12004 1 IN THE IOWA DISTRICT COURT FOR POLK COUNTY ----------------------------------------------- 2 JOE COMES; RILEY PAINT, ) 3 INC., an Iowa Corporation;) SKEFFINGTON'S FORMAL ) 4 WEAR OF IOWA, INC., an ) NO. CL82311 Iowa Corporation; and ) 5 PATRICIA ANNE LARSEN; ) ) TRANSCRIPT OF 6 Plaintiffs, ) PROCEEDINGS ) VOLUME XLIV 7 vs. ) ) 8 MICROSOFT CORPORATION, ) a Washington Corporation, ) 9 ) Defendant. ) 10 ----------------------------------------------- 11 The above-entitled matter came on for 12 trial before the Honorable Scott D. Rosenberg 13 and a jury commencing at 8:30 a.m., February 5, 14 2007, in Room 302 of the Polk County 15 Courthouse, Des Moines, Iowa. 16 17 18 19 20 HUNEY-VAUGHN COURT REPORTERS, LTD. 21 Suite 307, 604 Locust Street 22 Des Moines, Iowa 50309 23 (515)288-4910 24 25 12005 1 A P P E A R A N C E S 2 Plaintiffs by: ROXANNE BARTON CONLIN 3 Attorney at Law Roxanne Conlin & Associates, PC 4 Suite 600 319 Seventh Street 5 Des Moines, IA 50309 (515) 283-1111 6 MICHAEL R. CASHMAN 7 Attorney at Law Zelle, Hofmann, Voelbel, 8 Mason & Gette, LLP 500 Washington Avenue South 9 Suite 4000 Minneapolis, MN 55415 10 (612) 339-2020 11 KENT WILLIAMS Attorney at Law 12 Williams Law Firm 1632 Homestead Trail 13 Long Lake, MN 55356 (612) 940-4452 14 15 16 17 18 19 20 21 22 23 24 25 12006 1 Defendant by: DAVID B. TULCHIN 2 JEFFREY C. CHAPMAN Attorneys at Law 3 Sullivan & Cromwell, LLP 125 Broad Street 4 New York, NY 10004-2498 (212) 558-3749 5 KIT A. PIERSON 6 Attorney at Law Heller Ehrman, LLP 7 333 Bush Street San Francisco, CA 94104 8 (415) 772-6000 9 BRENT B. GREEN Attorney at Law 10 Duncan, Green, Brown & Langeness, PC 11 Suite 380 400 Locust Street 12 Des Moines, IA 50309 (515) 288-6440 13 14 15 16 17 18 19 20 21 22 23 24 25 12007 1 RICHARD J. WALLIS STEVEN J. AESCHBACHER 2 Attorneys at Law Microsoft Corporation 3 One Microsoft Way Redmond, WA 98052 4 (425) 882-8080 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 12008 1 (The following record was made in the 2 presence of the jury at 8:36 a.m.) 3 THE COURT: Everyone else may be 4 seated. 5 Members of the jury, we are going to 6 interrupt the videotape deposition that was 7 being played because we have a live witness 8 from out of town and we like to get witnesses 9 in and out of town. 10 So you may call your witness. 11 MS. CONLIN: It's that they love the 12 weather. 13 Yes, Your Honor. 14 The Plaintiffs call John Edwards. 15 THE COURT: Approach and be sworn, 16 sir. 17 JOHN EDWARDS, 18 called as a witness, having been first duly 19 sworn, testified as follows: 20 THE COURT: Please have a seat and if 21 you'd adjust the microphone so we can all hear 22 you, please. 23 MS. CONLIN: May I help him with the 24 desk, Your Honor? 25 THE COURT: You may. 12009 1 DIRECT EXAMINATION 2 BY MS. CONLIN: 3 Q. Tell us your name, please. 4 A. John Edwards. 5 Q. Mr. Edwards, where do you live? 6 A. Provo, Utah. 7 Q. What is your current occupation? 8 A. I'm the CEO of a company called Move 9 Networks. 10 Q. We'll talk about that in a minute, but 11 you were also an employee of Novell from 1988 12 until June of 1995; correct? 13 A. That is correct, 1988 to 1995. 14 Q. Okay. Tell us your educational 15 background. 16 A. I have a computer science degree and 17 MBA. 18 Q. Where did you get your degrees? 19 A. I got my computer science degree from 20 Brigham Young University, and the MBA from 21 Arizona State University. 22 Q. All right. And tell us what Move 23 Network, Inc., does. 24 A. Move provides a solution that allows 25 broadcasting of television signals on the 12010 1 Internet. 2 Q. Can you give us any more detail about 3 why yours is better than others? 4 A. It works. And we have a partnership 5 with some of the larger broadcasters, ABC, 6 Disney, and Televisa, which is the largest 7 Mexican and Spanish speaking broadcaster in the 8 world. 9 And it has the ability to stream for 10 hours and hours and hours without rebuffering 11 and without stopping and starting and having 12 problems. 13 Q. Okay. That will be nice. 14 How soon do you expect all of us to be 15 able to use that? 16 A. You can use it right now. You can go 17 to the Fox website and see all the video on it 18 and we are the providers of that video 19 solution. 20 Q. All right. When did you begin your 21 position with Move Networks, Inc.? 22 A. 2001. 23 Q. Prior to that, what did you do? 24 A. I was the CEO of I-Link. 25 Q. And what do they do? 12011 1 A. I-Link was also an Internet play. It 2 provided telecommunication telephone services 3 across the Internet for what's been called 4 voiceover IP and we started that company in 5 1996 and sought to be out there in the market 6 early and create new innovation in the area of 7 voice and fax services over an IP network, so 8 the Internet. 9 Q. Let's go backwards now to when you 10 graduated from college and tell us what you did 11 coming forward until today. 12 A. Well, I graduated from BYU and went to 13 work for Novell. That would have been in 1998. 14 I went in as the national marketing 15 manager for NetWare for Macintosh. So I 16 traveled the country and helped Macintosh users 17 understand that they had freedom of choice. If 18 they picked Macintosh desktop, that was fine 19 and we would support it. 20 I then went and became the product 21 manager of Network 386, then the product line 22 manager and then the director of marketing and 23 then the vice president of marketing, all over 24 the NetWare group. And then eventually was 25 asked to be the executive vice president of the 12012 1 desktop systems group. 2 Q. And when was that, Mr. Edwards? 3 A. 1992. 4 Q. Going back for a moment to the NetWare 5 product, tell the Jury, please, what NetWare 6 is. 7 A. We would have called NetWare a network 8 operating system. And all that meant is that a 9 desktop could share common disk storage, a 10 printer, a database, other kinds of network 11 services because of the operating system we 12 provided. 13 The purpose of that operating system 14 was to include all different kinds of desktops 15 in a common sharing environment. 16 So our -- I think the reason that 17 Novell was successful in that is because they 18 supported everything from DOS to OS/2 to Unix, 19 Macintosh, all the different types of choices 20 users were making at the desktop. 21 We allowed all of those to come 22 together and have a common communication 23 facility in a common sharing environment. 24 Q. Was Novell the market leader in 25 networking? 12013 1 A. Novell was the market leader in the 2 network operating system, and there are -- of 3 course, networking is a very broad market. And 4 there were lots of leaders in that market and 5 space, but for network operating systems, 6 Novell was the leader. 7 Q. And was the NetWare Novell's core 8 product? 9 A. It was. It was the core product of 10 their company. 11 Q. I want to focus for our purposes here 12 today on the time that you were executive vice 13 president of the desktop systems group. 14 And when did that begin? 15 A. April of 1992. 16 Q. Was that part of a reorganization that 17 got you into that job? 18 A. It was. 19 Q. All right. 20 MS. CONLIN: Would you, Darin, put up 21 the demonstrative exhibit that shows the 22 organizational table with Mr. Noorda at the 23 top. 24 There we go. 25 Q. All right. This is an organizational 12014 1 chart that shows you right in the middle. 2 And tell the Jury a little bit about 3 the organization of Novell under this new 4 strategy that took you to the desktop systems. 5 A. Well, as you can see, there are three 6 product groups with system at their name. The 7 desktop system group, the NetWare systems 8 group, and the interoperability systems group, 9 and so they were focused on things at the 10 desktop. 11 NetWare was still the network 12 operating system. And the interoperability 13 systems group was a set of products for 14 allowing Unix TCP workstations to work 15 together. 16 It was a market that we achieved 17 through the acquisition of Excelan. And then 18 we had acquired USL, which was the owner of 19 Unix and so that operating system group was 20 under Roel Pieper. 21 The corporate side, Mary Burnside ran 22 all of the common services, support sales as an 23 organization, education and training. 24 And then, of course, Jim Tolonen was 25 the CFO and David Bradford, the general 12015 1 counsel, and Darrell Miller was strategic 2 relations, which meant he spent a lot of time 3 in the market trying to understand the 4 ecosystem of all the companies that 5 participated in finding new opportunities for 6 us. 7 Q. How did you get this job having spent 8 all of your time previously in network? 9 A. I was asked. And after the 10 acquisition of DRI, Ray made the decision to 11 reorganize. 12 I really don't know all of the things 13 that led to that reorganization, but Ray called 14 Jan Newman in IN and promoted us. 15 Jan was the VP of engineering for the 16 NetWare systems group and I at the time was VP 17 of marketing for the NetWare systems group. 18 And Ray asked me if I would take over the new 19 group in the company. 20 Q. Were you replacing someone? 21 A. I was replacing Dick Williams, who was 22 the president, probably CEO as well, but 23 certainly the leader of DRI as we acquired it. 24 Q. What were your responsibilities as 25 executive vice president of desktop operating 12016 1 systems? 2 A. My responsibilities were to achieve 3 the strategic and tactical purposes of the 4 group which were, of course, to grow it, to 5 build the business. But to do it in a way that 6 accomplished the purposes for its acquisition, 7 which were to achieve a better networked DOS 8 operating system, to cause the marketplace to 9 continue to have alternatives and freedom of 10 choice at the desktop, which is -- we had 11 concern at the time that DOS users were being 12 prematurely abandoned. 13 And so we wanted to ensure and crop up 14 the DOS operating system in the market. And so 15 my goal was to achieve those purposes. 16 Q. What products were under your 17 jurisdiction? 18 A. Everything associated with how 19 desktops connected to the network operating 20 environment. 21 So we had a group in Monterey that 22 certainly was doing the DOS product -- Doctor 23 DOS as it sometimes was called or DR DOS. 24 There was the counterpart group in 25 England that was the engineering side of that 12017 1 group. We had the NetWare for Macintosh group 2 in Walnut Creek, California, and those were the 3 people who were creating everything that was 4 required to allow Macintosh to interface with 5 the OS. 6 There was the OS/2 group in Provo. 7 And, again, everything required to allow the 8 OS/2 operating system to connect to the 9 network. 10 And, then, the NetWare client which 11 was actually a small piece of code that allowed 12 the operating system to rather than getting 13 information off its most immediate disk to 14 allow it to redirect, as we called it, off to 15 the NetWare operating system to pull 16 information there seamlessly. 17 Q. When you use the word "client," it 18 means something different than when I do. 19 Tell the Jury exactly what a client 20 is. 21 A. On the -- call it a desktop or a 22 laptop, there is an operating system that runs 23 the hardware. And a client to me is a small 24 set of software that's placed on that desktop 25 to allow it to understand how to communicate 12018 1 with the network. 2 In a simple way, they might think of 3 that as a browser today, the browser and 4 associated protocol stack or communications 5 stack. 6 Back then, there weren't browsers of 7 that sort as popular. And so we had to create 8 plumbing. And it is kind of low-level plumbing 9 for connecting that desktop to a network. 10 Q. Let's put up Defendant's Exhibit 210A, 11 which is I believe your organization as you 12 took it over. You probably can't see, but up 13 in the corner it says April 1992. 14 Does this look like it looked when you 15 began your service as executive vice president? 16 A. Yes. 17 MR. TULCHIN: Your Honor, sorry to 18 interrupt. I wonder if I could be given copies 19 of the exhibits that are being used. 20 MS. CONLIN: Oh, I'm sorry. I'm not 21 into my rhythm yet. 22 Q. And your immediate -- you mentioned 23 Walnut Creek, Monterey, and Provo, and then you 24 had salespeople in various areas of the world? 25 A. Correct. 12019 1 Q. The second page of this exhibit 2 doesn't have any lines on it. Does it tell us 3 anything additional? It looks to me like -- do 4 you recognize that? 5 A. Yeah. It's just a breakdown of the 6 boxes that were on the former page, and I'm not 7 sure why it doesn't have lines. 8 Q. It's not some sort of free form 9 organization? It just doesn't have the lines 10 on it? 11 A. That's what I assume, yes. 12 Q. Toward the end of '93 or the early 13 part of '94, what happened with your career? 14 A. Ray asked me to take over the Appware 15 systems group. 16 Q. What is Appware? 17 A. Appware was a strategy for making it 18 easier for developers to write applications to 19 the network environment. 20 And so we had acquired a company 21 called Serious, which had software components 22 that made it really, really easy to write an 23 application that leveraged a database or 24 leveraged another network service. 25 Also in that group was the company's 12020 1 SDK, which is the software developer's kit, and 2 responsibility for proactively going after and 3 teaching the ISVs, the independent software 4 vendors -- a lot of acronyms in this industry 5 -- how to develop software. 6 Q. At that time did you have any 7 continuing responsibility for DR-DOS or then 8 Novell DOS? 9 A. No. 10 Q. Did you continue to consult as asked? 11 A. I did. The group was moved under 12 Richard King, and we responded to inquiries, 13 but we were no longer running the product 14 strategy for that group or that product. 15 Q. How long did you remain as the 16 executive VP of Appware? 17 A. About a year. 18 Q. Then what? 19 A. Then I was asked to become the 20 executive vice president of strategic 21 marketing. 22 At Novell I spent a lot of time 23 presenting to customers and to the market, and 24 so they put me in a position where I could do 25 that full time. 12021 1 I could present in the place of Ray or 2 Bob or others when an executive was called on, 3 and they didn't want to travel, but they 4 thought it was fine for me to travel. 5 Q. Did you travel in that job? 6 A. I traveled a great deal. 7 Q. And when did you leave that job? 8 A. In June, July of '95. 9 Q. And what next? 10 A. Took a little time off. Got to know 11 my family again since I was traveling so much. 12 And Ray called and asked if I would 13 come and work for him again in a little company 14 called Coresoft. And the open doc group was a 15 set of engineers at IBM and Apple, and actually 16 at WordPerfect at one time, that were creating 17 a competitive standard to the Microsoft object 18 linking and embedding. 19 This is a lot of technology, but it's 20 how software components called and worked with 21 each other. 22 When the industry had migrated to 23 object linking embedding, we had all these 24 wonderful open doc engineers, and Ray wanted to 25 find a way to allow them to continue to 12022 1 innovate. And he asked if I would come take 2 that group and help them do that, and so I did. 3 Q. And Ray is Ray Noorda? 4 A. Thank you. Ray is Raymond Noorda. 5 Q. And what did Coresoft do? 6 A. Most of the time spent there was in 7 product development. 8 We looked at applications like a 9 mortgage loan application, and we said how 10 could that application be built faster by using 11 reuseable components. 12 Much like if I were trying to build 13 something quickly with Legos as opposed to pour 14 all of the plastic myself. 15 And so we -- in fact, we talked 16 internally, it was Legoware. And it was real 17 quick ways to pull together objects that could 18 be reused. 19 And the emphasis was a lot on 20 telecommunication telephony. How do I handle 21 telephone applications in the conjunction of 22 those. In other words, how do I put together 23 more networking capabilities into common 24 vertical applications. 25 Q. Were you the CEO of Coresoft? 12023 1 A. I was the president, CEO of Coresoft, 2 yes. 3 Q. How long were you there? 4 A. I was there until April of '96. So 5 less than a year. 6 Q. Where did you go from there? 7 A. I-Link. 8 Q. And that's -- we've talked about that. 9 A. Correct. 10 Q. As the Internet telephone company? 11 A. Voiceover IP service for allowing the 12 Internet to become a highway for voice and fax 13 traffic. 14 Q. Before the merger of DRI and Novell, 15 were you familiar with DRI's product, DR-DOS? 16 A. I was. I had been a user of DR-DOS. 17 Prior to coming to Novell, I worked as a 18 technical coordinator for Brigham Young 19 University's PC environment. 20 And my job was to go out and show the 21 departments technology, new technology and how 22 it worked. And I was actually the technical 23 coordinator for Apple and for Apple Macintosh 24 products on campus, and the technical 25 coordinator for PC products. 12024 1 So, in that role, I tried lots of 2 software because somebody was bound to ask me 3 how does this work. And I used it there, and I 4 continued to use it on home systems when I left 5 Brigham Young University. 6 Q. All right. Over the weekend, we put 7 together a timeline to help guide us in our 8 discussion. 9 MS. CONLIN: Would you put that up, 10 please, Darin? 11 MR. TULCHIN: Your Honor, may we 12 approach on this? 13 THE COURT: You may. 14 (The following record was made out of 15 the presence of the jury at 8:57 a.m.) 16 MR. TULCHIN: Good morning, Your 17 Honor. I'll try to be brief on this. 18 A time line as a demonstrative, of 19 course, to the extent it reflects events that 20 the witness is capable of testifying about and 21 has firsthand knowledge of is perfectly 22 appropriate. And we've used time lines as 23 demonstratives with witnesses in the past. 24 This time line has many entries -- six 25 or eight -- prior to the time that this witness 12025 1 took over the desktop operating group at Novell 2 and has entries concerning events that he has 3 no knowledge of. In fact, in his deposition he 4 was quite clear about that. 5 So, for example, the third entry, 6 August 7, 1990, this is not his testimony that 7 is being referenced there. Likewise, the six 8 events in 1991 come at a time and pertain to 9 matters that he knows nothing about. 10 MS. CONLIN: On the contrary. 11 MR. TULCHIN: July 19, 1991, Gates 12 calls Novell's CEO Ray Noorda and suggests 13 Microsoft and Novell explore a merger. 14 Well, Mr. Bradford testified about 15 that. He had knowledge of it. But this 16 witness testified at deposition that he did not 17 have any involvement with DR-DOS or the desktop 18 operating systems group prior to April of '92. 19 And using this time line is a way not to 20 demonstrate for the jury events as to which 21 this witness will be testifying but a way, 22 instead, of preventing argument. 23 MS. CONLIN: This is ridiculous to me. 24 First of all, there is no question 25 about any of these dates, and they do play a 12026 1 role here. It's for the purpose of 2 establishing when particular events happened so 3 that the jury has context in which to view 4 them. 5 In fact, Mr. Edwards attended some of 6 the meetings in connection with the merger 7 discussion between Novell and Microsoft. He 8 was not asked about that at his deposition, but 9 that, in fact, is the case. 10 There is just nothing on this, Your 11 Honor. The release of Windows, really not 12 contested. 13 MR. TULCHIN: No. We don't contest 14 that, Your Honor. 15 MS. CONLIN: There is no date on here 16 that is contested. And the purpose of the 17 exhibit is to give the jury context. He was 18 there at Novell. He was fully aware of the 19 merger, and he was fully aware of the product. 20 And then, Your Honor, when he took 21 over the product, of course, he had to look at 22 the history of the product both within and 23 without Novell. So this is just form over 24 substance to the nth degree. 25 MR. TULCHIN: Your Honor, it's not the 12027 1 release dates of products. It's argument -- 2 for instance, next to July 19, 1991, I view 3 that as plaintiffs' argument. This witness had 4 nothing to do with that phone call; likewise, 5 the AARD code in December when he was 6 blissfully going about his job in another 7 section of the company. 8 The witness testified that in April of 9 '92 when he took over, he had very little 10 knowledge of anything that had gone on 11 concerning DR-DOS. 12 I'm happy to cross on that or to voir 13 dire on it, but the time line should not be 14 used to present argument. And the August 7th 15 entry, for example, 1990, I don't know what 16 that has to do with this witness. I just 17 don't. 18 MS. CONLIN: That's Cutlass. He was 19 asked about it. You asked -- or someone asked 20 him about the Cutlass project. That's what 21 that is, and he was shown that document when he 22 took over. There's nothing on this that is 23 even contested. 24 THE COURT: Did you prepare this? 25 MS. CONLIN: He and I prepared it 12028 1 together over the weekend, Your Honor. 2 THE COURT: Well, I suggest you 3 establish a foundation before you explain to 4 the jury as to whether or not he prepared a 5 time line, how it was done, and how he had 6 knowledge of these things. 7 MS. CONLIN: All right. 8 THE COURT: Then offer it as a 9 demonstrative. 10 MR. TULCHIN: Thank you, Your Honor. 11 (The following record was made in the 12 presence of the jury at 9:02 a.m.) 13 THE COURT: Please continue. 14 MS. CONLIN: Thank you, Your Honor. 15 BY MS. CONLIN: 16 Q. Mr. Edwards, take a look at the 17 timeline that's in front of you. It's been 18 marked Plaintiffs' Exhibit 10058A. 19 The first entry is your date of 20 employment; correct? 21 THE COURT: Do you have a copy of it? 22 MS. CONLIN: May I approach, Your 23 Honor? 24 THE COURT: Here. 25 THE WITNESS: Okay. Thank you. 12029 1 A. Could you state that again, I'm sorry? 2 Q. Yes, of course. 3 We are going to go entry by entry 4 here. 5 The first entry, that's when you 6 became employed; correct? 7 A. That's correct. 8 Q. And the second entry is the date that 9 Windows 3.0 is released. 10 At the time that Windows 3.0 was 11 released, you were in the software industry; 12 correct? 13 A. I was. I was in the industry. 14 Q. And that's a date that we actually 15 looked up; correct? 16 A. Yes. 17 Q. August 7th, 1990, is an entry having 18 to do with a Cutlass project. Do you recall 19 that? 20 A. I didn't know much about the Cutlass 21 project, but this date rings true to me. 22 Q. All right. Was it over by the time 23 that you took over the desktop systems? 24 A. It was. 25 Q. All right. 12030 1 A. I heard only about it anecdotally and 2 after the fact. 3 Q. As a part of your introduction to your 4 responsibilities on the desktop, did someone 5 provide you with a report or did you have 6 discussions with someone about the Cutlass 7 project? 8 A. I did. 9 When I first visited Monterey, 10 California, beautiful place, and to try to 11 understand what my new role was, there was a 12 gentleman there by the name of Phil Balma, who 13 had apparently worked closely on that project. 14 And he gave me a half an hour, 45-minute 15 rundown on what it was all about. 16 Q. Then the next entry is June 11th, 17 1991. Microsoft ships MS-DOS 5.0. 18 Again, you were in the industry at the 19 time and familiar with the events going on 20 around you? 21 A. I was. 22 Q. The next entry is July 17th, 1991. 23 Were you aware that Novell announced 24 its proposed merger with DRI on that date? 25 MR. TULCHIN: Objection, Your Honor. 12031 1 This is leading and I don't think the right way 2 to establish foundation. 3 THE COURT: Sustained. 4 Q. Look at the entry in connection with 5 the merger. Tell us whether -- tell us whether 6 or not you were aware of that. 7 A. I was aware of the announcement of the 8 merger with DRI on July 17th because I heard it 9 along with the rest of the company and had an 10 executive call me to brief me about it, 11 particularly Darrell Miller. 12 Q. Were you also aware of the next entry? 13 A. The next entry is Gates calls Novell's 14 CEO Raymond Noorda and suggests Microsoft and 15 Novell explore merger. Yes, I was. 16 Q. How did you become aware of that? 17 A. Ray told me about this call and about 18 their conversations. 19 Q. And did you participate in those 20 discussions? 21 A. I did not at this time. I 22 participated in future meetings between Ray and 23 Bill Gates, Mr. Gates, later in the year. 24 Q. All right. So you were -- what role 25 did you play, Mr. Edwards, in those discussions 12032 1 when you went along? 2 A. Ray Noorda had a tendency to take me 3 with him so that I could help as another mind 4 to understand the strategy, understand what 5 might be appropriate to do, understand the 6 technology and how it worked and if the 7 proposals would make business or sense at a 8 product level. 9 Ray was wonderful at understanding it 10 from a market strategy level. The best I've 11 seen. 12 But in terms of guidance on the 13 product details, he tended to take myself or a 14 couple of other people with him to most of 15 these types of meetings. 16 Q. And the date of the shipment of DR-DOS 17 6.0, were you aware that that had occurred? 18 A. I was there. I was at the company. I 19 was, again, the vice president of NetWare. 20 And when you belong in the operating 21 system group, it's really important to 22 communicate with every other group, at least 23 casually or to understand their products 24 because you were going to be responsible to 25 make them all work together. So I was aware of 12033 1 it and aware that they had shipped their 2 product. 3 Q. And then the date for the completion 4 of the merger, were you present and conscious 5 of that? 6 A. I was conscious at the time and I was 7 present at the time, and I was aware that the 8 merger was completed. 9 Q. All right. And then the next entry of 10 December 21, 1991, is that something that we 11 discussed over the weekend and talked about 12 various documents in connection with that 13 entry? 14 A. It was. 15 Q. Were you aware after you took over the 16 desktop that there were various problems with 17 with the Windows 3.1 beta and the DR products? 18 A. I was experiencing it realtime. The 19 answer to the question is yes. 20 I was experiencing that realtime 21 through feedback from original equipment 22 manufacturers, OEMs, and through large 23 customers we were working with. I was aware 24 that they were struggling with it. 25 MR. TULCHIN: Objection to the extent 12034 1 this testimony is hearsay, Your Honor. 2 THE COURT: Overruled. 3 Q. You may -- are you done? 4 A. Yeah, I think that's my answer. 5 MS. CONLIN: Your Honor, at this time 6 may I display Plaintiffs' Exhibit 10058A? 7 THE COURT: Any objection? 8 MR. TULCHIN: I wonder if I may just 9 have a moment of voir dire, Your Honor. 10 THE COURT: You may. 11 VOIR DIRE EXAMINATION 12 BY MR. TULCHIN: 13 Q. Mr. Edwards? 14 A. Yes. 15 Q. If I may ask you a question or two. 16 A. Certainly. 17 Q. It is the case, is it not, that prior 18 to April of 1992, April of 1992, you were not 19 working in the desktop operating systems group 20 at Novell; correct? 21 A. Prior to April of 1992, I was not 22 working -- that was not my primary mission or 23 goal or form of employment. 24 Q. No, I didn't ask you about your 25 primary role. I'm not confining this to 12035 1 primary or secondary. I wonder if you could 2 answer this question. 3 I thought I understood you to say in 4 answer to questions from Ms. Conlin that before 5 April 1992, you did not work in the desktop 6 operating systems group at Novell. 7 Is that correct? 8 A. That is correct. 9 Q. And is it also correct, sir, that you 10 didn't have much, if anything, to do with the 11 DR-DOS product until the time you took over 12 that group in April 1992? 13 A. I think that that's accurate. 14 What I would have had to do with it 15 is, as I explained, working with that group to 16 understand what their plans were and to help 17 them maintain compatibility with NetWare. But 18 not specifically on their product plans or 19 their strategies. 20 MR. TULCHIN: Nothing else, Your 21 Honor. 22 THE COURT: You may display it. 23 MS. CONLIN: Thank you, Your Honor. 24 There we go. Good. 25 DIRECT EXAMINATION (CONT'D) 12036 1 BY MS. CONLIN: 2 Q. Mr. Edwards, I want to ask you to look 3 in front of you at a document that is your 4 declaration. Do you see it? It's long. 5 MS. CONLIN: May I approach the 6 witness, Your Honor? 7 THE COURT: Yes. 8 MR. TULCHIN: Your Honor, again, if 9 there's a document in front of the witness, can 10 I be given a copy? 11 THE COURT: Please do. 12 Q. Mr. Edwards, is this a document that 13 you prepared? 14 A. Yes, it is. 15 Q. And did you prepare it at or near 16 January 15th, 1993? 17 A. Yes. 18 Q. Were the events that you record in 19 this document fresh in your mind at the time 20 that you prepared it? 21 A. Yes, they were. 22 Q. How did you go about preparing this 23 document? 24 A. I visited with the in-house general 25 counsel of the company as well as an external 12037 1 attorney and members of the product group in 2 pulling together data and understandings we had 3 concerning DR-DOS in market and our struggles 4 with the Microsoft practices in the channel. 5 Q. Did you prepare this document with 6 care and based on the documents and records of 7 Novell? 8 A. I did. 9 Q. Does it correctly record the facts and 10 circumstances as you then knew them to be? 11 A. It does. 12 Q. Is it necessary for you to refer to 13 this declaration to testify fully and 14 accurately? 15 A. It would certainly be helpful to do 16 so, yes. 17 Q. All right. And within the document 18 there are various facts and figures, including 19 lots of reference to dollar figures and the 20 like. 21 Without the document, could you 22 provide the Jury with that information from 23 your memory? 24 A. I can provide sketches of it, but it's 25 been 15-plus years, so it's been a long time. 12038 1 So it would be more helpful to have that. 2 Q. Is it necessary for you to have it to 3 testify fully and accurately? 4 A. Yes. 5 MS. CONLIN: Your Honor, we would not 6 offer this document as past recollection 7 recorded, that's the purpose of the foundation, 8 but I would like permission of the Court to 9 permit the witness to refer to the document in 10 the course of his testimony because it is past 11 recollection recorded, an exception to the 12 hearsay rule under Iowa Rule of Evidence 5.803 13 Subsection 5. 14 MR. TULCHIN: We object, Your Honor. 15 This has been the subject of prior litigation 16 and has been ruled inadmissible. 17 And using the document in the manner 18 that I think Ms. Conlin is suggesting is not 19 proper recollection refreshed. 20 And what it is is this witness, in 21 effect, testifying to an inadmissible document 22 by using it as a substitute for his 23 recollection. 24 THE COURT: The witness may use it to 25 refresh recollection, but he may not read from 12039 1 it and it must be shown only in the procedure 2 used for refreshing recollection. 3 MS. CONLIN: All right, Your Honor. 4 Q. Let's go back -- 5 MR. TULCHIN: Your Honor, I'm sorry to 6 interrupt. 7 Is it correct that this witness ought 8 not to have the document in front of him 9 throughout his testimony? 10 THE COURT: That is correct. 11 MR. TULCHIN: But instead be shown 12 portions only when necessary? 13 THE COURT: That is correct. 14 MR. TULCHIN: Thank you, Your Honor. 15 MS. CONLIN: May I approach, Your 16 Honor? 17 THE COURT: You may. 18 Q. When you took over the desktop 19 systems, did you review the records of DRI and 20 the records of the company after it became a 21 part of Novell? 22 A. I did. I went to the group in 23 Monterey. I lived there for some period of 24 time, couple weeks, away from home, and 25 interviewed the people and looked at the 12040 1 trailing couple of quarters of financials. 2 Spent most of my time trying to 3 determine a strategy to move forward. There 4 were coordination efforts to do because we had 5 people that were now working together that 6 hadn't before. But I did review with them 7 their activities in the market and their plans. 8 Q. Did you do that with the other aspects 9 of the company? Did you go to England, for 10 example? 11 A. I went to England and did a very 12 similar thing there. I met with a group, some 13 of which -- some of whom I was meeting for the 14 very first time, and talked about what I felt 15 would be the direction of the group as I 16 understood it and talked to them about -- and 17 reviewed their plans. And principally in 18 England was the engineering team. The business 19 team for the most part was in Monterey. 20 Q. Did you at the time that the merger 21 was occurring, did you ascertain the reasons 22 why Novell and DRI merged? 23 A. I did. I developed very quickly -- a 24 week before I was asked to take over the group, 25 a week to ten days, Ray took me to the Monterey 12041 1 offices and not in the capacity of you're going 2 to take over this group, but in the capacity of 3 help me understand what you think about this 4 group. 5 And so I'd had a little bit of 6 preparatory time to build my own personal view 7 of the world. And that was really important 8 because when I was asked to take over the 9 group, I had to then pull together a strategy 10 very quickly. 11 Q. All right. What were the reasons that 12 Novell wanted to merge with DRI? 13 A. I think the overriding reason was to 14 build, you know, a revenue and a product 15 opportunity in the marketplace. 16 But any time you have that, there's 17 always a strategy that you're trying to 18 achieve. 19 And the number one strategy was to 20 build more networking capabilities into the DOS 21 operating environment, which means we wanted to 22 simplify how it integrated with a network. 23 We wanted to deliver management tools 24 to help large customers in particular, as well 25 as small, manage and keep the cost down for 12042 1 having a PC. A lot of people would tell us 2 that it cost more to own it than it did to buy 3 it. 4 It was also to continue this theme we 5 had in the company of freedom of choice. We 6 felt that Microsoft was prematurely abandoning 7 the DOS market and that there was a good 8 section of customers that really were happy 9 with what they had. 10 And we wanted to make sure that 11 someone was going to provide an operating 12 system to that market and wouldn't force them 13 to buy new hardware and to buy new applications 14 prematurely. 15 And then we could see a strategy 16 unfolding in the marketplace with what I call a 17 tying strategy where Microsoft seemed to us to 18 be trying to link together their networking 19 with Windows and DOS and their applications in 20 ways that we felt were very threatening to 21 innovation in the industry. 22 So prevent the tying, provide 23 alternatives, freedom of choice, provide a 24 better network to DOS, all under the common 25 umbrella of build a successful product. 12043 1 Q. You mentioned freedom of choice. 2 Before you took over the desktop 3 systems, was there some marketing opportunity 4 that you developed? 5 A. Yes. We developed a campaign called 6 freedom of choice. 7 People knew us in the marketplace as 8 not only the network operating system, but the 9 operating system that would allow -- we were 10 Switzerland. 11 We could allow everybody to work 12 together in a way that was helpful. We said 13 you make the choice of the desktop you want, 14 we'll support it and integrate it to networking 15 services. 16 And that common umbrella for that 17 strategy and that marketing campaign was 18 freedom of choice. 19 Q. So this was not a new theme for the 20 company? 21 A. It was not a new theme for the 22 company. It's a theme that had been in 23 existence at the time and a theme that we 24 continued to build on over the next few years 25 as well. 12044 1 Q. At the time of the merger of DRI and 2 Novell, was DR-DOS supported by NetWare? 3 A. DR-DOS was supported by NetWare. As I 4 recall, it was on the list of compatibility 5 applications and/or services. And it was 6 supported by the product. 7 Q. What were the advantages to DRI 8 joining Novell? What were DRI's advantages? 9 A. Bigger presence in the marketplace 10 that Novell provided, which included broader 11 relationships with original equipment 12 manufacturers, OEMs. 13 Novell had great presence in those 14 accounts because they were working with us on 15 our network operating system, additional 16 financial resources to carry on a very 17 difficult campaign in the market against the 18 market monopoly. And additional resources in 19 terms of people and expertise. 20 Q. In the course of time that you ran the 21 desktop systems and the DR-DOS Novell DOS 22 product and in looking at the history of the 23 company, did you ever find any indication that 24 DRI was anything less than completely 25 forthright in terms of its presentation in 12045 1 connection with the merger? 2 A. I never found any indication that 3 there was less than complete forthrightness in 4 connection with the merger. I didn't -- I 5 certainly didn't know of anything. 6 I was not involved much in the 7 conversations that occurred at merger time, but 8 I did not become aware, nor was I aware then, 9 of any misinformation or miscommunication. 10 Q. Let's talk about when you walked into 11 your position, which we think is about April 12 3rd? 13 A. April 3rd. 14 MR. TULCHIN: Objection, leading, Your 15 Honor. 16 There's no such testimony. 17 THE COURT: Overruled. 18 Go ahead. 19 A. I walked into -- I became an executive 20 vice president in the company in the first part 21 of April, approximately April 3rd. 22 Q. And what were your expectations, 23 Mr. Edwards? What did you think would happen 24 with DR-DOS? 25 A. I felt like we had an opportunity in 12046 1 the market to grow it, to grow the revenues 2 associated with that product, and to deliver it 3 at an accelerated pace in the marketplace. 