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June 30, 1999 - Wednesday (Continue with review of the examination of Dean Schmalensee)

1:41 PM PDT - Finally, the testimony has completed.

The court. "in accordance with the request of the parties and the concurrence of the court, paragraph 11 of the scheduling order number six is amended as follows, and it is this 24th day of June, ordered the plaintiffs in Microsoft shall file proposed findings of fact on August 10^th, 1999.  It is further ordered that plaintiffs and Microsoft shall file revised versions of their proposed findings on September 10th, 1999. and it is further ordered the closing arguments are scheduled to commence at 10:00 a.m. on September 21st, 1999, the duration of the arguments to be determined at a later time. All right, gentlemen. [start your engines] ...

Just before close of the examination of the last witness Microsoft could not resist offering yet another ghost story. This one is about iToaster.

Nothing regarding future competition justifies any acts of Microsoft. Quite the contrary is true. In fact, antitrust law is written to assure competition now and in the future.

Microsoft's conduct will be judged on the basis of current monopoly power not what may or may not occur in the future.

Also keep in mind that the court has within its power the ability to undo any gains secured by Microsoft illegally. Again, that looks back in time not forward into the unknown.

Microsoft does not want competition. They only want to argue that its possible presence justifies their acts. It does not.

This is not a sporting event where you always cheer for your favorite team even if they cheat and foul the other players. This is an event where laws do apply. And, all players do in fact know the rules. Some players just choose to ignore them.
 

1:12 PM PDT - Actually the consumer OS marketplace has been pretty well defined

q. And then if i could focus on a sentence in the final paragraph of this article, you say--i believe it's the second sentence--"if markets are well-defined, something can usually be learned by computing the firm's market share." does that statement comport with your current view?

a. Absolutely.

q. Do you believe that the plaintiffs have well-defined the markets they proposed to have defined in this case?

a. No.

q. And do you believe that is appropriate on that basis to rest heavy weight or place heavy reliance on plaintiffs' market-share calculations?

a. No.

Well. Microsoft has tried very hard to confuse the market definition by including ghost stories and suggesting that windows competes with the past, etc. They have even tried to throw in Linux.

Consumers are not confused. They know for a fact which choices they can make for their personal computer. They also know they are forced to buy IE unless they can otherwise use Os/2 or Linux or BeOS (which is simply not a choice for a very high percentage of consumers).

Suggesting that the market is not identified is rather silly. If the lawyers are confused they can simply survey a computer store. That is what the consumer must do.

12:57 PM PDT - Microsoft's suggested retail price for Windows 98 is $200.

(Redirect examination by Microsoft continues)

q. And what are the implications of being able to get within a couple of hundred dollars using the demand elasticity of four about which you and Mr. Boies had substantial colloquy this afternoon?

a. It means that Microsoft was selling, for approximately $65, a product that it should have been, were it interested in maximizing profits, selling for $265, leaving roughly three quarters of its potential profit on the table.

Suggesting a price of $65 is inappropriate. I believe the $65 figure is a whole sale price. Consumers do not pay wholesale. They pay retail. The cost of the PC (whether $950 or $1800) is also a retail figure. It appears that the answer here is manipulated to misinform. The $265 figure was a "retail estimate" and it appears to be pretty close to the mark.

As far as I have been able to see, no evidence in this case attempts to identify how much consumers actually pay at retail for Windows 98. It is not $65. That is the wholesale cost.

The other observation is that the higher hardware cost of $1800 or so should really be associated with NT not Windows 98. The retail cost for NT is higher than Windows 98.
 

12:29 PM PDT - The comparison of Microsoft to Standard Oil is incriminating to say the least.

q. In connection with your industrial organization work, did you study the standard oil case, sir?

a. I never studied it intensively. I read a bit about it. It's not been a focus of inquiry.

q. Now, did you read enough to know that one of the actions that standard oil was alleged to have taken--and, indeed, found to have taken--was to buy up railroads so that their competitors couldn't use them, or to pay the railroads not to carry their competitors' oil or to do so only on disadvantageous terms?

a. I'm aware that that was alleged, and there were findings of that sort. There has been subsequent literature that's suggested those findings were incorrect. not a subject i studied in any detail.

q. If those findings were correct, would you agree those actions would be anticompetitive?

a. Paying railroads not to carry competitors' products and doing what else?

q. And buying up railroads so that they could control the railroads and then not carry competitive products or do so only on disadvantageous terms.

a. On its face, absent more, those sound anticompetitive. But as i said, i haven't studied the facts of that case.

the court: they do or don't?

the witness: they do sound anticompetitive, but i haven't studied it in any detail.

the court: okay.

Gosh. The Dean claims to know what anti-competitive acts look like. Of course, the Dean has been paid too much money by Microsoft to see the similarities between Standard Oil and Microsoft. Microsoft has gone ever further with IBM. I doubt Standard Oil paid railroads to not ship their own oil. That Microsoft clearly tried with IBM.

We are getting real close to having the evidence to support splitting up Microsoft such that the parts CAN NOT preclude competition. You do not have to worry about conduct if the power is removed (as it was with Standard Oil and AT&T).
 

12:18 PM PDT - Ignoring the power that Microsoft has over consumers is clearly not illuminating

q. Okay. Now, it had come up in the context of talking about whether browsers and java should be in the market because they were competitive threats to Microsoft, and you were saying, because they posed a competitive threat, or if they posed a competitive threat, they should be in the market. Does that basically represent your views?

a. Except that i--yes and no. I'm sorry, Mr. Boies, they should be considered in the analysis. A market definition that excluded them is not likely to be illuminating. Defining a market, however, that includes operating systems and java, is, as you mentioned earlier, i think, too heterogeneous an aggregate to be usefully treated as a standard market.

The marketplace is simply not defined by looking only at the seller.

Monopoly power itself only exists between the buyer and seller. The seller does not have it on its own. It exists in the relationship between the buyer and seller.

The Dean focuses on constraints as if only Microsoft matters. Does the Dean think that consumers are not important? Does the Dean think that forcing all consumers to buy IE is okay because Microsoft thinks concepts might compete in the future? Or, does the Dean think that forcing the sale of IE is okay because otherwise a non-Microsoft browser might compete in the future?

Here the Dean calls an analysis that pins Microsoft to the wall as being "non illuminating". Actually it is quite illuminating. It clearly points out the raw monopoly power that Microsoft has over OEMs, ISVs, ISPs and consumers. It also "illuminates" the ability of Microsoft to get other major companies to suppress even their own technology (I.E. IBM) as well as that of non-Microsoft companies (I.E. Netscape).
 

12:02 PM PDT - Evidence in this case refutes the claims made by Dean Schmalensee.

q. One more question on market definition, or one more subject on market definition. you had said, i thought, in talking to Mr. Lacovara, that every constraint, or every significant constraint, on the alleged monopolist should be included in the market. Did i hear you correctly?

a. You have a better--you were taking notes, and i wasn't, Mr. Boies, so it's likely, and it's conceivable i said that. I don't have a clear recollection of using-

q. Is that your view?

a. Generally, yeah.

This is garbage. Every conceivable constraint on the alleged monopolist does not expand the market. It can not.

Monopoly power is viewed as the power over consumers. Monopoly power can not be constrained by any concept or idea which is unavailable to the consumers in that market. This is why future platforms do not expand the market. This is why alternative solutions such as browsers and Java do not expand the market. Consumers can not substitute ghost products for ones they must buy. And, the real power that a monopolist has is determined by the lack of choices that a consumer can actually pick between.

No consumer can choose an application instead an operating system. No consumer can chose Java instead of an operating system.

Might other technologies act as a constraint on Microsoft? Sure. But, Microsoft is only half the transaction - the seller. The market must take into account both sides of the transaction. Constraints might apply to the seller but clearly do not apply to the buyer unless they can actually pick one of them.

Linux could qualify for the server market but does not qualify for the consumer market. At least not until consumers can actually find applications that run on Linux that they need.

The Dean is simply trying to expand the market definition, but his suggestion makes no logical sense at all.

Even in this case, testimony suggests that no other operating system or platform constrained Microsoft on pricing Windows. Microsoft employees just laughed at the Dean's suggestion. (Time and place and person were displaced. But, the laughter is obvious.)
 

11:47 AM PDT - Clearly any studies comparing the dependancy that users have on operating systems with those they will have on browsers would never be permitted by this witness - at least not in preparation for trial.

q. Have you tried to make any study or analysis of what Microsoft's ability would be to influence the extensions that would make it difficult for certain applications to be viewed by the browser if it got a dominant position in browser market as that term is consistently used within Microsoft?

a. I don't know that that term is consistently used within Microsoft. But accepting the broad usage, i have not, beyond learning in general terms, and i don't know whether one can go beyond that, how the standard setting process operates and having a general appreciation--and i won't claim more than that--for the interaction between open and proprietary standards. So i don't have--i have not attempted the sort of study you outline.

We are not talking about a standards setting process here. We are talking about proprietary products. Microsoft Corporation likes to call their proprietary products "standard" once they reach dominance. The correct term is "monopoly" not "standard". Standard implies many companies offer similar or compatible products. Ncompuss does not qualify in that sense. No browser using Microsoft technology qualifies in that sense.
 
 
 

11:38 AM PDT - Does the Dean really think that Microsoft should be able to force the sale IE and require all other technology to adopt an secondary source of revenue or go away?

q. Okay. Let's use browser market share the way that Microsoft does in all those internal documents you have looked at. using browser market share in that way, do you think that if Microsoft gets a dominant market share of browsers, as defined by Microsoft in the ordinary course of its business, and then uses that position to adopt proprietary extensions that limit how that browser will view web pages, that will significantly affect how web-page developers develop their pages. Do you agree with that, sir?

a. It might well have some impact. I believe it would also have an impact on the browser that people chose to use, assuming there are, as now, competitive alternatives that can be easily widely distributed. another thing that might happen is consumers would shift quickly to netscape browsers or to other browsers. it's a little difficult to specify exactly what would happen under those circumstances from that sort of business decision.

This guy is an idiot. Consumers right now can not choose an alternate OS. Does this witness really think that alternates will be available to consumers to use once Microsoft gets its dominant position? Competitive alternatives simply will not exist is only Microsoft Corporation can directly recover its R&D.

Here this economist is simply lying.

He knows full well that Microsoft can gain and maintain a monopoly position in browsers with the same impact on consumers as they now have with the OS. Consumers have not choice. Consumers must buy bundled products.
 

11:30 AM PDT - An economist pre-supposes a market does not exist when it is obvious to everyone that it does?

q. Would you agree that if Microsoft's browser had a dominant share of the browser market, and that browser could not read web pages unless certain proprietary extensions were used, that this would have a significant influence on getting web developers to use those proprietary extensions?

a. There's a lot in that question, Mr. Boies. It assumed--and i can't answer it as stated. It assumes the existence of a browser market. It talks about a dominant share. I don't know what you mean by that. Maybe we could try it in neutral language that wouldn't require me to embrace those notions.

The browser application clearly exists. IE 5 release proves that. I think forcing 100% of all consumers to buy IE will clearly result in a dominant share.

Here the Dean just refuses to answer even hypothetical questions simply because it points out the harm and force that a monopolist can exercise over OEMs and consumers.

Hypothetical questions can not be neutral.

If the Dean does not want to answer questions, he should never agree to testify.
 

