1 IN THE UNITED STATES DISTRICT COURT
2 FOR THE DISTRICT OF COLUMBIA
3
4
5 UNITED STATES OF AMERICA, )
)
6 Plaintiff, )
)
7 vs. ) No. CIV 98-1232(TPJ)
)
8 MICROSOFT CORPORATION, )
) CONFIDENTIAL
9 Defendant. )
)
10 _________________________________ )
11
12
13 DEPOSITION OF BILL GATES, a witness
14 herein, taken on behalf of the plaintiffs at
15 9:09 a.m., Thursday, August 27, 1998, at One
16 Microsoft Way, Redmond, Washington, before Kathleen
17 E. Barney, CSR, pursuant to Subpoena.
18
19
20
21
REPORTED BY:
22 Kathleen E. Barney,
CSR No. 5698
23
Katherine Gale
24 CSR No. 9793
25 Our File No. 1-49005
1 APPEARANCES OF COUNSEL:
2 FOR THE UNITED STATES OF AMERICA:
3 UNITED STATES DEPARTMENT OF JUSTICE
BY PHILLIP R. MALONE
4 KARMA M. GIULIANELLI
450 Golden Gate Avenue
5 Box 36046
San Francisco, California 94102
6 (415) 436-6660
7 BOIES & SCHILLER LLP
BY DAVID BOIES
8 80 Business Park Drive
Armonk, New York 10504-1710
9 (914) 273-9800
10 FOR MICROSOFT CORPORATION:
11 MICROSOFT CORPORATION
LAW AND CORPORATE AFFAIRS
12 BY DAVID A. HEINER
WILLIAM H. NEUKOM
13 One Microsoft Way
Redmond, Washington 98052
14 (425) 936-3103
15 SULLIVAN & CROMWELL
BY RICHARD J. UROWSKY
16 125 Broad Street
New York, New York 10004
17 (212) 558-3546
18 FOR THE PLAINTIFF STATES:
19
STATE OF NEW YORK
20 OFFICE OF ATTORNEY GENERAL
BY STEPHEN D. HOUCK
21 GAIL P. CLEARY
RICHARD GRIMM
22 120 Broadway
New York, New York 10271-0332
23 (212) 416-8275
24 ALSO PRESENT: PRISCILLA ALVAREZ, Paralegal
MICHEL CARTER, Video Operator
25
BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 I N D E X
2 WITNESS EXAMINATION BY PAGE
3 Bill Gates Mr. Houck 5
4 Mr. Boies
5
GOVERNMENT
6 EXHIBITS:
7 337 E-mail dated 5/22/96 23
8 338 "Microsoft OEM Sales" 30
9 339 E-mail dated 10/25/94 36
10 340 E-mail dated 3/27/97 45
11 341 E-mail dated 4/6/95 51
12 342 E-mail dated 4/24/95 57
13 343 E-mail dated 1/31/95 70
14 344 Series of e-mails, first one 75
dated 4/12/95
15 345 "The Internet Tidal Wave" 77
16 346 Series of e-mails, first one 85
17 dated 5/3/95
18 347 "Financial Analysts Day 86
Executive Q & A"
19
348 Series of e-mails, first one 88
20 dated 1/8/97
21 349 Series of e-mails, first one 93
dated 7/14/97
22
350 Series of e-mails, first one 94
23 dated 6/12/97
24
25
BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1
2 351 E-mail dated 6/23/95 96
3 352 E-mail dated 7/28/96 114
4 353 E-mail dated 12/1/96 114
5 354 E-mail dated 5/19/96 121
6 355 Financial Times Article 130
7 356 "Netscape: Sitting Pretty 138
or Sitting Duck?"
8
357 PC Magazine Online Article 142
9
358 E-mail dated 1/5/96 143
10
359 PC Value Analysis 146
11
360 E-mail dated 12/16/97 146
12
361 E-mail dated 9/8/97 147
13
362 E-mail dated 4/25/97 149
14
363 E-mail dated 5/15/98 152
15
364 The Financial Times Comment 172
16 and Analysis
17
18
19
20
21
22
23
24
25
BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 BILL GATES,
2 a witness herein, having been duly sworn, was deposed
3 and testified as follows:
4
5 MR. HOUCK: Mr. Heiner, I understand
6 you want to make a statement?
7 MR. HEINER: Very briefly. This
8 deposition is being taken, of course, pursuant to the
9 protective order in the case and we will exercise our
10 rights under that to have this transcript treated
11 confidentially.
12 MR. HOUCK: Okay.
13 MR. HEINER: We'll make the appropriate
14 designations in accordance with the schedule set out
15 in the protective order.
16
17 EXAMINATION
18 BY MR. HOUCK:
19 Q. Mr. Gates, as I've indicated, my name
20 is Steve Houck, I represent the plaintiff states.
21 I'll be examining you first and I suspect that
22 Mr. Boise on behalf of the U.S. Government will have
23 some questions for you. I understand from your
24 lawyers you don't want to be here any longer than
25 necessary. I will do my best to accommodate that.
5 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 If I move too quickly, let me know and I'll slow
2 down.
3 I'll be showing you some documents
4 during the course of the deposition and I may point
5 out to you, to speed up the process, portions of the
6 document that pertain to the questions I have, but
7 feel free if you want to take more time to read the
8 entire document to get it in context.
9 Also, if you don't understand any of my
10 questions, if they are unclear in any way, let me
11 know and I'll try to make them a little more clear.
12 I understand that you are one of the
13 co-founders of Microsoft; is that correct?
14 A. Yes.
15 Q. When was the company founded?
16 A. 1975.
17 Q. What positions have you held with
18 Microsoft since then?
19 A. Partner, chairman, CEO.
20 Q. What is your present title?
21 A. Chairman and CEO.
22 Q. Have you been deposed before, sir?
23 A. Yes.
24 Q. In other litigations?
25 A. I'm sorry?
6 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. In other litigations? You've been
2 deposed in other litigated matters where Microsoft
3 was a defendant; is that correct?
4 A. I've been deposed in cases where
5 Microsoft wasn't a defendant and in cases where it
6 was the defendant.
7 Q. So you understand the deposition
8 process and how it works? Any questions before we
9 proceed into the substance about the procedures?
10 A. I'm not sure what you mean.
11 Q. Well, are you comfortable with the
12 procedures here? Do you have any questions before we
13 proceed about how this deposition works? You have
14 the right to speak to counsel if you'd like. As I
15 indicated, if you have any clarifications with
16 respect to any of my questions, please ask me, but I
17 assume you understand the general process since
18 you've been deposed before.
19 With whom have you spoken in
20 preparation for the deposition today? Anyone other
21 than your counsel?
22 A. No.
23 Q. I assume you've reviewed written
24 materials in connection with your preparation for the
25 deposition today; is that correct?
7 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. I was shown some written documents.
2 Q. Did you review in that connection any
3 documents that were prepared especially to prepare
4 you for this deposition as opposed to documents that
5 were generated in the normal course of Microsoft's
6 business?
7 A. No.
8 Q. Do you keep any work-related files at
9 home as opposed to the office?
10 A. In general?
11 Q. Yes.
12 A. I don't have a filing system at home.
13 I sometimes take paper home, but I don't keep paper
14 there.
15 Q. Do you use a computer at home?
16 A. Yes, I do.
17 Q. Do you use that on work-related
18 matters?
19 A. Some of the computers I do and some of
20 the computers I don't.
21 Q. Do you know whether those computers
22 were searched in connection with a document search in
23 this litigation?
24 A. Those computers don't have storage.
25 Q. But you don't know whether the hard
8 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 disk was searched for any material that might be
2 there that --
3 A. You should understand it's a portable
4 computer, it moves back and forth. That's the
5 computer with my e-mail, it moves back and forth. So
6 it's the same computer in my office as at home.
7 Q. I see, okay. And I assume the computer
8 in your office was searched for relevant e-mails; is
9 that your understanding?
10 A. Yes.
11 Q. I gather from time to time you give
12 interviews to the press; is that right?
13 A. Yes.
14 Q. During those interviews, does anybody
15 from Microsoft or Microsoft's PR firm take notes or
16 record remarks that you make to the press?
17 A. Sometimes they do. Most times they
18 don't.
19 Q. Who would be responsible for doing that
20 at Microsoft when that's done?
21 A. Well, if there is nobody in the
22 meeting, then no one. If there's -- usually it would
23 have to be somebody that was actually present.
24 Q. Correct. Is there somebody in the
25 Microsoft PR department that is responsible for
9 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 making notes or recordings of interviews you give to
2 the press?
3 A. I said if there is someone in the
4 meeting, then they can choose to do so.
5 Q. I understand that.
6 A. There is no particular person who comes
7 to those meetings. Sometimes there is no one in
8 those meetings and sometimes there is someone in the
9 meeting.
10 Q. When there is somebody there, who
11 undertakes to take notes or make recordings of your
12 remarks?
13 A. The person who is there.
14 Q. And who has that been in the past? Can
15 you identify any specific people who would have done
16 that?
17 A. Well, I wouldn't know all their names.
18 Sometimes Mitch Matthews might be in interviews.
19 Sometimes -- Katie Erling was in when I talked to an
20 analyst once. Marianne Allison, not in the last few
21 years. Melissa Wagner maybe 15 years ago. Pam
22 Edstrom. Dean Katz. Collins Hemingsway.
23 I don't remember everyone who ever sat
24 in an interview with me.
25 Q. Okay. Have you had any communications
10 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 with anyone from a company outside Microsoft with
2 respect to whether or not somebody from that company
3 might testify at the trial of this matter?
4 A. No.
5 Q. Sir, are you familiar with the
6 Microsoft Press computer dictionary?
7 A. No.
8 Q. You've never cracked it open before?
9 A. No.
10 Q. Well, I'll introduce you to it. I have
11 here the Microsoft Press computer dictionary. It's
12 the third edition dated 1997. It says -- it claims
13 to be the authoritative source of definitions for
14 computer terms, concepts and acronyms from the
15 world's most respected computer software company.
16 I'll give you a softball question.
17 Would you agree that Microsoft is the
18 world's most respected computer software company?
19 A. Some people would agree with that, some
20 people wouldn't.
21 Q. What's your opinion?
22 A. I think we are the most -- if you took
23 it on a statistical basis, yes, we'd be the most
24 respected software company.
25 Q. This computer dictionary defines
11 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 operating system as follows: "The software that
2 controls the allocation and usage of hardware
3 resources such as memory, central processing unit,
4 time, disk space and peripheral devices."
5 Is that an accurate definition of an
6 operating system?
7 A. Well, the notion of what's in an
8 operating system has changed quite a bit over time.
9 So that definition is not really complete in terms of
10 how people think of operating systems in the last
11 decade or so.
12 Q. So this definition in the 1997
13 dictionary is incomplete in your estimation?
14 A. What I said is that over time the
15 number of things that are in operating systems has
16 increased and so if you want to look at operating
17 systems in the last decade, you'd say the definition
18 is incomplete.
19 Q. Is it accurate?
20 Let me read it to you once again.
21 "The software that controls the allegation and usage
22 of hardware resources such as memory, central
23 processing unit, time, disk space and peripheral
24 devices."
25 A. I said in terms of operating systems in
12 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 the last decade, it's an incomplete definition.
2 Q. In what respects is it incomplete?
3 A. There are aspects of the operating
4 systems in the last decade that aren't included in
5 that definition.
6 Q. And what aspects?
7 A. Do you want -- I mean it's a long
8 answer to that question. Shall we go through them
9 all?
10 Q. Sure, go ahead.
11 A. Okay. Well, typically the way people
12 interact with computers now is on a graphical basis
13 and so the constructs that relate, for example, to
14 fonts are now, in the last ten years, a typical part
15 of the operating system.
16 For example, the idea of how you take a
17 font and render it at different sizes, whether you
18 have descenders, how you deal with ligatures, how you
19 deal with, say, Arabic ellision, how you deal with
20 Kanji characters or Hangul characters. And so there
21 is a font rasterizer and a set of font resources and
22 a set of font substitution algorithms that are
23 included in the computer. So that when people write
24 applications that run on top of that computer, they
25 can call on those resources in order to render the
13 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 glyphs on the computer screen. And there is a lot of
2 utility software that relates to the management of
3 those fonts.
4 Q. Is that the end of your answer?
5 A. No. No. Another thing that is typical
6 in operating systems for the last decade is a set of
7 utilities for managing the disk space that's on the
8 computer dealing with backup, dealing with being out
9 of memory, dealing with security aspects of managing
10 the disk there. And so the various utility programs
11 help you make sure the disk is being used for the
12 most recent information, to help you archive that
13 information in a variety of ways. So that's
14 something that has been in operating systems over the
15 last decade.
16 Also operating systems have a shell
17 type function that is a way of interacting with the
18 user to navigate through the informational resources.
19 Actually, that's more than a decade that that's been
20 a typical inclusion in the operating system.
21 Do you want me to keep going on?
22 Q. Yeah, finish your answer and I'll ask
23 you another question. Let me know when you're done.
24 A. There's enough things here that I doubt
25 I'll be able to hit them all, but I'll hit another
14 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 set of them.
2 It's typical in terms of interacting
3 with the user to have some sort of facility for
4 helping the user. That is, if the user is confused
5 about the commands, which utility to use and what to
6 do. It's typical now to have something where they
7 can give some sort of ask for help and help will come
8 up onto the computer screen and be displayed in order
9 to let them interact.
10 It's also typical now not just to
11 map the low-level hardware but also to have very
12 high-level graphics support that's even independent
13 of what's in the hardware that's there. It's typical
14 to have remote booting capabilities so you can get
15 the operating system that can come across the
16 network. It's typical to have things that relate to
17 viruses that you find in computer systems.
18 Let's see. It's also typical to have
19 as well what you think of as disk management
20 utilities, some application type programs that let
21 you go in and show off some of the strengths of that
22 operating system, what's actually available with that
23 system. So, for example, if you take a Macintosh,
24 when you get it, it has a variety of little things
25 that you can play around with.
15 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 It's also typical to have a thing like
2 a control panel, I don't know if you've used that on
3 the Macintosh, but it lets you go in do things like
4 set the sound settings and set the keyboard settings,
5 the keyboard repeat factor. It's -- because of the
6 way operating systems now handle languages, there are
7 a lot of things that have to do with configuring the
8 system in that respect.
9 In the whole area of networking there's
10 more and more that's being included in operating
11 systems to let people get out and do things,
12 including often the ability to create electronic
13 mail, receive electronic mail, deal with the system
14 in that fashion.
15 Q. Is it your testimony that the control
16 panel is part of the operating system?
17 MR. HEINER: Objection. What operating
18 system are we talking about?
19 MR. HOUCK: Macintosh operating system.
20 MR. HEINER: Okay.
21 THE WITNESS: Well, they have a control
22 panel that is part of the Macintosh OS, yes.
23 Q. BY MR. HOUCK: Is that part of any OS
24 marketed by Microsoft?
25 A. No. The Macintosh control panel is
16 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 actually unique to the Macintosh operating system.
2 It only appears in the Macintosh operating system.
3 Q. During the course of your answer, you
4 used the word "application" several times, and let me
5 see if you agree with the definition in the Microsoft
6 dictionary of that term.
7 Application is there defined as:
8 "A program designed to assist in the performance of a
9 specific task, such as word processing, accounting or
10 inventory management."
11 Is that an accurate definition,
12 Mr. Gates?
13 A. Could you read it again?
14 Q. Sure. "A program designed to assist in
15 the performance of a specific task, such as word
16 processing, accounting or inventory management."
17 A. I'd say it's a pretty vague definition.
18 Q. Is it accurate, as far as it goes?
19 A. I'd say it's vague but accurate.
20 Q. Another term I'm sure we're going to be
21 using throughout the course of the deposition is Web
22 browser. And let me read you the definition from
23 your company's dictionary and see if you think that's
24 accurate.
25 Web browser is defined by the Microsoft
17 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 computer dictionary as follows: "A client
2 application that enables a user to view HTML
3 documents on the World Wide Web, another network for
4 the user's computer, follow the hyperlinks among them
5 and transfer files."
6 Is that accurate?
7 A. It's actually describing browsing
8 functionality.
9 Q. Is it an accurate definition of
10 browsing functionality?
11 A. It describes part of what you do when
12 you browse.
13 Q. What is your definition of a Web
14 browser?
15 A. I'd say browsing technology is what
16 lets you navigate through -- typically it means
17 something that lets you do HTML display and
18 navigation.
19 Q. Is that what you mean when you use the
20 term Web browser?
21 A. Well, software that lets you do Web
22 browsing is sometimes referred to as a Web browser.
23 Q. And Microsoft has marketed a Web
24 browser under the trade name Internet Explorer; is
25 that correct?
18 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. We've used the term Internet Explorer
2 to refer to the Internet technologies in Windows as
3 well as some stand-alone products we've done.
4 Q. Let me see if you agree with this
5 definition in the 1997 edition of Microsoft's
6 computer dictionary. The definition is of the term
7 Internet Explorer.
8 Internet Explorer is defined as
9 follows: "Microsoft's Web browser introduced in
10 October, 1995."
11 Is that an accurate definition of
12 Internet Explorer?
13 A. I'm not sure why they say October. I
14 don't think that's right.
15 Q. When is your recollection that it was
16 introduced?
17 A. Well, we shipped Windows 95, including
18 browsing functionality, in August, 1995.
19 Q. Was IE shipped as a stand-alone product
20 in or about October, 1995?
21 A. No.
22 Q. Was it ever shipped as a stand-alone
23 product?
24 A. Well, it depends on what you are
25 referring to. If you are talking about Unix or the
19 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Macintosh, we did create a set of bits that stood by
2 themselves and could be installed on top of those
3 operating systems.
4 Q. When were those versions of IE first
5 marketed?
6 A. Certainly not in October, 1995.
7 Q. Apart from the timing issue, would you
8 agree that Internet Explorer is defined here
9 correctly as Microsoft's Web browser?
10 A. Did you actually read what was in
11 there?
12 Q. Yeah, I read the first sentence. I can
13 read you the whole thing if you'd like.
14 A. Well, it seems strange. If you're
15 trying to use the dictionary, you might as well read
16 what it says. You could show it to me.
17 Q. I'll read it to you and I'll show it to
18 you and you tell me if you think there is anything in
19 here that is inaccurate.
20 The full entry of Internet Explorer
21 reads as follows: "Microsoft's Web browser
22 introduced in October, 1995. Internet Explorer is
23 now available in Windows and Macintosh versions.
24 Later versions provide the ability to incorporate
25 advanced design and animation features in the Web
20 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 pages and recognize ActiveX controls and Java
2 applets."
3 Take a look at it and tell me if there
4 is anything else in there that you think is
5 inaccurate?
6 A. Well, certainly the product we shipped
7 that was before October, 1995 was Windows 95. The
8 browsing functionality we had in it we've updated
9 quite a bit several times. And so defining Internet
10 Explorer to be what we shipped just on one particular
11 date can't be considered accurate. You have to say
12 that many times we've taken the browsing
13 functionality in Windows, which we refer to as
14 Internet Explorer, and we've updated that
15 functionality. So you can't really pin the
16 definition to a particular date. It's really a brand
17 name we use for those technologies.
18 Q. Was this definition accurate in 1997
19 when Microsoft's computer dictionary was sold to the
20 public?
21 A. I already told you that reference to
22 October, 1995 certainly makes the definition
23 inaccurate.
24 Q. Apart from that, is it accurate?
25 A. It's not accurate to say that Internet
21 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Explorer is defined at a single point in time, that
2 it's one set of bits because it's a brand that we
3 have used for a set of technologies that have evolved
4 over time. And in that sense I would take exception
5 to the way that the book, that I've never seen there,
6 happened to define it.
7 Q. You've described the Web browser as a
8 killer application, haven't you?
9 A. I'm not sure what you're talking about.
10 You'd have to show me the context.
11 Q. Okay.
12 MR. HOUCK: I'd like to mark as
13 Government Exhibit 1 a memorandum from Mr. Bill Gates
14 to the executive staff dated May 22, 1996.
15 MR. HEINER: We'd like three copies,
16 Mr. Houck.
17 MR. HOUCK: Unfortunately, I have one
18 for the witness. This is yours, Mr. Gates. You can
19 use the original marked by the court reporter and
20 we'll hand out a keepsake for counsel. We have just
21 one, unfortunately.
22 MR. HEINER: You were not expecting
23 more than one of us on this side of the table?
24 MR. HOUCK: I expected to have one
25 lawyer to be the principal representative of
22 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Mr. Gates and if you feel incapable of that, maybe at
2 the break we can make other copies.
3 MR. HEINER: We're capable of having
4 one, but we'd like to have our side have --
5 MR. HOUCK: In the past I've been at
6 depositions where several DOJ and state
7 representatives have appeared and we've received just
8 one ourselves from Microsoft, so I extended you the
9 same courtesy, sir.
10 MR. HEINER: Okay.
11 (The document referred to was marked
12 by the court reporter as Government Exhibit 337 for
13 identification and is attached hereto.)
14 Q. BY MR. HOUCK: I'd like you to look at
15 Exhibit 1, Mr. Gates, right here in front of you.
16 This is a memorandum that purports to be from you to
17 your executive staff dated May 22, 1996, and it
18 attaches, for want of a better word, an essay
19 entitled "The Internet PC" dated April 10, 1996.
20 Do you recall writing that essay?
21 A. It looks like this is an e-mail, not a
22 memorandum.
23 Q. Do you recall writing the essay dated
24 April 10, 1996 entitled "The Internet PC"?
25 A. Well, it looks like an essay I wrote.
23 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 I don't remember specifically, but it does look like
2 something I wrote.
3 Q. The portion I refer you to is at the
4 bottom of the first page under the heading called
5 "The Latest Killer App." Do you see that?
6 A. I see a heading.
7 Q. First paragraph under that heading
8 reads as follows: "Our industry is always looking
9 for the next 'killer application'-- for a category of
10 software that, by its utility and intelligent design,
11 becomes indispensable to millions of people. Word
12 processors and spreadsheets were the killer
13 applications for business PCs starting in 1981."
14 And the next sentence reads, "The
15 latest confirmed 'killer app' is the web browser."
16 Do you recall writing that, sir?
17 A. No.
18 Q. Do you have any reason to believe you
19 didn't write it?
20 A. No.
21 Q. Can you explain what you meant here by
22 describing the Web browser as a "killer app"?
23 A. I just meant that browsing would be, in
24 our view, a popular thing, not necessarily on the Web
25 but just browsing in general would be a popular
24 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 activity.
2 Q. Is a killer application an application
3 that drives sales of other products like operating
4 systems and hardware?
5 A. No.
6 Q. Do you have a definition in your own
7 mind of killer application?
8 A. It means a popular application.
9 Q. Let me resort again to the Microsoft
10 computer dictionary, and I'll read you what that says
11 about killer applications. You may disagree with it,
12 and if so, you can tell me.
13 The Microsoft computer dictionary, 1997
14 edition, defines killer app as follows, and it gives
15 two definitions. And I'll be very complete this
16 time, Mr. Gates.
17 The first definition is, "An
18 application of such popularity and widespread
19 standardization that fuels sales of the hardware
20 platform or operating system for which it was
21 written."
22 Do you agree with that definition?
23 A. Are you saying to me that there is more
24 in there and you're just reading me part of it?
25 Q. I'm going to read you the second
25 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 definition as well.
2 A. So you're asking me about it without
3 reading me the whole thing?
4 Q. No, sir. There's two definitions.
5 You're familiar with dictionaries, I take it?
6 Sometimes they have more than one definition of a
7 term; correct?
8 A. Sometimes terms have more than one
9 meaning, so it's appropriate that dictionaries would
10 give the two different meanings. And generally
11 before you'd ask somebody if they agreed with the
12 dictionary, you'd actually give them the benefit of
13 reading them what is in the dictionary, not just a
14 part of it.
15 MR. BOISE: Move to strike the answer
16 as nonresponsive.
17 Q. BY MR. HOUCK: I read you the first
18 definition and asked you if you agreed with that
19 definition.
20 A. I don't think it's the only definition.
21 Q. Is that an accurate definition?
22 A. I'd like to hear what the other --
23 Q. I'll read it to you. The second
24 definition is, "An application that supplants its
25 competition."
26 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Let me go back and read you the first
2 definition again, now that you've heard both of them.
3 The first definition reads as follows:
4 "An application of such popularity and widespread
5 standardization that fuels sales of the hardware
6 platform or operating system for which it was
7 written."
8 A. I already told you that my definition
9 of killer app is a very popular application.
10 Q. Is this definition accurate?
11 A. I told you, when I use the term "killer
12 application," in particular when I use it in a piece
13 of e-mail, what I mean by it -- I'm sure there's
14 people --
15 Q. I understand. You've told me that, but
16 there's another question on the table. Do you have
17 any disagreement with this definition?
18 A. I think most people when they use the
19 word "killer app" are not necessarily tying it to any
20 relationship to hardware.
21 Q. What about a relationship to an
22 operating system?
23 A. Usually they're just talking about it
24 being a very popular application. I certainly know
25 of things that have been referred to as killer
27 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 applications that haven't driven hardware sales or
2 operating system sales.
3 Q. What other applications would you
4 identify as being killer applications?
5 A. Applied simulator.
6 Q. Any others?
7 A. Well, you always have to take a year
8 and a context for those things. For example, when
9 desktop publishing software became popular in the
10 1980's, many people referred to it that way. When
11 people are talking about interactive TV, they thought
12 video on demand would be a killer application. And
13 something went wrong because, you know, the whole
14 thing never caught on. But people had been using
15 that term, the idea of letting people watch movies,
16 as something that would be extremely popular.
17 Q. In what time frame was the Web browser
18 a killer application?
19 A. Well, I think Web browsers became very
20 popular between, oh, '95 and '97 they became very
21 popular.
22 Q. So at that point in time the Web
23 browser was, in your definition, a killer
24 application?
25 A. They were very popular, yeah.
28 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 MS. CLEARY: If I could interrupt for a
2 minute, I'd just like to keep the record straight.
3 We need to renumber Exhibit 1 as Exhibit 337.
4 Q. BY MR. HOUCK: Microsoft currently
5 markets operating systems for personal computers;
6 correct?