4 I felt like we could champion the 5 cause of those users who wanted to remain in a 6 very simple current location they were at, 7 which was a DOS operating system with DOS 8 applications and things that worked for them. 9 I noticed that the revenue for the 10 companies had been growing. And I felt like we 11 could accelerate their growth because of what 12 Novell would bring to the table are their 13 ability to get to top tier OEMs and the ability 14 to leverage our market presence. 15 We had a great reputation for 16 technical excellence and for looking after the 17 customer and supporting them well. 18 So I felt like we could build the 19 revenues and build a small fraction of a base 20 in a desktop operating system world. 21 Q. What do you mean by a small fraction? 22 A. Well, at the time, my estimates, as I 23 recall, were that we could be in the 24 neighborhood of 7, 10 percent of the market 25 potentially. 12047 1 Microsoft was clearly the dominant 2 player, the controlling player in the 3 marketplace. There's no question about that. 4 I don't think we had any visions that 5 we were going to unseat that. We just felt 6 like there was a collection of users that would 7 like the fact that we were going to give them a 8 longer life and a longer opportunity to use 9 their current investment. 10 So a small percentage of the 11 marketplace, probably somewhere 7, 10 percent. 12 Maybe higher if we got -- if we were really 13 good. 14 Q. All right. What had DR-DOS's sales 15 been in the preceding two fiscal years? 16 A. I believe in 1990, the total sales was 17 somewhere around 15 million. In '91, it was 18 growing and had achieved 30 million. 19 Our initial estimates were that we 20 could be 60 to 80 million if we got lucky, some 21 of it being optimistic. We learned very 22 quickly those were optimistic numbers, but we 23 felt that there could be significant growth. 24 Q. What did you estimate the installed 25 base of DR-DOS was? 12048 1 A. About 5 million users. 2 Q. Where was the growth occurring, in 3 what channel? 4 A. The growth was occurring was in the 5 retail channel, so -- and this was one thing 6 that I appreciated, was that they were getting 7 people who had received a computer with an 8 operating system to install a brand-new 9 operating system. 10 Now, certainly, these were probably 11 power users, but that is no small effort to do 12 that. That's a big effort. And so I was 13 impressed by that. 14 I was impressed that some of the 15 features they had in that product, better 16 memory utilization, the ability to get twice or 17 more capacity out of your disk storage, those 18 kinds of things, the security services, those 19 kinds of things were powerful enough that 20 people were willing to uninstall an operating 21 system and reinstall another one, which is not 22 a small thing. So I was impressed. 23 Q. All right. In terms of the growth in 24 the retail channel in '91, was -- is there some 25 measure that software vendors used in terms of 12049 1 how their sales are going in the retail 2 channel, top 15, whatever lists? 3 A. Yes. There were constant reportings 4 of what are the top 10, the top 20 applications 5 being sold to customers. 6 And DR-DOS was, I think, at one time 7 top 15. They were always in this group of 8 applications that were doing very well in the 9 marketplace. 10 Q. What Microsoft product was in the 11 market -- what Microsoft operating system 12 product was in the market when you took over in 13 April of 1992? 14 A. The predominant product in the 15 installed base at that time as I recall was the 16 DOS 4 service. 17 DOS 5 had been announced, but the 18 predominant users that were there at the time 19 were using MS-DOS 4, 4.1. 20 Q. All right. Let's see, and I hope I 21 have on there when MS ships MS-DOS 5.0, June 22 11th, 1991. 23 A. Correct. 24 Q. But you're saying that even though 25 MS-DOS 5.0 was in the market, many people were 12050 1 still using 4? 2 A. Yeah. I think the installed base was 3 around 4. Microsoft had come out with MS 5. 4 It was gaining traction and accelerating, but, 5 just looking at an installed base, I would say 6 that a good share of people were still in the 7 process of considering an upgrade, a change. 8 Q. What was the predominant issue for 9 users at the time that you took over? 10 A. Well, the users certainly would be 11 segmented into at least a couple of groups. 12 Customers using products at their home 13 or personally and corporate users using it in 14 larger businesses. 15 And the corporate user side, the cost 16 of ownership or how difficult it was to 17 upgrade, to maintain, to invest in new 18 technology, that was something we heard over 19 and over again as their biggest issue. 20 On the user, it was just make it 21 simpler. Give me something that's simpler to 22 use and that doesn't cause me to incur 23 additional incremental costs. 24 Across both groups was the issue that 25 was beginning to be prominent, which was 12051 1 networking. How do I get beyond my own island 2 of information, island of technology, how do I 3 connect it to the world and connect it to 4 everything out there? 5 I really felt like the seeds of the 6 Internet were being planted right about then 7 and networking was becoming a more significant 8 issue in the market. 9 Q. What was your idea about what the DOS 10 should focus on? What had been the technology 11 improvements? 12 A. I felt like we should focus on making 13 it a better networked operating system. We 14 should put networking services in it. We 15 should create an ability for users to leverage 16 it in a network space. 17 On a pure DOS operating system basis, 18 things like a better ability to run 19 application, memory management, a better 20 ability to increase how much you could store on 21 your disk, disk compression technologies was 22 important, but my view was those, plus the key 23 ingredient of linking it up to the network and 24 creating good interface between it and the 25 network were really key. 12052 1 Q. How did you intend to go about growing 2 your business? 3 A. I felt the most important thing was to 4 get out to large OEMs and OEMs in general and 5 take advantage of the way products, network and 6 desktop operating systems come to a market. 7 We were principally in the retail 8 space, and that was great and they were having 9 some success, but the long-term success had to 10 be based upon getting to the OEMs and getting 11 them to take a percentage of their machines. 12 That way we could have customers 13 receiving machines that already had the 14 operating system installed and as opposed to 15 always having to receive a machine and go to a 16 store and buy a product and then install it. 17 And so it was really key to get large 18 OEMs to begin to use and to sell a percentage 19 of their hardware, a percentage of their 20 systems with DR-DOS included in them. 21 Q. You mentioned top tier. How is the 22 OEM space organized? 23 A. Well, I always in my mind put it into 24 at least three buckets. And the top tier were 25 the DEC and the HP and Compaq, NEC, companies 12053 1 like that that had not only just market 2 presence or large numbers of customers, but 3 were known for technology leadership, were 4 known for an ability to lead the market and put 5 new innovation out there and people would trust 6 and accept it. 7 There was a second tier of providers 8 that pretty well followed the top tiers, but 9 they were there in the second tier, not so much 10 because they had technology or market 11 leadership, but because they had large volumes 12 of Acer or, really, in some ways Olivetti. 13 Companies that were really important to the 14 marketplace, but I didn't classify them as true 15 leaders. 16 And then there was a third tier, which 17 were a lot of small OEMs that could be putting 18 together identical office package and they 19 would load things on it with a couple of 20 applications and bundle it and sell it into the 21 marketplace, what we called vertical 22 application bundling, or they were just selling 23 to smaller businesses. 24 And they were just leveraging the 25 growth in the industry overall. They weren't 12054 1 leaders. They tended to come and go, go in and 2 out of business a lot. 3 So they were a very expensive customer 4 to service. You could spend a lot of time 5 educating them and training them on your 6 product only to have them go out of business 7 and start all over again with somebody else. 8 And so it was really key to me in 9 order to succeed long term to participate on 10 some bases with the top tier OEMs. 11 Those were the ones that could give 12 credibility to our product in the marketplace. 13 Those are the ones that could take advantage of 14 new innovation we would have and deliver it to 15 end users. 16 And by getting a few of those, others 17 would follow. And then that would 18 simultaneously increase the retail presence 19 because -- this is a communication cycle that 20 gets involved in momentum. Some units ship out 21 into the marketplace. The users see that, the 22 press sees that. They comment on it. The 23 retail channel has a positive view of it. 24 And you've got to get that whole 25 ecosystem working in order for you to be able 12055 1 to sustain a long-term presence in an operating 2 system market. 3 Q. Can you estimate for the Jury what the 4 share is, the market share is of what you say 5 are, like, the top two tiers? 6 A. Well, I think at one time, there were 7 probably 50 percent of the distribution into 8 the marketplace was delivered by the top 20, 25 9 OEMs. It was a significant number. 10 I believe somewhere in the year I took 11 over, there were approximately 10 million new 12 DOS shipments. I think it was 9 something, 9 13 million. And at least half of those came from 14 the top 20, top 25 providers. 15 And I think that in that same time 16 frame, just to give you some basis for 17 judgment, I think there were approximately 8 18 million new PCs that shipped. 19 And so if you're looking at, well, 20 there's 9 or so million DOSes sold into the 21 market and 8 million PCs, you can see that the 22 incremental million had to do with probably 23 what was being purchased in retail. 24 The vast majority was coming with an 25 operating system would be my estimation. 12056 1 And so you wanted to be a part of the 2 bigger group in order to lay the foundation for 3 succeeding in the market overall. 4 Q. Are there differences in costs between 5 selling your product retail and selling it 6 through OEMs? 7 A. There are significant differences 8 because -- when you go to an OEM market, you 9 might go to a business like Compaq or Dell -- 10 Compaq isn't there anymore, I guess, having 11 been acquired by HP. 12 You go into Dell. They have a very 13 automated system for building the computer and 14 then loading software on it. And you would 15 provide them what we call the disk master or 16 gold disk. 17 They would get that plus some 18 documentation, typically electronically. They 19 would take that, load it up into their systems, 20 and then could stamp copies of operating 21 systems down the assembly line on the PCs. 22 So the material cost, the cost of 23 buying the document or the cost of those things 24 were significantly lower. 25 In the retail channel, you had to get 12057 1 costs that were magnified in a number of ways. 2 You had the physical goods cost 3 because either you are using back then 4 sometimes floppy disks or CD-ROMs to load the 5 software on. Then you had a physical manual. 6 You had to design a package for the box and 7 shrink wrap it. 8 You had the marketing costs associated 9 with creating the demand, creating a reason for 10 you to know that there was a better DOS out 11 there, and then to go to a store and buy it. 12 So the friction in the market was 13 substantially greater in the retail versus the 14 OEM market. 15 Q. What was the total installed base for 16 DOS operating systems in this time frame, '92 17 -- '91, '92, '93? 18 A. Oh, you know, I don't know that I 19 recall what the total number was. 20 Q. Let me see if I can help you. 21 A. Well, that would be wonderful. 22 Q. All right. I'm showing you your 23 declaration, paragraph 84. 24 MS. CONLIN: May I approach, Your 25 Honor? 12058 1 THE COURT: Yes. 2 Q. If you would read that, and when 3 you're done you can hand it back to me and I 4 will go sit down and then you can tell us. 5 Did that refresh your recollection? 6 A. It certainly does. 7 Q. All right. 8 A. I read it and I wrote it, so -- 9 100 million was probably -- was the 10 total market size in the '91-'92 time frame, 11 and so it's a very significant base of 12 computers. 13 Q. Do you recall how many new copies of 14 the DOS were sold in 1992? 15 A. New copies of DOS, somewhere around 16 9.4 million new, I believe. 17 Q. I misunderstood. Let me look back at 18 this. 19 MS. CONLIN: May I approach, Your 20 Honor? 21 THE COURT: You may. 22 Q. In that same paragraph, Mr. Edwards, 23 for the purpose of refreshing your 24 recollection, see if you can see what the total 25 shipments were. 12059 1 A. This says 24 million new copies of DOS 2 so. 3 MR. TULCHIN: Your Honor, I object to 4 what it says. It's either his recollection has 5 been refreshed by reading this or it hasn't 6 been. Just reading from an inadmissible 7 document is inappropriate. 8 THE COURT: Sustained. 9 Did you refresh your recollection? 10 THE WITNESS: You know, I don't 11 remember the numbers very well at that time. 12 So I don't have a good recollection of what the 13 new shipment numbers were sitting here today. 14 MS. CONLIN: Well, as past 15 recollection recorded, Your Honor, he can refer 16 to his document and review it and tell the Jury 17 what the document said at the time that he was 18 fully aware of what the numbers were. 19 THE COURT: Show it to him again. 20 MS. CONLIN: Thank you, Your Honor. 21 May I approach, Your Honor? 22 THE COURT: You may. 23 Q. And at the time that these numbers 24 were fresh in your memory, Mr. Edwards, what 25 did you record as the number of new copies sold 12060 1 in 1992? 2 MR. TULCHIN: Same objection, Your 3 Honor. 4 THE COURT: Overruled. 5 You may answer. 6 A. 24 million. 7 Q. All right. 8 MS. CONLIN: May I approach, Your 9 Honor? 10 THE COURT: You may. 11 Q. At the time that you took over, what 12 was your view of what DR-DOS might be able to 13 sell, do in the fiscal year of '93? 14 And tell the Jury what the fiscal year 15 was. 16 A. Well, the fiscal -- typically 17 companies will operate on a -- well, not 18 typically, but a fiscal might be January 19 through December. 20 Novell had a year end on October 31st, 21 and I believe that DRI had a year end on 22 September 30th or the end of September. 23 So in speaking of that in terms of 24 fiscal year then, for the combined -- for what 25 I would have viewed this, I would have taken on 12061 1 quickly the Novell view of the world. 2 And for me the first quarter would 3 have ended at the end of January, and in April 4 when I took over the company or took over the 5 desktop systems group, we would have been in 6 the second quarter of the year. 7 Our initial estimates -- and viewing 8 the plans that the product teams had at the 9 time was in the 60, 67 million target for that 10 year. 11 I was very optimistic that we could do 12 even more than that in terms of revenue 13 opportunity for the product. 14 Simply because I believed with the 15 addition of Novell's presence in these larger 16 OEM companies, we had great relationships with 17 them, an ability to call on them and get a 18 meeting and have them sit down and take our 19 thoughts seriously, I felt like we could 20 capture a small percentage of this rapidly 21 growing marketplace. 22 Q. Were the projected sales -- or were 23 there budgeted projections for sales by 24 quarter? 25 A. There were. 12062 1 Q. And have you prepared or did you 2 prepare in connection with your declaration a 3 chart to illustrate what budgeted and projected 4 sales were for each quarter of 1992, fiscal 5 '92? 6 A. I did. 7 MS. CONLIN: Your Honor, at this time 8 the Plaintiffs would offer Plaintiffs' Exhibit 9 10055. 10 Q. Mr. Edwards, is Plaintiffs' Exhibit 11 10055 the DR-DOS 1992 sales forecast by 12 quarter? 13 A. Yes. 14 MR. TULCHIN: We object to this, Your 15 Honor, and I wonder if we could have a sidebar? 16 THE COURT: Okay. 17 (The following record was made out of 18 the presence of the jury at 9:45 a.m.) 19 MR. TULCHIN: Your Honor, here is the 20 problem with this exhibit. This is a chart 21 prepared for this declaration which was 22 submitted to the FTC. The declaration is legal 23 argument. It was submitted to the FTC in 1993 24 by Novell as part of an effort that Novell was 25 making to try to convince the FTC to take 12063 1 action against Microsoft on a title of, I 2 believe, five different subjects. 3 Eventually, the Department of Justice 4 took over the investigation after the FTC 5 declined to take any action -- the vote was two 6 to two -- and it was necessary for a majority 7 to agree to proceed to take action. 8 But this chart is not a business 9 record, and, of course, neither is the 10 declaration. The chart comes from, I believe, 11 Your Honor, paragraph 7, page 5 of the 12 declaration. The designation was litigated 13 before the Special Master who decided that this 14 was not admissible. And this chart, had it 15 been a business record of Novell, had it 16 existed somewhere in the files of Novell as 17 part of its normal business operations, of 18 course, would be admissible. But as far as I 19 know, the chart does not exist in the business 20 records of Novell. It was prepared for 21 purposes of the argument that Mr. Edwards and 22 Mr. Bradford and Novell made to the FTC. 23 And so this chart and a number of 24 others that I think are coming, there are two 25 or three other charts in this declaration that 12064 1 I believe Ms. Conlin intends to ask this 2 witness about, they are not business records. 3 They are part of a document that was excluded. 4 I don't recall if they appealed that. No, they 5 didn't appeal the ruling of the Special Master 6 to the Court. 7 And all we're doing now is trying to 8 get in through the back door something that is 9 within the purview of the Palmer case, a 1943 10 decision by the U.S. Supreme Court written by 11 William Douglas. This is not a proper business 12 record at all. It is hearsay. Again, if there 13 were such a document within Novell's files and 14 that document was in the possession of the 15 plaintiffs or Microsoft in this case because it 16 had been produced in response to a subpoena, we 17 would be in a different situation and this 18 would be admissible. But as far as I know, 19 it's not. 20 MS. CONLIN: Your Honor, let me first 21 address the issue that Mr. Tulchin has often 22 brought to the Court and the Court has often 23 overruled. 24 The fact is that the Special Master 25 process was designed for pretrial kinds of 12065 1 objections. I've laid a proper foundation for 2 this document as past recollection recorded, 3 something that could not be done before the 4 Special Master. That's thing one. 5 Thing two is I have laid a proper 6 foundation for this document under Rule 1006. 7 What is in the Novell records are these budget 8 projections. This is simply a diagrammatic 9 display of what the projections were for the 10 year 1992. He had indicated that those records 11 were used for the purpose of preparing this 12 chart. And how that chart was used is not 13 really material to the issue of whether or not 14 this is a useful piece of evidence for the jury 15 to have for the purpose of considering 16 Mr. Edwards' testimony. And I've laid the past 17 recollection recorded foundation. I have laid 18 the foundation appropriate for the 19 admissibility of this chart under Iowa Rule of 20 Evidence 5.1006. 21 And Mr. Tulchin is right, I think 22 there are two or three more charts of this kind 23 that were prepared by Mr. Edwards there, the 24 books and records of Novell at the time and 25 this kind of diagrammatic portrayal is 12066 1 explicitly and sufficiently admitted and 2 indicated as admissible under Rule 1006. 3 THE COURT: As he testified, I don't 4 recall him testifying yet that he prepared 5 these from the documents from Novell. 6 MS. CONLIN: I think he said that in 7 connection with the preparation of the 8 declaration. I can lay a specific foundation 9 if the Court desires for each of these 10 exhibits. 11 MR. TULCHIN: Your Honor, I don't 12 think that takes care of the problem entirely. 13 A couple of things, if I may. 14 What is useful for the jury, of 15 course, that's a nice way of thinking about 16 evidence, but there are rules about hearsay 17 that apply even when a document might be 18 useful. That isn't the end of the inquiry. 19 This isn't past recollection recorded 20 because this witness by definition has no 21 recollection of these numbers. He wasn't even 22 working in the group at the time that these 23 sales were apparently made. 24 But, again, if this were really a 25 business record, that would be one thing. This 12067 1 chart doesn't appear and the numbers from which 2 the chart were prepared apparently don't appear 3 in Novell's records. Neither side has them and 4 nothing was produced to us in response to the 5 subpoena that I believe Novell received in 6 1998. 7 So, Your Honor, this is part of a 8 document that by definition is legal argument 9 made to the FTC. And this chart and the ones 10 that follow it were part of an effort made to 11 get the FTC to do to Microsoft legally what 12 Novell couldn't do in the marketplace. 13 Again, the Department of Justice and 14 Microsoft eventually agreed in the '94 consent 15 decree that the per processor licenses would no 16 longer be used. But this legal brief, you 17 know, is masking in terms of a declaration that 18 was prepared at Novell by Novell's lawyers in 19 large part. If this were based on business 20 records and we had the evidence that that were 21 so, it would be commended. But there is 22 actually nothing that indicates that this is a 23 reflection of Novell's business records. 24 For example, in the declaration 25 itself, the witness doesn't provide any source 12068 1 for this information. There is a chart later 2 on, on page 21, which I think Ms. Conlin is 3 probably coming to. And that chart, again, 4 like this one, doesn't contain any source 5 information. It doesn't say that this comes 6 from a particular file or record of Novell. 7 It's just part of the argument. So I don't 8 think it's past recollection recorded. By 9 definitions these numbers could not be his 10 recollection, and it's just pure hearsay. 11 MS. CONLIN: Microsoft does have the 12 business records of Novell on which this was 13 based. They got them in 1996 or '97 in 14 connection with the Caldera case. I don't know 15 what they did with them; but, nonetheless, Your 16 Honor, this is perfectly permissible and 17 appropriate under the rules of evidence. 18 And Mr. Tulchin's arguments with 19 respect to the purpose to which the document 20 was put is totally immaterial. That's not the 21 purpose for which we are offering it to the 22 jury. We are offering it to the jury. It's 23 just numbers. You know, it's calculations. 24 It's what they expect to sell. 25 And the next one coming up, Your 12069 1 Honor, is the sales that -- from the sales of 2 the actual product for the four quarters of 3 1992 in a comparison of that in their budget. 4 And I don't recall exactly what the 5 next one is -- perhaps Mr. Tulchin does -- but 6 these are documents that we believe that the 7 jury would find useful and that we believe are 8 admissible under the 1006. 9 MR. TULCHIN: One small point, Your 10 Honor. 11 There was a subpoena to Novell in the 12 Caldera case. It might have been before 1998. 13 I was under the impression it was 1998, but I 14 just want it to be clear that all the documents 15 that Novell gave to Microsoft in response to 16 that subpoena were turned over to the 17 plaintiffs in this case. So we have nothing 18 any different than they do. 19 MS. CONLIN: I'm not suggesting 20 otherwise. You just said you didn't have the 21 records. I say you do. 22 MR. TULCHIN: If there's a record -- 23 Ms. Conlin has a business record of Novell that 24 contains these numbers or this chart, that's 25 what should be used, not something from this 12070 1 argumentative declaration. 2 MS. CONLIN: There's nothing 3 argumentative about this. This is just 4 numbers. 5 THE COURT: Well, my feeling is that 6 any type of chart such as this and by what was 7 contained in it, she's going to have to 8 establish foundation, how this was prepared, 9 what he used to prepare it, for what purpose, 10 obviously for sales forecasts, I guess. 11 The argument Mr. Tulchin is making in 12 regard to the chart itself, I think that goes 13 rather to weight rather than to the 14 admissibility of the chart. 15 I understand fully his argument 16 concerning declaration. I agree with him 17 totally on that. However, with this I think 18 you can establish, by proper questioning, lay a 19 foundation for the chart he prepared himself, 20 but you're going to have to go through how it 21 was done, how it was prepared, where he got the 22 numbers, what he used to do it. And then at 23 that time when you introduce it, the Court will 24 rule on its admissibility. 25 As far as any other things from that 12071 1 designation, I tend to agree with defendant on 2 that. So you've got to establish and I think 3 the argument really goes to weight rather than 4 admissibility. 5 Clearly on cross-examination the 6 defendant will be allowed to delve into how -- 7 you know, whether he was given information to 8 the FTC and to show to a jury that maybe the 9 numbers, even though he says were taken from 10 business records, that somehow maybe they're 11 not reliable based on his bias or prejudice 12 against Microsoft. 13 So on that basis, if you can establish 14 a foundation, I can see how it could be 15 admissible. But right now there is no 16 foundation, none. 17 MS. CONLIN: I'll lay the foundation, 18 Your Honor. 19 MR. TULCHIN: Thank you, Your Honor. 20 THE COURT: Thank you. 21 (The following record was made in the 22 presence of the jury at 9:58 a.m.) 23 THE COURT: Ladies and gentlemen, it's 24 time for a break. 25 Please remember the admonition 12072 1 previously given. Leave your notebooks here. 2 We'll be in recess for approximately 3 ten minutes. 4 All rise. 5 (A recess was taken from 9:58 a.m. 6 to 10:16 a.m.) 7 THE COURT: Everyone else may be 8 seated. 9 Mr. Edwards, be seated. You are still 10 under oath. 11 MS. CONLIN: May I approach the 12 witness, Your Honor, with the desk? 13 BY MS. CONLIN: 14 Q. Mr. Edwards, looking at the document 15 in front of you which has been marked 16 Plaintiffs' Exhibit 10055, how was that graph 17 prepared? 18 A. This was a projection of sales for 19 1992. And it would have been prepared by 20 meeting with the financial group inside of 21 Novell, the sales team, the product team, and 22 then estimating based upon their projections 23 what the total group projection, in DR-DOS in 24 this specific case projections would look like. 25 Q. And is projecting sales something 12073 1 that's done as an ordinary part of the business 2 of Novell? 3 A. I would say an ordinary part of 4 Novell's business and any business is trying to 5 make estimate of what the next year's sales 6 will achieve. 7 Q. What is the utility for the business 8 of making that estimate? 9 A. Sizing of the business. Deciding how 10 many people we can hire. Deciding what 11 resources to expend. Deciding -- once you set 12 these goals, then you have to determine a 13 strategy for executing on them. 14 And so it allows you to align all of 15 the resources of the organization in a way that 16 is directed at achieving the goals that you 17 set. 18 Q. This was a document that was included 19 in your declaration, Mr. Edwards. And was it 20 prepared just for the declaration or was it a 21 part of the -- prepared by Novell for its 22 internal use and then used by you as a part of 23 your declaration because it already existed? 24 A. This was prepared by the desktop 25 systems group for its use in the business. I 12074 1 used it in my declaration because it had 2 existed and it was the plan we had for running 3 the business. 4 Q. What records did you use to prepare 5 this? 6 A. Last year's -- the year previous 7 sales, the momentum coming up into the trailing 8 couple of quarters, our estimation of market 9 sizing and where the market was going, how 10 successful we felt we could be in approaching 11 OEMs, approaching the retail market. 12 So there is a planning process that 13 can happen in a week or two, or it can happen 14 as an ongoing process. I tended to do it in 15 kind of an ongoing way, making updates as 16 necessary. 17 Q. Now, you came in the second quarter; 18 correct? 19 A. That's correct. 20 Q. And did this already exist or were you 21 a participant in its preparation? 22 A. The plans already existed for that 23 year, but I also then went and assisted in 24 adjusting the numbers based upon my overview of 25 their plans. 12075 1 MS. CONLIN: Your Honor, at this time 2 the Plaintiffs would offer 10055. 3 MR. TULCHIN: I don't think a proper 4 foundation has still been laid, Your Honor. 5 This witness is testifying as to what 6 would have happened and not that these reflect 7 documents that were business records at Novell. 8 THE COURT: It's admitted. 9 Continue. 10 MS. CONLIN: Okay. There it is. 11 Q. And this is your projected sales for 12 fiscal year 1992. And what were you projecting 13 for the first quarter? 14 A. You know, a little more than 15 -- 15 between 15 and 16 million. 16 Q. And for the second? 17 A. Between 16 and 17 million. 18 Q. And then 17 for the third? 19 A. 17 for the third quarter, and for the 20 fourth quarter approximately 18, or 67 million 21 for the year. 22 Q. All right. How was DR-DOS seen in the 23 marketplace, Mr. Edwards, at the time you took 24 over the product? 25 A. I think it was seen by its users as a 12076 1 superior product. There was a strong following 2 of I will call them the power user base. 3 Q. What does that mean, power user? 4 A. More advanced users. Users that 5 wanted to get every benefit out of the hardware 6 they had. 7 They were sort of into -- you might 8 have called them techie types. They were 9 really into having the best possible facility 10 with their computer, and there was a strong 11 commitment by them. And the product group was 12 targeted at them. 13 There had to be enough incremental 14 features to motivate somebody to effectively 15 get rid of the DOS they had that had come on 16 their machine and upgrade it to something new. 17 And so they were going after that marketplace. 18 It was a well received product. 19 Q. When you took over and replaced 20 Mr. Williams, did you meet with Mr. Williams? 21 A. I did. I met with him. I did not 22 spend significant time with him. He gave me a 23 brief review and said good luck, and that was 24 about it. 25 Q. Why did he leave? 12077 1 A. I'm not sure why he left, actually. I 2 could -- I don't have any personal knowledge of 3 why specifically he left. 4 The rumor at the time was that he just 5 got tired of the fight, but I really don't know 6 why he left. 7 Q. All right. When you took over in 8 April, what was the state of the integration of 9 Novell and DRI? 10 A. DRI was still a separate unit. When I 11 took over, they had, for example, their own 12 corporate counsel that was not a part of the 13 attorney group as a part of Novell. They had 14 their own sales organization that was not 15 merged. They had their own technical team that 16 was not a part of the umbrella strategy. They 17 had the individual HR director that was not a 18 part of the general human resources. 19 So they were a separate, distinct 20 entity. 21 Q. What did you do? 22 A. I wanted to integrate them. I began 23 pulling people together and systematically 24 started the process of making those people, the 25 legal group, the HR group, the support group 12078 1 report into the common fabric of the company 2 where they could receive common guidance over 3 those principles. 4 We still coordinated their efforts, 5 but they were no longer reporting to me. 6 So as an example, the sales team 7 started to report to Joe Marengi, who at the 8 time was VP of sales. The support team started 9 working and reporting into the support group. 10 Linnet Harlan, who was the legal 11 counsel, we had her move and report into the 12 general counsel's office, David Bradford's 13 group. HR, et cetera. 14 So we started to merge the company, 15 which left me with directing the product 16 strategy and the market strategy for that 17 group. And the support infrastructure 18 supporting us generally, it was my view that 19 that would be a stronger approach to the 20 marketplace and would give us an ability to 21 achieve our goals more successfully. 22 Q. Did you accomplish integration? 23 A. I think we accomplished a fair amount 24 of integration. I mean, I think that we 25 integrated it completely within the company and 12079 1 you can always do better, but I thought we did 2 a pretty good job at it. 3 Q. About how long did it take you 4 accomplish the integration? 5 A. Well, it went on for six months. I 6 mean, it's -- there's two sides to it. 7 One side is saying you now report to a 8 new manager. The other side is getting the 9 organization to adopt to a new way of working 10 where they're not coming back and listening to 11 the former manager for instructions, but now 12 they're actually being a part of the new team. 13 And it sometimes takes some time to 14 get teams to work together and become one. 15 And so I don't think there was a point 16 in time I can say, okay, it was all done then, 17 but my estimation would be about six months we 18 were pretty successful at getting it 19 integrated. 20 Q. What was the state -- at the time you 21 took over, were the merger talks between 22 Microsoft and Novell over? 23 A. Yes, for the most part. I mean, I 24 didn't hear -- I'd heard rumors and Ray had 25 told me about his meeting in San Francisco. 12080 1 MR. TULCHIN: Objection to the rumors, 2 Your Honor. It's hearsay. 3 THE COURT: Sustained. 4 A. Okay. I believe they were completed, 5 and I believe that's one of the reasons that 6 Ray did not give me any objection to starting 7 the integration process. 8 Q. When you took over, what was the 9 morale of the DR-DOS folks? 10 A. I think the morale was excitement on 11 the part of they felt they had a good product, 12 but I think they were tired. They needed a new 13 lift and a new strategy. 14 They had been frustrated for some time 15 about their ability to succeed, particularly in 16 the OEM space, which everyone in the group 17 believed was the absolute core and most 18 critical thing that had to be done. 19 Q. In terms of the sales, when you took 20 over the sales of DR-DOS, what was happening? 21 A. So the efforts we took to sell were 22 promotional campaigns. We were trying to -- we 23 were doing press tours to explain to the 24 marketplace. I didn't do press tours, but I 25 sent Toby and Birdie, Toby Corey and the PR 12081 1 assistant on press tours. 2 The sales organization was really 3 split in two halves. People who were looking 4 at the retail market, which was all about 5 what's the packaging of the product and what 6 are the end caps or the end of the aisle 7 promotions look like, those kind of things, and 8 then the OEM sales team. And that team, in my 9 estimation, was really focused on this third 10 tier OEM group, a lot of very, very small 11 companies. 12 And had some presence, but not an 13 orchestrated presence at going after the major 14 OEMs in the marketplace. 15 Q. Did you change that? 16 A. I did. I immediately put forth a 17 strategy that said our chief goal from a sales 18 perspective was to get in front of those 19 largest OEMs to leverage the presence that 20 Novell had and the relationships we had with 21 people like Compaq and HP and Dell and Olivetti 22 and NEC. Those kinds of very large or semi 23 large OEMs, we had to get out and get in their 24 offices and present our strategy and our 25 products. 12082 1 Q. Were the sales of DR-DOS in April of 2 1992 going up or going down or staying the 3 same, I guess? 4 A. You know, from a quarter over quarter 5 perspective, as I recall, the sales in the 6 second quarter -- which in April, we would have 7 been nearing the end -- had taken overall an 8 upward stream on an entire quarter basis. 9 But the trending particularly in the 10 mid part of April and onward, was down. So the 11 total number quarter over quarter was higher, 12 but the trending in the group was we were 13 already experiencing, I think, struggles in the 14 marketplace with respect to adoption of our 15 product given the climate in the market. 16 Q. What was that climate? 17 A. There were really -- the inability of 18 our team to work with OEMs and present to them 19 a product that they felt like could be 20 supported with Windows, there was a general 21 feeling that they had that our product was 22 superior technically, strong technically, but 23 that Microsoft was too powerful and would not 24 allow our product to support Windows. 25 Therefore, that was the first reason 12083 1 that they couldn't really move forward. Not 2 necessarily the most important, but one of two 3 or three reasons. 4 The second that we found is that in my 5 going out into the marketplace, I discovered 6 per CPU pricing arrangements and found 7 generally people telling me that it would be -- 8 MR. TULCHIN: Objection to the 9 hearsay, Your Honor. 10 THE COURT: Sustained. 11 Q. When you say people, do you mean -- 12 who do you mean people? 13 A. Executives I met with at OEM 14 companies. 