10:43 AM PDT - $800 an hour expert can not do simply calculations?

q. So that if you have a situation in which Microsoft spent $600 million on a predatory campaign over a period of years, Microsoft could get that back in one year by charging $9 per copy more for windows than it otherwise would have been able to charge; correct, sir?

a. I haven't done the arithmetic, Mr. Boies, and i haven't done the discounting. The orders of magnitude seem plausible, but i haven't done the arithmetic under all the assumptions you asked me to make, obviously.

Please note the evidence in this case that Microsoft Corporation began charging Compaq more due to added features. Unless Microsoft can prove that IE is not an added feature, Microsoft is already recouping their investment. As I recall, the price increase to Compaq was more than $9.

Nobody needs to make only one calculation. A nice spread sheet will do fine. You can just vary the price increase and vary the quantities sold and see very easily how Microsoft can recoup fives years of investments on the forced sale of Windows 98 alone. (And, do not forget Y2K. Everyone needs to buy the new stuff, right?)

10:27 AM PDT - Everyone can see that Microsoft can easily recoup any losses caused by a predatory campaign to preclude competition

q. Now, you told Mr. Lacovara, i thought, that you thought that recoupment in the present context was not plausible. Did i understand you correctly?

a. That sounds like something i said, yes, sir.

q. Now, you had testified that you believe that Microsoft does not have monopoly power; correct?

a. Correct.

q. If Microsoft had monopoly power with respect to operating systems, and if Microsoft engaged in predatory activity with respect to browsers that helped maintain that monopoly with respect to operating systems--two assumptions that i know you disagree with but that i asked you to make as a hypothetical.

a. Okay.

q. --then it is clear that there would be a very plausible way for Microsoft to recoup; correct?

the court: ask that again.

(This is a key question.)

Mr. Boies: certainly, your honor. i'm asking the witness to assume two facts. The first fact is that Microsoft has monopoly power with respect to the operating system. the second fact is that Microsoft spends several hundred million dollars in a predatory campaign to preserve the operating system monopoly, and succeeds in doing that.

by Mr. Boies: q. Do you have those two assumptions, Dean schmalensee?

a. I'm a little shaky on what you mean by the first one, when you say has monopoly power in the operating system. we could go round and round on operating systems versus platform, as, indeed, we have done. do you mean that i'm to assume that the browser is the only competitive threat that Microsoft will face because it's protected from other possibilities by barriers? Would that narrow it down? I think that's what you want me to assume. I need to go just about that far to-

(The browser is the only threat together with Java that Microsoft has shown to be important. )

q. If you need to go that far to answer the question, you may do so. I will want to come back and vary that a little bit, but if that's where you need to go, let's start there.

a. Okay.

q. And just to be clear, we now have a hypothetical in which Microsoft has monopoly power over the pc operating system. It faces a threat to that pc operating system, and it reacts to that threat by a predatory pricing campaign that eliminates that threat. And there are barriers to entry that preserve Microsoft's monopoly power so that it doesn't dissipate from some other threat. All right?

a. I hear you, yes.

q. Now, if you make those assumptions, it is very easy to see how Microsoft will recoup the costs of its predatory campaign; correct, sir?

a. The assumptions make recoupment possible because once this threat has been eliminated, which, by hypothesis, it has been, there will be no future threats; and therefore, Microsoft could recoup by maximizing short-run profit or doing something even remotely close to that. so, the assumptions, i believe, if i understand the hypothetical correctly, compel the answer.

q. And indeed, based on one of the charts that you offered, Microsoft would not have to be able to increase or maintain its windows price very much because merely a dollar-and-a-half price increase gets Microsoft more than a hundred million dollars a year in additional profits; correct, sir?
 

a. I think that follows as a statement of arithmetic. it spends only about two and a half percent of windows revenues on internet technology, so the payback is not difficult under any scenario.

I think the ability of Microsoft to recoup after rubbing out Netscape is quite obvious.

A zero price is clearly predatory. But, what if IE is not free? How much does Microsoft Corporation charge for IE, anyway? It is zero? I see no proof that it is zero. The Dean does not want to argue that it is not zero to avoid the predatory label from sticking. But, that is because Microsoft does not want to tell consumers how much they are being charged for IE. (Half a billion in R&D, do not forget that fact.)

If any corporation is going to invest half a billion plus in R&D, plus more for marketing, plus more to get back favors from OEMs, the burden on that corporation. I see absolutely no evidence that Microsoft is not charging consumers right now anywhere from $35 to $140 for IE. But, if they want to insist in court upon the zero predatory price, the DOJ will let them.
 

9:59 AM PDT - No economist can conclude a price is not predatory if that economist refuses to evaluate the costs of development and marketing. If it is too hard, Dean, then you can not offer your firm conclusion, right?

q. Let me turn to the subject of predatory pricing. and one of the things that you said, i believe, on your direct examination was that in doing the predatory pricing analysis, you want to take into account all of the expected revenues and all of the expected costs relating to the product or activity in question; is that a fair summary?

a. Yes.

q. Now, did you make an analysis of what revenues, if any, Microsoft expected to receive from or as a result of the browser at the time that Microsoft was developing its internet explorer browser?

a. I did not. I didn't believe there was sufficient data available to undertake such an analysis, and i saw no such analyses in the evidence available to me.

q. Is it your experience, as an economist, that companies of the size and stature and computer sophistication of Microsoft typically have business plans in which they attempt to estimate or project the revenues and costs of significant activities and products?

a. It's my--i don't think i can give you quite a yes-or-no answer, but i will try to be brief. In my experience, decision-making styles vary enormously. Some companies do have detailed business plans. Some companies don't. For strategic decisions, where forecasting is hard, one doesn't always see business plans. That's where the variation is greatest. for strategic decision, like let's make sure that the platform, the operating system has internet functionality, i don't know how one would have done numbers in 1994. In any case, i didn't see any, and i wasn't particularly surprised.

Gosh, Dean. Lowly Netscape had a figure.

q. I want to be sure that my question before was clear. did you see any analysis of the revenues that Microsoft expected to receive, or any written indication of the revenues that Microsoft expected to receive from the browser in 1994 or 1995 or 1996 or 1997?

a. No, i referred to 1994 because it's my understanding that's when the decision was made and when, if there was to have been an analysis, it would have been undertaken. but the answer to your question is no, i didn't see any other years, either.

q. Did you attempt to study or estimate what the cost to Microsoft was of the IE browser?

a. I didn't do an independent estimate. I have seen numbers testified to, i believe, by Microsoft executives that indicate an order of magnitude of $100 million a year as the cost of developing the internet functionality that's in windows. I have no basis to go beyond that.

the court: a hundred million a year?

And, the product is being given away? Half a billion in R&D plus all of the other costs. And, this witness concludes the price is not predatory?

the witness: i think the number was 100 million a year, your honor, but i don't have a period firmly in mind. In any case, it's whatever the Microsoft testimony has been. I haven't done a separate study.

by Mr. Boies:

q. And that was a number for the development of internet explorer, not for the marketing of it; correct, sir?

a. Correct.

q. Did you make any study or attempt to make any estimate of what the cost was to Microsoft of marketing and distributing internet explorer?

a. No, and i wouldn't even think that question as a well-posed answer since the bulk of the marketing and distribution was as part of windows. One would be faced with a classic direct-cost allocation--or joint-cost allocation problem, and i didn't attempt to grapple with that.

Actually IE is not a part of windows. IE for Unix clearly is not. IE for Apple clearly is not. IE for HP-UX clearly is not. IE for OS/2 clearly is not. IE 5 for Windows clearly is not.

It is deceitful for an expert to suggest that marketing and distribution of the browser was only a "part of Windows". Which Windows? NT or Windows98, anyway?

q. Let me try to separate two different points. IE was, as you say, distributed as part of windows; correct?

a. Correct.

q. IE was also distributed separate from windows; correct?

a. To some extent, yes.

Some extent? IE is fully distributed separate and apart from Windows. IE 1,2,3,4 and 5 were all distributed apart from Windows. In fact, there is no version distributed solely as part of windows, right? Bundling a product does not mean separate distribution does not also take place.

q. Now, did you attempt to make any estimate of the cost of marketing and distributing IE separate from windows?

a. No, i did not.

But, this guy concluded that a zero price was not predatory?

q. Did you attempt to make any study or estimate of what the cost to Microsoft was in terms of opportunity costs with respect to what Microsoft gave to aol in exchange for aol agreeing to use the IE browser?

a. I have seen internal Microsoft documents discussing Microsoft's sense of that. I have seen no numbers on the basis of which i could do a quantitative estimate. I have done none.

So assume zero?

q. You have not tried to make an estimate yourself; is that what you're saying?

a. I haven't seen a way to do it. I haven't tried.

Of course, any effort would implicate Microsoft Corporation. The lack of data does not imply a zero figure. The lack of data implies that Microsoft is either covering up evidence or choosing not to prepare it. Maybe the protection of the monopoly money stream made that process unnecessary. The court might so conclude.

q. Have you attempted to make any study or analysis of how much money Microsoft could have obtained if it had charged for IE either when it distributed it separately or if it charged separately for the IE functionality, as you describe it, in windows?

a. No, Mr. Boies, that would have been an extraordinarily complex undertaking, and i did not undertake it.

Besides, he might lose his bonus if he found out the true costs to Microsoft to develop and market a product they claim is given away. Remember this witness has already concluded that IE does not have predatory price. Yet, that determination can not be made in the absence of knowing or at least estimating costs.

Maybe they were not relevant because protecting the monopoly was going to overshadow it all?

9:41 AM PDT - Even the judge wants Dean Schmalensee to answer, but he refuses the judge's request.

court: are you leaving government's 2071?

Mr. Boies: i am, your honor.

the court: before you leave it, let me ask whether or not any of these conditions that you found specified in paragraph three are, in your opinion, anticompetitive.

the witness: i'm reluctant to give a firm answer, your honor, because i'm not sure i understand their technical implications. I don't fully understand what they require, so i can't assert an answer, I'm afraid.

the court: all right. Then let me add a subquestion to that and see whether or not you have an answer for that. Assume that Microsoft is a monopolist. would they then be anti-competitive? Or is your answer the same?

the witness: it's the same answer, your honor. i don't know what the implications are for setting IE 4 as the default browser in an application, or the html help. that could be just a technical simplification that makes it work better. It could have some other implications. I just don't know.

the court: all right.

The question was not a technical question at all. This witness just does not want to testify. It is very clear that the judges wants to get his opinion on the anti-competitive impact of requiring Symantec to promote IE and the Microsoft JVM. What those products do is not even important. The question is an economic question. It is a competitive or anti-competitive question. Does this act by a monopolist preclude competition? It does not matter what those products do. Make them automobiles. It does not matter. If Microsoft can force Symantec to buy Fords as their company car, does that harm Chevy or Toyota? The Dean is suggesting that since he is not an auto mechanic, he can not answer the question.

Most striking here however is that the Dean has claimed technical expertise in all instances where his point might help Microsoft. He has claimed IE is superior. He has claimed increase in browser use is due to technological superiority, etc.

But, when it comes to answering the judge on a key point of anti-competitive behavior, the Dean dumbs up and claims incapable of applying his expertise because he does not know what IE or HTML are? Bull.

Microsoft is using the false testimony of Dean Schmalensee in their effort to preclude competition. (Block out netscape and sabotage Java.)