7 A. Yes.
8 Q. What's the current version called?
9 MR. HEINER: Objection.
10 Q. BY MR. HOUCK: What operating systems
11 for personal computers does Microsoft currently have
12 on the marketplace?
13 A. Well, we have MS DOS. We've got
14 Windows CE that's got a lot of different versions.
15 We've got Windows 3x, Windows 95, Windows 98,
16 Windows NT Version 3, Windows NT Version 4.
17 Q. Are all those operating systems
18 currently being marketed by Microsoft?
19 A. Yes.
20 Q. Does Microsoft endeavor to track its
21 market share with respect to operating systems on
22 personal computers?
23 A. There's not some unified effort to do
24 that.
25 Q. Is there anybody in Microsoft
29 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 responsible for trying to determine what Microsoft's
2 market share is with respect to PC operating systems?
3 A. No.
4 Q. Have you seen any figures indicating
5 what Microsoft's market share is with respect to
6 operating systems on personal computers?
7 A. From time to time people doing
8 marketing analysis may pull together some figures
9 like that. And depending on, you know, what the
10 context is, they will be different numbers.
11 Q. Do you have any -- strike that.
12 MR. HOUCK: I'd like to mark as
13 Exhibit 338 a Fiscal Year 1996 Midyear Review dated
14 January 22, 1996.
15 (The document referred to was marked
16 by the court reporter as Government Exhibit 338 for
17 identification and is attached hereto.)
18 Q. BY MR. HOUCK: Is Exhibit 338 the type
19 of document you referred to that contains market
20 share information?
21 A. I don't know anything about 338.
22 Q. Have you ever seen it before?
23 A. No.
24 Q. Do you know what position Joachim
25 Kempin held in January, 1996?
30 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. Yes.
2 Q. What was his position at that time?
3 A. He is in charge of our relationships
4 with hardware manufacturers.
5 Q. Do you have any understanding that in
6 connection with that position he endeavored to
7 determine what Microsoft's market share was with
8 respect to operating systems sold to hardware
9 manufacturers?
10 A. I'm sorry, say that again.
11 Q. Do you have any understanding that one
12 of Mr. Kempin's job responsibilities in that
13 connection in 1996 was to try to determine what
14 Microsoft's market share was with respect to
15 operating systems sold to hardware manufacturers?
16 A. No.
17 Q. I'd like you to turn to the page of
18 this document that ends in 022. And the heading
19 reads "x86 OS Analysis for Fiscal Year '96."
20 A. Okay.
21 Q. On the page that is titled "x86 OS
22 Analysis for Fiscal Year '96" appears a statement,
23 "All other competitive licenses, less than 5%"
24 Do you have any understanding that in
25 or about early 1996 Microsoft's share of the market
31 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 with respect to operating systems sold for x86
2 computers was in the vicinity of 95 percent?
3 A. No.
4 Q. What is your understanding of what the
5 Microsoft market share was at that time?
6 A. I wouldn't know.
7 Q. Do you have any idea, as you sit here
8 today, what Microsoft's market share is with respect
9 to operating systems sold for x86 architecture
10 computers?
11 A. Well, piracy alone is greater than 5
12 percent. But no, I don't know the number.
13 Q. What other companies besides Microsoft
14 sell operating systems for x86 architecture
15 computers?
16 A. There's a great number.
17 Q. Can you identify them?
18 A. Santa Cruz. Red Brick. Caldera. IBM
19 in many different products. Sun Microsystems.
20 Microware. Wind River.
21 Those are all I can think of right now.
22 Q. Do you have any estimate as to what the
23 collective market share of those companies is with
24 respect to operating systems sold for x86
25 architecture PCs?
32 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. No.
2 Q. Is it under 10 percent?
3 A. Well, I've said to you I don't know the
4 numbers.
5 Q. Can you estimate it?
6 A. Actually, I know something about
7 piracy. Are you including that or not?
8 Q. No, sir. My question was, you've
9 identified a number of companies that market
10 operating systems for x86 PCs; correct?
11 A. Yes.
12 Q. And the question is, do you have any
13 understanding at all as to approximately what their
14 collective market share is with respect to operating
15 systems sold on x86 machines that come equipped with
16 operating systems?
17 A. I wouldn't be the best source for that
18 data.
19 Q. Can you answer my question?
20 A. I don't know their market share.
21 Q. You are unable to estimate it; is that
22 right?
23 A. I don't think I'd be accurate in
24 guessing and I don't think it's a good idea to guess.
25 Q. You have no idea whatsoever as to
33 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 approximately what the market share is; is that
2 correct?
3 A. I'm reluctant to give a number because
4 I don't consider myself someone who knows the volumes
5 involved.
6 Q. You have no understanding whatsoever as
7 to the approximate market share these companies have?
8 A. Are you asking me for a number or just
9 a --
10 Q. I'm asking for your best --
11 A. If you're asking does Microsoft sell
12 more than they do, yes, I can safely say that. But
13 when you say to me what is their share, which I
14 thought was one of the questions you asked, I'd say
15 it's not good for me to guess at the number.
16 Q. Do you have any understanding as to
17 whether the collective market share of those
18 companies is under 20 percent?
19 A. What time period were you talking
20 about? I guess I should -- what time period are you
21 saying?
22 Q. Fiscal year 1997. Do you have any
23 understanding whatsoever as to whether or not the
24 collective market share of all of Microsoft's
25 competitors in operating systems for x86 PC machines
34 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 is under 20 percent?
2 A. It's probably under 20 percent.
3 Q. Okay. Any idea how far under?
4 A. No.
5 Q. Who is the author of documents you've
6 seen at Microsoft with respect to market share
7 information on operating systems?
8 A. I've told you there is no one whose
9 particular responsibility it is to track those
10 figures, so I'm not sure what documents you're
11 referring to.
12 Q. Correct me if I'm wrong, but I thought
13 you said you had seen documents that contained market
14 share information; is that right?
15 A. I've seen documents where people
16 attempt in some context to estimate various numbers.
17 Q. And what people are you referring to?
18 A. I'm just saying I've seen documents
19 like that. I'm not saying any particular --
20 Q. Do you know who authored those
21 documents?
22 A. No.
23 Q. Do you recall what unit of Microsoft
24 they came from?
25 A. They could have come from the product
35 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 groups or the sales and marketing groups.
2 Q. Do you have any understanding as to how
3 the folks who prepared those documents go about
4 tracking Microsoft's market share?
5 MR. HEINER: Objection. Misstates the
6 testimony.
7 THE WITNESS: Well, I think IDC and
8 Dataquest are examples of firms who are in the
9 business of trying to measure the size of various
10 product sales. And so sometimes we might look at
11 their numbers. I think the Microsoft library
12 subscribes to a number of services that are in the
13 business of trying to guess at numbers.
14 MR. HOUCK: I'd like to mark as
15 Exhibit 339 a memorandum or e-mail from Anthony Bay
16 to Ben Slivka dated October 25, 1994.
17 (The document referred to was marked
18 by the court reporter as Government Exhibit 339 for
19 identification and is attached hereto.)
20 Q. BY MR. HOUCK: Would you take a look at
21 Exhibit 339, Mr. Gates. Exhibit 339 contains a
22 number of e-mails, and I want to ask you a couple
23 questions about one on the first page from Russell
24 Siegelman to yourself and others re MCI as an access
25 provider dated October 13, 1994.
36 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Do you recall receiving this e-mail?
2 A. No.
3 Q. Do you have any reason to believe you
4 didn't get it?
5 A. No.
6 Q. What was Mr. Siegelman's position in
7 October of '94?
8 A. He was involved with looking at Marvel.
9 Q. And what was Marvel?
10 A. It was a code name for what we would do
11 in terms of Internet sites or online service
12 activity.
13 Q. Do you understand that in this e-mail
14 here Mr. Siegelman is opposing a proposal to give MCI
15 a position on the Windows 95 desktop as an Internet
16 service provider?
17 A. I don't remember anything about MCI.
18 This talks about how we'll have a Mosaic client in
19 Windows 95. I don't see anything in here about the
20 desktop.
21 Q. It references in this e-mail the
22 Windows box. What do you understand the Windows box
23 to mean?
24 A. Well, the Windows box is certainly not
25 the Windows desktop. The Windows box is a piece of
37 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 cardboard.
2 Q. Is it your understanding that when he
3 uses "Windows box" here, he means a piece of
4 cardboard?
5 A. Well, he is probably talking about the
6 stuff that's inside. He is saying access to the
7 Windows box. He is talking about the bits that are
8 on the --
9 Q. What do you understand to be the
10 subject of the memorandum here that he is addressing?
11 MR. HEINER: Mr. Houck, you're at risk
12 here of cutting off the witness.
13 MR. HOUCK: I'm sorry.
14 MR. HEINER: Or I should say you did
15 cut off the witness.
16 MR. HOUCK: I apologize if I did. I'm
17 just trying to move this along, but if I cut you off,
18 I apologize.
19 MR. HEINER: Can we have the last
20 question and answer read back.
21 (Record read.)
22 THE WITNESS: This is electronic mail
23 and Russ is suggesting that he disagrees with doing a
24 deal with MCI under these particular terms.
25 Q. BY MR. HOUCK: In the e-mail he refers
38 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 to Windows distribution as a unique and valuable
2 asset, more specifically as "our one unique and
3 valuable asset." Do you see that?
4 A. I see a sentence that has those words
5 in it.
6 Q. Do you have an understanding as to what
7 he meant?
8 A. Well, the Marvel people were having a
9 hard time coming up with a strategy, and in
10 retrospect we can look back and say they didn't come
11 up with a good strategy. And they were looking at,
12 you know, what could they do that would be attractive
13 to a lot of users. And sometimes their goals and the
14 goals of the Windows group were different. And in
15 retrospect it's clear they weren't able to attract a
16 lot of users.
17 Q. Mr. Gates, I indicated at the outset of
18 the deposition I do want to move through this
19 deposition as quickly as possible, but I must say I
20 think your answers are nonresponsive and rambling,
21 and if that continues to be the case, I'm just
22 letting you know this is going to take much longer
23 than I would have hoped. So I'll pose my question
24 again because I think your answer was nonresponsive.
25 Do you have any understanding as to
39 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what Mr. Siegelman meant here by his reference to
2 Windows distribution being "our one unique and
3 valuable asset"?
4 A. Was that the question I was asked --
5 Q. Yes, sir.
6 A. Can you read me back the previous
7 question?
8 (The record was read as follows:
9 "Q. In the e-mail he refers to Windows
10 distribution as a unique and valuable asset,
11 more specifically as 'our one unique and
12 valuable asset.' Do you see that?
13 "A. I see a sentence that has those
14 words in it.
15 "Q. Do you have an understanding as to
16 what he meant?"
17 THE WITNESS: Well, maybe there is some
18 understanding -- you said do I understand what he
19 meant. I thought you were asking about his e-mail as
20 a whole.
21 Q. BY MR. HOUCK: Let me reask it for the
22 third time and see if I can get an answer.
23 Do you have any understanding what
24 Mr. Siegelman meant when he referred to Windows
25 distribution as our one unique and valuable asset?
40 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 MR. HEINER: This is a line of
2 questioning about the mail that Mr. Gates does not
3 recall reading; is that right?
4 MR. HOUCK: The question has been put.
5 THE WITNESS: I think the Marvel group
6 in their search for what they could do to get
7 millions of users at this particular point in time
8 was thinking about making it easy to sign up to the
9 Windows box being something that would be helpful to
10 them and therefore an asset for the Marvel group in
11 what they were doing.
12 Q. BY MR. HOUCK: Do you understand that
13 Mr. Siegelman in his reference had in mind the large
14 market share that Microsoft has with respect to
15 operating systems?
16 A. I don't see anything about that in
17 here.
18 Q. That's not your understanding?
19 A. Remember, Russ isn't involved with the
20 Windows business, he is involved with the Marvel
21 business.
22 Q. Do you consider Windows distribution a
23 unique asset of Microsoft?
24 A. I know that the inclusion of what
25 Marvel became didn't lead to its being popular.
41 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. Again, let me ask the question,
2 Mr. Gates. I wasn't asking about Marvel. I was
3 asking about Windows distribution.
4 A. Well, Marvel was a thing that was put
5 into the Windows box and so, in fact, if the question
6 is is putting things in there, is that valuable in
7 the sense that it creates popularity for those
8 things, there are many good examples that we know
9 where it obviously does not create popularity. So in
10 terms of how much of a value that is, it's very
11 instructive to look at Marvel and what subsequently
12 happened to that because we did include it in the
13 Windows box as one of the things that the user had on
14 the desktop.
15 MR. HOUCK: Move to strike the answer
16 as nonresponsive.
17 MR. HEINER: Mr. Houck, I'm afraid that
18 if you ask a question with vague terms, you may get
19 answers that you don't like, but that was a very
20 responsive answer to the question.
21 Q. BY MR. HOUCK: Let me put the question
22 again without reference to this document. Mr. Gates,
23 do you believe that Windows distribution is a unique
24 asset that Microsoft has?
25 MR. HEINER: Objection. Form.
42 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Foundation. Defined terms.
2 THE WITNESS: What do you mean when you
3 say "Windows distribution" there?
4 Q. BY MR. HOUCK: Do you have an
5 understanding what Mr. Siegelman meant by the phrase
6 "Windows distribution" in his e-mail that he wrote to
7 you?
8 A. He means -- I think he means, I don't
9 know for sure, I think he means including an icon on
10 the desktop for access to Marvel.
11 Q. And by "the desktop," you mean the
12 Windows desktop?
13 A. In this case, yes.
14 Q. He goes on in the e-mail to say as
15 follows: "The only real advantage we have in this
16 game is Windows distribution. Why sell it so cheaply
17 when we think is will be a big market and can give us
18 leverage in so many ways in the Iway business."
19 Do you have any understanding what he
20 meant by the phrase "Iway business" here?
21 A. No. I've never -- I don't remember
22 ever seeing that term before.
23 Q. What distribution channels has
24 Microsoft employed to distribute Internet Explorer?
25 A. Well, the primary distribution channel
43 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 is the Internet where people very easily download
2 whatever version of Windows Internet technology
3 they're interested in.
4 We've also distributed it through
5 retailers, the Windows 95 update product and, you
6 know, wherever Windows goes out, which includes
7 retail, OEM. And then people who do Internet signups
8 have also done some distribution. There's a lot of
9 different marketing programs where we'll have like a
10 conference and we'll make available Internet Explorer
11 to people that attend the conferences.
12 I think we've also included it with
13 Microsoft Office in some cases.
14 Q. Has Microsoft done research to
15 determine which distribution channels are most
16 effective in delivering browsers that are actually
17 used by people?
18 A. I think somebody did a survey to ask
19 people where they get their browser at some point.
20 Q. Do you have any recollection who did
21 that survey?
22 A. No.
23 Q. Do you recall what the results were?
24 A. I know the Internet has always been the
25 primary distribution channel for browsers.
44 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. You're talking about specifically
2 Internet Explorer?
3 A. No.
4 MR. HOUCK: I'd like to mark as
5 Exhibit 340 a memorandum -- or rather an e-mail --
6 from Kumar Mehta to Brad Chase and Yusuf Mehdi dated
7 March 27, 1997.
8 (The document referred to was marked
9 by the court reporter as Government Exhibit 340 for
10 identification and is attached hereto.)
11 Q. BY MR. HOUCK: Is this an example of
12 the type of memorandum you've seen in which Microsoft
13 has endeavored to determine which distribution
14 channels are most effective in distributing Web
15 browsers?
16 A. No.
17 Q. What position in the company did
18 Mr. Mehta have in March of 1997?
19 A. I don't know.
20 Q. Do you know if one of his
21 responsibilities was market research?
22 A. No. I mean I'm not copied on this. I
23 mean just looking at it -- and I certainly have no
24 recollection of seeing this. It also seems to
25 contradict some other things that I have seen.
45 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. The e-mail reads as follows: "Bob
2 Foulon is gathering data for a John Roberts meeting
3 with Bill Gates tomorrow. Apparently they are going
4 to discuss whether IE and Memphis should be bundled
5 together."
6 Do you recall such a meeting with
7 Mr. Foulon and Mr. Roberts?
8 A. No.
9 Q. Do you recall Mr. Foulon or Mr. Roberts
10 sharing with you market research data with respect to
11 how people get their browsers?
12 A. I don't know Bob F-o-u.
13 Q. Do you understand that is a reference
14 to Bob Foulon?
15 A. I don't know Bob Foulon. I don't know
16 anyone whose name is Bob F-o-u anything.
17 Q. Do you know John Roberts?
18 A. Yes.
19 Q. What position does he have with
20 Microsoft?
21 A. He at this time -- is that what you're
22 interested in?
23 Q. Yes.
24 A. At this time I think he works for Brad
25 Chase.
46 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. Did you have a meeting that you recall
2 with Mr. Roberts and/or Mr. Chase in or about March
3 of 1997 where you talked about the results of market
4 research to determine how people obtained Internet
5 Explorer?
6 A. I don't remember.
7 Q. The e-mail I quoted attaches another
8 e-mail dated March 27, 1997, which says in the first
9 two paragraphs, which I'll read, "Bob, here is some
10 information on how people get and use IE that might
11 help you guys. My feeling, based on all the IE
12 research we have done, is that it is a mistake to
13 release Memphis without bundling IE with it. IE
14 users are more likely than other browser users to get
15 it with their computers. Overall, 20% of people who
16 use IE at home obtained it with their computer; and
17 24% of those using IE at work got it with their
18 computer. Effectively we would be taking away the
19 distribution channel of almost a quarter of all IE
20 users."
21 Do you have any understanding as to the
22 accuracy of the numbers he cites here with respect to
23 the number of people using IE who obtained it with
24 their computer?
25 A. I have no idea what we're talking about
47 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 in terms of what kinds of users he surveyed or looked
2 at. So no, I have no opinion on it whatsoever. I
3 mean who knows.
4 Q. Do you have any reason to believe the
5 information he reports here is inaccurate?
6 A. I don't have enough of a context to
7 even state an opinion. It doesn't even say what kind
8 of users or anything.
9 Q. Do you have any understanding
10 whatsoever as to approximately what percentage of IE
11 users have obtained IE through the OEM channel?
12 A. The only data point I know along these
13 lines is I'm pretty sure I've seen that about 60 to
14 70 percent of people, the browser they're using they
15 got through the Internet, that's the way they got the
16 browser they're working with.
17 MR. HOUCK: Move to strike the answer
18 as nonresponsive.
19 Can we have the question back, please.
20 MR. HEINER: It's just a way to cut
21 through the line of questioning, which is not really
22 going anyplace and he is telling you about the only
23 data point he has in this general subject area, so
24 it's just a question of efficiency.
25 (The record was read as follows:
48 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "Q. Do you have any understanding
2 whatsoever as to approximately what percentage
3 of IE users have obtained IE through the OEM
4 channel?"
5 THE WITNESS: Well, I guess I need to
6 explain then how it works. If you take 100 percent
7 and you take the one number that I say I know, which
8 is 60 to 70 percent get it through the Internet, it
9 at least places an upper bound on the number you
10 asked for. And that's all I would know about that
11 statistic.
12 MR. HOUCK: Move to strike that answer
13 as well.
14 Q. What information -- strike that.
15 Can you identify any specific documents
16 you've seen that indicate how IE users obtained IE?
17 A. No.
18 Q. Have you seen any documents like that
19 at Microsoft prepared by Microsoft employees?
20 A. I believe I have, yes.
21 Q. Do you know who prepared them?
22 A. No.
23 MR. HOUCK: Do you want to take a break
24 here?
25 MR. HEINER: Sure.
49 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 VIDEOTAPE OPERATOR: The time is 10:16.
2 We're going off the record.
3 (Recess.)
4 VIDEOTAPE OPERATOR: The time is 10:31.
5 We're going back on the record.
6 Q. BY MR. HOUCK: Was Netscape the first
7 company to market a Web browser that gained
8 widespread consumer usage?
9 A. I think Mosaic was the first browser.
10 I don't know what your criteria -- what you're
11 implying in terms of widespread. Mosaic was the
12 first popular browser and that predates the existence
13 of Netscape for their browser.
14 Q. Did Netscape's browser supplant the
15 Mosaic browser as the most popular one?
16 A. There's a point in time where
17 Netscape's browser became more popular in terms of
18 usage share than Mosaic.
19 Q. Do you recall when that was?
20 A. I'm sorry?
21 Q. Do you recall when that was?
22 A. No. I don't think anybody knows
23 exactly when that was.
24 MR. HOUCK: I'd like to mark as
25 Exhibit 340 -- excuse me. I'd like to mark as
50 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Exhibit 341 a series of e-mails, the first one being
2 from Pat Ferrel, F-e-r-r-e-l, to Bill Gates and
3 others dated April 6, 1995.
4 (The document referred to was marked
5 by the court reporter as Government Exhibit 341 for
6 identification and is attached hereto.)
7 Q. BY MR. HOUCK: I hand you Exhibit 341,
8 Mr. Gates, and this is a series of e-mails and the
9 one I want to ask you about is the one on the second
10 page from Mr. Siegelman to yourself and others dated
11 April 6, 1995. Take a minute to take a look at it.
12 Have you finished reviewing the e-mail?
13 A. I looked at it.
14 Q. The e-mail starts off as follows: "Pat
15 Ferrel and I have been thinking about this problem a
16 lot and watching Netscape very closely. I too am
17 very worried."
18 What position did Mr. Ferrel hold at
19 Microsoft in or about April of 1995?
20 A. He wasn't involved with Windows. He
21 was involved with Marvel.
22 Q. Is he still a Microsoft employee?
23 A. I don't think so. I'm not sure.
24 Q. Do you recall personally being worried
25 about Netscape in or about April of 1995?
51 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. No.
2 Q. Do you recall discussing Netscape with
3 Mr. Siegelman in this time period?
4 A. I'm sure Russ and I discussed the
5 effect of the Internet in general on online service
6 strategies like the work he was doing that became
7 MSN, but not Netscape in particular, no.
8 Q. The next sentence of the e-mail says,
9 "I agree with most of your problem statement, but I
10 think you underestimate the publisher/ISV threat.
11 Netscape is already opening up API hooks in their
12 viewer and many ISVs are hopping aboard."
13 Do you know what his reference is to
14 your "problem statement"?
15 A. No.
16 Q. Do you understand what he means here
17 when he talks about opening up API hooks and many
18 ISVs hopping aboard?
19 A. I don't know what he meant. I can
20 guess if you want.
21 Q. Do you have any understanding as you
22 sit here what he meant by the language used in this
23 e-mail?
24 A. I don't know what he meant. I'd have
25 to ask him what he meant.
52 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. I'm asking for your understanding. Do
2 you have one or not?
3 A. Understanding of what? Of what he
4 meant?
5 Q. Yes.
6 A. No. Of what those words might mean, I
7 can guess.
8 Q. I don't want you to guess. I'm asking
9 if you have any present understanding of what these
10 words mean.
11 A. I've told you I don't know who he means
12 by "you." I don't know what he means by "problem
13 statement." So I'm a little unclear about what he
14 means in this paragraph.
15 Q. Do you have any understanding -- strike
16 that.
17 By ISV do you understand him to be
18 referring to independent software vendors?
19 A. That acronym refers to independent
20 software vendor.
21 Q. And what does the acronym API refer to?
22 A. Application programming interface.
23 Q. Do you recall yourself having a concern
24 in or about April, 1995 about the possibility that
25 Netscape was going to open up API hooks in the
53 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Netscape Web browser?
2 A. I can't pin any recollection to that
3 particular time period, no.
4 Q. Did you at some point come to the
5 conclusion that the prospect that Netscape might open
6 up API hooks in their browser was a threat to
7 Microsoft?
8 A. I think in late '95 Andreeson was
9 talking about how he was going to put us out of
10 business, suggesting that their browser was a
11 platform. And, in fact, they did have APIs in their
12 browser.
13 Q. Do you recall having any concern
14 yourself before late 1995 with respect to the threat
15 posed by Netscape opening up API hooks in their
16 browser?
17 A. No.
18 Q. Do you recall that other folks at
19 Microsoft had such concerns before late 1995?
20 A. It's hard to recall other people's
21 concerns. No, I don't recall other people's
22 concerns.
23 Q. In the last paragraph of the e-mail
24 Mr. Siegelman refers to the "danger of letting
25 Netscape create a new platform and get
54 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 ISV/merchant/content provider support."
2 Do you have any understanding what he
3 meant by that language?
4 A. Well, he was in charge of our online
5 service strategy and so he thought of the various
6 things going on in the Internet as affecting what he
7 was going to do. In particular, online services, up
8 until the Internet really exploded in popularity,
9 they'd had content that was unique to their online
10 service. And the whole Internet phenomenon was
11 changing that. And so for Marvel that was a
12 challenge to the business strategy they'd gone down,
13 so I'm sure he is referring to that general issue.
14 Q. Did you understand Mr. Siegelman had a
15 concern in or about April, 1995 that the opening up
16 of API hooks in Netscape's browser constituted a
17 threat to the Windows operating system?
18 A. Well, certainly he wasn't involved in
19 the Windows operating system and none of this is
20 about the Windows operating system, so to try to read
21 that into here is certainly incorrect.
22 MR. HOUCK: Move to strike as
23 nonresponsive.
24 Repeat the question, please.
25 (Record read.)
55 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 THE WITNESS: I'll give the same
2 answer.
3 Q. BY MR. HOUCK: In the next sentence
4 Mr. Siegelman says, "I don't think that the way to
5 fight back is simply with a better Web browser
6 either."
7 Do you recall having any discussion
8 with Mr. Siegelman on what the best way to fight back
9 was?
10 A. I certainly had discussions with him
11 about our online strategies, which subsequently were
12 not successful, and certainly it's clear that for the
13 online strategy, he needed to do quite a bit,
14 including content relationships, not just browsing
15 functionality.
16 Q. Did you have any discussion with
17 Mr. Siegelman as to what the best way was for
18 Microsoft to fight back with respect to any threat
19 posed by Netscape to Windows as a platform?
20 A. Mr. Siegelman wasn't involved with
21 Windows, so I don't understand why you keep asking me
22 about --
23 Q. Well, you can say yes or no, sir. I
24 don't mean to interrupt, but --
25 A. No. My discussions with Russ were
56 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 about his responsibilities, which were online service
2 activities.
