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February 12, 1999 - Friday

5:20 PM PST - Even Brad Chase admits that browsers are too large of an application to be downloaded?

q. Let me just see if I could reach closure on this issue. The record will show whatever you said before, but your testimony right now is that you did tell developers that IE was too big to download; correct?
a. I did tell--when you--let me be precise. I did tell the Microsoft Internet Explorer 4 technology developers that IE 4 was too big to download. I did tell them that.

q. And did you also tell the developers that the setup process was too hard for users to figure out?
a. Yes, I believe I did.

I am not sure what the point of the video presented by Bard Chase was supposed to be. Here he admits that downloading large applications is just not very effective a means to distribute large applications. But, his video tried to convince the court that if Netscape was still permitted to download their browser, everything is okay and legal like. He seems to be contradicting his own bogus video on the point it was supposed to make.

Maybe he means that big downloads are unacceptable for Microsoft but just fine for everyone else? That would preclude them from offering meaningful competition. Sounds like suppression of competition to me.

I do find it interesting that Microsoft argues that inferior distribution is just fine for everyone else but not okay for Microsoft. Microsoft will accept nothing short of a forced sale and pre-installation. That too would disadvantage competition if not completely eliminate it.

Microsoft continues to insist that only it should have the ability to sell products in a fair market. Microsoft goes even further and insists upon forcing the sale to consumers regardless of their needs. This is way beyond arrogance.

4:45 PM PST - Brad Chase has no idea how AOL came up their impressions that Bill Gates was out to screw Netscape?

q. I take it if that is your testimony, you simply have no explanation at all how the aol people could have come up with the summary that they did of Mr. Gates saying how much do we need to pay you to screw Netscape; is that correct, sir?
a. Yeah, I have looked at this, and I thought about that. I don't know what they were thinking. again, we certainly were aggressive, saying that we had great technologies and we wanted to convince them of the merits of it, and we would like to do a deal with them, and they may have read into that, but there was no such statement made.

q. The agreement that was ultimately signed required that the Netscape browser not be promoted or marketed or distributed by aol; correct, sir?
a. With some exceptions.

q. Indeed, the agreement said that aol was obligated to exclusively promote, market and distribute internet explorer on or for use for subscribers to the aol flagship service; correct?
a. That's correct. However, it's important to point out that while the term "exclusively promote" is in the contract, the contract, by its very nature, is not an exclusive promotion. for example, as we talked about earlier, aol has the right to provide a download place for Netscape navigator. For example, aol may support the use of any software to access or make--use on the aol service. Aol can distribute Microsoft--non-Microsoft web-browsing software in some limited fashions as well.

q. Those were all--

the court: are you reading something there?

the witness: yes, sir, these exceptions to the, quote-unquote, promotional distribution clause that Mr. Boies referred to are on page 29 of my testimony at the top.

the court: okay.

q. All of those exceptions, Mr. Chase, are pretty remote, aren't they?

the court: Are pretty what?

Mr. Boies: remote.

the witness: I guess I wouldn't agree with that in the sense that 22 percent of aol users are using Netscape navigator today.

by Mr. Boies:

I guess Microsoft is dissatisfied in not suppressing Netscape below 22%? Could it be that Microsoft's superior technology is not all that superior? Or, could it be that consumers really do want a choice other than that from Microsoft?

This is not "hard ball". This is suppression.

q. Let me ask you to look at government exhibit 180, which is already in evidence.

(document handed to the witness.)

q. Did you prepare this document, sir?
a. Yes, I did.

q. And it's dated March 14, 1996; is that correct?
a. That's correct.

q. And if you go over to the second page at the very top, you respond to a question. The question is, "i find it hard to believe that aol is using internet explorer as its browser. Are there any exceptions?" and you write, "yes, there are some, but they are pretty remote." do you see that?
a. Yes, that's correct.

As I have already made comment. Microsoft suppresses Netscape then gets on the stand and tries to prove to the court that their limited ability to remain in business is sufficient to excuse Microsoft's illegal conduct. "Look how easy it is to download and install Navigator", Brad Chase says. (Never mind that the court has been tricked on that very point.)
 

4:30 PM PST - But, why would Microsoft provide the product, IE and pay AOL in addition to the technology?

q. Did he say, in substance, that we want you to agree that you will promote our browser and use our browser and not promote or use Netscape's browser, and we want you to agree to that?
a. I'm sorry? Is this in the memo somewhere?

q. It is in the memo dated January 14, 1996, that I showed you that's defendant's exhibit 1545, which was written about three days or four days before the Thursday meeting that actually occurred.
a. I don't really-I don't believe Bill actually said that. We talked about, in general, how we might be able to build a relationship. Bill talked about the benefits of our componentized technology. He talked about how we might be able to do some marketing. He talked about you might be able to type in a few characters and have AOL access that way. But I don't believe at that meeting we got into any details on timing because it was fairly early on at that point. And timing really wasn't discussed until much later, timing being the two-year period.

Bill Chase is trying to suggest that Microsoft was only promoting or selling their technology. When you suggest to a customer that you are going to pay them money and give them technology, that is not considered sales talk. That is much more in the line of offers that can not be refused. Microsoft was forcing AOL to stop doing business with Netscape. That is pure and simple. They were not promoting technologies at all. Bill Chase is again offering false testimony which is simply illogical and not believable.
 

4:10 PM PST - Bill Gates wanted to "screw" Netscape? Sounds like another threat carried out by Bill Gates.

q. And the fifth paragraph says, "what we want from aol is that for a period of time--say, two years--the browser that they give out to their customers and the one they mention and put on their pages and the one they exploit is ours and not Netscape's." Do you think that was an accurate statement in January of 1996 as to what Microsoft was seeking?
a. Yes.

q. You attended a meeting at AOL with Mr. Gates, did you not, sir, to discuss AOL following through on what Mr. Gates says here in January of 1996 that he wanted?
a. I think what you mean is a meeting at Microsoft, not at AOL.

q. A meeting with AOL at Microsoft.
a. Yes.

q. Let me ask you to look at government exhibit 38.

(document handed to the witness.)

q. You may look at whatever you need to put in context what I'm going to ask you about, but I'm going to ask you about the first two lines of paragraph three at the bottom of the page, where it says, "Gates delivered a characteristically blunt inquiry. How much do we need to pay you to screw Netscape?" Do you see that?
a. Yes, I do.

q. And this is a purported summary by AOL--not by Microsoft, but by AOL--of what went on at a meeting that included yourself, Mr. Gates, and others; correct, sir?
a. That's correct.

q. Is that a fair description of what Mr. Gates said?
a. No, it is not.

q. Now, this was a contemporaneous memorandum prepared by AOL describing the meeting to a variety of AOL people that were not present at the meeting; correct, sir?
a. I don't think I would call it contemporaneous. It was clearly written after the meeting, a couple of days after. If I could refresh my recollection--hold on, let me look at my testimony when the meeting date was.

q. The document says it's being written on Sunday and begins discussing Thursday's session with gates, Silverberg-
a. Okay, then. Well, then--yes, correct. They--they came on January 18th. This was written on January 21^st, so I would not call it contemporaneous.

q. The meeting took place where, sir?
a. At Microsoft.

q. At Microsoft. And it took place on Thursday?
a. The 18th, January 18th, yes.

q. And let me ask the question this way: This is a document that is written three days after the meeting at which one of the participants of the meeting is describing to AOL employees what happened at the meeting; is that correct?
a. Yes, that's my understanding, yes.

q. And do you have any reason to believe that the person who was writing the memorandum would have any interest other than to describe accurately to his colleagues what had happened?
a. No, I don't, but I was at the meeting, and Mr. Gates did not say that.

q. Did Mr. Gates convey the substance of what is said there?
a. We certainly were trying to sell AOL hard on the benefits of our technology and our componentized architecture in working with us, and so we did that. I don't know if you consider that the substance, but that's what we spent a lot of time on.

I wonder if Brad Chase knows the difference between selling a product and paying someone to take it? Could it be that the Microsoft culture does not distinguish between those two concepts? The issue here is not use of profanity. The issue is whether Microsoft pays other companies to help preclude competition. If Microsoft is paying AOL to take and use IE what is Microsoft getting instead of money? Rubbing out Netscape, right? If Bill did not use the profane word, what word would he have used there? A phrase perhaps, such as "drive Netscape out of Business"? Or, preclude Netscape from the browser market? Just what words do you suppose Bill Gates used to describe the process of preventing Netscape from doing business. Profanity sounds very realistic in this context.

3:45 PM PST - Microsoft thinks that it should decide what help AOL offers to its own customers?

q. Now, when you say there is a download area for Navigator that's permitted--
a. Yes.

q. --is AOL permitted to tell its users how to use that download area?
a. Well, sir--

q. How to get there?
a. If the user called or asked, they could tell them, sure.

q. If the user calls or asks. But unless the user wants to call or ask, AOL is not permitted to volunteer that information; is that correct?
a. Generally-I think the answer to the question is-I would have to doublecheck the contract, but I think the answer to the question is no. But it's sort of a strange question in the sense that people would generally go to the download area to download software, so I'm not sure I quite understand. But I think the answer to the question is no, but I would have to doublecheck.

q. Now, if somebody wants to download something--let's suppose a user wants to download a navigator--your testimony is one way that they could do that is to go to the download area; correct? That's what you're saying?
a. One of the ways they could do that is go to the download area, and in the internet section of that they could download the customized version of navigator that AOL has done. in addition, they could go to the web and type "www.Netscape.com" and download it from there, or if they're browsing the web they might see one of the many, many buttons on the bottom of the whole page, and they could download Netscape navigator from there. Or in many cases it actually comes with the computer. And, for example, with communicator 4.5, you just launch, and it runs with aol.

This whole testimony from Brad Chase is insulting.

Again, Microsoft restricts the ability of Netscape to offer services via AOL by forcing AOL to disfavor Netscape. That is bad enough. But, then Microsoft puts Brad Chase on the stand to intentionally misrepresent the fact that Microsoft suppresses the use of Netscape technology. Is not the purpose of this testimony to show how easy it is to access Netscape technology? Was that not the purpose of the video tape and this testimony?

This testimony and video tape proves precisely what the DOJ has alleged. Microsoft uses its monopoly power to preclude competition. Do Microsoft's lawyers think this testimony proves the opposite? Netscape is being suppressed and that suppression is being illustrated by this video and technology. How is that supposed to form the basis for a defense? "Netscape was not completely prevented from doing business?" Is that supposed to be the point? Or, that downloading Navigator for free is just as fair as Microsoft forcing 100% of all consumers to buy IE (for whatever price Microsoft decides upon)?
 

2:30 PM PST - Microsoft video is clearly fraudulent

Microsoft has suggested that their video showing the Navigator download is illustrative of how easy it is for consumers to down load the Netscape products. But, as is explained below, the video fails to point out a very critical observation. The video fellow typed in the keyword "Netscape" or "Navigator" but the video failed to point out that the person doing so had to know in advance on his own just what was supposed to be typed in for the installation to be initiated.

Microsoft intentionally omitted any instruction about special knowledge needed in order for a consumer to proceed in that fashion. Since the purpose of the video was to show the installation, the omission of a critical fact could be considered fraudulent.

Microsoft is truly deceitful in its evidence. It restricts what AOL can do on the AOL service and then it covers up or hides that fact. Microsoft intentionally mislead the court into thinking that downloading Navigator is easy or straight forward. It also mislead the court into thinking that normal AOL users might actually know how to do it. It can be done. But, Microsoft forced AOL to make it difficult. And, forced AOL to not provide appropriate instructions.
 

2:20 PM PST - Microsoft's sick view of fair competition is very obvious

q. Could AOL at some point on the home page of the AOL service say, "If what you want to do is have Navigator, the way you do it is to type in `Netscape'"?
a. I understand. That's the answer I gave earlier. My recollection is that no, they could not do that, that the contract had certain number of limitations. They are allowed to have a download area for Netscape navigator. They're allowed to have a couple of areas-I think two other showcase areas for showing Netscape technology, but they couldn't sort of promote it in that fashion. and that's because when we did the-

the court: Well, then how did your demonstrator here know how to type in "Netscape" or "Navigator"?

The witness: Well, the key word is a common way people navigate in the AOL service. I believe if you look at a list of key words, those key words will be listed on the service. In addition to that, people know, who are AOL users, that the type of things they want to do they could always try a key word, and it will work, if that key word is in the list. so, the key words are--

Microsoft thinks it has the right to force all consumers to buy IE and prevent AOL from promoting the use of alternative browsers? Consumers are just supposed to know about typing key words but AOL is prevented from helping out their own consumers with hints and suggestions?

I wonder if Microsoft would agree not to advertise any products for the next 10 years? I wonder if Microsoft would agree to not have any other company promote any of their products over the next 10 years? Do you think they would consider that fair? They obviously think it is fair for Netscape.

2:05 PM PST - The DOJ has a video camera too. Their tape further disputes the Chase testimony

q. You saw this video played did you not, sir?
a. Yes, I did.

q. Now, does that refresh your recollection that upon downloading Navigator, you do not get a little icon that you thought would be there?
a. No, that's not precise. You do get--in this particular installation, you do not get the icon on the windows desktop. You got it in another folder. I don't remember that myself. I don't remember, so it doesn't refresh my recollection one way or the other.

Mr. Chase testified previously that downloading Navigator from AOL and from Netscape were very similar. As it turns out, video tape offered by the DOJ suggests that is false. The DOJ video suggests that Icon to install Navigator is hidden in a folder somewhere. Sound familiar? I would suggest this is another example of a false or misleading presentation to the court.

Microsoft continues to falsify its testimony and video tapes in their effort to mislead the court. In this event, Microsoft is claiming the install of Navigator is simple and similar whether from AOL or Netscape. As Mr. Chase now testifies, he was not even aware that they were different. Incompetent or fraudulent? The judge is not likely to care as fair as the credibility of the evidence is concerned. It will just be ignored as invalid or lacking credibility.

1:40 PM PST - "This is all real simple. No consumer should have any problem downloading Navigator and installing it. It works real slick." ...so says Brad Chase?

q. Now, maybe the easiest way for me to put the question is, in the second time when you're not on the AOL service, that series of steps is different than the series of steps that are necessary when you are on the AOL service as you were in the first case; correct, sir?
a. I think there might be some differences in the steps. I don't think they're material differences.

q. Do you know what the differences are?
a. No. As I've already testified before, I don't remember the exact steps for the AOL-customized version exactly how many dialogue screens. I think they would be substantially similar. The other thing that might be different is in the second part of the video we were downloading Communicator which includes other things besides a browser, so that might affect it as well.

q. Let's just talk about--

the court: Mr. Boies, if you're going to stay with this, I'm going to have the video played again. Can we do that?

Mr. Boies: yes.

the court: Do you want him to stay with the subject?

Mr. Boies: Yes. Let's do that.

the court: I think it will help both of us. Let's take a five-minute recess, and then we will replay the video.

(brief recess.)

No. The installation of Communicator is not that difficult. But, Microsoft offered this video for the purpose of showing some kind of parity between all consumers being forced to buy IE pre-installed and ready to go and consumers would might want Navigator being required to download and install that browser. If that was their intend, they failed miserably. I mentioned below that I was getting confused. Now, the judge is getting confused.