9:33 AM PDT - Dean Schmalensee refuses to allow anything that Microsoft does to have antitrust implications - no bonus money if he would allow that

q. I don't think it probably matters either, but i don't have any objection to your correcting it, if you would like to.

a. I learned that Microsoft did, indeed, sell networking software independent of its operating system products, which is something i should have remembered. Other than that, no, sir.

q. Did you learn what networking software it sold?

a. No, i didn't consider it important enough to pursue the matter.

q. Did you ascertain whether, or do you know whether, Microsoft continued to sell its networking software separately after the functionality was included within the operating system?

a. I didn't pursue it any further than i just indicated,

No court can benefit from an expert who simply denies any and all antitrust impact.

Microsoft has a monopoly. They use that power to get Symantec to promote the Microsoft JVM and a so-called economists has no idea about the antitrust implications of such an act. Dean Schmalensee is either not an expert at all or he is testifying falsely. Expert witnesses are not supposed to argue the case nor simply deny all possible facts or concepts related to the technical or legal issues. They are supposed to apply their particular expertise. Dean Schmalensee refuses to do that. He simply concludes in favor of his client and ignores his own discipline.

9:23 AM PDT - Microsoft bundled networking too after first attempting to sell it? Apparently so.

q. I don't think it probably matters either, but i don't have any objection to your correcting it, if you would like to.

a. I learned that Microsoft did, indeed, sell networking software independent of its operating system products, which is something i should have remembered. Other than that, no, sir.

q. Did you learn what networking software it sold?

a. No, i didn't consider it important enough to pursue the matter.

q. Did you ascertain whether, or do you know whether, Microsoft continued to sell its networking software separately after the functionality was included within the operating system?

a. I didn't pursue it any further than i just indicated,

I could not remember myself whether Microsoft sold networking services competitively with Novell and Lantastic and others. Apparently, Microsoft figured out pretty quickly that they could just bundle the networking and force the sale to consumers. Novell is the other company that may file antitrust charges against Microsoft. Lantastic might also. Actually, any networking product could claim harm by illegal bundling.

Consumers likewise might sue. Why? Well. If you buy a PC for home use (no network there, right, or at least may not be) you still must pay Microsoft for computer networking software. How much? Well. That is a good question. Networking client software retails for around $25-50.

Why should consumers continue to be forced to buy unwanted and unneeded products? The answer can not be because Microsoft wants to sell them.
 
 
 

9:08 AM PDT - Symantec required to tie its products to the JVM from Microsoft?

q. Let me skip down to the last item on this list, where it says that "Symantec agrees that if the application is written in java, the Microsoft virtual machine for java will be the default virtual machine, and AFC will be used for user interface elements." Do you see that?

a. I do.

I guess it is not very likely that Mr. Boies will ask the Dean about antitrust implications of a monopolist requiring an ISV to promote Microsoft products in exchange for the right to remain in business.

Because of these terms (and the other 97 or so similar agreements) no OEM, ISV or ISP can ever claim they are promoting IE or the Microsoft JVM on a technical basis. How can anyone suggest they are free to making any choice in the marketplace when Symantec did not have a choice? Symantec had to promote IE and the Microsoft JVM or be seriously disadvantaged in the their markets.

This is the pure use of monopoly power to preclude competition. It is also the use of monopoly power to suppress superior technology. (Whether other JVMs and browsers are superior is not the issue. The issue is that they are suppressed illegally.)

So. Does Symantec support IE? Yes, they are required to by Microsoft Corporation. And, when the former CEO of Symantec gets on the stand to testify, he claims to be the mail delivery boy or something.

8:55 AM PDT - Symantec required to tie its products to IE in order to get assistance from Microsoft?

q. Have you ever seen a first-wave agreement between Microsoft and any company regardless of whether it is symantec or not?

a. To the best of my recollection, no, i have not.

q. Let me direct your attention to page three of the document. At the top of the page, paragraph three that begins "company," which here refers to symantec, "will adhere to the following user interface guidelines." do you see that?

a. I do.

Mr. Boies: and i believe that this particular page there is no objection to using on the public record; is that correct?

Mr. Lacovara: that's correct, your honor.

by Mr. Boies: q. The first item here is that "symantec agrees that if the user interface is html-based, internet explorer 4.0 must be set as the default browser." do you see that?

a. Yes.

q. I know you say that you have not seen this document or other first-wave agreements before, but were you aware that there were agreements, regardless of what they were called, in which independent software vendors agreed that in exchange for receiving certain technical and marketing assistance from Microsoft, that they would agree to make internet explorer 4.0 the default browser on programs that had an html-based user interface?

a. If i recall the whole question, the answer is no.

q. Okay. The next item that the company agrees to is that "html help must be used to implement the applications help system." do you see that?

So. Unless Symantec wants to exclude a help system for its products, it must require IE to be first purchased by all consumers? A superior HTML capability will not do? It must be IE?

Now you know why Gordon Eubanks decided to claim on the stand that he as CEO of Symantec knew little about the first wave agreement with Microsoft. Bull.

June 29, 1999 - Tuesday (Continued cross examination of Dean Schmalensee by Mr. Boies, DOJ)

12:46 PM PDT - The Register has an interesting article on how dumb founded Dean Schmalensee is about Linux

When Microsoft does well, the Dean has no problem assigning all gains to "superior technology". But, when Linux shows some gains, he is dumb founded. I guess the Dean has yet to figure out that superior technology will provide "treats" (as Microsoft Corporation likes to label competition).

All so called "threats" to Microsoft offer enormous benefits to consumers proving that Microsoft Corporation maintains interests contrary to consumers. That is true with all products. Competitive products offer benefits to consumers just as much as the monopolist's do. Perhaps more.

A platform capability available on many platforms offers real benefits to all consumers.

A common networking solution available on many platforms offers real benefits to all consumers.

Common disc utilities available on many platforms would likewise offer benefits to all consumers.

Yet, Microsoft tries very hard to suppress them all. It is okay to want to sell your products. It is not okay to violate antitrust law to force the sale.
 

12:14 PM PDT - Dean Schmalensee reluctantly agrees that browser share for Netscape will drop below 50% in the near future.

q. Okay. Now, let me go back to defendant's exhibit 2518, which is one of the documents that you have, in your language, taken into account and attached significant weight to. And here i would like to go to the page that ends in the bates number 025.

Mr. Boies: and if the aol counsel can just approach briefly, the portion that i am interested in -- and i say this to Mr. Lacovara as well -- is the portion that relates to browser share numbers. And he may want the next sentence, too.

Mr. Boies: that's fine.

Mr. Boies: okay. Can your man put this up?

Mr. Lacovara: yes.

Mr. Boies: your honor, with the consent of all counsel, we would ask the court to unseal the last two paragraphs of text on this page, the sentence beginning "odyssey currently" and the sentence beginning "nevertheless."

the court: all right. Those two paragraphs are unsealed.

Mr. Boies: q. First, Dean schmalensee, was this a portion of the document that you reviewed?

a. I certainly reviewed this, yes.

q. And odyssey here refers to netscape, correct?

a. That's correct.

q. And it says "netscape currently has approximately 50 percent browser share with 60 plus percent share of international market. This share has declined over the past two years from 80 percent, and is expected to decline further to approximately 35 percent to 40 percent over the coming two years in the face of Microsoft browser being increasingly tightly integrated with windows 98." do you see that?

a. Yes, I do.

q. And did you take this language into account and give it significant weight in arriving at your conclusions?

a. Certainly. I don't think there is any particularly new information there. as I said, the shares are consistent with internal data that netscape has used. The "increasingly tightly integrated" is consistent with significant product improvement. I am not sure there is anything else new. And the increasing number of new browser customers is consistent with rapid growth in the internet.

q. So you don't find anything to disagree with in what is stated here? Is that a fair statement?

a. We have gone back and forth about 80 percent share from hit data versus lower shares from survey data. And a number of the numbers there relate to things I haven't forecasted. those are presumably odyssey internal forecasts -- excuse me -- netscape internal forecasts. I don't have any particular bones to pick with this as I look at it.

Well since the Dean has championed the AOL material to try to point out that 22% or so of PCs come with Navigator, he will just have to live with the projections in the same document that suggest Navigator's share will drop to 35 or 40% in the near future.

This is important. If the DOJ expects to prove that Microsoft tried to monopolize the browser market (and the internet) it must show that Microsoft has achieved or will certainly achieve at least 50% of that market. This information clearly suggests that to be the case. And, the Dean as much as he would like otherwise is unable to challenge it.
 

11:56 AM PDT - Dean Schmalensee clearly avoids evidence contrary to Microsoft's position in this case.

q. Is there any extent at all, sir, that your interest in seeking out information is related to the extent to which that information is supportive of your testimony at all?

a. I am sorry, Mr. Boies. Is that just a blanket challenge to my ethics, or how am i to interpret that question?

q. I really wasn't drawing the ethical issue explicitly, Dean schmalensee. All i was doing was saying -- let me pose this question first. you obviously come in here as an expert witness, and nobody expects that you're going to come in and say something that is flatly inconsistent with what you believe the facts to be. Let's say we grant that, okay.

a. Thank you.

q. Do you grant that you are here, at least in part, as an advocate for a particular position?

a. I have actually thought about that issue a lot in the course of my work as an expert witness, and the answer, unfortunately, is "yes" and "no." i think i owe my client an effective presentation of the facts as i understand it. I owe the court an honest and serious effort to find out the truth. so i think if i come in here as an advocate, i have basically violated the oath i took when i sat down to testify. i also, think, frankly, i have put 30 years of investment in a scholarly reputation at risk. So i try very hard to be conscious of that issue and to be on the right side of it.

q. Now, in that connection, would you think it was inappropriate -- in your terms unethical or in your terms violating the oath that you took -- if you sought with somewhat greater effort facts that supported your testimony than facts that undercut it?

a. I think i would be incompetent if i really did that, Mr. Boies, because even if i were going to be an advocate - if i thought my job were an advocate, a key component of being an advocate is understanding the opposite point of view. So if i came in here aware only of facts that supported Microsoft's position, i would serve them badly as well. so i thought about these remarks when i read them. i also thought about the second remark, "sun -- if you want to lose sleep tonight, worry about sun." i had seen indications of what sun was going to do that are supportive. That remark is supportive. I didn't attach much weight to it, however, and i didn't follow that up either. so i think it's -- we don't need ethical. I think it's incompetent just to look for one set of facts or facts on one side of an issue. And i have tried to be competent.

q. And i don't mean any attack on your competency here, Dean schmalensee, but when Mr. Gates, who is the chief executive officer of Microsoft, says he doesn't think aol is going to attack Microsoft in the platform space, is that something that you think is entitled to some significant weight? Even though you may think there is other evidence, do you think that statement by Mr. Gates is entitled to some significant weight?

a. I think the court is entitled to hear it. I think Mr. Gates' judgment is entitled to some weight. I think, however, he hadn't seen the documents i had seen, so i couldn't have followed up, frankly, saying, "but what you say is inconsistent with this stuff that you're not allowed to see." so, yes, i think you were doing your job to present it, and the court will have to decide how it compares with the material from aol about what aol intends.

It is fine to present the evidence of possible AOL competition. But, it is inappropriate for an economists to put great weight on such evidence when Bill Gates himself disputes the validity of the inference. Dean Schmalensee is just making up arguments to support his pre-conclusion that Microsoft does not have a monopoly and does not act like a monopoly because of all "this competition" out there. The Dean is a blind man by choice.

