAT WE PROBABLY HAVE TO OR SHOULD
11 ADDRESS BEFORE WE TAKE OPENING STATEMENTS. THE ONLY ONE I
12 HAVE HAD A CHANCE TO LOOK AT IN ANY DETAIL IS THE
13 GOVERNMENT'S RENEWED EMERGENCY DISCOVERY MOTION.
14 MR. MALONE, LET ME TELL YOU TENTATIVELY AT THE
15 OUTSET, READING YOUR THIRD REQUEST LITERALLY, I CERTAINLY
16 WOULD HAVE READ IT TO RELATE ONLY TO SALES TO OEM'S.
17 MR. MALONE: YOUR HONOR, AT THE TIME WE DRAFTED
18 IT, WE DID NOT KNOW WHAT PRECISELY THESE DATABASES WERE, OR
19 WHAT FORM IN WHICH THEY WERE KEPT. AND SO WE SPECIFIED BY
20 NAME THE TWO THAT WE HAD SOME INFORMATION ABOUT, THE TWO
21 THAT WE KNEW EXISTED. THOSE WERE THE MS SALES AND THE OEM
22 QUERY DATABASE. AND THEN, TO MAKE SURE IF THERE WERE OTHERS
23 OF THAT TYPE, WE SPECIFIED. AND TO TRY TO LIMIT IT AND MAKE
24 IT AS SPECIFIC AS WE COULD, FOR THAT ADDITIONAL PART WE SAID
25 OTHER DATABASES RELATING TO SALES OF MICROSOFT OPERATING
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1 SYSTEM PRODUCTS TO OEM'S, BUT WE --
2 THE COURT: TO OEM'S?
3 MR. MALONE: CORRECT. BUT WE DID THAT IN ADDITION
4 TO SAYING THE OEM QUERY DATABASE AND THE MS SALES DATABASE,
5 AND FOR THOSE TWO, AS WELL AS OTHERS THAT MIGHT EXIST, THE
6 ORIGINAL REQUEST SAID ALL DATA CONTAINED IN OR THE CONTENTS
7 THEREOF. THE CRITICAL THING, I THINK, YOUR HONOR, IS THAT
8 WE CONTINUE TO TRY TO MAKE THIS AS NARROW AS POSSIBLE.
9 WE'RE NOT DOING WHAT MICROSOFT HAS SUGGESTED IN ITS
10 OPPOSITION; THAT IS, TRYING TO GAIN INFORMATION ABOUT
11 HUNDREDS OF PRODUCTS THAT HAVE NOTHING TO DO WITH THIS
12 LITIGATION.
13 THE COURT: THAT MAY VERY WELL BE, BUT THE FACT OF
14 THE MATTER IS, READING YOUR REQUEST LITERALLY, I READ IT AS
15 BEING LIMITED TO INFORMATION RELATING TO OEM'S, THE OEM
16 DISTRIBUTION CHANNEL.
17 MR. MALONE: IT WAS NOT INTENDED TO BE SO NARROW.
18 IF A LITERAL READING IS THAT NARROW, I CERTAINLY ACCEPT THE
19 COURT'S READING OF THAT AND WE WOULD SUGGEST -- REQUEST
20 LEAVE OF THE COURT TO INITIATE NEW DISCOVERY SPECIFICALLY --
21 THE COURT: YOU CAN INITIATE A NEW REQUEST.
22 MR. MALONE: YOUR HONOR, IF WE DO THAT -- I RAISE
23 THIS NOW ONLY BECAUSE WE STILL HAVE A TEAM OF PEOPLE IN
24 SEATTLE WAITING TO TRY TO GO THROUGH THIS DATA -- WE WOULD
25 SERVE THAT REQUEST ON MICROSOFT TODAY AND MAKE IT AS NARROW
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1 AS OUR MOTION SAYS; THAT IS, DATA IN THE OTHER TWO CHANNEL
2 PARTS OF THE DATABASE. THAT IS WHAT THEY CALL FINISHED
3 GOODS OR THE RETAIL CHANNEL AND THE ON-LINE CHANNEL. FOR
4 THOSE TWO FIELDS OR THOSE TWO CHANNELS --
5 THE COURT: THEY ARE GOING TO OBJECT ON RELEVANCE
6 GROUNDS, I AM SURE. TELL ME WHAT YOU THINK THE RELEVANCE IS
7 OF THAT INFORMATION.
8 MR. MALONE: ABSOLUTELY, YOUR HONOR. WHAT WE
9 BELIEVE THAT INFORMATION WILL SHOW IS SHIPMENTS OF, SALES
10 OF, AND REVENUES FOR THE TWO THINGS THAT REALLY ARE AT THE
11 HEART OF THIS CASE: WINDOWS OPERATING SYSTEMS AND THE
12 INTERNET EXPLORER. AND IT'S THAT KIND OF VERY BASIC
13 STATISTICAL INFORMATION FOR THOSE TWO THINGS ONLY, NOT THE
14 HUNDREDS OF OTHER PRODUCTS THAT MAY BE IN THERE, THAT WE
15 THINK REALLY GO RIGHT TO THE HEART OF THIS.
16 MICROSOFT'S SALES AND REVENUES FROM WINDOWS EXCEL,
17 AND IN PARTICULAR HOW IT TREATS INTERNET EXPLORER, HOW IT
18 ATTRIBUTES THE REVENUE FROM INTERNET EXPLORER IN THE
19 RETAIL -- FOR EXAMPLE, IN ANY THAT IT HAS IN THE ON-LINE
20 CHANNEL. WE THINK THAT GOES TO THE VERY CORE ISSUE IN THE
21 CASE, HOW MICROSOFT TREATS THESE TWO PRODUCTS.
22 THE COURT: IT MIGHT BE SUGGESTED THAT IF IT'S
23 SUCH A CORE ISSUE, YOU SHOULD HAVE THOUGHT OF IT EARLIER.
24 MR. MALONE: AND AS WE SAID IN OUR ORIGINAL
25 PAPERS, HAD WE SEEN THE DATABASES, AND PARTICULARLY HAD WE
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1 HAD ACCESS TO THEM BACK IN AUGUST WHEN WE FIRST REQUESTED
2 THEM AND HAD NOT HAD TO GO THROUGH THE SEVERAL ROUNDS OF
3 MOTIONS TO GET THE ACCESS WE HAD, WE WOULD HAVE BROUGHT --
4 HAD AN INITIAL REQUEST BEEN NECESSARY, WE CERTAINLY WOULD
5 HAVE BROUGHT THAT MUCH SOONER.
6 WE'RE BRINGING THIS NOW ONLY BECAUSE WE NOW HAVE
7 SEEN PORTIONS OF THE DATABASE AT LEAST AND UNDERSTAND THAT
8 THERE ARE THESE OTHER CHANNELS TO WHICH WE HAVE BEEN DENIED
9 ACCESS THAT DO CONTAIN WHAT SEEMS TO BE HIGHLY RELEVANT AND
10 DIRECTLY PROBATIVE DATA. THAT IS REALLY ALL WE WANT AND ALL
11 THAT WE WOULD ISSUE A NEW REQUEST FOR.
12 THE COURT: AND YOU'RE ONLY LOOKING AT DATA AS TO
13 INTERNET EXPLORER; IS THAT RIGHT?
14 MR. MALONE: AND WINDOWS. ONLY WINDOWS OPERATING
15 SYSTEM AND INTERNET EXPLORER, NOT ANY OF THE OTHER DOZENS OR
16 HUNDREDS OF PRODUCTS THAT THEY SAY ARE IN THE DATABASE.
17 THE COURT: ALL RIGHT. LET ME HEAR FROM THE
18 DEFENDANT. MR. HOLLEY?
19 MR. HOLLEY: YOUR HONOR, I WOULD JUST POINT OUT
20 THAT THE ENTIRE HISTORY OF THIS SITUATION PROVES THAT I WAS
21 RIGHT BACK IN EARLY AUGUST WHEN I SAID TO MR. MALONE, "IT'S
22 A VERY COMPLICATED DATABASE. WHY DON'T YOU JUST ASK ME TO
23 GET THE INFORMATION YOU NEED AND WE'LL DO IT."
24 NOW MR. MALONE IS SAYING THAT HE FINDS THAT THERE
25 IS MORE INFORMATION HE WANTS AND THAT WE SHOULD HELP THEM
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1 GET THAT. MY REACTION TO THAT AT THIS POINT IS THAT YOUR
2 HONOR'S ORDER, ENTERED AFTER THE FINAL PRETRIAL CONFERENCE,
3 SAYS THEY HAVE TO SHOW GOOD CAUSE FOR WHY THEY ARE
4 INSTITUTING NEW DISCOVERY REQUESTS AT THIS LATE STAGE, AND I
5 HAVEN'T HEARD AN EXPLANATION FOR WHY THEY DIDN'T ASK FOR
6 THIS STUFF A LOT EARLIER. AS YOUR HONOR CORRECTLY POINTED
7 OUT --
8 THE COURT: I THINK THE EXPLANATION IS THAT THEY
9 THOUGHT THEY WERE GOING TO GET IT WITH WHAT THEY HAD
10 REQUESTED, BUT IT TURNS OUT THEY ARE NOT GOING TO GET IT.
11 MR. HOLLEY: WELL, YOUR HONOR, I THINK THE BEST
12 WAY TO DEAL WITH THIS WOULD BE FOR MR. MALONE TO SEND ME A
13 RENEWED REQUEST AND THEN WE'LL RESPOND TO IT AS WE THINK IS
14 APPROPRIATE. BECAUSE I DO --
15 THE COURT: BUT THAT RAISES THE LOGISTICAL PROBLEM
16 OF ARE THEY GOING TO HAVE TO SEND A TEAM BACK OUT THERE OR
17 IS IT SOMETHING THAT COULD BE DONE WITH PEOPLE ON THE SCENE
18 AT PRESENT.
19 MR. HOLLEY: WELL, I WILL COMMIT, YOUR HONOR, THAT
20 IF I GET A REQUEST OVER THE LUNCH HOUR, EVEN AN ORAL
21 REQUEST, THAT WE WILL PROMPTLY RESPOND TO IT.
22 THE COURT: ALL RIGHT.
23 I THINK YOU'RE ENTITLED TO A WRITTEN REQUEST OF
24 EXACTLY WHAT IT IS THEY WANT.
25 MR. HOLLEY: OKAY. THANK YOU, YOUR HONOR.
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1 THE COURT: ALL RIGHT.
2 NOW, I HAVE IN HAND AT THE MOMENT TWO REQUESTS FOR
3 PROTECTIVE ORDERS FROM NONPARTIES, SUN MICROSYSTEMS AND
4 NETSCAPE. AND I GATHER WHAT IT IS THAT THEY WISH TO BE
5 ASSURED OF IS THAT WHAT THEY REGARD AS CRITICAL TRADE
6 SECRETS WILL NOT BE REVEALED IN OPEN COURT ON THE RECORD.
7 AND FRANKLY, I DON'T HAVE A RESPONSE FROM ANYONE AT THIS
8 POINT. AND I'M MENTIONING THESE TWO MOTIONS AT THIS POINT
9 SIMPLY TO FIND OUT WHETHER OR NOT THERE IS SOME URGENCY IN
10 IT, SPECIFICALLY WITH REFERENCE TO PROPOSED OPENING
11 STATEMENTS.
12 MR. WARDEN?
13 MR. WARDEN: WE HAVE HAD -- MR. HOLLEY HAS HAD
14 SOME CONVERSATIONS WITH THEM. AND WE MAY OR MAY NOT AGREE
15 WITH THEIR POSITIONS, BUT NONE OF THIS IS IN OUR OPENING
16 STATEMENT.
17 THE COURT: ALL RIGHT. MR. BOIES?
18 MR. BOIES: AND NONE OF IT IS IN OURS EITHER, YOUR
19 HONOR.
20 MR. HOUCK: AND NONE IN MINE EITHER.
21 THE COURT: THEN WE WILL ADDRESS THAT WHEN THE
22 SITUATION ARISES. I HAD PREPARED A DRAFT ORDER ESTABLISHING
23 A PROTOCOL FOR DEALING WITH CONFIDENTIAL OR HIGHLY
24 CONFIDENTIAL INFORMATION PRODUCED BY A NONPARTY, BUT I AM
25 NOT SATISFIED WITH IT YET. BUT WE WILL SHARE IT WITH YOU IN
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1 DUE COURSE WHEN I HAVE GOT IT IN A FORM IN WHICH I AM
2 REASONABLY CONTENT WITH IT AND YOU CAN OFFER WHATEVER
3 COMMENTS YOU WANT.
4 BOTH SIDES HAVE INDICATED AN INTEREST IN HAVING A
5 WITNESS ROOM ASSIGNED TO THEM. AND I HAVE ARRANGED WITH THE
6 ADMINISTRATIVE ASSISTANT TO THE CHIEF JUDGE FOR A WITNESS
7 ROOM TO BE ASSIGNED TO BOTH SIDES. PLAINTIFFS ARE ASSIGNED
8 TO WITNESS ROOM NUMBER 2716. DEFENDANT HAS 2220. THEY ARE
9 BOTH ON THIS FLOOR. FRANKLY, I AM NOT SURE WHICH ONE IS
10 WHICH, BUT YOU CAN TRACK IT DOWN AT THE FIRST RECESS.
11 I JUST RECEIVED THIS MORNING TWO MOTIONS IN LIMINE
12 FILED BY THE DEFENDANT. AGAIN, I WILL ADDRESS IN DUE
13 COURSE, AFTER THE PLAINTIFFS HAVE HAD A CHANCE TO RESPOND TO
14 THE WRITTEN MEMORANDA.
15 DO THE PARTIES HAVE ANY PRELIMINARY MATTERS THAT
16 WE NEED TO TAKE UP? MR. HOUCK?
17 MR. WARDEN: YOUR HONOR, I HAVE A STIPULATION FOR
18 THE ENTRY OF A PROCEDURAL ORDER WITH RESPECT TO THE TIMING
19 OF REBUTTAL DEPOSITION DESIGNATIONS AND OBJECTIONS TO
20 DEPOSITION DESIGNATIONS WHICH EVERYONE HAS SIGNED.
21 THE COURT: ALL RIGHT. ANYTHING THAT YOU AGREE
22 TO.
23 (PASSING UP TO THE COURT.)
24 THE COURT: FINE.
25 (COURT SIGNING.)
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1 THE COURT: ARE YOU READY FOR THE PLAINTIFFS,
2 MR. BOIES?
3 MR. BOIES: YES, WE ARE, YOUR HONOR.
4 THE COURT: MR. HOUCK?
5 MR. HOUCK: WE WILL BEGIN WITH THE COURT'S
6 PERMISSION.
7 OPENING STATEMENT ON BEHALF OF STATE OF NEW YORK
8 MR. HOUCK: GOOD MORNING, YOUR HONOR. STEVEN
9 HOUCK FOR THE 20 PLAINTIFF STATES AND THE DISTRICT OF
10 COLUMBIA.
11 THIS IS AN HISTORIC CASE FOR SEVERAL REASONS.
12 FIRST AND MOST IMPORTANT, IT INVOLVES THE APPLICATION OF
13 COURT ANTITRUST PRINCIPLES TO THE SOFTWARE INDUSTRY, A KEY
14 SECTOR OF OUR ECONOMY AS WE MOVE INTO THE INFORMATION AGE
15 FROM THE INDUSTRIAL ERA. THE ENORMOUS PRESS FOCUS ON THE
16 CASE UNDERSCORES ITS SIGNIFICANCE TO THE PUBLIC AT LARGE.
17 AS AN ANTITRUST LAWYER, IT'S A SPECIAL PRIVILEGE
18 TO PLAY A ROLE IN SHAPING THE LAW IN A CASE THAT WILL TAKE
19 ITS PLACE ALONGSIDE SUCH LANDMARK SECTION 2 DECISIONS AS
20 STANDARD OIL, ALCOA AND UNITED SHOE. ANTITRUST SCHOLARS AND
21 STUDENTS WILL BE DOUBTLESS STUDYING THE MICROSOFT CASE WELL
22 INTO THE 21ST CENTURY.
23 THIS CASE IS EQUALLY IMPORTANT BECAUSE OF THE FIRM
24 WAY YOUR HONOR HAS MANAGED IT. THE SUPREME COURT HAS
25 DESCRIBED THE SHERMAN ACT AS THE MAGNA CARTA OF THE FREE
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1 ENTERPRISE SYSTEM. BUT THAT IS AN EMPTY PHRASE UNLESS THE
2 LAW CAN BE APPLIED IN A TIMELY MANNER. THE LENGTHY
3 PROCEEDINGS IN THE UNITED STATES' LAWSUIT IN THE 1970S
4 AGAINST IBM MADE IT APPEAR AS IF THE COURTS COULDN'T HANDLE
5 SECTION 2 CASES EFFICIENTLY OR IN A TIMEFRAME THAT MADE ANY
6 SENSE. THAT WON'T HAPPEN HERE.
7 SINCE THE FILING OF THE COMPLAINTS IN MAY,
8 COUNTLESS DOCUMENTS HAVE BEEN EXCHANGED AND NUMEROUS
9 DEPOSITIONS TAKEN. BOTH SIDES HAVE HAD A FULL, FAIR AND
10 EQUAL OPPORTUNITY TO DEVELOP EVIDENCE. IN ADDITION, YOUR
11 HONOR HAS CRAFTED INNOVATIVE PROCEDURES WHICH SHOULD MAKE
12 FOR A RELATIVELY EXPEDITIOUS TRIAL.
13 TO BE SURE, THE PACE HAS NOT BEEN EASY ON EITHER
14 SIDE. MICROSOFT HAS REPEATEDLY SOUGHT DELAYS, LONG DELAYS.
15 THE STATES HAVE NOT, EVEN THOUGH ADDITIONAL TIME WOULD HAVE
16 BENEFITED US MORE THAN MICROSOFT. WE NEEDED DISCOVERY TO
17 LEARN ABOUT MICROSOFT'S BUSINESS; MICROSOFT DID NOT. WE
18 HAVE THE BURDEN OF PROOF. MICROSOFT DOES NOT.
19 EVERY TIME WE TURNED OVER A NEW STONE IN
20 DISCOVERY, WE FOUND EVIDENCE THAT MICROSOFT HAD ABUSED ITS
21 MONOPOLY POWER. ADDITIONAL DISCOVERY UNDOUBTEDLY WOULD HAVE
22 YIELDED MORE PROBATIVE EVIDENCE. UNLIKE MICROSOFT, THE
23 STATES DID NOT SEEK TO PUT THIS TRIAL OFF FOR MONTHS OR EVEN
24 YEARS.
25 WE RECOGNIZE THAT, THOUGH EVERY PROCESS HAS ITS
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1 LIMITATIONS, THE PROCEDURES IMPLEMENTED BY YOUR HONOR ARE
2 FAIR, APPLY EQUALLY TO BOTH SIDES, AND MOST IMPORTANTLY
3 PERMIT CLOSURE IN A MEANINGFUL TIMEFRAME. THE STATES'
4 ECONOMIC EXPERT, DR. WARREN-BOLTON, WILL TESTIFY THAT AS A
5 RESULT OF MICROSOFT'S CONTINUING ANTICOMPETITIVE PRACTICES,
6 ITS SALES OF INTERNET EXPLORER HAVE INCREASED SO RAPIDLY
7 THAT MICROSOFT NOW THREATENS TO EXTEND ITS OPERATING SYSTEM
8 MONOPOLY TO THE BROWSER MARKET.
9 THE NECESSITY FOR THE EQUITABLE RELIEF WE SEEK, IN
10 OUR VIEW, IS URGENT AND COMPELLING. THE STATES ARE
11 APPRECIATIVE OF THE COURT'S WILLINGNESS TO CLEAR ITS BUSY
12 CALENDAR TO GIVE US THE OPPORTUNITY TO PRESENT OUR CASE
13 WHILE THE RELIEF WE SEEK STILL MIGHT MAKE A DIFFERENCE.
14 THERE IS ANOTHER SENSE IN WHICH THIS CASE HAS
15 ALREADY MADE HISTORY. AS BEST AS I CAN DETERMINE, THE
16 MICROSOFT CASE REPRESENTS THE LARGEST COALITION OF STATES
17 THAT HAVE EVER JOINED TOGETHER TO TRY A CASE IN ANY SUBJECT
18 MATTER AREA AND CERTAINLY IN THE ANTITRUST AREA. THE 20
19 STATES AND THE DISTRICT OF COLUMBIA REPRESENT MORE THAN HALF
20 THE CONSUMERS OF THE COUNTRY AND CONSTITUTE A VERY LARGE
21 PERCENTAGE OF THE ATTORNEY GENERAL OFFICES WITH ANY
22 SIGNIFICANT ANTITRUST ENFORCEMENT CAPABILITY AT ALL.
23 THEY REPRESENT A DIVERSE CROSS-SECTION OF STATES
24 IN TERMS OF SIZE, GEOGRAPHY, AND POLITICAL IDEOLOGY. WHAT
25 ACCOUNTS FOR THIS UNPRECEDENTED ALLIANCE OF ATTORNEYS
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1 GENERAL? THEIR PRESENCE HERE TODAY, YOUR HONOR, STEMS FROM
2 THEIR ROLE AS CHIEF CONSUMER ADVOCATES IN THEIR STATES.
3 WHAT UNITES THEM IS A DEEP UNEASE, UNEASE THAT ONE COMPANY
4 ENJOYS ENORMOUS MONOPOLY POWER OVER WHAT HAS BECOME A VITAL,
5 VIRTUALLY UBIQUITOUS CONSUMER PRODUCT, THE PERSONAL COMPUTER
6 AND UNEASE THAT MICROSOFT IS NOW POISED TO EXTEND ITS
7 MONOPOLY TO THE INTERNET, THE GATEWAY TO THE INFORMATION
8 HIGHWAY.
9 WHAT IS PARTICULARLY DISTURBING IS HOW MICROSOFT
10 HAS WIELDED ITS ENORMOUS MARKET POWER, REFUSING TO COMPETE
11 ON THE MERITS, AND INSTEAD, USING ITS DOMINANCE TO CONSTRUCT
12 A WEB OF EXCLUSIONARY CONTRACTS WITH OEM'S, ISP'S AND OTHERS
13 TO DISADVANTAGE ITS RIVALS AND TO PROTECT ITS MONOPOLY.
14 YOUR HONOR, THE ATTORNEYS GENERAL ARE NOT
15 CONCERNED ABOUT MONOPOLY POWER IN THE ABSTRACT. THEY ARE
16 CONCERNED BECAUSE MICROSOFT HAS ABUSED ITS POWER TO DEPRIVE
17 CONSUMERS OF CHOICE. WITHOUT COMPETITION, CONSUMERS HAVE NO
18 ALTERNATIVE BUT TO TAKE WHAT MICROSOFT OFFERS THEM, OR MORE
19 ACCURATELY, WHAT MICROSOFT ALLOWS P.C. MAKERS TO OFFER THEM.
20 ABSENCE OF COMPETITION IN THE MARKET FOR OPERATING SYSTEM
21 AND RELATED SOFTWARE ALSO MEANS THAT CONSUMERS PAY MORE FOR
22 THEIR P.C. SYSTEMS THAN THEY SHOULD.
23 AS THE EVIDENCE WILL SHOW, WHILE P.C. HARDWARE HAS
24 IMPROVED SUBSTANTIALLY IN PERFORMANCE, IT HAS DECREASED
25 SUBSTANTIALLY IN PRICE. THE OPERATING SYSTEM, BY CONTRAST,
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1 HAS ACTUALLY INCREASED IN PRICE.