3 MR. HOUCK: I'd like to mark as
4 Exhibit 342 a series of e-mails, first one being from
5 Nathan Myhrvold to Mr. Gates dated April 24, 1995.
6 (The document referred to was marked
7 by the court reporter as Government Exhibit 342 for
8 identification and is attached hereto.)
9 Q. BY MR. HOUCK: Before you take a look
10 at that document, do you recall that there was a
11 general discussion at Microsoft at the top executive
12 level in or about April, 1995, with respect to the
13 threat to Microsoft posed by Netscape?
14 A. No.
15 Q. What position did Mr. Myhrvold hold
16 with Microsoft in April of 1995?
17 A. He was Russ Siegelman's boss, so he
18 wasn't involved in the Windows business. He was
19 involved in our online service activities.
20 Q. Was he one of your top executives?
21 A. He was an executive. I'm not sure what
22 you mean by top executive. He didn't manage any of
23 the large products that we offer.
24 Q. Was he sort of Microsoft's resident
25 strategic thinker?
57 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. No.
2 Q. Did you value his advice?
3 A. Not over the advice of people who are
4 more directly involved in their businesses.
5 Q. Do you recall consulting Mr. Myhrvold's
6 advice in or about April, 1995 as to how Microsoft
7 should respond to Netscape?
8 A. I'm sure since Nathan was in charge of
9 online services at that time there was some
10 discussion or e-mail about the effect of the Internet
11 growth on the Marvel and Blackbird strategies, but
12 not in a general sense.
13 Q. If you would, would you take a look at
14 Exhibit 342, and in particular the e-mail on the
15 second page, which is from Mr. Myhrvold to yourself
16 and others regarding Internet strategy dated
17 April 18, 1995.
18 A. There's a lot of different e-mails
19 here.
20 Q. The one I referred you to is the one on
21 the second page, sir, the one at the bottom of that
22 page, and it's from Mr. Myhrvold to yourself and
23 others dated April 18, 1995.
24 A. Doesn't the same e-mail extend for
25 about nine pages or ten pages? Isn't that all one
58 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 e-mail?
2 Q. That's the one I want to ask you about.
3 A. So it's on all those pages; right?
4 Q. Right. And the questions I have, to
5 help you focus, are going to be with respect to the
6 first couple pages of the e-mail.
7 A. Okay.
8 Q. The first paragraph reads, "There has
9 been a flurry of e-mail about Netscape and our
10 general Internet development strategy. This e-mail
11 is my contribution to this topic."
12 Does this refresh your recollection
13 there was a general discussion at the upper levels of
14 Microsoft in or about April, 1995 with respect to
15 Netscape and how to respond competitively to
16 Netscape?
17 A. Well, I think that's a
18 mischaracterization. It appears there was some mail
19 about the effect of Netscape and their activities on
20 our online service strategy.
21 Q. What do you understand about
22 Mr. Myhrvold's reference here to general Internet
23 development strategy?
24 A. This memo is about our strategy with
25 the Blackbird front end and how it should relate to
59 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Internet protocols. And it's a very long, nine-page
2 thing about Blackbird and his various opinions about
3 Blackbird. The interesting thing is Blackbird
4 basically was canceled.
5 Q. Is it your testimony and your
6 understanding that this memorandum is limited to a
7 discussion about Blackbird?
8 MR. HEINER: Object to the question
9 because you know the witness hasn't read it.
10 MR. HOUCK: He has read it. He took
11 time to read it.
12 MR. HEINER: You said you would direct
13 him to two pages and he read two pages. He can read
14 nine pages and tell you what the nine pages are
15 about, if you'd like.
16 Q. BY MR. HOUCK: Take as much time as you
17 need to review the memorandum and answer my question.
18 MR. HEINER: Could I have the question
19 read back.
20 (The record was read as follows:
21 "Q. Is it your testimony and your
22 understanding that this memorandum is limited
23 to a discussion about Blackbird?")
24 THE WITNESS: You keep using the word
25 memorandum to refer to electronic mail. I don't
60 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 think of electronic mail as a memorandum. So this
2 e-mail, which I haven't read, the part I've glanced
3 at, all the action items, all the things he is saying
4 we should do all relate strictly to Blackbird and the
5 online services activities.
6 Q. BY MR. HOUCK: Did any of the
7 recipients of this e-mail have responsibilities for
8 Windows?
9 A. Well, let's see. He copies Russ, who
10 works for him in online services. He copies Craig,
11 who works on interactive TV, not Windows. He copies
12 Dan Rosen, who works on online service. Pat Ferrel,
13 who works on online service. Peter Neupert, who
14 works on online service. And then he copies Paul,
15 who has another part of the business that includes
16 Windows, and he copies me. So Paul and myself have
17 broad responsibilities, but otherwise all the other
18 people are online service people.
19 Q. Were you and Paul Maritz two senior
20 executives with responsibilities for Windows in
21 April, '95?
22 A. I'm not sure how you'd characterize my
23 role. I'm the CEO of the company, so all the
24 products of the company -- I'm not sure you'd say --
25 you'd use the description you used.
61 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. Windows is a very important product to
2 Microsoft, is it not?
3 A. That's right.
4 Q. Is it fair to say you devote a fair
5 amount of your time to Windows and strategies for
6 marketing Windows and making sure it's a successful
7 product?
8 A. I spend some of my time on that.
9 Q. Was that one of Mr. Maritz's principal
10 responsibilities in April of 1995?
11 A. It was one of his, yes.
12 Q. In the third paragraph of this e-mail
13 Mr. Myhrvold states, "The big issue to be concerned
14 about is the same issue that we have faced in the
15 past - proprietary standards coming from competing
16 software companies. Netscape is certainly one of the
17 many companies who will try to promote their
18 proprietary extensions (and entirely new protocols)
19 on the world."
20 Do you have any understanding as to
21 what he was referring to by his reference to issues
22 that Microsoft had faced in the past?
23 A. No.
24 Q. Do you know if he is referring to Lotus
25 Notes there?
62 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. I'm quite certain that's not what he
2 was referring to.
3 Q. Do you have any present understanding
4 as to what he meant?
5 A. I'm not sure.
6 Q. On the next page, first full paragraph,
7 Mr. Myhrvold states, "The world of the Internet is
8 rapidly becoming Windows centric because Windows will
9 be the most popular client operating system by a wide
10 margin."
11 Did you understand he was referring
12 here to market share enjoyed by Windows?
13 A. I've said I don't remember the memo
14 specifically, so it's hard for me to say I remember
15 something he was referring to.
16 Q. You have no present understanding of
17 what he meant by this language; is that correct?
18 MR. HEINER: That's a different
19 question.
20 THE WITNESS: It's a different -- which
21 question should I answer?
22 Q. BY MR. HOUCK: Do you have any present
23 understanding of what -- strike that question.
24 Is it your present understanding that
25 by the reference here to Windows being the most
63 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 popular client operating system by a wide margin,
2 Mr. Myhrvold was referring to the market share
3 enjoyed by Windows in or about April, 1995?
4 A. He may have been.
5 Q. Several paragraphs further on in this
6 e-mail Mr. Myhrvold states, "As platform specific
7 work is done on the Internet, we want it to be done
8 on our platform. As proprietary technology and
9 protocols are used, we want them to be ours - in as
10 many broad mainstream areas as is reasonably
11 possible."
12 Is it your understanding that his use
13 of the word "platform" here is a reference to
14 Windows?
15 A. No.
16 Q. What is your understanding?
17 A. He is talking about all our platform
18 activities.
19 Q. Which would be what?
20 A. That include Blackbird. That's the
21 primary subject of the memo, as we discussed.
22 Q. Did you consider Blackbird a platform
23 at this point in time?
24 A. Yes. What else is it?
25 Q. Did you have a concern in April of 1995
64 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 that Netscape was somehow threatening Blackbird,
2 Microsoft's product?
3 A. There was a concern that our whole
4 online service strategy, including the Blackbird part
5 of it, may have been something we should change
6 because of all the activity on the Internet in
7 general, including the things Netscape was doing.
8 Q. Did you have a concern that what
9 Netscape was doing was threatening Blackbird as a
10 platform?
11 A. The whole phenomenon of people doing
12 Websites using HTML was changing the framework that
13 had existed for online service people, and so the
14 Marvel and Blackbird strategy, you really had to call
15 into question whether changes should be made. And so
16 Netscape was part of a phenomenon that was making us
17 rethink did Blackbird make sense. And eventually,
18 due to size and speed and delays and various changes
19 in the market, we actually canceled Blackbird.
20 MR. HOUCK: Move to strike the answer
21 as nonresponsive.
22 Can you read the question back, please.
23 (Record read.)
24 MR. HEINER: The answer was directly
25 responsive to the question. You can move to strike
65 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 all the answers and we'll have a short transcript.
2 THE WITNESS: If there is some part of
3 my answer you don't understand, I'll be glad to
4 elucidate, but it's one hundred percent responsive to
5 the question.
6 Q. BY MR. HOUCK: Isn't it a fact,
7 Mr. Gates, that Blackbird never did become a platform
8 at all?
9 A. I told you we canceled Blackbird, but
10 Blackbird -- the whole idea of Blackbird is to be a
11 platform for people to write enhanced content on.
12 That's the reason we invested so much money in
13 building Blackbird. As it says in this memo, there
14 were people who were enthusiastic about what we've
15 done in Blackbird, including Nathan.
16 Q. Isn't it a fact that you executives at
17 Microsoft back in April of '95 were concerned that
18 Netscape's Web browser posed a threat to Microsoft's
19 Windows platform?
20 A. Well --
21 Q. You can answer it yes or no, sir.
22 A. I don't know when people began to think
23 of Netscape as a competitor to Windows. I don't
24 think it was that early, but it might have been. I
25 know that by late '95 when people thought about the
66 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 various competitors to Windows, they did think of
2 Netscape.
3 Q. What's the earliest date you could put
4 on the concern expressed to you by Microsoft
5 executives that Netscape posed a threat to the
6 Windows platform?
7 MR. HEINER: Asked and answered.
8 THE WITNESS: I said that in late '95
9 I'm pretty sure people thought of them as a
10 competitor. I couldn't name a date earlier than
11 that.
12 I know that online service people were
13 thinking about Netscape and the Internet at earlier
14 dates.
15 Q. BY MR. HOUCK: Let me ask you a few
16 questions about page 898 of this document, several
17 pages later on. I'll read you the portion of it I
18 want to ask you some questions about so you have that
19 in mind.
20 "The front end which supports these
21 services is basically the union of the MSN front end
22 with Blackbird and O'Hare. At some point this is
23 very smoothly integrated, but at first they are
24 separate pieces of code stuck together at the end
25 user level.
67 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "The front end should be given away as
2 widely as possible, including:
3 "Put into Windows. I agree with Paul
4 Maritz's comment that we should distribute the front
5 end very broadly by having it Windows, at least at
6 some point down the line.
7 "Distributed free on the Internet.
8 "Distributed free with MSN."
9 Do you recall any general discussion of
10 this subject with Mr. Myhrvold or Mr. Maritz back in
11 April of '95?
12 A. I know there was a plan to have
13 Blackbird include all the HTML support and so it
14 would be a superset in that sense.
15 Q. Is the reference to O'Hare a reference
16 to Internet Explorer?
17 A. Probably.
18 He says -- in the memo earlier he says,
19 "I've had people tell me that the O'Hare people
20 either are (or should be) working on their own plan
21 to superset Internet protocols." So it appears that
22 the author of this memo is pretty confused about what
23 the O'Hare people are doing and therefore what O'Hare
24 is.
25 MR. HOUCK: Move to strike the last
68 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 remark, which was not responsive to any question on
2 the table.
3 THE WITNESS: I was answering about
4 what the author of this memo meant by the word
5 "O'Hare". And believe me, that sentence that I read
6 to you is very informative on that point.
7 Q. BY MR. HOUCK: Isn't it a fact that
8 O'Hare is a code name used at Microsoft for Internet
9 Explorer?
10 A. There was a group of people who were
11 looking at doing the Explorer. Nathan says he
12 doesn't know what those people were doing, what their
13 strategy was at this time he wrote the memo.
14 MR. HOUCK: Move to strike again the
15 last portion of his answer.
16 Q. Do you know a gentleman by the name of
17 Ben Slivka?
18 A. Yes.
19 Q. What were his responsibilities, if any,
20 at Microsoft back in early 1995?
21 A. I'm not sure.
22 MR. HOUCK: I'd like to mark as
23 Government Exhibit 343 a series of e-mails, the first
24 one being from Alec Saunders to various people at
25 Microsoft dated January 31, 1995, the subject being
69 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Frosting and O'Hare.
2 (The document referred to was marked
3 by the court reporter as Government Exhibit 343 for
4 identification and is attached hereto.)
5 Q. BY MR. HOUCK: To expedite your review
6 of this document, Mr. Gates, I'll tell you my
7 questions are going to be limited to the e-mail on
8 the last page of the document. This is an e-mail
9 from Ben Slivka to Tim Harris and others at Microsoft
10 dated February 13, 1995 and does not show you as a
11 recipient.
12 A. Which one?
13 Q. The top one.
14 The first sentence of the e-mail from
15 Mr. Slivka states, "O'Hare is the code name for our
16 Internet Client, and we plan to ship it in the Win95
17 'frosting' package, which sim-ships with Win95."
18 Do you understand his reference here to
19 O'Hare and the Internet Client to be a reference to
20 what became known as Internet Explorer?
21 A. I think Internet Explorer 1.0 that was
22 in part of the Windows 95.
23 Q. Do you recall a plan back in early 1995
24 to ship a product known as Frosting?
25 A. I don't recall the plan. I know we
70 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 worked on what we called Frosting.
2 Q. What is your understanding of what
3 Frosting was?
4 A. It became the Windows Plus Pack. It
5 didn't sim-ship I don't think.
6 Q. Was it your understanding that at some
7 point in time it was Microsoft's intention to include
8 Internet Explorer in the Frosting package as opposed
9 to Windows 95?
10 A. Well, for the primary Windows 95
11 distribution channel, we included Internet Explorer
12 1.0 with Windows, so when you say Windows 95, it was
13 part of Windows 95. Then there is the Windows 95
14 Upgrade that was sold at retail, which that had a box
15 labeled "Windows 95 Upgrade" and a box labeled
16 "Windows 95 Plus Pack."
17 Q. Do you recall that in or about
18 February, 1995, it was Microsoft's intention to
19 include Internet Explorer in the Frosting package and
20 not in Windows 95?
21 MR. HEINER: Objection.
22 THE WITNESS: No. I think you
23 misunderstood what I said. Windows 95, the full
24 product, included IE. Windows 95, the upgrade
25 product, did not. But Windows 95, the full product,
71 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 whether sold through the OEM or whatever, that
2 included the capabilities. It was just the upgrade
3 that did not.
4 Q. BY MR. HOUCK: I understood your
5 answer. Let me ask the question again because I
6 don't think you understood the question.
7 The question was, is it your
8 understanding that as of February, 1995, it was not
9 Microsoft's intention to include Internet Explorer in
10 the full product known as Windows 95?
11 A. The product that didn't include
12 Internet Explorer is called the Windows 95 Upgrade.
13 Windows 95, the full product, did include Internet
14 Explorer.
15 Q. I understood -- strike that.
16 I understand that when it was marketed,
17 it included Internet Explorer. The question is, is
18 it your recollection that back in February of 1995,
19 it was Microsoft's intention not to include Internet
20 Explorer in Windows 95 but to market it instead as
21 part of the package known as Frosting?
22 MR. HEINER: You're talking about the
23 OEM channels in that question? I'm wondering, for
24 the record.
25 MR. HOUCK: The question is complete as
72 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 it stands.
2 Q. Can you answer the question, sir?
3 A. I'm confused about what you're asking
4 me because you have to differentiate the retail
5 channel, which is the Windows 95 Upgrade and the Plus
6 Pack from Windows 95, the whole product. Windows 95,
7 the whole product, we wanted to include a lot of
8 features. We don't know for sure which features are
9 going to get done in time until really the product is
10 done. So certainly our intention to do it and
11 working hard on doing it, that plan had existed for a
12 long time. We weren't certain for any future on
13 Windows 95 exactly what we would decide to get in or
14 not get in. We did, in fact, get the Internet
15 Explorer 1.0 into the Windows 95 full product.
16 Q. Do you recall that in or about
17 February, 1995, it was Microsoft's intention to ship
18 O'Hare as part of Frosting?
19 A. The thing that was code named O'Hare
20 ended up in the Windows 95 full product as one place
21 it came. And another place was in the Plus Pack.
22 Q. Let me ask it one more time.
23 Was it Microsoft's plan as of February,
24 1995, to ship Internet Explorer solely in the
25 Frosting package and not in the initial full
73 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Windows 95 package that was to be marketed?
2 A. No. Our plan was to get it into the
3 Windows 95 full package if possible.
4 Q. Do you recall that in or about
5 February, 1995, it was felt at Microsoft that it was
6 not possible to include O'Hare in the Windows 95
7 package?
8 A. We had a plan to include it if at all
9 possible. In the world of software development
10 there's always skeptics, so you can name any feature
11 of Windows 95 and you can find somebody who would
12 have been skeptical about whether it would get done
13 or not in time for the shipment of the product.
14 Certainly the people involved in doing the
15 development were working hard and, in fact, they
16 succeeded in achieving our plan, which was as best we
17 could to include it in the product. And we did.
18 Q. Do you recall what the -- strike that.
19 Do you recall when Microsoft first
20 determined that it would be possible to include IE in
21 Windows 95 that shipped in 1995?
22 A. Well, as I've said, until the minute
23 you actually ship a product, you can always change
24 your mind about what's going to be in it and what's
25 not going to be in it. And so there wasn't absolute
74 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 certainty for the different features until we
2 actually froze the bits.
3 Q. Who was responsible back in 1995 for
4 determining what went into Windows and what didn't?
5 A. That's a decision that I would have the
6 final say on.
7 Q. Who were your senior executives
8 responsible for assisting in that decision?
9 A. Maritz.
10 MR. HOUCK: I think our videotape
11 operator wants to change the videotape, so why don't
12 we take a short break.
13 VIDEOTAPE OPERATOR: The time is 11:15.
14 We're going off the record.
15 (Recess.)
16 VIDEOTAPE OPERATOR: The time is 11:24.
17 We're going back on the record.
18 MR. HOUCK: I'd like to mark as
19 Government Exhibit 344 a series of e-mails, first one
20 being from Paul Maritz dated April 12, 1995.
21 (The document referred to was marked
22 by the court reporter as Government Exhibit 344 for
23 identification and is attached hereto.)
24 Q. BY MR. HOUCK: Exhibit 344, Mr. Gates,
25 is a series of e-mails and the initial questions will
75 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 be about the very last one, which is an e-mail from
2 you to Craig Mundie dated April 10, 1995.
3 What were Mr. Mundie's responsibilities
4 back in April of 1995?
5 A. He was doing the broadband online
6 service work, which was sometimes referred to as
7 Interactive TV.
8 Q. In the first paragraph you say, "Given
9 that we are looking at the Internet destroying our
10 position as a setter of standards in APIs, do you see
11 things we should be doing to use ACT assets to avoid
12 this?"
13 What was your reference to ACT assets?
14 A. ACT, A-C-T. That's Craig Mundie's
15 group.
16 Q. Your e-mail goes on to state, "I admit
17 I find it hard to focus lots of resources on trials
18 and things when the Internet is taking away our power
19 every day."
20 In what sense did you mean the Internet
21 was taking away Microsoft's power every day?
22 A. I meant that -- this is copied to
23 people involved in the online service activity,
24 Nathan, Rick and Russ, and not to the Windows people
25 at all. It looks like at 3:00 a.m. that morning I
76 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 was thinking about the fact that our ambitions for
2 online service in the narrow band field, we needed to
3 think of some of the broadband work that Craig was
4 doing to come in and be helpful to that, particularly
5 given that the Internet was changing the framework.
6 Q. What was Mr. Rick Rashid's position in
7 Microsoft back in April of '95?
8 A. He was -- he had actually two jobs at
9 the time. He was involved in research, but mostly he
10 had moved over to help out with the ACT work, which
11 is the Interactive TV activities.
12 MR. HOUCK: I'd like to mark as
13 Exhibit 345 a memorandum from Mr. Gates to his
14 executive staff and direct reports entitled
15 "The Internet Tidal Wave."
16 (The document referred to was marked
17 by the court reporter as Government Exhibit 345 for
18 identification and is attached hereto.)
19 Q. BY MR. HOUCK: Do you recall authoring
20 this memorandum, Mr. Gates?
21 A. Yes.
22 Q. To whom did you send it?
23 A. It appears it was sent to executive
24 staff and direct reports.
25 Q. What does executive staff refer to?
77 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. It's an electronic mail alias for a
2 group of people.
3 Q. And who did that constitute as of
4 May of 1995?
5 A. I'm not sure, but it would have
6 included most of the officers.
7 Q. On the second page of the memorandum,
8 second paragraph you say, "Most important is that the
9 Internet has bootstrapped itself as a place to
10 publish content. It has enough users that it is
11 benefiting from the positive feedback loop of the
12 more users it gets, the more content it gets, and the
13 more content it gets, the more users it gets."
14 Can you explain what your reference was
15 to a positive feedback loop?
16 A. Well, it's explained right there. It
17 says "the more users it gets, the more content it
18 gets, and the more content it gets, the more users it
19 gets." I mean I don't expect that people know what
20 the term means, so I explain it right in that
21 sentence.
22 Q. Is the positive feedback loop something
23 that, in your estimation, would result in ever
24 increasing popularity of the Internet?
25 A. No.
78 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. Did you anticipate in May of 1995 that
2 the Internet would become increasing popular?
3 A. It had become more popular, yes.
4 Q. Was one of the reasons you thought it
5 would be more on popular was that more content would
6 be written for the Internet?
7 A. Created to Internet standards, yes.
8 Q. And was it your understanding or
9 expectation that the more content that was written,
10 the more users there would be?
11 A. Yes.
12 Q. In the fourth page of your memorandum
13 in the second paragraph above the heading "Next
14 Steps," you state, "A new competitor 'born' on the
15 Internet is Netscape. Their browser is dominant,
16 with 70% usage share, allowing them to determine
17 which network extensions will catch on."
18 Do you recall how you determined that
19 Netscape's usage share was 70 percent at this time?
20 A. No.
21 Q. Is your reference to "network
22 extensions" a reference to APIs?
23 A. No.
24 Q. What is it a reference to?
25 A. To network extensions.
79 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. And how do you define that?
2 A. Things that let you do richer things
3 across the network.
4 Q. Can you give some examples?
5 A. Advanced HTML. HTML tables. HTML file
6 tags.
7 Q. Did you undertake a reorganization of
8 Microsoft back at this time in order to position the
9 company to respond better to the Internet?
10 A. Not at the time I wrote this memo.
11 Q. Under the heading "Next Steps" you say
12 "The challenge/opportunity of the Internet is a key
13 reason behind the recent organization."
14 What were you referring to?
15 A. I'm not sure.
16 Q. What did you perceive the challenge/
17 opportunity of the Internet to be at this point in
18 time?
19 A. That users were interested in using the
20 Internet and so we needed to make sure that our
21 software was doing a good job of that and that that
22 was a challenge in the sense that other people could
23 do it and that was competition and an opportunity in
24 the sense that it would grow the importance of our
25 strong software work.
80 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. On the next page you talk about various
2 critical steps. Were these steps to respond to the
3 challenge/opportunity of the Internet you described
4 in the earlier part of your memorandum?
5 A. I'm not sure what you mean by that.
6 Q. You outline several critical steps.
7 Can you explain why you felt they were critical?
8 A. For all the reasons I cite in the
9 entire memo. I mean the whole memo -- there's part
10 of the memo that precedes these steps. I could read
11 the memo up to the point of the critical steps to you
12 if you want.
13 Q. What was your purpose in sending this
14 memorandum to your key executives?
15 A. To talk about my view of the Internet
16 tidal wave.
17 Q. Did you also outline your views as to
18 what steps Microsoft needed to take to respond to the
19 Internet tidal wave?
20 A. There's a part of the memo that talks
21 about steps.
22 Q. And in that part of the memorandum, are
23 you outlining the steps that needed to be taken in
24 your view to respond to the Internet tidal wave?
25 A. I'm suggesting some steps I think we
81 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 should take. I wouldn't say they are all related to
2 one particular thing, but I make some recommendations
3 here.
4 Q. The second step here relates to
5 something called the "Client." Is that a reference
6 to Internet Explorer?
7 A. No.
8 Q. What is it a reference to?
9 A. Client here means Windows.
10 Q. You say, "First we need to offer a
11 decent client (O'Hare) that exploits Windows 95
12 shortcuts."
13 Is not O'Hare a reference to client
14 here?
15 A. Client means client operating system.
16 Q. Why did you put "O'Hare" in parentheses
17 after the word "client"?
18 A. Probably because that's the part of
19 Windows that exploits Windows 95 shortcuts.
20 Q. What Windows 95 shortcuts did you have
21 in mind?
22 A. Windows 95 shortcuts is a technical
23 term. And the O'Hare part of Windows exploits this
24 feature known as Windows shortcuts. It doesn't mean
25 shortcut as in the common sense use of the term
82 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 shortcut. It means the technical feature Windows 95
2 shortcuts.
3 Q. When you use the term "O'Hare" in the
4 e-mails that you write, what do you mean?
5 A. Well, this -- in this case I meant the
6 group that was working on that part of Windows 95.
7 Q. And what part is that?
8 A. The part that supported HTML.
9 Q. Is that the part that became known as
10 Internet Explorer?
11 A. Yes. Most of the work in Internet
12 Explorer came out of that group.
13 Q. Further down in this paragraph you
14 refer to Plus pack. Is that again a reference to
15 something also referred to at Microsoft as Frosting?
16 A. Yes, Frosting was a name we used for
17 what later became known as Plus pack.
18 Q. Do you recall it was in or about that
19 time frame that Microsoft was doing everything it
20 possibly could to include the O'Hare client in the
21 Windows 95 package?
22 A. And by that you mean the Windows 95
23 full product? Yes.
24 Q. Who was responsible at Microsoft for
25 accomplishing that?