The real problem with the Dean's testimony (as has been discussed earlier - lower) is that he offsets what should be his discussion of illegal anti-competitive with a PR and legal package of counter arguments. Blocking the market from other OS vendors is anti-competitive whether it is excused or not. The Dean refused to discuss the adverse impact on competitors for any "act" engaged in by Microsoft Corporation. He simply justifies or excuses them all himself and falsely concludes that they do not violate antitrust law. In the case of the per-processor licenses, even after the court has decided to the contrary and Microsoft is or was required to discontinue such practices. The same is true with bundling IE. Clearly this same judge decided that IE should be bundled with the OS. Yet, this economists decides falsely that such bundling is not harmful to consumers. All forced bundling is harmful to consumers. The Dean knows that. He just argues the opposite because he is paid by Microsoft Corporation.

Dean Schmalensee's entire testimony is invalid because of his obvious bias and refusal to apply his own expertise to the issues before the court.
 

11:43 AM PDT - The Dean knew he could build false evidence by ignoring statements from Bill Gates himself on AOL

q. You didn't attach any weight to this statement attributed to Mr. Gates? Is that what you're saying?

a. That's right. It seems to me outweighed clearly by aol's internal discussions about its plans.

q. And when you refer to aol's internal discussions as to its plans, did you find in any of the aol documents that you read, or that Mr. Lacovara or others gave you, any reference to an intent by aol to develop an operating system that would be made available to oem's as an alternative to preloading windows on p.c.'s?

a. No. I have seen nothing to suggest that that was their intended mechanism for offering a platform challenge.

q. And i take it it is your testimony that you didn't think it was useful to follow up on this purported statement by Mr. Gates and to try to understand why he thought that, or what basis he had for thinking that, is that correct?

a. That's correct. That's a judgment about personalities. i had data on plans. It seemed to me the information on plans trumped. So i didn't -- wasn't interested in following this up.

And, when no competition exists and a monopoly is plain as day, you just have fabricate or make up some stories.

Real competition might help prove that Microsoft does not have a monopoly.

Stories about future competition are meaningless in this industry.

11:34 AM PDT - Dean Schmalensee disagrees with Bill Gates simply because it supports his false testimony about future competition and constraints

q. Well, sir, you have testified that you think that aol may, at least at some point in the future, pose a platform threat to Microsoft, have you not, sir?

a. Yes. That's consistent with their documents.

q. Well, sir, you see the language attributed to Mr. Gates here, quote, "platform threat - aol doesn't have it in their genes to attack us in the platform space."

a. I see it.

q. Now, when this document was given to you, you read that, did you not, sir?

a. I read it.

q. And you recognized that as being inconsistent with at least some of their testimony, did you not, sir?

a. No. My testimony related to what the aol document said about aol's intentions. This is a judgment from somebody who hadn't seen those documents -- i assume hadn't seen those documents -- that would have been quite extraordinary -- who had reached a different conclusion about their intentions. I don't see an inconsistency. and he may yet be right. I don't know, but it is a judgment from somebody who hasn't seen aol's plans about aol's genetic capability. I didn't attach any weight to it, to be honest.

q. You didn't attach any weight to this statement attributed to Mr. Gates? Is that what you're saying?

a. That's right. It seems to me outweighed clearly by aol's internal discussions about its plans.

Besides the Dean has to falsify the story so that it appears Microsoft has competition (even if Bill Gates disagrees).

False testimony is just that, "false". This difference in opinion would not really matter except the Dean has to testify that Microsoft is somehow pricing its products in response to competition (constraints). Problem is that the evidence in this case proves the opposite. Yet, the Dean persists to present false evidence on this issue.

He is simply paid to draw false conclusions and make arguments in court. His economic expertise is being ignored.
 

10:32 AM PDT - Get out the pistols, this is getting serious...

a. So this is the same 264. We looked at them.

q. Out of the 264 --

a. Out of the 264, 52 were never used further because they didn't know their browser. 82 said they used -- the last time they used the net, they used navigator.

q. Now, of those -

Mr. Lacovara: your honor -

Mr. Boies: if i can get my question out and then --

Mr. Lacovara: your honor -- excuse me, Mr. Boies. he was in middle of an answer and you cut him off.

Mr. Boies: and i was in the middle of a statement and you cut me off.

the court: all right, gentlemen. All right.

q. do you have something further you want to say,

Sometimes the court room does get a little testy. And, that is when the judge has to just suggest both sides cool it a bit. It does happen. But, attorneys are professional and will return to a normal attitude.

I would like to contrast this scene with that often found on public forums on the internet. "Flame wars" as they are kindly referred to often get way out of hand. And, there is no judge to cool thinks off. If MSNBC, InfoWorld and others paid a little more attention to this problem the public forums would be much more valuable. But, they do not. For the most part they just ignore the fact that people supporting different sides of an issue will lose their good sense and just attack the other party personally. It is really sad to see but it happens quite often.

MSNBC solves the problem by banning (censoring) any critic of Microsoft. That act of censorship, while extremely harmful to the public does cool the flames. However, censoring one side of an argument while supporting defamation of character by the other side (the Microsoft supports do use defamation of character to personally attack critics and MSNBC backs them up) is not the proper solution.

InfoWorld just lets the flames fly with the result that the side that is willing to personally attack and insult usually prevails simply because the opposing supporters do not wish to conduct themselves in such a rude manner.

What does this have to do with this case? Nothing. So, on we go.

June 26, 1999 - Saturday (Continued review from Wednesday, June 23 PM Cross Examination)

1:05 PM PDT - The last witness has stepped down but the trial is not over yet.

When the final transcripts are posted on the Microsoft web site, I will complete the review and commentary on the examination of Dean Schmalensee.

8:19 AM PDT - Dean Schmalensee helps coverup antitrust activities of Microsoft Corporation

Early in the transcript (below) Mr. Boies was asking Dean Schmalensee about the anti-competitive acts of per system licenses and the harmful MDA terms forced upon IBM. The question related to the anti-competitive affect of requiring an OEM to pay Microsoft on all systems sold rather than the number of Windows copies sold.

The Dean replied that it was not anti-competitive because it was done to protect against piracy. Of course, Microsoft does not want illegal copies of Windows to be distributed. Clearly systems sold without Windows would be candidates for such acts. However, at the time I commented that an economist should evaluate the adverse impacts of these kinds of agreements and let the legal excuses if that is what the anti-piracy idea is to be offered by Microsoft employees or by argument of counsel.

Well. Dean Schmalensee is so tuned on the PR perspective of Microsoft that he has failed to do his job as an economist. His job would be to assess the impact upon competitors and leave legal excuses up to others. Of course he refuses to do that. And, he refusal invalidates almost all of his testimony.

But, the real problem with that issue is that it is not necessary to preclude all competitors from OEM deals nor is it necessary to pay Microsoft for all OEM sales just in order to avoid piracy. At the minimum all OEM should be given credit for systems sold with other operating systems. I know Microsoft thinks that only it should be permitted to sell operating systems, but IBM does provide OS/2. Linux is available. And, BeOS offers a product. Any contract provision that is intended to protect against piracy should allow for specific exceptions in all cases where alternative operating systems were sold. Of course Microsoft does not do that. And, the "piracy" excuse is bogus until such time as they do.

As long as all OEMs do not get credit for selling alternate operating systems with hardware, those contract terms are clearly anti-competitive and a antitrust violation. This was missed in the cross examination. I trust the DOJ will pick up on this point during final arguments. If you agree, send them an email and make sure they see this comment.

The other issue that Dean Schmalensee covered up related to dual boots. Microsoft has limitations upon shipping systems that dual boot. Again, the Dean was asked if this is anti-competitive. And, as is his character, nothing that Microsoft has ever done is anti-competitive. I think he avoided the discussion of the economic consequences of this act by arguing that dual boot demand is limited. It does not matter if it is limited or not. There is not a separate market for dual booting systems. The point was that Microsoft places additional barriers to entry for all competitors. Microsoft intentionally and without any reason makes it very difficult for companies like BeOS and Linux to get into the dual boot door. Microsoft has done this in many ways. It intentionally misinforms any user who tries to set up a machine to dual boot as well. With Windows 95 Microsoft simply posted a message that the boot manager would be disabled as Windows 95 is installed to work with it. With Windows 98, Microsoft has even gone further and falsely claimed it would not longer work after Windows 98 was installed. (They kindly avoided suggesting that it just needed to be re-enabled but instead said it was not going to work.) The Microsoft message was intentionally falsified to discourage anyone from dual booting their "Windows".

Well. This too is an anti-competitive act. An act conducted solely for the affect of making it harder for competing systems to gain entry into the market.

June 25, 1999 - Friday (Transcripts from Wednesday, June 23 AM - Cross Examination)

4:46 PM PDT - Software that used to be sold separately but was bundled with Windows - Course Microsoft did not try to preclude the competitor

q. Let me ask you to look at defendant's 2764, which is a document that you prepared and doesn't have any sealing problems. now, this is headed "ie is the latest example in windows of functionality that used to be sold separately." do you see that, sir?

a. Yes.

q. And what you have listed here are a number of products whose functionality was included in the operating system; is that correct?

a. Mr. Boies, i tried to be clear in testimony, and perhaps i wasn't, that i didn't intend to say that all of what they did was included, that there was a precise match, but there was a qualitative--a qualitative match. certainly some of the functionality was, but some of these programs did things that were not included in windows.

q. Oh. Let me ask it this way: which of these products--and all of the products that are listed here are non-Microsoft products; is that correct?

a. I believe so, yes.

the court: you say they're non-Microsoft products?

Mr. Boies: non-Microsoft products. That is, all the products that are listed here are products that were manufactured by a company other than Microsoft.

by Mr. Boies: q. Correct?

a. That's my understanding, yes.

q. Now, with respect to any of these products, did Microsoft have an alternative product that it marketed in competition with these products?

a. The answer is yes in some cases, so it's a little bit--a little bit tricky. I mean, Microsoft sometimes sold, i think--

q. What i'm going to ask you to do is ask to go through these, and--

a. That will make it easier, yes, sir.

q. Right. What i was first just trying to get was an answer as to whether or not Microsoft offered a separate product that was competitive with one or more of the products that are listed here, and i take it your answer is yes?

a. In some cases, i think so, yes, sir.

q. In some cases yes, in some cases no?

a. That's my understanding, although we are going to be doing some history here, i think.

q. Okay. What i'm going to try to do is go through each one of these and ask you whether or not Microsoft had a competitive separate product that it offered in competition with the non-Microsoft product that's listed here. Okay?

a. Yes.

q. And i'm just going to ask you whether it did, and you tell me yes or no. If the answer is yes, i will ask you which product, if you know.

a. I can also say i don't know where i don't know.
 

q. Yes.

a. There will be a few of those.

q. Starting at the top, "microstuff crosstalk."

a. That's a communications program. I don't recall Microsoft offering a communications package in competition. So, my understanding is they did not.

q. Okay. And if you need to have an explanation to make it not misleading, that's fine, but all i'm looking for right now is whether they offered it; and if they offered it, whether you know of what they offered; and if you do, what it is. the next one is "funk software sideways."

a. I don't believe so.

q. Then "personics seemore 1.0."

a. I don't believe so.

q. "gibson spinrite ii."

a. I don't believe there was ever a separately marketed product that corresponds, no.

q. "delrina winfax pro."

a. I don't think so, no.