15 Q. And were they telling you this in your 16 sales meetings with them? 17 A. That's correct. They were telling me 18 as I would present to them the product, as our 19 team would present the product -- 20 MR. TULCHIN: Same objection, Your 21 Honor, if the witness is about to describe the 22 conversations. 23 MS. CONLIN: Your Honor, we offer this 24 testimony pursuant to McElroy and Callahan. 25 THE COURT: Objection sustained. 12084 1 Q. In your discussions with the OEMs, did 2 you seek from them and get from them reasons 3 for the decisions that they were making? 4 A. We did. 5 Q. And in connection with those 6 decisions, were those decisions to go with the 7 Microsoft product usually -- well, I guess 8 always, the Microsoft rather than yours? 9 A. Their decisions were to remain with 10 the Microsoft product, MS-DOS. 11 Q. And what reasons were you given for 12 those decisions? 13 MR. TULCHIN: Same objection. 14 THE COURT: Overruled. 15 You may answer. 16 A. I was told that they -- it was 17 economically infeasible for them to move 18 forward because of what was described as per 19 CPU or per processor licensing. 20 I was told that it was impossible to 21 move forward because they were, they felt, 22 threatened that Microsoft would retaliate if we 23 were -- if they paid too much attention to us. 24 And I was told that the 25 incompatibility fear they had moving forward 12085 1 with Windows 3.1 gave them great concern and, 2 therefore, they couldn't move forward. 3 I would always respond with you can 4 see that we're technically competent. We can 5 fix those problems. 6 And the answer was always, and very 7 consistently, Microsoft will not let you fix 8 those problems. They are going to move the 9 target to ensure that you are not compatible. 10 That's our belief. That was their 11 communication to me. 12 MR. TULCHIN: Your Honor, I move to 13 strike the entire answer under Frunzar as 14 inadmissible hearsay. 15 THE COURT: Overruled. 16 Continue. 17 MS. CONLIN: Thank you, Your Honor. 18 Q. How many OEMs do you think you 19 visited, Mr. Edwards? 20 A. In the time frame from April through 21 September, I would say 30 OEMs. 22 Q. And who would go with you on these 23 trips out to these OEMs? 24 A. There was usually somebody 25 representing the appropriate sales team. 12086 1 If I was in Europe, it would be the 2 sales personnel responsible for that count of 3 the territory. 4 If it was in the U.S., it would be the 5 salesperson in the U.S.. 6 The other people attending, dependent 7 upon the nature of the meeting, I brought 8 people like John Constant or the technical side 9 of our group with me if I felt like the issues 10 were going to be predominantly technical. 11 In some meetings such as with HP and 12 with DEC, and with Compaq, and with Dell, Ray 13 Noorda came with me or other executives. Ray 14 Noorda and other executives came with me. 15 Q. I know it's been a long time and there 16 are many meetings you don't remember the 17 specifics of, but some you do. And I want to 18 talk about those. 19 Let's first try to recreate for the 20 Jury, insofar as you can -- you've mentioned 21 Dell. You've mentioned Compaq. You've 22 mentioned HP. 23 Can you think of as many of the 24 others -- of the other OEMs that you visited in 25 this time frame between April and September of 12087 1 1992? 2 A. We visited Opus. We visited ICL. We 3 visited Vobis and Viglen. We visited with 4 Packard Bell, Southern California, Olivetti. 5 We visited with NEC. There was a 6 company out of the Netherlands. I always 7 wanted to think of them as the Tulip company. 8 I don't think that's their name. We visited 9 with them. Pardon me for not knowing the name. 10 Q. I think it was Tulip. 11 A. Is it Tulip? We visited with those 12 people. That's a summary set of the people we 13 visited with. 14 They were a combination of -- the top 15 goal is if I could get myself and Ray or an 16 executive in at an executive level to any of 17 these companies. It was my goal. 18 So we met with Palmer at DEC and we 19 met with Michael Dell at Dell. And we met with 20 Eckert Pfeifer at Compaq. And those were all 21 president CEO level people of those large 22 companies. 23 With HP we met with Robert 24 Frankenberg, who is not a top tier executive, 25 but over that business unit. He was the 12088 1 general manager of that business unit. Mr. 2 Harris I think is his name out of Opus. 3 So, I mean, those were the kinds of 4 people we met with. And that's a flavor. 5 Some of them we would go into -- we 6 also went into Japan during that time frame 7 because we had a special purpose -- I mean, we 8 had a version of DR-DOS that had double byte 9 character support. It was kind of early on to 10 have that. 11 And that was important because in the 12 kanji languages, you have to represent the 13 graphical characters with more than a single 14 byte of information. And it just means you 15 have to technically do something to support 16 that. 17 And so we met with, you know, Korean 18 and Japanese OEMs there. I was definitely a 19 platinum elite traveler and spent a lot of time 20 and a lot of nights on the road. 21 Q. Did you meet with IBM? 22 A. We did meet with IBM. My role with 23 IBM in that year kind of was two part. 24 I had gone into IBM earlier in the 25 year, just with my NetWare VP of marketing hat 12089 1 on, not necessarily involved at IBM with the 2 DOS, per se, but coming in as a network expert. 3 We met later in the year with the 4 folks at IBM from more with my desktop systems 5 hat on. 6 Q. Is there an OEM called Apricot? 7 A. Apricot. I always called them Apricot 8 and got in trouble. Over there, it's Apricot. 9 We met with Apricot in England. 10 Q. LNX? 11 A. LNX is another company that we met 12 with, and so, yeah. 13 And there's probably -- you know, 14 there's 30, 35 of them. So I'm trying to 15 remember as many as I can. 16 Q. Where was LNX? 17 A. We met LNX in -- I can't remember 18 where we met with LNX. 19 Q. Is it English or European? 20 A. I think it's English. We met with 21 them somewhere in the UK trade show area. 22 And we went to a large trade show 23 there in the spring, early summertime that we 24 met with several of them. 25 But that usually led to more in-person 12090 1 meetings at their corporation. And we would be 2 in a meeting with anywhere from five to 15 3 people representing their entire product group 4 that would be wanting to put input into the 5 process. 6 Q. Did you meet with Siemens? 7 A. We did meet with Siemens and another 8 -- another German company actually. 9 Q. Do you remember the name? 10 A. I don't. 11 Q. All right. Is there a company called 12 Digital? 13 A. Well, we met with DEC or Digital 14 Equipment Corporation, and that's where we met 15 with Palmer. 16 That was actually at a CEO executive 17 level that Ray and I visited with them. And 18 also took Jim Sullivan, who was the sales 19 account manager for DEC. 20 Q. Of the top OEMs in the world, how many 21 of them did you meet with? 22 A. Well, if I consider DEC and NEC and 23 HP, Compaq, Dell, we probably met with ten of 24 the leading 20 OEMs. 25 Q. And then the other 20 or so that you 12091 1 met with, were they second tier? 2 A. I would view them as second tier. And 3 there's even a lot of third-tier OEMs that we 4 met with whose names aren't readily available 5 to me, and I don't recall all of their names. 6 Q. All right. 7 Were some of these OEMs asked to and 8 willing to participate in the testing product 9 -- testing of your product? 10 MR. TULCHIN: Objection. 11 Leading. 12 THE COURT: Sustained. 13 Q. State whether or not any of these OEMs 14 participated in any testing efforts. 15 A. I think the second-tier OEMs, all of 16 them, were willing to test the product, and 17 they were looking for an angle. They were 18 looking for a way to differentiate themselves. 19 One of the problems they had was that 20 they had an Intel PC platform, which is just 21 like every other Intel PC platform. 22 Software was the ingredient that made 23 it difficult and made it look and feel 24 different. Made it differentiated. And so 25 they were looking for ways to be 12092 1 differentiated. 2 They also all had MS-DOS and so that 3 just made them like everybody else. 4 They wanted ways to be differentiated. 5 And so they were willing to test. 6 Compaq, Dell, HP, NEC, Olivetti, DEC, 7 Siemens, all of those participated in the test 8 of the product and were willing to look at and 9 consider the product. 10 Q. What were the results, if you recall, 11 of any testing that Compaq did? 12 A. Compaq did a significant amount of 13 testing, and the communication back to me from 14 people like Ronnie Ward and Lori Strong and the 15 others in the group was that the product was 16 solid. It was technically very capable, and 17 they could see it with -- as being a part of 18 their plans. 19 They wanted us to accelerate the 20 integration of the networking client with the 21 OS. They felt like that was a huge area of 22 differentiation. 23 At the time in the market when the 24 consumer got a product and installed it, they 25 then had to do something kind of complex to 12093 1 install all the networking stuff and test it 2 and was it going to work with my server. 3 And they were very anxious to get that 4 to be sort of out of the box supported, really 5 tightly tuned. And that was a value that they 6 could see in differentiation. 7 Q. Did Compaq compare in its testing labs 8 the DR-DOS and Novell DOS products with the 9 MS-DOS products? 10 A. Yes. They ran them side by side. 11 Q. And what did they learn? 12 A. They learned that DR-DOS, as I just 13 mentioned, was a solid technically capable 14 product. And that's what they learned. 15 Q. How many times did you meet with 16 Compaq? 17 A. I don't have a specific number. We 18 met with Compaq in the spring. We met with 19 them several times during the summer. 20 Compaq was an interesting company for 21 me because, in my previous position at Novell 22 as the VP of NetWare, I met every six weeks, 23 every two months, I mean, on a real regular 24 basis with Compaq. Either them coming to Provo 25 to visit us at our offices or me flying to 12094 1 Houston. 2 So I already knew those people very 3 well. When I took over the DOS group, we 4 continued those relationships and continued to 5 meet with them. 6 The decision-making was a little bit 7 different, though, because we had to get them 8 to accept the proposition that we could 9 maintain DOS with future compatibility with 10 Microsoft. And that was one of the big issues 11 for them. 12 As a product that worked by itself, it 13 was great. The question was can on a go- 14 forwarding basis you maintain compatibility 15 with Microsoft, Windows particularly. 16 Q. Why did they doubt that? 17 A. They doubted it -- Ronnie told me very 18 specific -- 19 MR. TULCHIN: Objection, Your Honor. 20 THE COURT: Sustained. 21 Q. As a part of the decision-making 22 process with respect to choosing whether or not 23 to load the Novell DOS product, did you and 24 Mr. Ward have conversations with his reasons 25 for his decision? 12095 1 A. We did. 2 Q. And did he explain to you why 3 eventually they were not going to go forward 4 with the DR-DOS product? 5 A. He did. There were two people at 6 Compaq, Lori Strong that we met with -- 7 actually three -- Gary Stimac and Ronnie Ward. 8 And each of them told me the reason that they 9 would not move forward. The answer was pretty 10 similar. 11 Ronnie told me, Ronnie Ward -- 12 MR. TULCHIN: Same objection. 13 THE COURT: Sustained. 14 MS. CONLIN: Your Honor, we offer this 15 testimony under Callahan and McElroy to explain 16 subsequent conduct and not for any other 17 purpose. 18 THE COURT: I'll allow it for that 19 purpose only. 20 MS. CONLIN: Thank you, Your Honor. 21 Q. You may answer. You may say what 22 Mr. Ward told you. 23 A. I was told that they feared 24 retribution from Microsoft if they moved 25 forward with our product; that they -- that 12096 1 there needed to be substantial change in their 2 contracting process, the per CPU pricing. 3 Q. Explain that, what Mr. Ward was 4 talking about in terms of this per CPU per 5 processor. 6 What did that mean to Compaq in terms 7 of its -- again, its decision about what to do? 8 MR. TULCHIN: Same objection. 9 THE COURT: Sustained. 10 MR. TULCHIN: -- to all of this under 11 the Frunzar case. 12 THE COURT: Sustained. 13 MS. CONLIN: Again, Your Honor, we 14 offer it only for the purpose of explaining why 15 the company Compaq did not eventually choose to 16 go with DR-DOS and for no other purpose. 17 THE COURT: Objection is sustained. 18 Q. In terms of your discussion with 19 Mr. Ward -- and did you also meet with 20 Mr. Pfeifer? 21 A. Eckert Pfeifer. 22 Q. Oh, I'm sorry, I'm mispronouncing his 23 name. 24 And what is his role? What was his 25 role at Compaq at that time? 12097 1 A. He was the CEO. 2 Q. Did Compaq eventually ever load 3 DR-DOS, preload DR-DOS? 4 A. No. 5 Q. And even after all of these meetings, 6 it decided against DR-DOS? 7 A. It was decided against loading of 8 DR-DOS. 9 Q. Was the reason the technological 10 sufficiency of the product? 11 A. The reason -- 12 MR. TULCHIN: Objection. Calls for 13 speculation. 14 THE COURT: Sustained. 15 Q. In terms of the conversations that you 16 had with all of these people at Compaq, did you 17 hear from them their particular reasons for 18 what their decision would be? 19 A. I did. 20 Q. And based on that decision, they 21 eventually chose not to load DR-DOS? 22 A. That is correct. 23 MS. CONLIN: All right. 24 Your Honor, again, under McElroy, to 25 explain subsequent conduct, and under Callahan, 12098 1 specifically directed toward the reasons that 2 competitors make the decisions that they do, 3 and in this case specifically to go with a 4 competitor of DR-DOS, we offer the testimony of 5 Mr. Edwards and offer it for the purpose of 6 explaining why competitors -- why in all of his 7 visits he was unsuccessful. 8 THE COURT: Ladies and gentlemen of 9 the jury, we will take our lunch recess early. 10 Remember the admonition previously 11 given. We'll be out of session until 12 noon. 12 See you then. 13 (The following record was made out of 14 the presence of the jury at 10:49 a.m.) 15 THE COURT: Be seated, please. 16 You may proceed with your argument. 17 MS. CONLIN: Thank you, Your Honor. 18 The Court is familiar with McElroy 19 versus State. And, under that case, a witness 20 is permitted to specifically explain what was 21 said to the witness to explain the subsequent 22 conduct, not of the witness, but in this case 23 of a competitor. 24 Going further, the Callahan case, the 25 Ohio case -- I know that the Court has heard 12099 1 discussion of that case in the past -- 2 specifically permits a witness who meets with 3 competitors -- as I recall, that was a bakery 4 case. I can get a copy for the Court. 5 THE COURT: I have it. 6 MS. CONLIN: Okay. That case, which I 7 understood that the Court was applying here, 8 specifically permits the type of testimony that 9 I am seeking to elicit from Mr. Edwards. 10 He's there. He's talking to 11 purchasers. The purchasers are saying I'm not 12 going to -- it's almost on all fours with 13 Callahan. The purchasers are saying I'm not 14 going to buy from you and here are the reasons. 15 In the Callahan case, that was exactly 16 on all fours the situation that the Court 17 specifically said. And there are, of course, 18 other cases following Callahan. 19 The Court specifically held such 20 testimony was admissible for the purpose of 21 explaining, indeed the only testimony that's 22 available to explain, why in this case OEMs did 23 not buy, did not agree to preload the DR-DOS 24 product. 25 McElroy is a more generalized case 12100 1 that also permits this kind of testimony. And 2 we believe that it is essential and appropriate 3 for this witness to explain to the Jury what 4 these people who were his potential purchasers 5 were providing to him and to the company, 6 Novell, as reasons why they would not purchase 7 his product. 8 THE COURT: Very well. 9 Defense? 10 MR. TULCHIN: Thank you, Your Honor. 11 Of course, Your Honor, this is not a 12 case where there are any business records of 13 Novell. 14 Indeed, it's peculiar one might think 15 that all these trips to visit OEMs are not 16 recorded anywhere in some memorandum that would 17 be the usual business record that might contain 18 trustworthy discussion; that is, in the 19 memorandum of what occurred during a sales 20 call. 21 The McElroy case seems to be the 22 Plaintiffs' all-purpose vehicle -- and we've 23 discussed this before -- for getting in any 24 hearsay of any kind whatsoever by intoning the 25 words that this somehow explains subsequent 12101 1 conduct. 2 The real purpose for this, of course, 3 is to offer 15 years after the fact, because 4 after all, these conversations, according to 5 Mr. Edwards, took place in 1992; to offer 15 6 years after the fact his apparent present 7 recollection of what was said for the 8 substantive reason of trying to convince the 9 Jury as to what the reasons were that these 10 OEMs didn't install DR-DOS. 11 We have in the record testimony by 12 OEMs who are asked these questions at 13 deposition that are far more reliable. 14 And the McElroy case, Your Honor, 15 says, as I've pointed out before, that even in 16 a case where one might think that the hearsay 17 is relevant to show subsequent conduct -- and 18 here I don't see that that's so at all -- and 19 let me quote McElroy. 20 Quote, although a statement may be 21 purportedly offered for a nonhearsay purpose, 22 the District Court must still determine if the 23 party's true purpose in offering the evidence 24 was, in fact, to prove the statement's truth, 25 unquote. 12102 1 That's 637 N.W. 2d, pages 501 to 502. 2 The Callahan case, which is a case 3 decided by the U.S. Court of Appeals for the 4 Third Circuit, one, isn't Iowa law; and, two, 5 doesn't work for the Plaintiffs here in any 6 event. 7 There the evidence, though it was 8 hearsay, was allowed in under the state of mind 9 exception. 10 There's no such reason given here, nor 11 could there be. 12 And Callahan didn't evaluate the 13 trustworthiness of the hearsay, which is 14 important under Iowa law. 15 Now, I want to come to Frunzar in a 16 moment, but I want to pause here on 17 trustworthiness. 18 What happens in a sales meeting -- and 19 I'm sure I'm not the only one in the courtroom 20 who once worked as a salesperson, but I did -- 21 what happens in a sales meeting is that the 22 salesperson makes a call on a customer. 23 And very often the customer when 24 declining to purchase the salesman's product 25 provides compliments about the product and 12103 1 reasons for choosing a competitor's products 2 that make the meeting end on a pleasant note. 3 That's the way sales meetings go. 4 This whole idea that what's said at a 5 sales meeting, no, I don't want DR-DOS and here 6 are my reasons, even if this testimony is 7 accurate from 15 years ago, the trustworthiness 8 of those statements is highly susceptible to 9 doubt, particularly in view of the fact that as 10 far as I can tell Mr. Edwards has no documents 11 from Novell that reflect any of this. 12 And then, Your Honor, lastly, there's 13 the Frunzar case, which is Iowa law. It's the 14 Supreme Court of Iowa, 548 N.W. 2d 880, a 15 decision from 1996. 16 That was the case, Your Honor, where 17 there was an issue in the case about whether a 18 driver had automobile insurance. 19 And the first question asked of the 20 witness was, what did so-and-so -- I forget the 21 name of the other person; let's call that 22 person Smith -- what did Smith tell you about 23 whether this other driver had automobile 24 insurance? There was an objection that was 25 sustained. 12104 1 The party in that case went on to say, 2 well, what do you know about the fact of 3 whether or not that person has automobile 4 insurance? That question was permitted even 5 though it was clear that it was based on 6 hearsay. 7 And the Supreme Court said that it was 8 prejudicial error for the trial court to admit 9 testimony based solely on alleged out-of-court 10 statements made by a nontestifying declarant. 11 That's at page 887. 12 So all of this testimony, Your Honor, 13 including the portion I moved to strike, I 14 think, should be excluded. It is hearsay. 15 It's inadmissible. There is no exception that 16 here applies. 17 MS. CONLIN: Your Honor -- 18 THE COURT: Go ahead. 19 MS. CONLIN: Your Honor, we're not 20 offering this as a business record. There's no 21 need for business records in connection with 22 the offering of oral testimony of a witness. I 23 don't understand why that would be a factor. 24 We do have documents. We have the 25 declaration made virtually contemporaneous with 12105 1 this. We have a trip report, which I will 2 offer and which is in the package that the 3 Court has. I have also a report from England 4 about Opus and Viglen. 5 The fact is that there are records. 6 But there's no necessity for records. 7 Mr. Tulchin complains that we use 8 McElroy as an all-purpose vehicle for getting 9 in hearsay. Mr. Tulchin doesn't understand 10 McElroy. 11 When one offers a statement that is 12 hearsay for a nonhearsay purpose, it is 13 perfectly permissible. 14 The Iowa Supreme Court has taken a 15 relatively broad view of the admissibility of 16 statements made out of court when they are not 17 offered for the truth but for the purpose of 18 explaining subsequent conduct. 19 In the case of Novell, the subsequent 20 conduct, in addition to the decision made by 21 the OEMs, is that -- is what happens next at 22 Novell. 23 Novell's subsequent conduct is to 24 discontinue the product, the DR-DOS/Novell DOS 25 product. 12106 1 By the end of the year 1992, 2 Mr. Edwards will testify that, in fact, they 3 had decided that the product couldn't survive, 4 and they decided that the product couldn't 5 survive on the basis of his 30-plus visits to 6 these OEMs. 7 Novell eventually abandoned DR-DOS 8 because they were told by OEMs that Microsoft 9 would never allow DR-DOS to succeed. And OEMs 10 wouldn't buy it because of the per processor 11 license, because of the fear of retaliation 12 from Microsoft, and because of the fear, 13 uncertainty, and doubt that Microsoft was 14 sowing in the marketplace in connection with 15 the compatibility with DR-DOS with the Windows 16 product. 17 And these are things that Mr. Edwards 18 heard not once or twice or three times, but 19 from every single OEM that he visited. 20 And the purpose; that is, the effect 21 on Novell, is relevant because Microsoft claims 22 that DR-DOS and other products, competing 23 products, failed because Microsoft's product 24 was better and cheaper. 25 This testimony goes directly to 12107 1 whether or not that argument that Microsoft 2 makes about the failure of this product and 3 others is a true -- is the true reason why the 4 product was eventually withdrawn from the 5 market and explains why Novell abandoned DR-DOS 6 regardless of whether the OEM statements were 7 true or not true. 8 While Mr. Tulchin's recounting of 9 sales meetings is interesting, that is not 10 material to a determination by the Court as to 11 whether or not this testimony is offered for a 12 proper purpose. 13 There's nothing unreliable about his 14 sworn testimony. Mr. Tulchin will have a full 15 opportunity to cross-examine Mr. Edwards and 16 test the reliability of the evidence. That 17 goes to the weight and not to the 18 admissibility. 19 The Court has applied Callahan already 20 in this case on several occasions and for the 21 very -- exactly the purpose for which I offer 22 this testimony. 23 The Frunzar case is just not 24 applicable when you are offering testimony of 25 this sort for the purpose for which we offer 12108 1 this testimony. 2 Mr. Edwards went, as I said, not to 3 one or two OEMs, though that, too, would be 4 admissible, but he went to 30-plus OEMs. 5 He talked to CEOs of companies and 6 sales managers and technical people, and he was 7 told the same thing over and over again. 8 As a result of being told that, he 9 made a decision to stop the production of 10 DR-DOS. 11 That decision was subsequently 12 reversed in the early part of 1993 and there 13 was another product that was produced, but it 14 was abandoned, as the Court will recall, in the 15 year 1994. 16 So we think that this is -- this is 17 the very reason why we brought Mr. Edwards from 18 Provo, Utah, to talk to this jury, so that he 19 could explain to them why Novell made the 20 decision it did on the basis of what he was 21 told by OEMs. 22 THE COURT: Anything else? 23 MR. TULCHIN: Just very briefly, Your 24 Honor. 25 I just want to point out on the 12109 1 subject of untrustworthiness that apparently 2 it's Ms. Conlin's representation that this 3 witness will testify that all 30 or 35 OEMs 4 told him exactly the same thing. 5 Those were her words that I'm quoting, 6 that everyone told him exactly the same thing, 7 which is inherently quite difficult to believe. 8 The three reasons that Ms. Conlin gave 9 that apparently this witness is prepared to 10 testify to, he heard from every single one 11 exactly the same thing. 12 Thank you, Your Honor. 13 MS. CONLIN: Well, Your Honor, I 14 didn't mean that the words were exactly the 15 same. 16 What I meant was the rationale that 17 the OEMs provided to Mr. Edwards in terms of 18 their decision-making was the same. 19 THE COURT: Anything else? 20 MR. TULCHIN: No, Your Honor. Thank 21 you. 22 THE COURT: I'll decide over lunch. 23 MS. CONLIN: Thank you, Your Honor. 24 (A recess was taken from 11:04 a.m. 25 to 12 p.m.) 12110 1 (The following record was made out of 2 the presence of the jury.) 3 THE COURT: The Court has reviewed the 4 matter. At this time I'm going to sustain the 5 objection. 6 The Court finds that it must balance 7 the probative value of the evidence against -- 8 for the permitted purpose against the unfair 9 prejudicial effect that it may have. 10 As part of this process, it must not 11 go beyond explaining any conduct of the witness 12 or his company's response to it or his 13 response. 14 Previously, I recall the witness did 15 testify as to what was stated. The Court 16 allowed that in for that purpose. To go 17 further beyond that would begin to emphasize 18 the evidence and would, in my opinion, cross 19 the line for the unfair prejudicial effect by 20 constant repetition of it which emphasized the 21 truth of the statements. 22 The witness may state that the OEMs he 23 spoke to caused him or Novell to take 24 responsive action and what the action was, but 25 he may not state what the OEMs told him other 12111 1 than generally stating that -- what has already 2 been said, and that has been said. So I don't 3 want to repeat it. 4 The Court will also instruct the Jury 5 at this point if either party wishes that the 6 statements by the OEM representatives as to 7 conduct or actions by the Defendant Microsoft 8 made to Mr. Edwards are not being offered for 9 the truth of them, but, rather, explaining that 10 subsequent conduct of Edwards and/or Novell. 11 Anything else on this issue? 12 MS. CONLIN: So that the record is 13 complete, Your Honor, the Callahan case permits 14 the offer of testimony about -- in this case it 15 was beer, Your Honor, not bread. I knew it was 16 a B word. That the testimony would be -- there 17 is a difference between the beer and bread. 18 In the Callahan case they permitted 19 the offer of the testimony of what unidentified 20 people said offered for the limited purpose of 21 proving customer motive for which purpose we 22 found such evidence admissible under Rule 803. 23 That is from page 252 of 182 F. 3rd 24 237. 25 The Court further held that the 12112 1 relevance of their statement depends only on 2 the fact that they were the Plaintiff's 3 customers, not their particular identities. 4 We do not think that the admissibility 5 of their statements under Rule 803(3), hearsay 6 exception, depends on there being identified. 7 So, Your Honor, what -- I'm completing 8 the record is, we offer the testimony on the 9 motive of the speaker so it doesn't depend on 10 the truth of what was said. 11 I also wanted to be sure I understand 12 what the Court's ruling is. 13 I can -- may I ask him questions about 14 whether the message was the same and how strong 15 it was and whether he acted on it, things of 16 that sort? 17 THE COURT: You mean to go through 18 each OEM? 19 MS. CONLIN: No, Your Honor, no. 20 My intention, just so the Court is 21 clear on this -- and perhaps I should make an 22 offer of proof. Though I hate to take the 23 time. 24 THE COURT: Okay. 25 MS. CONLIN: Why don't we do that. 12113 1 Take the stand, John, and we'll kind 2 of walk through our proposed testimony on this 3 issue. 4 THE COURT: You are still under oath, 5 sir. 6 THE WITNESS: Thank you. 7 THE COURT: Go ahead. 8 MS. CONLIN: Thank you, Your Honor. 9 OFFER-OF-PROOF EXAMINATION 10 BY MS. CONLIN: 11 Q. In terms of your discussions with 12 Mr. Ward and Mr. Pfeifer and other people at 13 Compaq, did they agree that your product was 14 technologically superior? 15 A. Yes. 16 Q. And that was based on their own 17 testing? 18 A. It was. 19 Q. What other questions did you ask 20 Compaq? 21 A. If it was technologically superior and 22 if we could offer it at an appropriate price, 23 why wouldn't they take the product. What was 24 stopping them from installing the product on 25 machines. 12114 1 Q. What was their response? 2 A. Their response was that not installing 3 it had to do with fear of retribution from 4 Microsoft, the fact that they were concerned 5 about future capability with Windows, and that 6 the price was insignificant because they were 7 going to pay per CPU pricing whether or not 8 they shipped MS-DOS on the platform. 9 So I could offer it to them for free 10 and they would still have a difficult time 11 putting the product on the platform. 12 In fact, later in the year we did 13 offer it to them for free. And they recited to 14 us, again, you've got to understand the same 15 three issues. It's not your price. It's not 16 your functionality. 17 It's our relationship with Microsoft, 18 the ability to maintain compatibility with 19 Windows, and the fact that we are already 20 paying a per CPU license. 21 Q. Let's move to ICL. 22 Aside from the three -- what were the 23 reasons they gave for not preloading the DR-DOS 24 product? 25 Basically, the same as those given to 12115 1 you by Compaq? 2 A. It's very consistent. Now, one OEM 3 may be more concerned about the threat of 4 Windows' compatibility and Microsoft's 5 statements to them that it was not going to 6 happen. 7 And there were public statements from 8 Microsoft that there was no way it would be 9 supported. And so some emphasized more that -- 10 every one of them emphasized the issue of CPU 11 licensing, and there was this constant feeling 12 on the part of the OEM that unless they had -- 13 they were on the good side of Microsoft, could 14 get early releases of the code, they could not 15 compete in the marketplace. 16 And Microsoft, in their estimation, 17 had the ability to maybe even in the end offer 18 it, but offer it at the last minute, offer it 19 at prices that were not favorable. 20 So that was the general tone from 21 these OEMs across the board. 22 Q. Let me hand you what has been marked 23 Plaintiffs' Exhibit 4507. 24 MS. CONLIN: May I approach, Your 25 Honor? 12116 1 THE COURT: Yes. 2 Q. Is this a trip report that you 3 prepared? 4 MR. TULCHIN: Your Honor, I know this 5 is an offer of proof, but I still would like a 6 copy of the document. 7 A. This is a trip report that I prepared 8 and the distribution list of the report as 9 indicated in the to part of the report. 10 Q. And that includes -- 11 MR. TULCHIN: Before we go on, Your 12 Honor -- sorry to interrupt -- I just want to 13 note for the record that this document was the 14 subject of a ruling by Your Honor in November. 15 And the Court ruled the document then 16 inadmissible, and I just want that clear. I 17 know the Jury is not here, but I want the Court 18 to understand that. 19 THE COURT: Okay. 20 BY MS. CONLIN: 21 Q. The date is 7-2-92? 22 A. Yes. 23 Q. And this records your visits with 24 Opus, Apricot, Viglen, LNX, ICL, and Dell; 25 correct? 12117 1 A. That is correct. 2 Q. And did you make this report to these 3 individuals, including Mr. Noorda, immediately 4 after you returned from this trip? 5 A. I did. 6 Q. And were the events fresh in your 7 mind? 8 A. They were. 9 Q. Was it prepared carefully? 10 A. It was. 11 Q. Does it correctly record the facts and 12 circumstances as you knew them to be? 13 A. It does. 14 Q. And was this made and kept in the 15 ordinary course of the business of Novell? 16 A. It was. 17 Q. Did you make trip reports customarily 18 or not? 19 A. Always verbally. Sometimes with 20 e-mail. Written trip reports when I thought 21 the issue was particularly significant. 22 Q. All right. 23 MS. CONLIN: Your Honor, we would 24 offer as a part of our offer of proof 4507 both 25 as past recollection recorded. It's also a 12118 1 business record. 2 Mr. Tulchin is correct that the Court 3 ruled that it was hearsay. And, of course, the 4 nonhearsay purpose would be past recollection 5 recorded. 6 And I would then proceed to ask him, 7 of course, about each of the visits with the 8 OEMs that are listed in the document. 9 I won't go through that at this time. 10 Then I would move on off the document 11 and ask him about Dell or DEC. 12 Q. I'm sorry, Mr. Edwards, DEC. Tell us 13 about your visit with DEC. 14 A. We had a visit with myself, Ray 15 Noorda, and Jim Sullivan, and the visit was in 16 two parts. We visited DEC at their Boston 17 headquarters. 18 And we visited initially with their 19 CEO Palmer, Mr. Palmer, and had strategy 20 meetings with him, then broke off into lower 21 product meetings with their client team, and, I 22 mean, that was the nature of the visit. 23 Q. All right. Did they load DR-DOS? 24 A. They did load DR-DOS, and they tested 25 it. 12119 1 They were particularly concerned about 2 not only the future compatibility with Windows, 3 but they were concerned about Windows for 4 WorkGroups and the integration of peer-to-peer 5 technology and our ability to support that. 6 Q. In these conversations you had with 7 the OEMs generally, was your sense that this 8 was -- that what they were telling you was just 9 sales talk being nice? 10 A. These people were very blunt at times, 11 very nice at times. They were not trying to 12 give me a story so that I would feel good. 13 They were trying to help the company. 14 They were friends of Novell in the sense that 15 we were working with them. 16 In DEC's case, they were viewed in the 17 marketplace very much as a Microsoft shop. So 18 they had a heavy Microsoft vent to them. 19 Q. And did they, these OEMs, including 20 DEC, tell you about their fears in terms of 21 future incompatibility, what they based those 22 fears on? 23 A. They did. In particular, DEC in their 24 close relationship with Microsoft believed that 25 Microsoft would not allow it to happen, they 12120 1 were very clear about that. They were all 2 under nondisclosure. They would all tell me 3 with a wink and a nod. 4 But they were very clear that they had 5 been at corporate meetings with Microsoft and 6 that those -- the product people there had -- 7 it was conveyed to them that they would see to 8 it that DR-DOS was not compatible, and that's 9 the extent of the communication. 10 Q. Your meetings at Hewlett-Packard, 11 Mr. Noorda was at one of those meetings? 12 A. I went with Joe Marengi, the VP of 13 sales and Ray Noorda to meet with Robert 14 Frankenberg. 15 Q. And what was Mr. Frankenberg's message 16 to you? 17 A. Mr. Frankenberg, Bob, as we called 18 him, he was very open to an idea that we were 19 presenting that we called BizQuick, which was 20 we will provide you the DOS operating 21 environment for free and we will pull together 22 a consortium of application providers and load 23 the product on the disk real estate. And when 24 the customers get that, they'll have an 25 opportunity to select it and will put together 12121 1 a means of giving the actual hardware vendor 2 money back for the selection and installation. 3 So you turned from not only are we not 4 charging you any money, we are going to give 5 you an opportunity to earn a piece of the 6 revenue stream associated with the product. 7 Q. Your visit -- and did that work out? 8 A. Bob initially paid a downpayment of, I 9 believe, $50,000 to participate in the program. 10 He was anxious that we go off and find a 11 consortium to unlock the market. 12 It didn't turn out to be effective 13 because although Compaq and Packard Bell also 14 seriously investigated it, there was not a 15 belief that we had the ability to penetrate the 16 Microsoft group. 17 Q. You visited Olivetti in Italy? 18 A. Did visit Olivetti in Italy. 19 Q. What was their message? 20 A. They were trying to roll out a 21 small-end notebook-type computer. They were 22 particularly interested in our what's called 23 the ROMable DOS, meaning that it could be 24 loaded up in the ROM, in a very small footprint 25 on the machine. 12122 1 They weren't that interested in 2 Windows initially, and so they were moving 3 forward with us. 4 Until the market started to emphasize 5 Windows more and they got fear that it wouldn't 6 be compatible, and that fell off as well. 7 Q. Was there a time when -- was there any 8 discussion with these OEMs about what Microsoft 9 could or would do in reprisal or in retaliation 10 if they were to load DR-DOS? 11 A. The sense was two-fold. Number one, 12 they were highly concerned that Microsoft would 13 not treat them favorably and fairly in the 14 early release of future products. 15 There was a sense that if you were on, 16 I believe, the Michael Dell -- or the product 17 manager there called it the A team. If you 18 were a part of those that Microsoft viewed as 19 favorable to them, they would give you early 20 release or more favorable release in the 21 marketplace. 