It is strange to have Microsoft promote so many other products in this trial. Linux is great. BeOS is even better. Navigator is a piece of cake to download and install. And, then there is the active competition with pirates and old versions of DOS, etc.

It appears that the only true statements coming from Microsoft appear in old e-mails written before the case was filed. After that point in time, almost everything they have said is false and misleading. In several cases, to the point of being fraudulent.

1:22 PM PST - Brad Chase could not get a job in customer support? He is good at fraud.

q. Well, generally in setup programs they do, but what I'm asking you is with respect to the installation of navigator in aol on your pc that you started to show on the video.
a. Yeah, that was the question I was answering. I don't remember for sure, but generally setup programs do.

q. Okay. Do you have any reason to believe that such instructions are provided other than your general knowledge that setup programs ought to do that?
a. The only thing I would conclude is remembering--and what we showed in the second half of the video with the download of Netscape Communicator, that it's essentially the same software, just the first--this takes a little explanation. The first part of the video we showed the AOL-customized version of Navigator. That is essentially the same browser that we downloaded in the second half, with the only difference being some of the customization that AOL adds. So, my belief is that the screens that you saw in the second half of the video, the type of questions you get asked there, would be the same as the ones in the first half.

Well. I have to admit to being confused by the so-called simple installation of Navigator as explained by Brad Chase. If his purpose was to show how easy it is for consumers to download, install and use a competitor's product, he has failed miserably. He talks about icons appearing magically, about the user knowing instinctively what to do next and about how easy it all is. Unfortunately, consumers know this is pure garbage. Installing software is rarely that simple. And, Mr. Chase's video intentionally left out the installation process so he could lie about how simple it is.

This is typical Microsoft thinking. Force the consumer to buy IE, suggest that IE is good because of how simple it is to use and that it does not require installation, then falsely represent to the court how easy other applications can be downloaded and installed hoping that somehow that contrary view will alleviate Microsoft of antitrust violations. This testimony is nothing short of fraudulent. It is intended to deceive and misrepresent the truth.

1:01 PM PST - More false testimony from Brad Chase of Microsoft

q Okay. What I was asking you, you just heard on this tape that Mr. Myhrvold sponsored, a discussion about how having the user install it is going to be, for a large number of users, cumbersome and not straightforward; right? You at least heard that?
a. Yeah, I don't know-I don't remember quite the context, but I did hear that.

q. Now, do you agree with that? Do you agree that that's a fair and accurate statement?
a. I agree that for some users and--it is easier to have it pre-installed on the system as opposed to downloading it. But there's (sic) lots of ways to get browsers, so getting it on a new pc, getting it from your internet access provider, having your school or work provide it, there are many ways that people get it they might find easier, or it just may be the way they would have received their browser.

Mr. Brad Chase is presenting false testimony.

I can not imagine anyone in the industry suggesting that the easiest and simplest way to get software is not having it pre-loaded and ready to go. He is just testifying falsely to defend Microsoft's illegal acts. It is not illegal to make software easier to install or use. Other Microsoft witnesses have suggested that is one reason why the integration benefits consumers. But, Brad Chase falsely testifies by suggesting that some other means is easier. Yes, there are other ways, but not one of them is easier as Brad Chase is trying to convince the court. That claim is simply false and offered to deceive the court. It is highly unlikely that Brad Chase believes his own testimony. Why should the court? Why should the public? Why should the consumer?
 

12:45 PM PST - Microsoft continues to present testimony that they themselves do not believe

q. So, if you have a choice to make--there is no instruction--you, with all your knowledge, can't tell me now which is the right one. You just think the user is going to figure it out or trial and error?
a. I think you're mischaracterizing my testimony. My testimony is that I don't remember the specific setup screens you go through when you install the Netscape Navigator version--the AOL-specialized version of that. My testimony is at the same time that it is very easy to do that installation.

q. I know you keep saying it's very easy, and I'm trying to test that. And I would agree, if you had very easy instructions that just said "click here to continue the installation process," somebody who could read could do that. But you told me--and correct me if I'm wrong--that you don't know whether there are such instructions on the screen; correct?
a. I don't remember the details, but the fact that millions of people have successfully downloaded Netscape Navigator and/or communicator indicate that it must be pretty easy to do.

This is garbage testimony. Does anyone for a moment think that Microsoft is not going to promote IE bundled with the OS as being better than Navigator because of simpler installation that has already been accomplished by pre-loading?

Evidence in this trial has been offered by Microsoft to suggest that one of the benefits of being forced to buy both the OS and the browser from Microsoft is because of the lack of the need to install IE, right? So why do you suppose that Brad Chase if trying to suggest that installing Navigator is easy? He has even defrauded the court by skipping this process in the video presentation. I can understand why Netscape might skip the install in an effort to show how easy it is. But Microsoft? Microsoft is defrauding the court in their effort to show how easy it is for the Netscape browser to be installed.

Microsoft is offering as evidence one fraudulent video after another. And, they are clearly offered to deceive the court.

12:30 PM PST - Microsoft continues to present deceptive, false and misleading video tapes

q. Let me turn back to the videotape, Mr. Chase. We talked about the download time, but after the Netscape browser is downloaded, it still has to be installed; correct?
a. That's right.

q. And when the videotape was showing the downloading, it skipped not only the rest of the downloading, but all of the installation process from AOL; correct?
a. That's-I think you're correct. I don't remember for sure. The number I quoted you, though, included the rest of the download and the installation, which was ten minutes.

q. How much time was the download?
a. The installation was about three minutes, if I recall, so the download was about seven. The rest of the download, yeah.

q. The rest of the download. now, there is a number of steps that had to be done once it was downloaded to install it; right?
a. You mean, once you run the installation program?

q. You were showing on the video how to download navigator from AOL; correct?
a. Correct.

q. Except you didn't show on the screen what had to be done to do that--correct?--to get it installed.
a. I didn't show the rest of the download, and I didn't show the installation process.

Just exactly what does Brad Chase think his video shows if he skipped the download time and skipped the installation process? This tape amounts to fraud. Key information is omitted to suggest to the court that the process of downloading is equivalent to being pre-loaded and installed by the OEM, not? Is not Microsoft attempting to show how simple and easy downloading is? Could this video be expected to serve as a tutor or instructions to show someone how to do it? Clearly not. This is fraudulent.

Microsoft continues to try to prove points using deceit and fraud to do so.
 

12:20 PM PST - Microsoft shows that downloading is not important to them - No surprise there

q. So that between the first quarter and third quarter of 1998, Microsoft's browser installed base increased six and a half million or about 50 percent, and the users included in that installed base who acquired their browser by downloading declined by a hundred-thousand?
a. Yes.

Microsoft testifies that downloading is okay for other companies but they would never count on that method of distribution. They even offer statistics to show why downloading is a poor alternative.

It is clearly second or third best compared to being bundled with the OS (which even Bill Gates recognized as being critical) and having all ISP, ISV and others promote IE or provide IE exclusively.

Microsoft is just arrogant enough to think that only they can use the best channels of distribution exclusive of their competitors. Just how much does Microsoft charge for IE?
 

11:45 AM PST - Now we begin to see the strategic reasons IE was bundled with the OS

q. Yes. Okay. Now, the second part goes on to say, "which means that if we take away IE from the operating system, most navigator users will never switch to us." Do you see that?
a. Yes, I do.

q. Now, first, do you believe that this is what the author reasonably and fairly concluded, based on the research that was available to him?
a. That's what he said at the time.

q. And you have no reason to believe that he wasn't being honest, or that he was just trying to be dramatic or be extreme, do you?
a. No. I think he was trying to be honest --

q. Now, do you agree --
a. -- but it's sort of strange because -- well, first of all, you have to understand the context of this memo. As far as I know, he was wrong about the broader premise, because there were no discussions, that I am aware of ever, where IE wasn't a part of Memphis as the code name for Windows 98. So the whole -- that's why I am sort of struggling with this because the whole context is wrong to start with.

Microsoft continues to play dumb when the discussion gets around to the real reasons why they bundled IE with their monopoly product.

I wonder if Brad Chase read the consent agreement that Microsoft approved? Do you suppose he did and just said as Bill Gates did, that they will just ignore it anyway?

11:32 AM PST - Most consumers do not want to switch their OS or applications - Microsoft knows that, so they force the purchase and use of IE to take advantage of the concept

q. Okay. let me go down to the next paragraph where it says, "eighty percent of those who do not use IE say they have no plans to switch to it." Do you see that?
a. Yes, I do.

Microsoft knows what everyone else knows in this industry. Once a user becomes familiar with an application, they are loath to switch to a competitive application.

When Microsoft forces all consumers to pay for and use IE, they know for a fact that that will guarantee them a significant market share regardless of the relative merits of competitive products or prices.

However, Microsoft and Microsoft supporters use deceit to suggest this is not so and that anyone is free to install the application of their choice. They deceitfully suggest that since consumers are not prevented from using a competitor's product that Microsoft is competing fairly. They are wrong and they know they are wrong. In this case, evidence has even been presented that users are in fact prevented from using the Netscape browser. As I recall three instances hard-coded IE as the browser to be used regardless of the consumers choice.

Microsoft forces consumers to buy products and then hires lawyers and economists to present false testimony to avoid liability for antitrust violations.
 

11:12 AM PST - The testimony from Brad Chase is deceitful and dishonest

Transcript Feb 11, AM:

q. Do you have other reasons, sir?
a. If I thought about it, I might think of some others. Off the top of my head -- let's just make sure you caught them all that I can think of. So the 12 million downloads includes people -- well, no, it can also include people who downloaded and never used it.

q. Yes.
a. That is another example.

q. Maybe somebody like you a few months ago.
a. No, I actually used Netscape Navigator. It's good to try it and see how it works.

q. Good. It took you until three months ago or six months ago to do that?
a. No, you asked me in your question earlier if I had downloaded from AOL.

q. Right.
a. I have down loaded from Netscape's site many times.

Mr. Brad Chase is truly deceitful here. Look at what he has testified to. They consider what he thinks his testimony shows.

Mr. Chase himself admits to downloading Navigator from AOL and from Netscape's site many times. (How many is "many times", we do not know.)

But, the purpose of his testimony is to show how valuable the download ability is for software distribution. His testimony is suggesting that no harm was done to Netscape by Microsoft's illegal acts because they can still download. But, his own personal experience invalidates the use of any statistics for that purpose. He himself knows that of the millions of downloads, there are many duplicates. He has downloaded Navigator multiple times. Yet he testifies under oath that the statistics show Netscape is not harmed by Microsoft's acts.

His testimony is truly deceitful. His testimony is offered to prove a point which he himself knows to be false.

10:50 AM PST - Would Microsoft be happy if limited to downloads of Windows98 as the sole distribution method?

q. Do you know who Joe Belfiore is?
a. Yes, I do.

q. And who is he, sir?
a. He's a program manager who works on the windows user interface.

q. And, in your experience, is he somebody of competence and integrity?
a. Yes.

q. Let me ask you to look at his deposition that was taken march 26th, 1998. And you can look at whatever portions you want to for context, but what I am particularly interested in is on page 45 and up at the top of the page.

"question: Tell me a little bit more about the feedback that has suggested that downloading IE -- it's too big and downloading is not a good thing.

"answer: There's tons of feedback that suggest that downloading IE takes to long, is too hard. You can go read pretty much any press reviews, just go talk to any people or experience it yourself and you'll find that the number of hours that it takes to download these components over a phone line is incredibly discouraging to people, often fails, and the result is that people don't get an improved user experience at all. "So in order to deliver benefit for customers, we have to make it easier.

"question: Is that phenomenon you've described, just how difficult and discouraging the download is from what you have both read and hear from feedback directly - is that something that applies to the latest version in Netscape's communicator as well as to IE?

"answer: Yes.

"question: It's pretty big, too, I take it?

"answer: Yes."

q: Do you agree with that testimony as of march of 1998, sir?
a. Yes and no.

q. Did you say "yes and no"?
a. Correct.

q. First --
a. Perhaps I should explain.

q. Yes, if you could and, if it would be acceptable to you, could I get you to start with what is the "yes" part and then i'll ask you what the "no" part is. What do you agree with?
a. I agree that we wanted to make Internet explorer smaller so it would download more quickly, and that we did have feedback that it took too long. I disagree with the part that said you could read any press review or I disagree with the part that it was too hard. And I disagree with the implication that downloading isn't a very significant way that people get software on the internet. In fact, if you ask people how they acquire their browsers, 17 percent of all browsers acquired by people in the united states -- and I think that's as of the end of q3 1998 when we have the latest available data -- acquired their browser via download. You also have to remember that Microsoft's culture is one of very -- a large amount of self-critiquing. And so while we were successful with IE 4, we gained share and we had a lot of downloads, we wanted to make it smaller so it would be even easier or even more quick to download. And by making it more quick to download, we could get even more downloads. And, in fact, we've done some of that with Internet Explorer 5. In addition to that, you also have to take into context that downloading will only increase as a phenomena, in my view, because of increases in bandwidth -- in other words, connections speeds increasing. In addition to that, because technology is becoming more componentized and you will be able to download the pieces you need when you need them, instead of having to download sort of the larger whole.

Let me explain why Microsoft thinks downloading is so great.

One of the charges that has been alleged against Microsoft is that Microsoft has acted to cut off distribution methods for the Netscape browser. It does precisely that by bundling IE with the OS removing any need for any customer to buy a browser. This reduces the demand for all browser applications. Secondly it has done precisely that by signing up ISVs and ISPs to either use IE technology in their products or promote IE to the exclusion of other products (primarily Navigator). And, it has distributed via download as many copies as possible to cover existing customers who either are not buying new machines or might not be dealing with an ISP with which Microsoft has an exclusive deal with.

The obvious purpose in doing all of this is to prevent a market in browsers from existing. Microsoft having a monopoly position in the consumer OS market can just bundle IE, jack up the price for the OS and sell IE to everyone. Consumers have no choice. If Microsoft wants to charge consumers $70 or $80 for IE, consumers must pay. But, by bundling IE, there is little or no demand for any browser application.

Now. If Netscape could not also download its browser, or "carpet bomb" as AOL does, it simply would not have any practical means to even give away its products. The zero price is forced by Microsoft in its bundling. But, distribution itself would be cut off except for one or two free distribution methods.

Microsoft lawyers think that they can force all consumers to buy IE (at up to $140 per copy) if they can just show that Netscape is not completely cut off from distributing their product. This is pretty sick reasoning by Microsoft's lawyers.

Do they think that it is fair to force all consumers to buy IE while allowing Netscape access to the download process or mass distribution? No they do not. They know full well that that is not fair at all. They also know that their acts violate the antitrust laws. But, they have few if any defenses for their own acts. "None", would be a better description.

But, in their own arrogant way they suggest they should be permitted to freely violate antitrust law because they can not prevent Netscape from downloading their product. This is a bogus argument.

Yes. Bandwidth improvements will help. And, the modularity of programs will help.

But, do you think for a second that Microsoft would accept downloading as the best distribution method for "their" software? Do you think that Microsoft would be happy with being limited to free downloads of Windows98?

If Mr. Chase is going to testify in a court of law about how great downloading is, then his own company should be willing to use that method exclusively for Windows98. How would that work? Well. You buy a PC. It comes with an OS and browser from another vendor. Then if the consumer chooses, they could log onto the Microsoft web page and download Windows98 (OS, browser and all). Do you really think that Mr. Chase would accept that on the behalf of Microsoft? Or, do you think he is testifying falsely about the value of being able to download software?