2 FOR EXAMPLE, A CHART CONTAINING GOVERNMENT EXHIBIT
3 439, WHICH IS PART OF A LENGTHY MICROSOFT STUDY PREPARED FOR
4 C.E.O. BILL GATES AND WHICH WILL BE OFFERED INTO EVIDENCE,
5 COMPARES THE COST OF P.C. HARDWARE TO THE SOFTWARE REVENUE
6 EARNED BY MICROSOFT FROM 1990 THROUGH 1996. IT SHOWS THAT
7 WHILE THE COST OF THE AVERAGE P.C. SYSTEM SOLD TO CONSUMERS
8 WAS SLASHED ALMOST IN HALF, MICROSOFT'S OPERATING SYSTEM
9 REVENUE FROM THOSE SALES MORE THAN DOUBLED IN THAT
10 TIMEFRAME.
11 THE REASON, YOUR HONOR, FOR THIS STARTLING
12 DISPARITY IS APPARENT. THERE IS ROBUST COMPETITION IN THE
13 MARKET FOR P.C. HARDWARE AND NONE IN THE MARKET FOR
14 OPERATING SYSTEMS. AS OUR EXPERT, DR. WARREN-BOLTON, WILL
15 TESTIFY, MICROSOFT, WHICH RANKS NUMBER ONE AMONG FORTUNE 500
16 COMPANIES IN PROFITS AS A PERCENTAGE OF REVENUES, ENJOYS
17 ENORMOUS MONOPOLY RETURNS. EXCESS PROFITS IN A COMPETITIVE
18 MARKET SHOULD BE RETURNED TO CONSUMERS IN THE FORM OF LOWER
19 PRICES.
20 IN ADDITION TO THEIR CONCERN ABOUT CONSUMER CHOICE
21 AND CONSUMER PRICES, THE ATTORNEYS GENERAL ARE CONCERNED
22 THAT MICROSOFT'S EXERCISE OF ITS MONOPOLY POWER HAS DETERRED
23 INNOVATION, STIFLING THE ENTREPRENEUR INITIATIVE OF
24 SOFTWARE DEVELOPERS IN SILICON VALLEY IN CALIFORNIA, IN
25 SILICON ALLEY IN NEW YORK CITY, AND IN SIMILAR AREAS OF
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1 ILLINOIS, MINNESOTA, UTAH AND THE OTHER PLAINTIFF STATES.
2 TO BE SURE, AS MICROSOFT NO DOUBT WILL ARGUE,
3 THERE HAS BEEN INNOVATION IN THE SOFTWARE INDUSTRY. BUT TOO
4 OFTEN IT IS ON MICROSOFT'S TERMS AND AT MICROSOFT'S PACE.
5 JUDGES WYZANSKI'S ORDERS, WRITTEN 35 YEARS AGO IN HIS
6 LANDMARK UNITED SHOE DECISION, ARE NO LESS TRUE TODAY, AND I
7 QUOTE THEM:
8 "WHAT APPEARS TO THE OUTSIDER TO BE A SENSIBLE,
9 PRUDENT, NAY EVEN A PROGRESSIVE POLICY OF A MONOPOLIST, MAY
10 IN FACT REFLECT A LOWER SCALE OF ADVENTUROUSNESS AND LESS
11 INTELLIGENT RISK-TAKING THAN WOULD BE THE CASE IF THE
12 ENTERPRISE WERE FORCED TO RESPOND TO A STRONGER INDUSTRIAL
13 CHALLENGE.
14 "SOME TRUTH LURKS IN THE CYNICAL REMARK THAT NOT
15 HIGH PROFITS BUT A QUIET LIFE IS THE CHIEF REWARD OF
16 MONOPOLY POWER. AND EVEN IF A PARTICULAR ENTERPRISE SEEKS
17 GROWTH AND NOT REPOSE, AN INCREASED RATE IN THE GROWTH OF
18 IDEAS DOES NOT FOLLOW FROM AN INCREASED CONCENTRATION OF
19 POWER; FOR CREATIVITY IN BUSINESS, AS IN OTHER AREAS, IS
20 BEST NOURISHED BY MULTIPLE CENTERS OF ACTIVITY, EACH
21 FOLLOWING ITS UNIQUE PATTERN IN DEVELOPING ITS OWN ESPRIT DE
22 CORPS TO RESPOND TO THE CHALLENGE OF COMPETITION.
23 "THE DOMINANCE OF ANY ONE ENTERPRISE INEVITABLY
24 UNDULY ACCENTUATES THAT ENTERPRISE'S EXPERIENCE AND VIEWS AS
25 TO WHAT IS POSSIBLE, PRACTICAL, AND DESIRABLE."
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1 WHAT JUDGE WYZANSKI OBSERVED ABOUT SHOE MAKING
2 MACHINES, YOUR HONOR, HAS EVEN MORE BEARING IN THE SOFTWARE
3 INDUSTRY. MICROSOFT'S DOMINANCE OVER API'S AND STANDARDS
4 MEANS THAT OTHER SOFTWARE COMPANIES MUST COMPETE ON
5 MICROSOFT'S PLAYING FIELD AND BY MICROSOFT'S RULES.
6 ANOTHER IMPORTANT REASON THE ATTORNEYS GENERAL ARE
7 HERE TODAY, YOUR HONOR, IS TO SECURE EFFECTIVE RELIEF FOR
8 THE INJURY THEY BELIEVE MICROSOFT'S PREDATORY CONDUCT HAS
9 INFLICTED ON THE COMPETITIVE PROCESS IN THE MARKETPLACE. IT
10 IS NOT SUFFICIENT THAT MICROSOFT SIMPLY BE ENJOINED FROM
11 CONTINUING TO ENGAGE IN THE FUTURE IN CONDUCT THAT HAS BEEN
12 INJURIOUS IN THE PAST. THE ATTORNEYS GENERAL BELIEVE THAT
13 THE HARM DONE MUST BE REMEDIATED AND THE MONOPOLY POWER THAT
14 HAS BEEN ABUSED MUST BE DISSIPATED.
15 WHILE IT IS PREMATURE AT THIS STAGE TO TALK ABOUT
16 THE PRECISE FORM OF RELIEF, IF THE COURT FINDS THAT
17 MICROSOFT HAS UNLAWFULLY MAINTAINED OR ACQUIRED MONOPOLY
18 POWER, THE COURT'S DUTY UNDER THE CASE LAW AS ARTICULATED BY
19 AREEDA AND TURNER AT PARAGRAPH 653 OF THEIR TREATISE IS TO
20 ASSURE ITS "COMPLETE EXTIRPATION."
21 ALTHOUGH THE INDUSTRY HERE IS A HIGH-TECH ONE, THE
22 ISSUES ARE ONES THAT HAVE TRADITIONALLY CONCERNED ANTITRUST
23 COURTS. THE STATES HAVE ASSERTED A VARIETY OF SHERMAN ACT
24 AND PENDENT STATE LAW CLAIMS. THE PRINCIPAL CLAIMS,
25 HOWEVER, SOUND IN SECTION 2 OF THE SHERMAN ACT. FIRST, THAT
18 - [add a note]
1 MICROSOFT WILLFULLY ABUSED ITS MONOPOLY POWER IN THE P.C.
2 OPERATING SYSTEM MARKET FOR THE PURPOSE OF MAINTAINING ITS
3 MONOPOLY THERE. AND SECOND, THAT MICROSOFT ATTEMPTED TO
4 MONOPOLIZE THE MARKET FOR INTERNET BROWSERS THROUGH A
5 VARIETY OF ANTICOMPETITIVE MEANS.
6 THESE TWO CLAIMS ARE RELATED BECAUSE, AS WE
7 BELIEVE THE EVIDENCE WILL SHOW, MICROSOFT'S ANTICOMPETITIVE
8 PRACTICES IN THE BROWSER MARKET WERE UNDERTAKEN TO DEFEND
9 ITS WINDOWS MONOPOLY FROM THE CROSS-PLATFORM THREAT POSED BY
10 NETSCAPE'S BROWSER AND THE JAVA TECHNOLOGY IT TRANSMITTED.
11 LET ME JUST PAUSE HERE BRIEFLY TO RESPOND TO
12 MICROSOFT'S ASSERTION THAT JAVA IS AN ISSUE RECENTLY
13 INJECTED INTO THE CASE BY THE GOVERNMENT. IT IS NOT. AT
14 PARAGRAPHS 36 AND 37 OF THE STATES' FIRST AMENDED COMPLAINT,
15 WE ASSERT THAT JAVA THREATENED TO UNDERMINE THE VALUE OF
16 WINDOWS BECAUSE IT ALLOWED APPLICATIONS WRITTEN FOR WINDOWS
17 TO RUN ON OTHER PLATFORMS.
18 THE STATES ALSO SPECIFICALLY ALLEGED THERE THAT
19 JAVA NOT ONLY POSED A CHALLENGE TO MICROSOFT IN ITS OWN
20 RIGHT, BUT MAGNIFIED THE CHALLENGE TO MICROSOFT POSED BY THE
21 BROWSER. IN SHORT, WE HAVE ALLEGED AND BELIEVE THE EVIDENCE
22 WILL SHOW THAT MICROSOFT VIEWED JAVA AS A BACILLUS DIRECTED
23 AT THE HEART OF THE WINDOWS MONOPOLY AND NETSCAPE'S
24 NAVIGATOR WAS VIEWED AS ITS PRINCIPAL DELIVERY MECHANISM.
25 IN A SECTION 2 CASE, AS YOUR HONOR KNOWS, A
19 - [add a note]
1 PLAINTIFF MUST ESTABLISH TWO THINGS: ONE, DEFENDANT'S
2 MONOPOLY POWER IN A RELEVANT MARKET; AND TWO, DEFENDANT'S
3 WILLFUL ACQUISITION OR MAINTENANCE OF THAT POWER BY MEANS
4 OTHER THAN SKILL, FORESIGHT AND INDUSTRY. I WILL ADDRESS
5 THE MONOPOLY POWER ELEMENT AND MR. BOIES WILL PREVIEW SOME
6 OF THE CONSIDERABLE EVIDENCE WE EXPECT TO ADDUCE AS TO
7 MICROSOFT'S PREDATORY CONDUCT.
8 BEFORE DISCUSSING MONOPOLY POWER, I WANT TO STRESS
9 THE CRITICAL IMPORTANCE HERE OF A PARTICULAR TYPE OF
10 EVIDENCE, DOCUMENTS; THAT IS, CONTEMPORANEOUS MICROSOFT
11 E-MAIL AND MEMORANDA. THE GOVERNMENT'S CASE IS BUILT, IN
12 LARGE PART, ON CANDID STATEMENTS FOUND IN BUSINESS DOCUMENTS
13 IN MICROSOFT'S FILES. AT HIS DEPOSITION, MR. GATES WAS VERY
14 CAREFUL TO DISTINGUISH BETWEEN E-MAIL AND MEMORANDA,
15 APPARENTLY, IN THE BELIEF THAT E-MAIL DOESN'T COUNT BECAUSE
16 IT'S INFORMAL. HE IS WRONG. E-MAIL IS A WINDOW INTO THE
17 ESSENCE OF AN INDIVIDUAL'S THINKING. AND THE E-MAIL EXISTS,
18 YOUR HONOR, HERE IN DAMNING ABUNDANCE.
19 MICROSOFT'S GENERAL COUNSEL WAS QUOTED IN THE
20 PRESS THE OTHER DAY AS SAYING THAT THE GOVERNMENT'S CASE IS
21 BUILT ON SNIPPETS FROM DOCUMENTS TAKEN OUT OF CONTEXT. THAT
22 IS MANIFESTLY NOT SO. INDEED, THE GOVERNMENT'S PRINCIPAL
23 DIFFICULTY IN GETTING READY FOR TRIAL HAS BEEN THE VOLUME OF
24 EVIDENCE, NOT ITS DEARTH, AND HOW TO MANAGE IT TO MAKE IT
25 PRESENTABLE TO THE COURT. WE WELCOME THE OPPORTUNITY TO
20 - [add a note]
1 PRESENT OUR EVIDENCE IN TOTO IN OPEN COURT UNENCUMBERED BY
2 MICROSOFT'S BLANKET CONFIDENTIALITY DESIGNATIONS.
3 ONE IMPORTANT ELEMENT OF A MONOPOLIZATION CASE, AS
4 TO WHICH DOCUMENTS ARE PARTICULARLY CRITICAL, IS THE
5 DEFENDANT'S INTENT. AS THE SUPREME COURT CONFIRMED RECENTLY
6 IN THE KODAK CASE, DEFENDANT'S ACQUISITION OR MAINTENANCE OF
7 MONOPOLY POWER MUST BE WILLFUL. WHY IS EVIDENCE OF INTENT
8 IMPORTANT? BECAUSE IT ENABLES THE COURT TO UNDERSTAND WHAT
9 THE DEFENDANT WAS TRYING TO ACCOMPLISH AND WHETHER IT
10 SUCCEEDED.
11 AS JUSTICE BRANDEIS SAID MANY YEARS AGO IN BOARD
12 OF TRADE OF CITY OF CHICAGO VERSUS UNITED STATES, "KNOWLEDGE
13 OF INTENT MAY HELP THE COURT TO INTERPRET FACTS AND PREDICT
14 CONSEQUENCES."
15 IN ANALYZING THE EVIDENCE TO DETERMINE WHY IT WAS
16 THAT MICROSOFT ENGAGED IN CERTAIN CONDUCT AND WHAT ITS
17 INTENDED IMPACT WAS, I URGE YOUR HONOR TO TEST WHAT
18 MICROSOFT SAYS NOW AGAINST WHAT ITS EXECUTIVES WROTE WHEN
19 THE DECISIONS WERE ACTUALLY MADE. I THINK YOUR HONOR WILL
20 FIND THAT THE CONTEMPORANEOUS E-MAIL AND MEMORANDA PROVIDE
21 AN UNERRING ROAD MAP TO A PROPER UNDERSTANDING OF
22 MICROSOFT'S MOTIVES AND THE INTENDED AND ACTUAL CONSEQUENCES
23 OF ITS CONDUCT.
24 TO CITE ONE EXAMPLE, I THINK YOUR HONOR WILL FIND
25 THAT MICROSOFT'S OWN CONTEMPORANEOUS ACCOUNTS OF THE JUNE
21 - [add a note]
1 1995 MEETING WITH NETSCAPE, THAT MR. BOIES WILL TELL YOU
2 MORE ABOUT, ARE CONSISTENT BOTH WITH NETSCAPE'S OWN
3 DOCUMENTS, AND WITH THE TESTIMONY OF NETSCAPE'S EXECUTIVES,
4 AND INDEED WITH THE TESTIMONY OF CHRIS JONES OF MICROSOFT,
5 WHO WAS DEPOSED BEFORE THE COMPLAINT WAS ACTUALLY FILED.
6 AND I URGE YOUR HONOR TO TEST THOSE DOCUMENTS AND THAT
7 TESTIMONY AGAINST WHAT YOUR HONOR HEARS FROM THE WITNESS
8 STAND FROM THE MICROSOFT WITNESSES DURING THE COURSE OF THIS
9 TRIAL.
10 THE GOVERNMENT'S INITIAL BURDEN IS TO ESTABLISH
11 THAT MICROSOFT HAS MONOPOLY POWER IN A RELEVANT MARKET.
12 THERE CAN BE NO DOUBT, YOUR HONOR, THAT MICROSOFT POSSESSES
13 A PERVASIVE AND PERSISTENT MONOPOLY IN THE MARKET FOR P.C.
14 OPERATING SYSTEMS.
15 INDEED, THE EVIDENCE WILL SHOW THAT MICROSOFT'S
16 MARKET SHARE IN THE OPERATING SYSTEM MARKET HAS BEEN
17 EXTRAORDINARILY HIGH FOR AN EXTENDED PERIOD OF TIME. A
18 CHART WE HAVE PREPARED THAT WILL BE OFFERED INTO EVIDENCE AS
19 GOVERNMENT EXHIBIT 1, AND WHICH I HOPE WILL APPEAR UP ON THE
20 SCREEN MOMENTARILY -- IT HAS -- SHOWS WHAT I AM TALKING
21 ABOUT. IT SHOWS THAT MICROSOFT'S SHARE OF THE P.C.
22 OPERATING SYSTEM MARKET HAS BEEN OVER 90 PERCENT FOR AT
23 LEAST SIX YEARS AND IS PREDICTED TO GO EVEN HIGHER.
24 WHY HAS MICROSOFT'S MARKET POWER AND MARKET SHARE
25 BEEN SO PERSISTENT? AS DR. WARREN-BOLTON WILL EXPLAIN,
22 - [add a note]
1 MICROSOFT'S MONOPOLY IS PROTECTED BY SIGNIFICANT BARRIERS TO
2 ENTRY, LIKE ECONOMIES OF SCALE AND NETWORK EFFECTS. WHAT
3 MR. GATES HIMSELF DESCRIBES IS THE POSITIVE FEEDBACK LOOP.
4 BECAUSE WINDOWS IS THE DOMINANT OPERATING SYSTEM, A VAST
5 STOCK OF APPLICATIONS HAVE BEEN WRITTEN FOR IT. AND THE
6 MORE APPLICATIONS THERE ARE, THE MORE POPULAR WINDOWS
7 BECOMES.
8 NOT ONLY DOES THIS POSITIVE FEEDBACK LOOP ATTRACT
9 NEW USERS, BUT WHAT ECONOMISTS CALL THE LOCK-IN EFFECT KEEPS
10 OLD USERS. IN OTHER WORDS, PEOPLE ARE RELUCTANT TO SWITCH
11 AWAY FROM AN OPERATING SYSTEM THAT SUPPORTS APPLICATIONS ON
12 WHICH THEY WERE TRAINED AND WITH WHICH THEY HAVE BECOME
13 FAMILIAR.
14 OUR EVIDENCE WILL SHOW THAT THE LAST DIRECT THREAT
15 TO WINDOWS DISSIPATED WITH THE FAILURE OF IBM'S OS/2
16 OPERATING SYSTEM SOFTWARE TO OBTAIN MORE THAN A FOOTHOLD IN
17 THE MARKET, DESPITE THE EXPENDITURE OF HUNDREDS OF MILLIONS
18 OF DOLLARS BY ONE OF THE WORLD'S LARGEST, MOST SOPHISTICATED
19 COMPUTER COMPANIES. NO OTHER OPERATING SYSTEM COMPANY IS
20 LIKELY TO ATTEMPT TO REPLICATE WHAT IBM TRIED TO DO AND
21 FAILED, YOUR HONOR.
22 BUT PERHAPS THE BEST EVIDENCE OF MICROSOFT'S
23 MONOPOLY POWER IS HOW MICROSOFT'S EXECUTIVES VIEWED THE
24 MARKET THEMSELVES. AS JUDGE GESELL WROTE IN FTC VERSUS
25 COCA-COLA (641 F.SUPP. 1132), "ANALYSIS OF THE MARKET IS A
23 - [add a note]