83 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. I'm not sure you could point to one
2 individual.
3 Q. Was there one individual that had
4 primary responsibility?
5 A. Brad Silverberg managed the group that
6 was doing a lot of that work.
7 Q. Did you periodically have something you
8 called Think Week?
9 A. Yes.
10 Q. What is Think Week?
11 A. It's setting aside a week of time where
12 I have no meetings or phone calls and I get a chance
13 to use products and learn about new research work
14 that we're doing and other people are doing.
15 Q. Do you recall one of the subjects you
16 devoted time to in your 1995 Think Week was the
17 Internet?
18 A. I'm sure I did.
19 Q. Do you recall receiving information
20 from your subordinates in connection with your 1995
21 Think Week on the subject of the Internet?
22 A. Well, before I go off on Think Week, I
23 get boxes of information, usually three cardboard
24 boxes. And some of that I get a chance to look at
25 and some of it I don't. I don't recall specifically
84 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what I was given for that Think Week.
2 MR. HOUCK: Let's mark as Exhibit 346 a
3 memorandum -- strike that -- an e-mail from Pat
4 Ferrel to Russ Siegelman dated May 3, 1995, on the
5 subject of Bill G's Think Week documents.
6 (The document referred to was marked
7 by the court reporter as Government Exhibit 346 for
8 identification and is attached hereto.)
9 Q. BY MR. HOUCK: Do you recall whether
10 you reviewed the attachment to Exhibit 346 in
11 connection with your Think Week activities in 1995?
12 A. I don't think I did.
13 Q. I won't ask you any questions about it
14 then.
15 How did the process work for giving you
16 Think Week materials? Did your senior executives
17 collect items that might be of interest to you and
18 send them to you for your review?
19 A. Well, most of my Think Week time is
20 focused on technology issues and so there is a
21 variety of people I solicit to provide input. It's
22 not -- many of them are not executives, but people
23 who might have things that I'm interested in learning
24 about.
25 Q. Do you recall that Mr. Siegelman was
85 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 one of the people whom you asked to collect materials
2 for you for your 1995 Think Week?
3 A. I think probably I asked Brian Flemming
4 to gather the material and he would have gone out to
5 the other people asking.
6 Q. What position did Mr. Flemming have
7 in --
8 A. He had an assistant position working
9 for me.
10 Q. Was it your expectation that the
11 inclusion of Internet Explorer with Windows would
12 drive up Internet Explorer's market share?
13 MR. HEINER: Objection. Ambiguity.
14 THE WITNESS: I'm not sure what you
15 mean. We do know that when we included Internet
16 Explorer in Windows, it gained basically no market
17 share.
18 MR. HOUCK: I'd like to mark as
19 Exhibit 347 what purports to be a transcript of a
20 question-and-answer session with Mr. Gates and others
21 at Microsoft's Financial Analysts Day on July 24,
22 1997. And this is a document I've downloaded from
23 the Microsoft Website, Mr. Gates.
24 (The document referred to was marked
25 by the court reporter as Government Exhibit 347 for
86 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 identification and is attached hereto.)
2 Q. BY MR. HOUCK: I'll ask you to take a
3 look, sir, at page 8 of Exhibit 347.
4 And before you do so, let me ask you
5 this. Do you recall attending this Financial
6 Analysts Day Executive Q & A session?
7 A. Yes.
8 Q. And what is that exactly?
9 A. It's a chance for people to ask
10 questions.
11 Q. And who attends?
12 A. Some people from the press, some people
13 from various financial firms or investment firms.
14 Q. On page 8 appears the following
15 question: "Bill and Steve, you both referred to the
16 importance of building browser share over the coming
17 year. Can you be more explicit about why browser
18 share is important to various aspects of your
19 business and maybe talk about some of the initiatives
20 you're going to be undertaking to increase it?"
21 And then Mr. Ballmer gives a response,
22 the last paragraph of which is as follows: "There
23 are a lot of things we're investing in over the
24 course of the next year in marketing. Of course, the
25 new browser is the key thing - IE 4.0. But if you
87 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 take a look at the initiatives, the content
2 partnership that Paul's teams have formed, the things
3 that we're doing with ISP, the work we're doing with
4 large accounts on digital nervous systems, where the
5 IE browser -- IE 3 today, IE 4 tomorrow -- is fairly
6 fundamental to what we're doing on browser share, the
7 way we're trying to get large accounts, and large and
8 small accounts to author their content to use our
9 dynamic HTML stuff; all of those actions should help,
10 I think, drive up our browser share."
11 And you're quoted as saying, "Yeah,
12 along with the integration."
13 Do you recall that question and your
14 giving an answer, Mr. Gates?
15 A. No.
16 Q. Do you have any reason to doubt the
17 accuracy of this transcript?
18 A. Well, in general, transcripts like this
19 which come off an audio tape are somewhat unreliable,
20 but I don't have a specific recollection about that
21 specific question and answer.
22 MR. HOUCK: I'd like to mark as
23 Exhibit 348 an e-mail from Mr. Allchin to various
24 people dated January 6, 1997.
25 (The document referred to was marked
88 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 by the court reporter as Government Exhibit 348 for
2 identification and is attached hereto.)
3 Q. BY MR. HOUCK: What do you understand
4 the second e-mail to contain, Mr. Gates, on
5 Exhibit 348?
6 A. Looks like Ben Slivka is making some
7 comments on something.
8 Q. Do you understand that this e-mail
9 contains slides that were prepared for a presentation
10 you made or were to make in or about January of 1997?
11 A. No, these are not slides that were
12 prepared for me to give. I think these are -- it may
13 have been something that Ben Slivka was looking at
14 doing, I'm not sure.
15 Q. The subject of the second e-mail from
16 Mr. Slivka to Mr. Maritz is "Overview slides for
17 BillG/NC & Java session with 14+'s on Monday."
18 Do you know what the reference here is
19 to a "session with 14+'s"?
20 A. Well, 14 probably refers to the fact
21 that in our jobs in the technical group, level 14 is
22 a fairly high level. And I know we had a meeting
23 where we asked some of those high-level people to
24 come and sit and talk about our strategy and indicate
25 what they thought about the strategy.
89 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. Do you recall making a presentation
2 yourself at that meeting?
3 A. I made a presentation, but not of these
4 slides.
5 Q. What was the subject of your
6 presentation?
7 A. I don't recall exactly, but it
8 certainly wasn't these slides.
9 Q. Do you recall a discussion at that
10 session of the NC and Java challenge?
11 A. No.
12 Q. Do you have any understanding as to
13 what is meant here by the NC and Java challenge?
14 A. I'm sure NC stands for network computer
15 and the competition that came from that direction.
16 And Java I'm sure refers to the competition coming
17 from that direction.
18 Q. Why did you consider Java to be a
19 challenge at this point in time?
20 A. Well, the term Java is used in a lot of
21 different ways. There's a part of it with respect to
22 run times that was a direct competitor to Windows.
23 Q. Under "Key Platform Challenge" the memo
24 states "Possible emergence of a set of APIs and
25 underlying system software that lead to lesser or no
90 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 role for Windows."
2 Do you recall any of the portion of the
3 discussion on this subject at that meeting?
4 A. No.
5 Q. The next sentence says, "Puts our other
6 (server and apps) businesses at a disadvantage."
7 Do you recall any portion of the
8 discussion on this subject at this meeting?
9 A. No.
10 Q. Under the heading "Response Summary"
11 various items appear. One is "Increase IE share"
12 followed by "Integrate with Windows."
13 Do you recall any discussion about this
14 portion of the meeting?
15 A. Remember we haven't established that
16 these slides were ever presented at any meeting, so
17 no, I don't recall that being discussed, but doing it
18 in the context of the slides means nothing to me
19 because I don't -- certainly don't think I presented
20 any slides like this.
21 Q. Do you have any recollection of a
22 discussion at this meeting as to how to increase IE
23 market share?
24 A. No.
25 Q. Next page refers to another response as
91 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "Differentiate through Windows integration."
2 Do you recall any aspect of a
3 discussion on this subject?
4 A. No.
5 Q. Do you recall -- strike the question.
6 Is it correct that the Netscape browser
7 was one of the principal means through which the Java
8 virtual machine was distributed?
9 A. I don't know what you mean "was
10 distributed." Certainly the Java virtual machine has
11 the ability to be distributed with any application
12 over the Internet, so just like all software on the
13 Internet, distribution is wide open.
14 Q. Did you form any judgment yourself as
15 to whether the Netscape browser was the major
16 distribution vehicle for the Java virtual machine?
17 A. Well, I don't know what you mean "the
18 Java virtual machine." Understand that many
19 different companies have Java virtual machines.
20 Netscape had one that was different than the one that
21 Sun had, which was different than ours, which was
22 different than HP's, which was different than IBM's,
23 which was different from Novell's, so you'll have to
24 be more specific. But in terms of distributing those
25 things, they're out there on the Internet easy to
92 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 get.
2 MR. HOUCK: I'll mark as Exhibit 349 an
3 e-mail from Paul Maritz to Mr. Gates and others dated
4 July 14, 1997.
5 (The document referred to was marked
6 by the court reporter as Government Exhibit 349 for
7 identification and is attached hereto.)
8 Q. BY MR. HOUCK: To save time, I'll tell
9 you I'm going to ask you about the very first e-mail
10 here from Mr. Maritz to Mr. Dunie and yourself and
11 others. And in particular, where it says "If we look
12 further at Java/JFC being our major threat, then
13 Netscape is the major distribution vehicle."
14 Do you see that?
15 A. I see it.
16 Q. What does JFC refer to here, if you
17 know?
18 A. Well, as I said, it's all about run
19 time APIs and JFC was the term for what Netscape was
20 putting out as a set of run time APIs, which was
21 different than what Sun was putting out but was their
22 Netscape 1.
23 Q. Do you have any understanding as to
24 what Mr. Maritz meant here when he referred to
25 Netscape as the major distribution vehicle?
93 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A. Well, Netscape had some unique APIs and
2 one of the ways they were distributing it was through
3 their software products, including the browser.
4 Q. Did you understand that in Mr. Maritz's
5 view Netscape was the principal means by which people
6 were acquiring the Java virtual machine?
7 A. Well, you actually started these
8 questions asking about Sun's virtual machine and I
9 explained to you that Netscape's is different, so I'm
10 not sure what you're referring to now.
11 Q. What did you understand, sir, by
12 Mr. Maritz's reference to being the major
13 distribution vehicle -- strike that.
14 When Mr. Maritz said that Netscape was
15 the major distribution vehicle, what did you
16 understand him to be saying the vehicle for?
17 A. The Netscape run time bits. Not Sun's
18 virtual machine. It says JFC there, so obviously
19 it's not Sun.
20 MR. HOUCK: I'd like to mark as
21 Exhibit 350 an e-mail from Mr. Slivka to various
22 people dated June 12, 1997.
23 (The document referred to was marked
24 by the court reporter as Government Exhibit 350 for
25 identification and is attached hereto.)
94 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q. BY MR. HOUCK: The second e-mail on the
2 first page here is from Chris Jones and it says,
3 "Here is final copy of the memo we sent to BillG for
4 Think Week about what we should do to get to 30%
5 browser share."
6 Do you recall reviewing the attachment
7 as part of your 1995 Think Week?
8 A. I didn't review it.
9 Q. What were Mr. Jones's responsibilities
10 in 1995?
11 A. Good question.
12 Q. Do you recall?
13 A. No. He might have worked for Maritz.
14 MR. HOUCK: I'd like to take a short
15 break now. Do you want to stop for lunch now or --
16 MR. HEINER: Let's take a lunch break.
17 VIDEOTAPE OPERATOR: The time is
18 12:04 p.m. We're going off the record.
19 (Lunch recess.)
20 THE VIDEOGRAPHER: The time is 12:54.
21 We're going back on the record.
22 Q BY MR. HOUCK: In or about June 1995,
23 Mr. Gates, did you become involved in the planning
24 for some meetings with Netscape?
25 A No.
95 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q I'd like toe mark as Exhibit 352 --
2 351. I'd like to mark as Exhibit 351 an e-mail
3 chain. This appears to have been produced from
4 Mr. Gates' file.
5 (The document referred to was marked by
6 the court reporter as Government's Exhibit 351 for
7 identification and is attached hereto.)
8 Q BY MR. HOUCK: Mr. Gates, Exhibit 351
9 is a series of e-mails that relate to some meetings
10 with Netscape. And I'm -- I'm going to start my
11 questioning from the earliest one chronologically
12 which is at the back of the group of e-mails here.
13 So I think to save time, it might make sense for you
14 to look seriatim at the ones I'm going to be asking
15 you about.
16 A Seriatim?
17 Q Yeah. In other words, my first
18 questions are going to be about the e-mail dated June
19 1, 1995.
20 A June what?
21 Q June 1, 1995 at the back of this
22 package. So I'm suggesting before I ask you
23 questions about a particular e-mail, you review that,
24 and then when I come to the next e-mail, you can
25 review that one.
96 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 If you'd like to do them all together,
2 it's up to you. I'm just trying to save some time
3 here.
4 A What does seriatim mean? Serially?
5 Q Correct. One right after the other.
6 A But does it mean more than serially?
7 Q I'm going to ask you about one e-mail
8 at a time. I'll point out to you the one that I'm
9 going to ask you about.
10 A Okay.
11 Q And my suggestion is you'll read that
12 one first, and then I'll ask you about that. And
13 then when I turn to the next one, I'll let you know,
14 and you can look at that one. But if you want to
15 look at all of them together, you're welcome to do
16 that.
17 So if you proceed as I suggest,
18 seriatim or serially, whatever the case may be, what
19 I'm going to do is ask you first about the e-mail
20 that appears on what's page 100 of the document here.
21 MR. HEINER: Mr. Houck, one question
22 for you, if you know, did we produce these to you
23 stapled like this? Or is this a collection that --
24 MR. HOUCK: Actually, that's a question
25 I had for you. I'm going to throw it back at you
97 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 that this was produced serially, as you'll see, by
2 the production number they're consecutive numbers.
3 But the pages at the bottom are not consecutive, and
4 I was going to ask you if you knew why that was, if
5 there were some documents or pages that were a part
6 of a group of memoranda or e-mail that was not
7 produced to us. As you'll see, they're consecutive
8 production numbers.
9 So if you could take that under
10 advisement and let me know what the answer is, I'd
11 appreciate it.
12 MR. HEINER: Okay. I certainly don't
13 know the answer sitting here now. Which pages are we
14 talking about? Are you talking about the Bates
15 numbering or something else?
16 MR. HOUCK: Yeah. The Bates numbering
17 is consecutive, but the page numbers applied by
18 Microsoft at the bottom are not consecutive, so it
19 looks like these are part of a larger document. And
20 my question is if there are pages missing that were
21 not produced to us.
22 MR. HEINER: Okay. Those page numbers
23 just FYI are just a funny thing to see down there.
24 I'm not sure even what those refer to, but we'll try
25 to figure it out.
98 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 MR. HOUCK: Thank you. Okay.
2 Q The e-mail I want to ask you about
3 first, Mr. Gates, is dated June 1, 1995, and the very
4 top portion indicates that the bottom portion is
5 being sent to you for your information by Paul
6 Maritz, and the bottom portion is an e-mail from
7 Thomas Reardon dated June 1, 1995, on the subject of
8 working with Netscape.
9 Do you recall receiving this memorandum
10 or e-mail?
11 A E-mail, no.
12 Q I apologize for using my old-fashioned
13 terminology.
14 You don't recall receiving this e-mail
15 particularly?
16 A No.
17 Q The e-mail states that,
18 "Dan and Barb and I met late
19 yesterday to review our recent
20 discussions with Netscape and form
21 our next few action items. Dan is
22 meeting with Jim Barksdale, their
23 CEO, shortly."
24 Do you understand the reference to Dan
25 to be a reference to Dan Rosen?
99 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Probably.
2 Q And is the reference for Barb a
3 reference to Barbara Fox?
4 A I mean, you could ask Thomas.
5 Probably.
6 Q Do you have any understanding, sir?
7 A Based on -- I've never spoken to Thomas
8 about this. I don't remember seeing the e-mail.
9 Q Do you recall speaking to anyone about
10 the meeting referred to here between Dan Rosen and
11 Jim Barksdale?
12 A No.
13 Q The e-mail goes on to list working
14 goals which are:
15 "1. Launch STT, our
16 electronic payment protocol. Get STT
17 presence on the Internet.
18 "2. Move Netscape out of
19 the Win32 Internet client area.
20 "3. Avoid cold or hot war
21 with Netscape. Keep them from
22 sabotaging our platform evolution."
23 Do you understand the reference to
24 Win32 Internet client to be a reference to Windows
25 95?
100 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A No.
2 Q What do you understand it to be a
3 reference to?
4 A Win32.
5 Q Can you describe what that is?
6 A 32 bit Windows.
7 Q Is Windows 95 a 32 bit Windows product?
8 A It's one of them.
9 Q Were there any other 32 bit products in
10 development in June of 1995?
11 A Certainly.
12 Q Which ones?
13 A Windows NT.
14 Q Do you know whether Mr. Reardon was
15 referring to Windows NT and Windows 30 and Windows 95
16 or one or the other?
17 A Win32's a term that refers to all the
18 32 bit platforms.
19 Q And as I understand your testimony, is
20 that the 32 bit platforms under development in June
21 of 1995 were Windows NT and Windows 95; is that
22 correct?
23 A No. Windows NT was shipping and there
24 was a new version that was under development.
25 Q And Windows 95 was in development at
101 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 this time?
2 A Certainly.
3 Q In the portion of the e-mail
4 denominated No. 2 which is, "Move Netscape out of
5 Win32/Win95, avoid battling them in the next year,"
6 there appears the following statement in the second
7 paragraph, quote,
8 "They appear to be moving
9 fast to establish themselves in the
10 value-add app business by leveraging
11 Netscape itself as a platform."
12 Do you recall whether you agreed that
13 that's what Netscape was doing back in June '95?
14 A At this time I had no sense of what
15 Netscape was doing.
16 Q Okay.
17 The next e-mail I want to ask you about
18 is on page 231 of the document, and it's an e-mail
19 from Paul Maritz to various people including yourself
20 regarding the Netscape meeting, and it's dated June
21 5, 1995.
22 A How did you find that?
23 MR. HEINER: You have to go
24 surprisingly the opposite direction.
25 MR. NEUKOM: You have to go by Bates
102 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 numbers.
2 THE WITNESS: Yeah. If you just use
3 those numbers, those numbers are sequential.
4 MR. BOIES: 9594.
5 THE WITNESS: 237? Okay.
6 MR. HEINER: No. Which one?
7 MR. HOUCK: 231. Page 231. Bates No.
8 594. I'll take your eminent counsel's suggestion,
9 and refer to it by Bates number, make it a little bit
10 easier.
11 Q Here Mr. Maritz reports that he did not
12 get the impression from the meeting he had that
13 Netscape was ready for a broad, strategic
14 relationship.
15 Do you see that?
16 A Do you think that refers to a meeting
17 he had? I don't think so.
18 Q Let me refer you to page 596, Bates No.
19 596.
20 A Okay.
21 Q It's e-mailed the same date. And it
22 says,
23 "Attached is my summary of the meeting that
24 Nathan, Paul and I had with Jim Barksdale of
25 Netscape."
103 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Do you understand the reference of Paul
2 to be a reference to Paul Maritz?
3 A Oh, maybe he is talking about a meeting
4 he had.
5 Q Do you have any recollection of
6 discussing Mr. Maritz's impression of this meeting
7 with Netscape?
8 A I didn't think Paul had met with
9 Netscape.
10 Q So you have no present recollection of
11 discussing with Mr. Maritz his views based on a
12 meeting he had with Mr. Barksdale in or about the
13 early part of June 1995?
14 A No.
15 Q Let me refer you next to a Bates No.
16 page 585. And this is an e-mail to you and others
17 from Dan Rosen regarding a Netscape meeting, and the
18 date of the e-mail is June 22, 1995. It's page 585
19 Bates number.
20 You got it?
21 A Uh-huh.
22 Q Do you want to look at the e-mail first
23 before I ask you some questions, or do you want me to
24 proceed?
25 A Go ahead.
104 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Do you recall getting this particular
2 e-mail?
3 A No. I recall getting this e-mail from
4 Brad Silverberg on 584 but not this one from Dan
5 (indicating).
6 Q And you have no reason to believe you
7 didn't get it; is that correct?
8 A That's right. I'm still confused if it
9 actually was enclosed in the other one or not. From
10 the way it's printed out, it may have been. And
11 although my name is there, I don't remember getting
12 that one. I do remember getting this one which it
13 may also be an enclosure to.
14 Q Do you understand this to be Mr.
15 Rosen's report on the meeting he had on June 21,
16 1995, with Netscape executives?
17 A It looks like it. The thing I recall
18 is the Reardon --
19 Q Right.
20 A What he calls his perspective that Brad
21 sent to me.
22 Q Right. Did you understand that
23 Mr. Reardon had a somewhat different perspective on
24 the meeting than Mr. Rosen had?
25 A Yes.
105 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Who was the senior Microsoft executive
2 at the June 21st meeting?
3 A There were no senior executives at that
4 meeting.
5 Q Who was the most senior of the people
6 there?
7 A You would have to tell me who was at
8 the meeting. I have no idea who was at the meeting.
9 Q Did you understand that Dan Rosen was
10 at the meeting?
11 A Apparently from this e-mail, yes.
12 Q Did you understand that Tom Reardon was
13 at the meeting?
14 A From his e-mail, yes.
15 Q Did you understand that Jim Allard was
16 at the meeting?
17 A Jim who?
18 Q Allard.
19 A Jay Allard?
20 Q Jay Allard, yeah.
21 A I don't know.
22 Q How about Chris Jones?
23 A I don't know. Does one of these list
24 who was at the meeting?
25 Q Let me just ask you: Do you have any
106 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 recollection as you sit here as to who you were told
2 attended the meeting on behalf of Microsoft other
3 than Mr. Reardon?
4 MR. HEINER: Can I have the question
5 read back?
6 (Question read.)
7 MR. HEINER: Objection. Foundation.
8 THE WITNESS: I'm not certain what you
9 mean, "told."
10 Q BY MR. HOUCK: Were you informed,
11 Mr. Gates, who attended the meeting on behalf of
12 Microsoft?
13 A I don't think so.
14 Q Do you have any understanding, as you
15 sit here today, who attended that meeting on behalf
16 of Microsoft?
17 A Well, the last page of the thing you
18 gave me on 599 might relate to that. But I don't
19 have any prior knowledge about it.
20 Q The e-mail from Mr. Rosen on the first
21 page says, quote,
22 "Our goals going into the
23 meeting were (in priority order):
24 "1. Establish Microsoft
25 ownership of the Internet client
107 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 platform for Win95.
2 "2. Have Netscape add value
3 to the NT server and Back Office
4 platform (above our stuff), making it
5 the preferred Internet solution.
6 "3. Have Netscape
7 preferentially support Microsoft
8 authoring tools/solutions and support
9 our viewers.
10 "4. Send a message to the
11 marketplace that Netscape and
12 Microsoft were cooperating on
13 Internet issues."
14 Do you recall discussing these goals
15 with any of the Microsoft people who attended the 16 meeting in advance of the meeting?
17 A No.
18 Q The next page of the e-mail says,
19 "Chris Jones summed up the
20 purpose nicely: 'We need to
21 understand if you will adopt our
22 platform and build on top of it or if
23 you are going to compete with us on
24 the platform level.'"
25 Did you understand that was a principal
108 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 purpose of Microsoft in attending this meeting with
2 Netscape?
3 MR. HEINER: Objection.
4 THE WITNESS: No. It says in the Rosen
5 memo the purpose of the meeting was to scope out
6 specific areas that the relationship between the two
7 companies might take and to set in place a process to
8 either conclude a strategic relationship or go our
9 separate ways.
10 Q BY MR. HOUCK: Do you have any present
11 recollection as you sit here as to what the purpose
12 of the Microsoft executives was in attending the
13 meeting?
14 A Well, there were no Microsoft
15 executives in the meeting.
16 Q You don't consider Mr. Rosen a
17 Microsoft executive?
18 A No. Inside Microsoft -- I don't know
19 about other companies -- but the VPs are called
20 executives and the non-VPs are called non-executives,
21 and there were no executives at that meeting.
22 Q Let me rephrase the question then.
23 Do you have any understanding as you
24 sit here today as to what the purpose was of the
25 Microsoft employees who attended the meeting with
109 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Netscape on June 21, 1995?
2 A I can read to you from the stuff you've
3 given me here.
4 Q I don't want you just to read, I'm
5 asking for your present recollection if you have one.
6 I can read the document myself.
7 A I don't know what you mean my present
8 recollection.
9 Q As you sit here today, do you have any
10 recollection as to what your understanding was back
11 in June 1995 as to the principal purpose of the
12 Microsoft employees in the meeting with Netscape?
13 A I wasn't involved in setting up the
14 meeting, so I -- I can see what Reardon said here, I
15 can see what Rosen said here. You've read something
16 that purports to be something that Jones said. I
17 mean --
18 Q As we discussed before, did you
19 understand that Mr. Reardon and Mr. Rosen had
20 different perspectives on the meeting?
21 A Well, I -- I got some e-mail from Brad
22 Silverberg after the meeting that showed that Reardon
23 seemed to have a more realistic view of what was
24 going on.
25 Q Did you share his view?
110 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 MR. HEINER: Objection.
2 THE WITNESS: I had no view whatsoever.
3 Q BY MR. HOUCK: When you said Reardon
4 had a more realistic view of the meeting, can you
5 explain what you meant?
6 A Well, Reardon's mail says,
7 "Maybe I am being a dick,
8 but there is no deal here. If we are
9 smart and deft and engaged at the
10 right levels, we have a chance to
11 cooperate on a few of these smaller
12 things."
13 So usually the -- if you have two
14 people that go to a meeting and one comes back and
15 says "Looks great," and the other comes back and says
16 "It doesn't look good," my business experience is the
17 person who says that it doesn't look good is probably
18 the one who has the most accurate view of the
19 meeting, particularly when you're dealing with Thomas
20 Reardon and Dan Rosen.
21 Q So you thought that Reardon's view of
22 how the meeting went was likelier the more accurate
23 one?