Only a monopolist will insist upon being paid for their product while suggesting it is perfectly fair if they can't preclude a competitor from using an inferior distribution method. This is Microsoft's idea of fair competition.

Microsoft is truly deceitful in suggesting this defense. They know the defense is bogus. And, they know that downloading is an inferior distribution method. They also know that no company is likely to be successful distributing software that way when Microsoft can force all consumers to first buy IE.

Hint: You have to buy an OS and browser before you can even think about using the download method to acquire software.

February 11, 1999 - Thursday

7:00 PM PST - Yet another bogus (misleading) video from Microsoft

When is Microsoft going to learn to present creditable evidence or do not present evidence at all?

6:30 PM PST - AT&T and MCI are both restricted by Microsoft regarding Netscape

q. Microsoft has agreements with both at&t and mci?
a. Yes.

q. Okay. And those agreements restrict at&t and mci in terms of what they can do with Netscape's browser; correct?
a. That's correct.

Why am I not surprised?

6:00 PM PST - Free copies of Windows 98 might help OEMs too, but Microsoft does not do that. Why not?

q. How, if at all, Mr. Myhrvold, has supplying Internet Explorer free of charge to ISP's impacted their businesses?
a. I think it's impacted their business very favorably. Certainly anyone in the ISP business knows how challenging it is to make money, or really that means how challenging it is to even break even. Of the five ISP's in the United States that are publicly traded--yes, the five--only one of them is making any money, and they did so only, I believe, in the recent quarters, and have not shown a profit for any of the full years of 1995, 1996, or 1997. In fact, if you take a look at the amount of money that an ISP might make or lose on a per-subscriber basis, as I show on page 49 of my direct testimony, you can see that these companies will lose up to a couple hundred dollars per subscriber. Now, I think the--so, the idea that you're going to charge them $20 for a browser or $20 for a browser and annual maintenance for future versions of that browser on top of that, is not--certainly doesn't help them at all. So, I think that part of the reason we have been successful absolutely is the better economic proposition we're offering ISP's.

This is most likely false. Very few if any businesses prefer to conduct a service around a free product. Almost all ISPs would benefit from having a real market for browsers. Their services could be combined with a product they could sell and mark up accordingly. When Microsoft ruins the market for Netscape, they ruin the market for ISPs as well.

Would OEMs benefit from Windows98 being a free product? If free browsers are good, then free Windows would also be good. I doubt that OEMs would like that at all. OEMs are constantly looking for additional products to add to their offerings. The lower priced machines just are not that profitable. The higher priced machines are very much preferred by OEMs. OEMs and ISP prefer to have something they can sell in order to general revenue.

Here, Mr. Myhrvold testifies falsely that ISPs are better off with a free browser. I seriously doubt that. Most ISPs would rather have something to sell rather than a product that they have to support which can not contribute to their bottom line.

Again, Microsoft comes across as a totally arrogant company suggesting that only it should be able to sell products. Just how much is Microsoft charging for IE, anyway? Free you say? Are you sure? How many dollars did you pay for Windows98? Microsoft has offered no evidence to suggest that a good portion of the Windows98 price does not go to IE.

.

5:45 PM PST - Distributing IE to ISPs without charge also prevents a viable market for browsers and precludes competition

q. Mr. Myhrvold, Mr. Boies asked you a number of questions on cross-examination about the motivation for making Internet Explorer free to ISP's. Do you recall that, sir?
a. Yes.

q. Why does Microsoft provide Internet Explorer free of charge to ISP's if Microsoft has invested money in the development and marketing of internet explorer?
a. I think we actually have a long history of making components of the operating system available free of charge separate from the operating system. We've done that many times because it's important to us to popularize the technology that we put into the operating system. So, for things like object linking and embedding or open database; odbc, or open database connectivity; or any number of other features of windows we actually allowed other companies to ship free of charge, and we've given away, because in the end, that helps popularize our technology and helps get third parties to build on top of our technology. And if they do that, then we're going to have a more successful operating system business, and we're going to make money in the future on the operating systems that we develop and on the upgrades to those operating systems.

Free browsers prevent any company from offering competition to Microsoft in that key market. The answer given by Mr. Myhrvold would also apply to a free distribution of Windows 98 itself, which Microsoft does not do?

The answer is that Microsoft must sell something, right? Even Microsoft could not exist without revenue.

Why does Microsoft continue to advertise itself as some kind of charity? Charities do not go out of their way to preclude a corporation from earning revenue and paying their employees. Microsoft does so with that intent. Bill Gates himself even threatens that act before hand hoping the threat alone will be enough to prevent competition.
 

5:20 PM PST - So Microsoft does understand that "lack of choice" is similar to "force"

q. Can you explain to the court why Microsoft invested the amounts it did in creating the ICW and establishing the network that provides the backbone for the Windows 95 Referral Server.
a. Sure. At that time, we had a goal of trying to make Windows a great way for users to sign up for the internet. The internet connection wizard and the referral server, we thought, would be a great way to achieve that goal by making it easy--adding facilities within Windows to make it easy for customers to sign up for the Internet. We thought that was very advantageous, because clearly the internet was a huge consumer phenomenon. Millions of people were coming on to the internet. If they were not doing so with our software products, they would probably do so with somebody else's software products, and so we wanted to add that valuable feature to our software to help our customers get on the internet rather than force them to use someone else's software.

Great. That is fine. Microsoft should have the ability to offer an alternative means to sign up for the internet. However, everyone else is at a disadvantage compared to Microsoft. Only Microsoft can force all system to offer the convenient sign-on process or the referral service. In turn Microsoft used this monopoly to require ISVs to disfavor Netscape or favor Microsoft. This process is simply the use of monopoly power to preclude a competitor. Not by offering the service, but by making the service available only if the ISV would in turn harm Netscape. And, of course, since all Microsoft customers have this "service" included on their system, the power of this exclusive service and the force it can exercise over ISVs is significant.

The answer here really relates to the concept of not leaving any service uncovered for anyone else to provide. This is why venture capitalists just do not approve any application for funding if the company is going to go heads up against Microsoft (or might provide a product that Microsoft would want to provide).

4:55 PM PST - Not putting Netscape into bankruptcy is a defense?

q. Did Netscape make its web-browsing software free to all customers during the spring of 1998, Mr. Myhrvold?
a. Yes, they did.

q. And did they go bankrupt as a consequence?
a. No, sir, they did not.

Are the Microsoft lawyers so arrogant and cocky that they think this question and answer is relevant to antitrust law? If Navigator were a product from IBM or General Motors it would not matter to this case. It is the removal of competition that is at issue here, not whether the company offering a product went bankrupt or not.

The facts are that Netscape had to discontinue selling its products and either distribute them without compensation or possibly suffer the loss of all associated revenue. This question from Microsoft lawyers is "sick", for lack of a better term to describe it. Do Microsoft lawyers think that if you shoot someone with a pistol, everything is okay if the person does not die?

Microsoft lawyers are only suggesting that since Netscape was not put into bankruptcy, somehow Microsoft is an "innocent babe" or should not be held accountable for violations of law as a result of their own acts. This is to suggest that Microsoft thinks it is not liable for the violation of any law unless its acts were 100% effective.

q. Now, you said in response to a question from Mr. Boies that there were other ways to make money from browsers apart from charging for the browser itself. can you explain what you meant by that, sir?
a. Sure. Netscape is a good example of a company that was very nimble on its feet and changed strategy and entered many markets quite successfully. Today, you will see they're doing a lot with their Netcenter portal, their Netcenter web site, to derive revenue. In fact, many of the agreements that they actually cut with ISP's also involved paid advertising on the Netcenter web site. More to your point, today they're using the distribution of their browser and the market share of their browser to help increase the visits and--the visits to their Netcenter web site and, thereby, driving greater advertising revenue

Perhaps Microsoft should be enjoined from selling it's operating systems? This answer from Mr. Myhrvold suggests Microsoft's lawyers would go along with that. Microsoft could always sell applications, right? There are other business models that would work. There is no reason why their operating system should not be a free product for all. Linux is free already. If Microsoft really thinks that browsers aught to be free, then they should agree that operating systems should likewise be free, right?

This question from Microsoft represents pure arrogance.

4:30 PM PST - Microsoft continues to write contracts that favor the side hiring the most lawyers

the court: But they are arguably in violation of their license if they don't make it preferred?

The witness: Yes.

the court: Whether you enforce it or not?

the witness: Yes, but the term isn't defined, sir, so it's not just a matter of - I think it would be hard to argue what behavior constituted violating that term.

the court: You'll find that lawyers will argue over anything.

Yes. Lawyers will argue over almost anything. And, I can guarantee you that if Microsoft took an ISV to court, they would in fact argue that the ISV breached the contract by not "preferring" IE.

This is what I would call "chicken shit" lawyering. Please excuse the French words and my reference to my poor language as being French. But, drafting contracts that require one party or the other to perform in an unclear way is just "bull". Microsoft is forcing parties to sign contracts that require them to discourage the business with another party (here Netscape), most likely telling them orally that it means nothing (as they have told this judge) and then waiting until they get in court later to claim a breach of contract on the part of the other party.  This kind of language is also found in what are referred to as "adhesion" contracts.  Adhesion contracts result when one side has so much more power than the other that the words of the contract can be decided unilaterally.  These contracts bind one party to certain acts but require very little or anything from the power side.

Clearly, if an ISV sued Microsoft, Microsoft would cross complain alleging breach of contract because the ISV did not make IE the preferred product.

I do not buy the dismissal by Microsoft regarding this language. And, since the judge was asking the questions, I doubt that he does either. Now, the reality is that courts would most likely just toss that language aside and ignore it. But, it sometimes costs a lot of money to get to the judge. And, all too often the party hiring the most lawyers wins before the case gets to the judge. All this language really points out is that Microsoft is calling all of the shots. Here, they require ISV to harm Netscape.

Next Microsoft may choose to harm you or your company. If you develop software, you absolutely have to be aware of the harm that a monopolist can cause. But, remember Microsoft is interested in a lot of businesses and a lot of markets.

4:15 PM PST - Again, Microsoft helps prove that IE is an application and not part of the OS

q. Based on your experience in the time since this e-mail was written, has the inclusion of Internet Explorer in Windows eliminated the need for ISP's to distribute browsers?
a. No, absolutely not. And I would say that we have a fair amount of data on this since we shipped IE 1.0 in the OEM versions of Windows and IE 2.0 into the OEM version of Windows. So, we certainly should realize that shipping Internet Explorer in Windows does not--does not make our case. And it's very, very important for us to continue to get ISP distribution. As I mentioned yesterday, even once the browser is in the operating system, if you want to update that browser, if you want to update that browser technology, as I'm sure we will want to do to keep pace with how quickly things change and innovate on the internet, then we will certainly seek to use ISP's as a distribution channel for upgrading existing customers to new versions of Internet Explorer.

This is precisely why browsers are applications. One of the primary reasons why operating systems do not perform user services is simply that applications are better suited to satisfy the particular needs of the customer and separately the two permits one or the other to be updated without requiring the update of both.

Microsoft itself insists upon this concept by writing IE as an application for ALL platforms on which it cares to provide it. Even this answer given by Mr. Myhrvold in response to the question from the Microsoft attorney supports the contention that no one wants the browser to be part of the OS.

Microsoft only makes that claim to force the sale of IE. There is no other reason. Certainly, in this trial no evidence has been introduced by Microsoft suggesting that IE is not an application but only a part of the OS. Microsoft has claimed that conclusion, but they have failed to offer any evidence that that is the case. This answer even supports the suggestion that Microsoft itself insists that IE be treated as an application. Not even Microsoft has suggested that ISPs are distributing the Microsoft OS disguised as a browser.

q. Do I understand you correctly, Mr. Myhrvold, that you do not foresee any time in the near future in which the ISP channel will continue to be--will cease to be of importance because browsers are part of operating systems generally?
a. That's correct.

The premise of this question is in error. Applications are not part of the OS at all. Bundling applications clearly does not eliminate the need for the independent sale and distribution of applications.

So, do you think Microsoft would chose one or the other as suggested below? Or, do you think they will continue to insist that all consumers must buy IE simply because Microsoft does not think it can win without applying its monopoly power and force upon all consumers?

4:00 PM PST - Interesting possible remedy in the Microsoft antitrust case?

q. Okay. And what you say is, "at some point all browsers will come in the operating system. This will obviate the need for Netops to ship them to their customers, but how long will this be? Certainly for the installed base on windows 3.1, windows nt and mac, and the windows 95 retail customers (who didn't buy plus), ISP's will have to ship a browser. So, to me this is asking an os installed base question. How long do we expect an appreciable number of windows 3.1, windows nt 3.5, windows 95 version 1 and old mac machines to be in use? Surely, we must have a view on this." you then go on to say in the very next sentence, "I'm afraid bill's view is that as soon as we put IE into windows 95, it is no longer an issue, and I think we have to show ie (sic) distribution is a real and ongoing issue for some period of time and worthwhile looking into." now, is it fair to say, sir, that Mr. Gates's view was even more aggressive than yours at this time in terms of what the effect would be of putting ie into windows 95?
a. Well, I don't know. I'm speculating about what bill's position might be about my business. It's clearly my fear that he won't think we have to care about ISP's, and i'm speculating about that. And as I described yesterday, I disagree with the reasoning in this e-mail.

This question and answer raises an interesting question. If Microsoft wants to insist that their browser is part of the OS, then would they accept a settlement that permits them to either include their browser with the OS or sell and distribute it separately but not both. If they choose to bundled it with the OS, then they must not distribute it in any other way, with or without payment of money unless the OS goes along with it. If they choose to distribute IE (for any platform) separate from the OS then they can't include it with the OS at any time, not new sales and not upgrade products.

I would guess not. Microsoft would insist upon ruining the application market, bribing ISP into distributing IE only (if they can) and forcing all consumers to buy IE each time they buy a new machine or upgrade their OS. I mean, why be fair when you can cheat?
 

3:38 PM PST - Mr. Myhrvold does understand the harm to be caused by depriving Netscape of revenue

q. Let's look at lines 8 through 16 and the whole answer here, and I want to focus on the portion that you directed my attention to. At the beginning, which is where I started, you said, "I certainly wondered whether Netscape could keep up the pace of innovation if they weren't making money from that channel." And that channel related to the distribution of IE through ISP's; correct, sir?
a. Yes.

q. Now, you then go on to say, "but that's more a question of what their strategy would be rather than what their capability would be. So, really it would be a question as to whether Netscape would choose to continue to invest in the browser if they weren't making money there." And I take it that was accurate testimony then, and you continue to believe the same now?
a. It is certainly accurate testimony, yes, absolutely.

Clearly if your company has the power to give away a product and get prefer promotion from ISPs, then you can remove the ability of a competitor to earn revenue. Even Mr. Myhrvold understands this. Of course, he is trying to hide the true objectives of Microsoft by using semantics because otherwise their evil intentions to violate antitrust law are rather obvious.

Giving away the browser and getting ISPs to promote IE was damaging to Netscape. Such illegal acts would not be very effective against IBM. IBM's earning capability would not be affected. IBM has the necessary earning capacity. Netscape (or any other browser company) may not. Thus it was very easy for Microsoft to preclude Netscape as a competitor. It is only a question of how long the illegal acts need to remain in force.