q. "softlogic solutions disk optimizer."

a. No. I think Microsoft's disk utilities have always been part of the operating system. Sorry, the answer is no.

q. "adobe type manager."

a. I have a vague recollection of a competing Microsoft product or technology, but i don't--i don't recall clearly.

q. The next one is "5th generation fastback plus."

a. No.

q. "zsoft pc paintbrush."

a. I think there was a time when Microsoft sold a paint program separately, but i couldn't give you the name.

q. Was that paint program sold in competition with "zsoft pc paintbrush"?

a. If my memory is correct, the answer is yes, but we are talking, like, around 1990 or thereabouts, and i wouldn't--wouldn't express much confidence in that recollection, but that is my recollection.

q. The next one is "artisoft lantastic a1."

a. My understanding is no, that Microsoft's networking has always been part of the operating system.

q. The next one is "xtree 2.0 for windows."

a. No.

q. "symantec norton commander."

a. That and the next one, Mr. Boies, are tricky. You could make the argument that when dos and windows were sold separately that windows competed with desqview. as i said, in addition for norton commander, i believe norton commander at this time provided the user with an alternative desktop. So, in some sense, it was competitive with windows, although i think this version may have run on windows. Microsoft also from time to time, i believe, has sold packages of utility programs, which is what norton commander is, so that i think from time to time there might have been competitive offers, but not head-to-head in the sense that they offered the full functionality of norton commander.
 

q. Okay. Were any of these products that are listed on defendant's exhibit 2764 products that Microsoft perceived as a serious platform threat?

a. I haven't sought to be exhaustive in the time period that's covered by most of these, but i know there was discussion in the corporation--the level of seriousness i don't know or can't recall at this stage--regarding desqview and other related shells. desqview, i believe, offered multitasking before windows did, and i know a number of people who used it for that purpose. whether Microsoft took it seriously or how seriously it took it as a potential platform threat, i don't know. That one is a possibility. The others, i would say, were not.

q. Okay. Were any of these products, products where Microsoft entered into contracts with isp's or oem's that were designed to discourage the isp's or oem's from distributing the products?

a. I'm unaware of any Microsoft contracts that referred to any of these products. If there were such contracts, i'm unaware of them.

q. Who picked the examples of products that are listed here?

a. Staff at nera picked them. I went over them.

q. Did the staff at nera give you proposals and then you selected which ones to include?

a. No, i saw this in relatively final form. I don't keep, myself, copies of pc magazine back through the eighties and early nineties. So, i discussed some of these, asked what they did, asked if they made sense, but i didn't attach particular significance to the set of them, simply that these are examples of functionality. one could have used a range of others, possibly, to make the same point.

q. Do you know of any other examples that could be used to make the same point?

a. That functionality was included into windows? certainly, in most of these categories, there were competing products. So, instead, for instance, of "microstuff crosstalk," i recall using a competing product. I also used crosstalk. There were a number of communications packages using what now seem archaic standards, so we could have used additional--could have used alternative products in almost all of these categories. I suppose if i thought of it, i could also think of additional functionality that would relate to specific products. Would you like me to see if i could do that?

q. Well, i had assumed--and correct me if I'm wrong--that when you produced this exhibit, these were what you thought were the right examples to use. Now I'm a little uncertain that maybe these were just something that your staff came up with and you put in. And can you help me understand whether these were in what you thought were the right examples to use or not?

a. I thought this was an adequate set of examples. I didn't try to optimize the set of examples for any parrticular purpose. It seemed illustrative of the point that lots of functionality that used to be sold separately is integrated into windows. I don't claim optimality in any regard for this list. It's a list of examples.

Why the list of questions? Mr. Boies wants to distinguish Microsoft actions in regard to these competitors versus their actions in regard to Netscape. The contrast of conduct is what is being illustrated. The key question was whether Microsoft tried to get OEMs, ISVs etc., to disfavor the competing product.

This case is not just about bundling IE. The case is about a whole series of acts engaged in by Microsoft to preclude competitors. They picked on Netscape for a reason.

4:30 PM PDT - Again, the Dean answers directly out of his PR Handbook, rather than answer the question as an economist

q. Did you try to make a study or analysis as to what you estimated or projected dell would do in the future in terms of how many desktops or laptops it would pre-load linux on?

a. Dell has made it clear that it responds-

q. Could i get a yes or no to that question, and then you will give your explanation, and sometimes after the explanation i'm not sure what i got the answer to.

a. I'm sorry, Mr. Boies, it's a bad academic habit to lead to the answer instead of leading from. the answer is no. It's my expectation that dell will, in the future, as it has in the past, respond to consumer demand, and i don't pretend to be able to forecast consumer demand in this regard.

The Microsoft PR Handbook instructs everyone to tell people that they will sell anything demanded of their customers. This instruction is always offered in response to the charge that Microsoft restricts OEMs from selling systems with non-Microsoft operating systems.

Who cares why or how Dell responds to consumer demand. The question was whether the witness made a study or review of Linux systems from Dell.

But, the PR money the way it is these days, this economist decided it was better to quote the PR manual.

4:17 PM PDT - According to Dean Schmalensee every possible constraint from competition is significant (economically speaking, of course) and no anti-competitive act of Microsoft is relevant (economically speaking, of course)

q. With respect to linux--and you mentioned dell in addition to IBM--what percentage of the desktops and laptops that dell ships are shipped with linux pre-loaded?

a. I don't know the number. It is significant that dell has decided to make the investment to offer the choice, but i don't know the number.

q. Approximately how many, sir?

a. I do not have an approximate number.

q. Did you ever try to find out?

a. No, i did not. Since it was a new product, it seemed unlikely to yield a number of interest or of relevance, and i didn't pursue the matter.

Yet the Dean insists that future competition from Linux and others is constraining price.

All this witness is doing is putting his conclusions forward regarding possible theories as being fact while ignore the actual testimony and the industry itself. He also refuses to evaluate the economic impact of illegal acts by Microsoft. Why? Because they might have a legal excuse for those acts?

Possible legal excuses do not, and I repeat do not make the anti-competitive acts non relevant. From a legal standpoint, perhaps. But, economically, no.

I could care less whether the Dean thinks that antitrust law was broken or not. It is inappropriate for an economist to ignore economic concepts during the application of his expertise simply because he decides that on balance no law were broken. (Assuming he has decided that.)

Now. If he wants a really big bonus this year, he may just say to himself he will ignore these issues and try like hell to get Microsoft off the hook. After all, they are paying some pretty good money. That is fine. But, his testimony is false.

4:07 PM PDT - It is not the job of an economist to excuse or provide explanations for anti-competitive terms in agreements unless preparing for court testimony.

q. Have you seen any expressions within the documents that you have reviewed as to whether there is something going on other than what you say is Microsoft's concern with piracy?

a. As regards the, for shorthand, naked machine mda?

q. Yes, sir.

a. I don't recall any such discussion. I'm happy to look at an example.

q. Who told you, sir, that the prohibition on shipping naked machines was to prevent piracy?

a. Mr. Boies, there isn't a prohibition.

q. The penalty on shipping naked machines was to prevent piracy; who told you that, sir?

a. I have been discussing with Microsoft, since 1992, their concern about piracy. It's consistent with a whole set of discussions over a seven-year period. I don't know that i've had a specific discussion about the MDA in this regard. I don't believe i would have had the occasion to ask. It's sufficiently consistent with all of the interactions i have had with them.

q. Now, the mda's were introduced in 1997 or 1996; is that correct, sir?

a. Something like that.

q. What's your best understanding of when the mda's were introduced?

a. I was actually about to give you that, Mr. Boies. it's my understanding that they were introduced around the time that Microsoft was required to drop the per-processor licensing agreement, which also had a piracy-prevention rationale.

q. Did the per-processor licensing provision have, as you understood it, an anticompetitive rationale as well as an antipiracy rationale?

a. That's not my understanding, Mr. Boies.

q. Just to try to understand what criteria you used to determine what is or is not anticompetitive, do you believe that Microsoft's per-processor fee was anticompetitive?

a. No, i don't, Mr. Boies.

q. Do you believe it had anticompetitive consequences?

a. I don't, Mr. Boies. this, of course, is my testimony in the caldera case, and representations i have made to the department of justice over the years, so i'm happy to discuss what happened in those years, although i haven't refreshed myself on it in a long time.

q. I just want to get your conclusions.

a. Those are my conclusions.

q. And your conclusion is you see absolutely nothing anticompetitive and no anticompetitive effect from Microsoft's per-processor license fee that it had for many years; is that your testimony?
 

a. I do not believe that that licensing agreement had an anticompetitive effect, no, sir.

q. Did it have an anticompetitive purpose?

a. I studied its effect, Mr. Boies. I didn't read e-mails to try to discern purpose. I asked, did it have an anticompetitive effect in the marketplace. i also inquired, is there--are there business reasons for doing it, but i have not tried to sift through e-mails.

It is the lawyers job to find legitimate reasons for certain contract terms not the economists. The economist has to ascertain the anti-competitive affects of the agreement and leave the legal excuses, etc., up to lawyers and PR people.

This economists has just decided that he will deny that any act engaged in by Microsoft has no adverse economic impact on competitors. His testimony is pure garbage. Is this the same guy that claims no barriers exist for this market?

3:56 PM PDT - But the question was anti-competitive practices not piracy.

q. And in terms of the mda's, is it your understanding that if IBM has a million pc's that it ships with windows, if it ships just a thousand naked machines, it loses the MDA not only just on those thousands, but on the million that it shipped with windows?

a. That's my--that's consistent with my understanding, Mr. Boies, which is why i was a little puzzled that they didn't say "pre-install," because then there would be no such issue.

q. Now, Dean schmalensee, as somebody who studies anticompetitive practices, do you find anything wrong with Microsoft structuring its MDA program so that if a company begins to ship systems without an operating system, it loses the discount not only on those machines, but on all of the other machines that it ships with windows?

a. Absolutely not, Mr. Boies. Piracy has been a serious issue for the Microsoft corporation for as long as i have dealt with them. They have taken steps to deal with piracy issues. The naked machine issue has been a source of upset to the company for a long time because of piracy concerns. so, the notion that Microsoft would be opposed to having people ship machines without operating systems is not a surprise to me at all. There is a clear piracy rationale. It makes sense. The company has expressed it for some time.

Piracy is not an issue that should concern an economist. Anti-competitive practices are an issue that should concern an economist. If nothing else it raises an artificial barrier to entry. Any piracy issue might be important for PR purposes in defending antitrust acts. And, piracy might be a legal excuse for such market restrictions. But, neither of those should concern an economists. The economist should evaluate the impact of the restrictive clauses and leave the rationalization up to the PR people or the courts.

The Dean is simply refusing to acknowledge the antitrust affect of those provisions. He is just paid to present false testimony.

3:46 PM PDT - Dean Schmalensee has only a vague idea what is going on with Linux but testifies that Microsoft's price is constrained by Linux?

q. No, they're free to make an unviable choice.

a. No, they're free to sell multiple operating systems as, for instance, dell does and others do.

q. Well, sir, if they were to load multiple operating systems on a single computer in order to give consumers a choice of operating systems, is there anything in Microsoft's contracts that would impede that?

a. I wasn't referring to loading multiple operating systems on the same machine. I was referring to loading multiple operating systems on multiple machines as dell loads linux if you ask for it, as IBM plans to make available that facility. whether Microsoft's contracts allow you to load an additional system with windows on the same machine, i haven't looked into it. I don't know that it's particularly relevant, but not something i have looked into.