22 They were fearful that by entering 23 into a position with us that that would be 24 stopped and that they would have less of an 25 opportunity to participate. 12123 1 The second was they felt based upon 2 the Windows for WorkGroups meetings they were 3 going to at the time, I believe at Microsoft 4 corporate headquarters, that Microsoft had made 5 it very clear that they would see to it that 6 there was not compatibility; that the Windows 7 had to run on MS-DOS. 8 Q. And nothing else? 9 A. And nothing else. 10 MS. CONLIN: That concludes my offer 11 of proof, Your Honor. 12 Again, I would offer the testimony of 13 this witness on motive under 803(3) to explain 14 subsequent action under McElroy. 15 MR. TULCHIN: I wonder if I could ask 16 a question or two of the witness. 17 THE COURT: You may. 18 OFFER-OF-PROOF CROSS-EXAMINATION 19 BY MR. TULCHIN: 20 Q. Mr. Edwards, during this last piece of 21 testimony in what we've called the offer of 22 proof, you've said several times that the OEMs 23 believed something or another time you said the 24 OEMs felt something. 25 Do you recall that? 12124 1 A. I do. 2 Q. And, in each case, your statement 3 about what the OEMs felt or what the OEMs 4 believed is based on what they told you in 5 these meetings. 6 Is that your testimony? 7 A. That is. 8 MR. TULCHIN: Thank you. 9 Your Honor, this is all pure hearsay. 10 And I think the Court's ruling was correct. 11 I'm not sure that Ms. Conlin is 12 rearguing it, but it seems to me clearer than 13 ever that all this testimony is barred. 14 THE COURT: Anything else on this 15 issue? 16 MS. CONLIN: No, Your Honor. 17 THE COURT: Very well. 18 Offer of proof has been made. 19 Do you want the exhibit made as part 20 of the offer? 21 MS. CONLIN: Yes, please, Your Honor. 22 THE COURT: 4507 is a court exhibit 23 now only for purposes of the offer of proof. 24 It will not be presented to the Jury. 25 The Court's ruling stands. 12125 1 MS. CONLIN: Thank you, Your Honor. 2 THE COURT: Are we ready? Everybody 3 ready? 4 MS. CONLIN: Yes, Your Honor. 5 MR. TULCHIN: Yes, sir. 6 THE COURT: Okay. 7 MS. CONLIN: Your Honor, I'm not sure 8 that I got an answer from the Court about 9 whether or not I could ask things like, you 10 know, was the message received consistent and, 11 you know, did you believe it, that kind of 12 stuff. 13 THE COURT: You may ask if it was 14 consistent. I don't want it repeated, though. 15 MS. CONLIN: Yeah, I understand that, 16 Your Honor. I just want to ask about the 17 message generally. 18 MR. TULCHIN: Your Honor, isn't this 19 another way of just getting back in the same 20 testimony? 21 And if the question is going to be was 22 the message consistent, isn't this just another 23 way of the witness, in effect, repeating what 24 the Court has ruled is inadmissible? 25 THE COURT: Be seated. 12126 1 Ms. Conlin, you can respond if you 2 want. 3 MS. CONLIN: Thank you, Your Honor. 4 What I understood the Court to have 5 ruled is that you do not want a repetition of 6 the testimony from each and every OEM. 7 What I seek to do is wrap that up and 8 avoid asking such questions by asking questions 9 generally. 10 Was the message a strong one. Did you 11 believe it? Was it essentially the same across 12 the 30 OEMs? And as a result of that message, 13 what did you do? 14 MR. TULCHIN: This should be 15 inadmissible, Your Honor. 16 This is just almost a more flagrant 17 way of putting in hearsay without even 18 permitting, then, an opportunity for cross 19 because the message comes in this is what was 20 said and I believed it, and without any 21 specifics. There are few to begin with. 22 But I don't think this is what the 23 Court intended to permit the Plaintiffs to do. 24 THE COURT: Objection is sustained. 25 MS. CONLIN: Thank you, Your Honor. 12127 1 (The following record was made in the 2 presence of the jury at 12:20 p.m.) 3 THE COURT: Everyone else may be 4 seated. 5 I apologize for the delay. There was 6 an issue of law that only the Court and the 7 attorneys and the parties could take up. 8 So, once again, blame me. Don't blame 9 the parties or the lawyers. 10 MS. CONLIN: May I approach, Your 11 Honor? 12 Oh, you can do that all by yourself. 13 DIRECT EXAMINATION (CONT'D) 14 BY MS. CONLIN: 15 Q. When you came in April, was there a 16 discussion with you of the pending contract 17 with Sears? 18 A. Yes, there was. 19 Q. And what did you know about that 20 contract? 21 A. I knew that Sears had an agreement to 22 provide a product to the Navy. And that after 23 testing our product, DR-DOS, with MS-DOS, Sears 24 had made a decision to load DR-DOS on the 25 platforms that would be then further sent to 12128 1 the U.S. Navy in a multi-year contract. 2 Q. I'm going to direct your attention to 3 Plaintiffs' Exhibit 9039, a document already in 4 the record. And it is the letter from Sears on 5 December 26, 1991. 6 MS. CONLIN: Could you put that up, 7 please, Darin? 8 Q. And that's from -- that's to Lisa 9 Peery from Mark Zelinger of Sears. 10 And he congratulates -- in the first 11 paragraph he congratulates DRI then, or I guess 12 it's Novell in December, but you're not in that 13 group yet, for winning the Navy Lapheld II 14 contract. 15 As time went on, were there questions 16 and problems in that contract? 17 A. There were. 18 Q. Tell the Jury, please, about what 19 happened. 20 A. This was a time that Microsoft was 21 rolling out new beta release of the Windows 22 operating platform. 23 And one of the beta releases that came 24 out showed some incompatibility in their 25 testing, and they got concerned and wanted us 12129 1 to answer the question of interoperability and 2 compatibility. 3 Q. At the time these questions were 4 raised, had Sears already tested and certified 5 DR-DOS? 6 A. Sears had already gone through their 7 process of testing and certification. And now 8 they were working towards launch, and they were 9 finding errors in its interaction with Windows. 10 Q. And what was the nature of the errors 11 that they were finding? 12 A. You'd load up the operating system and 13 it would give an error message about 14 incompatibility. I don't recall the specifics 15 of the error message. And the concern was what 16 is this error message? Why is it coming now? 17 Why hasn't it been there before? And what are 18 you going to do about it? 19 Q. The timeline indicates that on 20 December 21st, right about there, there was a 21 release of a beta of Windows 3.1, and then the 22 final product was released in April of 1992. 23 And this is in the period of time that 24 Sears is working with your product? 25 A. It is. It's the very same period of 12130 1 time from the late '91 time frame through the 2 spring of '92. 3 Q. During this time were there any claims 4 that Microsoft was making publicly about 5 DR-DOS? 6 A. The claims was that it was not 7 compatible and would not be compatible. 8 Q. Was it ever going to be compatible? 9 A. The claim was that it would not be 10 compatible at any time. And the fear that was 11 hitting people -- people being the OEMs or 12 customers, Sears -- was that that's a pretty 13 strong statement, despite the fact that, as I 14 recall, they were already under FTC 15 investigation, and they were fairly bold in the 16 marketplace about saying it wouldn't be 17 compatible. 18 Q. Well, was Microsoft saying anything 19 publicly about whether or not they would work 20 with DRI to resolve any problems that developed 21 in the product testing cycle? 22 A. I was under the impression that they 23 would not work with DRI to resolve the 24 problems. 25 In fact, the issue was it's not -- 12131 1 it's not our problem, it's theirs. And we're 2 not going to fix it. 3 Q. Well, why was that consistent with 4 what other companies did in terms of 5 cooperation with both competitors and 6 noncompetitors? 7 A. Well, Microsoft was a monopoly. They 8 were standard. They were an operating system. 9 People expected them to work with all ISVs and 10 all industry participants in order to ensure 11 interoperability. Customers wanted it. 12 If a customer purchased a product that 13 was intended to work with the Microsoft DOS 14 operating system, they had an expectation that 15 Microsoft would work with a vendor to see to it 16 that it was interoperable. 17 Q. Novell was an operating system vendor? 18 A. We were. 19 Q. What was your practice? 20 A. Our practice was to proactively look 21 for testing and interoperability of products. 22 We felt that as an operating system vendor, 23 that was our role in the industry, was to 24 ensure that all products that customers used in 25 any significant way would be functional and 12132 1 supportive. 2 Q. In this time frame, what happened 3 between Sears and your company? 4 A. The request came back for us to 5 guarantee Windows compatibility and effectively 6 impose a penalty on us for not guaranteeing 7 Windows compatibility out into the future. 8 So not just will it go off with these 9 laptops and be compatible, but we want you to 10 guarantee it forever. 11 And we did not feel like we could do 12 the latter part. We felt like we could make it 13 compatible with the then-released product. 14 It was moving around a lot, but we 15 felt like we could get to that eventually, but 16 to think about it forever, particularly with 17 our suspicion that Microsoft was intentionally 18 making it incompatible -- 19 MR. TULCHIN: Objection to his 20 suspicion, Your Honor. 21 THE COURT: Sustained. 22 Q. Well, let me ask you a couple of 23 questions about that. 24 From the standpoint of Novell, what 25 was your view as to whether or not the 12133 1 incompatibilities that were showing up in these 2 betas as time went on were intentional or 3 unintentional? 4 A. We felt like they were intentional. 5 We felt that it was not a normal bug we were 6 finding. We felt that Microsoft was 7 purposefully creating problems and then 8 announcing in the marketplace that, hey, that's 9 their fault and creating for us a really -- a 10 no win situation because even if we fixed the 11 then current problem, they would create a new 12 one, particularly aimed at us. That was our 13 belief. 14 MR. TULCHIN: Move to strike, Your 15 Honor. This is based on suspicion. There is 16 no evidence that this witness has on whether 17 anything here -- any bugs were intentional. 18 THE COURT: Overruled. 19 Q. Mr. Edwards, how did that fit into 20 your problem with this Sears contract? 21 A. The problem was we felt it very 22 difficult to guarantee that interoperability 23 and to commit financial resources when it 24 wasn't a fair and level playing field and that 25 any guarantee I would make would immediately be 12134 1 undermined by acts by Microsoft. 2 Q. Did that guarantee of compatibility 3 with future versions of Windows include any 4 financial penalties if you couldn't do it? 5 A. It did. It had a penalty in the 6 agreement for not guaranteeing the 7 interoperability. 8 I don't recall the amount of the 9 penalty. I remember that there was a financial 10 penalty for failing to live up to the 11 guarantee. 12 Q. And so what did you eventually do? 13 A. Well, we talked internally. We talked 14 with the product group. We sought advice of 15 the risk from both finance and legal and made 16 the determination that we could not agree to 17 the specific language coming back to us wherein 18 they wanted us to make the guarantees with 19 penalties. We didn't feel like we could do 20 that. 21 Q. The Jury has already seen Plaintiffs' 22 Exhibit 5305, and it's been admitted with 23 Mr. Bradford, who I know that you know. 24 And I'd like to call your attention -- 25 I know that you did not see this until I showed 12135 1 it to you -- but call your attention to the 2 last page, which is an e-mail from 3 Mr. Kechejian, to Mr. Silverberg, Mr. Chase, 4 and others. And the subject is Sears Navy 5 Lapheld contract win, and the date is June 1, 6 1992. 7 Is this about the time that you 8 learned that there wasn't going to be a 9 contract for DR-DOS with Sears? 10 A. It was in this time frame. 11 Q. All right. And just directing your 12 attention, as I said, to the last page, and the 13 paragraph that begins Debbie Rea and Brett 14 Swartz. It's the second paragraph. 15 A. Yes. 16 MS. CONLIN: Do you have that, Darin? 17 It doesn't look familiar to me. The last page 18 ends 988. No. 19 A. No, it's the second paragraph down. 20 MS. CONLIN: Right up there. Yes. 21 There we go. That's it. Thank you. 22 Q. Debbie Rea and Brett Swartz found a 23 clause in the Navy contract. And it says above 24 this that Miss Rea is a federal sales rep for 25 Microsoft. 12136 1 Debbie Rea and Brett Swartz found a 2 clause in the Navy contract requiring 3 compatibility with Windows and got the Navy to 4 insist Sears honor it. 5 After Debbie and I made clear to Sears 6 DR-DOS and Windows compatibility would always 7 be a major issue, as well as DR's regular 8 business updates for which Sears is 9 responsible. 10 Was what Mr. Kechejian said here, that 11 DR-DOS and Windows compatibility would always 12 be a major issue what you were hearing from 13 Sears and others in this time frame? 14 A. It was. 15 Q. And what is the business update 16 reference? 17 A. Well, the product as it stood, any 18 time that there were -- there would be new 19 functionality, we would provide to them an 20 update to our product, and this update had to 21 be -- we had to provide a guarantee, as I 22 recall, that it would be compatible with the 23 versions of Windows. 24 Q. All right. 25 A. Just our own product updates. 12137 1 Q. Sears included a clause guaranteeing 2 DR-DOS would be compatible with Windows now and 3 in the future in Sears' agreement with DR. 4 DR's lawyers refused to sign the contract. 5 And that is, in fact, what happened? 6 A. That is correct. 7 Q. Let's talk for a moment about the 8 spring COMDEX. 9 When you first came to your position 10 in April, was one of the things that you did 11 was attend that? 12 A. I did. 13 Q. Tell the Jury what the spring COMDEX 14 is and where it is. 15 A. It was in Chicago that year, as I 16 recall, and it's a meeting of the industry, 17 software providers, manufacturers, in a forum 18 where they can demonstrate their products. 19 We typically had either a booth there 20 or a demonstration or were demonstrating in the 21 booths of some of our partners. So it was a 22 way for us to bring products together for 23 customers to review. 24 Q. Tell the Jury about what happened in 25 connection with an OEM running DR-DOS and 12138 1 Windows together. 2 A. It was reported to me by our group in 3 one of the OEM booths that we had DR-DOS 4 running with Windows in the booth and it was 5 running well and that Microsoft -- 6 MR. TULCHIN: Objection, Your Honor. 7 This is pure hearsay again. 8 THE COURT: Sustained. 9 Q. At the COMDEX, were there also 10 Microsoft engineers and other personnel 11 present? 12 A. There were. 13 Q. Did you see those people, Microsoft 14 employees and engineers? 15 A. Certainly. 16 Q. Were you in the OEM booth that was 17 running DR-DOS and Windows together 18 successfully? 19 A. I was. 20 Q. And you saw it run? 21 A. I did see it run. 22 Q. And while it was running, did someone 23 come into the booth that was -- I don't know -- 24 wearing a badge or identified himself or 25 herself as a Microsoft engineer? 12139 1 A. I was simply told that that happened. 2 MR. TULCHIN: Same objection. 3 THE COURT: Sustained. 4 Q. In making your subsequent decisions 5 about how to proceed with DR-DOS, was what you 6 were -- what you learned at the spring COMDEX a 7 factor? 8 A. It was. 9 Q. And what was it that you learned at 10 the spring COMDEX? 11 MR. TULCHIN: Same objection, Your 12 Honor. 13 THE COURT: You may answer. 14 Go ahead. 15 A. What I learned was that -- the 16 Microsoft employee was surprised, even shocked, 17 that the products worked together and claimed 18 that that should not be happening. 19 And that was one of the many factors 20 and information pieces I had in concluding that 21 this was not ordinary problems we were having. 22 This was a proactive engagement to stop us from 23 succeeding. 24 Q. What's a reseller? 25 A. Someone who -- in our industry, we had 12140 1 what was called two-tier distribution. So 2 Novell would sell its services to a distributor 3 who would have multiple resellers in the 4 industry who would take product from them. And 5 it was typically the reseller who sold to the 6 end user. 7 However, distributors -- Sears would 8 have been like a distributor/reseller. They 9 were bigger. They may sell directly to large 10 accounts. 11 So Novell typically didn't sell 12 direct. It typically sold through that 13 channel. 14 Q. Did you and others on your team have 15 regular contract -- contact, I'm sorry, with 16 resellers? 17 A. We did. 18 Q. And did you learn anything about 19 resellers and their conduct with Microsoft in 20 this time frame? 21 A. I mean, we met constantly with 22 resellers. And I don't recall a specific thing 23 I learned from a reseller other than the 24 general sense that there would not be -- 25 MR. TULCHIN: Your Honor, this is the 12141 1 same subject we discussed at lunch. 2 THE COURT: Sustained. 3 MR. TULCHIN: Thank you. 4 Q. You mentioned messages or warnings or 5 the like that were appearing in the betas. 6 Did they appear in every beta or just 7 in one beta? 8 A. Just -- they did not appear in the 9 first Windows beta. There was no warning. We 10 ran fine. 11 They appeared in subsequent betas as 12 reported to me by my technical team and also by 13 those in both OEMs and resellers who were 14 testing and evaluating the product. 15 Q. From beta to beta, would the warnings 16 and the functionality that didn't work change? 17 A. It would. 18 Q. Had you ever experienced anything like 19 that before or since? 20 A. Well, certainly in the industry, you 21 can bring a product out and betas can introduce 22 new complexity. And you can have a bug and you 23 go fix it, but this seemed much different. 24 It seemed as though there was a 25 purposeful engineering to prevent us from 12142 1 succeeding. 2 MR. TULCHIN: Move to strike, Your 3 Honor, as to what it seemed. Again, he has no 4 evidence on this subject. 5 THE COURT: Sustained. It's stricken. 6 Q. What evidence do you have on the 7 issue? What makes you think, Mr. Edwards, that 8 this was intentional? 9 A. The communication coming to me from 10 people like John Constant, who was the 11 technical head in our group managing a lot of 12 the problems that OEMs were having, and the 13 communication from our marketing people at 14 COMDEX with the surprise by the engineer and 15 his comments that it should not work, the 16 communication from OEMs that would tell me -- 17 MR. TULCHIN: Same objection, Your 18 Honor. 19 THE COURT: Sustained. 20 Q. Just say the communications from OEMs. 21 A. Okay. 22 Q. What else besides that communication 23 from OEMs without saying what that 24 communication was? 25 A. Press releases that strongly indicated 12143 1 the same. 2 Q. Okay. From Microsoft? 3 A. From Microsoft. 4 Q. Was Mr. Ballmer, Mr. Gates, Mr. Maples 5 and others talking publicly about this? 6 MR. TULCHIN: Objection. Leading. 7 THE COURT: Sustained. 8 Q. Who else did you hear from? 9 A. I heard from Steve Ballmer at Brain 10 Share. Maples was quoted in press releases. 11 And those were ones that come to mind. 12 Q. What is Brain Share? 13 A. Brain Share is the technical 14 development conference that Novell held that 15 would bring its ISVs in and teach them about 16 how to use our products. And it was really an 17 industry event. 18 People from all over the world came, 19 to the extent that we even started holding 20 Brain Shares all over the world as it grew. 21 And we typically had keynote speakers 22 come in. During that time, one of the keynotes 23 was Steve Ballmer. 24 Q. And was there a Q and A usually with a 25 keynote speaker? 12144 1 A. Yes. Often they would give a 2 presentation and then open up questions from 3 the developer audience. 4 And this is in the University of 5 Utah's basketball arena. So it's a -- there's 6 a big podium out where you would think of as 7 the basketball floor, and then all around the 8 entire room would be developers. And it was 9 usually a fairly packed house. 10 And then there would be mic's up and 11 down the aisles where developers could go and 12 ask questions or they may be sitting right on 13 what you'd think of as the basketball court and 14 they'd stand up to a mic and ask a question. 15 Q. Can you tell the Jury about the 16 questions addressed to Mr. Ballmer concerning 17 DR-DOS and his responses? 18 A. One question having to do with that 19 was when -- something to the effect of when is 20 Microsoft going to get out of its sandbox and 21 start participating in the industry and 22 supporting DR-DOS. 23 And at that point in time the response 24 was -- to that question was noted. His anger 25 was noted. 12145 1 Another time the comment was made that 2 DR-DOS -- that Microsoft Windows is designed 3 for MS-DOS and it's not our intention nor our 4 plan to support DR-DOS. 5 Q. And that was Mr. Ballmer himself? 6 A. That was him. 7 Q. At your -- 8 A. At our conference. 9 Q. All right. When -- I'm moving to a 10 different subject, Mr. Edwards. 11 And I want to ask you, when you took 12 over at the desktop, were you aware of the fact 13 that there were out there in use by Microsoft 14 per processor or CPU type licenses? 15 A. Probably aware, but not fully informed 16 is the way I would say it. 17 I'd heard that concept before, but 18 didn't know what it meant, really, until you 19 went and visited with the OEMs and talked to 20 them. Didn't really understand -- 21 MR. TULCHIN: Same objection, Your 22 Honor. 23 This is the third or fourth time the 24 Court has ruled on this. 25 THE COURT: Sustained. 12146 1 MS. CONLIN: Your Honor, I wasn't 2 soliciting any testimony about what the OEMs 3 said, and I don't think that's what the witness 4 was going to provide. 5 Q. The per processor license of the -- 6 how many of the OEMs that you visited in the 7 United States had such licenses? 8 A. It's my understanding that they all 9 did, or a vast -- or the majority, if not high 10 -- 90 percent. I mean, it was the common 11 mechanism. 12 Q. Were there, to your knowledge, any 13 other licenses offered by Microsoft to OEMs? 14 A. There were, practically speaking, no 15 other choice to make because the other 16 offerings weren't economically feasible. 17 Q. What do you mean by that? 18 A. They might charge them a retail price 19 if they were taking something less than the 20 volume associated with their complete output. 21 MR. TULCHIN: Your Honor, may I voir 22 dire on this? This is, again, based on the 23 same subject that we -- 24 THE COURT: You may voir dire. 25 12147 1 VOIR DIRE EXAMINATION 2 BY MR. TULCHIN: 3 Q. Mr. Edwards, did you in your course of 4 time as head of Novell's desktop operating 5 systems group ever see a Microsoft contract 6 with any OEM? 7 A. I didn't see a contract with any OEM. 8 Q. Did you ever ask to see such a 9 contract? 10 A. I did. 11 Q. And to whom did you ask? 12 A. I asked a majority of them, if I -- 13 Q. No, I'm asking you at Novell. 14 Was there anyone at Novell who you 15 asked to give you a copy of a contract between 16 Microsoft and an OEM? 17 A. Oh, I thought you were talking about 18 asking of the OEMs themselves. 19 I don't recall specifically asking a 20 Novell employee. 21 Q. Is your information here on who had 22 per processor contracts a function of 23 conversations that you say you had 15 years ago 24 with OEMs? 25 A. That's correct. 12148 1 MR. TULCHIN: Same objection, Your 2 Honor. 3 THE COURT: Sustained. 4 DIRECT EXAMINATION (CONT'D) 5 BY MS. CONLIN: 6 Q. Do you know, Mr. Edwards, based on 7 your knowledge of the industry, whether any 8 other software vendor used per processor 9 licenses? 10 A. I do not know of any other. 11 Q. Does Novell suffer from piracy of its 12 operating systems? 13 A. It does. It did. I'm not tracking it 14 today, but I'm assuming it does. It's a common 15 problem. 16 Q. Does Novell for its network operating 17 system use a per processing license? 18 A. No, it does not. Did not. 19 Q. Have you heard of minimum commitments? 20 A. I have. 21 Q. What do you know about minimum 22 commitments? 23 A. That you got this effect of a good 24 price if you maintained a take or pay on a 25 certain number that was typically correlated to 12149 1 the output. 2 And if you tried to go under that, the 3 price dropped -- I mean, rose drastically. 4 And at the end of the year, if an OEM 5 would try to get rid of his excess usage, the 6 way they typically did that was to tie them 7 into another contract the next year on higher 8 minimums. 9 Q. What is the practical effect on DR-DOS 10 of the CPU or per processor license? 11 A. The effect was it locked us out of the 12 market. There wasn't an effective way to 13 penetrate OEMs. 14 And the inability to penetrate OEMs 15 created an inability to succeed with the 16 product long term. 17 Q. What were you trying to do in these 18 OEMs in terms of the numbers or the percentage? 19 A. We never required or even sought for 20 any OEM to put all of our product on all of 21 their processors. 22 What we were looking for is for them 23 to take a small percentage, take 5 percent, 24 take 7 percent, take 10 percent, load the 25 operating system, let the customer choose. 12150 1 Now, if the customer ends up choosing 2 to ignore it, that will be fine, we'll deal 3 with that. But we weren't really able to 4 penetrate that. 5 Q. Have you heard of cliff pricing? 6 A. I have. 7 Q. Was that in a particular geographic 8 area? 9 A. The cliff pricing that I heard about 10 came from our Korean association with resellers 11 and OEMs in Korea. 12 Q. What is cliff pricing? 13 A. It's this notion that I'm not going to 14 do it per CPU, but what I am going to do is 15 calculate how many CPUs you have. And I'm 16 going to give you a price associated with that. 17 And if you try to take less, the press is going 18 to be drastically different. 19 So the effect was to emulate a per CPU 20 pricing even though the arrangement was 21 different. 22 Q. In the course of your visits and 23 discussions and even publicly, was there a 24 suggestion that Novell as a company would be 25 not competent to engineer their product so that 12151 1 it was compatible with Windows? 2 A. Not at all. I mean, NetWare as an 3 operating system was by far more complex than 4 DOS. It is the most difficult type of 5 operating system to write. The engineering 6 excellence there was known well in the 7 marketplace. 8 And people assumed and, I believe, 9 communicated to us numerous times that they had 10 faith in our engineering capabilities. 11 Q. Was Windows compatible, 100 percent 12 compatible, with other products on the market? 13 A. No. I mean, Windows was new at the 14 time. And we're talking in this late '91, '92 15 time frame. 16 It had compatibility, but it also had 17 bugs, probably with every product. 18 Q. Including MS-DOS? 19 A. I'm sure that it did. 20 Q. Did you also learn that there were 21 occasions when Microsoft would refuse to sell 22 Windows by itself? 23 A. We did. 24 One of the sales approaches we took, 25 again, was to, say, load DR-DOS and then buy 12152 1 Windows separately to go on the machine. 2 We had, particularly in the OEM market 3 space in England, the European market space, 4 OEMs attempt to do that very thing and request 5 that Microsoft -- a Windows only license and 6 were refused. 7 Q. In front of you should be Plaintiffs' 8 Exhibit 5473. That's already a part of the 9 record. It's a two-page exhibit. 10 Do you have it in front of you? 11 A. I just have 5473. I just have one 12 page. 13 Q. Do you have next to that a letter or a 14 fax from Microsoft? 15 A. Oh, I do. So that one too. Sorry. 16 Q. All right. Those two go together. 17 The staple must have come out. 18 And this is from -- to Linnet Harlan 19 from Lindsey Williams dated May 6, 1992. 20 On this first handwritten page, I want 21 to ask you about the sentence that says, 22 Microsoft refuses to support Windows or any 23 other of their products if run with DR-DOS if 24 the problem appears to be with DR-DOS. Yes, 25 they support competitors' applications with 12153 1 Windows. 2 Can you explain to the Jury why it was 3 different for Microsoft to refuse to support 4 DR-DOS? 5 A. Well, they are a monopoly at the time 6 with DOS, and -- 7 MR. TULCHIN: Objection to his legal 8 conclusion, Your Honor. 9 THE COURT: Sustained. 10 A. It was our belief that they were in a 11 monopoly -- 12 MR. TULCHIN: Your Honor, should the 13 Witness be continuing his answer with no 14 question pending? 15 THE WITNESS: Sorry. 16 THE COURT: Sustained. 17 Q. Was Microsoft the dominant platform 18 from your observation? 19 A. It was. 20 Q. And do you know from industry sources 21 like IDC and others approximately what 22 percentage of the PCs were running on Microsoft 23 operating system? 24 A. They had a 90 plus percent of the 25 installed base. They were the dominant 12154 1 platform. 2 Q. All right. So given that they were 3 the dominant platform on 90 percent or so, what 4 was your view as to its -- as to Microsoft's 5 practice of supporting other applications and 6 operating system providers? 7 A. Our view was that there should be a 8 fair and level playing field, that there was a 9 new opportunity with a GUI and that Microsoft 10 should not be able to tie their current 11 dominant position in DOS to a future 12 environment in an exclusive way. That there 13 should be others who could provide a product 14 that would also work with future products. 15 Q. All right. And let's look at the 16 second page of Plaintiffs' Exhibit 5473. 17 This is a letter from Ellen Taylor to 18 Mike Davis of Diamond Trading Company dated 19 January 23rd, 1992 or 23 January, 1992 and is 20 on Microsoft letterhead, and Miss Taylor is a 21 Microsoft employee, and she says, Dear Mike, 22 further to our conversation yesterday, I am 23 writing to confirm that Microsoft is unable to 24 supply you Windows as a single product. 25 Microsoft will only sell you Windows as a 12155 1 combined package with MS-DOS version 5. 2 Was that kind of practice something 3 that you ran into in the marketplace? 4 A. It was. 5 Q. I want to talk with you now about 6 Z-NIX. Did DR-DOS have an agreement with 7 Z-NIX? 8 A. Yes, we did. 9 Q. What was the agreement to do? 10 First of all, tell the Jury what Z-NIX 11 did. 12 A. Z-NIX was an OEM/reseller in the 13 marketplace that bundled hardware with software 14 and delivered it to customers. 15 Q. Here is Exhibit 1324. Do you have 16 that in front of you? It's a two-page exhibit 17 and it is a document already a part of the 18 record. 19 A. Yes. 20 Q. And I want to first call your 21 attention to the bottom part of the exhibit. 22 It quotes you. It's an article. 23 Do you see that? 24 A. I do. 25 MS. CONLIN: Can you put it up? If 12156 1 you can find it, Darin. 2 I'm sorry, 1324. 3 And down at the bottom where there is 4 the from Timothy Raines. Yeah, right there. 5 THE COURT: I'm sorry. Is this 1324A 6 or 1324? 7 MR. TULCHIN: Yes. I don't believe 8 this portion of the exhibit has been admitted. 9 I may be wrong, but I think my records are that 10 only the top portion, Your Honor -- 11 MS. CONLIN: Well, Your Honor, I have 12 a different -- my database tells me something 13 different, but we learned that sometimes the 14 databases don't match. 15 THE COURT: Let me check my record. 16 MS. CONLIN: Okay, Your Honor. Thank 17 you. 18 What my records say is that 19 Mr. Silverman agreed that the part that I was 20 displaying to the Jury could be displayed and 21 admitted at the Silverberg meet and confer. 22 THE COURT: I don't show 1324 as being 23 admitted in the record yet, unless I'm wrong. 24 MS. CONLIN: Well, Your Honor, let me 25 offer Exhibit 1324, which my records indicate 12157 1 Microsoft has agreed to through Mr. Silverman 2 at the Silverberg meet and confer. 3 THE COURT: Any objection to 1324? 4 MR. TULCHIN: Your Honor, could we 5 have a minute to try to find out? My records 6 are different than Ms. Conlin's. I don't know, 7 perhaps -- but could we just have a minute or 8 two? 9 THE COURT: Sure. 10 MS. CONLIN: Okay. Thank you, Your 11 Honor. 12 Your Honor, one of the things I could 13 do is to move to a different subject matter and 14 at the break we can try to get our databases to 15 match. 16 THE COURT: Is that okay? 17 MR. TULCHIN: Well, I've got the 18 answer from our point of view, Your Honor. 19 We did agree to this for a nonhearsay 20 purpose. 21 THE COURT: Oh. 22 MR. TULCHIN: The press release, and 23 if the Jury is instructed on that, that would 24 be great. 25 MS. CONLIN: Okay. 12158 1 THE COURT: Very well. 2 MR. TULCHIN: So my apology. 3 THE COURT: Is it the same, though? I 4 saw 1324A. Is that the one? 5 MS. CONLIN: I think it's the exact 6 same thing, Your Honor, but that happens to be 7 the one in Darin's database. I don't think 8 there's any difference between that and 1324. 9 THE COURT: Do you have the right 10 copy, then, Mr. Tulchin? 11 MR. TULCHIN: I have 1324. 12 THE COURT: The one on the screen was 13 1324A. 14 MR. TULCHIN: I'm not sure if there is 15 any difference or not. I don't know what that 16 is. 17 MS. CONLIN: It's just exactly the 18 same. 19 I think what we will do is move on, 20 Your Honor. 21 THE COURT: Okay. 22 MS. CONLIN: And move to a different 23 subject matter and return to this when we can 24 all get everything to match up. 25 THE COURT: Mr. Tulchin, do you want 12159 1 this back? This is yours. 2 MR. TULCHIN: Thank you, Your Honor. 3 THE COURT: Okay. 4 Q. You mentioned your proposal to HP and 5 others. What did -- BizQuick? 6 A. BizQuick. 7 Q. And when did you first offer that? 8 A. In the second half of 1992. 9 Q. And to whom did you offer it? 10 A. We offered it to 10, 15 OEMs 11 initially, but, specifically, I personally 12 offered it to HP, to Packard Bell, to Compaq. 13 Q. And what was its purpose? 14 A. The idea behind BizQuick was if you 15 think about the pancake mix, it comes with 16 everything, just add water. 17 So what we wanted to do was to create 18 a PC environment that had all of the 19 applications you would need to get up and 20 running quickly. And all you had to 21 effectively do is turn it on and make some 22 selections and then operate those. 23 Those selections would be reported 24 back to Novell and we would collect the monies 25 for the applications you selected and then pay 12160 1 a royalty stream back to the OEM. 2 So it was a way for them, the OEM, to 3 get money for their real estate called the disk 4 drive that was for the most part empty and 5 sitting there and a way to make money off it. 6 We offered up DR-DOS to be in the mix 7 and we offered it up at no charge. So to 8 stimulate the market and to see if that would 9 stimulate follow-on use. 10 And if we could get a couple of the 11 OEMs to do that in the part of the BizQuick 12 program, we could generate interest in the 13 product and create follow-on sales. 14 Q. How could you make money doing that? 15 A. We would make money through retail ads 16 follow-on and through those people, of course, 17 who didn't participate in the BizQuick program 18 because inevitably not everybody would, but we 19 also would make money on planned upgrades. 20 So how do you break through that 21 market that we anticipated was locked? How do 22 you get a toehold in there and then use that as 23 a point to start building momentum and building 24 presence to the marketplace? 25 And we also were trying to test this 12161 1 issue on price because it was our belief that 2 the price wasn't the issue, the technology 3 wasn't the issue. Other things were precluding 4 them from moving forward. 5 Q. All right. And that didn't work 6 either? 7 A. It did not. It gained really a lot of 8 excitement as generated by -- the sales force 9 in Novell got excited about it and they started 10 offering up potential participants. 11 And the executives at Compaq and HP 12 spent a lot of time with us planning how it 13 would work, got fully engaged. 14 People at Compaq like Gary Stimac and 15 Ronnie Ward, and Lori Strong -- Lori ran their 16 mobile group, and Gary Stimac was over their 17 systems desktop group. 18 And so there was a lot of momentum 19 around it, and it was eventually pretty 20 routinely killed at the higher levels within 21 those organizations. 22 Q. All right. As as a result of the 23 things that you've told us, did the sales of 24 DR-DOS drop off dramatically? 25 A. The sales of DR-DOS started to tank in 12162 1 the -- starting early in the end of the second 2 quarter of '92 and just precipitously all 3 through the balance of the year. Just a sharp 4 drop. 5 Q. As a part of your responsibility, did 6 you keep track of what was happening in terms 7 of the sales? 8 A. Absolutely, we kept track. And we 9 were hugely concerned, and we believed we had a 10 reason as to why it was happening. 11 Q. What did you think the reason was? 12 A. We thought the reason was the fear and 13 uncertainty and doubt generated by Microsoft in 14 the press. We felt that our evidence from the 15 standpoint of communications we had had with 16 OEMs was causing them to feel uncertain about 17 Windows' compatibility in the future. 18 MR. TULCHIN: Same objection, Your 19 Honor. It's the same issue. 20 THE COURT: Sustained. 21 Q. And as a part of your 22 responsibilities, did you -- let me start 23 again. 24 Did you chart the sharp drop that you 25 were seeing? 12163 1 A. We charted it, we studied it, we 2 looked at it, we agonized over it. Yeah, we 3 looked at it in any way you can look at 4 numbers. We studied it. 5 Q. All right. Let me show you, if you 6 will turn to Exhibit 1056 (sic). 7 That is a chart that was included in 8 your January 1993 declaration. 9 Did you make that chart? I don't mean 10 you personally, but did you see to its 11 preparation? 12 A. I did. 13 Q. And on what was it based? 