24 A In the sense that it didn't look like
25 much would come out of it, yes.
111 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Okay.
2 Do you recall, as you sit here today
3 apart from just reading these e-mails, anything that
4 was reported back to you by any of the participants
5 from Microsoft at this June 21st meeting?
6 A Well, I think somewhere about this time
7 somebody said to me that -- asked if it made sense
8 for us to consider investing in Netscape. And I said
9 that that didn't make sense to me, I didn't see that
10 as something that made sense.
11 Q Do you recall who said that to you?
12 A It would have been probably suggested
13 in a piece of e-mail from Dan, I think.
14 Q Do you recall when you got that
15 suggestion, whether it was before or after the
16 meeting?
17 A Oh, it would have been after the
18 meeting.
19 Q Do you recall anything else that anyone
20 told you back in June '95 about the meeting?
21 A No.
22 Q Did you personally devote time,
23 Mr. Gates, to studying Netscape and trying to
24 determine what their sources of revenue were?
25 A In what time frame are we talking
112 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 about?
2 Q Well, do you recall doing that at all?
3 A I personally didn't make any study of
4 it. But I know that in late '95 when we reviewed a
5 bunch of different competitors, one of those was
6 Netscape, and there was some revenue analysis done as
7 part of that.
8 Q Do you recall an employee at Microsoft
9 by the name of Amar Nehru?
10 A I know Amar.
11 Q Did he work for you directly?
12 A Never.
13 Q Who did he work for?
14 A He's at least five levels below me, and
15 I have no idea who he works for.
16 Q Do you recall that he worked for
17 Mr. Chase?
18 A I'm certain that he did not.
19 Q Let me mark as exhibit --
20 A Are you talking -- what's the last name
21 of Amar?
22 Q It's Amar Nehru.
23 A Yeah. He did not.
24 Q N-e-h-r-u.
25 Mark as Exhibit 352 an e-mail from
113 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Mr. Gates to Amar Nehru.
2 (The document referred to was marked by
3 the court reporter as Government's Exhibit 352 for
4 identification and is attached hereto.)
5 MR. HOUCK: I think I marked the wrong
6 document, but we'll probably get that at some point.
7 I apologize. So let me mark as the next exhibit,
8 Exhibit 353 -- strike what I said, I think we do have
9 the right document, and I apologize for the
10 confusion.
11 Okay. I gave you the wrong document.
12 Let me mark as Exhibit 353 the December 1, 1996
13 e-mail. I apologize once more.
14 THE WITNESS: December 1, 1996?
15 MR. HOUCK: Yeah.
16 THE WITNESS: Oh, is this something I
17 haven't seen?
18 MR. HOUCK: Yes. And I apologize.
19 There were a couple of e-mails from Mr. Nehru -- or
20 to Mr. Nehru, I gave you the wrong one, I don't want
21 to ask you about that one right now. So what I want
22 to ask you about is Exhibit 353, and this is a
23 December 1, 1996 e-mail from you to Mr. Nehru.
24 (The document referred to was marked by
25 the court reporter as Government's Exhibit 353 for
114 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 identification and is attached hereto.)
2 Q BY MR. HOUCK: Do you recall asking
3 Mr. Nehru in or about December 1996 to collect for
4 you information about Netscape revenues?
5 A No.
6 Q Do you recall sending this e-mail on or
7 about December 1, 1996 to Mr. Nehru?
8 A No.
9 Q Okay.
10 Do you recall receiving from Mr. Nehru
11 the attached e-mail dated November 27, 1996?
12 A From time to time we do reviews of
13 various competitors, and at least one point in time
14 Netscape was one of the people that we looked at. So
15 it doesn't surprise me, but I don't remember it
16 specifically.
17 Q On the second page of the exhibit,
18 which is part of Mr. Nehru's November 27, 1996
19 e-mail, he talks about browsers.
20 A What page?
21 Q Page 2.
22 A Okay.
23 Q He identifies there sources of
24 Netscape's revenue. He says,
25 "Browser revenue for the
115 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 quarter amounted to $45 million (a 32
2 percent increase over the last
3 quarter) representing 60 percent of
4 total Netscape revenue."
5 Do you have any reason to doubt the
6 accuracy of the information reported there?
7 A Well, I know that Mr. Nehru didn't work
8 for Netscape, so I'm sure he didn't have access to
9 the figures directly. If you're interested in that,
10 you should ask Netscape.
11 Q Was this the best information you had
12 in December of 1996 as to the proportion of
13 Netscape's revenue that was derived from browsers?
14 A I don't know.
15 Q Do you recall receiving any other
16 information than this on that subject?
17 A I might have seen an analyst report.
18 It says here we're 70 percent confident
19 about our numbers.
20 Q Do you recall why it was in this time
21 frame you had asked Mr. Nehru to collect this
22 information for you?
23 A I don't think I did. I already told
24 you that.
25 Q You have no recollection of asking him
116 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 for this information?
2 A I'm quite certain I wasn't the one who
3 asked for the information.
4 Q Do you have any recollection as to who
5 did?
6 A Perhaps Steve.
7 Q Steve, you mean Steve Ballmer?
8 A Uh-huh.
9 Q In your memo here -- strike that.
10 In your e-mail here you say, "What kind
11 of data do we have about how much software companies
12 pay Netscape?"
13 Do you recall asking that question to
14 Mr. Nehru in or about December 1996?
15 A It looks like I sent him that question
16 after he sent out one of these competitive analysis
17 reports.
18 Q Do you recall -- strike that.
19 Do you have any reason to believe you
20 didn't ask him for this information on December 1,
21 1996?
22 A Now, wait a minute. Now, you're
23 confusing two things. There's the information here
24 enclosed which I didn't ask him for.
25 Q I understand.
117 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A And that's what you've been asking me
2 about earlier.
3 Q No, sir.
4 A Then there's the question here in my
5 e-mail, I have no idea if he ever responded to that,
6 but that question certainly looks like it came from
7 me. But that's different than --
8 Q I understand. I'm not confused.
9 A Okay.
10 Q Let me straighten the record out here.
11 Your testimony, as I understand it, is
12 you believe that in all likelihood the information
13 initially collected by Mr. Nehru was sought by
14 Mr. Ballmer; is that right?
15 A I know it wasn't -- I'm pretty sure it
16 wasn't me who asked for it.
17 Q Correct. And then you got this e-mail
18 from Mr. Nehru and you in turn asked him what kind of
19 data do we have about how much software companies pay
20 Netscape; is that right?
21 A That's part of the e-mail I sent to him
22 it looks like, yes.
23 Q Okay.
24 The -- Exhibit 353, in particular
25 Mr. Nehru's memo, says his conclusion was of the $45
118 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 million in revenue obtained that quarter by Netscape
2 as a result of the browsers ISPs commanded the
3 largest share at 40 percent of browser revenue.
4 Did you have any reason to doubt the
5 accuracy of that information obtained by Mr. Nehru?
6 A Well, I'll say two things about that:
7 First of all, he's not including the
8 prime -- when he gives that number he's not including
9 the primary browser revenue source which is what was
10 called service revenues in this report; that is,
11 taking the ad space in the browser, which is proven
12 to be the biggest source of revenue and a significant
13 source of revenue for browsers, he's not including
14 that in. So that would be a rather significant
15 change.
16 Also, although I haven't had a chance
17 to read his entire e-mail, it says that his
18 confidence in these numbers is about what he says 70
19 percent.
20 So clearly, there are people at
21 Netscape who would be 100 percent sure about the
22 numbers.
23 Q Do you know what, if any, service
24 revenue Netscape was earning from its browsers in or
25 about the first quarter of 1996?
119 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A No, I don't.
2 Q Was Microsoft earning any service
3 revenue on its browsers the first quarter of 1996?
4 A In the first quarter of 1996? No.
5 That developed into a large business subsequently in
6 our case.
7 Q Do you know whether Netscape was any
8 different or not?
9 A Well, it's a measurable business for
10 them. You can just read what I say in the mail.
11 Q Do you know how that source of
12 revenue -- strike that.
13 Why don't we just take a very short
14 break.
15 MR. HEINER: Okay.
16 THE VIDEOGRAPHER: The time is 1:32.
17 We're going off the record.
18 (Recess.)
19 THE VIDEOGRAPHER: The time is 1:47.
20 We're going back on the record.
21 MR. HEINER: During the break I checked
22 with our people who do document productions about
23 Exhibit 351 and asked them what these page numbers
24 are at the bottom of the pages. And they said that
25 we found these documents instead of archives so we
120 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 went back and searched in connection with the current
2 case. So these were documents that were actually
3 printed out back for some other case, presumably in
4 1995 or something like that.
5 And when we printed the documents they
6 would just page number every single page.
7 So the documents -- and then we
8 produced the responsive documents. So pages --
9 whatever pages are missing here are e-mail about any
10 subject under the sun.
11 And then that also tells you that
12 whether or not we produced these stapled, they
13 probably shouldn't be stapled. It's really
14 individual e-mail strings.
15 MR. HOUCK: Okay.
16 MR. HEINER: For what it's worth.
17 MR. HOUCK: I would like to mark as
18 Exhibit 354 an e-mail from Mr. Gates to various
19 people dated May 19, 1996, on the -- and the subject
20 is "Some thoughts on Netscape."
21 (The document referred to was marked by
22 the court reporter as Government's Exhibit 354 for
23 identification and is attached hereto.)
24 Q BY MR. HOUCK: Is Exhibit 354 a
25 memorandum you prepared on or about May 1996?
121 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A It looks like it is. I don't have a
2 specific recollection.
3 Q On the second page under the heading
4 "Netscape" you say,
5 "During this Thinkweek I had
6 a chance to play with a number of
7 Netscape products. This reenforced
8 the impression that I think all of us
9 share that Netscape is quite an
10 impressive competitor."
11 Do you recall what it was that led you
12 to the conclusion that Netscape was an impressive
13 competitor?
14 A I think the memo speaks for itself in
15 terms of outlining that.
16 Q Did you come to believe that their
17 products would be popular with consumers?
18 A That's a very vague question.
19 Q Can you answer it or not?
20 A In its current vague form? No.
21 Q Did you come to the conclusion that
22 Netscape had high quality products in or about this
23 time frame?
24 A Not all of their products but some of
25 them.
122 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Which products did you believe were of
2 high quality?
3 A Well, the memo gets into that. I'm
4 glad to read it.
5 Q Do you have any additional recollection
6 as you sit here apart from just reading the
7 memorandum?
8 A No.
9 Q Was it your understanding that in or
10 about this time frame Netscape sought to generate
11 revenue by charging money for its browser?
12 A That's kind of a complex area because,
13 in fact, they didn't really charge people for the
14 browser. If you wanted to just download it and use
15 it, they never followed up and charged anyone.
16 So as I show in the memo, one of the --
17 when it's under "Their price," I show "Free."
18 Q You also show $49; correct?
19 A Yeah. It says "$49 & free." 49 was
20 the nominal price which no one had any reason to pay
21 at all.
22 Q Did you understand from Mr. Nehru
23 and/or other people at Microsoft that, in fact,
24 Netscape was generating revenue by sales of its
25 browser?
123 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Nothing significant, I think, came out
2 of that $49 offering. They had a retail value at an
3 offering at a different price, and they had some
4 corporate licensing. But in terms of the $49, I
5 don't know of any data that I had that would suggest
6 that that was something people were paying.
7 Q Do you have any recollection at all as
8 you sit here today of receiving any data that
9 indicated how much revenue Netscape was generating
10 through sales of its browser at a $49 price?
11 A Well, I know they were getting revenue
12 from the Search button and the Home Page hits
13 essentially advertising fees. And I had seen some
14 data about that.
15 Q Did you see any data at all with
16 respect to how much money was being generated by
17 sales of the browser?
18 A I just said I saw some data about
19 revenue they got from essentially the advertising
20 sales.
21 Q Right.
22 Do you recall seeing any data with
23 respect to revenue generated from sales of the
24 browser itself?
25 MR. HEINER: Is this any particular
124 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 time, any particular channel?
2 MR. HOUCK: In or about this time
3 period, which is May of 1996.
4 MR. HEINER: And is the question about
5 the $49 retail offering?
6 MR. HOUCK: Correct.
7 THE WITNESS: I don't think that $49
8 retail offering is very popular. The particular memo
9 that you've got in front of me here is -- doesn't
10 relate much to that. It's talking more about the
11 different products and Microsoft plans to have better
12 products.
13 MR. HOUCK: Move to strike that answer
14 as nonresponsive.
15 Q As you sit here today, Mr. Gates, do
16 you have any recollection of receiving data that
17 purported to show how much, if any, revenue was being
18 generated by Netscape through sales of its web
19 browser at retail?
20 A The $49 product?
21 Q Can you answer the question?
22 MR. HEINER: Asked and answered.
23 THE WITNESS: Which SKU?
24 MR. HOUCK: The $49 product.
25 THE WITNESS: I don't remember any
125 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 specific data. But as to that SKU, I'm -- I don't
2 think their sales were ever significant.
3 Q BY MR. HOUCK: The next -- strike that.
4 On Bates No. page 954 appears the
5 heading "Browser War."
6 Do you see that?
7 A Uh-huh.
8 Q What did you mean by your use of that
9 phrase?
10 A I think somebody -- I wasn't the one
11 who created that phrase. I think it was a phrase
12 that some people had used to refer to the competition
13 in the browser space including that between us as the
14 provider of Windows and Netscape with Navigator.
15 Q Under the heading of your memo entitled
16 "Browser War" appears the following statement:
17 "If we continue to have
18 minimal share in browsers, a lot of
19 our other efforts will be futile."
20 Do you recall what other efforts you
21 had in mind there?
22 A Well, for example, our desire to get
23 advertising revenue from the Search button and the
24 Home Page in the browser.
25 Q Do you recall anything else you had in
126 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 mind?
2 A I don't know if Blackbird had been
3 canceled by this point or not. But since it was a
4 superset browser, it would have fit that category.
5 Q Anything else?
6 A Well, MSN, our online service, because
7 of its dependency on the Blackbird technology.
8 Q Do you recall any other efforts that
9 you had in mind here?
10 A No.
11 Q You go on to say, quote,
12 "By the end of the year we
13 have got to get more than 25 percent
14 share so we are taken seriously,"
15 close quote.
16 Do you recall why you came to that
17 conclusion?
18 A I don't remember what I was thinking at
19 the time I wrote the memo.
20 Q Do you recall who you had in mind as
21 taking you seriously?
22 A At the time I wrote the memo?
23 Q Yes.
24 A No I don't recall.
25 Q That paragraph concludes with your
127 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 statement as follows, quote,
2 "I'm very excited that we
3 are going to incent OEMs to focus
4 their efforts around IE."
5 IE is a reference, I take it, is a
6 reference to Internet Explorer; is that correct?
7 A It looks like it's referring to IE3
8 there.
9 Q Do you recall what it was you were
10 going to do to incent OEMs to focus their efforts
11 around Internet Explorer 3.0?
12 A We did something where we encouraged
13 them to pick up the Windows Update that included the
14 improvements in the IE technology that took us from
15 IE2 which had been included, of course, in Windows
16 for quite some time.
17 We -- in the normal course, it takes
18 OEMs six to nine months before they get updates
19 widely available. And I think there was a plan to
20 incent them to update their Windows bits on their
21 machines more rapidly than normal so that users would
22 have a chance to get IE3 on the machine instead of
23 IE2, which although it had been a part of Windows,
24 had not received measurable market share.
25 Q Your memo concludes with the following
128 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 statement:
2 "At some point financial
3 minded analysts will begin to
4 consider how much of a revenue stream
5 Netscape will be able to generate."
6 Do you recall what your thinking was in
7 noting this to the other recipients of the memo?
8 A Well, this memo, if you look at it, is
9 not really about financial issues at all. It's about
10 the good work we're doing in various software
11 categories relative to some of the work that
12 Netscape's doing. And I wouldn't call it a
13 conclusion, but there's a paragraph there in the end
14 that talks about Netscape revenue.
15 I don't have any recollection about
16 what I was thinking when I wrote that paragraph at
17 this point.
18 Q Of what significance was it to you what
19 financial analysts concluded about Netscape's revenue
20 stream?
21 A Netscape was a competitor of ours and
22 we actually pay attention to our competitors' revenue
23 since it's a measure of the popularity of their
24 products and we can compare how we're doing in
25 customer popularity with how they're doing sometimes
129 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 by looking at revenue. Sometimes that doesn't work.
2 But it's -- I think it's -- it's typical to know
3 what -- what our revenue is.
4 Q Do you generally make public comments
5 about the financial health or welfare of Microsoft's
6 competitors?
7 A I'm often asked about various
8 companies, and I respond to questions. But I've
9 never given a presentation that had that focus.
10 Q Do you recall making public statements
11 in mid-1996 calling into question Netscape's
12 financial viability?
13 A I may have been asked questions about
14 that by the press, but I didn't go out and make any
15 speeches or statements about it.
16 Q I'd like to mark as Exhibit 355 a copy
17 of an article that appears in The Financial Times of
18 London dated July 3, 1996.
19 (The document referred to was marked by
20 the court reporter as Government's Exhibit 355 for
21 identification and is attached hereto.)
22 Q BY MR. HOUCK: The next to the last
23 page of Exhibit 356 appears the following quote,
24 "'Our business model works
25 even if Internet software is free,'
130 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 says Mr. Gates. 'We are still
2 selling operating systems.'
3 Netscape, in contrast, is dependent
4 upon its Internet software for
5 profits, he points
6 out."
7 Do you recall making statements to this
8 effect to The London Financial Times in or about July
9 1996?
10 A I'm quite sure I didn't make a
11 statement. I think I was interviewed by Louise Kehoe
12 where she kept saying to me how various people were
13 predicting, including Netscape, that we would go out
14 of business because of the Internet and that we were
15 doomed because of the Internet.
16 Q Do you recall in or about July 1996
17 providing the information attributed to you here to
18 the reporter for The London Financial Times?
19 A I don't know what you mean "providing
20 the information."
21 Louise Kehoe is a reporter. She
22 interviewed me about this time with the proposition
23 that we were on our way out of business. And I said
24 to her, "If we didn't do a good job for our customers
25 in terms of what they wanted, that would be the case,
131 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 but that we thought we could do -- do good work
2 around the new scenarios that customers were
3 interested in."
4 MR. BOIES: Move to strike the answer
5 as nonresponsive.
6 Q BY MR. HOUCK: Do you recall,
7 Mr. Gates, giving the quotation imputed to you here
8 to Ms. Kehoe?
9 A Well, the best -- I don't recall this
10 specific interview. It would be valuable to
11 understand what her questions were and what the
12 sequence of questions were. She probably has a tape
13 of that that you could get.
14 Q Do you have any reason to believe that
15 she has inaccurately quoted you here in her article?
16 A I know it was an interview where the
17 basic supposition was that Netscape and others were
18 going to put us out of business. That much I recall.
19 But in terms of the specific quote, I'm not sure.
20 Q When you say you're not sure, do you
21 mean -- strike that.
22 Do you have any reason, as you sit here
23 today, to believe that this statement attributed to
24 you is improperly reported by Ms. Kehoe?
25 A I think if you want to understand what
132 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 I said in the interview with her, you should get the
2 transcript of it and understand what series of
3 questions -- what the context was for anything that I
4 said.
5 Q Sir, do you deny making the statement
6 attributed to you here?
7 A I think it was in the context of some
8 fairly aggressive questions about was my company
9 going to go out of business in the near future. And
10 I think it's -- it's valuable to know that context
11 whenever you look at an answer somebody gives to a
12 question.
13 Q Well, can you answer my question "yes"
14 or "no"?
15 Read the question back to him, please.
16 (The following question was
17 read:
18 "Q Sir, do you deny making
19 the statement attributed to you
20 here?")
21 THE WITNESS: I'm not denying making
22 the statement, but I am pointing out that I didn't
23 just make a statement. I was in an interview with a
24 reporter, and it would be valuable to understand her
25 questions. And I do recall the general tenure of
133 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 those questions. And so if your interest is
2 understanding the quote, understanding that context
3 is, I think, quite valuable.
4 Q You understood, did you not, Mr. Gates,
5 that people interested in the computer business
6 followed very carefully what it was you said about
7 the future of the business?
8 A That's quite a vague question.
9 Q You've appeared on covers of various
10 magazines; correct?
11 A My picture has.
12 Q Right. And is it not your
13 understanding that many newspaper reporters and
14 financial analysts are very interested in getting
15 your views on future developments in the computer
16 business?
17 A I've never done anything that would
18 give me any measurement of that.
19 Q You have no understanding whatsoever?
20 A I know I've been interviewed a lot of
21 times. I mean, when you say "popularity," help me
22 understand what sort of answer you want. Do you want
23 a number?
24 Q You just answered when you made
25 statements like this about Netscape that had the
134 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 potential to affect Netscape's stock price?
2 A I've told you several times that I
3 object to your using the word "statement" to refer to
4 the interview.
5 Q When you gave quotations like this to
6 financial analysts and reporters, you understood, did
7 you not, that statements like this could have a
8 negative impact on Netscape's stock price?
9 A I participated in an interview with
10 Louise Kehoe, and I explained why her basic
11 proposition that we were going -- going to go out of
12 business soon wasn't necessarily the case.
13 And so the focus of the interview was
14 certainly on Microsoft and our future, our lack of a
15 future. She's not a financial analyst, she's a
16 reporter.
17 Q Okay. Move to strike.
18 Would you read the question to him
19 again. And I'll ask you if you could answer the
20 question, Mr. Gates.
21 (The following question was read:
22 "When you gave quotations
23 like this to financial analysts and
24 reporters, you understood, did you
25 not, that statements like this could
135 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 have a negative impact on Netscape's
2 stock price?")
3 THE WITNESS: I don't know what you
4 mean "quotations like this."
5 Q BY MR. HOUCK: When you gave this
6 particular quotation to Ms. Kehoe, did you consider
7 that it might have a negative impact on Netscape's
8 stock price?
9 A It certainly was not in any way a
10 consideration of my defending Microsoft in this
11 particular interview.
12 Q Did you understand, sir, that
13 application vendors would be less likely to write
14 applications for a browser marketed by a company that
15 did not have long-term prospect for financial
16 viability?
17 A I've been quoted many times as talking
18 about Netscape as a company that has a good future.
19 And, you know, I'm -- when I've been directly asked
20 about that, I've said that they're in an exciting
21 field and have lots of opportunity.
22 MR. HOUCK: Move to strike the answer
23 as nonresponsive.
24 Q Do you recall any other statements --
25 strike the word "statements" since you don't like it.
136 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Do you recall any other quotations
2 attributed to you, Mr. Gates, in the press with
3 respect to your views of Netscape's financial
4 viability?
5 A Well, I was at MIT and -- meeting with
6 the W3C people, and I spoke in front of some
7 students. And a student asked what would I think
8 about him going and taking a job at Netscape. And I
9 said I thought that would be an interesting thing and
10 that Netscape had a lot of opportunities, and I
11 subsequently saw that quoted in the press. So I
12 remember that as one example.
13 Q Anything else?
14 A I don't recall any other specific times
15 when I was questioned about Netscape.
16 Q Do you recall making statements to the
17 press to the effect that Microsoft did not need to
18 make any revenue from its Internet software to be
19 successful as a company?
20 A Well, I don't know what you mean -- you
21 see, that's the -- I'm not sure what you mean by
22 "Internet software." What of our products? Could
23 you designate for me which ones you mean as being
24 Internet software?
25 Q I'm going to get marked as Exhibit
137 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 357 -- 356. I'm going to have marked as Exhibit 356
2 a copy of a story from the Business Week dated July
3 15, 1996.
4 (The document referred to was marked by
5 the court reporter as Government's Exhibit 356 for
6 identification and is attached hereto.)
7 Q BY MR. HOUCK: Exhibit 356 on the
8 second page contains the following statement,
9 quote -- which is attributed to you,
10 "'One thing to remember
11 about Microsoft,' says Chairman
12 William H. Gates III, 'We don't need
13 to make any revenue from Internet
14 software.'"
15 Can you tell me what you had in mind
16 there when you referred to Internet software?
17 MR. HEINER: Objection. Foundation.
18 THE WITNESS: So what was the question?
19 MR. HOUCK: Well, let me withdraw the
20 question and ask you.
21 Q Do you have any reason to doubt that
22 you made a statement to this effect to a Business
23 Week reporter?
24 A I'm pretty sure I wasn't interviewed by
25 Business Week for this article, so I think it's an
138 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 indirect quote of some kind.
2 Q Do you recall publicly stating that one
3 thing to remember about Microsoft was that it didn't
4 need to make any revenue from Internet software?
5 A As I told you earlier, I never
6 commented on Netscape or their prospects in a speech
7 or a statement. The only time where that ever came
8 up, I'm quite sure, is when reporters would push on
9 the fact that maybe Microsoft was about to be put out
10 of business by the Internet and various things going
11 on relative to the Internet. So there -- I mean,
12 there was no statement like that. There may have
13 been an answer along those lines, but I don't think I
14 can recall specifically.
15 Q Do you have any reason to doubt that
16 the quotation attributed to you is accurate?
17 A No. I think there's something strange
18 because I'm pretty sure I wasn't interviewed for this
19 article. I've never been interviewed by Robert Hof
20 who is the author, and I think I'd remember if I had
21 been interviewed for this article.
22 Q Did you believe that the Internet
23 threatened to put Microsoft out of business?
24 A There were a lot of things, including
25 the move to the Internet, that if Microsoft doesn't
139 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 do a lot of innovative work means that our revenue
2 will drop to zero.
3 Q Did you ever come to the point where
4 you seriously reached the conclusion that
5 Microsoft's -- Microsoft was likely to be put out of
6 business by the Internet?
7 A Our risk of being put out of business
8 has been a constant feeling for me ever since we've
9 been in business.
10 Q The Business Week article that we've
11 been looking at says that:
12 "Microsoft's expected fiscal
13 1996 sales were on the order of $8.6
14 billion with $2 billion in aftertax
15 profits."
16 Is that approximately correct?
17 A I'm not sure. There's a lot of ways to
18 get those figures.
19 Q Do you have any understanding what
20 Microsoft's 1996 revenues were?
21 A No.
22 Q Do you have any estimate, as you sit
23 here today, as to what Microsoft's aftertax profits
24 were in 1996?