This witness just fabricated out of thin air his idea that the Windows price is constrained by future or present competition from Linux or where ever. Yet he admits he has no idea how significant Linux is. This despite Microsoft evidence that "no other system" was considered during that process.

Microsoft has only achieved a falsified representation of competition. It clearly does not explain any price determinations.

In theory, perhaps. But Dean Schmalensee is trying to suggest facts.

3:33 PM PDT - Again the Dean suggests that acts by Microsoft to make it much harder to enter the market are deemed to be "not relevant" for an economist hired to evaluate the monopoly power of Microsoft - Bull

q. No, they're free to make an unviable choice.

a. No, they're free to sell multiple operating systems as, for instance, dell does and others do.

q. Well, sir, if they were to load multiple operating systems on a single computer in order to give consumers a choice of operating systems, is there anything in Microsoft's contracts that would impede that?

a. I wasn't referring to loading multiple operating systems on the same machine. I was referring to loading multiple operating systems on multiple machines as dell loads linux if you ask for it, as IBM plans to make available that facility. whether Microsoft's contracts allow you to load an additional system with windows on the same machine, i haven't looked into it. I don't know that it's particularly relevant, but not something i have looked into.

Illegal acts by Microsoft do in fact make entry into the market more difficult and the Dean knows that. He is just avoiding the obvious facts in this case.

Instead the so-called economist focuses upon development of web applications? Web applications are possible competition. Agreements blocking entry into the market directly are ignored.

3:14 PM PDT - Dean Schmalensee ignores facts in this case that have antitrust implications.

q. Have you reviewed so-called first-wave agreements that Microsoft enters into with software suppliers?

a. I don't believe i have seen any such agreement, Mr. Boies.

q. Do you know what i'm talking about when i refer to a first-wave agreement?

a. Microsoft has had a number of different kinds of agreements with software developers over the years. I would assume that a first-wave agreement involves some sort of access rights, but i don't know precisely how the term is used today or whenever the agreement was written.

q. I'm not asking you to assume anything. I'm just really asking whether you know or have ever heard of a first-wave agreement.

a. I heard the term, but as i say, i have heard terms attached to a number of kinds of relationships, and i don't now have any particular association with it.

q. Have you heard of agreements, regardless of how they're characterized, in which Microsoft asks independent software vendors to make the Microsoft jvm the default jvm for their programs?

a. I'm not sure i would know technically what that means. I don't--i'm unaware of any agreement that requires software developers using java to write java programs that won't run on any other jvm's, which is all that would matter. And i would be happy to look at this agreement and see if it says that, or look at an agreement, but i'm unaware of any agreements that have that effect.

q. I want to be sure that your answer is meeting my question. My question was whether you were aware of any agreements in which Microsoft asked independent software vendors to make the Microsoft jvm the default jvm. and do i understand that your answer to that question is you just don't know what that would mean?

a. I don't know what that would mean in terms of whether it would impose any requirement on the vendor to write programs that wouldn't run on non-Microsoft systems. It could be a requirement to distribute Microsoft's jvm if they are to distribute a jvm, but beyond that, i don't know what that might mean. It's clearly a technical term of art, and i can't interpret it as i sit here.

q. You testified on direct examination that you read the testimony of Mr. Eubanks. Do you recall that?

a. I have, yes.

q. And that you relied on that testimony; correct?

a. Yes.

q. Do you recall him testifying about this subject?

a. I honestly don't. I didn't rely on that portion of his testimony.

q. Let me ask you to look at page 19 of the june 16, 1999, afternoon transcript, which is a reference to paragraph three of the symantec first-wave agreement.

a. Page 19?

q. Page 19, lines 14 through 17. and i believe this document is under seal, but we were permitted to refer to paragraph three, and it says there--paragraph three says that "if the application symantec is writing is written in java, the Microsoft virtual machine for java will be the default virtual machine, and afc will be used for ui elements." do you see that?

a. I see it.
 

q. And is it your testimony you simply don't know what that means, one way or the other?

Mr. Lacovara: objection, your honor. The witness is asked to show--is shown a copy of the document to testify about what it means. Mr. Boies has it, is there any reason why he can't give-

Mr. Boies: i don't have any objection to the witness being given the document under seal. And if you have a copy of the document, put it in front of the witness. We quoted the paragraph that relates to it. It is in the testimony of Mr. Eubanks, who he said he relied on. But if you want to give him a document, i don't have any objection to it.

Mr. Lacovara: i do not have it handy. And you're asking him about defined terms in the document. I think it's fair, since Mr. Eubanks answered the question, had it in front of him, that the witness is now so removed from the testimony, that he be given the same opportunity.

Mr. Boies: if the document is handed out, i don't have any problem. I don't have a copy right here, your honor. We quoted the language, and he says he relies on Mr. Eubanks's testimony.

the court: well, explore his knowledge. The objection is overruled. If he doesn't have any knowledge of it, he certainly is free to say so.

by Mr. Boies: q. First, did you read this portion of Mr. Eubanks's testimony?

a. Yes.

q. Do you remember reading this portion?

a. I don't have an explicit recollection of reading this portion, but i read the whole testimony--that i remember--from start to finish, and i read this.

q. And did you understand what this meant when you read it the first time?

a. No.

q. Did you-

a. Certainly didn't understand the last part, afc would be used for ui elements.

q. Well, let's leave that part aside because i don't really need that part for right now.

a. Good.

q. Did you understand what it meant about if the applications symantec is writing is written in java, the Microsoft virtual machine for java will be the default virtual machine? Did you understand what that meant?

a. No. I have asked about the environment in which programmers write in java on windows. I understand some of the issues--a little bit about the issues in the sun case. This did not appear to be inconsistent with my understanding, but also, as i understand that circumstance, did not appear to be a relevant issue, so i didn't inquire further.

An agreement between Microsoft and Symantec to favor the Microsoft JVM is not a relevant issue for an economists? Really? The Dean obviously ignores all acts of Microsoft that have any antitrust implications attached to them. He just plays dumb.

For a guy who claims to testify about barriers to entry in markets and dependancies upon large quantities of applications, etc., he sure clams up fast when market collusions and agreement to disfavor competing technologies surface. I guess he feels that developers writing web applications is more significant than requiring Symantec to favor the sabotaged version of Java thereby increasing the strength of the Microsoft monopoly and precluding competition.

"Just not relevant", right. No. It is highly relevant in this case and from an economic perspective. The Dean is just paid to not see the obvious.
 

2:58 PM PDT - Gosh. Even Java requires an operating system. I thought the Dean was suggesting that Java development replaced the OS? Or, at least removed barriers to entry for the OS marketplace?

q. Now, in order for a java program to run on an operating system, the operating system has to have a jvm, or java virtual machine; correct?

a. It needs to--i don't think that's quite right, Mr. Boies. A java virtual machine needs to be present on the machine. I think, for instance, if it's there because somebody has a netscape, if it's there because the operating system has it, or if it's there because in the future aol has distributed it, all that matters is it's there. It doesn't, as i understand it, have to be part of the operating system. It simply has to be present.

q. Accepting your phraseology of it, you have to have a jvm present?

a. That's my understanding, yes, sir.

q. And Microsoft has a jvm that it distributes; correct?

a. That's correct.

q. And sun has a jvm that it distributes; correct?

a. That's correct.

q. And are there differences between those two jvm's such that programs written for one will not run on the other?

a. That doesn't emit a simple yes-or-no answer. My understanding is that both of them are at least intended to run programs that conform to sun's pure java standards. it is possible on the Microsoft jvm to utilize features of the windows environment. And if those features are utilized, the program will not run on the sun machine, but anyone writing pure java by the whole "write once, run anywhere" promise of java, pure java should run anywhere on any jvm.

q. So, it's your testimony and your understanding that if you write to pure java, that program will run on a sun jvm or on a Microsoft jvm; is that your testimony?

a. That's my understanding, assuming they conform t the standards of their license with sun that i believe requires that, or at least intends to require that.

q. And if--i want to clarify your testimony. If a program is written for the Microsoft jvm, is it your testimony that under some circumstances it will not run on a sun or non-Microsoft jvm?

a. Well, may i attempt to clarify? I can't quite give that a yes or no, because written for the Microsoft jvm, i think, doesn't--doesn't quite capture what i said earlier, so let me try to phrase it, if i may, and see if this answers the question you have in mind. it is my understanding that in the java development environment that Microsoft offers, developers have a choice of using some features that will create a program that will run, as far as i know, only on windows. if they do not use those features, the program should run on the sun jvm. I'm not an expert in this, but that is my understanding.

Well. In any case, Java requires an operating system to run.

I do note that PR people will rephrase the question from "not run on Sun if written for Windows" to "enable developers to use features only available from windows within Java". That is fine. But, it illustrates that the Dean thinks of himself first as a PR person and secondarily as an economist. An economist would not care which way the question is asked. The answer is the same. But, a PR agency would re-word it according to specific instructions from Microsoft.

But, what is really interesting here is his suggestion that the JVM does not to be part of the OS. Which is true. The JVM can be provided by many sources. Well. So can browsers. Even more so. Clearly JVM must be part of the OS way ahead of browsers which are true applications. The JVM is not an application. It is very OS like. But, here, the Dean suggests that JVMs are NOT PART OF THE OS.

2:48 PM PDT - Oh oh. The Dean now says that Navigator is the superior technology

q. Do you agree with the conclusion of goldman, sachs here, that netscape has clear excellence in browser architecture and html display?

a. I don't have a technical evaluation of netscape's architecture. It's hard to know what exactly is intended here, but it's not inconsistent with my understanding. i must also say the way it's written here, it's not clear the extent to which that's goldman's conclusion or sun's conclusion. I don't know whether "z" carries over from the previous sentence. But it's not inconsistent with my understanding.

I guess his argument that all market gains by Microsoft were due to superior technology are just bogus? I swear the economist said that somewhere.

2:29 PM PDT - Dean Schmalensee has no idea how much work is actually being done on web applications - But, it is a real big competitor to Windows

q. Have you ever used any service of app's online?

a. I personally haven't. I do know, though, this e-mail goes on to include some material from lotus that obviously is a profit-making company that talks about this product. i don't know whether it mentions app's online or not, but mentions the team-room product, and lotus does have a lot of employees.

q. Yes, lotus does, but this was not from the lotus web site, was it, sir?

a. No. Well, the first few pages aren't. The last few pages are. This is from app's online which uses lotus software. At least it claims to offer this feature.

q. Yes, that was going to be my next question. Do you know whether app's online has actually offered that feature yet?

a. I know only that it claims what it claims. If it claims to offer it, that's what i know. If it doesn't, i haven't checked.

q. Okay. I asked you whether you personally ever used any service of app's online. do you know anyone who has used any service of app's online?

a. I haven't had that conversation with a large number of people. I may well know someone who has used this service, but no one has ever told me that they used this service.

q. To ask a more precise question, is there anybody that you can identify who you know or believe has used this service?

a. No, sir.

q. Okay. You said earlier today that there was an enormous activity producing web-based applications. how much money is spent annually at the present time on developing web-based applications?

a. Mr. Boies, i don't recall using the word "enormous," although perhaps i did. Well, i will accept that as an assumption. I do not know how much money is involved, no, sir.

q. Do you know approximately?

a. No, and i'm not clear that it's the right measure, frankly. A number of graduates of my school have started online startup companies with relatively little money. one of the features of this business is that it's not a hugely capital-intensive business, so i could probably name several startups that have virtually no money involved. But i don't know the answer as to how much money.

q Do you know how much money is spent developing applications for the windows operating system?

a I don't recall having seen an estimate of that quantity.

q. Did you ever make any effort to study or ascertain or estimate what the relationship was between how much money was spent on developing applications for windows and how much money was spent developing what you referred to as web-based applications?

a. I haven't made that attempt. I don't think it could be done reliably. Nor do i think it would be relevant.