14 A. It was based upon the budgeted 15 forecasted sales versus those sales actually 16 not occurring in the market. 17 Q. Is it based on the financial books and 18 records of Novell? 19 A. It's based upon our budgeting records 20 and the internal financial records of Novell. 21 Q. And in making it, did you assure, 22 personally assure, its accuracy? 23 A. I believed it to be accurate. And, in 24 assuring that, I was relying, of course, on the 25 financial people in my group and in the company 12164 1 who prepared numbers. I did not prepare the 2 numbers. 3 Q. But you relied on them? 4 A. I did rely on them. 5 Q. Both for the purpose of preparing this 6 and for the purpose of doing business? 7 A. I relied on them principally for the 8 purpose of doing business. 9 MS. CONLIN: Your Honor, at this time 10 we would offer Plaintiffs' Exhibit 10056. 11 MR. TULCHIN: No objection. 12 THE COURT: It's admitted. 13 Q. And this is the bracketed portrayal of 14 what is happening; correct? 15 A. That is correct. 16 Q. And the top line is what? 17 A. Budgeted. 18 Q. And the line with the dark squares? 19 A. Actual. 20 Q. And so in the second quarter of '92, 21 which would be January, February, March or -- 22 A. February, March, April. 23 Q. Okay. That is when this decline sort 24 of begins? 25 A. Right. Correct. 12165 1 Q. And continues throughout that year? 2 A. That is correct. 3 Q. Does it go on beyond that? 4 A. Yes. The product was eventually 5 terminated. So it went to zero. 6 Q. And the net sales -- this is net sales 7 numbers? 8 A. Correct. 9 Q. And in the first quarter, what were 10 the net sales? 11 A. Approaching $16 million. 15 -- 15 12 something. A high 15 number. 15.7. I'm just 13 reading from the chart here. 14 Q. Okay. Then the second quarter? 15 A. At or around 14 million. 16 Q. The third quarter? 17 A. At or around 7 million. 18 Q. And the last quarter? 19 A. Below 2 million. 20 Q. About what percentage of drop was that 21 over a period of a year? 22 A. Doing the math -- I mean, it looks 23 like a 4- to 500 percent drop. 24 Q. All right. In your business, were 25 there any cyclical, seasonal type of changes to 12166 1 account for this kind of plummeting? 2 A. No. 3 Q. I want to now, if you would look at 4 Exhibit 10056. 5 A. 6? 6 Q. Yes. Oh, I'm sorry, 1 -- do you have 7 10057? 8 A. I do. 9 Q. And what does this tell us? 10 A. 10057 -- 11 MR. TULCHIN: Again, Your Honor, I'm 12 sorry to interrupt, but if I could just get a 13 copy of this. 14 Thank you. 15 A. Should I proceed? 16 Q. Yes. First let me ask you a couple of 17 other questions. 18 Did you prepare this? 19 A. I supervised its preparation. 20 Q. Is it prepared from the books and 21 records of Novell? 22 A. I believe that to be true. 23 Q. And did you personally assure that it 24 was accurate based on those books and records? 25 A. I did. 12167 1 MS. CONLIN: Your Honor, at this time 2 we would offer 10057. 3 MR. TULCHIN: No objection. 4 THE COURT: It's admitted. 5 Q. Tell us what this tells us. 6 A. This is the product line profit and 7 loss with the budgeted and actual. So the 8 actual is in the clear and the budget net 9 profit is in the black. 10 Q. Okay. And, again, the same first 11 quarter, second quarter, third quarter, fourth 12 quarter of '92? 13 A. That's correct. 14 Q. In the first quarter you are a little 15 bit below budget, in the second quarter you are 16 above the budgeted numbers, your sales exceed 17 what you expected? 18 A. Above the budget. 19 Q. Am I reading -- 20 A. That's correct. 21 Q. Okay. And then things change. And 22 you are, what, 2 million or so below budget? 23 A. Below -- well, the budget would have 24 been greater than 3 million, and we were under 25 a negative 2. 12168 1 Q. And then the last quarter? 2 A. We are approaching -- I'm having a 3 hard time reading the actual number there. I 4 believe that's an 8. Approaching 8 million in 5 the negative. 6 Q. How did you make your profit in the 7 first quarter? 8 A. Principally through selling through 9 the retail channel and enticing users to 10 upgrade to the product. 11 And, of course, we did have OEM 12 business as well. So it would be a combination 13 of the two. 14 Q. And when the problems began appearing 15 with the 3.1 beta, what happened to your 16 market? 17 A. The market seemingly overnight, just 18 the bottom dropped out of it. The concern and 19 fear over the compatibility and the general 20 mood in the market, people stopped buying 21 product and OEMs were hesitating to engage with 22 us. 23 Q. Were there factors other than 24 Microsoft's conduct in the market that could 25 account for this drop? 12169 1 A. Not this much. I mean, the product 2 was a good, stable product. We had a loyal 3 base. The product was growing year over year 4 and heading in a very positive direction, and 5 it happened -- the drop happened quite 6 suddenly. 7 Q. Were there problems of customer 8 demand? 9 A. End user customer demand, there was a 10 very loyal base. In fact, part of the reason 11 later on we were struggling with whether or not 12 to stop the product was because of the feedback 13 coming from users that they loved the product. 14 And so the internal environment at 15 Novell was quite confused about how to proceed 16 and how to serve those people that we had 17 undertaken to serve when we acquired the 18 company. 19 Q. Let's talk about customer demand. 20 How were you planning to increase and 21 improve customer demand? How's that done? 22 Perhaps I want to ask a very general question. 23 As a seller of a product, and this 24 product, how could you grow it? How could you 25 make the market bigger for it in light of 12170 1 customer demand? 2 A. You had to get a voice in the 3 marketplace. You had to be able to go out and 4 get people to listen to you. 5 Our belief that methodology for doing 6 that was certainly to continue our retail 7 plans, but to go after OEMs so that larger 8 share of the people could get the product when 9 they purchased a PC and it would be right 10 there. 11 And then from there we could stimulate 12 business that would increase our upgrades and 13 our broadening of the marketplace. 14 And without an ability to break into 15 that, you were having to shout louder than the 16 market confusion in order to get anybody's 17 attention. 18 And if you've got the leading supplier 19 communicating to the marketplace that DR-DOS 20 won't be supported, you got to shout awfully 21 loud. And it's just not reasonable to 22 penetrate that without having all of the 23 vehicles, all the tools available to you to 24 work in a marketplace. 25 Q. Is there a problem of customer demand 12171 1 with any minority product or new technology? 2 A. Yes. New products have to break into 3 the marketplace. They need a mechanism to 4 break through the noise, get some initial 5 beach-headed option, and then begin to 6 systematically -- you try to increase that base 7 over time, and particularly with an operating 8 system that is a reasonably complex product for 9 users to deal with, it's important to get your 10 voice heard out there, I believe, through the 11 distribution of hardware machines. 12 Q. When you took over on September -- 13 backing up for a moment. September 1, 1991, 14 DR-DOS released its 6.0 version, DR-DOS 6.0. 15 Do you see that? 16 A. I do. 17 Q. And when you took over, then, April, 18 four months -- six months later, had work begun 19 on a new version? 20 A. It had. 21 Q. Where was that being done? 22 A. That was being done principally in the 23 EDC, which was the Monterey -- or the 24 Hungerford, England, development group. It 25 also had some aspects of its planning done in 12172 1 the Monterey development or the Monterey 2 business center. 3 Q. The actual writing of code, where was 4 that being done? 5 A. Principally in Hungerford, England. 6 Q. At the European development center? 7 A. The European development center, what 8 we called the EDC. 9 Q. Do you know, do you remember what 10 functionality was being worked on, what kinds 11 of things were being incorporated into a 12 proposed new version? 13 A. The kinds of things that were proposed 14 was improved -- multi-tasking, improved memory 15 management, the complete emulation and 16 compatibility with DOS 5 core engine. We 17 wanted to put networking support in there. 18 Now, the one thing is that the 19 networking client support would have been done 20 in Provo, but that would be a piece of the 21 software that would have been bundled with the 22 end finished product. 23 But the development to ensure its 24 compatibility with any operating system would 25 have been done in the EDC. 12173 1 So it was coordination of a couple of 2 different development centers to deliver the 3 final product. 4 Q. Did that work get slowed down or 5 stopped at some point? 6 A. It did. 7 Q. And why was that? 8 A. After I came home from the tour to 9 OEMs and developed the belief -- I developed 10 the belief that we were locked out of that 11 marketplace for the most part. And so I caused 12 the group to begin focusing more earnestly on a 13 smaller subset of products. 14 The other thing that was happening is 15 they were being bombarded or challenged with 16 the continual incompatibilities with Windows. 17 And so they were constantly having to 18 go and put aside new development issues to 19 focus in on the compatibility issues. 20 And we had a limited budget to do 21 that. And the product was starting to decline, 22 and so it was -- it was a difficult time. 23 Q. Were there under consideration 24 different ways of distributing any new product 25 that would come from the EDC? 12174 1 A. There was. We thought of packaging 2 ideas, of putting our network client and 3 peer-to-peer offerings with that, what we call 4 Panther or what was going to be called either 5 DOS -- DR-DOS 7.0 or Network DOS, that was kind 6 of the name given to it, packaging it as a 7 market offering. 8 We thought of taking our network 9 client or our peer-to-peer solution and just 10 packaging it where the lead would be 11 peer-to-peer as opposed to lead would be DOS. 12 So we experimented with all kinds of 13 formulations, what I would call messaging, how 14 to communicate the resulting product to the 15 marketplace. 16 Q. All right. Let me show you what is 17 marked Defendant's Exhibit 211. That should be 18 your next in order. And it is a staff meeting 19 of yours October 9th, 1992. 20 Do you have that in front of you? 21 A. I do. 22 MS. CONLIN: Your Honor, at this time 23 we would offer Defendant's Exhibit 211. 24 MR. TULCHIN: No objection. 25 THE COURT: It's admitted. 12175 1 Q. And did you have these regular staff 2 meetings? 3 A. We did. 4 Q. And was one of the topics of 5 discussion what to do about DR-DOS? 6 A. It was. 7 Q. And at this time, this is October 9th 8 of 1992, if you look down at the bottom, there 9 is a question posed or a choice to be made, and 10 it says, executive staff. 11 Who would that be, executive staff? 12 A. I would have been a member of 13 executive staff, and the other direct reports 14 to Ray in effect. So David Bradford, Kanwal 15 Rehki, Darrell Miller, you know, those EVPs or 16 senior vice presidents of the company. 17 Q. The executive staff will determine if, 18 one, we are in the DR-DOS business (bundle it 19 with personal NetWare), or, two, we are in the 20 personal NetWare business (bundle it with 21 DR-DOS). 22 Explain what that means. 23 A. It's the same set of technologies 24 positioned differently. So do you lead in the 25 marketplace to a DOS audience and say, hey, DOS 12176 1 just got better, it's now got networking, or do 2 you lead to the audience with a networking 3 message saying we're offering you simplified 4 networking, and by the way, it includes your 5 DOS operating system. 6 So there were pros and cons about how 7 to most effectively create a message in the 8 marketplace that users would respond to. And a 9 fair amount of confusion about which would be 10 right. 11 Q. On the second page, it's only the 12 second option, the first NetWare option that's 13 discussed -- and I don't know why that is, but 14 it says, why would we win if we supported 15 Number 2? And, that is, we are in the personal 16 NetWare business, bundle it with DR-DOS. 17 So was this the topic of discussion in 18 this October time frame in this meeting? 19 A. Yes. Steve Nelson was the marketing 20 director for NetWare for Macintosh. And Steve 21 was offering up his positioning for what he 22 would do to the group. 23 And, of course, he was of the opinion 24 that we should lead with Strategy 2, which 25 would be lead with personal NetWare as the main 12177 1 business because we wanted to focus on our 2 networking solution. And so he was offering up 3 for consideration what he felt were the pros 4 and cons. 5 Q. All right. Was that what eventually 6 happened? 7 A. Well, they both happened in a way. I 8 mean, we eventually went out and sold the 9 product that was called NetWare Lite or 10 personal NetWare, and we also provided to the 11 marketplace an announced Novell DOS 7.0. 12 So at the end of the day we weren't -- 13 we didn't do a very good job of coming to 14 resolution on this issue. It was wide open and 15 hotly contested. 16 And one of the more challenging things 17 I dealt with, because you had a group that was 18 very loyal to their DOS customers, and a group 19 that really wanted to make sure that did not 20 believe we could penetrate the market and so 21 wanted to leverage the product's capabilities, 22 but emphasize a NetWare issue which was a 23 familiar domain to them. 24 Steve, in particular, was very 25 accustomed to talking about this product 12178 1 because he had to deal with this all the time 2 for Macintosh. 3 Are we a Macintosh client that gives 4 you better networking or are we NetWare for 5 Macintosh? 6 So, in other words, we're emphasizing 7 networking -- by the way, you happen to have a 8 Mac, let me help you out with that. 9 And so he was very accustomed to 10 talking about this. And this is a topic that 11 would have gone on for every desktop. 12 We'd have done the same with OS/2 or 13 if I'm talking to an IBM audience, are you 14 really a client for a database on an IBM 3090 15 or are you NetWare that happens to give you 16 connectivity to there? 17 I was a great believer that we should 18 lead with NetWare and that we should provide a 19 solution that was a networked DOS, and so that 20 was my take on it. 21 I felt like that was our strength and 22 I didn't feel like we would penetrate the OEM 23 market because I felt we were locked out. 24 Q. All right. And there was an action 25 item at the bottom that says Toby. Who was 12179 1 that? 2 A. Toby was responsible for DR-DOS. 3 Q. All right. And Toby should head the 4 group that decides which business we are in, 5 thinks through the questions, and comes back 6 with proposals in two weeks. 7 A. So the decision there is Steve is 8 obviously predisposed -- 9 MR. TULCHIN: Excuse me, Your Honor. 10 There's no question pending. Ms. Conlin read 11 something and the Witness began answering. 12 THE COURT: Sustained. 13 Q. What does that mean? 14 A. Huh? 15 Q. What does that mean? 16 A. I knew that Steve was predisposed to 17 want a solution that would be NetWare, personal 18 NetWare. That was his Macintosh experience. 19 It's emphasize the networking. Toby would be 20 predisposed to want to lead with DOS. 21 And so I gave the assignment to Toby 22 because at the end of the day he had the job of 23 trying to figure out how to get DOS as a 24 product to be successful. 25 They both communicated as peers and 12180 1 debated this issue in our group over a 2 prolonged period of time. 3 Q. In 1992, do you reach the conclusion 4 not to release DR-DOS as a stand-alone product? 5 A. I've reached that conclusion. I 6 believe that the executive staff, as Steve 7 points out in his letter, the executive staff 8 is going to make this decision. 9 I believe that together at the end of 10 1992, based upon my trip reports and my 11 information to them, we as a group had 12 concluded that unless the market changed 13 drastically, we were going to stop the 14 proactive involvement in the DOS business. 15 Q. And were you also in terms of your 16 declaration seeking assistance from the 17 government? 18 A. We were. 19 MR. TULCHIN: Objection, Your Honor. 20 THE COURT: Sustained. 21 MR. TULCHIN: Irrelevant. 22 MS. CONLIN: All right. If it's 23 irrelevant, then, I assume there won't be any 24 questioning on cross about it. 25 MR. TULCHIN: And object to the 12181 1 comment, Your Honor. I think it's improper. 2 THE COURT: Sustained. 3 Q. By January of '93 you're not going to 4 release a stand-alone Novell DOS 7.0; correct? 5 A. It is correct. 6 One thing I want to add is that you 7 have to make a separation between the idea of 8 going proactively after the DOS business as a 9 business, and what should I do with this 10 technology that is an asset of the company that 11 shareholders have paid for. 12 Should I just throw away and put it on 13 a shelf? Should I put it in some other 14 packaging even though I may not be proactively 15 going after the business? How should I give a 16 soft landing to customers out there? 17 So that's the level of fine detail 18 that goes along with this decision that I think 19 is really difficult to get at because the 20 company had made a decision not to -- and I led 21 that decision -- not to go after the DOS 22 business without some form of change in 23 Microsoft's practices or some other significant 24 event that would give us hope that we could 25 open up the OEM market. Because without it, it 12182 1 was, long term, a lost cause. 2 Q. All right. What direction did you 3 give to the EDC when you made that decision? 4 What were they supposed to be doing now? 5 A. They were supposed to cut down and 6 wrap up their activities in the event that we 7 wanted to take the value of their work over a 8 period of a year, pull it together in some 9 deliverable, and give it away, whether it's for 10 free. 11 We had been talking about BizQuick. 12 It would have been great to offer this up into 13 the open source community. It would have been 14 great to offer it up to the community at large 15 for free. 16 There may have been people out there 17 that would take it on and do something and do 18 something with it in an ad hoc way. It's just, 19 you can't throw away the assets. But the 20 business issues were clear. We were locked out 21 of the market. 22 Q. Were you also considering some sort of 23 modular development? 24 A. Yes, we were. The product that was 25 code named Panther had a number of capabilities 12183 1 that were built on top of the core operating 2 system. 3 Those capabilities would work really 4 within MS-DOS as well as DR-DOS core kernel. 5 So one of our ideas was to take those 6 modular pieces, bundle it with our NetWare 7 offering, call it NetWare DOS and offer it to 8 the marketplace with the idea that it would be 9 used for current DR-DOS users, but it would 10 also support the existing MS-DOS phase. 11 So it was, again, a way, a mechanism 12 to try to leverage the value that had been 13 created and not just throw it away. 14 THE COURT: We are going to take a 15 recess at this point for ten minutes. 16 Remember the admonition previously 17 given. Leave your notebooks here. 18 All rise. 19 (A recess was taken from 1:29 p.m. 20 to 1:43 p.m.) 21 THE COURT: Everyone else may be 22 seated. 23 Sir, you may resume the witness stand. 24 You are still under oath. 25 THE WITNESS: Thank you. 12184 1 MS. CONLIN: May I approach, Your 2 Honor? 3 THE COURT: You may. 4 BY MS. CONLIN: 5 Q. We were talking about the proposal or 6 the decision you made to end the stand-alone 7 DR-DOS product. 8 Tell the Jury, please, what is the 9 effect on the market of your withdrawal of that 10 operating system product. 11 A. I felt that the effect of the market 12 was loss of innovation and loss of the other 13 competitor in the DOS base that could provide 14 an alternative. 15 And I think the impact of that is 16 significant because at times the majority of 17 the focus of the marketplace was on DOS doc 18 applications and hardware platforms that would 19 support DOS. 20 Windows is entering the marketplace. 21 It consumes resources at a substantially higher 22 level, meaning that it takes more memory, takes 23 more disk, takes larger systems, and requires 24 new applications to leverage the platform. 25 So by not having a competitor in the 12185 1 marketplace, Microsoft was -- could move the 2 market prematurely to Windows and, therefore, 3 users would have to abandon their current 4 investment or simply make increased investments 5 to accommodate the then new standard in 6 standard applications. 7 They would have a more difficult time 8 getting support for what they were using day in 9 and day out. And we found this not only in the 10 consumer space, but with large companies. 11 You know, a company like an Aetna or 12 Conoco, had very specific applications for its 13 workers at a DOS workstation, had to completely 14 rethink. And we were trying to provide an 15 alternative to let the market move there 16 gradually over time and not to have a premature 17 abandonment of the current user investment. 18 Q. You mentioned loss of innovation. And 19 I wonder if you could explain to the Jury how 20 having DR-DOS in the market enhanced 21 innovation, new features? 22 A. It's done -- 23 MR. TULCHIN: Objection, Your Honor. 24 This is contrary to the Court's ruling in 25 November. 12186 1 THE COURT: Sustained. 2 MS. CONLIN: Your Honor, we're not 3 offering it for the purpose of proving damages, 4 but as an element of the cause of action for 5 violating Iowa's antitrust laws, not on 6 damages. 7 MR. TULCHIN: Same objection, Your 8 Honor. 9 THE COURT: For the limited purpose, 10 I'm going to allow it. 11 Q. Go ahead. 12 A. Could you repeat the question? 13 Q. Sure. You said your withdrawing the 14 DR-DOS product would result in less innovation 15 in the marketplace. 16 And I'm asking you to please explain 17 to the Jury how that works. 18 A. Well, at one level we believed that 19 DR-DOS had a lot of new innovation. Of course, 20 withdrawing it would take it out of the 21 marketplace. 22 But to create innovation in a market 23 takes the coordination of a lot of players. 24 The application players, the hardware vendors, 25 the operating system vendors. Most of the 12187 1 momentum in the marketplace was still around 2 DOS. 3 To allow Microsoft to abandon that and 4 move prematurely to Windows caused people to 5 have to stop, go relearn, go reinvest in a new 6 environment. And, therefore, the focus of 7 their engineering efforts was not in innovating 8 new exciting things. It was going to recreate 9 what was already there, but now with a 10 graphical user interface. 11 So I believe competition also, direct 12 competition, is a stimulant for innovation in 13 any market. Any time you can reach dominant 14 positions where the product is going to succeed 15 on its own momentum and not because the vendor 16 is proactively trying to improve it, I think 17 you are going to cause the market to slow down. 18 Q. This is the end of '92 we're talking 19 about. 20 A. Correct. 21 Q. Okay. Then in March, toward the end 22 of March, things have changed? March of '93 23 I'm talking about. 24 A. Correct. I don't think the market has 25 changed. I don't think our basic belief 12188 1 structure has changed very much at all. 2 Q. All right. Well, look, if you would, 3 at Plaintiffs' Exhibit 9053, which is already a 4 part of the record. 5 Do you see it in front of you? It is 6 titled not for public distribution, internal 7 use only. 8 A. Yes. 9 Q. Okay. And this is -- 10 MS. CONLIN: Would you put this up? 11 MR. TULCHIN: Your Honor, I hate to 12 interrupt, but I need a copy of this perhaps. 13 MS. CONLIN: I just don't have my 14 rhythm established. Let me give you two 15 things. 16 MR. TULCHIN: Sorry to interrupt. 17 MS. CONLIN: That's all right. 18 Q. And this has -- it doesn't show a date 19 on it nor an author, though the product 20 marketing contact is Mr. Corey, and there are 21 others listed there as contacts. 22 Target date March 24th, 1993. Novell 23 announces Novell DOS 7 and new DOS business 24 unit. 25 Was that announcement, in fact, made? 12189 1 A. New DOS business unit. The business 2 unit in 1993 was already existed. So I'm not 3 sure what that means. I don't recall why that 4 would be there from Toby. 5 But the thing does say that. It says 6 Novell announces Novell DOS 7 and new DOS 7 business unit. 8 Q. Maybe when we get to the press 9 release, we can figure it out. I thought that 10 was curious as well. 11 It says, the synopsis is Novell is 12 announcing Novell DOS 7 to be shipped this 13 summer and the DPMS API. 14 We're not going to talk about that, 15 but the description of the communications 16 opportunity and issues, there are two bullet 17 points under that. 18 By announcing Novell DOS 7 just prior 19 to the official announcement by Microsoft of 20 MS-DOS 6.0, it is hoped that Novell can 21 generate enough interest to potentially stall 22 DR-DOS customers upgrading to the newly 23 released MS-DOS 6.0. 24 Is that your installed base that 25 you're directing this to? 12190 1 A. It's our installed base of DOS users 2 would be the target audience of this, yes. 3 Q. How long has it been since you, 4 Novell, since there have been any introduction 5 of a new DR-DOS operating system? September 6 1991? 7 A. September 1991 was DR-DOS 6.0. 8 Q. All right. So it's been -- well, this 9 is March of 1993, so -- 10 A. So a year and a half. 11 Q. Were there concerns in the marketplace 12 that Novell was not ever coming out with a new 13 DOS? 14 A. Yes. And there was great conflict in 15 the company about, as I mentioned just before 16 the break, about how to deal with this asset 17 that we had. What to do with it and how to 18 serve the customers. 19 Q. The second bullet point says, the 20 industry has speculated on Novell's commitment 21 to continue development of DR-DOS. 22 Novell DOS 7 reflects that commitment 23 and is a communications opportunity to hint at 24 future product offerings from Novell and its 25 industry partners, as well as to solidify 12191 1 Novell's continued commitment to the desktop 2 platform. 3 At the time -- well, let me move on to 4 the press release because the press release did 5 go out. 6 And that is 9052, and do you see that 7 next in order? 8 A. I do. Well -- 9 Q. 9052. It's two pages. It says news 10 at the top. 11 A. Okay, down here is the numbers. 12 Q. And it is already a part of the 13 record. 14 MS. CONLIN: Can you put that up, 15 Darin? 16 Q. And it is Novell announces 17 multi-tasking, networking DOS. 18 The date is March 24, 1993. And it 19 says reflecting the company's commitment to the 20 world's largest installed operating system. 21 That means DOS? 22 A. Well, commitment to the DOS operating 23 system, yes. 24 Q. All right. Not that your base is the 25 largest one? 12192 1 A. No. 2 Q. All right. And the needs of DOS 3 customers for enhanced functionality and better 4 networking support. Novell today announced 5 Novell DOS 7, the next generation DOS and a 6 major upgrade to DR-DOS 6.0. 7 Novell DOS 7, available this summer, 8 will significantly extend DOS technology and 9 enhance the core functionality of DR-DOS by 10 including integrated NetWare client support -- 11 and these are things you've already talked to 12 the Jury about -- peer-to-peer networking, a 13 network management agent, network installation, 14 preemptive multi-tasking, enhanced memory 15 management, and desktop security, as well as a 16 suite of protected mode drivers. 17 Novell DOS 7 is the first major DOS 18 upgrade to be released from Novell's desktop 19 systems group. 20 A. Yes. 21 Q. So at this point there are product 22 development plans moving forward? 23 A. There are reduced plans, but they are 24 moving forward, and there is a desire to wrap 25 up development and also to create these modular 12193 1 applications that would work on any DOS. 2 I think it's interesting that this 3 product -- because the debate internally was 4 should this be DR-DOS 7.0, should it be 5 personal NetWare or NetWare DOS, and the answer 6 was right in the middle. 7 The answer went to Novell DOS, which 8 was Novell was networking, but it wasn't 9 NetWare. I mean, it was probably a bad 10 trade-off in naming because we probably should 11 have gone one direction or the other. But this 12 was an in-between. 13 But we were appealing to the DOS -- 14 trying to send a message to the DOS community 15 itself. We had loyal people out there and we 16 had heightened concerns about the investment 17 they made. And we wanted to let them -- make 18 it to them. 19 Q. All right. Let's look now at 20 Plaintiffs' Exhibit 5583, and that is already a 21 part of the record. 22 And that is the Novell DOS 7 product 23 introduction plan. 24 Who would be responsible for putting 25 something like this document together? 12194 1 A. This would most likely be Toby Corey 2 and the people coming out of the DOS specific 3 group with input from other divisions in the 4 company completely. 5 Q. All right. 6 A. The complete company. 7 Q. On the first page at the very bottom, 8 it says -- 9 MS. CONLIN: The first page, 10 positioning plan, Darin. 11 A. Yes. 12 MS. CONLIN: Yeah, that bottom 13 paragraph. 14 Q. And it says, Novell DOS 7 is expected 15 to ship on October 18th, 1993, supported by a 16 variety of high-profile marketing programs and 17 launch activities, apparently to be further 18 discussed. 19 Now, that date was not met; correct? 20 A. That was not met. 21 Q. And if you'll turn to the fourth page 22 of the document ending in a Bates stamp 89, 23 you'll see key messages. 24 Do you see that? 25 A. I do. 12195 1 Q. And the first two are sort of your 2 sales messages, and the third is as well. And 3 that one addresses this issue of compatibility, 4 which was one that you indicated was of concern 5 in the marketplace; correct? 6 A. That's correct. 7 Q. And it says, Novell DOS 7 is fully 8 compatible with existing MS Windows and DOS 9 applications and devices, provides an excellent 10 DOS foundation for Microsoft Windows, and is 11 backed by Novell's commitment to deliver the 12 best support and solutions to Novell customers. 13 At the time, at this time in July of 14 1993, is it correct that you are compatible 15 with the DOS applications, with Windows 16 applications, and with Windows? 17 A. Well, that's the key message here. 18 You know, I don't -- I don't really 19 recall the complete compatibility with it at 20 that time frame. I don't. 21 Q. All right. Well, if you were going to 22 say that to the public -- 23 A. Well, yeah. And this is a key message 24 developed by Toby and there's some sense of him 25 in here that is hopeful saying this is what we 12196 1 want to be able to say and, you know, that was 2 an ongoing problem point in the company. And 3 so I just -- as has already been noted, it's 4 some time ago. 5 The focus here was to create that kind 6 of message to the marketplace that we would 7 continue to support. We were not abandoning or 8 ignoring Windows in the marketplace. We were 9 not abandoning DOS customers generally. 10 The ability to maintain compatibility 11 was a moving target. 12 Q. All right. At this time Windows 3.1 13 is in the marketplace and, let me see, Windows 14 3.11 is released in December of 1993. 15 So April 6, 1992, is the Windows 3.1 16 release, and then the other one is not -- did 17 not happened at the time you released -- this 18 product plan is developed. 19 And even in this time frame, 20 Mr. Edwards, is there still discussion going on 21 about exactly how to go forward with this 22 product? 23 A. Oh, for sure. I mean, the discussions 24 internally and there were hot debates. 25 The lines are starting to divide, 12197 1 though, because there's a group of us that 2 simply do not believe we will break through the 3 marketplace and are trying to find a mechanism 4 to protect customers' interests and to find a 5 soft landing. 6 But there's still a very active group 7 in the company that believes they can go and 8 take this hill and, as bloody as they might be, 9 they can win. So it's hotly contested in the 10 company. 11 Q. Well, let's look at another document 12 that is Defendant's Exhibit 204. And this is a 13 proposal to Richard King from Mr. Corey dated 14 August 12th, 1993, the subject of which is 15 combining Novell DOS 7 and personal NetWare. 16 And the first subject is one product 17 versus two. 18 MS. CONLIN: And we would offer 19 Defendant's Exhibit 204. 20 MR. TULCHIN: No objection, Your 21 Honor. 22 THE COURT: It's admitted. 23 MS. CONLIN: And if you could put up 24 first the to and from. 25 Thank you. 12198 1 Q. Now, what was Richard King's role at 2 this time? 3 A. Richard King during this time frame 4 took on the transition from over all of support 5 to moving into being over the NetWare group. 6 So I don't recall exactly when he made 7 that transition, but he was a part of the 8 executive staff. 9 He had not been on the executive staff 10 for a while because he reported into Mary 11 Burnside, who would be on the executive staff. 12 But there was a transition point in 13 time here where he was taking over the lead in 14 what to do with this product. 15 Q. All right. And the proposal of Mr. 16 Corey, which is down at the bottom, is -- and 17 this is August of 1993 -- combine DOS and 18 personal NetWare into one product called the 19 NetWare desktop (DOS and MS Windows version). 20 This product would be modular; a user 21 could customize and install only those 22 components desired. This name is not final and 23 name testing would be required. 24 Now, that is not what you ultimately 25 ended up doing in January? 12199 1 A. No. 2 Q. All right. Now, at the end of -- 3 about when do you leave your position? 4 A. Right during the latter part of 1993. 5 I think I started to move these 6 responsibilities over probably in September, 7 October. And I'm headed off to the Appware 8 systems group. 9 That's the one side. To emotionally 10 leave this issue is probably a little bit 11 earlier. 12 Q. All right. Do you remember, 13 Mr. Edwards, whether or not you were still a 14 part of the group at the time that the Novell 15 DOS 7.0 was actually released into the market, 16 which we think is right around the 1st of 17 January of 1994? 18 A. I was not running the group at that 19 time. 20 Q. Who was? 21 A. Richard King was the executive 22 responsible for the products decisions then. 23 Q. You were still a part of the executive 24 staff? 25 A. I was. And so I participated in the 12200 1 discussions at that level about what to do and 2 offered up my opinions and my voice and 3 decisions were made based upon that. 4 And, you know, Toby remained really, 5 really committed to wanting to move forward. 6 And other people were -- you know, had 7 differing opinions, but I was a part of that. 8 Q. The product -- do you know, the 9 product released that was called DOS 7.0, was 10 that a stand-alone DOS? 11 A. It had stand-alone DOS in it, but its 12 emphasis was on networking and leveraging these 13 multiple distinct pieces, components that could 14 be used in the DOS environment, had independent 15 advantage. 16 Q. All right. I want to switch topics 17 now and talk with you about Ray Noorda and your 18 interaction with him. 19 Was there a period of time when you 20 would see Mr. Noorda every day? 21 A. Nearly. I mean, from the time I 22 reported directly to him in April through the 23 time he left the company, I became around -- I 24 became associated with Ray and talking to Ray 25 on a daily basis or near that. 12201 1 I mean, I traveled a lot, but he would 2 call -- I would call when I was in town, 3 whether it was the week or the weekend and I 4 would go into his office and talk to him about 5 my experiences. 6 Q. What, if anything, did you notice 7 about his condition? 8 A. Well, Ray was suffering with a 9 pacemaker that I think never got adjusted right 10 for a long time. 11 Ray's memory was struggling. Ray 12 would want somebody around him during a period 13 of time, whenever he was stressed particularly. 14 Then Ray would be completely cogent 15 and able to operate in the next time. 16 And I would say that increasingly from 17 '91 until he left, we found more and more of 18 these occasions when Ray had lost his memory is 19 the way I would characterize it. 20 Q. And after he left and you left, did 21 you continue to work with him? 22 A. I did. 23 Q. And what was the name of the entity 24 that you worked for? 25 A. Ray called and asked me if I would 12202 1 form a company that was ultimately called 2 Coresoft. And the company -- it's 3 C-o-r-e-s-o-f-t, just one word. 4 And the company was focused around 5 taking some of the open doc engineers and 6 projects, which was kind of an object of a 7 software architecture, and creating a library 8 for software developers to use that would allow 9 them to quickly create applications by reusing 10 Lego building blocks. 11 So it was kind of a little bit of a 12 continuation of what I had done at Appware, but 13 Ray was still interested in seeing that move 14 forward. And so when I left Novell, he called 15 shortly thereafter and asked me to come back 16 and work for him. 17 Q. And you did that? 18 A. I did. 19 Q. And was that part of what became known 20 as Canopy Group? 21 A. Yeah. At the time I worked for it, it 22 was called Noorda Family Trust. 23 But during that time he, I think -- 24 no, I think I know he changed his name to the 25 Canopy Group umbrella over all of the things 12203 1 that he was investing in. 2 Q. Once you got over there and he was 3 there, did you notice anything about his use or 4 -- about his business documents? 