1 MATTER OF BUSINESS REALITY -- A MATTER OF HOW THE MARKET IS
2 PERCEIVED BY THOSE WHO STRIVE FOR PROFIT IN IT."
3 LET'S LOOK, FOR EXAMPLE, AT WHAT WILL BE OFFERED
4 INTO EVIDENCE AS GOVERNMENT EXHIBIT 365. THIS IS A DECEMBER
5 1997 MEMORANDUM WRITTEN FOR BILL GATES WHICH DESCRIBES THE
6 STATE OF OPERATING SYSTEM COMPETITION FROM THE PERSPECTIVE
7 OF JOACHIM KEMPIN, THE HEAD OF MICROSOFT'S OEM SALES GROUP.
8 ON THE FIRST PAGE, HE CONFIRMS, AS I HAVE JUST SAID, THAT
9 MICROSOFT'S PRICES HAVE INCREASED OVER THE LAST TEN YEARS,
10 WHILE PRICES OF OTHER COMPONENTS OF THE OPERATING SYSTEM
11 HAVE COME DOWN.
12 MR. KEMPIN DISCUSSES PROPOSED PRICING STRATEGY AND
13 THEN, ON THE LAST PAGE, ASKS WHO CAN DERAIL MICROSOFT'S
14 PLANS? LET'S SEE WHAT HE ANSWERS. WHAT DOES HE ANSWER? I
15 WILL TELL YOU WHAT HE ANSWERS. WHAT HE DOES THERE, YOUR
16 HONOR, IS HE GOES THROUGH A VARIETY OF POTENTIAL CHALLENGES
17 TO MICROSOFT'S OPERATING SYSTEM MARKET SHARE -- OR MARKET
18 POSITION. AND YOUR HONOR WILL SEE WHEN YOU ACTUALLY TAKE A
19 LOOK AT THE EXHIBIT THAT PERHAPS THE MOST STRIKING THING
20 ABOUT IT IS THAT HE DOESN'T ALLUDE THERE TO ANY ACTUAL
21 DIRECT COMPETITION FROM ANY OPERATING SYSTEM VENDORS. HE
22 DOESN'T TALK ABOUT OS/2. HE DOESN'T TALK ABOUT UNIX. HE
23 DOESN'T TALK ABOUT LINUX. WHAT HE TALKS ABOUT REALLY IS
24 POTENTIAL COMPETITION, AND HE DISMISSES THAT.
25 AND HE MAKES HIMSELF A NUMBER OF POINTS THAT I
24 - [add a note]
1 HAVE JUST MADE HERE. FOR EXAMPLE, HE TALKS ABOUT SUN AND
2 ONE OF THE REASONS HE BELIEVES THAT SUN IS NOT LIKELY TO BE
3 AN EFFECTIVE THREAT TO MICROSOFT IS BECAUSE OF WHAT HE
4 DESCRIBES AS A COMPATIBILITY BARRIER. AND BY THAT, HE MEANS
5 THE LARGE NUMBER OF APPLICATIONS THAT HAVE BEEN WRITTEN FOR
6 MICROSOFT'S WINDOWS SYSTEM AND DON'T EXIST FOR OTHER
7 SYSTEMS.
8 HE ALSO SPECULATES THERE ABOUT SOME POTENTIAL
9 COMPETITION FROM A COALITION OF OEM VENDORS. AND AGAIN, HE
10 DISMISSES THAT. HE HIMSELF IN HIS OWN WORDS DESCRIBES WHY
11 THAT IS NOT LIKELY TO EVENTUATE AND TALKS ABOUT WHAT I HAVE
12 TOLD YOU IS A LOCK-IN EFFECT. HE SAYS IT'S UNLIKELY THERE
13 THAT WE COULD CONVINCE CUSTOMERS TO -- HE SAYS, COULD THEY
14 CONVINCE CUSTOMERS TO CHANGE THEIR COMPUTING PLATFORM IS THE
15 REAL QUESTION. THE EXISTING INVESTMENTS IN TRAINING,
16 INFRASTRUCTURE AND APPLICATIONS IN WINDOWS COMPUTING ARE
17 LARGE AND WILL CREATE A LOT OF INERTIA. NO BUNDLING OF OS
18 IN THE LOW-END SYSTEMS WILL BE THE EASIEST WAY TO HURT US,
19 BUT WHO WOULD WANT TO START WITH THIS AND LOSE BUSINESS.
20 WHAT HE IS TALKING ABOUT THERE, JUDGE, IS THE
21 LOCK-IN EFFECT AND THE REAL POWER OF THE WINDOWS OPERATING
22 SYSTEM IS SOMETHING THAT OEM'S NEED. IF THEY DIDN'T HAVE
23 THEM ON THEIR COMPUTERS, THEY COULDN'T SELL THEM.
24 HE ALSO TALKS IN THE NEXT PARAGRAPH ABOUT A
25 POTENTIAL THREAT FROM NETSCAPE, FROM THE BROWSER SIDE, AND
25 - [add a note]
1 AGAIN DISMISSES THAT. HE SAYS HE CONSIDERS THEM TOO WEAK TO
2 SUCCEED ALONE. AND BY THAT, HE MEANS TOO FINANCIALLY WEAK.
3 AS YOUR HONOR KNOWS, NETSCAPE IS A SMALL START-UP COMPANY,
4 ESPECIALLY COMPARED TO MICROSOFT. AND HE SAYS THEY ARE
5 DANGEROUS ONLY IF THEY TEAM UP WITH SUN. AND AGAIN, THAT IS
6 A POINT I MADE. YOUR HONOR WILL SEE OFTEN IN THE DOCUMENTS,
7 NETSCAPE AND SUN TWINNED TOGETHER. THEY WERE VIEWED THAT
8 WAY BY MICROSOFT AS A THREAT. AND THEN FINALLY, HE SAYS
9 THAT COMPATIBILITY AGAIN IS ANOTHER BIG INHIBITOR. AND BY
10 THAT HE MEANS THE APPLICATION BARRIER.
11 I AM NOT GOING TO TALK ABOUT INTEL. HE RAISES A
12 POSSIBILITY THAT INTEL MIGHT AT SOME POINT GET INTO THE
13 OPERATING SYSTEM SOFTWARE. AND I THINK YOUR HONOR WILL HEAR
14 FROM MR. BOIES MORE ON THAT SUBJECT.
15 YOUR HONOR, IF MICROSOFT'S ECONOMIST, DR. RICHARD
16 SCHMALENSEE, TAKES THE STAND AND TESTIFIES AS HE DID AT HIS
17 DEPOSITION THAT THERE IS NO SUCH THING IS AS AN OPERATING
18 SYSTEM MARKET AND MICROSOFT LACKS MONOPOLY POWER, I URGE
19 YOUR HONOR TO TEST HIS WORDS AGAINST WHAT EXECUTIVES LIKE
20 MR. KEMPIN, EMPLOYED BY HIS OWN CLIENT, HAVE SAID IN THEIR
21 CONTEMPORANEOUS DOCUMENTS. IF YOUR HONOR CONCLUDES
22 PROFESSOR SCHMALENSEE LACKS CREDIBILITY ON THIS FUNDAMENTAL
23 ISSUE, I ENCOURAGE YOUR HONOR TO LISTEN TO WHAT ELSE HE SAYS
24 WITH A VERY SKEPTICAL AND CRITICAL EAR.
25 BEFORE TURNING THE PODIUM OVER TO MR. BOIES, I
26 - [add a note]
1 WANT TO MAKE A COUPLE ADDITIONAL POINTS. THROUGHOUT THE
2 COURSE OF THIS TRIAL, YOUR HONOR WILL HEAR REPEATED
3 REFERENCES TO MR. GATES, "BILLG" AS HE IS REFERRED TO IN THE
4 E-MAIL. MR. GATES IS LEGENDARY FOR HIS HANDS-ON MANAGEMENT
5 STYLE, AND MUCH OF MICROSOFT'S CONSIDERABLE SUCCESS IS
6 ATTRIBUTABLE TO HIM.
7 BY THE SAME TOKEN, AS THE RECORD OF THIS CASE WILL
8 REVEAL, MR. GATES HAS PERSONALLY FORMULATED AND DIRECTED KEY
9 ELEMENTS OF MICROSOFT'S STRATEGY AT ISSUE HERE. THE
10 GOVERNMENT DOES NOT NEED TO PUT MR. GATES ON THE STAND
11 BECAUSE WE HAVE HIS E-MAIL AND MEMORANDA.
12 AMONG OTHER THINGS, THE DOCUMENTS WILL REVEAL
13 MR. GATES IDENTIFYING NETSCAPE'S BROWSER AS A THREAT TO
14 WINDOWS AND EXPLAINING WHY; IMPLORING HIS SUBORDINATES TO
15 BUILD BROWSER SHARE; PLANNING FOR THE MEETINGS WITH NETSCAPE
16 AND OTHERS THAT MR. BOIES WILL TELL YOUR HONOR MORE ABOUT;
17 TRYING TO DETERMINE NETSCAPE'S SOURCES OF REVENUE SO
18 MICROSOFT COULD CUT THEM OFF; AND PUBLICLY CALLING INTO
19 QUESTION NETSCAPE'S FINANCIAL VIABILITY AFTER HE HAD DECREED
20 THAT INTERNET EXPLORER WOULD BE FOREVER FREE. AND THE LIST
21 GOES ON.
22 WHEN THE GOVERNMENT'S CASE IS CONCLUDED, YOUR
23 HONOR SHOULD FEEL ENTITLED, I BELIEVE, TO HEAR MR. GATES'
24 EXPLANATIONS FOR HIS ACTIONS DIRECTLY FROM HIM IN THIS
25 COURTROOM IN THAT WITNESS STAND. YOUR HONOR SHOULD HAVE THE
27 - [add a note]
1 OPPORTUNITY TO ASSESS FOR YOURSELF THE CREDIBILITY OF THE
2 SINGLE MOST IMPORTANT ACTOR IN THIS CASE.
3 TO BE SURE, YOUR HONOR WILL BE ABLE TO VIEW
4 VIDEOTAPES OF MR. GATES' DEPOSITION TESTIMONY, BUT THAT IS
5 NO SUBSTITUTE FOR LIVE TESTIMONY IN THE COURTROOM BEFORE
6 YOUR HONOR. AS YOUR HONOR WILL OBSERVE, WITHOUT A JUDGE
7 PRESENT, MR. GATES REPEATEDLY REFUSED TO RESPOND TO
8 QUESTIONS, IN ANY KIND OF RESPONSIVE WAY AT ALL PUT TO HIM
9 BY COUNSEL FOR THE GOVERNMENT, INSTEAD CHOOSING TO ANSWER
10 QUESTIONS OF HIS OWN DEVISING.
11 WE SUBMIT THAT YOUR HONOR SHOULD NOT HESITATE TO
12 DRAW THE APPROPRIATE INFERENCES IF MR. GATES PERSISTS IN HIS
13 REFUSAL TO TAKE THE STAND. GIVEN MR. GATES' KEY ROLE IN
14 THESE EVENTS, HIS FAILURE TO APPEAR HERE CAN ONLY BE
15 EXPLAINED, WE BELIEVE, BY A LACK OF INTESTINAL FORTITUDE AND
16 A FEAR OF SUBJECTING HIS STORY TO THE CRUCIBLE OF
17 CROSS-EXAMINATION.
18 MR. GATES' RELUCTANCE TO COME FORWARD STANDS IN
19 MARKED CONTRAST TO THE WILLINGNESS OF NETSCAPE'S CEO, JAMES
20 BARKSDALE, TO APPEAR IN YOUR HONOR'S COURTROOM.
21 MR. BARKSDALE WILL TAKE THE STAND KNOWING FULL WELL THAT
22 MICROSOFT'S ATTORNEYS HAVE BEEN SCOURING THE LANDSCAPE FOR
23 MATERIALS TO ATTACK NETSCAPE, FROM PROFESSORS' NOTES IN
24 CAMBRIDGE, MASSACHUSETTS, TO NETSCAPE'S OWN INTERNAL
25 COMPLAINT BOX IN MOUNTAIN VIEW, CALIFORNIA.
28 - [add a note]
1 MICROSOFT'S TACTICS SMACK OF THOSE SOMETIMES USED
2 BY DEFENDANTS IN CRIMINAL TRIALS, DIVERT THE TRIER OF FACT'S
3 ATTENTION FROM ONE'S OWN CONDUCT BY ATTACKING THE VICTIM.
4 MICROSOFT'S APPROACH MIGHT CONCEIVABLY HAVE SOME PLACE HERE
5 IF THIS WERE A LAWSUIT FOR MONETARY DAMAGES BY NETSCAPE. IT
6 IS NOT. THIS IS AN ACTION TO ENFORCE THE LAW BY 22
7 GOVERNMENT LAW ENFORCEMENT OFFICERS.
8 AT ISSUE IS THE PROPRIETY OF MICROSOFT'S CONDUCT,
9 ONE OF THE WEALTHIEST, MOST POWERFUL COMPANIES IN THE WORLD,
10 NOT WHETHER A SMALL START-UP COMPANY LIKE NETSCAPE MADE ALL
11 THE RIGHT RESPONSES TO THE LITANY OF PREDATORY ACTIONS
12 DIRECTED AGAINST THEM. THE STATES URGE YOUR HONOR NOT TO BE
13 DIVERTED BY THESE TACTICS FROM A CLOSE SCRUTINY OF
14 MICROSOFT'S OWN CONDUCT.
15 IN THE SAME VEIN, MICROSOFT WILL APPARENTLY TRY TO
16 DIVERT ATTENTION FROM ITS OWN WRONGDOING BY ARGUING THAT
17 OTHER SOFTWARE COMPANIES, COMPANIES THAT DON'T HAVE ITS
18 MARKET POWER, HAVE ENGAGED IN SIMILAR CONDUCT. YOUR HONOR,
19 EVEN MY 12-YEAR-OLD DAUGHTER KNOWS BETTER THAN TO ARGUE SHE
20 SHOULDN'T BE PUNISHED BECAUSE HER SISTER BROKE THE RULES
21 TOO.
22 AS I SAID AT THE OUTSET OF MY REMARKS, YOUR HONOR,
23 THE STATES' CASE RESTS LARGELY ON STATEMENTS MADE IN THE
24 REGULAR COURSE OF BUSINESS BY MICROSOFT'S OWN EXECUTIVES.
25 ONE OF THE MOST STRIKING STATEMENTS YOUR HONOR WILL HEAR
29 - [add a note]
1 TESTIMONY ABOUT WAS A THREAT MADE BY ONE OF MR. GATES' TOP
2 LIEUTENANTS, THAT MICROSOFT WOULD, QUOTE UNQUOTE, CHOKE OFF
3 NETSCAPE'S AIR SUPPLY. THAT STATEMENT, OF COURSE, IS
4 EVIDENCE OF PREDATORY INTENT. BUT IT IS MORE THAN THAT. IT
5 IS EVIDENCE OF INTENT FOLLOWED BY ACTION.
6 MICROSOFT'S COUNSEL HAS DISMISSED THESE WORDS AS
7 MERE LOCKER ROOM TALK. HE IS WRONG ABOUT THAT. THIS WAS
8 NOT A BOASTFUL STATEMENT MADE BY ONE TEAM MEMBER TO ANOTHER
9 BEHIND CLOSED DOORS. IT WAS A PURPOSEFUL THREAT MADE BY A
10 SENIOR MICROSOFT EXECUTIVE TO SENIOR EXECUTIVES AT ANOTHER
11 COMPANY IN THE COMPUTER INDUSTRY DEPENDENT ON MICROSOFT'S
12 GOODWILL AND WITH WHOM NETSCAPE WAS TRYING TO DO BUSINESS.
13 BUT IN A LARGER SENSE, MICROSOFT'S COUNSEL WAS
14 RIGHT. I BELIEVE YOUR HONOR WILL FIND THAT MICROSOFT'S
15 SENIOR EXECUTIVES OFTEN ACTED LIKE TOO MANY OF OUR STAR
16 ATHLETES DO TODAY, AND THAT THEIR ATTITUDE PERMEATED
17 MICROSOFT'S CORPORATE CULTURE. THE RECORD OF THIS CASE WILL
18 SHOW, I SUBMIT, THAT EMBOLDENED BY THEIR SUCCESS AND WEALTH,
19 MICROSOFT'S EXECUTIVES FELT THAT THEY COULD BREAK RULES WITH
20 IMPUNITY. IT WILL SHOW ALSO THAT MICROSOFT'S EXECUTIVES HAD
21 NO COMPUNCTION ABOUT THROWING THEIR WEIGHT AROUND, BLUNTLY
22 USING THE POWER OF THE WINDOWS MONOPOLY TO INTIMIDATE RIVALS
23 AND STIFLE COMPETITION. INDEED, IT WILL SHOW THAT THEY
24 LACKED THE SAME RESPECT FOR BUSINESS NORMS AND LAWS BY WHICH
25 MOST COMPANIES OPERATE.
30 - [add a note]
1 YOUR HONOR HAD SOME TASTE OF WHAT I WAS TALKING
2 ABOUT IN THE EARLIER CONSENT DECREE CASE AND MICROSOFT'S
3 REACTION TO THE ORDER ENTERED BY YOUR HONOR. THE SAME
4 ATTITUDE WAS MANIFEST IN THE WIDELY QUOTED STATEMENT OF
5 MICROSOFT'S PRESIDENT UPON THE FILING OF THAT CASE, "TO HECK
6 WITH JANET RENO."
7 I BELIEVE YOUR HONOR WILL FIND THE RECORD OF THIS
8 CASE REPLETE WITH SIMILAR EXAMPLES AND MICROSOFT'S RESPONSE
9 TO THE THREAT POSED BY THE NETSCAPE BROWSER AND JAVA, AND IN
10 ITS DEALINGS WITH OEM'S, ISP'S, INTEL, APPLE AND OTHERS IN
11 THE INDUSTRY.
12 YOUR HONOR, THE STATES RESPECTFULLY SUBMIT THAT ON
13 THE RECORD OF THIS CASE, IT WILL BE APPROPRIATE TO FASHION
14 RELIEF THAT WILL SUBJECT MICROSOFT AT LONG LAST TO THE SAME
15 RULE OF LAW THAT GOVERNS OTHER FIRMS, TO REPAIR THE DAMAGE
16 THAT MICROSOFT HAS DONE TO THE COMPETITIVE PROCESS, AND TO
17 RESTRAIN MICROSOFT FROM FUTURE VIOLATIONS OF STATE AND
18 FEDERAL ANTITRUST STATUTES. THE BENEFICIARIES WILL BE THE
19 CONSUMERS OF OUR STATES WHO CAN EXPECT TO SEE WIDER CHOICE,
20 LOWER PRICES AND INCREASED INNOVATION.
21 THANK YOU, YOUR HONOR.
22 THE COURT: THANK YOU, MR. HOUCK.
23 MR. BOIES?
24 MR. WARDEN: YOUR HONOR, BEFORE MR. BOIES BEGINS,
25 MAY I JUST SAY THAT WE RECEIVED THIS MORNING A HUGE BINDER
31 - [add a note]
1 OF EXHIBITS APPARENTLY INTENDED TO BE USED IN THE OPENING,
2 MANY OF WHICH WE HAVE HAD IN OTHER FORMS FOR A LONG TIME,
3 BUT SOME OF WHICH WERE GRAPHICS AND SUMMARY CHARTS AND SO
4 FORTH THAT WE HAVE HAD NO ATTEMPT TO EXAMINE AT ALL. NOW,
5 OBVIOUSLY, SITTING THROUGH AN OPENING IS NOT ADMITTING THAT
6 SOMETHING IS ADMISSIBLE, BUT IF SOMETHING WERE REALLY OUT OF
7 ORDER, NORMALLY, I WOULD RAISE IT. ON THIS OCCASION, AS TO
8 SOME DOCUMENTS, WE HAVEN'T HAD THAT CHANCE.
9 THE COURT: I UNDERSTAND.
10 MR. WARDEN: THANK YOU.
11 OPENING STATEMENT ON BEHALF OF THE UNITED STATES
12 MR. BOIES: YOUR HONOR, JUST SO THE RECORD IS
13 CLEAR, ALL OF THE DOCUMENTS THAT I AM USING IN THE OPENING
14 WERE ON THE EXHIBIT LIST THAT WAS EXCHANGED WITH COUNSEL FOR
15 MICROSOFT. MR. MALONE HAS BEEN ATTEMPTING TO GET MICROSOFT
16 TO EXCHANGE COPIES OF THE EXHIBITS SINCE THAT DATE,
17 INCLUDING LEAVING VOICE MAIL MESSAGES AND I WAS PRESENT WHEN
18 HE DID IT. SO WE'RE HAPPY TO EXCHANGE EXHIBITS, ALL OF
19 THEM. WE GAVE THEM A COPY OF THIS EVEN THOUGH THEY HAVE NOT
20 GIVEN US A COPY OF ANY OF THEIRS. MAYBE THEY DON'T PLAN TO
21 USE ANY EXHIBITS IN THEIR OPENING STATEMENT.
22 BUT I DON'T THINK THERE IS ANY DOUBT ABOUT WHERE
23 THESE DOCUMENTS HAVE COME FROM LARGELY.
24 AS MR. HOUCK SAYS, I AM GOING TO ADDRESS THE
25 MARKET PRACTICES SIDE OF OUR MONOPOLY CLAIM. BUT I WANT TO
32 - [add a note]
1 BEGIN BY REMINDING THE COURT THAT, AS THE COURT KNOWS, WE
2 HAVE THREE CLAIMS TODAY. THE FIRST IS THE MONOPOLY CLAIM,
3 AND THE MONOPOLY CLAIM HAS TWO ELEMENTS TO IT. IT HAS THE
4 MONOPOLY POWER AND IT HAS MONOPOLY PRACTICES.
5 IN ADDITION, WE HAVE CLAIMS FOR ATTEMPTED
6 MONOPOLIZATION AND FOR VIOLATIONS OF SECTION 1. AND IF I
7 COULD GET UP ON THE SCREEN THE VIOLATIONS OF SECTION 1,
8 WHICH IS THE THIRD CLAIM, THE COURT WILL SEE THAT THERE ARE
9 FOUR BASIC CLAIMS THAT WE'RE MAKING HERE. ONE IS THE TYING
10 CLAIM. THAT HAS TWO PARTS, THE TYING OF THE BROWSER TO
11 WINDOWS 95 AND THE TYING OF THE BROWSER TO WINDOWS 98. BOTH
12 OF THESE, OF COURSE, PLAY IMPORTANT ROLES IN THE SECTION 2
13 CLAIMS, THE MONOPOLIZATION AND THE ATTEMPTED MONOPOLIZATION
14 CLAIMS. BUT IN ADDITION TO THAT ROLE, WE'RE ALLEGING THAT
15 THOSE ARE, IN AND OF THEMSELVES, SUCH UNREASONABLE
16 RESTRAINTS OF TRADE, THAT THEY VIOLATE SECTION 1 AS WELL.
17 WHAT I NEED TO DO IS I NEED TO GO TO THE NEXT PAGE
18 THAT HAS THE CLAIMS ON IT. AND IN ADDITION, THE THREE OTHER
19 CLAIMS ARE MICROSOFT'S SCREEN RESTRICTIONS, THE AGREEMENT
20 RESTRICTING OEMS' RIGHT TO REMOVE INTERNET EXPLORER, AND
21 MICROSOFT'S AGREEMENTS WITH THE INTERNET SERVICE PROVIDERS
22 AND INTERNET CONTENT PROVIDERS.
23 NOW, WITH RESPECT TO ALL OF THESE CLAIMS, THESE
24 ARE PART OF -- NOT ENTIRELY ALL OF -- BUT THEY ARE PART OF
25 THE SECTION 2 CLAIMS. BUT IN ADDITION, WE BELIEVE THAT
33 - [add a note]