Microsoft has a practice of engaging in inappropriate or illegal acts and then backing off and asking for the credit for doing so. Numerous contract terms have been allowed to slide or have been waived by Microsoft. But, in most cases the harm has already been caused.

Microsoft's culture is corrupted. This is little doubt about that.

3:23 PM PST - Microsoft thinks it is ok if products their competitors must sell are free?

q. I think that's a useful point. What you were saying there was that there was a question in your mind, and perhaps in others, as to whether Netscape would think it made sense to continue to invest in a product that they weren't making money in; Correct? That's what they say here.
a. The point of my comment is that they don't have to make money from browsers in order to invest in browsers. There was no causal relationship between those two. Anybody associated with the internet certainly understands today there is not a hard linkage between making money and investing huge amounts of money or being worth huge amounts of money.

Great. Then Microsoft would have no problem with giving away its OS? Or is this just arrogance talking?

Microsoft sells IE for up to $140 per copy and Mr. Myhrvold suggests that it is okay if Netscape is forced to give away its browser because "there is not a hard linkage between making money and ... being worth huge amounts of money"? Stocks only have speculative value because of the future potential of revenues.

Again, Mr. Myhrvold is testifying falsely. He is well aware of the fact that if the revenue for browsers can be significantly reduced, the ability of Netscape to compete is likewise reduced. He is just playing dumb hoping to fool the court.

3:00 PM PST - Sorry, but Mr. Myhrvold's testimony is not believable

q. And how about this third question, which is, "how have we impacted Netscape's ISP Navigator revenue with our licensing efforts, our IE licensing efforts?"
a. I was certainly interested in understanding how we impacted their distribution. I was certainly interested in understanding if we were closing the gap between their distribution and our distribution. But other than just-I had no special interest in their--in their revenue or whether we were reducing their revenue.

The note clearly uses the term "Netscape's ISP Navigator revenue". Mr. Myhrvold is testifying falsely when he claims that he was talking only about "distribution".

How many stock options does Mr. Myhrvold have anyway? Normally, employees need to worry about their jobs etc., if they testify in such a way to harm their employer. But, Microsoft underpays a lot of top people and offers stock options as the major incentive.

2:50 PM PST - Just keeping the humor up

q. I thought that was what I asked you, but let me be clear. There has been some suggestion in this trial that you may or may not be aware of that Microsoft set out to deprive Netscape of revenues or cut off its air supply. Have you heard that that's a charge in this litigation?
a. I may have.

LOL (laughing out load, in case you are not familiar with BBS talk)

2:36 PM PST - "Bounty credit" for converting NetCom customers to IE?

q. And what you did with Netcom is you offered to give them back some or all of that money, depending on the extent to which they would convert their customers from Navigator to IE; is that accurate?
a. Yes, basically. What they would do, since we were late to coming out with a browser, they would go back to their customers and offer them Internet Explorer. And for those customers which chose to upgrade to Internet Explorer, we would give them a nine dollar discount on the bounties they owed us.

q. Now, the balance that they owed you was from getting new customers; correct?
a. Correct.

q. So that, for example, when they upgraded one of their existing customers, they didn't owe you any money for doing that?
a. No, no.

q. So, what you were doing was you were taking money that they owed you for getting new customers for them, and you were saying you were going to reduce that by $9 for every one of their existing customers that they converted from Navigator to IE?
a. Yes, that's correct.

This testimony creates yet another nexus (a connection) between money earned from the OS and the further establishment of Microsoft's new monopoly in browsers. Netscape could pay $9 to convert them back but where would they get that $9? Microsoft gets their nine bucks from their monopoly product. If not from the product itself, it gets the $9 from a service that only it can offer, exposure on the Windows desktop. Advertising space on the desktop is just as much a monopoly as the OS itself.

2:18 PM PST - Of course ISPs signed up because of the quality of the browser, right, Mr. Chase?

Transcript Feb 10, PM: Mr. Myhrvold is on the stand here. But, Mr. Chase really wants to convince everyone that illegal acts have nothing to do with the ability of Microsoft to get such favorable support from ISPs and that support is due completely to the quality of the product.

q. Let me see if I can get your understanding. Is it your understanding that the right way to say this would be of the top 15 ISP's in North America, all but one are on the Referral Server or the online Services Folder and have committed to ship IE as their preferred browser?
a. Yes. I'd again stipulate that Sprint and Netcom signed up with 50 percent distribution, so that would really be 50 percent, which I wouldn't consider preferred, but otherwise, yes.

q. Now, even with respect to Sprint and Netcom, they were not permitted to promote the Netscape browser; correct?
a. I don't know what the prohibitions were on promotion in those two contracts. We may well have had a stricter term on promotion than we did on distribution.

q. What percentage of all ISP subscribers are accounted for by the 14 of the top 15 ISP's that had signed contracts with Microsoft?
a. I don't know. I would guess it is about 50 percent.

q. About 50 percent, did you say?
a. Well, I don't know. It could be 50 percent. It could be 60 percent. It could be 45. But I would guess it is something like that.

Lets go find Mr. Schmalensee, the so-called economist and have him explain how any company including Netscape is to be expected to sell a browser when Microsoft forces all consumers to buy IE with a new computer system and also can get all of the major ISPs to promote IE to the exclusion of all other browsers? I wonder if he has enough understanding of the economics in play here to render an opinion. Microsoft thought he had some knowledge about the computer software industry.

Sounds like Franklin M. Fisher was right on with his testimony and Mr. Schmalensee is testifying falsely.
 

2:00 PM PST - Microsoft's attempt to dictate mind share or just insisting that they should be given the exclusive right to cheat in the marketplace?

Transcript Feb 10, AM:

q. Now, except for exceptions like that, the ISP's were told that they could not either express or imply the availability of another browser, correct? That's what they agreed?
a. Yes. We did have clauses like that in our contract.

I wonder if Microsoft would object if the court issued an order requiring all OEMs to pre-load either OS/2 or Linux and prevent the OEMs from advertising, promoting or discussing any Microsoft product unless the customer specifically requested it. That order could remain in place 5 or 10 years, not? Do you think Microsoft would agree to operate under those terms? Or, do you think that Microsoft would claim such an order to be illegal itself?

Maybe OS/2 and Linux would be included with all systems but any Microsoft product would have to cost extra? Microsoft could of course distribute their OS freely over the internet. (Of course they would have to get OS/2 or Linux running first, right?)

Does this sound fair? Microsoft here seems to imply that it would be ok. Microsoft suggests that is okay for Netscape.

q. And all I'm trying to do is establish that the reason for that was because you believed that if the consumer had a choice of the two browsers side by side, the user would, in the vast majority of cases or in the majority of cases, pick Netscape for the reasons that you've identified, correct?
a. Yes. That's right.

So much for bogus quality argument. So much for the bogus argument that barriers to entry do not apply to computer software. Microsoft itself has proven false all of their own arguments.
 

1:23 PM PST - Microsoft only wants to cheat - playing fair means you might lose

q. Okay. Now, let me go back to the question that I was asking when you brought up Concentric and Earthlink. Is it the case that what you were trying to do with the ISP's was to prevent the ISP's from presenting Internet Explorer and Netscape Navigator side by side and allowing the consumer to choose between them?
a. What we wanted to do, sir, was to encourage the distribution of Internet Explorer. Especially in the early days when we had no distribution of Internet Explorer through ISP's, when we had very, very small market share, we were concerned with how the browsers were presented. We were very concerned that if the user saw Netscape navigator side by side with Internet Explorer, and Netscape having all of the mind share and usage share, we would lose all of those, or the majority of those decisions. So we did specifically ask that ISP's distribute Internet Explorer by itself when they distributed Internet Explorer, so that we would not lose all of those side-by-side user choices.

q. Let me just follow up on that. What you're saying is that the purpose behind these shipment restrictions and percentages we've been talking about was because you were worried that presenting Internet Explorer and Netscape Navigator side by side would result in your losing out to Netscape because Netscape had higher market share, higher mind share, and higher presence in the market?
a. Yes. They had very high usage share. We were nowhere. we were the johnny-come-lately to the internet, and we were concerned that that would not really help our distribution and share.

q. Well, it was more than that it would not help your distribution and share. You were concerned that if you presented the consumer with a choice of the two browsers side by side, they would, for the reasons that you've identified, pick Netscape rather than yours, right?
a. Yes. That's right.

q. And these percentage specifications or restrictions in the ISP contracts were designed to be sure that the ISP's shipped your browser without Netscape's, correct?
a. Yes. That they would present to users Internet Explorer as the browser that they were shipping to them, unless that user requested something else, and there were allowances in the contracts of a variety of kinds that would allow them to do distribution deals for Netscape Navigator. The Earthlink contract, in particular, allows them to have many, many, many -- over a thousand previous contracts referenced where they have full ability to ship Netscape Navigator.

Everyone wants to sell their products. That is a given. Netscape wants to sell theirs. Microsoft wants to sell theirs. That is all and good.

However, what is evident by this Q&A is that Microsoft decided that it could not sell IE unless it cheated.

Remember the testimony from Mr. Schmalensee? He suggested that any old company could type up an OS and beat out Microsoft if the product was any good. Remember that? No barriers to entry. No "network affect". No tipping. Nothing to stand in the way of anyone willing to offer a competing product.

Yet we have a Microsoft witness suggesting rather bluntly that Microsoft itself (of all companies) understands the difficulty in entering a software market when some one else has the dominant product. Amazing the insight that Mr. Myhrvold displays.

Of course it is hard for even Microsoft to enter a market dominated by someone else. This common knowledge is what makes Mr. Schmalensee look like an idiot on the stand. He is not an idiot. An idiot has a very low IQ, right? His IQ is high. But, anyone can lie on the stand. And, when a so-called expert gets on the stand and testifies such that his conclusions are illogical and unrealistic, that testimony has to be characterized as "false".

Here we see the need for Microsoft to find some way to cheat in marketing IE. Having a comparable product is just not going to do it. (Having a comparable OS is not going to do it either.) What will Microsoft do? Just how can it cheat so as to get market share? We all know the answer to that question. It is simply. The only problem is that it violates antitrust law.

So. Somebody is going to have to make a call for Microsoft. Does Microsoft abide by the law and possibly lose the browser market? Or, does it force itself into the monopoly position with browsers and possibly lose the antitrust case? Again, we know Microsoft decided to cheat.

12:08 PM PST - Who pays for the Referral Server costs? Windows 98 customers?

q. How much did Microsoft spend on developing and implementing the Windows Referral Server?
a. I don't know the exact cost and I don't know of any total that was developed on that. I believe it costs us between 4 and $5 million per year to lease the network that the referral server runs on.

q. Other than the amount of money that it costs you per year to lease the lines -- the network lines that it runs on -- do you have any estimate of the cost of developing the internet Referral Server, or marketing it, or otherwise implementing it?
a. No, sir. I don't. We had to develop the software. We have to maintain the servers. We have to maintain them up and running 24 hours a day, but I do not know what that costs.

<skip>

q. And the referral server was partly created in order to induce ISP's to commit to Internet Explorer on a preferred basis, correct, sir?
a. Yes. As part of the co-marketing program that we offered them, we gave them paying customers. In return, they agreed to promote and distribute our browser.

q. That is, you gave them customers for their business by allowing them into the Referral Server. And they, in return, agreed to promote your browser on a preferred basis compared to Netscape, correct?
a. Yes. Yes. In comparison specifically with non-Mircosoft browsers, but certainly Netscape is a non-Mircosoft browser.

q. And, indeed, Netscape was the non-Mircosoft browser with which you were primarily concerned, correct, sir?
a. Sure. They were the market leader.

What is so wrong with the Referral Server? Well. Not much unless you take into the account that all customers of Microsoft are required to pay for it. Now, they do not pay much. 4 or 5 million, even 10 million can get lost in Microsoft's budget (assuming they have one). And, requiring all computers to have such a referral service should not increase the cost of Windows too much. But, remember that Microsoft forces all consumers to buy IE (and the Referral Server) even if they do not ever plan to use the internet.

I doubt if any CEO in the world would not like to have a product that everyone must buy regardless of their intended usage and therefore guarantee that R&D dollars and recurring expenses will be covered without any risk associated in the marketplace. Having a monopoly does in fact offer benefits to the holder thereof. R&D dollars can be spent with little thought at all. Operating expenses can be increased without any regard to the amounts involved. Sales are guaranteed.

Compare the monopoly position of Microsoft to the risks that a company like Netscape would face. Could Netscape afford to pay 4 or 5 million or more for an equivalent service? They could spend the money, right? But, how would they increase their revenue? Netscape can't force all consumers to pay cash for Navigator. Only Microsoft can do that. Only Microsoft "is" doing that.

It is false testimony to suggest that IE is becoming dominant due to the quality of its product. Absolutely false testimony.

Not everything that Microsoft does is illegal. Not everything they could do is illegal either. They could sell IE separately. The Referral Server could be part of the IE package. But, if Microsoft can't force all consumers to buy IE, the value of the Referral Server is substantially reduced. At the point in time that IE had only a small market share, ISVs would laugh at the idea of switching their promotion to IE just so that they could be listed on the Referral Service. But, if Microsoft uses its raw monopoly power to force all users to buy IE, then being listed by the Referral Service has real value.
 

Remember the economist, Mr. Schmalensee? He actually claimed on the stand that the "network effect" and the "tipping" effect did not apply to the computer software industry (or I think he words were that they did not increase barriers to entry). Those concepts do apply. In fact, the tipping affect applies to browsers too. And, Microsoft (forcing the sale of IE upon all consumers) tips the bowl in IE's favor.

Sometimes the tip is a natural one. And, sometimes a company just uses their raw monopoly power to force it. But, once tipped, it's tipped. Microsoft knows that. Bill Gates knows that. Knowledgeable people in the industry know that.

11:45 AM PST - Paying $500,000 to switch to distributing IE sounds rather significant

Transcript Feb 10, AM:

q. Let me ask you to focus on my question, sir. On July 9, 996, before you say there was this later development, you had already offered him $500,000 in cash as part of the consideration to get him to take Pipex off of Netscape and switch to Navigator [Explorer], correct?
a. Correct.

q. And you ultimately ended up paying them $500,000 in cash, correct?
a. That is correct, and they made considerable promises to us and contractual terms to us that they would start a new line of business hosting web pages on windows NT.

q. But starting a new business of hosting web pages on NT was not a requirement of yours when you offered them the $500,000 cash in July of 1996, correct, sir?
a. Them starting a separate business unit to pursue NT was not a consideration in this e-mail, that's correct.

q. And, indeed, although you didn't do it formally in the contract, you ultimately tied the payment of that $500,000 to their actually shipping IE, correct, sir?
a. No, I do not believe that is the case.

q. Let me ask you to look at government exhibit 102, which is already admitted in evidence. And the e-mail at the top is from you, dated December 16, 1996, correct, sir?
a. Yes.

q. And it is responding to an earlier e-mail in which there is discussion of Uunet Pipex asking for its $500,000; is that correct?
a. Yes.

q. And you write, quote, "I actually think tying the payment to their shipping IE is a great idea, though I would not do this formally." Correct, sir?
a. Yes. That is what I write.

q. And this was actually sent, correct, sir?
a. Yes, it was actually sent.

Paying someone to ship your product is not illegal itself. Why all the concern about hiding this transaction? Could it be that Mr. Myhrvold is aware of the antitrust implications of his deals? He should be aware.