5 A. You know, Ray -- the common thing 6 you'd see with Ray is you'd come into his 7 office and he'd be sorting and resorting his 8 documents because he would be trying to 9 remember where they were. He would be trying 10 to remember how to organize them. 11 I traveled one time with Ray. He came 12 home from a trip to Europe and he was in 13 Atlanta. And I happened to meet him in Atlanta 14 accidentally, and Ray was wandering at the 15 airport trying to figure out how to get home. 16 Ray was one who always looked for the 17 senior citizen discount. I mean, he had plenty 18 of money to buy any ticket, but he was very 19 frugal, and so he would walk an airport for 20 four or five hours or ten hours or a day eating 21 peanuts out of the Crown Room in order to just 22 wait until there was an opening to go stand by 23 on the senior citizens discount. 24 So -- and he was very proud he was a 25 senior citizen and could do that. 12204 1 But he was -- there were times when 2 Ray was just not very lucid at all. 3 Q. Did that condition deteriorate over 4 this period of time? 5 A. It did. 6 Q. And do you remember particularly an 7 interview with the Wall Street Journal? 8 A. I do. 9 Q. Tell the Jury what you recall about 10 that event. 11 A. The Wall Street Journal was pressing 12 him, I don't recall the topic necessarily, but 13 Ray was confused in his answers. 14 We kept nudging him to fill him in 15 with the correct viewpoint. Things that Ray 16 knew cold he was not able to offer up. He kept 17 asking the same question over again or giving 18 the same answer over again. 19 And it was at that time that there was 20 a feeling inside that Ray should go. I mean, 21 it was now getting to the point that it was 22 affecting the market. 23 Up until that time, whenever we had 24 these feelings, we just kept people close to 25 Ray because his brilliance on other issues was 12205 1 more than valuable, but we were always 2 concerned about him being alone -- or part of 3 the reason I went to start speaking so much in 4 the marketplace was to take his place because 5 we were a little bit nervous about him in a 6 high-profile, stressful position. 7 So Ray ended up at that point in time, 8 I think, coming to his own conclusion that it 9 was time to go. 10 Q. He was -- was he aware of the fact 11 that his memory was failing? 12 A. I think that he became very aware that 13 it was failing. It wasn't just his pacemaker 14 being unadjusted or not giving him enough heart 15 rhythm. It was beyond that. It was a memory 16 loss, which eventually turned out to be 17 Alzheimer's, I think. 18 Q. And that's one of the things from 19 which he died recently? 20 A. He did. 21 Q. And the interview with the Wall Street 22 Journal, did that happen close in time to the 23 time he announced his resignation? 24 A. It did. 25 Q. And when he announced his resignation, 12206 1 what did he give as a reason? 2 A. I don't recall if he was public about 3 that at all. 4 Internally he gave to me the reason 5 and that was that one of the precipitating 6 events is that he could be in the background, 7 but if it got to the point where publicly he 8 started to harm the company, Ray couldn't deal 9 with that. And so he made the decision to walk 10 away. 11 Q. During this time frame as this 12 condition is deteriorating -- I want to return 13 for a moment. 14 You mentioned the heart pacemaker. 15 A. Yeah. 16 Q. What was material about that, 17 Mr. Edwards? Why was that an issue? 18 A. Because when it was improperly 19 adjusted slow, it actually caused his heart 20 rhythm to slow down. And he was not getting 21 enough circulation, and so he was dizzy a lot 22 of the time. 23 And there was one particular event, I 24 know, when Jan Newman and I were at a customer 25 briefing in California. We got a call from his 12207 1 wife Ty, indicating that he was rushed to the 2 hospital and that after that event the doctor 3 figured out he needed to turn it up. 4 And Ray actually was better after that 5 too. He wasn't as dizzy as often, and he 6 seemed to function better when he got it 7 properly adjusted. 8 Q. Was there some thought that this 9 memory loss was related to the pacemaker, to a 10 physiological pacemaker thing for a while? 11 A. I never heard a medical description of 12 it, but those of us around him felt like it had 13 had a significant impact. 14 Q. You talked about we being around him 15 during this time when his memory is 16 deteriorating. 17 Who is the we? 18 A. Oh, myself and David Bradford. 19 Anybody that reported to Ray, in the Provo 20 office particularly. 21 Because our offices were fairly close 22 to each other and giving us an opportunity when 23 we were all in town to talk. And so Jan 24 Newman, David Bradford, Richard King, myself. 25 On a broader scale, Mary Burnside, Jim 12208 1 Tolonen, anyone that was a part of that 2 executive staff, Darrell Miller. 3 Q. Do you feel that in connection with 4 your role and responsibility as an officer of 5 the company and in terms of his ability to 6 function with those around him assuring his -- 7 the appropriateness of his responses that the 8 company moved forward in that time frame? 9 A. Oh, yeah. And we took action. I 10 mean, the actions that we took were to be with 11 him, to substitute for him, to watch it 12 closely. 13 I never felt like it got to the point 14 where the company was damaged. I do feel like 15 Ray miscommunicated at times. And that caused 16 confusion. 17 Q. All right. I want to talk to you 18 about a couple of projects, of which you were 19 the overseer of and one of which you mentioned 20 that you had heard about. 21 Can you tell the Jury what the Cutlass 22 project was? I think that was the one you 23 talked with Mr. Balma about when you took over. 24 A. The Cutlass project I knew very little 25 about. It was a project -- now understanding a 12209 1 bit more about history -- that occurred more 2 than a year before I got there. 3 Phil Balma when I first took over the 4 group in April told me that there had been this 5 Cutlass project wherein they and ASCII had 6 looked at the potentiality of creating a GUI 7 interface to go on top of DR-DOS. 8 And the research had effectively 9 determined they wouldn't do that. And that is 10 the Cutlass problems. 11 As I recall, Phil was still kind of 12 pro that position and gave me materials to 13 influence me. 14 I didn't pay much attention to them 15 because when I took over, my view was we needed 16 to go and support Windows. 17 We needed to find compatibility with 18 Windows as our primary attack. 19 And the only time that we would look 20 at anything other than that is if we were 21 locked out of that opportunity. 22 Q. Well, then what was the next project? 23 Was there another project that dealt with the 24 issue of an independent GUI? 25 A. There was. Prior -- again, prior to 12210 1 my joining the group, there were contacts made 2 with Apple, and there was a project code named 3 Star Trek. 4 And the idea was to put the Apple GUI 5 on top of DR-DOS as an offering. 6 But I think it's important to note, 7 let Apple sell it so that we could maintain 8 some independence. But our approach was is it 9 possible to take another GUI? 10 I really felt in the market at that 11 time, this time being April of '92, that the 12 best GUI in the marketplace was the Macintosh 13 -- not Macintosh necessarily, but just the 14 Apple graphical user interface. That was the 15 best out there. 16 Microsoft was playing catchup was my 17 belief on that. So if we could get another 18 alternative out there on top of DOS, then we 19 would have both and the market could make 20 choices. 21 Q. How did you proceed to develop that? 22 A. A few of our engineers out of Monterey 23 and the Walnut Creek group and the EDC, united 24 with the Macintosh, the Apple engineering team 25 -- they had by far more resources dedicated 12211 1 than we did. 2 And we proceeded to work together to 3 find -- to test, to see if it was feasible, 4 plausible to take their graphical user 5 interface and put it on top of the Windows -- 6 or the DR-DOS platform. 7 Q. What happened to that project? 8 A. It was discontinued. 9 Q. Why? 10 A. It was discontinued because the Apple 11 executives felt that we're not ready to take 12 their user interface across any hardware 13 platform. And they felt that it would channel 14 conflict. 15 It was also discontinued because Apple 16 wanted to charge such a high price for it that 17 I didn't feel that -- our team didn't feel that 18 it would be competitive in the marketplace; 19 that the Windows DOS combined pricing was so 20 much lower that there wasn't any way to 21 compete. 22 So the combination of how much Apple 23 wanted out of it -- which I think was directly 24 related to they wanted to keep the price high 25 so that they didn't compete with their own 12212 1 existing sales volume. 2 So we had a meeting with the Apple 3 executives. I was there, Ray was there. You 4 know, Sculley -- 5 Q. John Sculley? 6 A. John Sculley, who was the CEO of 7 Apple. 8 We had a meeting, and right prior to 9 that meeting, Mr. Nagel -- I forget his first 10 name -- who had been really the champion of the 11 product on the Apple side, he was hired by 12 Microsoft to go in and run their database 13 group. So the internal champion of the product 14 exited. 15 And so we went into that meeting with 16 the loss of kind of the champion on the Apple 17 side and a feeling from Apple executives that 18 there would be too much conflict. And the 19 meeting resulted in a discontinuation decision 20 principally led by Apple to pull it. 21 Q. Was there ever a time, despite this 22 Star Trek project and the Cutlass project and 23 there was something called Sun Select -- 24 perhaps we should tell the Jury, if you recall, 25 were you there at a time when there was some 12213 1 Sun Select thing? 2 A. Sun Select was, once again, an 3 investigation of a completely different kind. 4 It was could you create any kind of environment 5 that would kind of get you partway to 6 supporting Windows DOS application. 7 To me, it wasn't -- there weren't any 8 material resources spent on it. There was some 9 documents, some feasibility created, but no 10 real significant project. And I don't think a 11 lot of us felt like it would work anyway. 12 Q. But with the Star Trek project, there 13 was a working prototype produced at some point 14 in time? 15 A. We created -- we finished in 16 approximately October or so of 1992 an actual 17 working prototype so we could go in and you 18 could have the Macintosh user interface on top 19 of the DOS platform. 20 And it actually was quite fast and had 21 the networking support in it. It was a great 22 little product. It maybe could have succeeded. 23 Q. Did you feel in this time or any other 24 that it was essentially for the success of 25 DR-DOS that Novell have its own GUI? 12214 1 A. Not that it have its own. I thought 2 it was most essential that it run with 3 Microsoft's environment because Microsoft had 4 the lock on the OEMs. 5 I felt like influencing that would be 6 alternative so that users would have other 7 choices. And if the users could start speaking 8 for other choices, that may open up some OEMs 9 who would be able to move forward. 10 So it was that kind of culmination of 11 events. But I didn't feel personally that we 12 had to have our own. I felt like it's a huge 13 undertaking to get involved in that world. 14 I preferred the model of let's adopt 15 the products that are out there and be 16 compliant and interoperable with them and move 17 forward on that basis. 18 Q. All right. So what was your first 19 priority in terms of the GUI? 20 A. To support Windows. 21 Q. And be compatible with? 22 A. Be compatible with the Windows 23 environment. That was our top and key 24 priority. 25 Q. All right. One of the issues that is 12215 1 of concern is the issue of why Novell believed 2 that Microsoft had an obligation to support 3 DR-DOS even though DR-DOS was a competitor with 4 MS-DOS. 5 And if you can explain that by 6 reference perhaps to Novell's activities and 7 what was standard in the market. 8 A. We felt like if you're in the 9 operating system business, that that's a very 10 special key important position to be in the 11 marketplace. 12 We also felt like if you are a 13 monopoly, if you control a dominant amount -- 14 MR. TULCHIN: Same objection. 15 THE COURT: Sustained. 16 A. I mean, we felt like if you had a 17 dominant section of the market place, if you 18 owned that, it was incumbent on you to support 19 multiple solutions out there, even if that may 20 have competed with your own because users 21 expected that. That was our belief. 22 Q. Is that what Novell did? 23 A. We did. 24 Q. And did you have the dominant position 25 in the network operating system area? 12216 1 A. Not to the extent that Microsoft did 2 on DOS, but we had a 60-plus percent of the 3 market in my estimation, and it was a 4 significant position. And we supported 5 environments. 6 We supported -- again, our theme was 7 freedom of choice. Let the user select their 8 desktop or their technology, their protocol and 9 we will support it. 10 Q. You also testified that one of the 11 problems with the DR-DOS Apple GUI was because 12 it was more expensive than an MS-DOS Windows 13 with combination. 14 A. Yes. 15 Q. What was the price, relatively 16 speaking, of a DR-DOS Windows combination? 17 A. In the OEM channel, the DR-DOS Windows 18 -- I wouldn't know everything about the Windows 19 pricing for Microsoft, but our pricing in the 20 channel could be single digit numbers, $9, $8. 21 At the time we were selling -- a little bit 22 earlier than that at $18. 23 And so if you took that price -- and I 24 saw pricing from Microsoft on Windows as low as 25 $3, but that was in combination with other 12217 1 things. But I'm not sure of their entire 2 pricing plan. 3 But it seemed to us that the 4 combination of the two was going to be in the 5 30 to $50 -- 30 to $35 range. 6 Apple wanted 70 to $100 just for their 7 finder. And so we were there as the entrant 8 into the marketplace already struggling with 9 being out of bounds pricewise. And I just 10 don't think that that would have flown with 11 OEMs. 12 Q. All right. So the DR-DOS Windows 13 combination was the same or less than the 14 MS-DOS Windows combination? 15 A. Well, I don't think you could buy a 16 DR-DOS Windows. That is what we were trying to 17 achieve. 18 But, theoretically, if you could take 19 the Windows pricing that we felt they had and 20 our pricing to the OEMs, we would have been 21 less; particularly at the time when we were 22 trying to give it away free, plus add a royalty 23 stream to them. It would have been a great 24 deal for them. 25 So pricing in this market wasn't the 12218 1 issue between DR-DOS, Windows, MS-DOS Windows. 2 It wasn't an issue of the pricing that our 3 combined package provided. 4 Q. All right. I'm going to -- I want to 5 return to the Z-NIX issue that we set aside. 6 MS. CONLIN: Oh, thank you. I thought 7 I'd made them disappear. 8 Q. You recall we were talking about 9 Z-NIX. I think you explained to the Jury what 10 Z-NIX did and was. And we were looking at 11 1324, which we have agreed may be seen by the 12 Jury. 13 And the part of it that is the copy of 14 the news article or the press release is not 15 offered for the truth of the matter asserted, 16 and that is where we were, I think. 17 Novell enhances DR-DOS 6 with business 18 updates, strengthens compatibilities with 19 Windows 3.1. 20 And if you could look at the -- you're 21 quoted in this article. 22 Do you see? 23 A. Yes. 24 Q. And you say, our customers want full 25 Windows compatibility and our product delivers 12219 1 it, said John Edwards, executive vice 2 president, Novell, desktop systems group. 3 Novell is fully committed to making 4 DR-DOS a rock-solid foundation, not only for 5 Windows 3.1, but for every DOS application. 6 And that is as of May 19th, 1992; 7 correct? 8 A. Yes. 9 Q. And then if you'll turn the page, 10 you'll see that the article goes on to describe 11 -- well, one person that it quotes is someone 12 named Al Hudson. That's a -- 13 MS. CONLIN: Oh, you've got it all up 14 there, good. 15 Al Hudson, where is that? 16 Q. I've been running -- he says, I've 17 been running the new version of DR-DOS under 18 Windows 3.1 with Microsoft Word for Windows, 19 Microsoft Excel, and Microsoft Project, all 20 without a hitch, said Al Hudson, a senior 21 engineer with NCR in San Diego. Hudson has 22 been using DR-DOS since 1988. 23 Was Mr. Hudson someone that you 24 know -- you knew, Mr. Edwards? 25 A. I did not personally know him. It 12220 1 would have been somebody the marketing team 2 solicited from the user base of people who were 3 using the product. 4 Q. And then the next paragraph is about 5 Z-NIX. And it says Z-NIX, Inc., Pomona, 6 California, has bundled DR-DOS 6.0 and 7 Microsoft Windows 3.1 with its Super Mouse II 8 and cordless Super Mouse products. 9 We've been testing the two products 10 from top to bottom for a month now, and have 11 uncovered no incompatibilities, said C. J. 12 D'Angelo, vice president of sales. We are 13 confident our OEMs and end users will be 14 equally successful. 15 And then if you'll turn back to the 16 first page. This news article is sent from 17 Timothy Raines to some executives at Microsoft. 18 And one of the executives responds on 19 the same day a couple of hours later. That's 20 Mr. Silverberg. 21 Did you know Mr. Silverberg, 22 Mr. Edwards? 23 A. I knew who he was, yes. 24 Q. All right. And he sends it to 25 Mr. Kempin. 12221 1 Did you know Mr. Kempin? 2 A. I did not. 3 Q. All right. The Jury will recall he's 4 the head of OEM sales -- and to Brad Chase. 5 And the subject is forward Novell 6 enhances DR-DOS 6.0 with business update. And 7 what Mr. Silverberg says is, look what Z-NIX is 8 doing, exclamation point. Cut those fuckers 9 off. 10 I know that you didn't see this at the 11 time. Did you follow after this news release 12 what happened to Z-NIX in the next few weeks or 13 months? 14 A. Well, my understanding of Z-NIX is 15 that they were subsequently sued and 16 subsequently filed bankruptcy. 17 Q. By whom were they sued? 18 A. Microsoft. 19 Q. All right. 20 Let me call your attention -- you are 21 probably out of order now, Mr. Edwards -- to 22 Plaintiffs' Exhibit 9808. 23 You indicated that there was a suit? 24 MS. CONLIN: And I'm handing to the 25 Defendant a copy of a filing. And we would 12222 1 offer the filing not to prove the truth of the 2 matter asserted, but simply to indicate that 3 such a filing was made in federal court on June 4 22nd, 1992. 5 MR. TULCHIN: Objection, Your Honor. 6 Number one, this document is hearsay. 7 Number two, we object on grounds of relevance. 8 THE COURT: Sustained. 9 Q. And the next exhibit is Plaintiffs' 10 Exhibit 9807. That's your next in order. 11 MS. CONLIN: And this is a filing in 12 the United States Bankruptcy Court 10-25-93, 13 which we would offer again, Your Honor, not for 14 the proof of the matter asserted, but simply 15 that it was -- that there was such a filing in 16 bankruptcy court. 17 As for the 9808, I may not have 18 indicated that the lawsuit is Microsoft 19 Corporation versus Z-NIX and others. 20 MR. TULCHIN: And I don't think 21 Ms. Conlin should be testifying to the Jury, 22 Your Honor. 23 And we object on the same two grounds 24 to 9807 as we did to 9808. 25 THE COURT: Sustained. It's denied. 12223 1 MS. CONLIN: Thank you, Your Honor. 2 Q. As you left the DR-DOS area of Novell, 3 what were your -- what was your sense of 4 accomplishment or the lack thereof? 5 A. We certainly didn't accomplish what we 6 set out to do. I felt that we had some 7 expectations going in about what we could do in 8 the marketplace, and we didn't achieve those. 9 Q. Was that a new feeling for you 10 personally? 11 A. Yes, it was. I mean, I think I had to 12 -- well, I know I'd come to Novell and had 13 succeeded and rose rapidly to an executive 14 position in Novell because of my success and, I 15 thought, capabilities. 16 And I think this was a very difficult 17 time because our best efforts weren't good 18 enough. 19 Q. All right. 20 MS. CONLIN: That's all I have of this 21 witness, Your Honor. 22 THE COURT: Cross. 23 MR. TULCHIN: Thank you, Your Honor. 24 CROSS-EXAMINATION 25 BY MR. TULCHIN: 12224 1 Q. Mr. Edwards, good afternoon. 2 A. Good afternoon. 3 Q. I have a number of questions for you, 4 but I thought we should start with one of the 5 documents that you looked at just a few minutes 6 ago. 7 It's Plaintiffs' Exhibit 1324. 8 A. Yes. 9 MR. TULCHIN: And maybe we can put 10 that up on the screen. 11 Q. And I want to draw your attention to 12 the same portion of the document that you 13 testified about a few minutes ago. 14 At the bottom, there's an excerpt of a 15 Novell press release; correct? 16 A. Yes. 17 Q. And it says Monterey, California, 18 business wire. And then it goes on to have a 19 number of things. 20 And this is a copy, if you will, of a 21 press release that Novell issued? 22 A. Yes. 23 Q. It's something that the company wanted 24 to put out in the market for customers and 25 others to see? 12225 1 A. Certainly. 2 Q. And in this press release, in Exhibit 3 1324, you are quoted; correct? 4 A. Correct. 5 Q. And you say here, our customers want 6 full Windows compatibility and our product 7 delivers it. 8 Now, you are referring there to DR-DOS 9 6.0; is that correct? 10 A. Yes, as well as all of Novell's 11 products. So NetWare's too. I mean, this is a 12 release about DR-DOS, but, I mean, the 13 statement. 14 Q. That's what I wanted to find out. 15 Are you saying here in this quote 16 that's being distributed as a press release 17 that Novell delivers full compatibility with 18 Windows, not just on DR-DOS 6.0, but other 19 products as well? 20 A. I think this is a business update 21 around DR-DOS 6.0, but I think the feeling of 22 the company is that we worked very hard to have 23 interoperability across all of our products. 24 Q. And had it been the case, let's say -- 25 this is May of 1992; correct, sir? 12226 1 A. Yes. 2 Q. And you had only been in your job as 3 head of the desktop operating systems group 4 for, let's say, about a month? 5 A. Correct. 6 Q. Now, at the time this press release 7 went out, had you done some investigation to 8 check about compatibility between versions of 9 DR-DOS and versions of Windows during, let's 10 say, the six or eight months preceding this 11 announcement? 12 A. I would have listened to the product 13 people who were with the product and had them 14 report to me the compatibility and errors. 15 I'm not sure that I would have at that 16 time yet done a complete evaluation of every 17 bug or every issue, but would have relied upon 18 their estimation of where we were at. 19 Q. Well, I noticed in your answer you 20 said I would have done several things. 21 And I guess I want to ask you, if I 22 could, whether sitting here today, in 2007, you 23 remember that in 1992 you made some sort of an 24 inquiry at the company on the subject of 25 whether DR-DOS had been fully compatible with 12227 1 Windows for, let's say, the period of six or 2 eight months before this press release? 3 A. I don't recall a specific inquiry on 4 that subject. 5 Q. But you certainly wouldn't have told 6 the world at large in a press release about 7 compatibility unless you had done that; is that 8 right? 9 A. I would assume that that's correct, 10 but -- 11 Q. Okay. Well, my question -- 12 A. That's why I used the words I would 13 have. 14 Q. My question today is a little bit 15 different. I just want to start off with this. 16 Is it your sworn testimony today, in 17 February 2007, that, let's say, for the period 18 around October '91 through May of '92, 19 throughout that period that the DR-DOS products 20 were fully compatible with Windows? 21 A. It's not. It's my testimony that I 22 would not have made this release unless someone 23 in the product group told me that. 24 That today, in February 2007, I don't 25 recall enough about the product versions in the 12228 1 1991 time period to say that I could guarantee 2 their complete compatibility with all versions 3 of DR-DOS. 4 Q. All right. But do I understand your 5 testimony, then, to be sitting here today you 6 believe, having looked at Plaintiffs' Exhibit 7 1324, that this press release would not have 8 gone out unless at the time, in May '92, you 9 were satisfied after making the appropriate 10 inquiries at Novell that DR-DOS had been fully 11 compatible with Windows during the prior six or 12 eight months? 13 A. My guess is what happened here is the 14 marketing people attributed a quote to me, put 15 it in front of me, and asked me to sign off on 16 it. 17 I most likely asked the product group 18 if it was a valid and correct statement, and 19 they gave me a green light. And so I signed 20 off on the press release. 21 Q. So is the answer to my question yes, 22 you would have been satisfied at the time that 23 during the prior six or eight months DR-DOS was 24 fully compatible with Windows? 25 A. That would have been -- 12229 1 MS. CONLIN: Your Honor, I object to 2 the question as an attempt to mislead the 3 witness concerning the content of the document. 4 THE COURT: Overruled. 5 If he understands the question, he may 6 answer. 7 A. Would you ask me again, please? 8 Q. Yes. I wasn't entirely sure about 9 your prior answer, Mr. Edwards, and I just want 10 to make sure that we understand each other 11 before we go on. 12 Is it your testimony today, in light 13 of this press release that you see as part of 14 Exhibit 1324, you believed that at the time in 15 1992 you were satisfied that DR-DOS was then, 16 and had been for some time, fully compatible 17 with Windows as it says in the line that's now 18 highlighted? 19 A. It would be my testimony that I most 20 likely approved this release. I don't recall 21 it specifically. And that I wouldn't have 22 approved it unless I felt that way. 23 Q. Okay. Thank you. 24 And I know we'll continue tomorrow and 25 I want to come back to compatibility, but since 12230 1 you have Exhibit 9052 in front of you -- this 2 is also in evidence and you were asked about 3 this sometime within the last 45 minutes or so. 4 A. Okay. 5 Q. Maybe we could go to that. 6 And looking at the top paragraph, I 7 think you testified about this a little bit 8 earlier, but I wonder if you could tell me, 9 sir, when, as of March 24th, 1993, when you 10 expected that Novell DOS 7 would be released to 11 the market? 12 A. I don't recall at that time the dates 13 for the release. Is it in the -- is it in the 14 quote? 15 Q. Well, what the press release says, 16 sir, in the first sentence, which is a long 17 one, there's a point where it says Novell DOS 18 7, available this summer. 19 Do you see that, sir? 20 A. I do. 21 Q. And, in fact, you looked at another 22 document a little while ago from July of '93 23 which said we expect to have the product on the 24 market in October. 25 Remember that? 12231 1 A. Yeah, that was a Toby Corey document. 2 Q. Right. 3 A. Where his team expected October. 4 Q. And do you recall sitting here now 5 when Novell DOS 7 was available, when it was on 6 the market? 7 A. I believe it was later in '94. 8 Q. Do you recall today what caused that 9 slippage from the summer of '93 until sometime 10 in '94? 11 A. Reduced commitment to resources on the 12 product. I think people in the group were 13 leaving. I think that there was some concern 14 about our ability to compete with the product 15 and so it received less emphasis. 16 Q. Is it correct, sir, that one of the 17 reasons people at Novell were leaving is that 18 they knew that Novell had diminished its 19 commitment to the DOS product? 20 A. It could be. I mean, it could have 21 been an opinion that they had. I felt -- I 22 feel like the bigger issue was that people did 23 not feel we could succeed with DOS in the 24 marketplace because of -- because the market 25 was locked up. 12232 1 Q. Wasn't it also the case, sir, you just 2 told me that at around this time, Novell was 3 making diminished -- sorry, that was a bad 4 question. 5 Novell was then devoting diminished 6 resources to the DOS product; correct? 7 A. Correct. 8 Q. And in an organization like Novell, 9 it's pretty obvious to see, isn't it, where the 10 company's commitments are being made by virtue 11 of the fact that budgets get cut in one section 12 and increased in some other division or group; 13 correct? 14 A. Certainly. Certainly. 15 Q. And when you see the budget in one 16 area being cut -- and that's what you mean by 17 diminished resources; right? Less money? 18 A. Less money and also probably just less 19 attention by the company I would say is 20 probably accurate. 21 Q. Okay, fair enough. 22 So less money, less attention. 23 Employees can see that? 24 A. Certainly. 25 Q. And let's say you are working at EDC, 12233 1 the European -- is it development -- 2 A. Center. 3 Q. -- center. 4 A. Good. 5 Q. In Hungerford, England. 6 A. Correct. 7 Q. Those people had been with Digital 8 Research before Novell acquired Digital 9 Research; correct? 10 A. I think, for the most part, that would 11 be accurate. 12 Q. And there were a lot of software 13 engineers working in England at EDC? 14 A. Correct. 15 Q. And those were people who in some 16 cases for years and years had been working on 17 the DR-DOS product? 18 A. That's correct. 19 Q. In fact, that's what mostly they did 20 in Hungerford, England, at EDC, they worked on 21 DR-DOS? 22 A. And the other modules that surrounded 23 it, certainly. 24 Q. Right. And certainly by March of '93, 25 they knew that Novell was devoting fewer and 12234 1 fewer resources to DR-DOS; correct? 2 A. I would assume that they would know 3 that. 4 Q. Well, didn't you testify on direct 5 examination a little bit earlier that there was 6 a raging debate going on in the company about 7 the future of the DOS product? 8 A. Yes. 9 Q. And that wasn't a secret to people in 10 the company, was it? 11 A. No, it wasn't. 12 Q. And, in fact, I think you said that 13 you personally concluded in 1992 that it would 14 be a good idea to abandon the DOS field 15 entirely? 16 A. Well, what I said is if -- without 17 some significant change in the marketplace -- 18 so that's the hook. 19 If the hope could be created if there 20 was customers who were coming and demanding it, 21 if the FTC may have taken some action to stop 22 what we believed were the anticompetitive 23 practices. 24 If something changes, then we could 25 move forward. But without that change, I 12235 1 didn't see us capturing the OEM market. And, 2 therefore, our communication about the product 3 would be relegated to principally resell in 4 smaller OEMs. And that's what they had always 5 been doing, but -- so, in that sense, they 6 could continue that, but that isn't what we 7 wanted for the product. We wanted it to be 8 much larger than that. 9 Q. And, in fact, what happened is that 10 nothing significant did change going forward; 11 correct? 12 A. I think that's accurate. 13 Q. Okay. I wonder if we could look at 14 Plaintiffs' Exhibit 10056. 15 And I want to ask you just a few 16 questions about this as well as our day winds 17 down, Mr. Edwards. 18 You recall testifying about this 19 during direct examination; correct? 20 A. I do. Oh, excuse me, I had the wrong 21 one in my hands. 22 Q. Do you have the right one? 23 A. I have the wrong one, so -- I don't 24 yet, but I'm sure I will. 25 Q. Let me see if I can get you a copy. 12236 1 MR. TULCHIN: Mr. Chapman, can you 2 help us? 3 May I approach the witness, Your 4 Honor? 5 THE COURT: You may. 6 A. I have this one, but I'm pretty sure 7 this is -- 8 Okay, I do. 9 MR. TULCHIN: And, Your Honor, I 10 wonder if it would be permissible for me to 11 walk over near the screen so that I can 12 actually point at some of these figures. 13 THE COURT: You may. 14 MR. TULCHIN: Thank you, Your Honor. 15 Q. I'm just curious about a couple of 16 things, Mr. Edwards. And I wanted to try to 17 see if we could get some clarification. 18 This refers to the fiscal year of 19 Novell. 20 You said that; correct? 21 A. Yes. 22 Q. These first quarter '92, second 23 quarter. 24 A. I believe that's correct. 25 Q. So this would really be November, 12237 1 December of '91 and January of '92; right? 2 A. Yes. 3 Q. The first quarter of '92 because of 4 the way the fiscal year was. 5 A. That's correct. 6 Q. All right. And then the second 7 quarter was February, March, April; right? 8 A. Correct. 9 Q. And it was in April as the second 10 quarter was getting close to being finished 11 that you took over this business? 12 A. Correct. 13 Q. Okay. And I think you said that this 14 graph was prepared from financial records at 15 Novell; correct? 16 A. Correct. 17 Q. Accounting records; is that right? 18 A. Yes. 19 Q. All right. The third quarter would be 20 May, June, and July; correct? 21 A. Yes. 22 Q. And what this box indicates is that 23 revenues from DR-DOS were about $7 million in 24 that quarter; correct? 25 A. Correct. 12238 1 Q. Okay. Now, I have a question for you 2 and, I might say, I think I'd appreciate it if 3 you could do your best to remember from way 4 back then, in 1992, how that number was arrived 5 at. 6 This is the number I'm referring to. 7 For the third quarter, this black box of actual 8 sales. 9 Was it the case, Mr. Edwards, that the 10 accounting people counted up the total sales of 11 the product for those three months and then 12 subtracted from that number the returns of that 13 product that had been made during that period? 14 Is that right? 15 A. I think that's accurate. 16 Q. Right. So when we talk about 7 17 million in the third quarter of '92, it's not 18 just -- that's not your sales. 19 Your sales were considerably higher 20 than 7 million, but the number was brought down 21 because so many customers had returned the 22 product during that same quarter; correct? 23 A. I don't know. I don't think I can 24 conclude that sitting here because I don't have 25 the benefit or the memory of what the net 12239 1 number calculation was based upon. 2 I don't know if the returns were small 3 and the net was, therefore, not, as in your 4 words, considerable or if the returns were, you 5 know, large and, therefore, you're accurate. 6 Q. Okay. Well, maybe we'll get some 7 numbers tomorrow. 8 A. Okay. 9 Q. But I don't mean to try to 10 characterize the numbers. I just want to be 11 clear about something. 12 Looking at the fourth quarter, which 13 shows sales below 2 million, I think you and I 14 have agreed that those are the net sales. 15 You take the amount of product that 16 has been sold -- and just hypothetically let's 17 say it was $5 million worth of DR-DOS. And 18 then if there's $3 million in returns of the 19 product during that quarter, you would come to 20 this net number of 2 million; correct? 21 A. That's my understanding of the way 22 that it would be calculated. 23 The numbers in this graph, though, for 24 me were presented by the financial people. 25 So what I'm not aware of sitting here 12240 1 is what the -- I just simply cannot remember 2 the entire set of subtractions and additions 3 that would have been made. And also 4 allocations for sales that could have been made 5 on a long term, but we're only attributing a 6 certain amount to this particular quarter. I 7 mean, all of that detail is gone. 8 Q. Sure. Because there may be some 9 accounting issues as to how these numbers are 10 arrived at? 11 A. I believe they could -- I don't know 12 that there are, but I just don't know sitting 13 here how they were. 14 Q. But let me ask you this, if I could. 15 Is it your recollection that beginning 16 around the time that you took over in April of 17 '92, when you took over the desktop operating 18 systems group, that around that time there were 19 a significant number of returns of the product? 20 A. I don't recall a significant number of 21 returns, but it very well could have been the 22 case. 23 I don't -- as I've just testified, I 24 don't have that detail and the timing of the 25 detail, which is important. 12241 1 Q. Well, certainly that would be 2 important to know when you're thinking about 3 what revenues are. 4 A. Certainly. 5 Q. Because revenues could have been 6 somewhat higher than what's shown on this line. 7 Just before you consider returns, just 8 looking at gross revenues, that could have been 9 higher? 10 A. Could have been. 11 Q. Okay. You testified a little bit 12 earlier about Mr. Noorda. 13 A. Yes. 14 Q. And Mr. Noorda was the CEO and ran 15 Novell? 16 A. He did. 17 Q. In fact, he was one of the cofounders; 18 correct? 19 A. Yes. 20 Q. And he had been the boss at Novell 21 since the day the company started? 22 A. Well, Novell had a history predating 23 Ray, but it was small. NetWare had been 24 created. 25 Ray came in and purchased Novell Data 12242 1 Systems and used that technology base to form 2 Novell. 3 But I still think of him as a founder, 4 although in reality the company existed on a 5 small basis prior to him getting there. 6 Q. Okay. But let's say it this way. 7 From the time you started at Novell -- 8 which was in 1988; is that right? 9 A. That's correct. 10 Q. -- Mr. Noorda was the CEO? 11 A. Chairman and CEO, that's correct. 12 Q. Right. And there wasn't any doubt at 13 the company as to who was in charge? 14 A. No, there was not. 15 Q. He was very much the boss? 16 A. He was the boss. 17 Q. And he owned a substantial number of 18 shares of the company too; correct? 19 A. He owned a lot of shares and took a 20 salary of $35,000. So, I mean, he was the 21 boss. 22 Q. Well, I want to ask you about that 23 because I know you testified he was very 24 frugal. And in the airports for lunch, I think 25 you said -- 12243 1 A. He was. 2 Q. -- and he would eat the free peanuts. 3 A. He would. 4 Q. Okay. And he ran his business that 5 way pretty much as well, didn't he? 6 A. He did. 7 Q. He was a very frugal guy? 8 A. Yeah. 9 Q. And he was very much against spending 10 money unless he was convinced that there would 11 be a pretty quick return on his investment? 