1 THESE ARE SUCH UNREASONABLE RESTRAINTS OF TRADE THAT THEY
2 ARE ILLEGAL UNDER SECTION 1 IN AND OF THEMSELVES.
3 NOW, MOST OF WHAT I AM GOING TO BE TALKING ABOUT
4 TODAY IS GOING TO RELATE TO THE SECTION 2 CLAIMS. AND I
5 MENTION THIS BECAUSE I JUST SIMPLY WANT THE COURT TO KEEP IN
6 MIND THAT SOME OF THE PRACTICES THAT I AM GOING TO BE
7 ADDRESSING ARE ALLEGED TO BE VIOLATIONS OF SECTION 1 AS
8 WELL.
9 LET ME GO BACK, IF I CAN, TO THE SECTION 2 CLAIMS,
10 AND IN PARTICULAR, TO THE THREAT. ONE OF THE THINGS THAT
11 HAPPENED IN 1994 -- AT THE END OF 1994 AND EARLY 1995 -- IS
12 THAT MICROSOFT RECOGNIZED THE WIDESPREAD USE OF NETSCAPE'S
13 INTERNET BROWSER AND JAVA THREATENED, OVER TIME, TO ERODE
14 THE APPLICATION'S PROGRAMMING BARRIER TO ENTRY. NOW, IT WAS
15 THAT APPLICATION'S PROGRAMMING BARRIER TO ENTRY THAT WAS AN
16 ESSENTIAL ELEMENT OF PROTECTING ITS MONOPOLY POWER.
17 YOU WILL FIND THAT IS SOMETHING THAT MICROSOFT
18 DOCUMENTS AGREE TO AND DOCUMENTS FROM OTHER COMPANIES AGREE
19 TO. THE WITNESSES WILL BE, I BELIEVE, IN COMMON AGREEMENT
20 THAT BECAUSE OF THE ENORMOUS APPLICATION'S BARRIER
21 PROGRAMMING ENTRY, IT IS VIRTUALLY IMPOSSIBLE FOR THERE TO
22 BE A SUCCESSFUL CHALLENGE TO THE MICROSOFT OPERATING SYSTEM.
23 BUT WHAT JAVA AND INTERNET EXPLORER, IN THE FIGHT BETWEEN
24 INTERNET EXPLORER AND NETSCAPE NAVIGATOR, DEMONSTRATED WAS
25 THAT MICROSOFT RECOGNIZED THAT THE BROWSER, IF IT CAME FROM
34 - [add a note]
1 A COMPANY OTHER THAN MICROSOFT, AND JAVA, IF IT REMAINED
2 TRUE TO ITS CROSS-PLATFORM INTENTION, COULD UNDERMINE THAT
3 AND COULD ALLOW OTHER COMPANIES TO COMPETE.
4 NOW, WHAT WAS THE FIRST THING THAT MICROSOFT DID?
5 THE FIRST THING THEY TRIED TO DO WAS THEY HAD TRIED TO
6 OBTAIN NETSCAPE'S AGREEMENT NOT TO COMPETE. THEY TRIED TO
7 GO IN AND DIVIDE MARKETS. AND MR. HOUCK SAID THAT -- HE
8 ASKED THE COURT TO TAKE INTO ACCOUNT THE DIFFERENCE BETWEEN
9 WHAT MICROSOFT SAYS NOW AND WHAT MICROSOFT SAYS THEN. AND
10 WHAT I WANT TO DO IS TAKE THIS AS AN EXAMPLE OF THE KIND OF
11 APPROACH THAT MICROSOFT TAKES NOW AND TAKES THEN.
12 AND I HAVE GOT A CLIP FROM A DEPOSITION OF
13 MR. GATES THAT I WOULD LIKE TO PLAY WHERE MR. GATES IS ASKED
14 ABOUT THIS ALLEGED MARKET DIVISION MEETING. AND I WANT THE
15 COURT TO LISTEN TO WHAT HE SAYS.
16 (VIDEOTAPE WAS PLAYED AS FOLLOWS:)
17 QUESTION: YOU ARE AWARE THAT IT HAS BEEN ASSERTED
18 THAT AT THAT MEETING, THERE WAS AN ATTEMPT TO ALLOCATE
19 MARKETS BETWEEN NETSCAPE AND MICROSOFT, CORRECT, SIR?
20 ANSWER: MY ONLY KNOWLEDGE OF THAT IS THAT THERE
21 WAS AN ARTICLE IN THE WALL STREET JOURNAL VERY RECENTLY THAT
22 SAID SOMETHING ALONG THOSE LINES. OTHERWISE, NO.
23 QUESTION: IS IT YOUR TESTIMONY THAT THE FIRST
24 TIME THAT YOU WERE AWARE THAT THERE WAS AN ASSERTION THAT
25 THERE HAD BEEN A MARKET ALLOCATION MEETING OR AN ATTEMPT TO
35 - [add a note]
1 ALLOCATE MARKETS AT A MEETING BETWEEN REPRESENTATIVES OF
2 MICROSOFT'S AND NETSCAPE WAS A RECENT WALL STREET JOURNAL
3 ARTICLE?
4 THE WITNESS: WELL, I AM NOT SURE HOW TO
5 CHARACTERIZE IT. THE FIRST THING -- THE FIRST I HEARD
6 ANYTHING ABOUT THAT MEETING AND SOMEBODY TRYING TO
7 CHARACTERIZE IT IN SOME NEGATIVE WAY WAS AN ANDREESEN QUOTE
8 THAT WAS IN THE WALL STREET JOURNAL VERY RECENTLY. AND IT
9 SURPRISED ME.
10 QUESTION: ARE YOU AWARE OF ANY INSTANCES IN WHICH
11 REPRESENTATIVES OF MICROSOFT HAVE MET WITH COMPETITORS IN AN
12 ATTEMPT TO ALLOCATE MARKETS.
13 OPPOSING COUNSEL: OBJECTION.
14 ANSWER: I AM NOT AWARE OF ANY SUCH THING, AND I
15 KNOW IT'S VERY MUCH AGAINST THE WAY WE OPERATE.
16 QUESTION: IT WOULD BE AGAINST COMPANY POLICY TO
17 DO THAT?
18 ANSWER: THAT'S RIGHT.
19 QUESTION: NOW, HAVE YOU EVER READ THE COMPLAINT
20 IN THIS CASE?
21 ANSWER: NO.
22 QUESTION: HAVE YOU EVER RECEIVED A SUMMARY OF THE
23 COMPLAINT IN THIS CASE?
24 ANSWER: I WOULDN'T SAY I HAVEN'T RECEIVED A
25 SUMMARY, NO. I HAVE TALKED TO MY LAWYERS ABOUT THE CASE,
36 - [add a note]
1 BUT NOT REALLY THE COMPLAINT.
2 QUESTION: DO YOU KNOW WHETHER IN THE COMPLAINT
3 THERE IS AN ASSERTION -- I AM NOT TALKING ABOUT THE WALL
4 STREET JOURNAL ARTICLE. I AM TALKING ABOUT THE COMPLAINT
5 THAT WAS FILED LAST MAY. DO YOU KNOW WHETHER IN THAT
6 COMPLAINT THERE ARE ALLEGATIONS CONCERNING A 1995 MEETING
7 BETWEEN NETSCAPE AND MICROSOFT REPRESENTATIVES RELATING TO
8 ALLEGED MARKET DIVISION DISCUSSIONS?
9 ANSWER: I HAVEN'T READ THE COMPLAINT, SO I DON'T
10 KNOW FOR SURE. BUT I THINK SOMEBODY SAID THAT THAT IS IN
11 THERE.
12 QUESTION: DID YOU FIND THAT OUT BEFORE OR AFTER
13 THE WALL STREET JOURNAL ARTICLE?
14 ANSWER: THE FIRST TIME I KNEW ABOUT HIS
15 ALLEGATIONS WAS THE WALL STREET JOURNAL ARTICLE.
16 QUESTION: THAT IS -- THAT ARTICLE PRECEDED ANY
17 KNOWLEDGE THAT YOU HAD OR DIDN'T HAVE RELATED TO THE
18 COMPLAINT?
19 ANSWER: THAT'S RIGHT.
20 (END OF PLAYING OF VIDEOTAPE.)
21 MR. BOIES: NOW, MR. GATES NOT ONLY SAYS THAT HE
22 DIDN'T KNOW THAT THERE WAS ANY ALLEGATIONS OF NETSCAPE AND
23 MICROSOFT MEETING TO DISCUSS DRAWING A LINE BETWEEN WHERE
24 ONE WOULD COMPETE AND WHERE THE OTHER WOULD COMPETE, HE SAYS
25 HE WASN'T EVEN AWARE OF NETSCAPE BACK AT THE TIME THIS
37 - [add a note]
1 MEETING WAS GOING ON. HE DIDN'T EVEN KNOW WHAT NETSCAPE WAS
2 DOING. HE DIDN'T HAVE AN UNDERSTANDING OF WHAT NETSCAPE WAS
3 DOING. I THINK I HAVE GOT A CLIP OF THAT AS WELL.
4 (VIDEOTAPE PLAYED AS FOLLOWS:)
5 QUESTION: IN THE PORTION OF THE E-MAIL
6 DENOMINATED NUMBER 2, WHICH IS MOVE NETSCAPE OUT OF
7 WIN 32/WIN 95; AVOID BATTLING THEM IN THE NEXT YEAR, THERE
8 APPEARS THE FOLLOWING STATEMENT IN THE SECOND PARAGRAPH.
9 QUOTE, THEY APPEAR TO BE MOVING FAST TO ESTABLISH THEMSELVES
10 IN THE VALUE-ADD APP. BUSINESS BY LEVERAGING NETSCAPE ITSELF
11 AS A PLATFORM.
12 DO YOU RECALL WHETHER YOU AGREED THAT THAT'S WHAT
13 NETSCAPE WAS DOING BACK IN JUNE '95?
14 ANSWER: AT THIS TIME, I HAD NO SENSE OF WHAT
15 NETSCAPE WAS DOING.
16 (END OF PLAYING OF VIDEOTAPE.)
17 MR. BOIES: THAT ASSERTION BY MR. GATES THAT IN
18 JUNE OF 1995 HE HAD NO SENSE OF WHAT NETSCAPE WAS DOING IS A
19 CRITICAL PART OF THE DEFENSE THAT WE HAVE HEARD FROM
20 MICROSOFT. THEY SAY THEY WERE GOING ABOUT THEIR BUSINESS
21 DEVELOPING INTERNET EXPLORER, DESIGNING THEIR MARKETING AND
22 PRODUCT PLANS AND THEY WERE DOING THAT BECAUSE THAT'S THE
23 WAY THEY THOUGHT THE BEST BROWSER OUGHT TO BE MADE, NOT
24 BECAUSE OF WHAT NETSCAPE WAS DOING. OR, IN MR. GATES'
25 WORDS, AT THE TIME THAT THESE THINGS WERE GOING ON, HE
38 - [add a note]
1 DIDN'T HAVE ANY UNDERSTANDING OF WHAT NETSCAPE WAS DOING.
2 NOW, LET'S LOOK AT WHAT THE WRITTEN RECORD FROM
3 MICROSOFT'S FILES DEMONSTRATES. I THINK THERE IS A MAY 20TH
4 OR MAY 26TH, 1995 -- MAY 26TH, 1995 MEMO. AND THIS IS A
5 MEMO FROM BILL GATES. AND IT IS FIVE DAYS BEFORE JUNE OF
6 1995. AND THIS IS ABOUT THE INTERNET TIDAL WAVE. AND
7 MR. GATES, AND WHAT THE RECORD WILL SHOW AND THE EVIDENCE
8 WILL SHOW, YOUR HONOR, IS THAT THIS IS A ONE OF A SERIES OF
9 DOCUMENTS AT ABOUT THIS TIME FROM AND TO MR. GATES IN WHICH
10 MICROSOFT, AND MR. GATES PERSONALLY, IS DIRECTLY CONCERNED
11 WITH A THREAT THAT NETSCAPE POSES.
12 AND THERE IS A QUOTATION -- ON, I THINK ABOUT THE
13 FOURTH PAGE OF THIS DOCUMENT IN WHICH -- AND THIS IS
14 MR. GATES WRITING: A NEW COMPETITOR BORN ON THE INTERNET IS
15 NETSCAPE. THEIR BROWSER IS DOMINANT WITH 70 PERCENT USAGE
16 SHARE, ALLOWING THEM TO DETERMINE WHICH NETWORK EXTENSIONS
17 WILL CATCH ON. THEY ARE PURSUING A MULTI-PLATFORM STRATEGY
18 WHERE THEY MOVE THE KEY API INTO THE CLIENT TO COMMODITIZE
19 THE UNDERLYING OPERATING SYSTEM.
20 AND THE THREAT THAT NETSCAPE WAS GOING TO, IN
21 MR. GATES' WORDS, COMMODITIZE THE WINDOWS OPERATING SYSTEM
22 BY MOVING THE KEY API'S INTO A POINT WHERE THEY COULD BE
23 WRITTEN TO ON A CROSS-PLATFORM BASIS AND ERODE THE
24 APPLICATION'S BARRIER TO ENTRY, WAS EXACTLY WHAT NETSCAPE
25 WAS DOING AND IS EXACTLY WHAT MR. GATES KNEW BACK IN 1995
39 - [add a note]
1 THAT THEY WERE DOING AND WHAT CONCERNED HIM SO GREATLY.
2 NOW, LET ME GO TO ANOTHER CLIP FROM HIS
3 DEPOSITION.
4 (VIDEOTAPE PLAYED AS FOLLOWS:)
5 QUESTION: AS YOU SIT HERE TODAY, DO YOU HAVE ANY
6 RECOLLECTION AS TO WHAT YOUR UNDERSTANDING WAS BACK IN JUNE
7 1995 AS TO THE PRINCIPAL PURPOSE OF THE MICROSOFT EMPLOYEES'
8 MEETING WITH NETSCAPE?
9 ANSWER: I WASN'T INVOLVED IN SETTING UP THE
10 MEETING, SO I -- I CAN SEE WHAT REARDON SAID HERE. I CAN
11 SEE WHAT ROSEN SAID HERE. YOU'VE READ SOMETHING THAT
12 PURPORTS TO BE SOMETHING THAT JONES SAID. I MEAN --
13 (END OF VIDEOTAPE EXCERPT.)
14 MR. BOIES: NOW, ONE OF THE THINGS THAT YOU WILL
15 HEAR WHEN WE PUT IN ADDITIONAL PORTIONS OF MR. GATES'
16 TESTIMONY AT TRIAL IS MR. GATES SAYS THESE PEOPLE WHO WENT
17 TO THIS MEETING WEREN'T REALLY EXECUTIVES. THEY WERE JUST
18 EMPLOYEES. THEY HAD IMPORTANT TITLES, BUT THEY WEREN'T
19 REALLY EXECUTIVES. AND WHAT HE SAYS IS THAT HE DIDN'T EVEN
20 KNOW THAT THIS WAS GOING ON. HE CERTAINLY WASN'T INVOLVED
21 IN PLANNING FOR IT. THE IMPLICATION IS THAT THIS WAS
22 SOMETHING THAT WAS GOING ON WITHOUT THE TOP MANAGEMENT'S
23 INVOLVEMENT OR APPROVAL.
24 BUT LET'S LOOK AGAIN AT WHAT THE WRITTEN
25 DOCUMENTATION FROM THAT POINT SAYS. MAY 31, 1995, FIVE DAYS
40 - [add a note]
1 AFTER THE INTERNET TIDAL WAVE MEMO, MR. GATES WRITES TO PAUL
2 MARITZ, BRAD SILVERBERG, DAN ROSEN AND OTHERS, SUBJECT,
3 NETSCAPE DISCUSSIONS. AND HE BEGINS BY SAYING, I THINK
4 THERE IS A VERY POWERFUL DEAL OF SOME KIND WE CAN DO WITH
5 NETSCAPE. AND HE LAYS OUT WHAT THAT IS IN SUMMARY FORM.
6 THE CONCEPT IS THAT FOR 24 MONTHS, THEY AGREE TO DO CERTAIN
7 THINGS IN THE CLIENT AND WE AGREE TO MAKE THEIR SERVER
8 BUSINESS SUCCESSFUL.
9 AND WHAT THE COURT WILL SEE FROM LATER DOCUMENTS
10 IS THAT WAS ULTIMATELY THE PROPOSAL THAT WAS MADE TO
11 NETSCAPE. YOU GET OUT OF THE CLIENT BUSINESS. YOU GET OUT
12 OF THE BROWSER BUSINESS FOR WINDOWS 95 AND WE'LL HELP YOU IN
13 OTHER AREAS. YOU WILL SEE DOCUMENTS ABOUT DRAWING A LINE
14 BETWEEN THE WINDOWS 95 CLIENT OR BROWSER AND THE SERVER
15 BUSINESS.
16 CAN I SEE THE NEXT PAGE? THIS IS THE LAST LINE OF
17 THAT MEMORANDUM FROM MR. GATES. "I WOULD REALLY LIKE TO SEE
18 SOMETHING LIKE THIS HAPPEN," WITH TWO EXCLAMATION POINTS.
19 NOW, TESTIFYING NOW IN THE CONTEXT OF THIS TRIAL, HE SAYS HE
20 WASN'T AT ALL INVOLVED IN SETTING UP THE MEETINGS WITH
21 NETSCAPE. BUT LOOKING BACK AT THE WRITTEN RECORD, IT IS
22 ABSOLUTELY CLEAR THAT THESE MEETINGS TOOK PLACE, NOT ONLY
23 WITH THE APPROVAL AND THE ENCOURAGEMENT, BUT AT THE EXPLICIT
24 DIRECTION AT THE VERY TOP MANAGEMENT OF MICROSOFT.
25 LET ME GO TO ONE MORE CLIP FROM MR. GATES'
41 - [add a note]
1 DEPOSITION.
2 (VIDEOTAPE EXCERPT PLAYED AS FOLLOWS:)
3 QUESTION: DO YOU RECALL AS YOU SIT HERE TODAY,
4 APART FROM JUST READING THESE E-MAILS, ANYTHING THAT WAS
5 REPORTED BACK TO YOU BY ANY OF THE PARTICIPANTS FROM
6 MICROSOFT AT THIS JUNE 21ST MEETING?
7 ANSWER: I THINK SOMEWHERE ABOUT THIS TIME
8 SOMEBODY SAID TO ME THAT -- ASKED IF IT MADE SENSE FOR US TO
9 CONSIDER INVESTING IN NETSCAPE. AND I SAID THAT THAT DIDN'T
10 MAKE SENSE TO ME. I DIDN'T SEE THAT AS SOMETHING THAT MADE
11 SENSE.
12 QUESTION: DO YOU RECALL WHO SAID THAT TO YOU?
13 ANSWER: IT WOULD HAVE BEEN PROBABLY SUGGESTED IN
14 A PIECE OF E-MAIL FROM DAN, I THINK.
15 QUESTION: DO YOU RECALL WHEN YOU GOT THAT
16 SUGGESTION, WHETHER IT WAS BEFORE OR AFTER THE MEETING?
17 ANSWER: OH, IT WOULD HAVE BEEN AFTER THE MEETING.
18 (END OF VIDEOTAPE EXCERPT.)
19 MR. BOIES: MR. GATES HERE IS AGAIN TRYING TO
20 DISTANCE HIMSELF FROM ONE OF THE PROPOSALS MADE AT THE
21 MEETING WHICH WAS THAT MICROSOFT TAKE AN EQUITY POSITION IN
22 NETSCAPE AS PART OF THE DEAL. AND HE SAYS, IT DIDN'T COME
23 FROM ME; WHEN I HEARD ABOUT IT, I THOUGHT IT WAS A BAD IDEA.
24 AND, IN ANY EVENT, NOBODY BROUGHT IT UP UNTIL AFTER THE
25 MEETING.
42 - [add a note]
1 LET'S GO BACK TO THE EXHIBIT WE WERE JUST LOOKING
2 AT. REMEMBER, THIS IS THE MAY 31, 1995 MEMORANDUM FROM
3 MR. GATES HIMSELF. AT THE BOTTOM OF THE PAGE: OF COURSE,
4 OVER TIME, WE WILL COMPETE ON THE SERVERS, BUT WE CAN HELP
5 THEM A LOT IN THE MEANTIME. WE COULD EVEN PAY THEM MONEY AS
6 PART OF THE DEAL, BUYING SOME PIECE OF THEM OR SOMETHING.
7 AGAIN -- AND THIS IS NOT A CENTRAL POINT TO THE
8 ANALYSIS, YOUR HONOR -- BUT AGAIN, WHAT IT DEMONSTRATES IS,
9 EVEN DOWN TO THE DETAILS, THE TOP MANAGEMENT OF MICROSOFT
10 WAS DIRECTLY INVOLVED IN WHAT WAS GOING ON HERE. THIS IS
11 NOT SOMETHING THAT THEY CAN DISTANCE THEMSELVES FOR. THIS
12 IS NOT SOMETHING THAT THEY CAN SAY WAS MERELY BEING ENGAGED
13 IN BY EMPLOYEES, NOT EXECUTIVES.
14 THIS IS SOMETHING -- AND YOU'RE GOING TO HEAR FROM
15 SOME OF THESE EMPLOYEES, YOUR HONOR. YOU'RE GOING TO HEAR
16 FROM SOME OF THESE PEOPLE COME AND TESTIFY, AND OTHERS YOU
17 WILL HEAR THEIR DEPOSITIONS. AND YOU CAN SEE THE CENTRAL
18 ROLE THEY PLAYED AT MICROSOFT. BUT THESE DOCUMENTS
19 DEMONSTRATE THAT THIS WAS NOT SOMETHING THAT THEY WENT OUT
20 AND DID ON THEIR OWN WITHOUT AUTHORIZATION, WITHOUT APPROVAL
21 OR, IN MR. GATES' WORDS, AGAINST COMPANY POLICY. THIS IS
22 SOMETHING THAT THEY ARE BEING DIRECTED BY THE VERY TOP
23 MANAGEMENT OF MICROSOFT TO DO.
24 NOW, LET'S GO TO SOME ADDITIONAL DOCUMENTS THAT
25 SHOW EXACTLY WHAT HAPPENED. NOW, THIS IS A JUNE 1
43 - [add a note]