If Microsoft does not have a monopoly, there might be nothing wrong with this transaction. Companies often have to make significant offers to gain entry into a new market with their products. However, if Microsoft does have a monopoly, then this is evidence of an antitrust violation. So, perhaps the transaction needs to be covered up and disguised.
 

11:20 AM PST - Switching Pipex from Netscape to IE had nothing to do with software quality

q. And what Mr. Sidgmore, the CEO. Of UUNET, had proposed is that if you would pay $3.3 million, and put them on the ISP referral servers at a reduced bounty rate, and help his people get trained, he would, in return, take Pipex off of Netscape and use Internet Explorer, correct?
a. I think that is the general gist, yes.

q. And what you were saying is that you would go for a reduced bounty and you would give him the training hours, but you were proposing $500,000 in cash instead of $3.3 million, correct?
a. Well, this is an e-mail. That is what the e-mail says. I'd like to put this in context. And we were working with Uunet Pipex in the UK. They made a proposal to us that said, "gosh, we could adopt Internet Explorer, but we have a big Netscape distribution business, and this is what we'd like you to do." So I am discussing that with Georges. I believe it was some time -- I think it was a couple of months at least -- before we ever signed this deal, and that is not how it ended up. It ended up that we put them on the referral server. We gave them a reduced bounty. And then we gave them half a million dollars and MCS consulting to get them up to speed on windows NT so they could start a new line of business, a new division of their company that would pursue commercial web hosting based on NT, and that was a very important goal for us at the time in the UK.

The significance of this deal is not that half a million might have been paid to switch Pipex to IE. That is bad enough. But, Microsoft continues to testify that users switch to IE because of technical reasons. No claim is more silly or false.

Business deals take place all the time. And, Microsoft should not be spending time trying to convince the court, the press and the public that only technical considerations are at play. They clearly are not. They never were and they never will be.

The problem is that Microsoft is "trading" its monopoly power for favors in other markets. Microsoft is using its monopoly power to strengthen that power itself in removing Netscape from the market for platforms and at the same time forcing its way into yet another monopoly marketplace, the browser product.

It is for this reason (their acts violating antitrust laws) that they have to fabricate their ridiculous arguments around the relative quality of the products. Evidence is presented time and time again that companies switch to IE for business reasons not technical ones. The only problem being that the "business reasons" relate to illegal monopolistic activities.

11:00 AM PST - Microsoft uses its monopoly product to get favorable treatment for IE from AT&T too

q. So this e-mail from Mr. Silverberg to you and others, dated March 15, 1996, is a report of a conversation between Mr. Silverberg and the Vice-President of AT&T's ISP operation; is that correct?
a. Yes, I think so.

q. And Mr. Silverberg reports here that, "Tom Evslin has told me, (a) he wants to talk about IE separately from MSN, and (b) he very badly wants in the Windows box. I have told him that the only way we can even consider AT&T being in the Windows box is if AT&T gives IE exclusive or very, very preferential treatment (a la what we have with AOL.) is completely unacceptable for them to be in the box." Do you see that?
a. Yes, I do.

This correspondence clearly lays out how Microsoft uses its monopoly power and position to get favorable treatment for other products with key players in those other industries or markets. This note also points out that the quality of IE is just not relevant.

Anytime a witness gets up and claims not to understand the power that Microsoft has in getting ISV to give them preferential treatment, they are just offering false testimony. The testimony may not be a lie. It may not be perjury. But, it is clearly false and misleading. It is offered to deceive the court. It is offered to deceive the press. And, it is offered to deceive the public.

10:30 AM PST - Offering AOL promotion from Windows force-fed IE to AOL customers?

q. This is dated December of 1997. Let me show you a document that is already admitted into evidence that is government exhibit 814a that is the following month. This is a document that you were not shown as having a copy -- of receiving a copy, nor is Mr. Chase. The portion that I am particularly interested is at the top of the page -
a. The first page, sir?

q. Yes.
a. Okay.

q. -- where it says, quote, "you are correct. The typical AOL user is an internet novice. These users, as soon as they attempt to log off the AOL server, will determine if they have the latest versions of the client, browser and any patches. If the user does not have the latest version, the system will automatically force-feed the upgrade. Joe Peterson in Chris Jones' group understands this process and has been exploring facilitating upgrades through phone wires." Now, I take it, it is your testimony that you never saw this document which is not addressed to you?
a. No. I don't believe I've ever seen this before.

q. Did anyone convey to you the substance of what is here?
a. No. Although, as I said earlier, I was certainly aware that AOL was building their client on top of Internet Explorer, and that they would be introducing that to their users, including getting their existing users to upgrade. I did not know how exactly that would work. This seems to explain it in more detail.

q. Did you know at the time that regardless of how they did it, that it was working -- that is, that AOL was succeeding in converting its installed base to IE?
a. I certainly knew that the share of Internet Explorer with AOL users was rising. I don't know if I knew whether that was based on new growth or existing user conversion, but I certainly knew it was rising.

Maybe Mr. Myhrvold does not know how this works. But, I doubt it. Do you really think that one in charge of ISV accounts does not understand what AOL was doing? Maybe he does not understand the industry in which he works. Or, maybe he is just testifying falsely.

The importance to this testimony is not whether Mr. Myhrvold understood how AOL was forcing users to convert to IE. Rather, this testimony shows that Microsoft's claim that users are free to use the browser of their choice is simply false.

Microsoft makes false statements regarding browser choice by pointing to their inability to completely prevent the use of Navigator but then actively participates in any and all efforts to prevent the consumer from having that choice. Microsoft sounds like a burglar who hopes to defend himself on the basis that some houses in the neighborhood have alarm systems which prevent him from burglarizing those places.

It is simply falsified testimony for Cameron Myhrvold to say on the stand that AOL customers have a choice of browsers. I suppose taxpayers can choose not to pay their taxes too. Would it be false for someone from the IRS to get on the stand and claim that? It is true, right? Taxpayers can elect not to pay their taxes.

Microsoft continues to present false and misleading testimony.

10:08 AM PST - "Force feeding IE" to AOL customers

q. Well, I was looking at the top of the second page where it says "IE share (users)," and it then shows how it had increased from less than 2 million users in the third quarter of fiscal year 1997, to 12-1/2 million users in the third quarter of 1998, and then increased another million users the following quarter. Do you see that?
a. Yes, I do.

q. And this is described as a result of AOL force-feeding IE to its subscriber base. Do you see that?
a. I see how in the line beneath that he circles something and draws it down to a box, yes.

q. Well, sir, you got this memo at the time.
a. It's not a memo, sir. It's a piece of e-mail.

q. A piece of e-mail. You got this piece of e-mail at the time, correct, sir? And you knew at the time that when, as you put it, he draws a circle with a box and a line, that he is saying that the dramatic increase in windows 32 IE users from 1.1 million in the fourth quarter of 1997, fiscal year, to 4-1/2 million, one quarter later, was due to the fact that AOL had force-fed the IE browser to AOL's subscriber base, correct?
a. AOL is really not my area of specialty. I did not ask Mauricio for this information. I didn't focus on it on the time. There is a gentleman who will be up after me, Brad Chase, who I'm sure is thoroughly prepared to discuss AOL in detail. This really isn't my area of expertise. I could look at these numbers and try and speculate, but I don't think that that's fair to the court.

"Force feeding" is a appropriate term. Microsoft Corporation right now is "force feeding" all consumers with a copy of IE. Even Apple customers have been required to take a copy of IE.

But, maybe Brad Chase will correct us. Maybe Brad Chase can convince everyone that all consumers buy IE because it is a better product than Navigator. Do you suppose he can offer such proof? From the legal standpoint, the quality of either product is not relevant. Despite witness after witness testifying that the quality difference was not the deciding factor, Microsoft continues to submit false testimony in this regard simply because it distracts the court and the public from the facts.

9:45 AM PST - Microsoft virtually assured of having a monopoly in browsers?

Transcript Feb 10, AM - Myhrvold on the stand

q. And if you look at the first four at the very top of the page -
a. Yes.

q. -- they are America Online, Compuserve, Prodigy and AT&T - Worldnet, correct?
a. Yes.

q. And those are the four companies that are in the online services folder, correct?
a. Yes. And there was also a kids service called "wow" at one time in the online service folder as well.

q. And each of the four that are listed here are shown in this document that you sent around as having an 85 percent commitment on shipments, correct?
a. That is correct.

Microsoft can easily require an 85 percent shipment commitment regardless of the merit of their products. This is Microsoft's idea of fair competition, we force our share ourselves.

But, Brad Chase will actually testify in a court of law that IE is doing better than Navigator due to quality differences?

Microsoft may not be able to get similar distribution commitments from all ISPs but using monopoly power to get it from major players is all it takes.

February 10, 1999 - Wednesday

5:20 PM PST - Microsoft tried to block the distribution of Navigator

4:00 PM PST - Direct testimony from Brad Chase released.

Mary Jo Foley of ZDNet provides a preview, just a "better mousetrap".

Well. I guess we have heard this before. The only reason IE is doing well is because of superior technology. The fact that Netscape has been illegally deprived of a market and a means to earn revenue (dollars to invest in further R&D) and the fact that 100% of all consumers must buy IE (regardless of their needs) has nothing to do with it? Right?

False testimony should have at least a chance of being believed. Somehow I doubt the testimony from Brad Chase will make any sense at all.

3:45 PM PST - "Force Feeding" and deprive the consumer of choice - Sound like Microsoft to you?

The testimony from Myhrvold should come as no surprise.

"Take the medicine", "...it is good for you"?  (not a real quote, but is about what is being said)

Microsoft clearly does not listen to consumers nor take their needs into account.

3:10 PM PST - Myhrvold again supports the DOJ contention that the browser should not be part of the OS

q. And you answer your question, "at some point all browsers will come in the operating system, and this will obviate the need for netops to ship them to their customers. But how long will this be? Certainly for the installed base on Windows 3.1, Windows NT and Mac and the Windows 95 retail customers (who didn't buy plus) ISP's will have to ship a browser. So, to me, this is asking an operating system installed base question. How long do we expect an appreciable number of Windows 3.1, Windows NT 3.5, Windows 95 Version One, and the old Mac machines to be in use?" Do you see that?
a. Yes, I do.

q. And I take it you believe that to be true at the time that you wrote this?
a. I'm sure I believed that to be true at the time, yes.

q. Now, is it fair to say that the number of installed base machines that did not come with a browser installed is diminishing sharply over the last three years since you wrote this?
a. Yes, I think that's true. I think almost--well, all modern operating systems and most computer systems come with at least one browser on them. I would also point out, though, that I think my reasoning here is incorrect. My reasoning here is incorrect for exactly the reason that I just explained, and that is the need to update new technology, new browsing technology, far more often than users are likely to buy new machines.

Sounds like a good reason to keep IE an application? Again, the witness is helping the DOJ prove their case.

q. Let me pursue that, and let me be sure I understand what you're saying. You're saying that you wrote this at the time, you believed it at the time, but you now believe it was wrong; Isn't that correct?
a. Yeah, I don't seem to take--yes, that's correct. I don't seem to take into account in this e-mail the need to update the technology more often than the machines ship. I also don't seem to take into account handling cross-platform issues where we might want to take--might want to make internet explorer technologies available, but the oem may not ship those machines. The final thing I would point out is I came into this job in late October 1995, so I do have to say I wrote this mail with about four months of tenure in my current position.

Both the frequency of the update desired and the cross-platform uses dictate that a browser be an application. What is going on here? Apparently Myhrvold has been coached to place less emphasis upon the forced distribution of IE with new system sales and to place more emphasis upon later distributions. Hint: Netscape only has the second option. So this is just a feeble attempt to show that Netscape has a better chance than they really do. The risk here is that this testimony proves that not only is IE an application but it should remain that way to better serve consumers. It certainly should. There is no reason why the browser application should be updated with each version of the OS and as this witness points out, the update of the application may very well be more frequent than the OS.

This testimony points out how ill-conceived the idea of bundling the OS with the browser really is.
 

2:49 PM PST - Myhrvold helps prove the DOJ case

q. Well, you believed that as more and more people acquire computers that have browsers built in, other channels of distribution including ISP distribution, will become less important; correct?

a. I think it's generally true ISP distribution will become less important over time, but I think that's taking a fairly simplistic view. In reality, browsers don't stand still. People come out with new releases of browsers. So, it's still going to be important for Microsoft or for Netscape to be able to distribute those new versions of browsers, and they may not want to wait until the user buys a machine to get a new copy of a browser. So, for upgrading for making new technology available, I imagine ISP's will continue to be an important source of distribution.

This question and answer raise an interesting challenge for Microsoft. One of the reasons that operating systems and applications are separate is simply so that the application can be changed or updated over time without the requirement to also change the OS. The above answer suggests that consumers may not want to wait until they buy a new machine (or upgrade their Os for that matter) to upgrade their browser. So. It is true that other forms of distribution will be desirable. But, how is Microsoft going to argue that IE 6 is integrated with Windows 98? Is Microsoft Word Version 5 integrated with Excel 7? Maybe. Maybe not, right?

The DOJ is alleging that not only are Windows 98 and IE two separate products but Microsoft treats them as such. And, it could easily be argued that when IE is updated, it is updated precisely as any application is updated. Is Microsoft going to argue that the new versions of IE as distributed by a whole range of ISVs is an operating system update? If so, what version or release number will be assigned to the OS?

2:08 PM PST - Is Cameron Myhrvold another Microsoft witness that can't be trusted?

q. Okay. Then finally, let me start with your deposition and then go forward and see when you changed your view. At your deposition, you agree that you said that the downloading issue had become relatively unimportant because the browser competition has increased the size of browsers such that people don't download that much anymore, whether you're trying to download Netscape's browsers or Microsoft's browser; correct?

a. Yes. As I said before, I certainly remember saying that, and I certainly agreed at the time. And as I also said before, it was in preparation for this appearance that I changed my view.

Well. I am sure that as soon as it became apparent that one of the few defenses Microsoft could make up was that Netscape could still download free browsers, Cameron Myhrvold was advised by legal counsel that his opinions should change. Downloading may be a bit easier than it was but it remains the 3^rd best means.

Even the video offered by this witness argues that anything but a pre-loaded browser is inconvenient.
 

1:20 PM PST - What? Another bogus video demonstration?

q. If you had--if you took the retail packages that include the internet connection wizard and IE 4 and loaded them on the original retail version of Windows 95-
a. Okay.

q. --then you would not have the long cumbersome signup process that you had here; correct?
a. Well, I think I just answered that question, sir, and that is certain things, compared to Windows 3.1, certainly would be easier. The auto-detection of the modem and the configuration of the machine for the modem certainly would have happened more seamlessly under Windows 95. But you're still installing a separate external software package. so, I believe that the downloading of the software of IE 4 and putting internet connection wizard on the machine would have been similar to what you see--what you saw on windows 3.1.

Microsoft did not present a second bogus video. However, it was intentionally misleading. Just what was Microsoft suggesting by comparing Windows 3.1 to Windows 98? Is Windows 98 a better product than Windows 3.1? I would hope so. Is it faster? Maybe. Or, maybe not. But, what is the point to the demonstration?