12 A. I don't know about quick. Ray wasn't 13 in for quick all the time. 14 Ray was a strategic thinker, and Ray 15 was interested in spending where he felt like 16 he could grow the industry. 17 Ray felt like if we can grow the 18 industry, then my participation of it will 19 naturally grow. And that's what he preached 20 and that's what he lived by, in my opinion. 21 Q. Mr. Noorda had a reputation in the 22 software industry, did he not, around the time 23 that -- the early '90s that we've been talking 24 about, as being very tight-fisted when it came 25 to the budget? 12244 1 A. Ray ran a pretty tight ship, yes. 2 Q. And so when it came to something like 3 research and development, he certainly was 4 against spending more money than he thought he 5 should? 6 A. Well, you know, I think so. 7 One of the areas that Ray would spend 8 more on, though, is investment in technology or 9 research and development. 10 I think where Ray spent less money and 11 time and energy was on promotion and marketing. 12 But Ray was a very -- Ray wanted to 13 understand how it was coming. 14 Ray was also quick to take advantage 15 of an opportunity that he saw and make an 16 investment. 17 I mean, he invested almost all he 18 could come up with -- a million dollars at the 19 time he purchased Novell. 20 He wasn't against taking risk, but he 21 was -- he wanted to understand the value of his 22 money, certainly. 23 Q. Well, you mentioned marketing, and can 24 we agree that he was, let's say, on the frugal 25 side when it came to the budget for marketing? 12245 1 A. He was. 2 Q. And how about -- 3 A. And actually -- could I just correct 4 that -- I think for more of what I would call 5 advertising because on marketing, I think he 6 was willing to spend money as I think of 7 marketing. 8 But ads in newspapers or advertising, 9 that kind of campaign, he was a lot more 10 tight-fisted. 11 Q. And how about the budget when it came 12 to things like resources devoted to support, 13 that is, personnel who would work in the 14 support area? 15 A. I think Ray was one who was willing to 16 approve anything having to do with testing of 17 the product. 18 I mean, during my time, he approved 19 the acquisition of a thousand workstations to 20 prove compatibility testing. 21 Anything that had to do with testing, 22 he was willing to spend monies on. 23 I don't think he ever was in a 24 position of scrimping where an investment was 25 needed. 12246 1 But you also didn't want to be caught 2 buying a first-class seat if he was on the 3 airplane. I mean, he wanted you to be an 4 ordinary citizen, despite whatever your title 5 might be. And our offices were fairly small 6 and he lived in an interior office. So -- 7 I mean, he wanted money to be spent 8 where it had a return. But quick -- he wasn't 9 wasteful. 10 Q. Okay. And before we wrap up for the 11 day, I think you testified on direct that there 12 were occasions in the early '90s where 13 Mr. Noorda miscommunicated. 14 Do you recall saying that? 15 A. I don't think I said -- well, early 16 '90s. '91 was the start of that period, yes. 17 Q. And you said there were times when he 18 miscommunicated and that caused confusion? 19 A. And I think that that happened 20 principally a little bit later than '91. 21 I felt during the '91 period of time 22 Ray was missing his memory, but I think it got 23 worse. 24 And the communication I think is 25 accurate because when he was put in a pressure 12247 1 situation, I think it tended to manifest itself 2 a bit more. 3 Q. And let's just direct our attention to 4 the same period. Let's say beginning in '91 5 and going through about '94. 6 Were these instances where Ray 7 miscommunicated, Ray Noorda, did they cover 8 both internal communications and external 9 communications to the world at large? 10 A. I think that they -- you know, 11 probably. I think that the issue for me what I 12 observed internally is that he was strong and 13 good. 14 He was very much in control of his 15 faculties when he was directing his team. 16 Where I saw him struggle is take a 17 long flight over to the UK and get immediately 18 up after a Red Eye and present to a reseller 19 group, or be in a pressure situation in an 20 interview, those kinds of things a bit more 21 than I saw his internal communication varied. 22 MR. TULCHIN: Your Honor, perhaps this 23 is a good time to break for the day. 24 THE COURT: Very well. Remember the 25 admonition previously given. 12248 1 Leave your notebooks here. 2 We will see you at 8:30 a.m. Drive 3 carefully. 4 (The following record was made out of 5 the presence of the jury at 2:56 p.m.) 6 MS. CONLIN: Your Honor, when 7 Microsoft was annoyed with a company, there 8 were a variety of tactics. 9 Mr. Lieven talked about the audit. 10 The Court has instructed the Jury that 11 they must accept certain facts about the audit 12 of IBM that -- the part of the collaterally 13 estopped facts. 14 With respect to this, Your Honor, the 15 reason I offered it and the reason I believe it 16 to be admissible is because it -- this lawsuit 17 comes a mere six weeks or less. It's Microsoft 18 suing Z-NIX for a variety of reasons. 19 The document is lengthy, but it says 20 Plaintiff Microsoft Corporation brings this 21 action against the named Defendants for 22 injunctive relief and damages under the 23 trademark and copyright laws of the United 24 States and the State of California for damages 25 in tort and in contract. 12249 1 And while the question of whether or 2 not that was related to Mr. Silverberg's cut 3 the blankers off, that will go to the weight, 4 not to the admissibility of the document. 5 The Jury can draw its own conclusions 6 about whether or not this is related based on 7 mere contemporaneity. 8 This is very like other situations 9 where the Jury is permitted to infer from the 10 circumstances, including the chronology of 11 events, whether or not the two acts are 12 related. When they're related in time, is 13 there a cause and effect relationship. 14 That is something for the Jury to 15 determine based on all the facts and 16 circumstances. 17 We would urge that indeed this lawsuit 18 was in direct retaliation against Z-NIX, who 19 Mr. Silverberg said he was going to cut off 20 because Z-NIX was bundling DR-DOS. 21 And a year or so later Z-NIX was 22 forced into bankruptcy in part because they 23 settled the lawsuit with Microsoft for 2.9 24 million. 25 And that's the purpose for my offering 12250 1 these two exhibits, Your Honor, to show what 2 was going on then. 3 The marketplace knew in terms of 4 Microsoft's conduct. Here's this little 5 company. It has the audacity to bundle DR-DOS 6 inside Microsoft. One of the top executives is 7 saying cut those blankers off. And, in fact, 8 very shortly thereafter, they manage to draft 9 up this big lawsuit and get it on file. 10 And what the purpose of this evidence 11 is is to show that a part of the mystique of 12 Microsoft is the ferocity with which it did 13 retaliate against anybody who dared to cross 14 it. 15 And daring to cross it included, 16 principally at this point in time, the bundling 17 of DR-DOS and the selling of that in the 18 marketplace. 19 And Professor Noll, among others, will 20 talk about -- I think he calls it the Wal-Mart 21 effect. I'm uncertain about that -- how just a 22 few acts like this can absolutely terrify the 23 other people who might think about bundling, 24 whether they did this or not to DR -- or to 25 Z-NIX because of the bundling. 12251 1 The fact is in the market this -- 2 these actions were known. Other people who 3 thought they might be interested in bundling 4 DR-DOS were aware of what Microsoft did to 5 Z-NIX and the ultimate result. 6 And that is, I think, evidence that 7 the Jury has a right to. And, as I said, Your 8 Honor, not offered for the truth, but offered 9 for the fact that this was filed. 10 There is really no question about 11 whether or not Microsoft sued them. And this 12 is the document that shows that Microsoft sued 13 them. 14 Not only do I not offer it for the 15 truth -- I have no idea whether it is true or 16 not. But that's not the point. 17 The point is Z-NIX bundles DR-DOS. 18 That appears in the paper. Brad Silverberg 19 says cut the blankers off. A few weeks later 20 Microsoft sues them. And after that they go 21 bankrupt. 22 I could give a quick analogy, Your 23 Honor, and the Court's -- I'm more familiar 24 with this. 25 When someone files a complaint with 12252 1 the Iowa Civil Rights Commission complaining of 2 discrimination on the basis of sex and a week 3 or two or three, a month or two or three after 4 that they get fired, the Jury's entitled to 5 know that and the Jury's entitled to infer from 6 the mere chronology that the filing of the 7 complaint and the firing being close in time 8 is, in fact, retaliatory. 9 And what Microsoft -- part of the 10 reason they did this kind of stuff was to tell 11 people don't you dare cross us. We will do 12 something that will cost you money and harm 13 you. 14 And that's what they did to Z-NIX and 15 any number of other corporations, including -- 16 Mr. Lieven testified about what happened to 17 Vobis. 18 So that's why we offer it, Your Honor. 19 Limited purpose for which we certainly invite 20 the Court to make an appropriate limiting 21 instruction. 22 MR. TULCHIN: Your Honor, thank you. 23 Ms. Conlin tells quite a story. 24 One of the things about being in a 25 courtroom is that normally you need evidence in 12253 1 order to get your story before the Jury. 2 And it's a nice story that she has 3 about retaliation, but these documents are 4 hearsay. There's no doubt about that. 5 It would be one thing if there were a 6 certified copy of a complaint to show that a 7 complaint was filed. But these documents are 8 clearly hearsay. 9 And this witness knows nothing about 10 Microsoft's motives or why this lawsuit was 11 filed. Indeed, how he could be providing the 12 foundation for the authenticity of the 13 bankruptcy petition or the complaint is just 14 beyond me. 15 I just have to say, Your Honor, that 16 Microsoft has been through more discovery than 17 perhaps any other corporation in the history of 18 American litigation. 19 We have produced many millions of 20 pages of documents. Ms. Conlin has told the 21 Jury several times that she can't force 22 witnesses to come to Iowa because she doesn't 23 have the subpoena power. 24 But, of course, during discovery she 25 and her colleagues had the nationwide subpoena 12254 1 power to take discovery -- and discovery 2 spanned years in this case, and years in prior 3 cases -- to take discovery of Z-NIX or someone 4 else or to ask questions of Microsoft witnesses 5 about conduct. 6 But the idea that Mr. Edwards can 7 provide the foundation for this story is just 8 puzzling. 9 Thank you, Your Honor. 10 MS. CONLIN: Well, Your Honor, this is 11 evidence. And the question of motive is for 12 the Jury. 13 It can rarely be said that Microsoft's 14 motivation can be proved directly. It has to 15 be proven by the circumstantial evidence. This 16 is part of it. 17 And the idea that Mr. Tulchin would 18 suggest to the Court that there is any 19 requirement of certified copies is really 20 irritating, given the fact -- and the Court 21 knows this because we just dealt with this not 22 very long ago -- we have an agreement to waive 23 foundation unless there's some really good 24 reason to challenge it. 25 So it never occurred to me to get a 12255 1 certified copy in light of that agreement. 2 It's really unfair for Mr. Tulchin to 3 suggest to the Court that that's what I ought 4 to have done given the fact that we waived 5 foundation as a part of our agreement in this 6 lawsuit to every document. 7 So unless there's a very good reason 8 to suggest that these documents are not 9 authentic, and Mr. Tulchin, I assume, knows 10 that this is an authentic document. 11 I did not make this up, either of 12 these documents. I got them from the courts in 13 which they were filed. It's just very 14 difficult to understand why the issue of a 15 certified copy would be brought up at this 16 point. 17 Mr. Edwards is not laying the 18 foundation for this at all. There is no 19 foundation required under our agreement. 20 And it's not hearsay if it's not 21 offered for the truth. I'm not offering it for 22 the truth. I'm offering it for the mere fact 23 that it was filed. And that is the issue that 24 this addresses. 25 And, again, Mr. Tulchin talks about 12256 1 how we could have taken discovery. 2 The Court will remember how many 3 motions to compel we had to file to get 4 anything from these folks. 5 And one of the things that we were not 6 permitted to do was repeat -- go back. 7 Boy, if we could have gone back and 8 gotten discovery prior to the multi district 9 litigation, that would have been a wonderful 10 thing, but we didn't do that. 11 The thing that we got from this court 12 was an opportunity to look at the documents 13 that Microsoft has produced in other cases. 14 But we didn't do any. Virtually no 15 independent discovery was permitted. 16 And in terms of taking depositions, we 17 were precluded from doing that except insofar 18 that we could show that it was something that 19 happened after or there was reason to take a 20 deposition of someone that occurred, again, 21 after the MDL. 22 In fact, Your Honor, I wanted to take 23 depositions that I was not permitted to take 24 and I didn't. Given the fact that we were 25 coming here on an almost daily basis, it seemed 12257 1 asking the Court to provide discovery that 2 Microsoft would not, I did not challenge 3 because I thought there was some rationale, I 4 didn't challenge the prohibition Microsoft 5 imposed on taking additional depositions. 6 So the idea that we had a free reign 7 to do anything we wanted to in discovery is 8 just not right. 9 We were stuck with what we were stuck 10 with and that's what we accepted and moved 11 forward on that basis. 12 But this document, these two documents 13 not offered for the truth cannot be hearsay. 14 They don't require foundation because that's 15 the agreement between the parties. 16 And they do, in fact, tend to show -- 17 they're relevant and they tend to show that 18 Microsoft took this kind of action in 19 retaliation. 20 Whether that's true or not, the fact 21 that this happened was certainly known in the 22 marketplace and indicated to the marketplace 23 that this, along with a variety of other things 24 that we have already proven and will prove, 25 meant that the entity, the OEM that dared to 12258 1 cross Microsoft would pay a penalty and it 2 could be very steep. 3 THE COURT: Was this subject to the 4 Special Master process? 5 MR. TULCHIN: No. No. These 6 documents were not subject to the Special 7 Master process. 8 Precisely because -- and I think 9 Ms. Conlin has this agreement about foundation 10 all wrong, Your Honor. 11 There was no agreement that foundation 12 would be waived in general for all documents 13 but that only, as I understand it, Your 14 Honor -- I'd like to get a copy of the 15 agreement -- that foundation objections would 16 not be made to the Special Master. 17 Not that any document that either side 18 ever marked as an exhibit -- and this was only 19 recently marked, Your Honor. It's Plaintiffs' 20 Exhibit 9808 and 9807. I think they were 21 marked, in fact, since we've been here, since 22 trial started. But I can't be sure of that. 23 But the objection was not that all 24 foundation would ever be waived for any 25 document that had ever been marked or that 12259 1 might in the future be marked, but that only 2 that those objections would not be litigated 3 before Special Master McCormick. 4 And when I asked Mr. Bradford about a 5 lawsuit filed against Novell, there was a great 6 deal of, let's say, emotional and emphatic 7 discussion and objection on that subject. 8 And here we are talking about a 9 lawsuit against some other party. And 10 Mr. Edwards, with all respect, can't possibly 11 know about the complaint. 12 And, of course, it's being offered for 13 the truth, Your Honor. The truth is that the 14 lawsuit was filed. 15 And Ms. Conlin wants to argue what the 16 consequences are of the filing of that lawsuit. 17 But -- and one last thing, Your Honor. 18 On discovery, I don't understand the 19 point that's being made that discovery was 20 limited. 21 In this case and in all the state 22 actions around the country that followed Judge 23 Jackson's decision, as well as in the MDL 24 case -- and they all began around the year 25 2000 -- there was a period of open discovery 12260 1 that any lawyer in any of these cases could 2 have availed himself or herself of. 3 Dozens and dozens of depositions were 4 taken around the country. We didn't choose 5 whose deposition was taken. 6 If a particular lawyer wanted a 7 deposition of Z-NIX or some representative of 8 Z-NIX, they could have taken it. There was no 9 possibility that we had to block it. 10 So the discovery record is what it is 11 because throughout that period of open 12 discovery -- and I believe it lasted about a 13 year and a half; that's just my memory -- no 14 one bothered to take this deposition. 15 So having failed to get any foundation 16 or to provide any information that anyone could 17 cross-examine, now Ms. Conlin wants to sneak 18 these in, these hearsay documents, through a 19 witness who never worked at Z-NIX and couldn't 20 possibly tell you about why they went bankrupt. 21 THE COURT: Anything else? 22 MS. CONLIN: Yes, Your Honor. I'm 23 sorry. 24 The idea that the agreement was only 25 for the Special Master process is just plain 12261 1 wrong. 2 The agreement which is in writing 3 between Mr. Tuggy and I waives foundation 4 unless there's a good reason to believe that 5 the document -- a good faith reason to believe 6 that the document is not authentic. 7 In fact, both Microsoft and the 8 Plaintiffs did raise objections on the basis of 9 foundation under that stipulation before the 10 Special Master. 11 But it would be ludicrous to say that 12 it would apply before the Special Master and 13 then all of a sudden not exist anymore for 14 documents that were presented at this time in 15 court. And that's not my understanding at all 16 of the agreement. 17 We're talking about something that can 18 be easily handled if that's the Court's desire. 19 The issue of certification -- though, of 20 course, the federal courts don't move all that 21 fast now that I think of it. 22 But it's just not fair for Mr. Tulchin 23 to come into court and say you can't have this 24 document as a part of the record because it's 25 not a certified copy. 12262 1 The lawsuit against Novell is -- the 2 Court excluded that -- first of all, because it 3 was against Novell, and Mr. Tulchin was using 4 it to indicate that there were -- that there 5 was merit to the allegations. 6 I think -- I don't know whether 7 there's merit or not. 8 Mr. Tulchin talks about this open 9 period of discovery. 10 Do you remember, Your Honor, that 11 while this discovery was going on -- we filed 12 our action in February of 2000. It was 13 dismissed. Judge Novak dismissed it. 14 While this open discovery that he 15 talks about was going on, we were dismissed. 16 We were on our way to the Supreme Court. We 17 were there in the Supreme Court. We never had 18 a chance to participate in that open discovery 19 process. 20 So for him to saddle us with whatever 21 was done there is not fair, you know, Your 22 Honor, you recognize that when you permitted us 23 to get the documents from the other cases. 24 But we didn't -- we never had a chance 25 to do what Mr. Tulchin is now saying we should 12263 1 have done. We couldn't have done that because 2 we were in the Supreme Court on dismissal. 3 And then even when we got back here, 4 Your Honor, Microsoft demanded that any 5 discovery that we do in that period of time, up 6 until the time of class certification, be only 7 class certification discovery. So, really, we 8 did not have open discovery at all. I want to 9 correct the record with respect to that. 10 And the issue is not whether this is a 11 true document or whether the allegations made 12 are true. The issue is did this happen and was 13 it close in time to the public announcement of 14 Z-NIX bundling and what was the final result, 15 which was the bankruptcy. 16 So those are the things that we think 17 we can prove with these two documents. And we 18 think that they are material to the Jury's 19 determination, which includes Microsoft's 20 motivation. 21 Microsoft witnesses can come in here 22 and say absolutely not. You know, we didn't 23 file this action because of anything that Z-NIX 24 did with respect to DR-DOS. 25 They have the opportunity to meet this 12264 1 evidence, Your Honor, and they've got a better 2 chance than I do of having people parade in 3 here again and again from Microsoft saying, oh, 4 no, no, no, no, that was not what was happening 5 at all. 6 So there's a fair opportunity for them 7 to meet this evidence, and we should not be 8 precluded from presenting it to the Jury 9 because it does have probative value. 10 THE COURT: Anything else? 11 MR. TULCHIN: Just very quickly, Your 12 Honor. 13 We have no witness to cross-examine as 14 to why Z-NIX filed for bankruptcy. 15 And Ms. Conlin wants to argue that it 16 was because of the Microsoft lawsuit. 17 In the bankruptcy petition, I mean, 18 there's nothing to cross-examine. I don't know 19 how this witness could be sponsoring these 20 documents. 21 But if I recall, and I looked at this 22 quickly earlier, the bankruptcy petition 23 indicates a very large debt to another company, 24 having nothing to do with this. 25 I'm sorry. I don't see it right now. 12265 1 The amount of claim indicated -- 2 sorry. 3 Petitioning creditors, on the fourth 4 page, are shown to be Microsoft. The amount of 5 the claim is $5,000 and Symantec Corporation, 6 which has a claim for $650,000. 7 Now, I don't know the facts here, Your 8 Honor -- oh, there's another creditor. KAO 9 InfoSystems that has a claim for $915,000 for 10 accounts receivable for goods ordered and 11 delivered. 12 So, again, I don't know all the 13 details of this bankruptcy petition, why it was 14 filed, who filed it, what decisions were made. 15 Perhaps a group of creditors filed it. 16 But contrary to what Ms. Conlin says, 17 I can't examine Mr. Edwards on the nature of 18 these claims being made here, which is why you 19 need someone with some personal knowledge of 20 this petition before you just dump it into 21 evidence. 22 And it's also hearsay as discussed, 23 Your Honor, and I think as the Court has ruled. 24 MS. CONLIN: And the total amount -- 25 the total amount of liabilities in this 12266 1 bankruptcy is $4,797,400.38. 2 Microsoft's claim in the bankruptcy is 3 nearly 3 million of that 4 million, 797. 4 Microsoft's claim in this bankruptcy is 5 2,950,000. 6 THE COURT: Anything else on this 7 issue of the two exhibits? 8 MR. TULCHIN: No, Your Honor. 9 THE COURT: Very well. 10 MS. CONLIN: No, Your Honor. Thank 11 you. 12 THE COURT: I will consider it over 13 the night and give you a ruling on it tomorrow. 14 MS. CONLIN: Thank you, Your Honor. 15 THE COURT: We'll take a ten-minute 16 recess and then we'll proceed with the McGeady 17 matter. 18 Is that right? 19 MR. TULCHIN: Thank you, Your Honor. 20 MS. CONLIN: Thank you, Your Honor. 21 (A recess was taken from 3:19 p.m. 22 to 3:30 p.m.) 23 (The following record was made out of 24 the presence of the jury.) 25 THE COURT: Are you ready to go on 12267 1 Mr. McGeady? 2 Is it McGeady? 3 MR. TULCHIN: I think he pronounces it 4 McGeady. 5 THE COURT: McGeady, sorry. 6 MR. TULCHIN: Although it's most 7 commonly pronounced McGeady. 8 THE COURT: Okay. 9 MR. TULCHIN: Yes, Your Honor, we are 10 ready. 11 THE COURT: All right. 12 MR. TULCHIN: And it's our motion. 13 Your Honor, I think this motion 14 presents a really fundamental issue about the 15 meaning of collateral estoppel, and the extent, 16 if at all, to which the Plaintiffs can offer 17 the same evidence which in this case very 18 clearly lies behind collaterally estopped 19 facts. 20 And I won't go through the background 21 much, Your Honor, but as the Court well knows, 22 after the remand by the Iowa Supreme Court 23 about a year ago, the Plaintiffs made a second 24 motion for application of collateral estoppel. 25 And among the findings that they asked 12268 1 for are the ones that are at issue on this 2 motion or that pertain to this motion, 94 to 3 95, 100 through 103, and 401. 4 Those pertain to native signal 5 processing and Judge Jackson's findings about 6 Microsoft's efforts as he said to convince 7 Intel to stop certain software development. 8 And also Findings of Fact 396 and 404 9 through 406 concerning Java. 10 And, Your Honor, Mr. McGeady testified 11 about these two subjects before Judge Jackson 12 in the DOJ case in Washington. 13 A little bit of background about 14 McGeady himself. 15 He worked at Intel throughout the 16 1990s. He worked in the Intel architecture lab 17 from 1990 until 1996. He then took a 18 sabbatical, a one-year academic sabbatical, '96 19 to '97, when he was at MIT, I believe. 20 And when he returned to Intel on the 21 West Coast, he worked in an entirely different 22 area of Intel's business, something called the 23 Internet health initiative. 24 So his testimony at trial before Judge 25 Jackson pertained only to the years 1995 and 12269 1 '-6 and to what Mr. McGeady said were 2 Microsoft's efforts at the time to pressure 3 Intel in two respects. 4 One, to pressure Intel to abandon this 5 native signal processing software. And the 6 other was to pressure Intel to stop supporting 7 Sun's Java as compared to Microsoft's version 8 of the Java technologies. 9 And at the trial before Judge Jackson, 10 McGeady stood on one side on these issues, and 11 Microsoft called on the other side two 12 witnesses principally, Ron Whittier, 13 W-h-i-t-t-i-e-r. And Mr. Whittier had been 14 McGeady's boss. He was actually the head of 15 the Intel architecture labs. McGeady reported 16 to him. 17 And Whittier's version of the events 18 was quite different than McGeady's. Whittier, 19 in fact, denied that Intel did anything because 20 of what Microsoft wanted Intel to do, but, 21 instead, that Intel did what it thought was 22 best for its business. 23 And also Microsoft called Paul Maritz, 24 M-a-r-i-t-z, who was then a Microsoft employee, 25 has since left the company, to testify about 12270 1 the same events. 2 Microsoft also introduced a 3 substantial number of exhibits on both of these 4 points, the allegations made by Mr. McGeady. 5 And, of course, Your Honor, as the 6 Court is aware, Judge Jackson -- for better or 7 for worse, Judge Jackson found entirely that 8 the McGeady version of events was what he 9 credited. 10 He rejected Mr. Whittier's testimony, 11 McGeady's boss, and he made the findings to 12 which I referred, 94 to 95, 100 to 103, 401, 13 396, and 404 to 406. 14 I think those are all of them referred 15 to on this motion. 16 He made all those findings and, in 17 effect, adopted all of McGeady's testimony. 18 Now, Your Honor, we've argued points 19 similar to what's at issue here. And Your 20 Honor made a ruling on December 7th. The 21 ruling appears at pages 3433 to 3434. It's 22 attached to our papers, Your Honor. 23 Does the Court have a copy of the 24 papers filed in this motion? 25 THE COURT: Uh-huh. 12271 1 MR. TULCHIN: Thank you, Your Honor. 2 And what Your Honor said on December 3 7th was that, quote, the underlying evidence 4 for those findings cannot be used to support 5 that finding again. 6 The underlying document or evidence 7 may be used to address a different fact, which 8 has not been collaterally estopped, which is to 9 be determined by the fact finder, in this case 10 the jury, but not for the sole purpose of 11 bolstering a fact already established. 12 Now, the essential issue here, Your 13 Honor, is that the Plaintiffs have conceded 14 that they want the same testimony from McGeady 15 on these two subject matters. 16 They said at page 5 of their brief 17 that they intend to elicit testimony from 18 Mr. McGeady regarding, for example, NSP and 19 Java. 20 They also say in the next sentence on 21 page 5, this testimony may at times touch upon 22 the established facts. 23 And the essential premise to the 24 argument that the Plaintiffs have made is that 25 collateral estoppel is a one-way street. It's 12272 1 the same argument that we've had a number of 2 times before, that they get the benefit of 3 collateral estoppel and Microsoft the burden, 4 but that the Plaintiffs can go on and can 5 continue to do whatever they seek to do with 6 facts that have already been estopped. 7 And I must say, Your Honor, I think 8 this is directly contrary to all law on 9 collateral estoppel. 10 And it also contradicts what 11 Plaintiffs' counsel said on December 7th, the 12 day the Court made this ruling, because during 13 the course of discussion that day, the Court 14 asked Mr. Hagstrom do you intend to relitigate 15 those facts which have already been 16 collaterally estopped by this Court? 17 Mr. Hagstrom, absolutely not, Your 18 Honor. 19 And later in the argument -- that 20 first quote is from page 3410 to 3411. 21 And then at 3413, the Court asked -- 22 again, we're back to square one -- so you are 23 going to bring in all the evidence that 24 supports those facts? 25 Mr. Hagstrom, no. 12273 1 And I think what's happening is that 2 the Plaintiffs step by step down this slippery 3 slope, in fact, are doing what they told the 4 Court they would not do. 5 If Mr. McGeady has evidence that 6 pertains to matters other than the collaterally 7 estopped findings, and if that evidence is 8 relevant to some issue in this case, then so be 9 it. 10 I'm not aware of any such thing 11 because all of his testimony, in effect, was 12 adopted by Judge Jackson in Washington, but for 13 all I know there are other subjects. 14 But I think the law on collateral 15 estoppel is clear that you cannot have it both 16 ways, that the party seeking collateral 17 estoppel cannot get the benefit and still 18 relitigate the same facts. 19 What Mr. Cashman has argued before is 20 that collateral estoppel is one-directional, 21 and, in a sense -- in one very narrow sense, 22 he's right. It's one-directional, because we 23 can't ask the Court to apply collateral 24 estoppel to facts against the Plaintiffs when 25 the Plaintiffs weren't present in that other 12274 1 proceeding. In that sense, of course, 2 collateral estoppel is one direction. 3 But once a party to a litigation like 4 this one, Comes against Microsoft, once a party 5 asks for the application and then receives the 6 application of collateral estoppel, that party 7 is equally bound by those facts, as is the 8 other. 9 This is Grant against the Iowa 10 Department of Human Services, 722 N.W. 2d 169, 11 at page 174, a Supreme Court of Iowa decision, 12 I believe, from 2006. 13 And, of course, the Court is aware of 14 this. We've cited it before. 15 There, the Iowa Supreme Court says 16 that allowing this kind of testimony would be 17 contrary to, quote, the entire premise of issue 18 preclusion, unquote, and it describes the 19 premise as being, quote, once an issue has been 20 resolved, there is no further fact finding 21 function to be performed, unquote. 22 Now, I want to get to the other two 23 leading cases in a moment, Your Honor, on this 24 point, but, if I may, I want to pause here on 25 one, I think, very important distinction that 12275 1 the Plaintiffs in their brief at least have 2 ignored. 3 They've said that Mr. McGeady's 4 testimony -- and I quoted the excerpts from 5 page 5 where they say they want to do the same 6 thing again with Mr. McGeady as he did in 7 Washington. 8 But they say that that's okay because 9 the facts that Mr. McGeady has to offer might 10 go to other issues, issues that weren't decided 11 in Washington. 12 It might go to an issue, for example, 13 of whether there was horizontal collusion, 14 whether Microsoft and Intel were both competing 15 in the software business -- and I might say 16 there's a finding of fact that they were not, 17 which is binding on the Plaintiffs. 18 But they say, well, we need the same 19 facts to talk about horizontal collusion. 20 And I think that's just a fundamental 21 misunderstanding of collateral estoppel. 22 The fact is established. Of course, 23 we very vehemently disagreed with Judge Jackson 24 at the time. We thought the testimony of 25 McGeady's boss at the very least should be 12276 1 taken into account. 2 But we're stuck with that. And the 3 facts there are the facts. Whether those facts 4 should have been found is irrelevant now. We 5 lost there. We're bound by it. 6 But so are the Plaintiffs. And you 7 can't reintroduce the same facts merely to 8 cover a legal issue. The facts have been read 9 to the Jury, the estopped facts, including the 10 findings I mentioned. The Jury has them in 11 their notebook. 12 If after the Court's final 13 instructions during the course of deliberations 14 the Jury wants to take those facts into account 15 in deliberating with respect to a legal issue 16 in accordance with the instructions, of course, 17 they can do that. 18 But you don't get to relitigate the 19 same facts to introduce the same testimony from 20 Mr. McGeady merely because you have a theory as 21 to why the same facts might go to an issue that 22 was not in front of Judge Jackson. That's a 23 legal issue. That's not collateral estoppel. 24 Collateral estoppel pertains to factual issues, 25 to facts. 12277 1 So I just want to return to the same 2 cases that we've talked about before, Your 3 Honor. 4 The Plaintiffs continue to 5 mischaracterize the Setter against AH Robbins, 6 748 F. 2nd 1328 at 1331. That's the Eighth 7 Circuit case. 8 And the air crash disaster at 9 Stapleton airport, 720 F. Supp. 1505 at 1524. 10 And, of course, Your Honor, as you 11 know from prior discussion, in those two cases, 12 Court rejected collateral estoppel precisely 13 because the Plaintiffs there were candid enough 14 to tell the Court when they asked for 15 collateral estoppel that they wanted to 16 reintroduce the same facts on the question of 17 willfulness or punitive damages. 18 And both those courts said, no, you 19 can't have collateral estoppel if you're going 20 to take collaterally estopped facts and put 21 them back in front of the jury through the 22 testimony of somebody like McGeady, in order to 23 try to prove willfulness. You can't have it 24 both ways. 25 Now, the Plaintiffs somehow -- and I'm 12278 1 a little confused how -- twist these cases 2 around and say, well, you see, you can have it 3 both ways. 4 Indeed, in those two cases, court said 5 you have a choice. You either get collateral 6 estoppel and then you can't get McGeady to 7 testify about native signal processing on 8 willfulness, or you don't have any collateral 9 estoppel and it's open season. 10 McGeady comes in, he offers his 11 testimony. Microsoft, of course, can 12 cross-examine. Microsoft can introduce the 13 deposition of Mr. Whittier, and now we're back 14 asking the Jury to determine the facts that 15 Judge Jackson once determined. 16 Indeed, when we opposed the collateral 17 estoppel motion last spring -- I think it was 18 April or May -- we thought, and we still do 19 think, that collateral estoppel should not have 20 been granted on the findings here. 21 I won't relitigate that. That's been 22 decided. 23 The Court ruled against us, and, as a 24 result of that ruling, I think it's a necessary 25 corollary that McGeady cannot offer to this 12279 1 jury the same allegations of fact that he 2 offered to Judge Jackson and that formed the 3 basis of the collateral estoppel. 4 And one other thing, Your Honor -- and 5 I know it's been a long day. 6 It doesn't work for the Plaintiffs to 7 say, well, wait a minute. We can put in the 8 same facts on willfulness or willful or 9 flagrant conduct. We can put them in because, 10 after all, Mr. Gates' testimony was permitted 11 through the videotape deposition that the Jury 12 heard in December. 13 And the same principle applies. 14 And I believe that's clearly 15 incorrect, Your Honor, because McGeady's 16 testimony can't go to Microsoft's state of 17 mind. 18 His facts which he offered to Judge 19 Jackson and were adopted can be considered by 20 the Jury on willfulness. That's why we have 21 collateral estoppel. They have those facts. 22 They're determined for all purposes. 23 But McGeady has no relevant testimony 24 to offer about what was in the minds of 25 employees of Microsoft. 12280 1 So contrary to what the Plaintiffs 2 argue in their brief when they say this is the 3 same issue as Mr. Gates, the Mr. Gates' 4 deposition, we think it's quite different. 5 So, in conclusion, Your Honor, this 6 effort by the Plaintiffs to get McGeady to say 7 the same things here as he did in Washington, 8 we think, violates the Court's December 7th 9 ruling and, in effect, would overturn it and 10 make it a nullity. 11 They say that his testimony will touch 12 upon the established facts of this case. They 13 say that he'll testify about conduct subject to 14 collateral estoppel. They said that at page 10 15 of their brief. 16 And, as a matter of law, all of that 17 should be impermissible. 18 Thank you, Your Honor. 19 THE COURT: Thank you, Mr. Tulchin. 20 Who is going to respond for 21 Plaintiffs? 22 MR. CASHMAN: I am going to respond, 23 Your Honor. 24 THE COURT: Go ahead. 25 MR. CASHMAN: Your Honor, Stephen 12281 1 McGeady, as Mr. Tulchin mentioned, was a former 2 software developer and vice president of Intel 3 Corporation. 4 Microsoft requests, as you've heard 5 Mr. Tulchin say, that Mr. McGeady be precluded 6 from testifying regarding any issue relating to 7 Java or native signal processing. 8 THE COURT: Is he testifying live? 9 MR. CASHMAN: He will be testifying 10 live, Your Honor, which is -- makes this a much 11 different situation than some of the other 12 collateral estoppel issues we've discussed. 