25 A No.
140 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Were they on the order of $2 billion
2 approximately?
3 A I told you I don't know.
4 Q You have no way of estimating what they
5 were -- strike the question.
6 What's your best estimate of what
7 the -- Microsoft's aftertax profits were in fiscal
8 year 1996?
9 A I don't think it's good to guess
10 because it would be very easy to go get the real
11 figure.
12 Q And you'd have to guess; is that right?
13 A If you don't let me get the real
14 figure, then I would have to guess. But if you give
15 me a few minutes I can go get the real figure. So if
16 you're at all interested in the facts, just give me a
17 few minutes.
18 Q I am. So go ahead, go get it.
19 A Okay.
20 MR. HEINER: Take a break.
21 THE VIDEOGRAPHER: The time is 2:23.
22 We're going off the record. This is the end of Tape
23 2 of the deposition of Bill Gates:
24 (Recess.)
25 THE VIDEOGRAPHER: The time is 2:32.
141 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 We're going back on the record. This is Tape 3 of
2 the videotaped deposition of Bill Gates.
3 Q BY MR. HOUCK: Mr. Gates, were you able
4 to obtain the information you were looking for?
5 A Yeah. It looks like the numbers given
6 in the Business Week article, the sales and profit
7 numbers are accurate.
8 Q We've seen a number of references in
9 documents we've looked at to browser share. And
10 you've been quoted as saying, "We wake up in the
11 morning thinking browser share."
12 Do you recall that quotation?
13 A No.
14 Q I'd like to have marked as Exhibit 357
15 an article from PC Magazine Online dated March 13,
16 1996.
17 (The document referred to was marked by
18 the court reporter as Government's Exhibit 357 for
19 identification and is attached hereto.)
20 Q BY MR. HOUCK: Exhibit 357, Mr. Gates,
21 is a report on a keynote speech you gave at the San
22 Francisco Microsoft Developers Conference.
23 Do you recall giving a speech in that
24 conference?
25 A Yeah. I spoke there.
142 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q It quotes you as saying, "We wake in
2 the morning thinking browser share."
3 Do you recall saying that?
4 A It's reasonably illiterate. I'd have
5 to look at the transcript. It's not typical for me
6 to be illiterate.
7 Q Do you deny making the statement
8 attributed to you here, Mr. Gates?
9 A It's very possible I made a statement
10 to this effect in a more literate form, but the
11 transcript's available.
12 Q Isn't it a fact that winning a browser
13 share was a very important goal for Microsoft in
14 1996?
15 A We were measuring web usage share to
16 see how popular browser was. And we had -- one of
17 our goals was to increase that.
18 MR. HOUCK: I'd like to mark as Exhibit
19 358 an e-mail from Mr. Gates to Joachim Kempin dated
20 January 5, 1996.
21 (The document referred to was marked by
22 the court reporter as Government's Exhibit 358 for
23 identification and is attached hereto.)
24 Q BY MR. HOUCK: Do you recall writing
25 this e-mail, Mr. Gates, on or about January 5, 1996?
143 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A No.
2 Q Do you have any reason to doubt you
3 wrote it?
4 A No.
5 Q First sentence says, quote, "Winning
6 Internet browser share is a very important goal to
7 us," close quote.
8 Why did you believe that to be the case
9 in January of 1996?
10 A Are you asking me to reconstruct my
11 state of mind on January 5th?
12 Q Do you recall why it was, Mr. Gates,
13 that in the beginning of 1996 you came to believe
14 that winning Internet browser share was a very
15 important goal for Microsoft?
16 A I can't say for sure what I was
17 thinking at the time, but I can explain to you why it
18 makes sense to me that I would have written this
19 mail.
20 Q Am I correct that you have no present
21 recollection of what it was specifically that led you
22 to this conclusion back in January, 1996?
23 A I don't remember my exact thinking in
24 January 1996.
25 Q Okay.
144 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A I can explain my general recollection
2 of that time period, but I can't reconstruct what I
3 was thinking when I wrote the mail.
4 Q What is your general recollection of
5 the time period?
6 A We thought that people -- the usage of
7 the Internet was increasing, and it was important for
8 us to build a browser with better features including
9 integration that would be attractive enough that
10 people would choose to use it.
11 Q Who was Microsoft's principal
12 competitor for browser share in January of 1996?
13 A I think at that stage Netscape had 80
14 to 90 percent usage share which is a particular way
15 of measuring browser hits.
16 Q Is it your understanding that the
17 percentage of the PC system price attributable to the
18 operating system has risen in recent years?
19 MR. HEINER: Objection. Vague and
20 ambiguous.
21 THE WITNESS: I'm not sure which of our
22 products you're asking me about.
23 Q BY MR. HOUCK: Have you seen any
24 studies at Microsoft comparing the trend of pricing
25 with respect to PC systems to the price Microsoft
145 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 charges for its operating system products?
2 A No. I've seen a comparison of our
3 operating system prices with other people's operating
4 system prices.
5 Q I'd like to mark as Exhibit 359 a chart
6 entitled "PC Value Analysis" dated March 4, 1996.
7 (The document referred to was marked by
8 the court reporter as Government's Exhibit 359 for
9 identification and is attached hereto.)
10 Q BY MR. HOUCK: Do you recall seeing
11 Exhibit 359 before, Mr. Gates?
12 A No. I'm pretty sure I haven't seen it.
13 Q Do you know by whom at Microsoft it was
14 prepared?
15 A No. When I haven't seen something it's
16 very rare for me to know who prepared it.
17 Q Let me mark as Exhibit 360 an e-mail
18 from Mr. Kempin to yourself, Mr. Gates, dated
19 December 16, 1997.
20 (The document referred to was marked by
21 the court reporter as Government's Exhibit 360 for
22 identification and is attached hereto.)
23 Q BY MR. HOUCK: Do you recall receiving
24 Exhibit 360 from Mr. Kempin?
25 A No.
146 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q What was Mr. Kempin's position in
2 December of 1997?
3 A He was in charge of our relationship
4 with hardware manufacturers.
5 Q By "hardware manufacturers" you mean
6 OEMs?
7 A That's a shorthand term.
8 Q This e-mail says, "feedback
9 appreciated."
10 I take it you don't recall whether or
11 not you gave him any feedback?
12 A No.
13 Q From time to time does Microsoft do
14 surveys of people known as web professionals?
15 A I don't know.
16 Q I'd like to mark as Exhibit 361 -- I'd
17 like to mark as Exhibit 361 an e-mail from Brad Chase
18 to Bill Gates, Paul Maritz and Steve Ballmer dated
19 September 8, 1997.
20 (The document referred to was marked by
21 the court reporter as Government Exhibit 361 for
22 identification and is attached hereto.)
23 Q BY MR. HOUCK: Does Exhibit 361 refresh
24 your recollection that Microsoft from time to time
25 conducts surveys of web professionals?
147 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Do you want me to read this thing?
2 Q Just answer my question, if you can.
3 You don't have to read the whole thing to answer my
4 question, and I'll point you to one particular page
5 that I want to ask you about.
6 A I haven't seen the document before, but
7 it appears to be a specific case where some
8 information is gathered about what the document seems
9 to call web professionals. I don't know what they
10 mean by that term.
11 Q That wasn't my question.
12 You have no understanding of what's
13 meant by "web professionals," sir?
14 A In the context of this document I
15 don't. I can give you many possible definitions for
16 the term.
17 Q Okay.
18 Do you have any understanding as to the
19 type of web professionals that were surveyed here?
20 A If I studied the document, I could
21 learn something about that. I haven't read it.
22 Q Do you have any reason to believe this
23 document was not sent to you on or about September 8,
24 1997?
25 A No.
148 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Okay.
2 Do you recall receiving information in
3 or about April 1997 that many users did not want to
4 have a browser integrated into the operating system?
5 A No.
6 Q I'd like to mark as Exhibit 362 --
7 MR. HEINER: That's the way to do it.
8 Don't even hazard a guess.
9 MR. HOUCK: I'd like to mark as Exhibit
10 362 an April 25, 1997 e-mail or memo from Randy
11 Trower to Chris Jones, Joe Belfiore and others
12 including Mr. Gates?
13 THE WITNESS: That's Tandy.
14 MR. HOUCK: Tandy Trower. I'm sorry, I
15 misspoke.
16 (The document referred to was marked by
17 the court reporter as Government's Exhibit 362 for
18 identification and is attached hereto.)
19 Q BY MR. HOUCK: Who's Tandy Trower?
20 A That's hard to answer. He's an
21 employee of Microsoft who often looks at user
22 interface issues and a number of job roles he's had
23 over the years.
24 Q Back on -- strike that.
25 Do you recall receiving this
149 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 memorandum?
2 A I think I do.
3 Q Back on Bates stamp page 130 under the
4 heading "Desktop/Web Integration."
5 A Yep.
6 Q The memo states:
7 "The concept of unifying the
8 user's desktop and web experience
9 sounds good and reasonable, but it's
10 not clear that this is what users
11 want and certainly is not what they
12 expect."
13 Do you know the basis of the statement
14 made here?
15 A He's talking about how to refine the
16 Desktop/Win integration.
17 It says we need to do a better job.
18 And then he talks about how to do the integration and
19 what he thinks is a different, better way.
20 Q Do you know the source of the
21 information he reports here to you?
22 A I'm sorry?
23 Q Do you know what the source of his
24 information was that he's reporting to you here?
25 A No.
150 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q He says in the next line, quote,
2 "Many users expect to just
3 get browser improvements with IE4,
4 and I've heard many a remark from
5 users that they don't want to view
6 their folders to look like web
7 pages."
8 Do you know where he obtained that
9 information?
10 A No.
11 Q Would you agree that it's fair to
12 describe Windows 98 as not a vital upgrade for PC
13 users?
14 MR. HEINER: Objection.
15 THE WITNESS: I'm not sure what you
16 mean by "vital." I mean, it --
17 Q BY MR. HOUCK: I'd like to mark as
18 Exhibit 363 an e-mail from Brad Chase to Walt
19 Mossberg and Mr. Gates dated May 15, 1998. The last
20 portion of this document, Mr. Gates, purports to be
21 an e-mail from yourself to Mr. Mossberg of the Wall
22 Street Journal where you say -- referring to Windows
23 98 -- "You are right that it is not a vital upgrade."
24 Do you see that?
25 A I see the paragraph there.
151 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Do you recall sending this e-mail to
2 Mr. Mossberg of The Wall Street Journal?
3 A It looks like the e-mail I sent him.
4 (The document referred to was marked by
5 the court reporter as Government's Exhibit 363 for
6 identification and is attached hereto.)
7 MR. HOUCK: At this time I'm going to
8 turn the examination over to Mr. Boies.
9 Why don't we go off the record while we
10 change places.
11 THE VIDEOGRAPHER: The time is 2:52.
12 We're going off the record.
13 (Off the record.)
14 THE VIDEOGRAPHER: The time is 2:54.
15 We're going back on the record.
16
17 EXAMINATION
18 BY MR. BOIES:
19 Q Good afternoon, Mr. Gates.
20 I'd like to begin by following up with
21 Exhibit 356 and Exhibit 355 that I think you have in
22 front of you.
23 First, with respect to Exhibit 356,
24 which is a 1996 Business Week article. I understand
25 your testimony to be that you do not recall giving an
152 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 interview to the reporter who wrote this. But do you
2 recall saying the statement attributed to you,
3 whether you said it to that reporter or to someone
4 else? And the statement I'm referring to is the
5 statement at the end of the article in which you are
6 quoted as saying:
7 "'One thing to remember
8 about Microsoft,' says Chairman
9 William H. Gates III, 'We do not need
10 to make any revenue from Internet
11 software.'"
12 A I don't remember saying that.
13 Q Did you say it, sir?
14 MR. HEINER: Objection. Asked and
15 answered.
16 THE WITNESS: I don't remember saying
17 it.
18 Q BY MR. BOIES: That wasn't my question,
19 sir.
20 Did you say it?
21 MR. HEINER: Objection. Harassing the
22 witness.
23 MR. BOIES: I'm not harassing the
24 witness. I want to know whether he had a
25 recollection of -- he may not know whether he said
153 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 it, he may think he didn't say it. I'm trying to
2 clarify what the witness's testimony is.
3 MR. HEINER: Can I have the first of
4 those two questions of those read back?
5 (The following record was read:
6 "Q First, with respect to
7 Exhibit 356, which is a 1996 Business
8 Week article. I understand your
9 testimony to be that you do not
10 recall giving an interview to the
11 reporter who wrote this. But do you
12 recall saying the statement
13 attributed to you, whether you said
14 it to that reporter or to someone
15 else? And the statement I'm
16 referring to is the statement at the
17 end of the article in which you are
18 quoted as saying,
19 "'One thing to remember
20 about Microsoft,' says Chairman
21 William H. Gates III, 'We do not need
22 to make any revenue from Internet
23 software.'
24 "A I don't remember saying
25 that.
154 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "Q Did you say it, sir?
2 "MR. HEINER: Objection.
3 Asked and answered.
4 "THE WITNESS: I don't
5 remember saying it.")
6 MR. HEINER: The witness doesn't
7 remember saying it.
8 Q BY MR. BOIES: Do you doubt that you
9 said it, sir?
10 A Same answer.
11 Q Well, my question, sir, is whether you
12 doubt it. And I'd like the best answer you can give
13 to me on that question, whether you doubt saying
14 this. I understand --
15 A Given that I don't have a recollection
16 of saying it, you're sort of asking me to make some
17 kind of a guess.
18 Q Move to strike the answer as
19 nonresponsive.
20 A And I have --
21 MR. HEINER: There's likely to be
22 testimony during the rest of the afternoon that you
23 may not like from time to time. You'll probably have
24 to accept that as part of the examination.
25 MR. BOIES: Absolutely. And if it's
155 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 responsive, it will be his testimony. But if it is
2 not responsive, I intend to preserve the record and
3 move to strike it as nonresponsive.
4 MR. HEINER: And you should continue to
5 answer the questions as best you can responding to
6 the questions posed.
7 Q BY MR. BOIES: Do you have any reason
8 to believe that Business Week would make this quote
9 up, sir?
10 A They had made mistakes, but I'm not
11 suggesting that I know that they did in this case.
12 Q Do you recall saying publicly the
13 substance of what is attributed to you here? Perhaps
14 not the words but the substance of, "One thing to
15 remember about Microsoft, we don't need to make any
16 revenue from Internet software"?
17 A I feel quite sure I never gave a speech
18 or made a statement along those lines. I may have,
19 in response to reporters suggesting that Microsoft
20 was on the verge of doom, talked about the fact that
21 we were doing a lot of work and that we thought we
22 had a good opportunity on the Internet.
23 Q Now, at the time that, according to
24 you, reporters were suggesting that Microsoft was on
25 the edge of doom, Microsoft had profits of over $2
156 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 billion dollars in aftertax profits; is that correct?
2 A Well, I think it mischaracterizes what
3 I said completely to say that I'm just suggesting it.
4 That's really quite a misstatement.
5 MR. BOIES: Could I have the question
6 reread and the answer reread?
7 (The following record was read:
8 "Q Now, at the time that,
9 according to you, reporters were
10 suggesting that Microsoft was on the
11 edge of doom, Microsoft had profits
12 of over $2 billion dollars in
13 aftertax profits; is that correct?
14 "A Well, I think it
15 mischaracterizes what I said
16 completely to say that I'm just
17 suggesting it. That's really quite a
18 misstatement."
19 Q BY MR. BOIES: Having heard the
20 question, do you want to change your answer?
21 A I'll add to it if you want.
22 Q No. Do you want to change your answer?
23 A I'll be glad to add to it.
24 Q My question, sir, is: Do you want to
25 change your answer? You can say "yes" or "no."
157 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A I don't see any reason to change it.
2 I'll be glad to add to it.
3 Q Were reporters suggesting to you in
4 1996 that Microsoft was on the edge of doom, as you
5 have used that phrase?
6 A Many reporters suggested that, yes.
7 Q And in 1996 what were Microsoft's
8 revenues compared to Netscape's revenues?
9 A I don't know Netscape's revenues.
10 Q Approximately, sir?
11 A Approximately what?
12 Q Approximately what were Netscape's
13 revenues compared to Microsoft's revenues?
14 A You want me to guess at Netscape's
15 revenues?
16 Q I want you to give me your best
17 judgment and estimate as a chairman and CEO of
18 Microsoft, sir. If you call it guessing, you can
19 call it whatever you want. What I want is your best
20 estimate under oath as you sit here.
21 A I know that Microsoft's revenues would
22 be dramatically higher than Netscape's, but I -- I
23 really won't want to hazard a guess at Netscape's
24 revenue in particular.
25 Q As you sit here now, can you give me
158 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 any estimate or range at all of what Netscape's
2 revenues were in 1996?
3 A Zero to 200 million.
4 Q As you sit here now, can you tell me
5 any estimate or range of what Netscape's revenues are
6 today?
7 A I think zero to 500 million.
8 Q Can you be any more specific than that;
9 that is, can you narrow the range at all?
10 A Yeah. 200 million to 500 million.
11 Q Can you narrow the 1996 range at all?
12 The 1996 range you gave me was zero to 200 million.
13 A 30 million to 200 million.
14 Q Is that the best you can do as you sit
15 here now?
16 A Well, the chance of my being wrong goes
17 up as I narrow the range.
18 Q You've given me the very best estimate
19 that you can? That's your testimony?
20 A Well, it's all about probability. I
21 think it's highly probable that their revenue fell
22 into the range I gave you.
23 Q Did you make any effort in 1996 to find
24 out what Netscape's revenues actually were?
25 A Personally?
159 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Either personally or through some of
2 the many employees of Microsoft?
3 A Oh, I'm sure there were people at
4 Microsoft who looked at Netscape's revenues during
5 that year.
6 Q Did they communicate with you as to
7 what those revenues were at all?
8 A Among the thousands and thousands of
9 e-mail messages I get, I'm sure there were some that
10 had for certain periods of time information about
11 that.
12 Q Did you request any information
13 concerning Netscape's revenues in 1996?
14 A I'm sure I was in meetings where the
15 information was presented, but I don't think I was
16 the one who specifically asked for the presentation.
17 Q Whether you specifically asked for a
18 presentation in a meeting or not, did you ask people
19 to provide you with information concerning Netscape's
20 revenues in 1996?
21 A I may have asked some questions about
22 their revenue.
23 Q Do you recall doing that, sir?
24 A No.
25 Q Did you receive any answers to your
160 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 questions about Netscape's revenues?
2 A Although I don't specifically recall
3 it, I'm sure that in most cases I did.
4 Q It would be usual within Microsoft that
5 if you asked a question, you would receive an answer;
6 is that fair, sir?
7 A No. There's no -- there's lots of
8 questions I ask I don't get answers to. But well
9 over 50 percent I do.
10 Q When you say that there are lots of
11 questions that you ask people of Microsoft that you
12 don't get answers to, do you mean you don't get any
13 answer at all, they just ignore it?
14 A That happens.
15 Q Does it happen from people with a
16 sustained career within your company, sir?
17 A If they're busy enough on priorities
18 that I set for them, then yes.
19 Q You're the chief executive officer of
20 Microsoft.
21 Does Microsoft have a president?
22 A Depends on the time period that you're
23 asking about. Some time periods, yes; some time
24 periods, no.
25 Q Does it have one?
161 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Today, yes.
2 Q Who is that?
3 A Steven Ballmer.
4 Q How long has Mr. Ballmer been
5 president?
6 A About 30 days.
7 Q What was his position before that?
8 A Executive vice president.
9 Q How long had he held that position?
10 A That's a good question.
11 There's been an increase in the grand
12 nature of titles over a period of time. Steve has
13 been a very high level executive for a long time.
14 But I don't think I came up with the use of the term
15 "executive vice president" until something -- no --
16 I'm not sure when I started using that term -- when
17 we used that term for his position.
18 Q Is it fair to say that Mr. Ballmer has
19 been a very high executive, to use your phrase,
20 within Microsoft for several years?
21 A Yes.
22 Q Did you ever ask Mr. Ballmer to provide
23 you with information concerning Netscape's revenues?
24 A No. I don't remember doing that. It
25 would be a very unusual thing for me to ask Steve.
162 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 He's -- as we discussed, he's a fairly
2 high level executive, so he doesn't generally go out
3 and work on my behalf gathering numbers.
4 Q Let me ask you to look at Exhibit 355
5 and, in particular, the second paragraph of the third
6 page which reads, quote,
7 "'Our business model works
8 even if all Internet software is
9 free,' close quote, says
10 Mr. Gates. Quote, 'We are still
11 selling operating systems,' close
12 quote. Netscape, in contrast, is
13 dependent on its Internet software
14 for profits, he points out."
15 You've testified as to the context in
16 which this statement was made. Did you understand at
17 the time that these words were used, that the
18 publication of these words might well affect
19 Netscape's business?
20 MR. HEINER: Asked and answered.
21 MR. BOIES: Don't think so.
22 THE WITNESS: In this interview I was
23 defending Microsoft in the work we were doing to the
24 reporter. And she was the one who was bringing up
25 Netscape in several of the questions.
163 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 The -- you know, the last part there
2 doesn't even seem to be a quote, so I'm not sure what
3 I said, actually.
4 Q BY MR. BOIES: When you were talking to
5 the reporter you knew that it was likely that the
6 reporter would publish at least some of what you told
7 the reporter; correct, sir?
8 A Yes.
9 Q When you used the words with this
10 reporter that are set forth here, did you understand
11 that if those words were published it might well
12 affect Netscape's business?
13 A I've already testified I don't remember
14 using those words. So trying to reconstruct my state
15 of mind around using those words when I don't
16 remember using those words is not going to be
17 possible.
18 Q Let me be sure I understand your
19 testimony.
20 It's your testimony that you do not
21 remember making this statement to the reporter?
22 That's your testimony?
23 A That's right.
24 Q Do you have any reason to doubt that
25 you made this statement to the reporter?
164 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Well, it seems like we're going over
2 this again and again.
3 I think there were a series of
4 questions from her about -- you know, that
5 Netscape -- that Microsoft might not have the future
6 because of what was going on in the Internet. And
7 although I don't remember my specific answer, I do
8 remember her asking a lot of questions along those
9 lines.
10 Q My question now, sir, is not what the
11 reporter asked you, my question is whether you have
12 any reason to doubt that you said the words that the
13 reporter attributes to you.
14 A Do you mean the ones in quotes?
15 Q Let's begin with the ones in quotes,
16 sir.
17 Do you have any doubt or any reason to
18 doubt that you told this reporter in words or in
19 substance that Microsoft's business model works even
20 if all Internet software is free because you were
21 still selling operating systems?
22 A I don't remember saying that.
23 Q Do you have any reason to doubt that
24 you said that in words or in substance to this
25 reporter in 1996?
165 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A I'd want to go back and look at the
2 transcript to find out if I did or not.
3 Q My question is whether sitting here you
4 have any reason to doubt that you said these words.
5 A I don't remember saying those words.
6 Q I know that that's what you've said.
7 Now I'm asking you a different question, which is
8 whether you have any reason to doubt that you said
9 these words.
10 And if you don't understand the
11 question, you can simply tell me you don't understand
12 the question.
13 A I'm not sure what my memory can hold
14 except for knowing whether I remember if I said it or
15 not. I don't remember not saying it. That's kind of
16 unusual memory to have. But I think that's what
17 you're saying: Is there a specific memory in my head
18 when I go look up my memory where it says, "I never
19 said these words." And I don't have a memory of that
20 either.
21 Q Do you have a memory of stating the
22 substance of what is attributed to you even if you
23 don't remember saying the exact words?
24 A No.
25 Q Do you have any reason to doubt that
166 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 you said the substance of what is attributed to you?
2 A I have no recollection of saying what
3 is in the substance of that quote.
4 Q Is what is in the substance of this
5 paragraph inconsistent with what you told people
6 publicly in 1996?
7 A I'm not sure what -- you're asking me
8 to recall everything I said during that year and
9 compare it for consistency with this particular
10 sentence here?
11 MR. BOIES: Move to strike the answer
12 as nonresponsive.
13 MR. HEINER: Well, I had an objection
14 along the same lines. But I guess in this case the
15 witness stated the objection. Vague and ambiguous.
16 MR. BOIES: That's not a reason not to
17 answer the question.
18 MR. HEINER: No, that's fine. I'm just
19 saying --
20 THE WITNESS: And I did answer, which
21 is --
22 MR. BOIES: Read the question back,
23 please.
24 (The following question was
25 read:
167 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "Q Is what is in the
2 substance of this paragraph
3 inconsistent with what you told
4 people publicly in 1996?")
5 THE WITNESS: I think you're asking me
6 for -- to check for consistency with all the
7 statements I gave during that 12-month period, and
8 I'm not able to do that.
9 Q BY MR. BOIES: Is what is stated in
10 this paragraph, the second paragraph on page 3 of
11 Exhibit 355, consistent with what you said publicly
12 in 1996?
13 MR. HEINER: Objection.
14 THE WITNESS: Well, you'd have to
15 understand the context of what her question -- what
16 she defined the word "Internet software" to be when
17 she was asking these questions. And sitting here
18 right now, I don't know when she was asking her
19 questions how she defined "Internet software." I'm
20 sure I would have asked her what she meant by it in
21 order to respond.
22 Q BY MR. BOIES: But you don't remember
23 what you said; is that what your testimony is?
24 A I don't remember what the -- in this
25 context she had -- she had defined what the term
168 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "Internet software" meant.
2 Q Is it your testimony that at the
3 present time you simply don't know what this
4 paragraph means, it's unclear to you?
5 A I think to understand -- to decide if
6 that sentence taken out of the context of the
7 interview, if it's -- to understand what it means you
8 have to decide what you mean by the term "Internet
9 software." So if you want to tell me a definition of
10 "Internet software," then I can say to you, yes, this
11 seems correct to me or, no, it doesn't seem correct
12 to me.
13 Q My question to you, sir is: As you sit
14 here now, you don't have any knowledge of what is
15 meant by the term "Internet software" in this
16 quotation; is that what you're telling me?
17 A I'm not sure what it was meant
18 during -- what was meant by it during the interview.