Has Microsoft developed a new defensive theory? Does Microsoft think that if it can show that consumer benefit from having IE pre-loaded that they are then benefitted by being forced to buy IE? Would pre-loading Microsoft Word justify forcing all consumers to buy Word? Microsoft has failed yet again to point out a single benefit of bundling IE with the OS. Yes. It is easier if consumers do not need to install IE. But that argument applies equally well to the Flight Simulator being bundled and installed together with MS-SQL. So what?

Would Microsoft pre-load Navigator? That would also benefit consumers, right?

Microsoft continues to dance around with false evidence. Microsoft continues to present evidence that does not relate to any issue before the court. In this Myhrvold falsely uses the term "downloading" to make the install process seem more difficult. Hint: It is simply called "loading" if it comes from local media. Downloading implies two computer systems and a data transfer between them. It further implies a master or larger system being used to transfer data to a servant or smaller system. Oh well. I guess the Microsoft employees just do not understand the use of simple terms in the industry. Either that, or they are just trying to intentionally mislead the court with their false use of words.

12:50 PM PST - Not all exclusive agreements are the same.

q. Then, second, with respect to the aim agreement, you told Mr. Pepperman that the restrictions on advertising referred to something called the "service ad inventory," and you said that's a defined term?
a. I believe that's correct, yes.

q. Now, that is a defined term that is limited to ads in the service that Netscape and AOL are providing, correct, sir?
a. Yes. That's correct.

q. There's no prohibition on Microsoft getting paid money by AOL generally or no restriction on AOL distributing Microsoft's browser in the aim agreement, is there, sir?
a. I have not reviewed the entire agreement, but I would doubt it.

Microsoft has publicly argued that its exclusive agreements are normal or common in the industry. It is true that many agreements can be characterized as exclusive. But, they are not all the same by any means. Microsoft suggested that the deal between AOL and Netscape regarding IM (Instant Messenger) advertisements was an exclusive deal. Well it was. It provided that advertisements for competing products would not be displayed on IM. But, that agreement in no way precluded either party from doing business with any other company in some other way.

Microsoft required Intuit to never pay Netscape "money". That has no purpose save for the illegal one. (There was a loop hole but only for content and even that is questionable. Only a lay person, Mr. Poole gave his legal opinion on what that contract meant. Hint: I never take legal advice from a lay person defending the value of his own stock options on the stand in an antitrust case.)
 

12:30 PM PST - Microsoft's version of technology suppression?

q. Let me see if we can close this off with some agreement. Would you agree that whether you call it "standard" or "enhanced" or how you compare it, what the words of the contract were doing was requiring that the ICP make its content available in a more attractive way when viewed by Microsoft's browser than Netscape's browser?
a. Yes. And the Disney dancing mouse would be an example of that. And the degradation in that case would be no dancing mouse.

q. And that would be an example?
a. That would be an example.

If you think that this contract assuring that viewing information would be enhanced when viewed with IE and degraded with Navigator is just promoting one's own product with differentiated content, think again.

It all but prevents highly innovative and superior technology from having a market. These terms do nothing but guarantee Microsoft that no other technology will ever be available to content provides which may improve their presentation of material beyond what Microsoft can provide. In other words, even if Netscape could earn money to pay for advanced technology, key ICPs would be contractually prohibited from benefitting from such advancements. This could have and would have profound impacts upon the future development of advanced technologies.

As an independent developer, I am insulted by the terms of such an agreement. Those terms preclude me from developing superior technology and they preclude all other companies from doing the same. In other words, in order for any company other than Microsoft to advance internet technologies, they must first compete with Microsoft and beat Microsoft in the operating system market. Because, until that is accomplished, Microsoft will preclude significant ICPs from using competing technologies. Those competing technologies might be my own. Or, since I am also an attorney, those competing technologies might be my clients technologies. Either way, only Microsoft has a practical means of marketing their products. And, Microsoft forces all consumers to buy Microsoft products whether the consumer needs the product or not.

12:04 PM PST - Terms of a contract mean little when the power of the respective parties is unbalanced

q. Down at the bottom of the page, the next-to-last paragraph, it says, "unfortunately, Microsoft has the upper hand from a business value perspective, even though they don't have it from a contractual perspective. I leave it to Eric, but it seems crystal clear to me, we are in the right on the contract, but even so, it's probably not worth it to take them on. The value of the Netcaster channel is low, and if they take us off the active desktop while this is being resolved in court, we lose substantial value. Plus, getting into litigation over this, even though we are in the right, will clearly undermine any chance of doing more with them. We're being roughed up by the 1,000-pound gorilla of the industry." Did the people at Disney express these views to Microsoft insofar as you were aware, sir?
a. Yes, Mr. Boies, the people at Disney expressed some views, although I find it somewhat ironic that the King Kong of content would be worried about a 1,000-pound gorilla, and I don't happen to agree with their characterization of the situation.

q. Do you think that that reflects the power that Microsoft has, that even the King Kong of content has to feel this way, sir?
a. As I said, I don't agree with their characterization either. I would be happy to debate the contract, but we probably should all finish up.

q. I'm sorry, sir. I didn't hear that.
a. I'm saying the words in the contract are ones that could be debated between reasonable people. I don't think it's productive, but my point is that different sides of a party can have different opinions.

It is not a question of what the contract says. And, in this case it matters little that Disney has plenty of bucks to hire lawyers. What matters is that Microsoft holds monopoly power over the consumer OS. That simply means that if you do not do what Microsoft says you must do, you run a very real risk of losing business. If your business is unrelated to the use of the consumer PC, then you can argue in court all you want. But, the risk of being cut off from the desktop of Microsoft while the lawyers settle a contract dispute may be just too great.

This dialog points out a very important concept in antitrust law. Many acts only violate the antitrust law if the party holds monopoly power. In other words, the standard of conduct required of monopolists is very different than that required for parties not holding monopoly power. This reference illustrates why. Disney does have a lot of content. But, it does not have a monopoly on content. Should Disney and Microsoft disagree, Microsoft can find other content but Disney could not find alternate exposure (at best Apple only has 10% of the market and they distribute IE too). Chances are that Microsoft could persuade Apple not to deal with Disney. They did that with Netscape.

What you are witnessing here is the both the power that monopolies can possess and the harm they can render to others. Even companies who are not competitors such as Disney have to be careful of what they do.

11:50 AM PST - Oh. I guess Bill Gates offered the million?

q. And down at the bottom of the page, do you see where Mr. Gates writes, "I was quite frank with him" -- referring to Mr. Cook -- "that if Mr. Cook had a favor we could do for him, that would cost us something like $1 million to do that, in return for switching browsers in the next few months, I would be open to doing that." Do you have any reason to doubt that Mr. Gates is accurately reporting what he told Mr. Cook?

a. I have no reason to doubt that, no.

I am sure Microsoft can line up a dozen Bishops that know nothing about that offer for a million dollars.

11:30 AM PST - Does Microsoft really think that anything that benefits Microsoft should be defined as "procompetitive"?

q. Now, Mr. Poole, I have one last question for you. Professor Fisher in his testimony stated that Microsoft's Platinum agreements with ICP's have resulted in, quote, "damage to the competitive process," close quote. And my last question for you, sir, is very simple. Do you agree with that testimony from Professor Fisher?

a. I don't. I believe that these agreements are procompetitive, in fact, and they've encouraged Microsoft and Netscape and others to offer innovative features to content providers and to get those content providers to make use of those features, to show them to consumers, and to compete on the merits, and that's what we've been doing.

Hog wash. William Poole needs to explain how preventing Intuit from paying Netscape encourages innovation. The only pro-competitive act performed by Microsoft is in allowing the Intuit contract to expire. Of course, the harm was already done. That contract was a typical Microsoft act. Violate the law, conduct the damage and then back off and ask for credits.

If all that Microsoft did was to encourage ICP to differentiate their content by incorporating advanced features of IE, that could be considered as pro-competitive. But, exclusive agreements are almost always considered to be anti-competitive. Sometimes exclusive agreements are beneficial and even essential. This is particularly so when one side or the other must make substantial investments and needs to be assured of a long term guaranteed arrangement. Anytime when an exclusive agreement blocks out competitors, it is generally not considered to be pro-competitive even if legal.

As I have already pointed out, William Poole's testimony disputes that of the Microsoft economist, Mr. Schmalensee. So it is of no surprise that Poole does not agree with Fisher. Unfortunately, Fisher is correct here. Those agreements were intended only to prevent competition and had little or no justification or pro-competitive value. The value of having competition with browser features does not require any exclusivity.
 

11:13 AM PST - Intuit sure gave up a lot for so little from Microsoft?

q. Another potential ambiguity that I'd like to clear up. In Mr. Boies' questions of you yesterday, sometimes built into his questions, I believe, was a factual assumption that Intuit was offered or received an actual place on the desktop. Was an Intuit icon included on the windows desktop?

a. No, it was not. It was preconfigured with the channel-bar feature of the windows 98 and internet explorer upgrade to windows 95, but it was in a category, I believe under "business content." So it was not visible on the desktop. It was not the same as what they would have gotten if they had gone to Compaq and Dell and got an icon for Quicken, which I believe they did in some cases.

It is nice to know precisely what Intuit received in their agreement with Microsoft. Suggesting it was not an icon but only a listing under "business content" makes the agreement even more one sided. In exchange for a simple listing, Intuit was required to not only switch browsers but also discontinue an existing business relationship and even place additional limits upon who they could pay for promotional help. This clearly points out the value of the exclusive property that only Microsoft can market. If Microsoft wants a competitor to go away, all they have to do is sell a few spots on a menu and require those companies to stop doing business with the competitor. This is precisely what Microsoft has done with Intuit to preclude Netscape from the market. Microsoft used its monopoly product quite effectively.

Illegally, but effective. By the way, almost all acts that violate the antitrust laws are very effective in removing competition. That is why they are illegal. This is not a boot strap argument. It is only an observation.
 

11:06 AM PST - Did the offer to offset "sunk costs" take place or not?

Transcript Feb 9, AM:

q. And I'm afraid there might have been some ambiguity on a point yesterday that I hope to clear up. During the negotiations that led to this June 1997 agreement, did you or anyone else at Microsoft offer to pay intuit any money in exchange for Intuit's agreement to integrate Internet Explorer with its Quicken product?

a. Absolutely not.

Really? But, I thought the Microsoft lawyers stood on the court house steps and characterized that possible payment as an offset for "sunken costs" to switch to IE? Guess I was mistaken?
 

10:30 AM PST - Microsoft does use its raw power to dictate what others can do in the industry

q. Well, what does that mean essentially in terms of the ability of Intuit and those other platinum ICP's to participate in Netcaster?

a. It means that, as we were discussing a moment ago, since they were free to format their content for Netcaster, they also were free to enter into an agreement with Netscape to promote that content under the loophole -- as you'll call it -- for content promotion agreements that's allowed in the Platinum agreements.

So Microsoft decides what Intuit can and can't do with other companies? Intuit can promote their content via Netscape but Intuit can't promote their other software? Or, Intuit can't pay Netscape money for the promotion or advertising of other products? And, if Microsoft has a change of heart and decides to prevent Intuit from promoting its content with Netscape or others, then what? Perhaps Microsoft will bundle Money with the OS?

It is also possible that Intuit is not permitted to pay Netscape for promoting even its content. This witness is not a lawyer. His suggestion that the loop-hole permitting the use of technology also implies the ability to pay Netscape may be incorrect. Clearly, if Microsoft were trying to enforce this agreement against Intuit, they would certainly argue a breach of the contract if Intuit did such a thing.

The real problem here is that you have an intentionally ambiguous agreement clearly drafted by a monopolist who just happens to have the "card deck" to remove the other party from their own market. Since the agreement is ambiguous, whichever side can hire the most lawyers can easily argue that Intuit can do whatever it pleases (in the DOJ antitrust case) but argue the contrary in another case(I.E. Intuit breach of contract case).

Since this case is the antitrust case, you have Microsoft arguing the loop hole idea. This is not good lawyering at all. It is simply the result of having a greatly disproportionate power between the two parties. Microsoft dictates the terms. Intuit must go along. The only benefit that Intuit got was the placement on the desktop. They gave up significant legal rights in exchange for that and were required to help remove a key Microsoft competitor from the market.

This is precisely the kind of conduct the antitrust laws are designed to prevent. There are designed to prevent a monopoly power from precluding competition via one-sided exclusionary or prohibitive agreements. The Intuit agreement was directed at the removal of Netscape.

9:50 AM PST - Microsoft preventing Intuit from paying Netscape was not "brand association"

q. Are those agreements commonly exclusive?
a. I think exclusive in the broadest sense. Many of them are, but, of course, there are variations.

q. Are you aware of any examples of such agreements in other industries?
a. Sure. One would be -- I believe that coke has exclusive promotion and distribution through McDonald's, Wendy's and Burger king, you know, the top three fast-food outlets. If you go in there and you're a consumer and you like Pepsi, no Pepsi. Only coke. Those agreements last between -- I don't know - five or ten years of exclusive promotion and distribution through those outlets. So those are very different than our agreements, which were really just brand association and did not block consumers from getting access to technology or content.

The Microsoft/Intuit deal does not compare to cola agreements. For one, neither Pepsi, Coke, McDonald's, Wendy's nor Burger King have a monopoly. That is a significant difference. Second, McDonalds does not prevent Coke from selling its beverage elsewhere. It is also true that Coke has not forced McDonalds to sell Coca-Cola. Coke does not prevent McDonalds from promoting its products via other marketing agreements.

Microsoft practically forced Intuit to distribute IE by offering a very important promotional opportunity that only a monopolist could offer. Microsoft also required Intuit to not pay other companies for services they may provide.

Microsoft really likes to falsify its analogies. Pepsi and Coke offer strong competition to each other. Microsoft has a monopoly. So, Microsoft attorneys select a competitive marketplace to suggest that somehow their market compares favorably.

Even the economist, Mr. Schmalensee knows better than to use a competitive market as an illustration to explain the market forces in a monopoly. (He may not testify that way, but he knows the difference.)

Some of the platinum agreements may be little more than brand association, however the deal with Intuit does not fit into that category. Intuit had no interest in signing up Microsoft as its sole promoter. Microsoft said Excite was okay but Netscape was not.

9:33 AM PST - Is this the same "chicken and egg" problem that Mr. Schmalensee could not see in the computer industry or could not understand the economic concepts related thereto?

Q. Now, Mr. Boies pointed out to you yesterday that at one time Microsoft considered possibly charging ICP's a fee for placement on the channel bar. Now, as an initial matter, did Microsoft ultimately charge any ICP's any fee for placement on the channel bar?

a. No, we didn't. Again, we thankfully realized, given the untested nature of the software, that we had not seen consumers adopt it readily. We decided that it was not wise to ask ICP's to pay us cash, which was something they didn't have a lot of. We'd rather see them invest their resources in building interesting content to solve our chicken-and-egg problem rather than giving us cash for promotion that we didn't know we could deliver.

Again we have a Microsoft witness proving that the economist, Mr. Schmalensee was giving false testimony in his presentation.

Just what is the "chicken-and-egg" problem that Poole refers to here? Well. Mr. Poole thinks he is trying to show that without a lot of special content the channel bar idea will not fly and until it flies, content providers will not sign up. Sound familiar? Did not Mr. Schmalensee testify that the number of applications for an operating system was immaterial to its acceptance in the market and any OS would easily attract ISPs even without a substantial market share? Did he not claim that this concept did not exist or was not a factor?