1 MEMORANDUM. THIS IS THE DAY AFTER MR. GATES' E-MAIL. AND
2 THIS IS A REPLY BY PAUL MARITZ TO, AMONG OTHERS, BILL GATES,
3 DATED JUNE 1, 1995. AND HE BEGINS BY SAYING, DAN -- AND
4 THAT'S DAN ROSEN -- BOB AND I -- AND I IS PAUL MARITZ -- MET
5 YESTERDAY TO REVIEW OUR RECENT DISCUSSIONS WITH NETSCAPE AND
6 FORM OUR NEXT FEW ACTION ITEMS. DAN IS MEETING WITH JIM
7 BARKSDALE, THEIR C.E.O., SHORTLY.
8 SO WHAT IS HAPPENING HERE IS MR. MARITZ, ONE OF
9 THE VERY TOP EXECUTIVES OF MICROSOFT, IS KEEPING HIS BOSS,
10 BILL GATES, DIRECTLY INFORMED. AND WHAT IS STATED TO BE THE
11 WORKING GOALS OF THESE MEETINGS WITH NETSCAPE? NUMBER TWO,
12 MOVE NETSCAPE OUT OF THE WIN 32 INTERNET CLIENT ARENA.
13 NUMBER THREE, AVOID COLD OR HOT WAR WITH NETSCAPE. AND THAT
14 IS EXPLAINED DOWN HERE. MOVE NETSCAPE OUT OF
15 WIN 32/ WIN 95, AVOID BATTLING THEM IN THE NEXT YEAR.
16 THEIR GOALS GOING INTO THAT MEETING WERE -- AND I
17 EMPHASIZE, THIS COMES FROM MICROSOFT'S FILES; THIS IS
18 MICROSOFT'S STATEMENT OF THEIR GOALS -- WAS TO STOP THE
19 COMPETITION WITH NETSCAPE IN THE WIN 32/WIN 95 ENVIRONMENT
20 FOR BROWSERS. AND THAT IS EXACTLY WHAT THEY WENT TO DO.
21 THEY HAD A MEETING ON JUNE 2ND. THE VERY NEXT DAY, THEY
22 HAVE GOT A MEETING. AND IN THAT MEETING, DAN ROSEN REPORTS
23 THAT NETSCAPE IS DOING VERY WELL. THEY ARE SELLING
24 BROWSERS. THEY ARE SELLING SERVERS. THEY ARE SELLING A LOT
25 OF SITE LICENSES FOR BROWSERS. HE SAYS THEY ARE GOING TO
44 - [add a note]
1 CONTINUE TO WAIVE LICENSE FEES FOR STUDENTS AND NONPROFIT
2 ORGANIZATIONS, BUT WILL CHARGE OTHERS.
3 NOW, THIS IS SOMETHING I AM GOING TO COME BACK TO,
4 YOUR HONOR, WHEN WE GET INTO THE PRICING AND PREDATORY
5 PRICING AREA, BECAUSE SOMETHING THAT THE COURT HAS HEARD
6 FROM TIME TO TIME FROM MICROSOFT IS, WELL, EVERYBODY WAS
7 GIVING THIS AWAY FREE. THEY KNEW PERFECTLY WELL THAT
8 NETSCAPE WAS CHARGING, INTENDING TO CHARGE AND, LIKE ANYBODY
9 PRODUCING A PRODUCT, NEEDED TO CHARGE FOR THEIR BROWSER IN
10 ORDER TO REMAIN VIABLE.
11 THIS IS ANOTHER -- THIS IS A JUNE 9 MESSAGE WHERE
12 DAN ROSEN REPORTS TO HIS BOSSES, INCLUDING BILL GATES, ABOUT
13 THE PROGRESS WITH NETSCAPE DISCUSSIONS. NOW, THIS AGAIN IS
14 ILLUSTRATIVE OF THE FACT THAT THIS WAS GOING ON WITH THE
15 CONSTANT SUPERVISION OF BILL GATES, WHO HAD STARTED THIS BY
16 SAYING, I REALLY WANT TO SEE THIS HAPPEN.
17 WE THEN HAVE THE JUNE 21 MEETING. AND WE HAVE
18 CONTEMPORANEOUS NOTES OF THAT JUNE 21 MEETING FROM MARK
19 ANDREESEN, AND THEY ARE VERY DETAILED NOTES. AND
20 THROUGHOUT THE NOTES, IT IS CLEAR THAT WHAT MICROSOFT IS
21 SAYING IS, LET'S DRAW A LINE BETWEEN THE AREAS WHERE WE'RE
22 GOING TO COMPETE AND THE AREAS WHERE WE DON'T COMPETE.
23 ONE PARTICULAR TELLING PORTION IS WHERE
24 MR. ANDREESEN'S NOTES READ, WOULD YOU BE INTERESTED IN
25 HAVING A PARTNERSHIP WHERE NETSCAPE GETS ALL THE NON-WIN 95
45 - [add a note]
1 STUFF, AND MICROSOFT GETS ALL THE WIN 95 STUFF? WOULD YOU
2 BE INTERESTED IN DIVIDING THE MARKET WHERE NETSCAPE GETS ALL
3 OF THE NON-WINDOWS 95 STUFF AND MICROSOFT GETS ALL OF THE
4 WINDOWS 95 STUFF? THEY SAY, IF NETSCAPE DOESN'T WANT TO,
5 THEN THAT'S ONE THING. IF NETSCAPE DOES WANT TO, THEN WE
6 CAN HAVE OUR SPECIAL RELATIONSHIP. AND THERE ARE A LOT OF
7 OFFERS HERE. THEN -- AND THE BOLD TYPING IS
8 MR. ANDREESEN'S -- THREAT THAT MICROSOFT WILL OWN THE
9 WINDOWS 95 CLIENT MARKET AND THAT NETSCAPE SHOULD STAY AWAY.
10 BEFORE GOING ON TO THE NOTES FROM MICROSOFT, THERE
11 IS A PAGE IN HERE IN WHICH MR. ANDREESEN TALKS ABOUT SOME
12 OF THE THINGS THEY MIGHT BE ABLE TO GET. ONE OF THE THINGS
13 THAT NETSCAPE, LIKE OTHER PEOPLE IN THE INDUSTRY, NEEDED,
14 WAS ACCESS AND KNOWLEDGE ABOUT CERTAIN API'S IN WINDOWS.
15 AND MICROSOFT, AS THE EVIDENCE WILL SHOW, PLAYS A LOT OF
16 GAMES WITH THAT. AND THEY USE THE PRESSURE OF NOT GETTING
17 ACCESS TO THAT TO GET PEOPLE TO DO WHAT THEY WANT THEM TO DO
18 IN THE INDUSTRY.
19 AND ONE OF THE THINGS THAT JIM BARKSDALE -- THAT'S
20 JB -- FROM NETSCAPE ASKS ABOUT, WELL, WHAT ABOUT THE RAS
21 API. AND HE'S TOLD, WELL, WITH A SPECIAL RELATIONSHIP WITH
22 YOU, YOU WILL BE THE FIRST TO PLUG INTO IT. OTHERS WILL BE
23 IN THE FUTURE. THAT IS, IF YOU PLAY BALL WITH US, IF YOU
24 AGREE TO DIVIDE THE BROWSER MARKET, WE'LL GIVE YOU A SPECIAL
25 RELATIONSHIP IN WHICH WE DISCRIMINATE IN YOUR FAVOR IN TERMS
46 - [add a note]
1 OF MAKING API'S AVAILABLE.
2 DAN ROSEN GOES ON TO SAY THAT THERE IS INTERNAL
3 STUFF THAT IMPLEMENTS INTERNAL API'S, AND THOSE API'S ARE
4 ONLY KNOWN INSIDE MICROSOFT. THEY HAVEN'T DECIDED HOW TO
5 DISTRIBUTE THAT, BUT JB, JIM BARKSDALE, CAN GAIN AN
6 ADVANTAGE IF THEY AGREE. DAN ROSEN: IF WE HAD A SPECIAL
7 RELATIONSHIP, YOU WOULDN'T BE IN THIS POSITION. J. ALLARD,
8 -- ALSO FROM MICROSOFT -- DEPENDING ON HOW WE WALK OUT OF
9 THIS ROOM TODAY, WE HAVE A SOLUTION FOR YOUR PROBLEM, OR
10 ELSE IN THREE MONTHS.
11 NOW, LET ME GO TO THE MICROSOFT CONTEMPORANEOUS
12 DOCUMENTS THAT DESCRIBE THIS MEETING, YOUR HONOR. THIS
13 ACTUALLY ISN'T A MICROSOFT DOCUMENT, BUT IT'S A GOOD
14 DOCUMENT. AND I WOULD HAVE GONE HERE ANYWAY, SO THIS IS A
15 GOOD TIME TO GET HERE. THIS IS A DOCUMENT THAT COMES FROM
16 AMERICA ONLINE'S FILES. WHEN WE TOOK DISCOVERY OF AMERICA
17 ONLINE, ONE OF THE DOCUMENTS THAT WE GOT WAS A JUNE 22, 1995
18 MEMORANDUM PREPARED THE DAY AFTER THE MARKET DIVISION
19 MEETING BETWEEN MICROSOFT AND NETSCAPE. AND THIS IS BASED
20 ON A REPORT FROM NETSCAPE TO AOL. AND IN THAT SENSE, YOUR
21 HONOR, IT IS HEARSAY.
22 BUT ONE OF THE THINGS THAT THIS SHOWS IS THAT THE
23 DESCRIPTION OF THAT MEETING IS NOT ANYTHING THAT HAS BEEN
24 DEVELOPED, AS MICROSOFT HAS FROM TIME TO TIME SUGGESTED,
25 AFTER THE FACT BY NETSCAPE. THIS IS NOT ANYTHING, LIKE
47 - [add a note]
1 MICROSOFT HAS FROM TIME TO TIME SUGGESTED, WAS SOMETHING
2 THAT MICROSOFT ONLY CAME TO SEE IN A SINISTER LIGHT AFTER
3 MICROSOFT HAD BEGUN TO HAVE PROBLEMS IN THE MARKETPLACE.
4 THIS WAS A SITUATION THE DAY AFTER THAT MEETING. AND HOW
5 WAS THAT DESCRIBED THE DAY AFTER THE MEETING? MICROSOFT
6 WENT TO NETSCAPE AND MICROSOFT WANTED A BOARD SEAT, NETSCAPE
7 TO ANNOUNCE THE NETWORK AS A PLATFORM, NETSCAPE TO DISCLOSE
8 ALL PLANS TO MICROSOFT, NETSCAPE TO LIMIT ACCESS TO API'S.
9 AND IN RETURN, NETSCAPE WOULD BE MICROSOFT'S
10 SPECIAL PARTNER, GET INSIDE INFORMATION, AND IF NETSCAPE
11 DIDN'T DO THE DEAL, MICROSOFT WOULD CRUSH THEM. THAT WAS
12 THE CONTEMPORANEOUS RECOLLECTION OF THE NETSCAPE PEOPLE OF
13 WHAT THEY WERE BEING TOLD. NOW, LET ME SEE IF I CAN GO TO
14 WHAT MICROSOFT SAYS.
15 THE THING THAT IS REMARKABLE, YOUR HONOR, IS THAT
16 WE HAVE THREE CONTEMPORANEOUS DOCUMENTS, ONE FROM NETSCAPE,
17 ONE FROM AOL, ONE FROM MICROSOFT, AND THEY ALL SAY
18 ESSENTIALLY THE SAME THING.
19 THIS IS A MEMORANDUM ON JUNE 22, THE DAY AFTER THE
20 MEETING, FROM DAN ROSEN TO BILL GATES AND OTHERS. SEVEN OF
21 US MET WITH JIM BARKSDALE, C.E.O., AND OTHER EXECUTIVES OF
22 NETSCAPE FOR FOUR HOURS. OUR GOALS GOING INTO THE MEETING
23 WERE, IN PRIORITY ORDER, ONE, ESTABLISH MICROSOFT OWNERSHIP
24 OF THE INTERNET CLIENT PLATFORM FOR WINDOWS 95. LATER ON,
25 MR. ROSEN REPORTS, CHRIS JOE, OR CHRIS JONES SUMMED UP THE
48 - [add a note]
1 PURPOSE NICELY. QUOTE, WE NEED TO UNDERSTAND IF YOU WILL
2 ADOPT OUR PLATFORM AND BUILD ON TOP OF IT OR IF YOU ARE
3 GOING TO COMPETE WITH US ON A PLATFORM LEVEL. THAT IS
4 EXACTLY WHAT THEY DID, YOUR HONOR. THEY WENT IN AND THEY
5 SAID, WE WANT TO GET YOU OUT OF THE WINDOWS 95 AREA AND
6 BROWSERS. IF YOU DO, WE'LL GIVE YOU A SPECIAL RELATIONSHIP.
7 IF YOU DON'T, WE'RE GOING TO CRUSH YOU. AND YOU HAVE GOT TO
8 TELL US. ARE YOU GOING TO COMPETE WITH US OR NOT?
9 NOW, I THINK THAT THIS ILLUSTRATION IS SOMETHING
10 THAT DEMONSTRATES TWO THINGS. FIRST, BY ITSELF, YOUR HONOR,
11 THIS MAKES OUT A VIOLATION OF SECTION 2, ATTEMPTED
12 MONOPOLIZATION OF THE BROWSER MARKET. THERE IS NO DOUBT
13 THAT THESE WERE THE TWO LEADING COMPETITORS AND POTENTIAL
14 COMPETITORS IN THE BROWSER MARKET. IF THEY HAD AGREED TO
15 DIVIDE THE MARKET, THAT WOULD HAVE BEEN FAR BEYOND A
16 DANGEROUS PROBABILITY OF SUCCESS. WHAT YOU HAVE HERE IS, IN
17 AND OF ITSELF, AN ATTEMPT AT MONOPOLIZATION.
18 IN ADDITION, THIS SHOWS WHAT THE MOTIVE WAS AND
19 WHAT THE CONTEXT WAS FOR THE ACTIONS THAT ARE GOING TO
20 FOLLOW. BECAUSE WHEN MICROSOFT SAID, NO, OR WHEN NETSCAPE
21 SAID NO TO MICROSOFT, MICROSOFT SET OUT TO DO EXACTLY WHAT
22 THEY HAD TOLD NETSCAPE THEY WOULD DO, WHICH IS TO CRUSH
23 THEM. AND THEY STARTED OFF WITH A PREDATORY PRICING
24 CAMPAIGN THAT WAS DESIGNED TO DEPRIVE NETSCAPE OF THE
25 REVENUES THAT MICROSOFT KNEW NETSCAPE NEEDED TO RELY ON.
49 - [add a note]
1 YOU WILL RECALL THE JUNE 2ND MEMORANDUM IN WHICH
2 DAN ROSEN REPORTS THAT NETSCAPE IS DOING VERY WELL AT MAKING
3 MONEY FROM BROWSER LICENSES, AND WHAT THE EVIDENCE IS GOING
4 TO SHOW IS THAT AT THE SPECIFIC DIRECTION OF MR. GATES,
5 MICROSOFT BEGAN TO STUDY EXACTLY WHERE NETSCAPE WAS GOING TO
6 GET -- WAS GETTING ITS MONEY AND HOW TO TURN THAT MONEY OFF.
7 AND WHAT THEY FOUND OUT WAS THAT NETSCAPE WAS MAKING A
8 CRITICAL PART OF ITS MONEY FROM LICENSING BROWSERS; THAT IS,
9 CHARGING OEM'S IN PARTICULAR, AND INTERNET SERVICE PROVIDERS
10 TO SOME EXTENT, FOR THE RIGHT TO USE THE BROWSER.
11 AND IN THAT CONNECTION, THERE IS A CHART,
12 EXHIBIT 9, THAT SHOWS WHAT NETSCAPE WAS GETTING. THIS IS
13 NETSCAPE'S QUARTERLY REVENUES FROM BROWSER LICENSES. AND IT
14 STARTS BACK IN THE FIRST QUARTER OF 1995. AND YOU CAN SEE
15 HOW RAPIDLY IT IS INCREASING. BY THE SECOND QUARTER OF
16 1996 -- OR THIRD QUARTER OF 1996, NETSCAPE IS MAKING ALMOST
17 $60 MILLION A QUARTER. THAT'S ALMOST $250 MILLION A YEAR,
18 ALMOST A QUARTER OF A BILLION DOLLARS A YEAR, FROM LICENSING
19 BROWSERS.
20 NOW, THE COURT WILL ALSO SEE WHAT HAPPENED TO
21 THOSE REVENUES AS MICROSOFT'S EFFORTS TO CUT OFF NETSCAPE'S
22 AIR SUPPLY BEGAN TO HAVE EFFECT. BUT UNTIL THAT HAPPENED,
23 NETSCAPE HAD A VERY SUCCESSFUL BUSINESS AND ONE, FACING FAIR
24 COMPETITION ON THE MERITS, COULD HAVE CONTINUED TO BE
25 SUCCESSFUL.
50 - [add a note]
1 NOW, LET'S GO TO THE DOCUMENTS THAT RELATE TO THE
2 PREDATORY PRICING CAMPAIGN THAT MICROSOFT INTRODUCED.
3 FIRST, THERE IS A SUGGESTION THAT MICROSOFT ALWAYS INTENDED
4 TO GIVE THE WEB BROWSER AWAY FOR FREE. AND ALWAYS,
5 INCIDENTALLY, INTENDED TO HAVE IT INTEGRATED INTO WINDOWS
6 AND A PART OF WINDOWS. THIS IS A DOCUMENT FROM OCTOBER OF
7 1994. AND IT SAYS O'HARE IS THE CODE NAME FOR THE INTERNET
8 CLIENT FOR WINDOWS 95 PROJECT. THAT IS, O'HARE ULTIMATELY
9 BECAME INTERNET EXPLORER.
10 AND IT SAYS, OUR GOAL IS TO BE IN BETA BY FEBRUARY
11 1995 AND SHIP NO MORE THAN THREE MONTHS AFTER WIN 95 IN A
12 FROSTING VERSION 2 PACKAGE. NOW, WHAT DOES THAT MEAN, YOUR
13 HONOR? WELL, FIRST OF ALL, IT MEANS THAT THEY WERE PLANNING
14 TO SHIP IT SEPARATE FROM AND LATER THAN WINDOWS 95.
15 SECOND, THOUGH, AND VERY IMPORTANT FROM THE
16 QUESTION OF PRICING, THEY WERE PLANNING TO SHIP IT IN A
17 PACKAGE, THAT THEY INTERNALLY REFERRED TO AS FROSTING
18 VERSION 2, THAT THEY WERE GOING TO CHARGE FOR. THAT IS,
19 THEY WERE GOING TO CHARGE -- THEY HAD A VALUABLE PRODUCT
20 AND, LIKE ANYBODY WITH A VALUABLE PRODUCT, THEY WERE GOING
21 TO CHARGE FOR IT.
22 IN FACT, THEY EVEN TRIED TO ANALYZE HOW MUCH THEY
23 WOULD GET FROM IT. THIS IS JANUARY 31, 1995, THREE OR FOUR
24 MONTHS LATER: BASED ON QUICK AND DIRTY ANALYSIS, FROSTING
25 WITHOUT O'HARE -- THAT IS, THIS UPGRADE PACKAGE WITHOUT THE
51 - [add a note]
1 BROWSER -- REPRESENTS A $63 MILLION OPPORTUNITY, AND WITH
2 O'HARE, $120 MILLION OPPORTUNITY. WE'RE TALKING ABOUT $57
3 MILLION DIFFERENCE. IT APPEARS THAT AS MANY AS 1.5 MILLION
4 FROSTING CUSTOMERS WILL BUY IT FOR THE INTERNET ACCESS.
5 IN OTHER WORDS, WHAT MICROSOFT IS SAYING IS, YES,
6 WEB BROWSERS ARE POPULAR. THEY ARE VALUABLE. WE CAN SELL
7 THEM. AND WE CAN USE THEM TO HELP SELL THIS FROSTING
8 PACKAGE. AND IN FACT, THEY ESTIMATE THAT O'HARE, THE
9 BROWSER, COULD MEAN AS MUCH AS $120 MILLION IN INCREMENTAL
10 REVENUE FROM FROSTING.
11 AND THIS IS THE NEXT MONTH, FEBRUARY 1995. A
12 RECOMMENDATION: COMMIT TO O'HARE IN THE FROSTING BOX,
13 PERIOD. THE EXTENSIONS AND CLIENTS IN THEMSELVES ARE
14 COMPELLING, EVEN WITHOUT ONE BUTTON SIGN-UP. WE SHOULDN'T
15 JUST GIVE YOUR STUFF AWAY. IT'S BETTER THAN THE FREE STUFF,
16 AND IT'S THE ONLY 100 PERCENT INTEGRATED INTO WINDOWS 95
17 INTERNET CLIENTS OUT THERE. SO AS LATE AS FEBRUARY 1995,
18 PEOPLE ARE STILL SAYING, YOU OUGHT TO CHARGE FOR THE
19 BROWSER. YOU CAN MAKE MONEY DOING THAT.
20 HERE IS A JULY 17, 1995 MEMORANDUM FROM CHRIS
21 JONES TO A LOT OF PEOPLE, INCLUDING THOMAS REARDON AND DAN
22 ROSEN AND OTHER PEOPLE THAT YOU'RE GOING TO HEAR TESTIMONY
23 FROM. IT'S TALKING ABOUT INTERNET EXPLORER: FIGURE OUT
24 PRICING AND PROMOTE AGGRESSIVELY. WE NEED SOMEONE WHO WILL
25 GO AND SELL THIS THING. WE HAVE NO OWNER FOR THIS.
52 - [add a note]