13 But this request is improper and 14 should be denied in its entirety. 15 What we really have here, Your Honor, 16 is an effort by Microsoft to discover in 17 advance, get a preview about what Mr. McGeady 18 is going to be testifying about. And that is 19 inappropriate. 20 They move to preclude Plaintiffs' 21 relisting for any purpose testimony from 22 Mr. McGeady regarding factual matters that are 23 covered by one or more of the findings of fact. 24 I'll note here, Your Honor, that Mr. 25 Tulchin in his slight of hand keeps saying the 12282 1 same facts, and that's clearly not the case 2 we've discussed before. These are not the same 3 facts. And he fails to distinguish the 4 findings of fact from the underlying evidence. 5 What I would like to do, Your Honor -- 6 I'm going to change up my presentation a little 7 bit because Mr. Tulchin chose instead of really 8 wanting to focus on why Mr. McGeady's testimony 9 goes to other issues and is, therefore, 10 appropriate under your order, I think it's 11 appropriate to take a step back on the legal 12 issues once more because I think that Microsoft 13 consistently mischaracterizes the law. 14 And for that purpose, Your Honor, I 15 have prepared some slides that I think will 16 help us through this. 17 So, Darin, would you put up Slide 18 Number 6, please? 19 What I've put up here on Slide Number 20 6, Your Honor, or the slide that I'm showing 21 now that when you look through the law in Iowa, 22 we basically have a situation where Iowa 23 recognizes three kinds of collateral estoppel. 24 The mutual collateral estoppel where 25 both parties in both litigations are the same. 12283 1 The second situation that has been 2 recognized in Iowa is defensive collateral 3 estoppel in which the defendant in the second 4 litigation is a stranger to the first, but 5 asserts collateral estoppel as a shield against 6 the plaintiff's claims, who was a party to the 7 first litigation. 8 And that is discussed in other cases 9 as well, but certainly discussed at length in 10 the Hunter versus City of Des Moines case. 11 And then third, we have offensive 12 collateral estoppel in which the plaintiff in 13 the second litigation is a stranger to the 14 first, but asserts collateral estoppel as a 15 sword against the defendant, who is the party 16 to the first litigation. 17 Again, that's described in Hunter. 18 And the Hunter case explicitly 19 describes defensive collateral estoppel as a 20 shield and offensive collateral estoppel as a 21 sword. 22 And the cases, Hunter and the Iowa 23 Supreme Court cases which follow, all recognize 24 that in the case of offensive collateral 25 estoppel, the plaintiff in that situation is 12284 1 entitled to a benefit from the collateral 2 estoppel findings or whatever the issue was 3 that was given preclusion in the first case. 4 Now, Darin, if we could turn to Slide 5 6, please, or, pardon me, Slide 7. 6 In Hunter and, again, in other Iowa 7 Supreme Court cases, they identify the four 8 criteria that are necessary for collateral 9 estoppel. 10 But, importantly, the bottom of this 11 slide I've indicated that as it's stated in 12 Hunter, issue preclusion may be properly 13 applied as between nonmutual parties only where 14 the four prerequisites are satisfied and only 15 where the party against whom the doctrine is 16 invoked defensively was so connected in 17 interest with one of the parties in the former 18 action as to have had a full and fair 19 opportunity to litigate the relevant claim or 20 issue and can be properly bound by its 21 resolution. 22 That's in the Hunter case and in cases 23 subsequent. 24 That is critically important in our 25 consideration of collateral estoppel here, Your 12285 1 Honor, because Microsoft is asserting, as I've 2 advised the Court, is asserting an objection 3 that simply does not exist. 4 They do not have the right to assert a 5 collateral estoppel objection against the 6 Plaintiffs since we were not a party to the 7 prior proceedings in the government. 8 So let's turn to Slide 8, please, 9 Darin. 10 Why is that? It comes down to due 11 process, Your Honor. 12 Microsoft argues again and again, as 13 you've heard Mr. Tulchin say, that collateral 14 estoppel is not a one-way street and that the 15 Plaintiffs are bound by the judgment in the 16 government actions which estops both parties. 17 That's in their reply brief at page 1. 18 That's wrong. 19 Microsoft, in spite of the three cases 20 that Mr. Tulchin has cited to you, has failed 21 to cite a single case in which collateral 22 estoppel was applied against a complete 23 stranger to the first litigation. It's never 24 happened. 25 And, in fact, Your Honor, Microsoft 12286 1 makes much of the fact that Plaintiffs haven't 2 cited a case that fits in their particular fact 3 pattern, but I disagree with that. 4 But moreover, Your Honor, all we have 5 to do is go to authority. I'm holding up in my 6 hand a printout of 31 ALR 3rd 1044, which is 7 titled -- this is an ALR publication that's 8 mutuality of estoppel is prerequisite of 9 availability of a doctrine of collateral 10 estoppel to a stranger to the judgment. 11 And you can see that this discusses 12 many, many cases across the country, federal 13 and state. And there is not a single case, 14 Your Honor, not a single case in which 15 collateral estoppel is applied against a 16 stranger to the prior litigation, which is what 17 Microsoft is seeking to do here. It is not 18 permissible. 19 So the Iowa Supreme Court, if we look 20 at Item Number 3 on the slide, has recognized 21 again and again that collateral estoppel cannot 22 be applied to complete strangers. And that's 23 because it would be a violation of fundamental 24 due process rights. 25 I've included on the slide Item Number 12287 1 4, due process is fundamental and prohibits the 2 application of collateral estoppel to any 3 evidence which Plaintiffs wish to introduce if 4 it relates to other claims than those decided 5 in the other actions. 6 And I've quoted the Blonder-Tongue 7 case, which is a Supreme Court case, which 8 touches on this issue and really crystalizes 9 the importance of the due process point. 10 Quote, some litigants, those who never 11 appeared in a prior action, may not be 12 collaterally estopped without litigating the 13 issue. They have never had a chance to present 14 their evidence and arguments on the claim. 15 Due process prohibits estopping them 16 despite one or more existing adjudications of 17 an identical issue which stand squarely against 18 their position. 19 That's what Microsoft is asking you to 20 do, is go against the constitution of Iowa and 21 of the United States when it comes to due 22 process in applying collateral estoppel against 23 the Plaintiffs. 24 I wish to also point out for the Court 25 that there is a case -- the reason why there 12288 1 are no cases, such as Microsoft alleges, is 2 because what it's asking for is unprecedented. 3 If the Court were to grant the relief 4 requested by Microsoft, the Court would be the 5 first and only court to provide the relief 6 requested by Microsoft. 7 Now, I do have a case which I think is 8 instructive, Your Honor, on this point. This 9 is a case called Beall, B-e-a-l-l, versus 10 Kearny and Trecker Corporation. The cite for 11 this case, Your Honor, is 350 F. Supp. 978. 12 This is a U.S. District Court case 13 from the District of Maryland. This is a 1972 14 decision. 15 And with the Court's permission, I'll 16 hand a copy up. 17 THE COURT: Yes. 18 MR. CASHMAN: And I'm also providing a 19 copy to Mr. Tulchin. 20 THE COURT: Thank you. 21 MR. TULCHIN: You might hand it and 22 not throw it next time, please. 23 MR. CASHMAN: Your Honor, as you see, 24 I've flagged page 4 for you because this really 25 touches on the issue which Microsoft is urging 12289 1 here. 2 In the Beall case, it was alleged that 3 collateral estoppel should be applied against a 4 stranger to the prior litigation. 5 And as you see under headnote five, 6 quote, defendant urges this court to extend the 7 reasoning of these cases -- those are some 8 collateral estoppel cases -- so as to allow 9 Kearny and Trecker, a party to a prior 10 litigation, to assert the results of that 11 decision against Beall, who is not a party. 12 Thus, according to the defendant's 13 interpretation of the law, because the Second 14 Circuit found that Beall's conduct was 15 improper, Beall is collaterally estopped from 16 asserting the absence of wrong. 17 The Court then continues by saying 18 that position is wrong. 19 And if you look at the top of the 20 second column, Your Honor, this court has 21 searched in vain for any decision which 22 supports the defendant's assertion that the 23 Seventh Circuit decision estopped Beall from 24 denying any wrongdoing. 25 Furthermore, this court does not 12290 1 believe any such decision could be rendered 2 without violating due process clause of either 3 the Fifth or Fourteenth Amendments to the 4 constitution. 5 It is fundamental that, at a minimum, 6 due process of law requires that a person not 7 be deprived of life, liberty, and property 8 unless he has been afforded an opportunity to 9 defend and protect those rights, close quote. 10 And the Court continues on by 11 explaining why it's a violation of due process 12 to -- if such relief were to be granted. 13 So it's simply wrong for Mr. Tulchin 14 to suggest that the relief that Microsoft seeks 15 has been condoned in any court. 16 The Grant case, of which Mr. Tulchin 17 is so fond of quoting, Your Honor, is wholly 18 inapposite, and it doesn't take much to see why 19 upon reading. That's a mutuality case. 20 In other words, that's a case where 21 both parties in the second litigation were also 22 parties in the first litigation. 23 And that's a straight-up 24 noncontroversial situation where collateral 25 estoppel prevents relitigation. And that is 12291 1 the only circumstance in which the Court was 2 speaking when it said the facts are decided. 3 Of course, they're decided when both parties 4 were participants in the prior litigation. 5 So Grant provides no authority or 6 basis for Microsoft's request. 7 And, again, Mr. Tulchin cites the 8 Setter and the aircraft disaster cases. 9 Again, those do not in any way support 10 Microsoft's position. In fact, contradict it. 11 In those cases, the only issue was 12 whether collateral estoppel should be granted 13 when it was recognized that the Plaintiffs in 14 those cases would have the right to introduce 15 the same evidence again. 16 And in those cases, the issue was, was 17 there going to be judicial economy. And the 18 courts there found that wasn't the case. 19 But that isn't the situation here. 20 This Court has found that collateral estoppel, 21 offensive collateral estoppel against Microsoft 22 is appropriate. And we had extensive hearings 23 before the Court on those issues under which 24 all the factors for Iowa law were discussed and 25 established. 12292 1 And Mr. Tulchin failed to address the 2 more pertinent case, Your Honor, which is the 3 Bradburn versus the 3M case. 4 And that's attached to our papers. 5 The Bradburn case, Your Honor, is much 6 more apprapo to the circumstances here. 7 That's an antitrust case in which 3M 8 was involved in a prior litigation and then 9 where Bradburn was a class action that followed 10 on seeking to take advantage of the conclusions 11 in the prior case. 12 THE COURT: What's the cite of that 13 again? 14 MR. CASHMAN: The Bradburn case, Your 15 Honor, I'll hand up a copy to the Court, which 16 is an Eastern District of Pennsylvania case, 17 and although I know Mr. Tulchin has a copy, 18 I've provided him with another. 19 THE COURT: Make sure you hand copies 20 to the Defendant. Don't throw them. 21 MR. CASHMAN: Okay. 22 THE COURT: This is from where? 23 MR. CASHMAN: This is from the Eastern 24 District of Pennsylvania. This is a 2005 case. 25 The cite is 2005 Westlaw 736629. 12293 1 THE COURT: This was presented before, 2 wasn't it? Haven't I seen this before? 3 MR. CASHMAN: We have discussed this. 4 MR. TULCHIN: Yes, Your Honor, and I 5 have some citations for that. 6 THE COURT: Okay. Go ahead. 7 MR. CASHMAN: The Court here concluded 8 after going through all the collateral estoppel 9 issues that collateral estoppel was 10 appropriate. 11 And then the issue was fairness 12 considerations. And those are on page 11 of 13 the decision, Your Honor. 14 And, in particular, judicial economy, 15 which is primarily what Microsoft is arguing 16 why Plaintiffs shouldn't be allowed to use the 17 testimony of Mr. McGeady or others, or other 18 evidence which they suggest is somehow subject 19 to collateral estoppel. 20 But 3M in the Bradburn case made the 21 very same argument that Microsoft makes here. 22 And that is that there is going to be some of 23 this same evidence or overlapping evidence 24 which may be introduced in which the Plaintiffs 25 would be entitled to introduce it in the 12294 1 subsequent case. 2 And, in this instance, 3M argued that 3 that meant that collateral estoppel should not 4 be applied. 5 And the Court rejected that notion 6 because it acknowledged that although the 7 evidence which Plaintiffs would be entitled to 8 use in the second action, since they were not 9 parties to the first, that there would still be 10 tremendous judicial economy because the 11 Plaintiffs in the Bradburn case wouldn't have 12 to go back and reprove what was established in 13 the earlier case, which is why, as I've 14 explained to the Court before when we've 15 discussed collateral estoppel, the Plaintiffs 16 here, Your Honor, are not going back to 17 relitigate anything associated with the 18 government case. We're talking about entirely 19 different issues. 20 But it's clear from the reasoning 21 employed by the Court in Bradburn that there 22 will be tremendous judicial economy and that 23 the Plaintiffs in Bradburn, like the Plaintiffs 24 here, are still entitled to use that evidence 25 as necessary to help prove other issues. 12295 1 And the reason for that, Your Honor, 2 again, touches back on what we were looking at 3 before, which are the due process concerns that 4 are mandated by the Iowa Constitution and by 5 the U.S. Constitution which give nonlitigants, 6 strangers to the prior case, the right to 7 litigate the issues which they need to litigate 8 in their case. 9 So the Bradburn case is certainly much 10 more on point than the Setter or air crash 11 disaster cases and underscores that, indeed, 12 there will be or may be some evidence, 13 underlying evidence from the government case 14 which might be used to help prove another claim 15 in this case, but certainly there is no basis 16 for collaterally estopping Plaintiffs based on 17 the government case. 18 That's just contrary to the law. 19 Microsoft can't provide the Court a case 20 supporting its position because there are no 21 such cases. 22 And as I have indicated to the Court, 23 there isn't a case in the country that stands 24 for the proposition that Microsoft alleges. 25 And if the Court wants, I'll be happy 12296 1 to provide it with this copy of the ALR, but I 2 was just combing through multiple cases which 3 stand for the proposition at bare bottom that 4 you cannot apply collateral estoppel against a 5 stranger to the prior lawsuit. 6 And that is the very principle which 7 the Iowa Supreme Court has adopted in cases 8 like Hunter and every case before or since that 9 has discussed collateral estoppel in Iowa. 10 And, in fact, the Grant case which Mr. 11 Tulchin keeps citing implicitly recognizes that 12 collateral estoppel can only be applied against 13 somebody who is a party to the prior lawsuit. 14 That's not the case here. The 15 Plaintiffs were not parties to the prior 16 lawsuit and, therefore, under no circumstances 17 can they be collaterally estopped. 18 Now, Your Honor, with that being said, 19 I'd like to turn back now to some of the 20 specifics here. 21 And, Darin, would you please put up 22 Slide 1? 23 For our convenience and the Court's 24 convenience, I have provided the Court's 25 statement on December 7, 2006. 12297 1 And the pertinent language is in bold. 2 The underlying evidence for those findings 3 cannot be used to support that finding again. 4 Mr. Tulchin consistently ignores the 5 Court's language. Cannot be used to support 6 that finding again. 7 And, of course, Plaintiffs are not 8 using any of the underlying evidence from the 9 Department of Justice case to support the 10 finding in the Department of Justice case 11 again. 12 We're using that evidence and those 13 findings, if appropriate, to support different 14 issues. 15 The Court continued, the underlying 16 document or evidence may be used to address a 17 different fact, which has not been collaterally 18 estopped. 19 And, again, that makes perfect sense. 20 As we've explained to the Court before, we 21 believe that statement is correct because it 22 goes hand in hand, Your Honor, with the Iowa 23 Supreme Court's articulation of what has to be 24 established for collateral estoppel in the 25 first place. 12298 1 And that is -- one of those issues is 2 that the issue in both cases must be identical. 3 So here in our case, when we talk 4 about causation and consumer harm or when we 5 talk about other issues in this case, they 6 aren't identical to what happened in the 7 government case. 8 And that is because the government 9 case involved operating system market liability 10 for a certain period of time. And here in this 11 case, we've got a multitude of different 12 issues. 13 So on all these fundamental grounds, 14 there is simply no basis for Microsoft's 15 objections. 16 Now that it -- we've talked about the 17 general framework, again, some of the 18 specifics, Your Honor. 19 And these are just examples because, 20 again, Plaintiffs believe that Microsoft is 21 just trying to get a preview of what 22 Mr. McGeady is going to testify about, which 23 they certainly aren't entitled to. 24 So we've provided some examples of 25 reasons or issues that Mr. McGeady's testimony 12299 1 will relate to that doesn't have -- that isn't 2 something that was found in the government 3 action. 4 For example, as we've indicated in our 5 papers, Mr. McGeady's testimony is admissible 6 to prove that the Microsoft/Intel agreement 7 regarding NSP constituted horizontal collusion. 8 The Court will recall that the 9 Plaintiffs made that allegation in their fourth 10 amended petition and that that conduct was 11 anticompetitive and a violation of Iowa 12 Competition Law. 13 Microsoft's conduct with regard to 14 Intel and NSP, Your Honor, was not found to be 15 among the specific acts of anticompetitive 16 conduct from the government action as listed in 17 the preliminary jury instructions. 18 In fact, Microsoft, as you've heard 19 Mr. Tulchin say -- and I think he has stated it 20 many times -- is that the relationship with 21 Intel with regard to the development of 22 platform level software was not a horizontal 23 one. And they have denied that these actions 24 were anticompetitive. 25 We're entitled to demonstrate, Your 12300 1 Honor, and put on evidence demonstrating to the 2 contrary. And we're entitled to use the 3 evidence from the government action, including 4 testimony from Mr. McGeady to the extent that 5 it overlapped with what he said in the 6 government action, to prove horizontal 7 collusion, and that it was a violation of Iowa 8 Competition Law and that it was anticompetitive 9 conduct. 10 And I think that the law that we've 11 discussed as it relates to collateral estoppel 12 makes it clear that these are facts which could 13 not possibly be described as subject to 14 collateral estoppel. 15 And that is using the Court's 16 language, the testimony by Mr. McGeady on 17 horizontal collusion issues, facts relating to 18 horizontal collusion, would not be for the sole 19 purpose of bolstering a fact for the purposes 20 of the government action, it would be for the 21 purpose of establishing separate issues. 22 Also in our papers, Your Honor, we've 23 described that Mr. McGeady's testimony relates 24 to anticompetitive demand by Microsoft that 25 Intel dismantle the Intel architecture labs. 12301 1 That doesn't bolster the market -- 2 operating system market liability for the 3 period of time in the government action. 4 That's a wholly different issue. 5 Again, Microsoft's conduct, Your 6 Honor, in demanding that Intel shut down the 7 architecture lab was not among the specific 8 acts of anticompetitive conduct from the 9 government action listed in the Jury 10 instructions. 11 And we provided that Preliminary Jury 12 Instruction Number 31 as Exhibit D to our 13 papers. 14 So Plaintiffs are entitled to put on 15 evidence, Your Honor, showing harm to the 16 competitive process and harm to consumers. 17 That's what Mr. McGeady's testimony goes to on 18 that point. And we're entitled to present that 19 because it doesn't bolster anything. 20 We also are entitled to put on 21 testimony from Mr. McGeady on causation and 22 consumer harm. We've explained that in our 23 papers. 24 The Court will recall that the Jury 25 has been instructed that the issues of 12302 1 causation and monetary damages to Iowa 2 consumers have not been conclusively determined 3 by collateral estoppel. 4 That was your Instruction Number 13. 5 The testimony by Mr. McGeady is in 6 support of the contention that Microsoft's 7 conduct in pressuring Intel to abandon NSP 8 harmed Iowa consumers and would be admissible 9 under your ruling as we see here on the chart. 10 We also provided evidence in our 11 papers, Your Honor, that Mr. McGeady's 12 testimony is relevant to willful or flagrant 13 conduct. We're entitled to elicit that 14 testimony showing the facts of which 15 Mr. McGeady is aware that Microsoft engaged in 16 anticompetitive conduct. 17 Microsoft, Your Honor, is -- in the 18 end is talking out of both sides of its mouth 19 when it comes to these issues. 20 And to demonstrate that, I have again 21 -- I have some slides that point out for the 22 Court these issues. 23 And so if you'd put up Slide Number 2, 24 Darin. 25 I went back, Your Honor -- and I think 12303 1 this is highly instructive. Going back to what 2 Microsoft alleged in its memorandum in 3 opposition to the application for collateral 4 estoppel on remand. 5 And here Microsoft said the scope and 6 nature of this consumer action for damages 7 differ dramatically from the scope and nature 8 of the government's equitable enforcement 9 action. 10 And, consequently, there are many 11 important differences between the broad 12 allegations and claims in this action and the 13 much narrower liability determination in the 14 government action. 15 Now, as I point out under Point 2, 16 Microsoft argues in its reply memorandum over 17 and over again that once collateral estoppel 18 has been granted, there is no further 19 fact-finding function to be performed. 20 Those are inconsistent, Your Honor. 21 Let's turn to Slide Number 4, Darin. 22 More inconsistencies. 23 When seeking preliminary jury 24 instructions that Microsoft thought were 25 favorable to it, Mr. Holley told the Court, 12304 1 quote, there is nothing in the government 2 action which says that Microsoft's conduct was 3 willful or flagrant. That's something that 4 these Plaintiffs have to prove and it's not 5 subject to collateral estoppel. 6 The transcript cite is 2034, lines 10 7 to 14. 8 And, in fact, the argument that Mr. 9 Holley provided led the Court to remove the 10 word willfully from the preliminary 11 instructions. 12 Now, as you can see under Point 3, 13 Microsoft argues in its reply that, quote, 14 either a fact as found by Judge Jackson shows 15 that Microsoft's conduct was willful and 16 flagrant, or it does not. And it is not open 17 to Plaintiffs to present additional evidence on 18 the matter. 19 That -- those are irrelevant 20 reconcilable inconsistencies, Your Honor. 21 Now, let's turn to slide 3, Darin. 22 THE COURT: He said 3. 23 MR. CASHMAN: This is 3, yes. 24 THE COURT: Okay. I didn't know if 25 you were still wondering what he said. 12305 1 MR. CASHMAN: As I point out here in 2 Instruction Number 13, Your Honor, and then 3 what Mr. Tulchin told the Jury during his 4 opening statement, no one in Iowa has been 5 harmed by anything that the Plaintiffs can show 6 that Microsoft has done. 7 Now, in its reply, Microsoft says that 8 testimony regarding Microsoft's conduct harmed 9 consumers is conclusively established. 10 So, again, Your Honor, we have these 11 statements which simply cannot be reconciled. 12 And it shows that Microsoft 13 acknowledged or recognizes that the very things 14 on which they are trying to preclude Plaintiffs 15 from putting testimony on or evidence into the 16 record are things which they are, in fact, 17 entitled to do. 18 Let me go to Slide 5, Your Honor. 19 And these are additional things that 20 Microsoft said in its briefing last March on 21 the memorandum in opposition to Plaintiffs' 22 motion for application of collateral estoppel. 23 They point out, first of all, there in 24 that case over and over again that the 25 government action was very narrow as it related 12306 1 to the time frame. 2 They point out that the conduct was 3 different because it applied to, according to 4 Microsoft, two specific middleware products; 5 whereas, in our petition, the allegations of 6 anticompetitive conduct were directed at a 7 large number of other entities. 8 Also in their papers that they filed 9 last March, Microsoft argued that the 10 government action didn't have anything to do 11 with pricing. And, indeed, there was an 12 equitable action. 13 So these are all things showing, Your 14 Honor, that Microsoft is talking out of both 15 sides of its mouth. 16 They simply are saying before that the 17 government action is different and there's a 18 lot of issues that the Plaintiffs are going to 19 have to prove. 20 The issues in the cases are different. 21 And yet now we have Mr. Tulchin coming in here 22 today and Microsoft coming in on these 23 nonmeritorious collateral estoppel objections 24 saying that the issues are the same when they 25 are not. They are just not, Your Honor. 12307 1 Your Honor, I'm going to sum up by 2 saying that there's no basis in law for the 3 relief that Microsoft seeks. 4 Furthermore, it's clear that the 5 evidence which Plaintiffs intend to introduce 6 through Mr. McGeady concern other issues. 7 We shouldn't be required to disclose 8 everything that Mr. McGeady is going to testify 9 about just so Microsoft can preview his 10 testimony. 11 The law doesn't permit what Microsoft 12 is seeking. The evidence goes to different 13 issues. And Microsoft's motion should be 14 denied. 15 And in closing, I just want to again 16 -- I don't know if the Court still has it at 17 its disposeal, the demonstrative which I handed 18 up for Mr. Kempin about the distinction about 19 how the findings of fact and how evidence can 20 be used. I could provide another one to the 21 Court. 22 THE COURT: Did I have that? 23 MR. CASHMAN: Yeah. I'll hand another 24 copy. 25 THE COURT: Oh, okay. I remember 12308 1 seeing this; right? 2 MR. CASHMAN: Yeah. 3 THE COURT: This was on the Kempin 4 thing; right? 5 MR. CASHMAN: Right. 6 THE COURT: Okay. Oh, yeah. 7 Thank you. 8 MR. CASHMAN: This, Your Honor, I 9 think, illustrates the proper way that matters 10 should be handled as it relates to McGeady or 11 anybody where these collateral estoppel 12 objections are asserted. 13 At the top here would be the 14 equivalent of the evidence that supports a 15 specific Department of Justice finding. 16 And collateral estoppel or a 17 cumulative objection or something would 18 arguably apply to prevent the same thing from 19 being done over again. 20 But that's not what we're talking 21 about here. It's not what Plaintiffs are 22 talking about. 23 We've got all these different issues, 24 some of which I have identified along the 25 bottom of this chart. And as indicated there, 12309 1 it is appropriate for Plaintiffs, particularly 2 since they were not parties to the prior 3 action, to use the finding -- evidence from the 4 Department of Justice case or evidence from 5 other sources to establish the new different 6 claims in this lawsuit. 7 So, for all the reasons, Your Honor, 8 that have been explained in our papers and as 9 discussed here, Plaintiffs request that 10 Microsoft's motion be overruled. 11 THE COURT: Very well. 12 MR. TULCHIN: Three quick points, Your 13 Honor. 14 First, the lawyer for Plaintiffs does 15 not deny in any way that what they intend to do 16 is exactly what they said in their brief, offer 17 from McGeady the same testimony that he gave in 18 Washington, D.C., before Judge Jackson. 19 Secondly, every one of these arguments 20 on the law was made by this lawyer and his 21 partner Mr. Hagstrom on December 7th and 22 rejected by this Court. 23 The Court ruled to the contrary on the 24 legal arguments that collateral estoppel is a 25 one-way street and entered the ruling that 12310 1 we've been discussing which said over 2 Mr. Cashman's intense opposition that the 3 underlying evidence for particular findings 4 cannot be used to support that finding again. 5 And, thirdly, on the law, and most 6 fundamentally, Mr. Cashman's arguments -- I 7 mean, it's amazing to me because we've been 8 going through this for months, in fact, really 9 for a year since the Supreme Court's decision. 10 The arguments made by counsel today do 11 not distinguish between two very, very 12 different legal points. 13 There is this inability to make the 14 fundamental distinction between the standards 15 for application of collateral estoppel in the 16 first place and the very different question of 17 this. Once collateral estoppel has been 18 granted and a finding has been subject to 19 collateral estoppel, there is preclusion. 20 What are the consequences in that 21 lawsuit for the two parties? The party that 22 asks for collateral estoppel and the party that 23 resisted it. 24 This fundamental distinction, it's 25 just incredible to me, is for example what's 12311 1 going on in the Beall case, B-e-a-l-l, against 2 Kearny and Trecker. 3 This is a case that counsel who has 4 been arguing these issues for months has never 5 given to anyone before. And I see why. A 6 quick glance shows why. 7 This pertains to the question of 8 whether collateral estoppel would be applied in 9 the first instance. 10 In that case, Beall was not a party to 11 the prior litigation. Apparently his employer 12 was. But because he wasn't a party, collateral 13 estoppel could not be applied against him in 14 case two because he wasn't a party to case one. 15 The Bradburn case is even further 16 afield. In our reply brief, Your Honor, at 17 pages 11 to 12, we set forth the exchange that 18 the Court had with this same lawyer for 19 Plaintiffs on December 6th. It's in the 20 transcript at 3317 to 3318 on the Bradburn 21 case. 22 Mr. Cashman handed up the Bradburn 23 case then. The Court pointed out, as we say on 24 page 12 of our reply, that the case says 25 nothing about whether the same evidence from a 12312 1 witness can be submitted again. 2 And this failure to make this 3 fundamental distinction between should a 4 collateral estoppel be applied in the first 5 place, what are the standards for application, 6 as I said a few moments ago -- actually, it was 7 a long, long time ago in my opening argument on 8 this motion today, as I said, of course, it's 9 one-directional when the first question is 10 before the Court should collateral estoppel be 11 applied. 12 We cannot then ask the Court to estop 13 Plaintiffs about findings in a case that they 14 weren't a party to. But there is this clear 15 distinction. 16 Once a decision is made to apply 17 collateral estoppel, then the consequences are 18 black letter law, the consequences are that 19 both parties are precluded from introducing 20 evidence about the same facts. Otherwise, 21 there's no point to collateral estoppel in the 22 first place. 23 And that was the Court's exchange with 24 Mr. Hagstrom. 25 All the reasons for collateral 12313 1 estoppel, for efficiency reasons, are out the 2 window if Mr. Hagstrom's answers to the Court's 3 questions in December had been yes. Yes, we 4 want McGeady to testify to the same facts that 5 Judge Jackson heard him testify to. 6 But Mr. Hagstrom said no. A clear no, 7 as set forth in our papers. 8 And this lawyer today fails to 9 understand this distinction so makes all his 10 argument on the law about the initial question 11 of the standards for applying collateral 12 estoppel. We're past that. We lost that issue 13 on these findings. And once the findings are 14 entered, both sides are precluded. 15 Thank you, Your Honor. 16 THE COURT: Thank you. 17 MR. CASHMAN: Your Honor, I'm going to 18 try to make this quick. 19 Mr. Tulchin engages in sophistry, Your 20 Honor. 21 Plaintiffs have never said that we are 22 going to use the same testimony to do the same 23 thing that was done in the government action. 24 Quite the contrary. We have said over 25 and over and over again that we are proving 12314 1 different issues. 2 Microsoft says we have to prove 3 different issues. And the evidence, through 4 Mr. McGeady and others, if it goes to those 5 other issues is clearly admissible. 6 So Mr. Tulchin is wrong in his 7 contention that it's going to be the same 8 testimony for the same purpose. 9 I don't think it could be any clearer 10 to the Court that the evidence is different for 11 different purposes. That's why the Court 12 overruled in toto the objections that Microsoft 13 asserted to Mr. Gates, both his testimony and 14 his exhibits, and why all these collateral 15 estoppel objections are without merit. 16 Now, moving to the second point that 17 Mr. Tulchin made -- again, a slight of hand by 18 Microsoft. 19 Because the order of the Court on 20 December 7th is exactly what the Plaintiffs 21 have been arguing all along. 22 And the Plaintiffs believe that the 23 Court was right and that the Court did what the 24 law provided and what the Plaintiffs have been 25 arguing, which is no bolstering. 12315 1 If an item is solely to prove a 2 finding from the government case, that would be 3 one issue. But that's not what we're talking 4 about here. 5 So Plaintiffs believe that the ruling 6 of the Court on December 7th was absolutely 7 correct. 8 Then Mr. Tulchin goes on at length 9 about the supposed distinction between 10 application of collateral estoppel and then 11 what the consequences are for collateral 12 estoppel. 13 Again, slight of hand, Your Honor, 14 slight of hand. 15 Because an objection is a request that 16 you apply collateral estoppel. That's what an 17 objection based on collateral estoppel is. 18 That's saying, Your Honor, apply collateral 19 estoppel. 20 A motion based on collateral estoppel 21 is a request that you apply collateral 22 estoppel. 23 So Mr. Tulchin is just plain engaging 24 in sophistry when he suggests that there is a 25 distinction between applying collateral 12316 1 estoppel and what happens after collateral 2 estoppel is granted. 3 He fails to acknowledge that the law 4 does not provide under any circumstances for 5 application of collateral estoppel to a 6 nonparty to the prior suit. 7 Then Mr. Tulchin launches into a 8 diatribe, Your Honor, about the alleged effect 9 of collateral estoppel after it's been adopted. 10 Well, Your Honor, Mr. Tulchin is 11 incorrect in several instances there, but, most 12 importantly, Microsoft as Plaintiffs have 13 pointed out, has failed to identify a single 14 applicable case. 15 The Grant case, which is the hook on 16 which Microsoft hangs its hat is about the 17 application of collateral estoppel when you 18 have the parties that are the same in the 19 underlying -- in the first lawsuit as they are 20 in the second lawsuit. 21 That is about as far away from the 22 situation that we're talking about here where 23 Microsoft is asking you to preclude clearly 24 relevant evidence on issues that are unique to 25 this case that were not at all involved in the 12317 1 government action. 2 So Mr. Tulchin is wrong. The black 3 letter law supports the Plaintiffs. Doesn't 4 have anything to do with what Microsoft claims. 5 And as far as the colloquy that we had 6 with the Court, this is exactly what the 7 Plaintiffs and what the Court understood with 8 the December 7th ruling; that if it goes solely 9 to bolstering, the Plaintiffs are not putting 10 on that kind of evidence because we have no 11 interest in reproving what was already 12 litigated in the government action. 13 So, for all those reasons, Your Honor, 14 Microsoft's motion should be overruled. 15 THE COURT: Mr. Tulchin, since it's 16 your motion, you do have the last word. 17 MR. TULCHIN: Your Honor, I think the 18 Court has heard sufficient argument on this 19 issue. 20 I thank you for your patience. 21 THE COURT: Very well. 22 MR. CASHMAN: Thank you, Your Honor. 23 THE COURT: Thank you, gentlemen. See 24 you tomorrow at 8:30. 25 (Proceedings adjourned at 4:42 p.m.) 12318 1 CERTIFICATE TO TRANSCRIPT 2 The undersigned, Official Court 3 Reporters in and for the Fifth Judicial 4 District of Iowa, which embraces the County of 5 Polk, hereby certifies: 6 That she acted as such reporter in the 7 above-entitled cause in the District Court of 8 Iowa, for Polk County, before the Judge stated 9 in the title page attached to this transcript, 10 and took down in shorthand the proceedings had 11 at said time and place. 12 That the foregoing pages of typed 13 written matter is a full, true and complete 14 transcript of said shorthand notes so taken by 15 her in said cause, and that said transcript 16 contains all of the proceedings had at the 17 times therein shown. 18 Dated at Des Moines, Iowa, this 5th 19 day of February, 2007. 20 21 22 ______________________________ Certified Shorthand Reporter(s) 23 24 25