Well. The Dean suggested that the web application development effort proved that barriers to entry in the consumer OS market did not exist. Web development is not even related to the reason for his testimony. Of course, not he suggests that just how much development takes place is not relevant. That invalidates his whole point. If the development was "enormous" it would not proven the point he raised on direct.
 

1:54 PM PDT - Microsoft forces 100% of all consumers to buy IE and the Dean points out an upward trend of Navigator being shipped with PCs.

q. Okay. Now--and what was the estimate for that same period in defendant's exhibit 2762?

a. As it happens, i have that number with me also, and it was 8.05.

q. So, a difference of about 2 million?

a. Yes. But, of course, what i testified to was the obvious upward trend, and that's true in both exhibits.

And, of course there are no economic or antitrust consequences associated with Microsoft forcing 100% distribution and Netscape being limited only to a fraction of that because the Dean is trying to help Microsoft establish a monopoly in browsers as well as PC operating systems. I hope you are starting to get the picture here.

And if you believe the 6 million figure was accidently reported to the court as 8 million, I have property I would like to sell you sight unseen.

Beginning to understand how Microsoft runs their operation, this was a deliberate attempt to falsify the evidence. You do not think so? Why do all of the "mistakes" favor Microsoft in a significant way? And always on a key issue, according to Microsoft?
 

1:30 PM PDT - I have long suspected that NERA wrote much of Dean's testimony (particularly the direct) and Microsoft told the Dean that he must support the NERA stuff

q. Well, after lunch, we'll try to get that document and put it in front of you and see whether you agree with everything that's in there. let me ask you to look at defendant's exhibit 2761 and 2762 that you have in front of you. These were documents that Mr. Lacovara introduced with you. do you have those?

a. Yes, I do.

q. Now, you didn't prepare these documents yourself, did you, sir?

a. No, I think these may have actually been prepared by a graphics firm. I didn't do them. I did review the numbers in the calculations, but I didn't prepare the charts.

q. Did you satisfy yourself that these numbers were correct?

a. I relied on staff at nera for the accurate transcription of the numbers from the primary sources. I inquired as to the methods and was persuaded that the methods followed had been appropriate.

q. Did you make a visual inspection of these documents to see whether they made sense?

a. I will be honest with you, Mr. Boies. I looked at the one on the left fairly closely because it resembled a document I had seen. I had not compared it closely to the one on the right. And as I sit here, a comparison with the one on the right suggests there's a difficulty.

q. Well, more than a difficulty. It suggests to you, sir, that just looking at these visually, if you take a moment to do so, they cannot be reconciled, correct, sir?

a. The number shown on 2762 for the last period appears to be too high to be consistent with the corresponding data on 2761.

q. Right. And 2761 and 2762 purport to be reflecting the same underlying mdc data, correct, sir?

a. They do, Mr. Boies, and I will, of course, look into this over the noontime recess and see if I can explain what's going on.

q. Okay. And one of the things that you're going to attempt to explain is how the 12- or 13-month average on 2762 could be higher than the actual numbers in any of the quarters that are included in that period, correct, sir?

a. Mr. Boies, one of those is wrong. I think that's apparent.

And, now we have the bogus chart data.

NERA is paid by Microsoft to create phony evidence. How do I know? Look at the direct testimony of the Dean. Obviously NERA had a major part in preparing that data. The most telling aspect is the testimony on competitive factors in the computer software industry. From networking affects to barriers to entry, in every case, that testimony conclude opposite of what is the real case. That testimony lacks logical progression from a discussion of the concepts to the conclusion drawn.

I think Microsoft has tried to defraud this court. This is not the first instance where the real facts are attempted to be misrepresented.

Remember the video from Allchin. The one that tried to show what Allchin claimed existed as a problem with IE was removed from Windows. You know, the one that the Microsoft lawyers vouched for. But, the next day had to apologize because no proof was available on that point. Or, the one where the point of the demo was to show the ease of downloading but the film was shorten without explanation so that it looked easy when in fact it hard, takes time and is subject to failure on a regular basis.
 

1:17 PM PDT - I guess this economist cares less about the harm caused by forcing the sale of products upon consumers

q. Let me be sure I understand what you're saying. You're saying that the data that you are aware of indicates that the browser that people consider their main or principal browser is a browser that people have increasingly gotten with their personal computer; is that correct?

a. I would need to look at the mdc data, but my recollection -- and those are the data -- the only data that inform that judgment, or that can inform that judgment that I am aware of -- my recollection is that that percentage has increased somewhat. I haven't looked at it recently, but that's my recollection.

q. You're aware, are you not, that anyone who buys a windows 98 p.c. Gets internet explorer with it?

a. Yes, and some of them also get netscape navigator. So that would also show as obtained with computer, if they happen to use navigator as their primary browser and it had come installed on the desktop.

Which browser is used by the consumer is not the economic issue. The issue is harm to consumers by the forced distribution of an unwanted product. Does the Dean really think that IE can only be a benefit? But, if millions of consumers are forced to buy it, no harm has been caused.

This witness is so wound up in trying to prove that the usage percentage is the only one that matters for antitrust purposes and for consumer harm purposes. Microsoft knows the use percentage will always be less than the installed percentage. They force the install. They force the purchase. And, then hire this guy a so called economist to focus upon the lower use value to try to prove no monopoly while completely ignoring the harm to immediate consumers and the harm to the industry caused by the forced distribution and the ruined market for browsers.

The Deans economic evaluation of this case is totally inadequate and highly biased. It is biased to the point of being worthless. He reads more like an advertisement than an intellectual.

1:10 PM PDT - Dean's answer here takes the cake - He is not sure whether PCs come with browsers or not today?

q. Okay. You are aware, are you not, that the extent to which people obtain browsers with the computer system that they buy has been increasing over the last few years?

a. I don't know that that's a good characterization of the data. I think it more properly says that there has been an increase in the extent -- which is all you can measure -- an increase in -- the extent to which people report that the browser they use as their primary browser was obtained through the computer has increased. you asked a broader and different question. What the data that bear on that bear on is principal browser.

I wonder if the Dean knows that all Windows PC purchased now include IE? Microsoft forces that to be the case. And, this guy is an economist?

The question was rather straight forward and identifies directly the illegal act of Microsoft to force all consumers to buy IE when they buy any PC. But, then again, the Dean can not see nor understand any illegal act conducted by Microsoft. It just does not register with him.

1:05 PM PDT - Yes. Dean, consumers still must buy an OS even for their web applications. But, then you implied differently.

q. Okay. Now, would you refer to windows and apple and linux and the beos and solaris as operating systems?

a. They are operating systems. They are also platforms.

q. In order to access the web-based applications that are referred to in the examples that you have provided, does the user have to have an operating system?

a. I will now -- yes for today. For tomorrow, it's uncertain. If I may explain. it's my understanding that no one writes -- that there is no device available that is effectively a browser that performs no other functions. such a device could certainly be created. And if it were created, the answer to your question would be "no." all you need is this device that only browses. It's, unless i'm missing something, not a technical challenge to do that. at present, as far as I know, no such devices exist. therefore, today, to run a browser, it needs to be part of or run with an operating system.

q. Do you have any judgment or opinion as to when, if ever, in the future, or approximately when, if ever, in the future, there will be browsers developed that will not require an operating system to run?

a. I don't think it's a matter of -- Mr. Boies, let me try to clarify my view on the matter. It's not a matter of technical difficulty. It's a matter of is there a demand for a device that only does that. So I don't have an opinion of whether somebody will produce a device that only functions as a browser. that strikes me -- given the advance of computing power and miniaturization, strikes me as an unlikely thing to market, but someone may, and I simply don't know when that will happen or if it will happen.

Please. Not another ghost story.

A simple answer would suffice here. Applications do require operating systems. I guess the Dean still wants to prove to web applications harm consumers (or ...ah...a threat to windows total domination of the industry ... Window's monopoly in other words).

12:57 PM PDT - Well. Navigator does run on OS/2 as well. Remember OS/2, Mr. Schmalensee? That was another illegal act.

q. And what are the platforms for which netscape has written its browsing software?

a. Oh, I don't know that I know them all, but it certainly runs on apple. It runs on linux. It may run on other flavors of linux. I know they're in negotiation to license, I think, on the be operating system, the last time we checked. it may run on other platforms. Netscape has, in the past at least, talked about its widespread availability.

q. The platforms, as you describe them, that you are aware of, based on the work that you've done to date, that navigator runs on is windows, apple, linux and beos; is that correct?

a. I said I wasn't aware that it runs on the beos, and i didn't intend that to be an exhaustive list. It may well run on os/2. It may run on other flavors of unix. I don't, as I sit here, have a complete list.

q. I understand that you don't have a complete list, and i understand that anything may run or something else. But I'm just asking for your knowledge, as you sit here now, based on all the work you've done to date. And have you given me all of the platforms, as you describe them, on which, as you understand it, as you sit here now, the netscape navigator will run?

a. May I hear the list back that i've given you so I can check it?

q. Windows, apple, linux and maybe the beos.

a. No. I said, "and perhaps other flavors of unix" and, certainly, if it doesn't run on solaris now, it will shortly, given the alliance between netscape and sun. And there may be others, but those are the ones that i'm aware of.

Running on OS/2 is very important for this witness. He is supposed to testify as to the antitrust implications of illegal acts by Microsoft. And, according to the testimony in this trial, Microsoft tried to get IBM to disfavor or drop Navigator on OS/2.

But, then this witness closed his eyes to all illegal activity by Microsoft and all economic affects of that illegal activity.
 

12:47 PM PDT - For some reason the Dean is offended by the idea that web applications might run in Navigator on Windows

q. Let me ask that question now. Did you do that?

a. Okay. I'll answer that question. I asked the question, "does the user need internet explorer? Does the user need windows to access these applications"? The answer for all those i've introduced is, "no." It can be run with netscape running on an apple. They can be accessed with a standard browser running on other operating systems. [Or Navigator running on Windows, right?] I don't know whether all browsers sold with operating systems will suffice to use these applications, but it's my understanding that they are broadly accessible with browsers that do not require windows.

q. Let me see if I understand what you're saying. These applications require a browser. But as you understand it, almost any browser -- maybe there is some browser that doesn't work -- but almost any browser can access these applications, correct?

a. There's some variation among applications, Mr. Boies. some use or require technologies that are not supported certainly by some older browsers. So it's clearly an overstatement that every windows application can be run from every browser. That's clearly wrong. but the applications that are described in the exhibits that were introduced in my testimony can, it is my understanding, be accessed through, say, a netscape browser running on any of the platforms for which netscape has written its browsing software.

Why would an economist be offended by a web application running in Navigator on Windows?