1 NOW, CONTRAST THAT WITH WHAT HAPPENED OVER THE
2 NEXT FEW MONTHS. AFTER MICROSOFT RECEIVED A BLUNT NO FROM
3 NETSCAPE -- THIS IS JANUARY 21, 1996. THIS IS A MEETING
4 THAT MR. GATES HAD WITH AMERICA ONLINE. AND MR. GATES WAS
5 MEETING WITH AMERICA ONLINE AND TELLING THEM THAT NOT ONLY
6 WOULD THEY GIVE THE MICROSOFT BROWSER AWAY FOR FREE, THEY
7 WOULD ACTUALLY PAY AOL TO TAKE IT. THEY WOULD GIVE AOL
8 THINGS TO GET AOL TO TAKE THIS FREE PRODUCT. OR, AS AOL
9 DESCRIBED IT IN THIS CONTEMPORANEOUS MEMORANDUM, QUOTE,
10 GATES DELIVERED A CHARACTERISTICALLY BLUNT QUERY. HOW MUCH
11 WE NEED TO PAY YOU TO SCREW NETSCAPE? THIS IS YOUR LUCKY
12 DAY.
13 LET'S SEE WHAT ELSE WAS GOING ON ABOUT THAT TIME.
14 THIS IS AN APRIL 1996 -- TWO OR THREE MONTHS LATER --
15 PLANNING MEMORANDUM FROM BRAD CHASE, AND IT WENT TO ALL OF
16 THE MICROSOFT EXECUTIVES AT THIS PLANNING CONFERENCE. BY
17 THIS TIME, THEY HAD MADE A DECISION FOR SOME TIME NOW THAT
18 THEY ARE NOT GOING TO CHARGE FOR BROWSERS. AND SO HE IS
19 ADDRESSING THE ISSUE OF WHY SHOULD YOU CARE ABOUT BROWSER
20 MARKET SHARE. THIS IS A NO-REVENUE PRODUCT, BUT YOU SHOULD
21 WORRY ABOUT YOUR BROWSER SHARE AS MUCH AS BILL GATES,
22 BECAUSE WE WILL LOSE THE INTERNET PLATFORM BATTLE IF WE DO
23 NOT UNDERCUT NETSCAPE'S LIFE LINE. QUOTE: OUR BUSINESS MODEL
12 WORKS EVEN IF ALL INTERNET SOFTWARE IS FREE, SAYS MR. GATES.
13 WE ARE STILL SELLING OPERATING SYSTEMS.
14 WHAT DOES NETSCAPE'S BUSINESS MODEL LOOK LIKE IF
15 THAT HAPPENS? NOT VERY GOOD. OR, A FEW WEEKS LATER, QUOTE:
16 OUR BUSINESS MODEL WORKS EVEN IF ALL INTERNET SOFTWARE IS
17 FREE, SAYS MR. GATES. WE ARE STILL SELLING OPERATING
18 SYSTEMS. NETSCAPE IN CONTRAST, IS DEPENDENT ON ITS INTERNET
19 SOFTWARE FOR PROFITS, HE POINTS OUT.
20 LATER THAT MONTH, QUOTE: ONE THING TO REMEMBER
21 ABOUT MICROSOFT, SAYS CHAIRMAN WILLIAM H. GATES, III, WE
22 DON'T NEED TO MAKE ANY REVENUE FROM INTERNET SOFTWARE.
23 WHICH BUSINESS WEEK SAYS, WHO COULD FORGET?
24 AND MR. BALLMER GETS INTO THE ACT AS WELL A FEW
25 MONTHS LATER. QUOTE: WE'RE GIVING AWAY A PRETTY GOOD
54 - [add a note]
1 BROWSER AS PART OF THE OPERATING SYSTEM. HOW LONG CAN THEY
2 SURVIVE SELLING? CLOSE QUOTE.
3 NOW, DESPITE THE DECISION TO PRICE THE BROWSER AT
4 ZERO, OR INDEED AT A NEGATIVE PRICE, PAYING PEOPLE TO TAKE
5 IT, THERE IS INEVITABLY SOME PRESSURE WITHIN MICROSOFT TO
6 TRY TO RECOVER SOME AMOUNT OF MONEY FOR THIS ENORMOUS
7 DEVELOPMENT EFFORT THAT WAS GOING ON. AND HERE IS PAUL
8 MARITZ IN JULY OF 1997 RESPONDING TO THAT. HE SAYS, HE IS
9 NOT PUTTING ANY SUCH PRESSURE ON FOLKS. THERE IS TALK ABOUT
10 HOW WE GET MORE DOLLARS FROM THE THOUSAND-PLUS PEOPLE WE
11 HAVE WORKING ON BROWSER-RELATED STUFF. BUT THEN HE ADDS,
12 BUT I HAVE NOT LOST SIGHT OF THE FACT THAT BROWSER SHARE IS
13 STILL AN OVERWHELMING OBJECTIVE. YOU MAY NOTICE THAT I HAVE
14 KEPT I.E. MARKETING SPENDING AT A VERY HIGH LEVEL -- AND HE
15 UNDERSCORES "VERY" -- TO FISCAL YEAR 98 AND RESISTED
16 PRESSURE TO REDUCE THIS OR SWITCH IT TO OTHER PRODUCTS.
17 I HAVE ALSO SAID NO ON THE PROPOSAL TO CHARGE
18 SEPARATELY FOR THE SHELL. NOW, WE'RE GOING TO COME TO THAT
19 SHELL IN A MINUTE, BUT BEFORE WE DO, WHAT MARITZ IS SAYING
20 IS THAT THEY ARE GOING TO SPEND A VERY HIGH LEVEL OF MONEY
21 MARKETING THIS THING THEY DON'T GET ANY MONEY FOR. THEY ARE
22 GOING TO SPEND A HUNDRED MILLION DOLLARS A YEAR -- THAT
23 COMES FROM THEIR INTERROGATORY ANSWERS -- TO DEVELOP THIS
24 PRODUCT. THEY ARE GOING TO SPEND MARKETING. THEY ARE GOING
25 TO GIVE IT AWAY FREE. AND THEY ARE DOING THAT BECAUSE
55 - [add a note]
1 EXPLICITLY THEY KNOW THEY CAN DO THAT AND NETSCAPE, IN THEIR
2 OWN WORDS, CAN'T SURVIVE.
3 NOW, THIS IS AN INTERESTING SERIES OF DOCUMENTS.
4 BECAUSE YOU WILL REMEMBER IN THE PREVIOUS EXHIBIT, THERE WAS
5 A -- MARITZ WAS SAYING, I SAID NO TO THE PROPOSAL TO CHARGE
6 FOR THE SHELL. NOW, HERE IS A PROPOSAL TO MR. GATES,
7 MR. MARITZ AND OTHERS IN JULY OF 1997 THAT IT WOULD BE A
8 REALLY GOOD IDEA TO SELL THE SHELL WITH THE BROWSER
9 SEPARATELY. HE SAYS, IT WOULD CERTAINLY INCREASE
10 SIGNIFICANTLY WIN 98 UPGRADE SALES.
11 HE THEN GOES ON TO SAY, I KNOW THERE IS A BROWSER
12 SHARE COUNTER-ARGUMENT, THAT IS, OBVIOUSLY PUTTING A CHARGE
13 ON IT WOULD REDUCE THE DISTRIBUTION, WOULD REDUCE THE SHARE.
14 BUT HE SAYS IT'S AN INTRIGUING THOUGHT. NOW, THE SAME DAY,
15 LATER IN THE DAY, PAUL MARITZ WRITES BACK, IT IS TEMPTING,
16 BUT WE HAVE TO REMEMBER THAT GETTING BROWSER SHARE UP TO 50
17 PERCENT OR MORE IS STILL A MAJOR GOAL.
18 AND LATER THAT YEAR, CAMERON MYHRVOD WRITES TO A
19 NUMBER OF PEOPLE ASKING FOR SOME STUDIES DONE. NUMBER ONE,
20 IS, NETSCAPE'S CLIENT REVENUE, IS IT RISING? HOPE NOT.
21 FALLING, I THINK SO. AND DO WE THINK THEY ARE GETTING ANY
22 MONEY FROM ISP'S NETOPS FOR THEIR BROWSERS? IF SO, WHICH
23 NETOPS ARE STILL PAYING THEM AND CONSTRUCT A HUNTING LIST
24 FOR US TO GO AFTER.
25 SO THAT NOT ONLY WERE THEY TRYING TO DISTRIBUTE
56 - [add a note]
1 THIS FOR FREE OR AT A NEGATIVE PRICE, BUT THEY WERE DIRECTLY
2 TARGETING NETSCAPE AND NETSCAPE'S REVENUES IN AN ATTEMPT TO
3 DEPRIVE NETSCAPE OF THE REVENUES NECESSARY TO REMAIN VIABLE,
4 EVEN AT THE EXPENSE OF VERY SUBSTANTIAL SHORT-TERM LOSSES.
5 AND THEY WERE DOING SO BECAUSE THEY KNEW THAT THIS WAS THE
6 WAY TO PRESERVE THEIR MONOPOLY OVER WINDOWS, THE
7 PROFIT-GENERATING ENGINE THAT GAVE THEM THE ENORMOUS
8 PROFITABILITY THAT MR. HOUCK TALKED ABOUT.
9 NOW, THERE IS A DOCUMENT -- IF I CAN FIND IT IN
10 JUST A MINUTE, YOUR HONOR -- I WOULD LIKE TO SHOW YOU; IT'S
11 EXHIBIT 332, BECAUSE IT SHOWS THE RECOGNITION OF MICROSOFT
12 THAT NOT ONLY WAS IT IMPORTANT TO EXTEND ITS MONOPOLY
13 CONTROL OVER THE BROWSERS TO PROTECT ITS EXISTING MONOPOLY,
14 BUT THAT THE BROWSER REPRESENTED, IN MICROSOFT'S WORDS, THE
15 CHOKE-HOLD ON THE INTERNET PLATFORM. THAT IS, THAT BY
16 GAINING CONTROL OF THE BROWSER, NOT ONLY DO THEY PROTECT
17 THEIR EXISTING MONOPOLY, BUT THEY GAIN A CHOKE-HOLD ON THE
18 INTERNET PLATFORM. AND IT IS THOSE DUAL CONSEQUENCES OF
19 MICROSOFT'S CONDUCT THAT MAKE THIS SUCH AN IMPORTANT CASE.
20 SO ONE OF THE THINGS THEY DID --
21 THE COURT: WOULD THIS BE AN APPROPRIATE TIME TO
22 TAKE A BRIEF RECESS?
23 MR. BOIES: YES, IT WOULD, YOUR HONOR.
24 THE COURT: WE'LL TAKE ABOUT A TEN-MINUTE RECESS.
25 MR. BOIES: THANK YOU VERY MUCH.
57 - [add a note]
1 (A RECESS WAS TAKEN.)
2 (AFTER RECESS)
3 MR. BOIES: THANK YOU, YOUR HONOR.
4 MICROSOFT'S EFFORTS TO DEFEAT NETSCAPE DID NOT END
5 WITH SIMPLY THE PREDATORY PRICING CAMPAIGN. WHAT MICROSOFT
6 SET OUT TO DO WAS TO FORECLOSE THE TWO PRIMARY CHANNELS OF
7 DISTRIBUTION THAT BROWSERS HAD: OEM'S AND INTERNET SERVICE
8 PROVIDERS.
9 AND LET ME GO TO THE OEM CHANNEL FIRST. AND LET
10 ME GO TO A DOCUMENT IN WHICH BILL GATES RECOGNIZED IN
11 JANUARY OF 1996 BOTH THE IMPORTANCE OF THE OEM CHANNEL TO
12 BROWSERS AND HOW IT RELATED TO THE OVERRIDING GOAL OF
13 WINNING INTERNET BROWSER SHARE.
14 THIS IS BILL GATES TO HIS TOP EXECUTIVES ON
15 JANUARY 5, 1996. "WINNING INTERNET BROWSER SHARE IS A VERY,
16 VERY IMPORTANT GOAL FOR US," AS IF THEY DIDN'T KNOW IT.
17 "APPARENTLY, A LOT OF OEM'S ARE BUNDLING NON-MIRCOSOFT
18 BROWSERS AND COMING UP WITH OFFERINGS TOGETHER WITH INTERNET
19 SERVICE PROVIDERS THAT ARE GETTING DISPLAYED ON THEIR
20 MACHINES IN A FAR MORE PROMINENT WAY THAN MSN OR OUR
21 INTERNET BROWSER."
22 WHAT HE IS CONCERNED ABOUT, YOUR HONOR, IS THAT
23 OEM'S, WHETHER THEY BE COMPAQ OR IBM, WHO YOU'RE GOING TO
24 HEAR FROM, OR HEWLETT PACKARD, OR GATEWAY OR NEC, WHOSE
25 DEPOSITIONS YOU'RE GOING TO HEAR, WERE ABLE TO TAKE THEIR
58 - [add a note]
1 MACHINES THAT THEY BUILT AND CONFIGURE THEM SO THEY COULD
2 INCLUDE NONMICROSOFT BROWSERS.
3 NOW, IN ONE OF THE MORE INTERESTING PORTIONS OF
4 MR. GATES' DEPOSITION THAT THE COURT'S IS GOING TO HEAR
5 DURING THE TRIAL, YOU WILL HEAR HIM SAY HE DOESN'T KNOW WHAT
6 "NON-MIRCOSOFT BROWSERS" MEANS, BUT HE OBVIOUSLY KNEW IT AND
7 HIS TOP EXECUTIVES OBVIOUSLY KNEW IT IN JANUARY OF 1996.
8 AND WHAT THEY WERE CONCERNED ABOUT IS THAT THE OEM'S COULD
9 DISPLAY NONMICROSOFT BROWSERS AND GIVE THEM DISTRIBUTION.
10 AND INDEED, CHRIS JONES, WHO YOU HAVE HEARD
11 REFERENCE TO BEFORE, WROTE IN JULY THAT SOME OEM'S WANT TO
12 REMOVE THE ICON FROM THE DESKTOP AND THE RESPONSE SHOULD BE
13 THAT THIS IS NOT ALLOWED.
14 THAT IS, AS THE COURT IS AWARE, THE BROWSER CAME
15 WITH A DESKTOP ICON AND WHAT SOME OF THE OEM'S WANTED TO DO
16 WAS REMOVE THAT ICON SO THEY COULD SUBSTITUTE A DIFFERENT
17 BROWSER. AND MICROSOFT'S RESPONSE TO ITS CUSTOMERS, THE
18 OEM'S, IS "YOU CAN'T DO THAT."
19 NOW, MR. REARDON WHO MICROSOFT PUT ON ITS WITNESS
20 LIST, ON SEPTEMBER 6TH, 1996, BEGINS TO WORRY THAT NETSCAPE
21 MAY TRY TO REPLACE THE WIN95 LOGO SCREEN. THAT IS, AGAIN,
22 THAT THIS WOULD BE A WAY OF USING THE OEM CHANNEL TO
23 DISTRIBUTE THE NETSCAPE BROWSER. MR. REARDON WANTS TO KNOW
24 WHETHER MICROSOFT'S OEM AGREEMENTS REQUIRE THAT THIS NOT BE
25 REPLACED.
59 - [add a note]
1 "MIGHT WE THINK ABOUT CHANGING THE LOGO SCREEN
2 FORMATS SO THAT WINDOWS CHECKS FOR A SIGNATURE ON THE LOGO
3 FILE?"
4 WHAT HE IS SAYING IS THAT NETSCAPE, TOGETHER WITH
5 THE OEM'S, MAY TRY TO REPLACE THE WINDOWS 95 LOGO SCREEN
6 SOME WAY THAT FEATURES NETSCAPE'S BROWSER.
7 A REPLY THE SAME DAY. "I THINK IT IS TECHNICALLY
8 POSSIBLE FOR AN APP. TO REPLACE THE SCREEN FOR LATER BOOTS.
9 JOHN, DO YOU THINK WE SHOULD LOOK AT MAKING THIS HARDER"?
10 RESPONSE FROM MR. KEMPIN, WHO THE COURT IS GOING TO HEAR
11 FROM. "I WOULD LOVE THAT, BUT I DOUBT YOU EASILY CAN." IN
12 OTHER WORDS, I WOULD LIKE TO MAKE IT HARDER FOR THE OEM'S
13 AND FOR NETSCAPE TO PUT ON ANOTHER LOGO, BUT IT'S GOING TO
14 BE HARD TO DO THIS TECHNICALLY.
15 THE FINAL REPLY IS, "WE'LL DO SOMETHING TO MAKE
16 THIS HARD IN MEMPHIS." WINDOWS 98. WE'RE GOING TO MAKE IT
17 HARD TO DO. WE'RE GOING TO MANIPULATE THE TECHNOLOGY, NOT
18 FOR INNOVATION, NOT FOR CONSUMER BENEFIT, NOT FOR
19 TECHNOLOGICAL ADVANCES. WE'RE GOING TO MANIPULATE THE
20 TECHNOLOGY, AND WE'RE GOING TO CHANGE THE CONTRACTS TO MAKE
21 IT HARD FOR THE OEM TO PUT WHAT THE OEM WANTS TO PUT ON THE
22 SCREEN OF THE PERSONAL COMPUTER THE OEM IS SELLING.
23 THAT WAS IN 1995 AND 1996. AND BY SEPTEMBER OF
24 1996, NETSCAPE WAS ALREADY REPORTING THAT MICROSOFT WAS
25 ADDING RESTRICTIONS -- SO-CALLED SCREEN RESTRICTIONS.
60 - [add a note]
1 THIS IS THE NETSCAPE REPORT. "ROD SMITH FROM IBM
2 INDICATED TODAY THAT MICROSOFT HAS CREATED NEW RESTRICTIONS
3 IN THE WINDOWS 95 LICENSE AGREEMENT WHICH PREVENT ANY OEM
4 FROM MODIFYING THE DEFAULT DESKTOP OR SHELL. THIS
5 EFFECTIVELY LOCKS OEM'S INTO NASHVILLE AND SHUTS OUT OEM
6 SPECIFIC SHELLS, SUCH AS THE PACKARD BELL INTERFACE, THE IBM
7 APTIVA INTERFACE AND, OF COURSE, PROJECT 197.
8 AND WHAT THEY ARE COMPLAINING OR NETSCAPE IS
9 COMPLAINING ABOUT IS THAT THESE SCREEN RESTRICTIONS ARE
10 GOING TO PREVENT THEM FROM WORKING WITH OEM'S IN ORDER TO
11 EFFECTIVELY DISTRIBUTE THE NETSCAPE BROWSER.
12 AND ONE OF THE THINGS THAT IS GOING TO BE VERY
13 INTERESTING, YOUR HONOR, IS THAT AS THE EVIDENCE COMES IN,
14 YOU WILL SEE MICROSOFT RELAXING THE SCREEN RESTRICTIONS FROM
15 TIME TO TIME. IF THEY CAN RELAX THEM IN A WAY THAT DOESN'T
16 ALLOW THE OEM'S TO DISTRIBUTE NETSCAPE, THEY ARE WILLING TO
17 DO IT. YOU'RE GOING TO HEAR A LOT OF TALK ABOUT THE
18 SO-CALLED WINDOWS EXPERIENCE AND ABOUT HOW EVERYBODY HAS GOT
19 TO HAVE THE SAME WINDOWS EXPERIENCE. WHAT YOU'RE GOING TO
20 FIND IS THAT MICROSOFT DOESN'T INSIST ON A UNIFORM WINDOWS
21 EXPERIENCE. IT IS WILLING TO MAKE EXCEPTIONS WHEN THE OEM'S
22 PUSH THEM, AS LONG AS THE OEM IS WILLING TO COOPERATE AND
23 NOT DISTRIBUTE NETSCAPE'S BROWSER.
24 SO WHAT YOU HAVE IS A SERIES OF PRETEXTUAL
25 ARGUMENTS: PRETEXTUAL THAT TECHNOLOGY DRIVES US AND
61 - [add a note]
1 PRETEXTUAL THAT WINDOWS EXPERIENCE DRIVES US.
2 IN FACT, WHAT IS BEING IN THE DRIVER'S SEAT HERE
3 IS THE DESIRE TO SHUT OUT THE NETSCAPE NAVIGATOR, AND AS THE
4 COURT WILL SEE WHEN WE TALK ABOUT AOL, THEY WERE PREPARED TO
5 DO THAT, EVEN AT THE EXTENT OF DISFAVORING THEIR OWN MSN
6 NETWORK IN COMPETITION WITH AOL, BECAUSE WINNING THE BROWSER
7 BATTLE WAS OF PARAMOUNT IMPORTANCE AND WAS OF PARAMOUNT
8 IMPORTANCE, I WILL REPEAT, FOR TWO REASONS.
9 ONE, IT REPRESENTED AN ABILITY TO REERECT THE
10 APPLICATIONS PROGRAMMING BARRIER TO ENTRY AND, SECOND, IT
11 ALLOWED THEM TO GAIN CONTROL OF THE BROWSER, WHICH WAS, AS
12 THEY HAVE THEMSELVES RECOGNIZED, THE CHOKE-HOLD ON THE
13 INTERNET.
14 NOW, THE OEM'S RESPONDED TO THESE NEW
15 RESTRICTIONS. THIS IS A HEWLETT PACKARD RESPONSE TO
16 MICROSOFT. "WE'RE VERY DISAPPOINTED IN YOUR RESPONSE TO OUR
17 LONG AND DRAWN OUT REQUEST TO MODIFY THE STANDARD MICROSOFT
18 WINDOWS 95 BOOT-UP SEQUENCE."
19 IT SAYS THAT MICROSOFT'S REQUIREMENTS RESULT IN
20 SIGNIFICANT AND COSTLY PROBLEMS. IT SAYS, "FROM THE
21 CONSUMER PERSPECTIVE, WE ARE HURTING OUR INDUSTRY AND OUR
22 CUSTOMERS." AND IT SAYS, "WE STRONGLY PROTESTED THE CHANGES
23 LAST FALL AND WERE FLATLY REFUSED ANY LEEWAY."
24 THIS IS NOT A BETTER PRODUCT CONSUMER-DRIVEN
25 APPROACH, YOUR HONOR. THIS IS A MONOPOLIST, ABLE TO IGNORE
62 - [add a note]