Mr. Poole discredits the so-called economic expert put on the stand by Microsoft. Maybe Mr. Schmalensee could be called to the stand to dispute Mr. Poole's testimony too.

9:18 AM PST - Microsoft again proves how harmful (and illegal) their agreements were to Intuit and the industry

q. Okay. Now, Mr. Harris of Intuit testified on cross-examination that Intuit's agreements with excite and AOL were significantly more successful in generating traffic for Intuit's web sites than Intuit's platinum agreement with Microsoft was. Is that testimony consistent with your testimony, sir?

a. Yes. I think that makes perfect sense. Since the users didn't make use of the channel bar very much, or of this overall technology area, other means of promotion and advertising and linking to content, such as Intuit's web site, were more effective. And excite is one where Intuit entered into an exclusive agreement with Excite, a very popular portal web site that many people used. Intuit had this exclusive presentation on a big chunk of the Excite web site. That was a great way for them to get promotion.

This answer shows precisely why the agreement (that Microsoft forced Intuit to sign) is so harmful to the industry. Microsoft required that Intuit could not pay Netscape for promotional services. Microsoft did this to illegally cut off a revenue source for Netscape. But, what if Microsoft decided to prevent Intuit from working with Excite or AOL? Just how harmful could those terms be to Intuit or the other party (Excite or AOL)?

Microsoft clearly violated the law by dictating to Intuit upon what basis Intuit could promote its own products. That act by Microsoft was not only illegal but directed solely at causing financial harm to Netscape. Microsoft even harmed Intuit in the process of doing so. Who is to say that Netscape would not be as effective as Excite or AOL in promoting business for Intuit?
 

9:00 AM PST - The failure of the channel bar not significant?

q. Sir, what, if anything, has Microsoft decided to do in view of the fact, as you just said, that the channel bar technologies were not readily accepted by users?

the court: Before you answer that, tell us why they didn't like it.

the witness: Why users didn't like it?

the court: Yes.

the witness: It's an interesting situation where we had a technology that had gained some initial excitement among users -- this push idea. And Pointcast, I mentioned, was sort of a pioneer there. And the whole industry kind of jumped on this idea and said, "wow, we can build something that will be really compelling and graphical and interesting to consumers." It turns out that the push idea just doesn't offer enough benefit to the users compared to the cost of adopting the technology. And one reason was performance. Trying to push a bunch of graphical information over a modem was not all that efficient. And we thought it would be more efficient. It wasn't that efficient. Another reason was just confusion of the user interface. Users were comfortable with the basic model of browsing. And this idea of having -- and they had bookmarked favorites, for example, in their browser. A web site they go to frequently would be in their favorites list. They can click on it and go there. So we added a new way -- this channel bar thing - for them to go and find frequently-used web sites. And it turns out that they didn't want a new way. It just wasn't all that useful. And the survey data that we did that we talked about early this morning really bears that out. And it may be that we'll do another rendition at some point in the future that we'll figure out that we can make something work for consumers, but this one just didn't.

the court: Okay.

This discussion is much more important than it first appears. It may be true that the Channel technology offered by Microsoft was a bust. Ideas often turn out to be less valuable than first hoped. However, on of the key issues in this case is the suppression of technology by a monopolist and/or the preclusion of competition by a monopolist. What this dialog illustrates is that if Microsoft is permitted to remove competition from the browser market, only Microsoft will be able to try the next "great idea". Mr. Poole even suggests that they are thinking of doing so. This is fine for Microsoft. But, should not other companies have similar opportunities to innovate? Should not companies other than Microsoft be able to offer their future technology? The answer is absolutely they should. This case is pointing out the importance of the antitrust laws in preventing companies having monopolies from precluding alternative technologies. Please note that any alternative technology offered by a competitor is considered by Microsoft to be a threat and should be extinguished by any means possible including violations of law if necessary. This little dialog while itself not significant in any real way clearly points out the importance of the litigation to competitors, customers and consumers. The fact that the "channel bar" idea turned up worthless is simply not material.

Microsoft is reserving to itself the right to be the only company capable of developing innovative internet technologies. Using its monopoly power it can do precisely that. It has just rubbed out Netscape. It is fragmenting Java to the maximum extent possible (using its monopoly power).
 

February 9, 1999 - Tuesday

2:00 P.M. PST - Does William Poole agree that the OS is a better OS without IE for performance reasons?

q.   Now, am I correct that this indicates that turning off the active desktop, in some way, improves performance?
a.   Yes, that's what I was discussing.

q.   And does it eliminate, as you referred to it here, a couple hundred-thousand lines of code?
a.   It doesn't eliminate anything.  It just changes how the--how the display comes up when you start the operating system.

q.   Well, when you say that disabling or turning off the active desktop is a performance issue, what is the performance you're talking about?
a.   The question would be, for example, how fast does the screen refresh from when a screen saver has been running, does it have to display HTML up on the desktop and graphics or not.  So, all of those things.  The more features that you enable and run at any one time--and "run" is important here--the more you use the CPU.

q.   And by "run," do you mean appear on the desktop?
a.   Not necessarily.  In this case, yes, but not necessarily in a general case.

Here, Poole does disprove Microsoft's argument that IE bundled with the OS is beneficial to consumers.  If individual consumers actually want both the OS and IE to load up whenever the system is booted, they clearly can choose to do so.  However, if consumers do not use a browser or prefer Navigator, then they are harmed by Windows 98.

Mr. Poole does not address IE directly in this Q&A but the concept is identical.  The impact is present.  This is why 98Lite improves Windows 98.  This is why Windows 98 is superior with IE removed.
 

1:45 P.M. PST - Microsoft forces IE to be promoted equally to Navigator in the Gold Agreements

q.   Did you have other agreements, other than Platinum and Gold agreements, with ICP's that restricted what ICP's could do with Netscape?
a.   We neither had other--well, let me see.  Let me step back.  First of all, the Gold agreements did not restrict what ICP's could do with Netscape, I don't believe.

q.   It didn't have any preference requirement, sir?
a.   I think they had what we called "parity requirements," basically said if you're going to promote nav, you promote IE next to it, so basically wanted to be on equal footing with Netscape in the Gold agreements.

q.   Now, let's assume that the Gold agreements say what you've just described.
a.   I believe that's what they say.

Monopoly power is indeed impressive.  Even when you cannot get ICPs to promote your products exclusively, you can at least get equal billing.  But, remember, Microsoft does nothing to stop Netscape from giving away product.
 

1:15 P.M. PST -  Microsoft forces Intuit to differentiate content so only IE can be used at Intuit?

q.   Okay.  Let's start with page 18 since you bring it up.  And under "differentiated content area requirements," it says that Intuit has to create differentiated content, and the last sentence says, "some differentiated content may be available only to IE users.  Some may be simply best when used with IE with acceptable degradation when used with other browsers."  Do you see that?
a.   Yes, sir.

q.   Is that an accurate description of what Intuit's obligation was?
a.   I think that's a partial description, but that's certainly a good summary.

q.   That's part of their obligation?
a.   Right.

Please explain how forcing Intuit to deliver a poorer service to Netscape customers is supposed to help the consumer?

Here Microsoft actively forces Intuit to deliver reduced services simply because it increases the dependency upon Microsoft products and further enhances their monopoly power.  All at the expense of Intuit and Microsoft customers.
 
 

12:30 P.M. PST - The judge wants to know if Microsoft always prevents other companies from choosing their own promotion

Transcript Feb 8, PM:

q.   Did you understand that a reduction in Netscape's revenues was a general business objective of Microsoft in 1996 and 1997?
a.   No, Mr. Boies, that was--that was not my understanding of any general characterization, nor was it the intent of this part of the contract.

q.   Were you aware of any discussions within Microsoft of what effect a reduction in Netscape's revenues would have on Netscape's ability to continue to innovate?
a.   I'm not aware of a specific discussion.

q.   Are you aware of general discussions of that?
a.   I think it would be--stand to reason that as we compete and sell more product and they sell less, that they would have less money to invest in building more product.  I think that's a general concept.  I don't know of a specific discussion you're referring to.

q.   Do you recall general discussions within Netscape, not a specific discussion, but general discussions--
a.   Within Microsoft?

q.   Within Microsoft?
a.   Not specifically.

q.   Now, I understand you don't recall them specifically.
a.   I'm sorry, are you asking me do I--that was a frequent topic of hallway conversation?

q.   Not necessarily.
a.   I don't understand your question.

q.   Okay.  I'm not asking whether it was a frequent topic of hallway conversation.  What I am asking is whether you generally recall that there were discussions within Microsoft in 1996 and 1997 about the effect that reductions in Netscape's revenues would have on Netscape's ability to continue to innovate.
a.   I cannot recall any specific one at all, nor do I recall being at even a meeting in which that came up.  what I'm saying, just trying to be clear, is that it would be a matter of basic competition that if we compete and do better, they will have less (sic) revenues and will not do as well.  I don't recall any very specific or general lines of those discussions.

q.   Now, would you agree that it is not ordinary for Microsoft to enter into agreements with companies in which those other companies agree not to pay competitors of Microsoft?
a.   I think what you're saying is, is the--are the terms of this agreement extraordinary or different; is that your question?

q.   No, because I don't want to get hung up with words like "extraordinary."  My question is whether you are aware of other contracts that Microsoft has entered into in which Microsoft goes to a company and says, "in addition to all the other terms of our relationship, we want you to agree that you will not pay a Microsoft competitor.  You can do things with a Microsoft competitor; you just can't pay them for it."
a.   I think we're more lax in this contract than most, so, yes, you're right, we were usually--we gave unusual amount of latitude in these agreements to the content providers, which I explained at some length in my deposition, because specifically it was Intuit that asked us for this latitude, and we decided that it was a good thing.

q.   Without again trying to parse words like "lax" and "latitude," do I understand that you're saying that you're not aware of any other contract in which Microsoft has paid people or has gotten people to agree not to pay a competitor?
a.   Let me try to get some more context because I think your question is hard to understand.

the court:  Try to answer his question.  There are three answers you could give him.  You could tell him "yes," you could tell him "no," or you could tell him "I don't know."

the witness:  Fair enough.  I apologize.

the court:  All right.  But please listen to his question.

the witness:  Okay.  I'm not aware of any contracts that have these specific terms, no.

This dialog is very important.  Not just because it caused the judge to enter the dialog.  The judge does want to know the answer.  But, rather it is important because of the legal significance of the terms of this agreement.

Anytime you have an agreement that seems to be addressed at making it more difficult if not impossible for a competitor to earn revenue, you have a potential antitrust problem.  Why?  Because the terms of the agreement are obviously targeted at a Microsoft competitor and in this case even harm the other party (Intuit) as well.  This agreement is not like an exclusive marketing arrangement where both parties gain an advantage due to the terms of the deal.  (Those agreements also make it more difficult for competitors.)  But, in this case, all of the benefits of the deal flow to Microsoft.  Microsoft blocks revenue that might otherwise flow to Netscape from Intuit.  But, Intuit gets nothing.  They lose a potential contact for the promotion of their products.

The terms of this contract are important for another reason.  Clearly Microsoft attorneys took great care to draft the terms of this agreement.  It is not a standard agreement at all.  Mr. Poole even suggests that no other agreement signed by Microsoft even has such restrictive or similar terms.  And, it must be observed that Microsoft attorneys knew for a fact that such terms in an agreement had serious antitrust implications.  (If they were untrained lawyers, then maybe they did not know any better.  However, I doubt that to be the case.  The lawyers who drafted this agreement knew it had serious antitrust problems.  It was negotiated, prepared and signed by Microsoft despite the obvious legal problems that it represented.  This testimony supports a claim that Microsoft attorneys knew at the time the conduct they engaged in was in violation of antitrust laws.)

This dialog may have a more serious impact than first apparent.  Should the judge find that Microsoft deliberately violated antitrust law and had little or no concern that such contracts might toss it into court,  that could affect the remedy the judge finds necessary.  Microsoft is now proven not to be some innocent company that someone stepped over the line.  An attorney should have known that this agreement would very likely violate antitrust laws.  This act was deliberate and engaged in with the aid of legal counsel.  In other words, legal counsel drafted the terms of an agreement that prevented a competitor (Netscape) from having a source of revenue as defined by their business plan.  This is a deliberate violation of antitrust law.
 

12:02 PM PST -  Microsoft acts to prevent both direct and indirect revenue for Netscape

q.   We were talking about the Microsoft-Intuit agreement. do you still have that in front of you?
a.   Yes, I do.

q.   There were provisions in this agreement that limited the ability of Intuit to enter into agreements with Netscape pursuant to which Intuit would pay Netscape for promoting Intuit's products or services; is that correct?
a.   I believe that summary is correct, yes.

q.   Now, you understood, did you not, that a typical business plan for Netscape was for Netscape to earn revenues by charging ICP's for the promotion of the ICPs' products or services?
a.   I understood that Netscape was in the business of entering into agreements with ICP's that included promotion, distribution, linking and so on, and that in some cases those would include payment, sure.

This contract is in keeping with the e-mail messages that Microsoft plans to cut off Netscape's air supply.  Forcing a zero price in the marketplace for the direct sale of browsers is one thing.  Forcing companies like Intuit to agree not to pay other companies (Netscape) for the promotion of Intuit products is another one altogether.

Why would Intuit agree not to promote its own products?  That is counter intuitive.  They would only agree to forgo other promotional alternatives if they thought that the Microsoft deal was so important that other means must be sacrificed.

This contract provision also makes no sense from Microsoft's perspective unless it is to prevent a competitor from having a revenue source and at the same time force another company (Intuit) to be reliant upon Microsoft for the promotion of Intuit products.  Does Microsoft want to be the only company that can promote computer software whether they develop it or not?  This provision appears to preclude Netscape from promoting Intuit products.

I wonder if the ISVs supporting Microsoft's position in this litigation are willing to let Microsoft decide how their products are promoted and by whom?  Maybe Mr. Devlin would let Microsoft decide how they market their products, do you think?
 

11:14 AM PST - Bill Gates mandated that Intuit would be restricted in their dealings with Netscape

q.  And the last sentence says, "Mr. Poole reiterated that he had no ability to negotiate on this point because Mr. Gates had mandated that all preferred participants on the active desktop must agree to cease working with Netscape as a condition of that participation."  Is that true, sir?
a.  That I would have to disagree with in the sense that, particularly at this point, the agreement was well understood to Intuit.  And, in fact, it was understood that intuit could have a certain set of relationships with Netscape.  That there were simply restrictions on them relative to marketing promotion and other areas.  So I really want to take exception to his characterization of "cease working with Netscape."  I think that is too strong.  I do not agree, nor would I have ever said that Bill Gates said that, because he didn't.

q.  Would it be accurate to put it this way, sir?  That you told Mr. Harris that you had no ability to negotiate on this point because Mr. Gates had mandated that all preferred participants on the active desktop must agree to certain restrictions on working with Netscape as a condition of that participation?
a.  Yes.

It is very easy for a monopolist to tie the hands of another company.  Here Microsoft uses its monopoly power to lessen the ability of a competitor to do business.  This has nothing to do with the respective quality of the two products.  This has nothing to do with "innovation", "integration" or any of Microsoft's so-called defenses.  It is fair to observe that given Intuits fragile market and the natural power of their primary competitor that Intuit valued exposure on the Windows desktop and participation in the top level of marketing cooperation, that Intuit absolutely must agree to stop doing business with any company named by Microsoft or any group of companies associated with a particular product.