19 There are many definitions you could have for that
20 term "Internet software."
21 Q And as you look at this paragraph which
22 says, quote,
23 "'Our business model works
24 even if all Internet software is
25 free,' close quote, says
169 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Mr. Gates. Quote, "'We are still
2 selling operating systems,' close
3 quote. Netscape, in contrast, is
4 dependent on its Internet software
5 for profits he points out."
6 Now, it's your testimony that in that
7 context you do not know what is meant by "Internet
8 software"?
9 A Well, to give this statement internal
10 consistency, it must have been in this interview I
11 wasn't including operating systems in the term
12 "Internet software," so the interviewer must have
13 defined it that way, and I was including some
14 products that Netscape was working on in that
15 definition.
16 Q Browsers perhaps, do you think?
17 A Well, if you want to ask me about
18 browser revenue, I'll be glad to. I can't comment on
19 whether browse -- how browsers relate to this
20 interview that I don't remember. I'll be glad to
21 answer any question about browsers.
22 Q Well, let me ask a question about
23 browsers, sir.
24 Do you have any doubt in your mind that
25 the reference to Internet software in this paragraph
170 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 is a reference to browsers?
2 A Internet software -- I can't think of a
3 definition of it that would be specifically just
4 browsers.
5 Q Would it include browsers?
6 A Most definitions of it would, yes.
7 Q Would it be clear to you, sir, that the
8 reference to Internet software here in this paragraph
9 includes browsers?
10 A Well, when you talk about browsers, you
11 have to think of different revenue streams. And it's
12 not clear if in this interview that distinction had
13 been drawn between the different potential revenue
14 streams generated by a browser.
15 Q When you say "this interview," you mean
16 the interview of you?
17 A That's right.
18 Q Right.
19 Let me try to put my question in a way
20 that maybe it will be more understandable.
21 Is it clear to you from the context
22 that's here that when a reference is made to Internet
23 software, that reference includes browsers?
24 A Well, outside of the quotes if you look
25 what the author wrote, she seems to have a very broad
171 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 definition of "Internet software." She seems to be
2 including electronic mail and groupware, perhaps even
3 database -- looks like database is included in her
4 definition.
5 MR. BOIES: Move to strike the answer
6 as nonresponsive.
7 Q Mr. Gates, with respect to the
8 quotation that is attributed to you, do you have any
9 doubt that Internet software, as used there, includes
10 browsers?
11 A If the distinction had been made about
12 the revenue streams, then, yes, it probably does.
13 Q Probably does include browsers?
14 A If the distinction had been made about
15 the different revenue streams.
16 Q If the distinction had been made in
17 this interview of you you're saying?
18 A That's right.
19 Q And it's your testimony that you just
20 don't remember whether or not that distinction was
21 made? Is that your testimony?
22 A That's right.
23 Q Let me ask you to look at another
24 exhibit, the one that I have just marked 364.
25 (The document referred to was marked by
172 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 the court reporter as Government's Exhibit 364 for
2 identification and is attached hereto.)
3 Q BY MR. BOIES: Do you have Exhibit 364
4 in front of you, sir?
5 Exhibit 355 that we were just talking
6 about is a July 3, 1996 Financial Times article.
7 Exhibit 364 is a June 10, 1996 Financial Times
8 article. And I'd like you to look on the fourth
9 page, the first paragraph, and you can read as much
10 of the document as you need to to put this in
11 context. But the paragraph that I'm interested in is
12 at the top of the page, and it says, quote,
13 "'Our business model works
14 even if all Internet software is
15 free,' close quote, says Mr. Gates.
16 Quote, 'We are still selling
17 operating systems. What does
18 Netscape's business model look like
19 if that happens, not very good,'"
20 close quote.
21 Did you say those words to this
22 reporter, Mr. Gates?
23 A Well, just understand we're covering
24 exactly the same ground. I didn't give two
25 interviews. This is all the same reporter, the same
173 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 interview. So we can go through all of that exactly
2 like we did. Louise Kehoe is Louise Kehoe, I gave
3 one interview.
4 Q Of course the June 10, 1996 article is
5 written by two reporters; correct, sir?
6 A And I've never met or given an
7 interview to Hugo Dixon as far as I can recall.
8 Q Well, let's see if looking at this
9 article in any way refreshes your recollection.
10 Did you say to a Financial Times
11 reporter in 1996, quote:
12 "'Our business model works
13 even if all Internet software is
14 free. We are still selling operating
15 systems. What does Netscape's
16 business model look like if that
17 happens? Not very good.'"
18 Did you say those words --
19 A I don't remember.
20 Q -- to a Financial Times reporter,
21 Mr. Gates?
22 A I said I don't remember.
23 Q Did you communicate the substance of
24 those words to a Financial Times reporter in 1996?
25 MR. HEINER: Asked and answered three
174 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 or four times just in the past 30 minutes.
2 MR. BOIES: This is the first time that
3 we've dealt with this paragraph or this statement.
4 MR. HEINER: The testimony is that it's
5 the same interview and the quotation's an exact quote
6 from the other one.
7 MR. BOIES: It's not an exact quote
8 from the other one.
9 MR. HEINER: Let's compare. They look
10 awfully close.
11 MR. BOIES: They do look very close.
12 And it seems, if you believe these reporters, to be
13 saying very similar things. But they are not the
14 same.
15 THE WITNESS: Where do you see the
16 difference? One just seems to have more words in it.
17 Maybe my reading skills aren't working today.
18 Q BY MR. BOIES: Well, one of things that
19 is different is in the one we're looking at right
20 now, Exhibit 364, it says as part of the
21 quote, "'What does Netscape's business model look
22 like if that happens? Not very good.'"
23 That quotation wasn't in the prior
24 article.
25 Now, maybe you don't remember saying
175 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 that either, Mr. Gates, but I think your counsel will
2 agree that I'm entitled to ask you whether you
3 remember saying that.
4 MR. HEINER: Well, the testimony was he
5 doesn't remember saying these words in this
6 interview.
7 MR. BOIES: And what I then asked him
8 was whether he remembered communicating the substance
9 of what is stated here.
10 THE WITNESS: Even when you add the
11 extra words on there in terms of my recollection of
12 the specifics or the substance, I'd say the same
13 thing I said before when we were talking about the
14 same quote but without those extra words not included
15 in this article.
16 Q BY MR. BOIES: So your testimony today
17 about the quotation in Exhibit 355 would be
18 applicable to what is attributed to you in Exhibit
19 364 as well?
20 A That's correct.
21 Q Okay.
22 Do you have any reason to believe that
23 there would have been any reason for this reporter to
24 have made up these quotations?
25 A Didn't you already ask that?
176 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q I asked that with respect to the
2 Business Week reporter. I'm now asking it with
3 respect to The Financial Times reporter.
4 A Same answer.
5 Q You do have to give it for the record,
6 sir. What I'm asking you is whether you have any
7 reason to believe that The Financial Times reporter
8 would have made up or had any reason to make up the
9 quotations that are attributed to you here.
10 A I don't think they're infallible, but I
11 have no reason to suspect in this case that they made
12 it up.
13 Q Okay.
14 Without regard to any particular
15 article, in 1996 did you tell people publicly that
16 Microsoft would do fine if Internet software or
17 browsers were free but that Netscape would not do
18 fine if Internet software or browsers were free?
19 A What do you mean by "Internet
20 software"?
21 Q What I mean is what you refer to as
22 Internet software in these various quotations.
23 A I'm afraid we're not going to be able
24 to know what my state of mind was when I gave that
25 interview. If you want to define it, I'll be glad to
177 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 answer the question.
2 Q Do I take it that your testimony is
3 that you simply have no recollection whatsoever as to
4 what you meant by these words in 1996?
5 A No. It wasn't what I meant. I
6 responded to a reporter's question, and I've already
7 said to you that she must have given me a reason to
8 understand what she meant in her questions in order
9 for me to be able to answer them.
10 Q Do you remember asking her what she
11 meant by those terms?
12 A I feel pretty sure I wouldn't have used
13 the term unless there was some understanding of what
14 she understood the term to mean.
15 Q Why is that, sir?
16 A I'm just saying it's not typical for me
17 to use a term with a reporter where it's a very open
18 unended term that can be used in a lot of different
19 ways without any understanding between myself and the
20 reporter of -- in that context, in that series of
21 questions, what's being referred to.
22 Q Well, I'd like to draw a distinction,
23 if I could, between having any understanding at all,
24 which could come from a variety of sources, and
25 asking the reporter for a definition.
178 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Did you ask the reporter for a
2 definition of what was meant by "Internet software"?
3 A All I can say, not recalling the
4 specifics in the interview, is that it's very
5 unlikely I would make a statement like that without
6 some common understanding between myself and the
7 reporter of what that term, which out of context is
8 incredibly ambiguous, what it meant in the context of
9 her series of questions.
10 Q And just to be sure I understand it.
11 What you're saying is that you don't
12 remember what the definition was and you don't even
13 remember that there was a definition, but you believe
14 there must have been a definition or you wouldn't
15 have been using these words.
16 Is that fair?
17 A There must have been a common
18 understanding, I wouldn't say a definition.
19 Q How would that common understanding
20 have been arrived at other than through a definition?
21 A Well, somebody can give examples. I'm
22 just saying it doesn't have to be a formal definition
23 for two people to have a context in a conversation of
24 what a word means. That is neither one has to say,
25 "I define the word as follows." So maybe I
179 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 interpreted your use of the word "definition" too
2 strictly.
3 Q Okay.
4 A So if you define "definition" for this
5 conversation in a loose way, then I'll understand
6 what you mean.
7 Q That is, what you need in order to
8 understand the question is to have me define what is
9 meant by "definition"?
10 A At least loosely.
11 Q What I mean by definition is what you
12 meant by definition when you said that you wouldn't
13 have answered this question unless you had a
14 definition of the word.
15 A "Common understanding" -- I used the
16 word "common understanding," and I'll stick with
17 that.
18 Q In 1996 was there a common
19 understanding of what was meant by "Internet
20 software"?
21 A In a context-free sense, absolutely
22 not.
23 Q Was there a common understanding of
24 what was meant by an Internet browser?
25 A The whole notion of what the browser --
180 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what features it would contain or what it would mean
2 or all that was very uncertain in 1996.
3 Q Let me ask you a different question.
4 Do you believe that the publication of
5 this article and, in particular, the publication of a
6 statement attributed to you, whether accurately
7 attributed to you or not, that quote,
8 "'Our business model works
9 even if all Internet software is
10 free,' close quote, says Mr. Gates.
11 Quote, 'We are still selling
12 operating systems. What does
13 Netscape's business model look like
14 if that happens? Not very good,"
15 close quote.
16 Do you believe that the publication of
17 that statement affected Netscape?
18 A I know when people have been quoted in
19 the press, competitors, saying how -- what trouble
20 Microsoft is in and how much better their products
21 are, that it's rarely had a direct effect on our
22 business. I think somehow people rely on more
23 analytical observers.
24 MR. BOIES: I'll move to strike the
25 answer as nonresponsive.
181 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Would you read the question again,
2 please?
3 (The following question was read:
4 "Q Do you believe that the
5 publication of that statement
6 affected Netscape?")
7 THE WITNESS: What do you mean
8 "affected Netscape"?
9 Q BY MR. BOIES: Are you telling me that
10 you don't understand the question, sir?
11 A Yes, that's what I'm saying to you.
12 Q Okay.
13 By "affected Netscape," I mean
14 adversely affected Netscape.
15 A Like hurt their feelings, somebody
16 cried, or somebody in reading the article smiled?
17 Q Are you saying that you don't
18 understand what I mean by "adversely affected
19 Netscape"?
20 A No, I don't know what your criteria is.
21 I think it's likely somebody may have read it and
22 disagreed with it.
23 Q Do you think it adversely affected
24 Netscape's business prospects?
25 A I think the general work that we were
182 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 doing to do strong Internet software had an effect on
2 Netscape, but I don't think quotations like that had
3 any direct effect.
4 Q Now, you putting in the word "direct
5 effect," and I know that you're a very precise person
6 from the statement you've already made today. So I'm
7 going to ask you what you mean by the use of the word
8 "direct" there that you put in the answer that wasn't
9 in the question. What do you mean by "direct"?
10 A Well, I said earlier that there are
11 analytical observers like analysts, and they tend to
12 look at technology companies and deliver
13 pronouncements about them. And, you know, some of
14 them will be positive about a company, and some will
15 be negative about a company.
16 It's possible in looking at the general
17 activities of Microsoft, one of those analysts formed
18 a certain conclusion about Netscape and published
19 that conclusion and that that might have had an
20 effect. And so you could say that analysts may have
21 had an effect. And analysts look at what Microsoft
22 does, primarily in the products, not as much what we
23 say is what we do in shipping our products.
24 Q What I'm asking you about, of course,
25 right now is the effect of what you were saying or
183 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what was attributed to you. And I do want to come to
2 the effect that your products had on Netscape as
3 well. But right now I want to talk about the effect
4 of what was attributed to you.
5 And what I'm asking you is whether you
6 believe that the publication of statements like this
7 attributed to you adversely affected Netscape's
8 business prospects.
9 A I'm not aware of any specific effect.
10 And my general experience is that when competitors
11 have made statements about us, that doesn't have an
12 effect, rather that the people who do analysis or the
13 actual products get shipped are what cause effects on
14 our business.
15 Q Do you think that the effect on
16 Microsoft's business of competitors saying things
17 about Microsoft is comparable to the effect on
18 Netscape's business of Microsoft saying things like
19 this about Netscape?
20 A Are we now talking about what was
21 published or what was said?
22 Q Well, we're talking about what was
23 published here.
24 A Okay. Well, then, stick to that.
25 Q That's what I am, sir, because I
184 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 understand that your testimony is that you just don't
2 remember saying any of these quotations that these
3 publications have attributed to you.
4 A No.
5 Q That's why I'm asking about what is
6 written here because there's no doubt -- you have no
7 doubt that this was actually published, do you, sir?
8 A I believe it was published.
9 Q Okay. So at least we know that The
10 Financial Times published, quote,
11 "'Our business model works
12 even if all Internet software is
13 free,' close quote, says Mr. Gates.
14 Quote, 'We are still selling
15 operating systems. What does
16 Netscape's business model look like
17 if that happens? Not very good,'"
18 close quote.
19 Now, I asked you whether you thought
20 that the publication of that adversely affected
21 Netscape's business prospects. And you then gave me
22 an answer that talked about the effect on Microsoft
23 of criticism of Microsoft.
24 Do you recall that?
25 A Well, that wasn't all that I said. We
185 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 can read back what I said.
2 Q If you would like to have it read back,
3 it's okay with me. I don't need to have it read
4 back. But if -- I've got as much time as I need to
5 finish the examination, sir, and I'm prepared to
6 spend as many days here as I have to to do that. I
7 think the record is quite clear as to what your
8 answer was, and I think it is quite clear that you
9 kept going back to Microsoft's experience, and that's
10 the only point I'm trying to get you to focus on.
11 Now, do you recall that enough to
12 answer the question, or do we need to go back?
13 Either way's okay with me.
14 A Go ahead and ask a question, and then
15 I'll decide.
16 Q Do you think -- because you're the one
17 that brought up the effect on Microsoft criticism.
18 Do you think that the effect on
19 Microsoft of criticism of it is comparable to the
20 effect on Netscape of a publication of statements
21 attributed to you like, quote,
22 "'Our business model works
23 even if all Internet software is
24 free,' close quote, says Mr. Gates.
25 Quote, 'We are still selling
186 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 operating systems. What does
2 Netscape's business model look like
3 if that happens? Not very good,'"
4 close quote.
5 A So you're supposing a case where I
6 personally criticized Microsoft?
7 Q I'm not supposing anything at all, sir.
8 A That's what you suggested.
9 Q No. Sir, let me try to be clear. And
10 perhaps I'm not being clear.
11 A Who's doing the criticism in your
12 hypothetical?
13 Q Well, I think the only person that has
14 mentioned the word "criticism" today is you; that I
15 think it came out of your answer when you were
16 talking about criticism of Microsoft. Now, if I've
17 misremembered your testimony about that, I will stand
18 corrected by the record.
19 But my recollection is that I asked you
20 whether you thought the publication of statements
21 like this would adversely affect Netscape's business
22 prospects. And my recollection is that you gave me
23 an answer, a substantial portion of which included a
24 statement that it had been your experience that
25 criticism of Microsoft didn't really affect your
187 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 business.
2 A No, I didn't say that. I said
3 statements by competitors, whether critical or
4 otherwise, I didn't think explained what happened to
5 our business but, rather, other factors could explain
6 what happened to our business.
7 Q Okay. Let me use "statements." And if
8 I misremembered the word "criticism," I apologize.
9 Do you think that the effect on
10 Microsoft's business of statements about Microsoft by
11 its competitors is comparable to the effect on
12 Netscape's business of the publication of statements
13 like, quote,
14 "'Our business model works
15 even if all Internet software is
16 free,' close quote, says Mr. Gates.
17 Quote, 'We are still selling
18 operating systems. What does
19 Netscape's business model look like
20 if that happens? Not very good,'"
21 close quote.
22 MR. NEUKOM: If you read that one more
23 time -- that's seven times. Come on.
24 MR. BOIES: I wish this question had
25 been answered simply. I think it could have been.
188 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 THE WITNESS: I gave you a very simple
2 answer that I was not aware of any effect on their
3 business by the publication.
4 Q BY MR. BOIES: And that may have
5 answered my question, sir. But because I know that
6 you're a person that uses words very precisely, I
7 need to be sure that we haven't missed something
8 between the question and the answer. My question was
9 whether you believed that this publication affected
10 Netscape's business prospects.
11 You said you didn't know of any effect.
12 And I just wanted to be sure that your answer was
13 meant to apply to the full breadth of my question.
14 A The full breadth of your question?
15 Q Yes, sir. And if that's confusing to
16 you, as I say, I will put the question as many times
17 as I need to to be sure that I get it clear to you.
18 My question -- and unfortunately, I'm
19 going to have to quote it again.
20 MR. HEINER: There's no need. There's
21 really no need.
22 Q BY MR. BOIES: But my question, sir, is
23 whether you believe that the publication of
24 statements like the statement in The Financial Times
25 that, quote, "'Our business model works even if all
189 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Internet software it free,' close quote, says
2 Mr. Gates. Quote, 'We are still selling operating
3 systems. What does Netscape's business model look
4 like if that happens? Not very good,'" close quote,
5 adversely affects Netscape's business prospects.
6 A I told you, I'm not aware of any
7 effects on Netscape by the publication of that
8 statement.
9 Q Have you finished your answer?
10 A Yes.
11 Q Do you believe that the publication of
12 that statement adversely affects Netscape's business
13 prospects, whether you are aware of precisely what
14 those effects are or not?
15 A Well, I'm not absolutely sure, but I
16 did explain to you that in the analogous situation
17 the effect has not come from that but from other
18 factors.
19 Q And what is the analogous situation
20 that you refer to?
21 A Statements by competitors about
22 Microsoft.
23 Q And do you believe that statements by
24 competitors about Microsoft are analogous in terms of
25 their effect on Microsoft to statements like this
190 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 about Netscape?
2 A I'm not absolutely sure what you mean
3 by "like this," but in general, yes.
4 Q By "like this" I mean the quotation in
5 The Financial Times article.
6 A I don't know what it means to be "like"
7 that.
8 Q Is that because you don't understand
9 the word "like" or because you don't understand what
10 it means to be like something?
11 A Neither.
12 Q What is it then?
13 A I stated in quite a broad way that
14 statements by competitors about us have not been a
15 factor to explain future developments in our business
16 prospect, but rather other factors explain any
17 changes in our business prospects. And I'll say that
18 broadly about competitive statements by competitors.
19 Q Statements by competitors about
20 Microsoft?
21 A That's right.
22 Q Now, what I'm asking about is not
23 statements about Microsoft by competitors. But I'm
24 asking about statements about Netscape. And the
25 question that I most recently asked that I thought
191 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 was simpler than it is turning out to be is whether
2 you believed that statements about Microsoft by its
3 competitors would have an analogous effect on
4 Microsoft to statements like the one published in The
5 Financial Times in 1996 in June that we've been
6 looking at.
7 MR. HEINER: Object to the question.
8 It's just hopelessly vague and ambiguous.
9 Are you referring to other kinds of
10 statements?
11 MR. BOIES: Okay. I'll go back. I was
12 trying to avoid quoting the darn thing again. But if
13 I have to be precise, I'll be precise.
14 MR. HEINER: Mr. Boies, it's the other
15 side of the quote. It's the other kinds of quotes
16 about other companies.
17 MR. BOIES: Okay. Let me try to put it
18 as precisely as I can.
19 MR. HEINER: Before you do the
20 recitation, I would just like to say that we're ready
21 for a break when you come to a logical stopping
22 point. I'm not sure there will be a logical stopping
23 point any time soon since it's been two hours on this
24 point.
25 MR. BOIES: I don't know if it's been
192 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 two hours. I just started 50 minutes ago.
2 MR. HEINER: No. But I'm including
3 Mr. Houck's segment.
4 MR. BOIES: Let me see if I can bring
5 it to a close because I don't think this should be as
6 difficult as it appears to have become. And let me
7 see if I can identify what I think we're in agreement
8 on.
9 Q This statement was published in The
10 Financial Times; correct?
11 A I think it was.
12 Q You have said that statements that have
13 been published about Microsoft by its competitors do
14 not, in your view, adversely affect Microsoft's
15 business; correct?
16 A Yeah. I've said that other factors
17 like what happens with products or other observers
18 less directly involved in my view explain whatever
19 change in our business prospects happen.
20 Q Now, my question is whether you believe
21 that that is true for Netscape as well; that is, that
22 statements about Netscape by its competitors,
23 including Microsoft, do not affect Netscape's
24 business prospects.
25 A Well, I think it's pretty hard -- you
193 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 know, you don't have a world where you can say hold
2 everything else the same: the analysts' comments,
3 what happens with products and just take out one
4 thing. So your whole notion here that I'm supposed
5 to ascribe to you as certain cause-and-effect
6 relationships is really quite absurd.
7 Q Well, let me ask you a question,
8 Mr. Gates: Do you have any doubt that the
9 publication of this statement attributed to you in
10 The Financial Times adversely affected Netscape's
11 business prospects?
12 A In the world I live in people look to
13 unbiased observers to judge things about products and
14 financial prospects and things of that nature. But
15 we're not going to be able to run the experiment of
16 keeping everything the same and having the world with
17 some statement and the world without some statement
18 and determine the ultimate cause and effect.
19 Q Would you read the question back,
20 please.
21 (The following question was read:
22 "Q Do you have any doubt
23 that the publication of this
24 statement attributed to you in The
25 Financial Times adversely affected
194 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Netscape's business prospects?")
2 Q BY MR. BOIES: May I have an answer to
3 that question, please, sir?
4 A I told you before I'm not aware of any
5 effect on Netscape's business prospects by that
6 statement.
7 Q My question right now is whether you
8 have any doubt that there were such effects; that is,
9 do you have any doubt that regardless of whether you
10 can identify them as you sit here now and tell me
11 what they are, do you have any doubt that your being
12 said to have said these words hurt Netscape's
13 business prospects?
14 A I think while we can't run the
15 experiment that held everything else the same, that
16 is, the comments of analysts, the quality of the
17 products, all those things going on, and didn't have
18 that comment published, that their business prospects
19 would have been the same. That's my belief, but we
20 don't get to run that experiment.
21 Q Do you believe that the publication of
22 statements like this by you or statements like this
23 attributed to you affected what analysts wrote about
24 Netscape?
25 A Analysts do their own thinking and come
195 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 to their own conclusions. They might look at
2 statements in order to consider various hypotheses.
3 But they're particularly good at ignoring statements
4 made about one company who's competing with another
5 company.
6 Q Does that mean that it's your testimony
7 that you believe that analysts analyzing Netscape
8 would have ignored this statement attributed to you?
9 A No. I didn't say that. I said it
10 might get them to consider. I said the opposite. In
11 fact, I said it might get to consider certain
12 hypotheses, but they would do their own thinking and
13 come to their own conclusions based on factors
14 completely independent of that. They're in the
15 business of talking about objective analysis.
16 Q Is one of the objective analysis that
17 they're in the prospect or business of doing -- is
18 figuring out what the effect on Netscape is going to
19 be if certain actions that Microsoft takes?
20 A A financial analyst who's assigned to
21 Netscape would have that as one of the things they
22 would do.
23 Q And did you in 1996 make a conscious
24 effort to try to affect what financial analysts
25 analyzing Netscape did and thought?
196 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A I personally didn't, no.
2 Q Did Microsoft?
3 A Microsoft, I'm sure, made analysts
4 aware of what we were doing with our products
5 including the innovative work we were doing. And I'm
6 sure that had an effect.
7 Q Did you or others at Microsoft, to your
8 knowledge, do things with the purpose of affecting
9 what analysts analyzing Netscape wrote or thought?
10 A Well, our primary focus is going out
11 and talking about our products and what they do for
12 customers. If the customer or the analyst asks us a
13 question about Netscape or asks for a comparison,
14 it's not unusual to give them an answer.
15 Q Did you or, to your knowledge, others
16 at Microsoft do things for the purpose of affecting
17 what analysts analyzing Netscape wrote or thought?
18 A We certainly let people know about the
19 good work we were doing. The primary purpose of that
20 wasn't to affect Netscape, but certainly one of its
21 effects would have been to affect how they viewed the
22 competition between Microsoft and Netscape.
23 Q In addition to talking about your good
24 works, was one of the purposes of talking about
25 giving away Internet software for free to affect the
197 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 way analysts looked at Netscape?
2 A Well, I doubt you can ascribe too much
3 effect purely to the talking about it.
4 Q I would certainly agree that the fact
5 that you did it and talked about it was a lot more
6 effective than just talking about it. But right now
7 I am focusing on the talking about it.
8 A That's again one of these experiments
9 we can't run where you say what if we refuse to
10 answer all questions about Netscape but we did what
11 we did. My view is that the work and the products
12 and everything, that the talking is not the key
13 element in how our business prospects or other
14 people's involved.
15 Q Now, you knew that giving it away for
16 free was going to adversely affect Netscape's
17 business, didn't you?