1 THE DEMANDS AND THE COMPLAINTS AND THE PROTEST OF THEIR
2 CUSTOMERS BECAUSE THEY DON'T HAVE ANY PLACE ELSE TO GO, AND
3 TO DO IT IN A WAY SO THAT THEY CAN STOP THIS GROWING
4 COMPETITIVE THREAT REPRESENTED BY NETSCAPE AND JAVA.
5 HEWLETT PACKARD PUT IT PRETTY WELL. "IF WE HAD A
6 CHOICE OF ANOTHER SUPPLIER, BASED ON YOUR ACTIONS IN THIS
7 AREA, I ASSURE YOU, YOU WOULD NOT BE OUR SUPPLIER OF
8 CHOICE."
9 UNFORTUNATELY, AS HEWLETT PACKARD RECOGNIZED, THEY
10 DIDN'T HAVE A CHOICE AND THEY HAD TO CONTINUE TO DEAL WITH
11 MICROSOFT AND THEY HAD TO CONTINUE TO DEAL WITH MICROSOFT
12 AND MICROSOFT'S TERMS. AND WHAT THOSE TERMS WERE WAS IF YOU
13 COOPERATE WITH US IN THE BROWSER AREA -- IF YOU DO WHAT WE
14 WANT WITH RESPECT TO BROWSERS, THEN, WE WILL ALLOW YOU SOME
15 FLEXIBILITY IN OTHER AREAS" -- FLEXIBILITY THAT WAS VERY
16 IMPORTANT TO THE OEM'S. THAT WAS HEWLETT PACKARD.
17 THIS IS GATEWAY -- GATEWAY FEEDBACK ON WINDOWS 98.
18 DISCUSSIONS WITH MICROSOFT ON APRIL 7, 1998. GATEWAY ASKS,
19 "WHERE CAN WE OFFER A BROWSER CHOICE? THIS IS SOMETHING WE
20 CAN DO TECHNICALLY, BUT IT'S NOT ALLOWED IN LICENSING
21 TERMS." THEY WANT TO DO BROWSER CHOICE. GATEWAY BELIEVES
22 THEY CAN DO IT TECHNICALLY, BUT IT'S NOT ALLOWED IN
23 LICENSING TERMS.
24 THEY SAY, WE WANT THE POTENTIAL TO OFFER THIS
25 CHOICE BEFORE THE WELCOME SCREEN. WE ARE CONCERNED THAT THE
63 - [add a note]
1 INSTALLATION OF FULL MS PRODUCTS, INCLUDING CHANNELS,
2 RESULTS IN A MUCH SLOWER SYSTEMS PERFORMANCE IF THE CUSTOMER
3 CHOOSES AN ALTERNATIVE BROWSER AFTER FULL INSTALLATION ON
4 IE 4.
5 AGAIN, A RESTRICTION ON CONSUMER CHOICE, A
6 RESTRICTION ON THE APPROPRIATE TECHNICAL SOLUTION, AND
7 IMPOSITION ON SLOWER PERFORMANCE AND ADDITIONAL COSTS, ALL
8 IN SERVICE OF THE OVERRIDING GOAL OF WIDE DISTRIBUTION OF
9 THIS PRODUCT FOR WHICH THEY ARE GETTING NO REVENUE.
10 NOW, WHAT IS THE SIGNIFICANCE OF THAT OEM CHANNEL?
11 YOUR HONOR, HERE IS A DOCUMENT DISTRIBUTED IN JANUARY OF
12 1998, AND IT REFLECTS DATA GATHERED IN OCTOBER AND NOVEMBER
13 OF 1997, ABOUT A YEAR AGO. AND IT TALKS ABOUT WHERE THE
14 PEOPLE WHO USED BROWSERS GOT THEM AND WHAT YOU CAN SEE IS
15 TWO-THIRDS -- SLIGHTLY MORE THAN TWO-THIRDS OF ALL OF THE
16 PEOPLE WHO GOT A BROWSER, GOT IT EITHER THROUGH AN ISP -- 25
17 PERCENT -- OR THROUGH THEIR OWN COMPUTER -- 20 PERCENT -- OR
18 GOT IT AT WORK OR SCHOOL, WHICH IN TURN WOULD LARGELY HAVE
19 COME THROUGH AN ISP OR WITH A COMPUTER THAT THE SCHOOL OR
20 WORK GOT.
21 ONLY 19 PERCENT OF THEM HAD DOWNLOADED. YOU'RE
22 GOING TO HEAR SOME TALK, OR YOU HAVE ALREADY HEARD SOME TALK
23 FROM MICROSOFT THAT SAID, "WELL, THERE REALLY WASN'T
24 FORECLOSURE. SURE WE CHOKED OFF THE OEM CHANNEL, AND WE
25 CHOKED OF THE ISP CHANNEL, BUT THEY COULD STILL
64 - [add a note]
1 `CARPETBOMB'. THEY COULD STILL MAIL IT OUT." WELL, FOUR
2 PERCENT GOT IT FROM THE MAIL. NINETEEN PERCENT OF IT
3 DOWNLOADED, AND EVERY YEAR THAT GOES ON, AS THE BROWSER GETS
4 LARGER AND LARGER, DOWNLOADING BECOMES MORE AND MORE
5 DIFFICULT.
6 SO THESE CHANNELS, EVEN BACK A YEAR AGO, WERE NOT
7 EFFECTIVE CHANNELS. IF YOU CHOKE OFF TWO-THIRDS OF THE
8 BUSINESS BY CHOKING OFF ISP'S AND THE OEM CHANNEL, YOU HAVE
9 CHOKED OFF THE LIFE BLOOD OF ANY BROWSER DISTRIBUTION.
10 IN ADDITION TO THE SCREEN RESTRICTIONS, THEY ALSO,
11 OF COURSE, TIED THE BROWSER TO THE OPERATING SYSTEM. AND
12 THE SCREEN RESTRICTIONS AND THE TYING ARE TWO OF THE
13 APPROACHES THAT THEY TOOK TO FORECLOSING THE OEM CHANNEL,
14 BECAUSE THEY KNEW THAT IF THEY TIED THE BROWSER TO THE
15 OPERATING SYSTEM, BECAUSE THE OPERATING SYSTEM WAS A
16 MONOPOLY, THE OEM'S HAD NO CHOICE. THEY HAD TO TAKE THE
17 OPERATING SYSTEM. AND IF THEY TIED THE BROWSER TO IT, THEY
18 NECESSARILY HAD TO TAKE THEIR BROWSER. AND ONCE MOST OEM'S
19 HAD A FUNCTIONING BROWSER, THEY DIDN'T WANT TO HAVE A SECOND
20 ONE. THEY DIDN'T NEED TO HAVE A SECOND ONE. A FEW MIGHT
21 FOR PARTICULAR PURPOSES, BUT, BY AND LARGE, THEY WERE GOING
22 TO FORECLOSE 75 PERCENT OR MORE OF THE OEM CHANNEL, IF THEY
23 COULD SIMPLY SUCCEED IN TYING A FUNCTIONING BROWSER TO THE
24 OPERATING SYSTEM.
25 NOW, BACK IN APRIL OF 1994, WHEN THEY WERE TALKING
65 - [add a note]
1 ABOUT WINDOWS 95, THEY DIDN'T EXPECT TO HAVE A BROWSER
2 INCLUDED. IN FACT, AS THEY PUT IT, "COOL APPS., LIKE
3 MOSAIC, ARE STUFF YOU NEED TO OBTAIN FROM THIRD PARTIES."
4 BACK IN APRIL OF 1994, THEIR CONTEMPLATION WAS
5 THAT BROWSERS, WHICH THEY ALREADY KNEW ABOUT BACK THEN --
6 THEY KNEW ABOUT MOSAIC. NETSCAPE WAS IN THE PROCESS OF
7 BEING FORMED, BUT THAT WAS WHEN THEY DIDN'T RECOGNIZE
8 NETSCAPE AS A SERIOUS THREAT, AND SO IT WAS PERFECTLY FINE
9 TO HAVE THEM GET THE BROWSER FROM SOMEBODY ELSE.
10 AND THE COURT IS GOING TO HEAR, I THINK, BECAUSE
11 IT'S IN THEIR PAPERS -- MAYBE THEY WILL ABANDON IT, BUT THUS
12 FAR IN THEIR PAPERS, THEY ARGUE THAT, WELL, THE REASON WE
13 WANTED TO DO ALL OF THIS TO DISTRIBUTE THE BROWSER WAS NOT
14 BECAUSE WE REALLY CARED ABOUT BROWSER MARKET SHARE, BUT
15 BECAUSE WE WANTED TO SELL MORE WINDOWS, AND IF MORE PEOPLE
16 HAD BROWSERS, THEY WOULD WANT MORE P.C.'S."
17 THE PROBLEM WITH THAT ARGUMENT IS, FIRST, IT'S
18 INCONSISTENT WITH THEIR DOCUMENTS. THE SECOND PROBLEM WITH
19 IT IS THAT IF THE BROWSER IS SIMPLY A GOOD COMPLEMENT TO THE
20 OPERATING SYSTEM, THEN THEY OUGHT TO WANT TO HAVE NETSCAPE
21 OUT THERE AS MUCH AS POSSIBLE. THEY OUGHT TO WANT ANYBODY
22 WHO HAS A GOOD BROWSER TO GET OUT THERE AND SURVIVE AND SELL
23 MORE GOOD BROWSERS, BECAUSE THAT IS GOING TO MAKE OPERATING
24 SYSTEMS MORE PROFITABLE, AND THEY ARE GOING TO SELL MORE.
25 BUT THE FACT OF THE MATTER IS THEY WEREN'T
66 - [add a note]
1 THINKING OF THE BROWSER AS A COMPLEMENT, BECAUSE IF THEY
2 HAD, THEY WOULDN'T BE TRYING TO SQUELCH NETSCAPE. THEY WERE
3 THINKING OF A BROWSER AS A WAY OF ERODING APPLICATIONS
4 PROGRAMMING BARRIER TO ENTRY.
5 IN THE BEGINNING, WHEN THEY THOUGHT OF IT AS A
6 COMPLEMENT, THEY WEREN'T THREATENED BY IT. IT WAS WHEN THEY
7 BEGAN TO SEE IT AS A MEANS OF BREAKING DOWN THE APPLICATIONS
8 PROGRAMMING "BARRIER TO ENTRY," THAT THEY BEGAN TO PERCEIVE
9 IT AS A THREAT.
10 THIS IS JUNE OF 1994. "WE DO NOT CURRENTLY PLAN
11 ON ANY OTHER CLIENT SOFTWARE, ESPECIALLY SOMETHING LIKE
12 MOSAIC OR CELLO."
13 THIS, AGAIN, IS SIMPLY PART OF THE RECORD THAT
14 DEMONSTRATES THAT BACK IN THIS PERIOD OF TIME, THE
15 IMPERATIVE THAT YOU'RE GOING TO HEAR FROM SOME OF THE
16 MICROSOFT WITNESSES THAT THEY MADE A DECISION THAT LONG
17 PRECEDED NETSCAPE'S FORMATION THAT THEY WERE GOING TO DO
18 WHAT THEY DID, SIMPLY IS NOT CONSISTENT WITH THE WRITTEN
19 RECORD.
20 IN JANUARY OF 1995, THEY ARE TALKING ABOUT A
21 RELEASE -- A PRESS RELEASE IN WHICH THEY ARE GOING TO
22 ANNOUNCE THAT THEY'RE LICENSING MOSAIC'S CODE. AND THIS IS
23 SENT AROUND TO A NUMBER OF EXECUTIVES BY JAMES ALLARD. IT
24 SAYS, "THIS IS THE PRELIMINARY VERSION OF RELEASE AND
25 QUESTIONS AND ANSWERS FOR BILL'S" -- BILL GATES' --
67 - [add a note]
1 "ANNOUNCEMENT TONIGHT. WE'RE GOING TO BE ANNOUNCING EQUITY
2 STAKES IN INTERNET PROVIDER AND A LICENSING DEAL WITH
3 SPYGLASS FOR A WEB CLIENT, NOT RELATED DIRECTLY TO BSD, BUT
4 IF QUESTIONS COME UP THROUGH HERE, HERE IS THE PARTY LINE."
5 WHAT'S THE PARTY LINE BACK IN JANUARY OF 1995? I
6 WILL TELL YOU WHAT THE PARTY LINE WAS. THE PARTY LINE --
7 AND WE'LL PUT THE QUESTION AND ANSWER INTO EVIDENCE, BUT THE
8 PARTY LINE WAS THAT THEY COULDN'T EXPECT TO GET A BROWSER
9 WITH THE OPERATING SYSTEM. AND THIS WAS AS LATE AS JANUARY
10 OF 1995.
11 LET ME GO BACK TO THE ONE, IF I COULD. HERE IS
12 ANOTHER REFERENCE TO "FROSTING." THIS IS FEBRUARY, 1995.
13 "O'HARE IS THE CODE NAME FOR OUR INTERNET CLIENT, AND WE
14 PLAN TO SHIP IT IN THE WIN95 FROSTING PACKAGE, WHICH SIM
15 SHIPS WITH WINDOWS 95."
16 AGAIN, THEY ARE STILL TALKING ABOUT O'HARE IN
17 FEBRUARY OF 1995 BEING A FROSTING PACKAGE, BEING SEPARATE
18 AND BEING SOMETHING THEY ARE GOING TO CHARGE FOR.
19 YOU STILL HAVE PEOPLE, EVEN AS LATE AS OCTOBER OF
20 1996, TALKING ABOUT A STAND-ALONE BROWSER STRATEGY. BY THAT
21 TIME, OF COURSE, THE PARTY LINE IS NOW THAT WINDOWS AND
22 BROWSERS ARE ALL THE SAME AND, INDEED, AT SOME POINT,
23 BROWSERS DROPPED OUT OF THE LEXICON. SOMETIME IN LAST FEW
24 MONTHS, BROWSERS BECOME A NONWORD. AND THEY TALK ABOUT
25 BROWSING BITS OR BROWSING TECHNOLOGY.
68 - [add a note]
1 BACK IN 1996, THEY ARE STILL TALKING ABOUT A NEED
2 TO HAVE A STAND-ALONE-BROWSER STRATEGY. AND ONE OF THE
3 THINGS THAT GOES THROUGH THE ARGUMENTS THAT MICROSOFT MAKES,
4 YOUR HONOR, IS NOT ONLY THE INCONSISTENCY WITH THE WRITTEN
5 RECORD, BUT ALSO THE FACT THAT THEIR DOCUMENTS ARE
6 INTERNALLY INCONSISTENT AND THEIR ARGUMENTS ARE INTERNALLY
7 INCONSISTENT.
8 ON THE ONE HAND, THEY SAY, "ALL WE WANTED TO DO
9 WAS TO IMPROVE THE OPERATING SYSTEM," AND YET THEY ARE
10 SPENDING HUGE AMOUNTS OF MONEY TO INDUCE AND FORCE PEOPLE TO
11 TAKE STAND-ALONE VERSIONS OF INTERNET EXPLORER: STAND-ALONE
12 VERSIONS FOR WINDOWS AND STAND-ALONE VERSIONS FOR MACINTOSH.
13 THEIR GOAL WAS NOT TO IMPROVE WINDOWS.
14 THEIR GOAL WAS TO PREVENT THE DEVELOPMENT OF A
15 COMPETITIVE PLATFORM THAT WOULD ERODE THE APPLICATIONS
16 PROGRAMMING BARRIER TO ENTRY FOR WINDOWS. AND THAT IS
17 CRYSTAL CLEAR AS YOU LOOK AT THESE DOCUMENTS.
18 THIS IS MR. ALLCHIN TO MR. MARITZ, DECEMBER 20,
19 1996. "THE FIRST PRIORITY IS INSURING THAT WE LEVERAGE
20 WINDOWS."
21 NOW, HERE HE IS NOT TALKING ABOUT, "WE'RE GOING TO
22 USE INTERNET EXPLORER TO MAKE WINDOWS BETTER." HE IS NOT
23 SAYING, "WE NEED TO GET INTERNET EXPLORER OUT THERE, BECAUSE
24 THAT WAY PEOPLE WILL BUY WINDOWS." WHAT HE IS SAYING IS,
25 "WE NEED TO LEVERAGE WINDOWS IN ORDER TO MAKE INTERNET
69 - [add a note]
1 EXPLORER A SUCCESS. THAT IS, WE HAVE TO LEVERAGE OUR
2 MONEY-MAKING, PROFIT-MAKING MACHINE TO MAKE OUR NO-REVENUE
3 PRODUCT A SUCCESS."
4 "I DON'T UNDERSTAND HOW I.E. IS GOING TO WIN," HE
5 SAYS. "MY CONCLUSION, WE MUST LEVERAGE WINDOWS MORE.
6 TREATING IE AS JUST AN ADD-ON TO WINDOWS, WHICH IS CROSS
7 PLATFORM, LOSES OUR BIGGEST ADVANTAGE -- WINDOWS MARKET
8 SHARE. WE SHOULD THINK FIRST ABOUT AN INTEGRATED SOLUTION.
9 THAT IS OUR STRENGTH."
10 INTEGRATION OR COMBINATION COMES NOT BECAUSE IT IS
11 A TECHNOLOGICAL IMPERATIVE, NOT BECAUSE IT'S EFFICIENT, NOT
12 BECAUSE IT IS GOING TO RESULT IN A BETTER PRODUCT OR MORE
13 INNOVATION, BUT BECAUSE THAT IS WAY THEY LEVERAGE WINDOWS,
14 THEIR STRENGTH, THEIR MARKET SHARE, AND THEIR MONOPOLY, IN
15 ORDER TO MAKE INTERNET EXPLORER DOMINANT.
16 HERE IS MR. ALLCHIN ON JANUARY 2, 1997. YOU SEE
17 BROWSER SHARE AS JOB 1. THE REAL ISSUE DEALS WITH NOT
18 LOSING CONTROL OF THE API'S ON THE CLIENT AND NOT LOSING
19 CONTROL OF THE END USER EXPERIENCE. FOR NETSCAPE, THIS IS
20 SYNONYMOUS WITH WINNING THE BROWSER BATTLE. THAT IS BECAUSE
21 THEY DON'T HAVE WINDOWS. WE HAVE AN ASSET WHICH HAS API'S
22 AND CONTROL THE END-USER EXPERIENCE: WINDOWS."
23 AND THEN, JUST TO BE CLEAR, WHEN HE TALKS ABOUT
24 LEVERAGE, HE IS NOT TALKING ABOUT ANYTHING TECHNOLOGICAL, HE
25 SAYS, "WE ARE NOT LEVERAGING WINDOWS FROM A MARKETING
70 - [add a note]
1 PERSPECTIVE. WE DO NOT USE OUR STRENGTH -- WHICH IS THAT WE
2 HAVE AN INSTALLED BASE OF WINDOWS, AND WE HAVE A STRONG OEM
3 SHIPMENT CHANNEL FOR WINDOWS."
4 "I AM CONVINCED WE HAVE TO USE WINDOWS. THIS IS
5 THE ONE THING THEY DON'T HAVE. WE HAVE TO BE COMPETITIVE
6 WITH FEATURES, BUT WE NEED SOMETHING MORE -- WINDOWS
7 INTEGRATION."
8 IN OTHER WORDS, WE HAVE TO TIE WINDOWS TO THE
9 OPERATING SYSTEM. WE HAVE TO TIE INTERNET EXPLORER TO THE
10 OPERATING SYSTEM IN ORDER FOR INTERNET EXPLORER TO SUCCEED
11 IN THEIR GOAL.
12 HERE IS A MESSAGE FROM MR. MARITZ TO MR. ALLCHIN.
13 "I AGREE THAT WE HAVE TO MAKE WINDOWS INTEGRATION OUR BASIC
14 STRATEGY."
15 THIS IS IN RESPONSE TO MR. ALLCHIN SAYING, "YOU
16 HAVE GOT TO INTEGRATE WINDOWS OR WE'RE GOING TO LOSE THE
17 BROWSER WAR."
18 DOES MR. MARITZ SAY, "THAT IS A REALLY GREAT IDEA,
19 BECAUSE IF WE INTEGRATE WINDOWS IN IE, WE'RE GOING TO HAVE A
20 REALLY GREAT PRODUCT"? NO. HE SAYS, "THE PAIN OF THIS
21 STRATEGY IS WE HAVE TO SUBORDINATE OTHER OEM WINDOWS
22 OBJECTIVES TO THIS. HOWEVER, I SEE LITTLE OPTION BUT TO
23 DECLARE THAT WE WILL SYNC IE4 IN MEMPHIS, EVEN IF IT MEANS
24 MISSING 6/97 OEM WINDOW WITH MEMPHIS.
25 SO IN ORDER TO TIE IE AND WINDOWS TOGETHER, THEY
71 - [add a note]
1 ARE PREPARED EVEN TO INFLICT PAIN ON THEIR CORE MONOPOLY
2 ASSET. AND THEY CAN AFFORD TO DO THAT, YOUR HONOR, BECAUSE
3 THEY KNOW THE OEM'S HAVE NOWHERE ELSE TO GO. AND YOU'RE
4 GOING TO HEAR THAT FROM OEM, AFTER OEM, IN THE DEPOSITION
5 TESTIMONY -- THAT THEY HAVE NO OTHER VIABLE ALTERNATIVE.
6 AND IT IS ONLY BECAUSE OF THEIR MONOPOLY POWER THAT THEY CAN
7 AFFORD TO USE THAT MONOPOLY POWER IN A WAY THAT THEY HAVE IN
8 ORDER TO STOP NETSCAPE'S DISTRIBUTION AND ENFORCE IE'S
9 DISTRIBUTION.
10 MR. BOIES: HERE IS PAUL MARITZ IN JANUARY OF
11 1997. QUOTE: "TO COMBAT NETSCAPE, WE HAVE TO POSITION THE
12 BROWSER AS, QUOTE, GOING AWAY, CLOSE QUOTE, AND DO DEEPER
13 INTEGRATION ON WINDOWS" -- IN OTHER WORDS, INTEGRATE IT SO
14 DEEPLY AND COMBINE IT IN SUCH A WAY THAT NOBODY CAN FIND
15 WHERE THE BROWSER IS, AND POSITION IT AS, QUOTE, GOING AWAY.
16 THEY HAVE GOT TWO SEPARATE PRODUCTS: AN OPERATING
17 SYSTEM AND A BROWSER. THEY HAVE GOT A MAJOR COMPETITOR IN
18 THE BROWSER MARKET THAT DOESN'T HAVE AN OPERATING SYSTEM,
19 BECAUSE NOBODY ELSE HAS A COMPETITIVE OPERATING SYSTEM. AND
20 THEY KNOW THAT IF THEY CAN TIE THESE TWO TOGETHER -- IF THEY
21 CAN TELL PEOPLE THE BROWSER IS SIMPLY GOING AWAY AND IT'S
22 BECOMING PART OF THE OPERATING SYSTEM, THAT IS THE WAY THAT
23 THEY COMBAT NETSCAPE. AND WHAT YOU SEE HERE IS CLEAR
24 EVIDENCE THAT WHAT THEY ARE DOING IS DESIGNED TO COMBAT
25 NETSCAPE, TO DO THE INTEGRATION TO ACCOMPLISH THIS
72 - [add a note]