I get the feeling that Dean Schmalensee is offended by the idea of browsers being a competitive product or that someone other than Microsoft Corporation writes browser technology. Why should he care? Sure, he is the Microsoft witness. But, he is not being paid more money if Navigator is removed from the market is he? An economist would not put himself in a position where he is financially better off if a monopoly is strengthened, would he? Maybe he holds a lot of monopoly stock?

12:33 PM PDT - Whether Microsoft customers are forced to buy IE is not relevent to whether users need operating systems to use browsers.

q. Now, can a browser, using it the way you're using it, operate without a personal computer operating system?

a. I don't know that -- let me stop. I don't know the answer to that question. It depends what you mean by a "personal computer operating system." I don't know that there is software that only browses and does not do anything else and requires no other software to run. so i may need from you what you mean by "p.c. operating system" in this context.

q. Is "p.c. Operating system" a phrase that you've encountered in your preparation for this testimony?

a. It is, Mr. Boies, and it's been used by the two sides in this litigation in different ways. Microsoft considers the windows product to be a single entity. The government considers it to be two products. I'm not sure what we're talking about here.

Actually Microsoft does not consider the OS and IE to be a single product at all. That is just a lie.

IE 5 was just released totally without regard to the OS. IE on Unix is distributed. IE for Apple. Even IE for OS/2 I think. At least that is what some of the evidence suggests.

But, whether one or two, all browsers still require operating systems.
 

12:10 PM PDT - But the count of web based applications was relevant to the point Dean Schmalensee was trying to make.

q. Did you perform any study or analysis to try to determine how many web-based applications there are now?

a. No, because i do not consider such a count directly on point.

q. Did you perform any study or analysis as to approximately how many web-based applications there were or what the range of web-based applications were?

a. The same answer, Mr. Boies.

q. You did not because you didn't think it was relevant; is that correct?

a. Because it is not relevant, Mr. Boies.

q. Did you form any judgment or opinion as to how many web-based applications there would be, or approximately how many web-based applications there be would be, or what the range of web-based applications would be a year from now or two years from now?

a. No, i did not. I don't think it is possible to do such an exercise, nor do i think an attempt to estimate such a number would be relevant for the issues being addressed here.

Well. As I pointed out in the discussion during his direct, web applications do not prove or disprove barriers to entry in the consumer OS marketplace as the Dean would like to argue. It only shows that developers can do work other than write Windows specific applications.

However, the point raised is important. Just how many web based applications are there? And, how many are there likely to be? Some network applications might work well on the internet but those applications do not work well on PCs. Perhaps networked PCs.

Which brings up the point that Mr. Boies is making. A consumer OS is still required. Writing a web app no more makes entry into the consumer OS market easier than writing any application. Both take away developers time but both still require an OS.

If the work is not an OS it is simply not related to the barriers to entry that the Dean wants so badly to prove do not exist.

11:50 AM PDT - Large sums of money do not guarantee correct answers - only the answers purchased

q. In addition to working with Microsoft on this case, you've worked with Microsoft on other matters in the past over the last seven years, i think you said, correct?

a. That's correct.

q. And do you have plans to continue to work with Microsoft in the future on matters other than this case?

a. The only current intention that either of us have that i am aware of -- certainly the only commitment that i have relates to the caldera case that we've discussed in the past.

q. And are you Microsoft's expert in the caldera case?

a. I'm one of Microsoft's experts in that case, that's correct.

q. Incidentally, when Microsoft pays you, do they pay you directly or do they pay some other entity which pays you?

a. The way i work, Mr. Boies, is as a special consultant to the national economic research associates, incorporated, a firm that's a subsidiary of marsh & mc lennon. I can probably spell that for you. i submit monthly bills to nera, as the firm is generally referred to, and NERA handles billing clients.

q. Other than getting compensation for your own time, as reflected on your monthly bill submitted to nera, do you receive any other payment or compensation from nera?

a. I receive an annual retainer from NERA and, from time to time, an annual bonus from nera.

q. And what is that annual bonus based on?

a. I've actually asked, Mr. Boies, that i not be told on what the annual bonus is based, because i've had a fairly consistent strategy in my professional life of making sure that antitrust consulting does not assume a large role. So i have declined offers to have bonuses based on hours billed or dollar amounts or so forth, because i don't want those incentives. so i've said, i'm happy to have the bonus absolutely, and in considering whether i will stay with the firm, the bonus matters, but i don't want to know how that calculation is done because i don't want to have to stop and think about whether i should take a case based on anything other than my interest in doing it.

q. You do understand -- even though you may say you don't want to know precisely, you do understand that your bonus is based, at least in part, on the business you generate, correct, sir?

a. I expect that that's true, although how business generation is measured and what weight is given to participation in conferences and speechmaking and so forth, i don't know.

q. How much money does NERA charge Microsoft on an annual basis?

a. I don't know.

q. Approximately.

a. I honestly don't know. I am not an officer of the firm. i don't see the records. I just -- i have no occasion to know that and i don't know it.

q. Do you have any estimate or range at all that you can give me as to how much money Microsoft has paid NERA over the last two years?

a. I expect this litigation has been expensive, Mr. Boies, but i do not know the number.

q. Okay. Is it fair to say that your work for Microsoft and NERA's work for Microsoft has been much more substantial over the last two or three years than it was before that?

a. Again, i haven't seen the numbers, but that's certainly my subjective impression, yes, largely because of this litigation.
 

q. What is the amount of your bonus from NERA on an annual basis over the last two years?

a. Well, i haven't gotten one for this year. That normally happens in july or August.

q. The last two bonuses you got.

a. Last year -- last year's, i believe, was $200,000. The year before i think was $100,000, although i'm not, as i sit here, positive of either amount.

q. And those bonuses are separate from the hourly charges that you make for the work that you do; is that correct?

a. That's correct.

q. Approximately how many hours have you devoted to work for Microsoft over the last 24 months?

a. Since my hourly rate hasn't changed that much, if i knew my hours, i would know the dollar amount, Mr. Boies, and I'm afraid i don't.

q. Can you give me an approximation of your hours, because that was exactly my thought, that we can find your hourly rate, and while you may not remember how much money you're paid, you might remember how many hours you worked.

a. No. The hours and the amounts are on my monthly invoices. My monthly invoices are in a drawer at home. And i tend not to look at them after i have filed them. I simply -- i don't know.

q. One last question on this area. Can you give me any range or approximation of how many hours you've worked for Microsoft over the last 24 months?

a. Well, we could work backwards, of course, from the dollar amount, since i think my hourly rate over this period -- it went up, and i don't know whether it was during this period. But if you took $250,000, which i said is perhaps a not-implausible estimate, and divide it by $800 an hour, you would have an estimate of hours. But we're in speculation now, Mr. Boies. I just don't have a clear recollection.

I challenge all companies in the computer software industry to publicly announce that they think Dean Schmalensee accurately and truefully testified in this case.

11:06 AM PDT - $250,000 for an expert witness? (Cross examination of Dean Schmalensee begins by Mr. Boies, DOJ)

Mr. Boies: q. Good morning, Dean schmalensee.

a. Good morning, Mr. Boies.

q. I want to begin with a subject that we may both find a little bit awkward, but it is necessary in order to put into context some of Mr. Lacovara's examination of professor Fisher. how much money have you been paid by Microsoft?

a. Ever?

q. Well, let's begin with that.

a. I haven't done that calculation, Mr. Boies.

q. Approximately.

a. I can't do that as i sit here. It's been seven years. and it's been intermittent work. So a few peak periods and lots of time with relatively little activity. I can't do an order of magnitude as i sit here.

q. Could you give me any range at all?

a. It's very hard. It's certainly over a hundred thousand dollars, but it may be substantially over that, you know, if you just look at january and activity associated with this trial, but over the course of seven years, it's probably well above that, spread out over those years. i just simply can't do it, Mr. Boies. I'm sorry.

q. All right. Let me just take the last 24 months, the last two years. How much have you been paid by Microsoft over that period of time?

a. Mr. Boies, i'd have to look at my billing records. Some months, zero. Some months, like this one, pretty substantial. And i just simply don't know how to do that with any accuracy as i sit here.

q. All right. Can you give me any range or approximation as to how much money Microsoft has paid you over the last two years?

a. I would be speculating, Mr. Boies. I really would. I simply don't have the records. I haven't addressed the subject in my mind. i save old bills, but i don't have a tendency to pull them out and review them. I simply don't know. I work for a range of clients, and i don't know how to do that.

q. Let me just try to approach it this way. And if this doesn't work, i'll go on. over the last two years, has Microsoft paid you more than $250,000, if you can tell me?

a. I can say that it's more likely than not that that's correct, but i'm not sure i can go much farther than that. i can give you my subjective assessment. I think that is likely true, but i simply haven't looked back.

Almost all expert witnesses are paid for there time.

However, in this case, a number of observations must be made.

1) Dean's direct testimony is much more logical if you reverse almost all of the conclusions he made. (No barriers to entry being the most obvious.)

2) The Dean always ignores completely the economic impact of Microsoft's illegal acts.

3) The only explanation he ever had is that competition must be fierce and ferocious because only that would explain Microsoft pricing. (Well. Pricing is not explained by competition. Testimony and documents from Microsoft proved they ignored the ghost stories.)

4) And, most importantly, the Dean ignores testimony from Microsoft witnesses that disprove his conclusions.

Witnesses lie all the time. If you have a jury, the jury has to ascertain who is telling the truth and who is not. That is their job. In this case, there is no jury. So. The judge will have to make that determination.

Consumers might be gullible enough to believe what Dean Schmalensee is trying to say. But, I personally doubt if a single CEO in the computer software industry believes Dean Schmalensee when he testifies about the computer software industry. Even Gordon Eubanks (asked to testify by Bill Gates himself) stated that active and real competition in a product benefits consumers. That testimony contradicts the ridiculous conclusions made by Dean Schmalensee (I.E. that somehow consumers benefit from the actions of the monopolist, Microsoft). No economist I know of thinks that consumers benefit more from a monopolist than from active and real competition. (Not the fake stuff that the Dean trying to prove. Not the ghosts. Real, active and fair competition.)
 

Daily Wrap and Flow - Week27 (Schmalensee Direct)
Daily Wrap and Flow - Week26 (Colburn)
Daily Wrap and Flow - Week25 (Norris, Felten)
Daily Wrap and Flow - Week 24 (Fisher)
Daily Wrap and Flow - Week 23 - Break
Daily Wrap and Flow - Week 22 (court not in session)
Daily Wrap and Flow - Week 21 (court not in session)
Daily Wrap and Flow - Week20 (Count not in session)
Daily Wrap and Flow - Week19 (Court not in session)
Daily Wrap and Flow - Week18 (Engstrom, Kempin)
Daily Wrap and Flow - Week17 (Rose, Rosen)
Daily Wrap and Flow - Week16 (Myhrvold, Chase)
Daily Wrap and Flow - Week15 (Allchin 98Lite)
Daily Wrap and Flow - Week 14 (Maritz, 98Lite)
Daily Wrap and Flow - Week 13
Daily Wrap and Flow - Week 12
Daily Wrap and Flow - Week 11
Daily Wrap and Flow - Week 10
Daily Wrap and Flow - Week Nine
Daily Wrap and Flow - Week Eight
Daily Wrap and Flow - Week Seven
Daily Wrap and Flow - Week Six
Daily Wrap and Flow - Week Five
Daily Wrap and Flow - Week Four
Daily Wrap and Flow - Week Three
Daily Wrap and Flow - Week Two
Daily Wrap and Flow - Week One