10:55 AM PST - This case is about suppression of technology

q.  Okay.  And you told them -- you, Microsoft, told them -- that if they were going to get that, they would have to agree to limit what they could do with Netscape, correct?
a.  That is correct.  What we said was that the terms for participation at that top level of that marketing program had limitations on how they would market with other browser manufactures, of whom Netscape was the primary one.  That's correct.

q.  Now, you say Netscape was the primary one.  You say in your direct testimony that there were a number of other browser competitors at the time, correct?
a.  Yes.  They were minor.

This Q&A points out why this litigation is so important.  Microsoft all but admits to suppressing internet technologies in this answer.  Sure, Netscape is a target of their suppression.  But, there acts suppress technologies coming from all sources.  ISVs themselves (even the exclusive Microsoft ISVs) are targets of this suppression.

The power that Microsoft has and is fully willing to use is enormous.  Here you see Netscape being rubbed out.  But many other technologies are being suppressed.  Opera is apparently not yet into the picture.  But, it likewise can easily be targeted should it begin to be useful to consumers.  Hint: Any non-Microsoft product is considered by Microsoft to be a "threat" as soon as sufficient consumers deem that it has merit.  And, somehow Microsoft thinks that it is then justified to suppress it.  This is sickening.  Does Microsoft really think that as soon as a product has merit, Microsoft is somehow justified in rubbing out the company that produced it?  They clearly do think that.  And, they care less that acts might violate antitrust laws.

10:40 AM PST William Poole offers up false testimony

q.  Is it fair to say, sir, that as far as Intuit was concerned, what Intuit was primarily interested in was getting access to the Windows desktop?
a.  No, sir.

q.  That's not so?
a.  I think Intuit, as is borne out by -- if you look at their product, they were also very interested in this component browser technology, and it's, in fact, been very important to them.  Relative to my marketing program, were they interested in the desktop?  Sure.  But relative to the overall relationship with Microsoft, they were interested in our technology and the marketing program.

q.  But, sir, you were perfectly prepared to give them your technology.  In other words, you were perfectly prepared to give them your componentized browser if they'd ship it, right?
a.  Certainly.

Mr. Poole falsely claims that IE technology was important.  Clearly Microsoft would be willing to sign up Intuit (or any other distributor) as a conduit for IE without any preconditions or costs.

Mr. Poole is falsely claiming that the quality of the product had a bearing on this deal.  It simply does not.  Just what does Mr. Poole suggest that Intuit is getting in exchange for discontinuing business with Netscape?  It can not be IE.  They can get IE without any preconditions, right?

The exchange of value that Mr. Boies is pointing out here is the placement on the desktop and other marketing support for the obligation on the part of Intuit to stop promoting a competitor to Microsoft.  The quality of the product is simply not relevant here. Mr. Poole is testifying falsely. Even if he thinks it might be true, it is not believable.

10:30 AM PST - Special placement for Intuit requires excluding Microsoft competitors

q.  Okay.  Now, Mr. Gates is also, as you pointed out here, trying to sell Mr. Cook on the advantages of what you refer to as a componentized browser, correct?
a.  I believe so, yes.  Absolutely.

q.  And this is, as you say, six months before you say Intuit approached you saying that they wanted to use your componentized browser?
a.  That's correct.  I'm sorry.  It's closer to nine months.

q.  And in September, Mr. Chase writes to Mr. Gates and others that he has talked to intuit again in September and he doesn't think that Intuit is prepared to switch from Netscape to Microsoft.  And Mr. Chase suggested that Intuit at least ship both browsers, correct, sir?
a.  Yes.  That's what Mr. Chase's mail says.

q.  Okay.  Now, ultimately, as you've said, you did have conversations with Intuit.  And you told Intuit that if they were going to have access to the windows desktop, they would have to limit any activities they had with competing browser companies, correct?
a.  Partly.  If I could be clear on the overall -- the negotiation is, of course, more complicated than that one summary statement.  They wished to take part in a marketing program we were doing with active channels.  They also wanted to have some special rights for shipping our technology and getting extra support and things like that.  We have a variety of ways we can work with partners in those marketing programs, and we have different levels of engagement.  They indicated that they wanted to have the highest possible level of engagement of marketing and promotion and support from Microsoft.  And, yes, I did state that one of our terms for that level of engagement, which we call the Platinum level, had restrictions on promotion of competing or other browser manufacturers' products, and that would include Netscape.

So.  To get the best cooperation from Microsoft, others in the industry have to stop doing business with Microsoft competitors.

I think we got it.

The computer industry needs to be either tightly regulated or the Microsoft monopoly must be removed. Otherwise, Microsoft will do everything in its power to preclude competition or suppress technology other than its own.  That is very clear.

10:18 AM PST - Bribe or "cost offset"?  Does it really matter?

q.  Well, sir, using the words in the ordinary way that you would use them within Microsoft, when Mr. Gates says he is going to pay a million dollars to get Intuit to switch browsers in the next few months, do you think he is talking about switching browsers from Netscape's browser to Microsoft's browser?
a.  "switching browsers" is clearly referring to switching from Netscape's browser to Microsoft's browser, yes.  I agree with you.  I'm sorry if I was not clear.

There is a very big difference between promoting a product and paying another company to stop doing business with a competitor.  If Microsoft did not have monopoly power and the antitrust laws did not apply, then this conduct may or may not violate other laws (such as the unfair competition laws of many of the states).  However, since Microsoft clearly has such power, this act by Bill Gates is just one more piece of evidence demonstrating why monopoly power should be removed by the court.

Whether you call this act a possible bride or just an offset of costs for Intuit really does not matter.  It is an act engaged in for the purpose of precluding competition.  In this case, an act intended to force a third party (Intuit) to discontinue doing business with Netscape and strike a deal with Microsoft.

10:05 AM PST - Mr. Poole tries to change his story ... that rarely works

q.  "question:  Did you personally tell any content providers that this was an invaluable spot -- that being on the windows desktop top was going to be a distribution advantage to them?"  And you say:  "sure."  And is that still your testimony?
a.  I guess I'd say I have learned since the deposition that a specific phrase of "invaluable spot" is something -- I can't say I used those words precisely, but I certainly would say it has significant value and it's going to be a significant advantage.  I think I would still attest to the same gist.  The substance is the same.  The substance is correct.  Yes, Mr. . Boies.

I think the court understands as well.

10:00 AM PST - Do not believe me then, believe me now?

q.  Indeed, you personally told internet content providers that being on the windows desktop was invaluable, correct, sir?
a.  I don't know if I personally said that or not.  I can tell you categorically I was wrong if I did say that.

Great.  Then Microsoft should have no objection to turning over the desktop and channel stuff to Netscape, right?

This is the problem with fabricated testimony.  It is just not believable.

9:50 AM PST - ICPs do not have any problem recognizing the value of a placement on the desktop

q.  However, other internet content providers came to Microsoft and offered to pay for access to the desktop?
a.  That is mostly correct.  Again, I would like to make sure the context is clear.  In a discussion of an overall business arrangement, which involved a variety of different kinds of co-marketing promotion, technological support and so on, a discussion of payment for marketing value was part of some of those discussions.

q.  But it's your testimony that was raised by the ICP's, not by Microsoft?
a.  I believe so.  To the best of my knowledge, yes.

This is hardly a surprise.  The industry is well aware of the value of the initial desktop exposure.

9:40 AM PST - $100,000,000 or so from Channel Bar revenues?

q.  Do you remember the total annual revenue that you estimated you could get from the channel bar when you were making these estimates?
a.  I don't recall it right now at this moment.

q.  Approximately, sir.
a.  Many tens of millions.  Maybe a hundred million.  And if I could be clearer, in hindsight, that estimate was completely incorrect.

The issue raised here is not really whether 100 million is an accurate estimate or not.  It is not even important that the Channel Bar was less valuable than originally thought.  The issue is that this concept (desktop display on all new machines) is controlled and dictated by one company.  As long as that is the case (I.E. as long as Microsoft has a monopoly position in consumer operating systems), only Microsoft can use this form of advertising to either promote products it wants to support or prevent competing products from having such valuable exposure.

Mr. Poole can down play the value if he wants to.  But, I doubt if anyone in the industry agrees with him.  Being able to dictate the first screen on hundreds of millions of new computers is extremely valuable indeed.  That kind of exposure can be sold for cash or simply used to get other companies to boycott competitors if that is more valuable upon occasion.

9:15 AM PST - Poole confirms the primary motivation for forcing IE upon consumers

q. Well, it was a little bit more than that with respect to the browser, was it not, sir? Microsoft viewed the Netscape browser as a serious threat or at least a serious potential platform threat, did it not?
a. Certainly we viewed the browser as a platform threat. I believe that's correct, yes.

q. So one of the reasons that you were trying to gain browser-usage share was in order to combat what you viewed as this platform threat, correct?
a. Yes.

Sometimes the obvious does need to be said.
 

9:05 AM PST - Review of the William Poole cross examination

Transcript Feb 8, AM:

q. Because what you're looking for is to increase the number of people using the browser, correct, sir?
a. Sure, because if you have the technology -- which many people do -- and you don't use it, it's not useful to the user.

This is an example of a perverted answer provided after counseling from Microsoft's lawyers. It is true that if a software program is not used by a user, that software is not very useful to that user. However, the issue being discussed here is "browser share". Increasing browser share may relate to the benefits of Microsoft but does not relate to the benefits of the user. Unless one is so arrogant to assume that only Microsoft software can benefit the user. Maybe the user is not using IE simply because superior products have been selected for use? Do you suppose that is possible? Mr. Poole testifies as if that is not a possibility.
 

February 8, 1999 - Monday

1:28 P.M. PST - Direct testimony for Cameron Myhrvold, Internet Customer Unit V.P., is released by Microsoft

12:55 P.M. PST - The tie in between the power of the monopoly space on the Windows screen and forcing others to discontinue doing business with Netscape is dramatic and clear.

Tomorrow, a more detailed review of the cross-examination of Mr. Poole will be prepared. But, it is becoming very clear that Microsoft uses its monopoly power to force other companies to discontinue business with Netscape. You can call it a boycott if you want to. Or, you can simply call it a "deal". But, giving up possible revenue of 100 million just to get other companies to discontinue existing business with Netscape is no small matter.

This testimony points out the importance of making certain that the monopoly power of Microsoft is removed by this court. This kind of monopoly power has the ability to suppress innovation and invention for many years to come.

12:22 PM PST - If it walks and quacks...

William Poole, now on the stand, is a little too eager to fabricate his story hoping that it will somehow bail out Microsoft.

Whether you characterize the offer of payment to Intuit as a "bribe" or as compensation for sunk costs, is a matter of semantics. The point is that Microsoft was willing to pay money to get other companies to discontinue business with Netscape.

Mr. Poole's assertion (that Intuit came to Microsoft wanting to use IE as part of their offering) just makes no sense at all. If that were true, there would be no reason for Bill Gates to suggest any "favors" for Intuit. Eager customers do not need to be bribed.

11:30 A.M. PST - Lawyers are really sharks?

Lawyers do get a reputation for being "sharks". But, the reputation is really based upon the ability to show that testimony offered in court is often fabricated or simply false. Mr. Boies reputation is clearly deserved. He is doing a fine job of cross-examining Microsoft witnesses. The lesson in this case is simply that if you conduct your affairs on one basis and then try to convince the court that some other basis caused the events to take place, it is likely that the fallacy of the alternate scenario may not be too hard to point out.

Everyone in the industry knows why Microsoft has acted as they have. Their acts were directed at precluding Netscape from having a viable market. Their acts were directed at fracturing the Java platform. Their acts were directed at increasing the dependency upon the Windows platform. They even hired an economist to suggest there were no dependencies. To this date, the entire defense is simply not believable. The defense does not make sense. The suggestions do not support any strategic or tactical business plans. To date, Microsoft has only engaged in advertising.

Advertising should be easy to challenge. Well. It is not. Mr. Boies has done a superb job but it has not been easy.

As an example, I point out again the direct testimony of Mr. Schmalensee, the Microsoft economist. I found his testimony to be highly illogical and disjointed. His testimony would lay out and define "network effects" and "tipping" and then falsely conclude that those concepts either did not exist in the computer software industry or that their presence did not create barriers to entry. His direct testimony would make sense if you reversed all of his conclusions but kept the detailed text unchanged.

Fortunately, the testimony from other Microsoft witnesses disproved the conclusions made by Mr. Schmalensee. Mr. Boies made that occur.

10:15 A.M. PST - Is the trial over? (ZDNet)

The short answer is no. Microsoft has yet to call 8 witnesses. However, it is becoming clear that Microsoft acted in violation of antitrust law and is having a very hard time trying to fabricate sufficient evidence to suggest or prove otherwise.

Anyone in the industry can easily see how important it was for Microsoft to preclude Netscape and Sun from offering viable products to the marketplace. In a vain attempt to suggest to the court and the public that the removal of Netscape and the sabotage of Java was not the sole motivating factor giving rise to Microsoft's acts, Microsoft has fabricated false claims of "customer demand", "innovation" and integration.

To this point in time, the evidence suggests the opposite of Microsoft's claims.

As to customer demand:

Clearly ISVs want Microsoft to distribute supporting technology using monopoly force if necessary. That effort does subsidize ISVs.

Consumers however, what to be able to pick and choose their own applications and do not want to be forced to buy any product they do not decide for themselves is appropriate for their needs.

As to "innovation":

Combining an application with the operating system is not very innovative at all. The computer software industry since its inception has determined that the operating system and applications should be separate programs for very good reasons. Combining them (for the purpose of defeating competing technology) and then claiming the move to be innovative is little more than just excusing poor engineering. Clearly, any benefit that may be realized by the consumer from using both products can just as easily be obtained when and if individual consumers buy both products. Clocks and radios are very hard to combine into one product by the consumer. With computer software, this is simply not the case.

As to "integration":

Microsoft Word and Microsoft Excel are integrated. No one disputes that. However, all the benefits of such integration are available whether or not both products are purchased in the Suite or as separate products. This any claim of "integration" is meaningless when applied to an OS and a browser. Microsoft itself distributes IE as an application on many platforms. And, Microsoft itself distributes multiple operating systems that support thousands of applications that have nothing to do with IE.

Certainly it is easy to blend the code of any two applications. It is even easy to force any two applications to rely upon the presence of the other in order for them to work. For example, the Microsoft Flight Simulator would easy be written to use MS-SQL for data files. Would that improve the Flight Simulator product? It might. But, would that justify the integration?

If there is a benefit to the so-called integration, that benefit can easily be realized without the bundling. If the choice is to both integrate and bundle, then the harmful effects of such acts surface. And, bundling always does two things:

1) the minimum price of the product increases to cover the bundled products

2) the consumer is forced to buy an unselected product in the short run and possibly precluded from having any choice at all in the long run

Perhaps Microsoft will come up with another theory of why it should be permitted to force all consumers to buy IE. Perhaps Microsoft will come up with a legal reason why all consumers must buy IE. Clearly it will continue to pay lawyers top dollar so that it does not have to compete fairly.

Daily Wrap and Flow - Week15 (Allchin 98Lite)
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Daily Wrap and Flow - Week Two
Daily Wrap and Flow - Week One