1 PARTICULAR GOAL.
2 THIS IS A FEBRUARY 24, 1997 MEMORANDUM TO
3 MR. GATES AND MR. MARITZ AND MR. ALLCHIN. AND IT IS
4 REPORTING ON HOW DO THEY GET PEOPLE WHO ARE NOW USING
5 NAVIGATOR TO SWITCH.
6 AND MR. HOUCK -- I MENTIONED THE SPECTACLE OF
7 MICROSOFT RUNNING AROUND THE COUNTRY AND TRYING TO FIND
8 PEOPLE TO SAY NEGATIVE THINGS ABOUT NETSCAPE AND SUING
9 M.I.T. AND HARVARD TO SEE IF THEY CAN GET SOME AUTHORS TO
10 REVEAL SOME TAPES THAT HAVE SOME CRITICAL THINGS ABOUT
11 NETSCAPE ON THEM.
12 WHEN BUSINESS WAS BEING DONE OR WHEN PEOPLE WERE
13 ACTUALLY ENGAGED IN EVALUATING NETSCAPE AS A COMPANY AND A
14 BROWSER AS A PRODUCT, THEY KNEW HOW EFFECTIVE NETSCAPE WAS,
15 AND THEY KNEW HOW GOOD THE BROWSER WAS, AND THEY KNEW THAT
16 THE NAVIGATOR USERS WOULD NOT SWITCH -- WOULD NOT WANT TO
17 DOWNLOAD IE 4 TO REPLACE THEIR NAVIGATOR BROWSER. HOWEVER,
18 MICROSOFT EXECUTIVES ARE TOLD, "ONCE EVERYTHING IS IN THE OS
19 AND RIGHT THERE INTEGRATED IN THE OS -- IN THEIR FACE, SO TO
20 SPEAK, THEN THEY SAID THEY WOULD USE IT BECAUSE THERE WAS NO
21 MORE NEED TO USE SOMETHING SEPARATE.
22 THE STUNNING INSIGHT IS THIS: "TO MAKE THEM
23 SWITCH AWAY FROM NETSCAPE, WE NEED TO MAKE THEM UPGRADE TO
24 MEMPHIS. THAT IS, WE NEED TO MAKE THEM UPGRADE TO A PRODUCT
25 WHERE WE HAVE COMBINED, OR INTEGRATED, OR PACKAGED THE
73 - [add a note]
1 BROWSER AND THE OPERATING SYSTEM TOGETHER SO THAT WHEN THEY
2 GET THE NEW OPERATING SYSTEM, THEY GET THE BROWSER. AND NOW
3 THEY HAVE NO NEED FOR NETSCAPE'S BROWSER.
4 THE SAME DAY, A SIMILAR MEMO, CHRISTIAN WILDFEUER.
5 "IT SEEMS CLEAN THAT IT WOULD BE VERY HARD TO INCREASE
6 BROWSER MARKET SHARE OR THE MERITS OF IE 4 ALONE. IT WILL
7 BE MORE IMPORTANT TO LEVERAGE THE OS ASSET TO MAKE PEOPLE
8 USE IE INSTEAD OF NAVIGATOR."
9 IN OTHER WORDS, THEY INTERNALLY KNEW THEY WEREN'T
10 GOING TO INCREASE BROWSER MARKET SHARE ON THE MERITS OF
11 IE 4 ALONE. IT WAS ONLY BY TYING TO THE OS ASSET -- THE
12 MONOPOLY ASSET AND MAKING PEOPLE USE IE WERE THEY GOING TO
13 SUCCEED.
14 NOW, WE HAD A CHANNEL OF THE OEM'S. THEY
15 APPROACHED THE OEM CHANNEL BY ELIMINATING SCREEN
16 RESTRICTIONS AND BY TYING. THE SECOND MAJOR CHANNEL IS
17 ISP'S. HOW WERE THEY GOING TO CLOSE OFF THE ISP CHANNEL?
18 WELL, THEY HAD SEVERAL TOOLS TO WORK WITH. THE
19 FIRST TOOL WAS SIMPLY GIVING IT AWAY FREE, AND THAT HAD AN
20 EFFECT. BUT THE NEXT TOOL WAS TO GO TO THE ISP'S AND SAY,
21 WE'LL GRANT YOU FAVORABLE ACCESS TO WINDOWS BOX, THE WINDOWS
22 MONOPOLY DISPLAY, THE THING NOBODY ELSE HAS, IF YOU WILL
23 AGREE TO GIVE OUR BROWSER PREFERRED STATUS."
24 AND HERE IS A REPORT ON AT&T. AT&T -- THEY REALLY
25 LIKE TO BE BROWSER-NEUTRAL AND ARE STRONGLY MOTIVATED TO
74 - [add a note]
1 PRESERVE THEIR PARTNERSHIP WITH NETSCAPE. IN OTHER WORDS,
2 THEY DON'T WANT TO SWITCH. BUT BRAD SILVERBERG HAS TOLD
3 THEM THAT TO GET IN THE BOX, THEY NEED TO GIVE US PREFERRED
4 STATUS.
5 THEN IT GOES ON TO SAY, "IT IS VERY CLEAR THAT
6 THEY REALLY, REALLY WANT TO BE IN THE WINDOWS BOX."
7 OF COURSE THEY DID. IT WAS AN ESSENTIAL ELEMENT
8 OF THEIR SURVIVAL, BECAUSE IF YOU PUT CERTAIN ISP'S IN THE
9 BOX AND NOT OTHERS, THOSE ISP'S HAD A TREMENDOUS ADVANTAGE
10 OVER THEIR COMPETITORS. AND BECAUSE WINDOWS HAD A MONOPOLY,
11 BECAUSE THERE WAS NO SUBSTITUTE FOR WINDOWS, MICROSOFT HAD
12 THE ABILITY TO TRADE OFF THAT ADVANTAGE TO DISCRIMINATE AND
13 TO USE ITS MONOPOLY POWER TO FORCE ISP'S TO GIVE PREFERRED
14 STATUS TO THEIR BROWSER.
15 AT&T IS STILL FIGHTING THE BATTLE. THIS IS MARCH
16 15, 1996. THEY ARE TELLING MICROSOFT THAT THEY WANT TO TALK
17 SEPARATELY ABOUT IE. THEY WOULD LIKE TO TALK SEPARATELY.
18 THEY DON'T WANT TO TIE THESE TWO THINGS TOGETHER. THEY WANT
19 TO HAVE A SEPARATE NEGOTIATION. THEY WANT TO VERY BADLY BE
20 IN THE WINDOWS BOX, BUT THEY DON'T WANT TO TIE THAT DECISION
21 TO TAKING IE.
22 WHAT DOES MR. SILVERBERG REPORT? I HAVE TOLD THEM
23 THAT THE ONLY WAY WE CAN EVEN CONSIDER AT&T BEING IN THE
24 WINDOWS BOX IS IF AT&T GIVES IE EXCLUSIVE OR VERY, VERY
25 PREFERENTIAL TREATMENT, ALA WHAT WE HAVE WITH AOL. PARITY
75 - [add a note]
1 IS COMPLETELY UNACCEPTABLE FOR THEM TO BE IN THE BOX." HE
2 GROANED, "I TOLD HIM IT WAS COMPLETELY NONNEGOTIABLE AND HE
3 HAD TO DECIDE."
4 BECAUSE MICROSOFT HAS A MONOPOLY, THEY CAN AFFORD
5 TO SAY, "THESE ARE NONNEGOTIABLE DEMANDS." AND BECAUSE THEY
6 HAVE A MONOPOLY, ISP'S ARE STRONGLY MOTIVATED TO GIVE THEM
7 WHAT THEY WANT.
8 HERE IS A DESCRIPTION OF WHAT THE PREFERRED
9 LICENSE MEANS. IT MEANS THAT THE ISP AGREES THAT IE WILL BE
10 THE PREFERRED AND DEFAULT BROWSER THEY DISTRIBUTE TO THEIR
11 CUSTOMERS. THEY WILL ANNOUNCE THAT PUBLICLY. AND AS AN
12 ENFORCEMENT MECHANISM, THEY ARE GOING TO REPORT TO MICROSOFT
13 ON A QUARTERLY BASIS HOW MANY BROWSERS THEY SHIP AND THEY
14 WILL ALSO DISPLAY THE IE LOGO ON THEIR HOME PAGE.
15 NOW, THIS IS A PRODIGY DOCUMENT THAT TALKS ABOUT
16 THE MICROSOFT INTERNET EXPLORER AGREEMENT. AND IT SAYS IT
17 IS ABSOLUTELY CRITICAL.
18 COULD WE HAVE A BLOWUP OF THIS FIRST GRAPH HERE?
19 AS YOU KNOW, IT WAS ABSOLUTELY CRITICAL TO THE
20 PRODIGY AGREEMENT THAT PRODIGY OBTAIN MICROSOFT'S AGREEMENT
21 TO INCLUDE PRODIGY'S ICON IN THE ONLINE SERVICE DESKTOP
22 FOLDER, WHICH APPEARS IN WINDOWS 95. THIS WAS ESSENTIAL IN
23 ORDER TO REMAIN COMPETITIVE.
24 AND THEN IF WE CAN BLOW THIS ONE UP, ON MOST MAJOR
25 ISSUES, MICROSOFT IS NOT WILLING TO NEGOTIATE.
76 - [add a note]
1 IN ANY EVENT, WHAT IT SAYS IS WHAT MICROSOFT
2 WOULDN'T DO -- MOST ISSUES THEY WOULDN'T NEGOTIATE ON AND
3 WHAT THEY PARTICULARLY WOULDN'T NEGOTIATE ON WAS THE
4 BROWSER.
5 ARE WE ABLE TO PULL THAT UP?
6 THE COURT: TELL ME WHAT IT SAYS.
7 MR. BOIES: WHAT IT SAYS IS THAT IT WON'T
8 NEGOTIATE ON THE BROWSER. IT IS NON-NEGOTIABLE.
9 LET ME SHOW YOU THIS. "THERE WERE MANY
10 OBJECTIONABLE PROVISIONS IN THE ORIGINAL DRAFT OF THE
11 AGREEMENT WHICH MICROSOFT FORWARDED TO PRODIGY.
12 CONSEQUENTLY, WE REQUESTED NUMEROUS CHANGES TO THE MICROSOFT
13 DRAFT, BUT ON MOST ISSUES, MICROSOFT WAS NOT WILLING TO
14 NEGOTIATE. FOR EXAMPLE, THE ORIGINAL DRAFT CONTAINED A
15 PROVISION THAT" -- AND I CAN'T READ THIS. I WAS DOING JUST
16 FINE.
17 ANYWAY, I FIGURE IF WINDOWS CAN CRASH FOR BILL
18 GATES -- WELL, LET'S GO ON TO ICP'S, BECAUSE NOT ONLY DID
19 THEY DO THIS WITH THE INTERNET SERVICE PROVIDERS, BUT THEY
20 WENT ON TO INTERNET CONTENT PROVIDERS AND IMPOSED A VARIETY
21 OF RESTRICTIONS. AND ONE OF THE MOST IMPORTANT INTERNET
22 CONTENT PROVIDERS IS INTUIT. AND INTUIT HAS A NUMBER OF
23 DIFFERENT FUNCTIONS. IT'S OBVIOUSLY WIDELY KNOWN AS THE
24 MOST SUCCESSFUL AND MOST WIDELY USED FINANCIAL SERVICES
25 SOFTWARE.
77 - [add a note]
1 IT WAS VERY IMPORTANT TO INTUIT TO GET ACCESS TO
2 WINDOWS SO THAT IT COULD BE UPDATED THROUGH THE INTERNET
3 EASILY. THERE WERE MANY OTHER THINGS THAT ONLY MICROSOFT
4 COULD OFFER INTUIT. AND MICROSOFT CAME TO INTUIT, MUCH AS
5 THEY CAME TO AOL, SAYING, "WHAT DO WE HAVE TO PAY YOU? WHAT
6 DO WE HAVE TO DO FOR YOU TO GET YOU TO SCREW NETSCAPE?" AND
7 WHAT MICROSOFT AND INTUIT ENTERED INTO WAS AN AGREEMENT.
8 AND IN THAT AGREEMENT, INTUIT AGREED TO BUNDLE IE 3 AND IE 4
9 WITH ALL NEW '97 AND '98 RELEASES AND TO NOT ENTER INTO ANY
10 MARKETING OR PROMOTION AGREEMENTS WITH OTHER BROWSER
11 MANUFACTURES FOR DISTRIBUTION OR PROMOTION OF INTUIT
12 CONTENT. IN OTHER WORDS, AS A PRICE OF GETTING ACCESS TO
13 WHAT INTUIT NEEDED, INTUIT HAD TO AGREE TO BOYCOTT NETSCAPE,
14 AND INTUIT HAD TO AGREE TO CREATE A DIFFERENTIATED CONTENT
15 AREA FOR INTUIT CHANNEL THAT IS AVAILABLE TO ONLY IE USERS.
16 NOW, AFTER SHUTTING OFF THE OEM AND THE ISP
17 CHANNELS, OR CONTEMPORANEOUS WITH DOING THAT, MICROSOFT ALSO
18 WENT TO OTHER MAJOR INDUSTRY PLAYERS, INTEL AND APPLE, AND
19 TRIED TO GET THEM TO AGREE NOT TO SUPPORT NETSCAPE'S BROWSER
20 OR JAVA.
21 AND HERE IS AN AUGUST 2, 1995 MEMO -- INTEL
22 MEMO -- WHERE GATES IS SAYING TO INTEL THAT THERE IS A
23 FUNDAMENTAL PROBLEM WITH FREE SOFTWARE FROM AN INTEL
24 SOFTWARE GROUP. WE'RE GOING TO COME BACK TO THAT.
25 AND THEN HE SAYS, "MICROSOFT IS VERY SENSITIVE TO
78 - [add a note]
1 WHAT INTEL MIGHT DO ON THE CLIENT SIDE. FOR EXAMPLE, JAVA
2 IS A SHOW STOPPER." AND BILL GATES SAYS, "SUPPORTING
3 CERTAIN THIRD PARTY DEALS WOULD BE A PROBLEM. WE NEED TO
4 CONSIDER THE CONTEXT OF THEIR PERVASIVE INTERNET PROGRAM TO
5 ASSURE WE ARE NOT UNKNOWINGLY STEPPING ON ONE OF THEIR KEY
6 STRATEGIES."
7 AND, OF COURSE, THEIR MOST KEY STRATEGY OF ALL WAS
8 BROWSERS.
9 AND THIS IS BILL GATES IN JUNE OF 1996. THIS IS
10 REPORTING ON A CONVERSATION THAT HE HAD WITH ANDY GROVE, THE
11 CHIEF EXECUTIVE OFFICE OF INTEL.
12 "ON JAVA," GATES WRITES, "I TOLD ANDY IT'S
13 INAPPROPRIATE FOR THEIR GROUP TO TAKE ANYTHING RESEMBLING A
14 WINDOWS API AND WRAP IT AS A JAVA API."
15 THE NEXT PARAGRAPH DOWN -- THIS IS THE NEXT MEMO.
16 IT'S BLOWUP NUMBER TEN, WHICH IS ON THE PREVIOUS PAGE. NINE
17 WAS ABOUT JAVA. TEN IS ABOUT THE BROWSER.
18 "I THANK ANDY FOR PUSHING HIS WEB PEOPLE IN OUR
19 DIRECTION. I SAID IT WAS IMPORTANT FOR US THAT THEY NOT" --
20 CAPITALIZATION BY MR. GATES -- "EVER PUBLICLY SAY THEY ARE
21 STANDARDIZING ON NETSCAPE BROWSERS."
22 NOW, WHAT YOU HAVE HERE IS USING THAT RELATIONSHIP
23 TO STOP INTEL FROM SUPPORTING NETSCAPE'S BROWSER OR JAVA.
24 THIS IS, AGAIN, GATES ON FEBRUARY 20, 1997. HERE
25 IS A SITUATION IN WHICH MICROSOFT IS BEING ASKED BY A
79 - [add a note]
1 COMPETITOR OF INTEL, AMD, TO -- MICROSOFT IS BEING ASKED BY
2 A COMPETITOR OF INTEL, AMD, TO SUPPORT AN AMD TECHNOLOGY.
3 AND GATES DOESN'T THINK THAT INTEL IS GOING TO WANT THAT.
4 SO WHEN GATES WRITES TO HIS TOP EXECUTIVES, IT IS THAT MAYBE
5 THEY CAN USE THIS AS A BARGAINING CHIP IN ORDER TO GET INTEL
6 TO BACK OFF OF JAVA.
7 BILL GATES WRITES, "IF INTEL HAS A REAL PROBLEM
8 WITH US SUPPORTING THIS" -- THAT IS THE AMD TECHNOLOGY --
9 "THEN THEY WILL HAVE TO STOP SUPPORTING THE JAVA MULTIMEDIA
10 THE WAY THEY ARE. I WOULD GLADLY GIVE UP SUPPORTING THIS IF
11 THEY WOULD BACK OFF FROM THEIR WORK ON JAVA, WHICH IS
12 TERRIBLE FOR INTEL. I HAVE A CALL WITH ANDY ON THIS TOPIC
13 COMING UP ON MONDAY."
14 IN OTHER WORDS, MR. GATES IS SUGGESTING A DEAL
15 WITH INTEL. "YOU STOP SUPPORTING MY COMPETITOR, AND I WILL
16 STOP SUPPORTING YOUR COMPETITOR." A CLEARER EXAMPLE OF THE
17 KIND OF THING THE ANTITRUST LAWS ARE DESIGNED TO PREVENT --
18 INDEED TO CRIMINALIZE -- IS DIFFICULT TO IMAGINE.
19 THIS IS A MEMORANDUM ON MAY 27, 1997 IN WHICH ERIC
20 ENSTROM, WHO I BELIEVE MICROSOFT HAS ADDED TO THEIR WITNESS
21 LIST, AND YOU WILL BE ABLE TO ASK MR. ENSTROM ABOUT THIS
22 DOCUMENT WHEN HE COMES -- SAYS THAT HE IS MOVING
23 AGGRESSIVELY WITH INTEL ON THREE FRONTS: ONE IS INTEL TO
24 STOP HELPING SUN CREATE JAVA MULTIMEDIA API'S, ESPECIALLY
25 ONES THAT RUN WELL IE NATIVE IMPLEMENTATION ON WINDOWS.
80 - [add a note]
1 WHY IN THE WORLD, YOUR HONOR, WOULD THE SELLER OF
2 WINDOWS WANT TO STOP INTEL FROM CREATING SOMETHING THAT RUNS
3 ON WINDOWS, ESPECIALLY THE BETTER THEY RUN, THE MORE THEY
4 WANT TO STOP IT? AND THE ANSWER IS BECAUSE THE NEED AND THE
5 DESIRE TO STOP JAVA AND NON-MIRCOSOFT BROWSERS FROM
6 FULFILLING THEIR PROMISE OF CREATING CROSS PLATFORM
7 SOLUTIONS THAT WOULD ERODE THE APPLICATIONS BARRIER TO ENTRY
8 WAS SOMETHING THAT WAS GIVEN PRIMARY IMPORTANCE MY MICROSOFT
9 AT THIS POINT IN TIME.
10 NOW, THAT WAS INTEL. MICROSOFT DID THE SAME THING
11 WITH APPLE. THAT IS, THEY USED THEIR RELATIONSHIP WITH
12 APPLE IN ORDER TO GET APPLE TO STOP USING THE NETSCAPE
13 BROWSER OR STOP PROMOTING TO MAKE THE INTERNET EXPLORER
14 BROWSER THE DEFAULT BROWSER AND TO REDUCE THE COMMITMENT
15 THAT APPLE HAD TO JAVA.
16 JUNE 23, 1996. THIS IS A MEMO FROM MR. GATES,
17 TALKING ABOUT HOW LAST TUESDAY NIGHT HE MET WITH TOP APPLE
18 EXECUTIVES, AND HE SAYS, "I HAVE TWO KEY GOALS IN INVESTING
19 IN THE APPLE RELATIONSHIP. ONE IS "RETAIN OUR APPLICATION
20 SHARE ON THE PLATFORM," AND TWO "IS SEE IF WE CAN GET THEM
21 TO EMBRACE INTERNET EXPLORER IN SOME WAY."
22 HE GOES ON TO SAY THAT THIS E-MAIL IS GOING TO
23 FOCUS EXCLUSIVELY ON NUMBER 2. HE IS TALKING EXCLUSIVELY
24 ABOUT HOW HE CAN GET APPLE TO EMBRACE INTERNET EXPLORER IN
25 SOME WAY. AND HE SAYS HE OFFERED THEM A DEAL, AND THE DEAL
81 - [add a note]
1 WOULD LOOK LIKE THIS. THEN HE SPELLS OUT WHAT MICROSOFT
2 GETS.
3 "APPLE ENDORSES MICROSOFT INTERNET EXPLORER
4 TECHNOLOGY. APPLE AGREES TO MAINTAIN ACTIVEX SUPPORT IN THE
5 BROWSER FOR A PERIOD. THEY AGREE TO IMMEDIATELY SHIP IE ON
6 ALL OF THEIR SYSTEMS AS THE STANDARD BROWSER."
7 SO THEY ARE TRYING TO GET APPLE TO HELP THEM
8 DISTRIBUTE IE. AND WHAT IS WRONG WITH THAT? LET'S GO TO
9 WHAT'S WRONG WITH THAT, YOUR HONOR, BECAUSE WHAT'S WRONG
10 WITH THAT IS IN PART WHAT THEY DID AND IN PART HOW THEY DID
11 IT.
12 JUNE 27, 1997: THE PACE OF OUR DISCUSSIONS WITH
13 APPLE, AS WELL AS THEIR RECENT UNSATISFACTORY RESPONSE, HAS
14 CERTAINLY FRUSTRATED A LOT OF PEOPLE AT MICROSOFT. THE
15 THREAT TO CANCEL MACOFFICE 97 IS CERTAINLY THE STRONGEST
16 BARGAINING POINT WE HAVE, AS DOING SO WILL DO A GREAT DEAL
17 OF HARM TO APPLE IMMEDIATELY.
18 NOW, WHEN I QUESTIONED MR. GATES ABOUT THIS AT HIS
19 DEPOSITION, HE SAID, "WELL, WHY WOULD WE EVER CANCEL
20 MACOFFICE? THAT WAS A PROFITABLE PRODUCT FOR US."
21 WHAT THIS SHOWS IS THEY WERE PREPARED TO THREATEN
22 TO CANCEL PROFITABLE PRODUCTS IN ORDER TO PUT PRESSURE ON
23 COMPANIES TO DO WHAT THEY WANTED THEM TO DO.
24 THE COURT: I THINK WE WILL TAKE OUR NOONTIME
25 RECESS NOW. WE'RE GOING TO RESUME AT 2:00 O'CLOCK.
82 - [add a note]
1 MR. BOIES: THANK YOU, YOUR HONOR.
2 (WHEREUPON, THE ABOVE-ENTITLED MATTER WAS
3 ADJOURNED.)
4
5
6 CERTIFICATE OF REPORTER
7 THIS RECORD IS CERTIFIED BY THE UNDERSIGNED REPORTER TO
8 BE THE OFFICIAL TRANSCRIPT OF THE PROCEEDINGS INDICATED.
9 ______________________________
10 PHYLLIS MERANA