18 MR. HEINER: Objection. Objection.
19 THE WITNESS: Well, what are you
20 talking about? Is there -- have you got some
21 antecedent to the word "it"?
22 Q BY MR. BOIES: Is the question unclear
23 to you, sir?
24 A Yes, sir. You never defined what
25 you're talking about.
198 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Okay. If the question is unclear to
2 you, I think that's an answer that I would just as
3 soon have the record have.
4 MR. HEINER: Which it does. Is this a
5 logical stopping point? I objected on that basis, he
6 objected on that basis. So it's crystal clear that
7 the question was unclear because the word "it" was
8 not defined.
9 MR. BOIES: I think what "it" is is
10 pretty well-defined in this litigation. I think the
11 witness knows perfectly well what "it" is.
12 MR. HEINER: No. I would not let a
13 witness answer that question under any circumstances.
14 MR. BOIES: Okay.
15 Q Do you think, Mr. Gates, that
16 Microsoft's giving away of its Internet Explorer
17 browser for free adversely affected Netscape's
18 business?
19 MR. HEINER: Objection. Lack of
20 foundation.
21 THE WITNESS: Well, as I've said
22 earlier, we don't give away all the aspects of the
23 browser. We do let Windows users have the browsing
24 functionality as part of Windows. But we derive
25 significant revenue from things like the Search
199 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 button and the Home Page.
2 Q BY MR. BOIES: Have you told people
3 that Microsoft was going to give the browser away for
4 free and that indeed it would be forever free?
5 A I said that it would be a feature of
6 Windows and available to people who used Windows. In
7 that sense, yes.
8 Q Well, you may have said that. But what
9 I'm now asking you about is whether you also said
10 that Microsoft was going to give the browser away for
11 free and that it would be forever free.
12 Did you say that, sir?
13 A When I was talking about Windows and
14 the future of Windows, I did say that was one of the
15 features that would come in Windows at no extra
16 charge and that it wouldn't become an extra charge
17 feature.
18 Q You may very well have said that, and I
19 accept that you said that. But my question to you,
20 sir, is whether you said that Microsoft was going to
21 give the browser away for free and it would be
22 forever free.
23 Did you say that, sir?
24 MR. HEINER: Asked and answered.
25 THE WITNESS: I don't know why -- what
200 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 distinction you're drawing.
2 Q BY MR. BOIES: I'm talking about the
3 statement.
4 A The word "the browser" when I talked
5 about it being free and forever free was talking
6 about the browser functionality of Windows.
7 Q Okay.
8 But when you talked about it, you used
9 the word "browser" not "browser functionality";
10 correct, sir?
11 A I don't remember the exact words. It's
12 very possible I used that shorthand.
13 Q And you talked about the browser being
14 forever free, did you not, sir?
15 A Are you asking me about exact words?
16 Q Yes. I'm asking you about the exact
17 words.
18 A Or are you asking me to explain what I
19 said?
20 Q I'm asking you about the exact words.
21 Did you say the exact words that the
22 browser was going to be forever free?
23 A If you're asking me about exact words,
24 I don't recall the exact words that were used.
25 Q Is it your testimony that you do not,
201 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 as you sit here now, recall saying that the browser
2 would be forever free?
3 A Those exact words?
4 Q Those exact words.
5 A I would want to see the context and be
6 reminded about that. I don't remember using those
7 exact words.
8 Q Okay.
9 Do you remember using the words
10 "forever free," those exact words?
11 A Those two words?
12 Q Yes.
13 A I'm sure I used those before I was five
14 years old.
15 Q Really? With respect to what?
16 A Forever free. I wanted to be forever
17 free.
18 Q All right.
19 Did you ever use those with respect to
20 the browser?
21 A If you're asking is there a sentence
22 that if you did a string search would have exactly
23 those words in it, I'm not sure. I did say that we
24 would keep -- I did deliver that intent; that is,
25 that the browsing functionality in Windows was not
202 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 something that we intended at some time in the future
2 to charge extra for.
3 Q And what you're telling me is you don't
4 remember whether you just used the words "forever
5 free"? That's what you're saying?
6 A I may have.
7 Q You may have?
8 A The general notion of the Windows
9 browser functionality staying free in the future was
10 certainly communicated by me.
11 Q Okay. Thank you.
12 MR. HEINER: Let's take a break.
13 THE VIDEOGRAPHER: The time is 4:07.
14 We're going off the record. This is the end of Tape
15 3 of the videotaped deposition of Bill Gates.
16 (Recess.)
17 THE VIDEOGRAPHER: The time is 4:22.
18 We're going back on the record. This is Tape 4 of
19 the videotaped deposition of Bill Gates.
20 Q BY MR. BOIES: Mr. Gates, before the
21 break we were talking about certain statements
22 attributed to you in Exhibits 355, 356, and 364.
23 Did you ever contact any of the
24 publications involved with those exhibits and
25 complain that they had misquoted you in any way?
203 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A You mean the two quotes?
2 Q Well, I'm actually talking about three
3 quotes.
4 A No. One is a pure subset of the other;
5 right?
6 Q Well, you obviously have a precise view
7 of what you mean by "subset." But let me be
8 absolutely clear of what I'm talking about, okay?
9 And let me go through it chronologically.
10 A Do you want to read it again?
11 Q On June 10, 1996, in a document that
12 had been marked as Exhibit 364, The Financial Times
13 attributed to you a quotation, quote,
14 "'Our business model works
15 even if all Internet software is
16 free,' close quote, says Mr. Gates.
17 'We're still selling operating
18 systems. What does Netscape's
19 business model look like if that
20 happens? Not very good,'" close
21 quote.
22 Did you ever contact either the
23 reporter for The Financial Times who interviewed you
24 or The Financial Times to assert that they had
25 misquoted you in any way?
204 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A No.
2 Q On July 3, 1996 The Financial Times
3 published what I think you refer to as a subset of
4 that quote: Quote,
5 "'Our business model works
6 even if all Internet software is
7 free,' close quote, says Mr. Gates.
8 Quote, 'We are still selling
9 operating systems,'" close quote.
10 And then added not in quotes the
11 statement, "Netscape in contrast is
12 dependent on its Internet software
13 for profits he points out."
14 Did you ever contact either the
15 reporter or The Financial Times to assert that either
16 they had misquoted you or that the textural assertion
17 about what you said was inaccurate in any way?
18 A No.
19 Q The third is Exhibit 356, which is a
20 Business Week publication dated July 15, 1996, that
21 includes the statement, quote,
22 "'One thing to remember
23 about Microsoft,' close quote, says
24 Chairman William H. Gates III, quote,
25 'We don't need to make any revenue
205 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 from Internet software,'" close
2 quote.
3 Did you ever contact either the
4 reporter, who I recognize you say did not interview
5 you, or Business Week to assert that that quote was
6 in any way inaccurate?
7 A Well, I told you I've never talked to
8 that reporter nor did I contact Business Week.
9 Q In 1996 did you believe that Netscape
10 posed a serious threat to Microsoft?
11 A They were one of our competitors.
12 Q Were they a serious competitor in your
13 view, sir?
14 A Yes.
15 Q Did you believe that Netscape's browser
16 was a serious threat to your -- that is
17 Microsoft's -- operating system's business?
18 A Well, you have to think about what work
19 we were going to do to improve our software and then
20 what Netscape and others were going to do to improve
21 their software. You can't just look at it
22 statically. It's more the work than -- the new
23 things you do than the history.
24 Q Did you believe that by 1996, that
25 Netscape and Netscape's Internet browser was a
206 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 serious alternative platform to the platform
2 represented by Microsoft's Windows operating system?
3 A Well, as was articulated by Marc
4 Andreessen and other people from Netscape, if we
5 didn't do new product work, that was a very likely
6 outcome.
7 Q What was a very likely outcome?
8 A That the value of the Windows platform
9 would be greatly reduced.
10 Q Did you believe that it was in
11 Microsoft's interest to convince financial analysts
12 that Netscape was not going to be financially viable?
13 A I never had a goal to do that, and my
14 only comments about Netscape's business would have
15 come in response to direct questions about that topic
16 from reporters.
17 Q Well, let me ask you to look at what
18 has been previously marked as Exhibit 354, which is a
19 memorandum from you in May of 1996. And the last
20 paragraph begins, quote,
21 "At some point financial
22 minded analysts will begin to
23 consider how much of a revenue stream
24 Netscape will be able to generate,"
25 close quote.
207 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Why was that important to you in this
2 internal memorandum which, obviously, is not
3 something which you're merely responding to a
4 reporter's inquiry, but it is something that is
5 involved in your internal deliberations within
6 Microsoft.
7 A Who said it was important? It doesn't
8 say -- I mean, it's one of many sentences in the
9 memo.
10 Q Is it your testimony that this is an
11 unimportant sentence, sir?
12 A I don't think it's any more important
13 than any of the other sentences in here.
14 Q Is it any less important that any of
15 the other sentences?
16 A Yeah. It's not germane to the primary
17 topic of the memo.
18 Q If it wasn't germane to the primary
19 topic of the memo and if it wasn't particularly
20 important, why did you include it, Mr. Gates?
21 A It's merely an observation that I put
22 into this rather extensive memo that talks about our
23 plans in doing innovative products, and it's tacked
24 on as the last paragraph. And you didn't read the
25 whole paragraph, but it says "at some point." So it
208 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 seems to be a prediction about that.
2 Q Yes, I agree, it seems to be a
3 prediction. And I think I did read the "at some
4 point."
5 But my point to you is this is a
6 memorandum that you were sending to a number of the
7 top executives of Microsoft; correct, sir?
8 A All product people.
9 Q Well, let's see. We have Mr. Ballmer.
10 A It's not to him.
11 Q He's getting a copy?
12 A That's right.
13 Q Okay.
14 And what was Mr. Ballmer's position in
15 May of 1996?
16 A Executive vice president.
17 Q How many executive vice presidents did
18 Microsoft have at that time?
19 A One, two, three, four.
20 Q And who were the others?
21 A Bob Herbold, Pete Higgins and Paul
22 Maritz -- no, no, no. Maybe -- no, I think it's just
23 four.
24 Q So that this memorandum went to all
25 four of the executive vice presidents; correct, sir?
209 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A It went to Paul Maritz. It was copied
2 to the other people there.
3 Q It was either addressed or copied to
4 all four of the executive vice presidents?
5 A They're among the recipients, yes.
6 Q Let's go through who the other
7 recipients are.
8 It is addressed to executive vice
9 president Paul Maritz. And below you at this time
10 was executive vice president the highest position in
11 the company?
12 A Yes.
13 Q And beneath executive vice presidents,
14 what was the next level?
15 A Senior vice presidents.
16 Q And how many senior vice presidents
17 were there?
18 A I couldn't tell you. I could -- we
19 could do the range thing if you want.
20 Q Okay. That would be good.
21 A About three to nine.
22 Q Okay.
23 Can you be any more --
24 A I'd say six to nine.
25 Q Okay. Let's go through the people who
210 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 got this memo. It's addressed to executive vice
2 president Paul Maritz.
3 A Actually, his name is misspelled, but
4 yes.
5 Q What was Brad Silverberg's position?
6 A I think he was a senior vice president,
7 but he worked for Paul and did a lot of the
8 development of software that went into Windows.
9 Q And he was one of the addressees of
10 this memo?
11 A That's right. It goes Maritz, and then
12 he's the second person on the "To" line.
13 Q And the third person to whom it's
14 addressed is Jim Allchin; is that correct?
15 A That's right.
16 Q What was his position?
17 A Senior vice president of the core
18 Windows development.
19 Q And the next person to whom it's
20 addressed is Brad Chase. And what is his position?
21 A At that time or at this time?
22 Q At that time.
23 A At that time he worked for Brad
24 Silverberg managing our relationships with ISVs
25 broadly defined and some of the marketing activities.
211 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Did he have a position like vice
2 president?
3 A Oh, I'm sorry. He was a vice
4 president.
5 Q The next person to whom it's addressed
6 is Rich Tong.
7 A He was a vice president with an
8 analogous person to Brad Chase but working for Jim
9 Allchin.
10 Q And the next person is John Ludwig.
11 A He was a -- I'm pretty sure he was a
12 vice president at this time working for Brad
13 Silverberg.
14 Q Now, copies of the memo go to executive
15 vice presidents Ballmer, Herbold and Higgins; is that
16 correct?
17 A If I've got those titles right.
18 Actually, now that I think about it, I think Paul and
19 Pete were actually called group vice presidents.
20 And -- yeah, they're called group vice presidents,
21 which maybe nobody but me knows this, but actually
22 numerically that's one number lower than executive
23 vice president.
24 Q Okay. We'll keep this highly
25 confidential.
212 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 And then it goes to a variety of other
2 people that, I assume, hold at least in the main
3 significant positions in the company; is that fair?
4 A No.
5 Q Okay. Then let's go through them.
6 The copies are Steve Ballmer, he was an
7 executive vice president?
8 A Yeah. If you want, I'll just go
9 through it.
10 Q Okay. That would be great.
11 A Herbold, executive vice president; Jeff
12 Raikes, senior vice president of -- involved in U.S.
13 activities working for Steve; Bernard, who at the
14 time ran some of the sales in Europe working for
15 Steve; Joachim --
16 Q And if you could just give his title?
17 A Bernard actually had an exciting title.
18 He was the chairman of Europe and also senior vice
19 president. But he liked -- on his card he carried
20 the one that said Chairman of Europe.
21 Joachim Kempin, senior vice president;
22 Pete Higgins, group vice president; Nathan --
23 Nathan's also a group vice president at this time, I
24 think. Aaron is a --
25 Q You need to give the full name just for
213 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 the record.
2 A I'm sorry. Aaron Contorer is an
3 assistant; Steve Sinofsky was an assistant.
4 Actually, I don't know which of those was an
5 assistant working for me at the time. And Ben Slivka
6 and Chris Jones were two developers.
7 Q When you say they were assistants, they
8 were assistants to you?
9 A Yeah.
10 Q Is it fair to say that you meant this
11 memorandum to be taken seriously by the people to
12 whom it was sent?
13 A No more seriously than other e-mail and
14 memorandums I sent them, but yes, seriously.
15 Q Well, now, again, because I know that
16 you're very precise in your use of words, you've
17 drawn distinctions before between e-mails and
18 memoranda; correct, sir?
19 A That's right.
20 Q If fact, you did so today several times
21 when you were being questioned; correct, sir?
22 A I drew a distinction between e-mail
23 being called memoranda.
24 Q You didn't like e-mails being called
25 memoranda because you thought e-mails didn't rise to
214 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 the level of memoranda; is that right?
2 A I didn't suggest a hierarchy, I just
3 suggested a distinction.
4 Q Is there a hierarchy in your mind?
5 A No. But there's a distinction.
6 Q Are memoranda more formal and more
7 serious than e-mails?
8 A No. I'd say they're longer and more
9 thoughtful than most e-mail.
10 Q Now, what we're looking at here is one
11 of the longer more thoughtful documents, that is, a
12 memorandum; correct?
13 A Right.
14 Q And in that longer more thoughtful
15 memorandum in the final paragraph you write,
16 "At some point financial
17 minded analysts will begin to
18 consider how much of a revenue stream
19 Netscape will be able to generate."
20 Now, what was the significance of that
21 to you at the time, sir?
22 A It was a fact that I stated in the
23 memo.
24 Q Well, it clearly is a fact that you
25 state in the memo. But my question to you, sir, is:
215 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 What was the significance to you of that fact?
2 A I'm not sure what you mean by that.
3 Q In 1996 at the time that you wrote this
4 memorandum, what was the significance to you of the
5 fact that, quote,
6 "At some point financial
7 minded analysts will begin to
8 consider how much of a revenue stream
9 Netscape will be able to generate"?
10 A I think it must have referred to the
11 fact that Netscape was at this point a public
12 company.
13 Q And can you explain what you mean by
14 that?
15 A Well, usually you don't have financial
16 analysts for private companies.
17 Q I'm not sure I understand your answer.
18 In this memorandum you say,
19 "At some point financial
20 minded analysts will begin to
21 consider how much of a revenue stream
22 Netscape will be able to generate."
23 What is the significance of that fact
24 to you, or what was the significance of that fact to
25 you in 1996?
216 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Well, I can't reconstruct my state of
2 mind in 1996. But I think it's a fact of almost no
3 significance at all.
4 Q Why would you have put a fact that you
5 say has no significance at all?
6 A I didn't say that.
7 Q What did you say?
8 A I said almost.
9 Q Almost no significance at all.
10 Why would you put a fact that,
11 according to you, had almost no significance at all
12 in what you have described as this longer, more
13 thoughtful memorandum to what looks to me to be like
14 most of the very top executives of your company?
15 A I wrote a memo about our products and
16 some of the good things we were doing in our
17 products. I think you can point to a lot of
18 different sentences in here and try and drill in on
19 it and overstate its -- the significance of an
20 individual sentence.
21 Q And I am, as you say, I'm drilling in
22 on this particular sentence. But what I'm asking you
23 is if this particular sentence has, as you put it,
24 almost no significance at all, why would you put it
25 in this memorandum that you describe as one of the
217 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 longer, more thoughtful type of communications within
2 your company addressed to the very top executives of
3 your company?
4 A I write lots of things that we would
5 call memoranda. And I'm sure we can pick a lot of
6 sentences in a lot of my memoranda, and you can say
7 to me, "Isn't it awful that that sentence doesn't
8 have more significance," and I'll say, "Fine.
9 That -- you know, I don't require that every sentence
10 in every memoranda I write have deep significance."
11 Q Does that complete your answer to my
12 question?
13 A Yes.
14 Q In 1996, regardless of what
15 significance you attribute to this particular
16 sentence, was it significant to you how financial
17 analysts viewed Netscape?
18 A Well, the thing -- that's not what we
19 thought about when we thought about the competition
20 with Netscape or the emerging demands for Internet
21 capabilities coming from our customers.
22 Q My question to you, sir, was: Did it
23 matter to you what financial analysts thought of
24 Netscape?
25 A I'm sure there were people here who
218 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 read what the financial analysts wrote, or some of
2 them, in order to learn more about Netscape.
3 Q Yes. I will accept that that is so.
4 A So we would learn from them.
5 Q Was it significant to you what they
6 thought not for the purpose of learning things from
7 them, but was it significant to you what they thought
8 about Netscape? And just to be clear, because I know
9 you're very precise with words, was it significant to
10 you what financial analysts thought about Netscape?
11 A Well, I'd say the thing -- I'd say if
12 we're trying to say what is -- rank things in terms
13 of significance, I'd say that would be about the most
14 insignificant thing I can think of.
15 Q Did you ever tell anybody within
16 Microsoft that you thought it was important what
17 financial analysts thought about Netscape?
18 A No. I don't think I've ever said
19 anything like that.
20 Q Not in words or in substance?
21 A Well, you keep trying to draw the
22 distinction. I did think it was important for us to
23 learn about Netscape from different sources, and
24 analysts would have been one of those sources. And
25 somehow you've -- you've thrown that away, the fact
219 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 that that was a source of learning.
2 Q I didn't mean to throw it away. I'm
3 simply focusing on a different issue.
4 A How can you separate out the two
5 issues?
6 Q Let me try to be clear. Perhaps my
7 question has not been clear, and I need to be clearer
8 about it.
9 In 1996, did you want, desire,
10 financial analysts to have a poor or pessimistic or
11 negative view about Netscape?
12 A Well, as we, during 1996, were
13 improving our product and demoing our products and
14 talking about what we thought customers were
15 interested in, there were several elements of
16 feedback that we'd get including what customers were
17 saying about our Internet strategy and our Internet
18 products, and the analysts, likewise, were a form of
19 feedback. And so they were saying -- or customers
20 were saying, jeez, we think your efforts aren't what
21 customers want and we think Netscape or some other
22 company has a strong strategy that matches what they
23 want, that would be a piece of feedback to us to go
24 back and work on aspects of our software products.
25 So in that sense we were interested
220 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 because it might help us see where we were in terms
2 of meeting those customer needs.
3 Q Let me try again.
4 My question does not relate to what you
5 wanted to learn from financial analysts, my question
6 is whether you wanted to affect what financial
7 analysts thought to make financial analysts think in
8 a negative or pessimistic way about Netscape. Did
9 you want that, sir, in 1996?
10 A Well, in order to get feedback from
11 customers and analysts, we would show them our
12 products, demonstrate them or show the ones we were
13 shipping. And we felt, you know, showing customers
14 or demonstrating what we were doing to them or
15 analysts was a valuable way to benchmark where we
16 were. And so if their response was, "Wow, that's so
17 incredible, that's the best thing I've seen," then
18 that was a valuable piece of feedback. Or if they
19 said, "That's quite inferior," that was a valuable
20 piece of feedback. And so in that sense it was
21 useful.
22 Q Let me try to see if I can clarify my
23 question because I may not be being clear.
24 First, I'm not talking about customers
25 now, I'm talking about financial analysts. Second,
221 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 I'm not talking about your desire to get feedback
2 about your products. What I'm talking about is
3 whether you wanted to make financial analysts feel
4 negative or pessimistic about Netscape's business
5 prospects.
6 Did you want that in 1996?
7 A I don't have any control over what
8 analysts think. As far as I know, they -- they take
9 the facts about the products and they go out and talk
10 to customers and look at what's going on in order to
11 form their opinions. So it seems like a really
12 bizarre question. They do their own thinking and
13 form their own opinion. They might meet with
14 Microsoft to get our view on what we're doing in
15 products and how customers are responding to that.
16 I personally basically don't meet with
17 financial analysts or talk with financial analysts
18 with the sole exception of the once-a-year analysts
19 day that Microsoft has had.
20 Q My question, sir, is what you wanted to
21 accomplish with financial analysts. It's not about
22 whether you did it personally or whether Microsoft
23 did it with somebody else. It is what you wanted to
24 accomplish.
25 And what I'm asking you is: Did you
222 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 want to bring about a state of affairs where
2 financial analysts developed a negative or
3 pessimistic view about Netscape's business prospects?
4 A Our focus was doing great software
5 products. And that focus might have had the indirect
6 effect of influencing those people's opinion. But
7 our focus was building those products and getting
8 feedback to guide us in doing a good job in building
9 those products.
10 Q Now, my question now is not about what
11 your focus was and it's not about indirect effects,
12 it is about what you wanted, it is about your intent,
13 it is about what you were trying to accomplish.
14 Were you in 1996 trying to get
15 financial analysts to develop a more negative and
16 more pessimistic view about Netscape's business
17 prospects?
18 A Except through the indirect effect of
19 them seeing how customers received our products and
20 our product strategies, that was not a goal.
21 Q If that was not a goal, sir, why did
22 you say in substance that the Internet browser would
23 be forever free?
24 A That was a statement made so that
25 customers could understand what our intent was in
223 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 terms of that set of technologies and how it would be
2 a part of Windows and not an extra cost item, and so
3 people would have that information in making their
4 decisions about working with us on Windows.
5 Q Now, is it your testimony that when
6 Microsoft told the world that its browser would be
7 forever free, that the desire to affect financial
8 analysts' view of Netscape played no role in that
9 decision?
10 A I can be very clear with you. The
11 reason we told people that it would be forever free
12 was because that was the truth. That's why we told
13 them that, because it was the truth.
14 Q Now, Mr. Gates, my question to you --
15 A That's the sole reason we told them.
16 Q And my question to you is whether or
17 not the truth was, in part, due to your desire to
18 adversely affect financial analysts' view of
19 Netscape. Did that play any role, sir?
20 A You've been asking me a question
21 several times about why did we say something. We
22 said it because we thought our customers would want
23 to know and because it was the truth. And that
24 explains our saying it completely.
25 Q And what I'm asking you, sir -- and it
224 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 may be that the answer to my question is, "no, it
2 played no role." But if that's your answer, I want
3 to get it on the record. And my question --
4 A Are you talking about saying it?
5 Q Yes.
6 A Or how we came up with our decision
7 about how to price our products?
8 Q Let's take it each step at a time, one
9 step at a time, so that your counsel doesn't say I'm
10 asking you a compound question, okay? And first
11 let's talk about saying it.
12 I know you're telling me it was the
13 truth. In addition to it being the truth, did the
14 fact that this would, in your view, adversely affect
15 the view of financial analysts of Netscape play any
16 role at all in your decision to announce that your
17 browser would be forever free?
18 A I actually think that came up in
19 response to some questions that people asked in an
20 event we had on December 7, 1995. So it wasn't so
21 much a question of our saying, okay, we're going to
22 go make this a headline, but rather, that there were
23 questions that came up during that including our
24 future pricing plans.
25 Q This was a meeting on December 7 of
225 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what year?
2 A 1995.
3 Q And was it attended by people outside
4 Microsoft?
5 A It was a press event.
6 Q And prior to attending that press
7 event, had you made a decision that it would be
8 forever free?
9 A Well, if you really want to probe into
10 that, you'll have to get into the different ways that
11 we made Internet technology available.
12 In terms of what we were doing with
13 Windows 95 and its successors, yes. In terms of some
14 of the other ways that we offered the Internet
15 technologies, there was some -- there hadn't been a
16 clear decision about that.
17 Q When you refer to other ways that you
18 offer Internet technologies, would you explain for
19 the record what you mean?
20 A Oh, we created an offering that ran on
21 the Macintosh OS that offered some but not all of the
22 capabilities that we put into Windows and used a
23 common branding for that. And we came up with a
24 package that ran on a previous version of Windows,
25 Windows 3.1, and made an offering of that.
226 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Subsequently I mean, not on that day, but
2 subsequently.
3 Q And those were charged for; is that
4 what you're saying?
5 A I'm saying that before the December 7th
6 event, it was clear to everyone that in the Windows
7 95 and its successors, that the browser technology
8 would be free for those users. But it was unclear to
9 people what we were going to do with the other ways
10 that we packaged up the technologies.
11 Q Would you read the question back,
12 please?
13 (The following question was read:
14 "Q And those were charged
15 for; is that what you're saying?")
16 THE WITNESS: Well, they weren't
17 available. So if we're talking about December 7,
18 1995, it's not a meaningful question.
19 Subsequently those products were made
20 available to the customers without charge. But I'm
21 saying that there was some lack of clarity inside
22 Microsoft even up to the event itself about what we
23 were going to do with those other ways we were
24 providing Internet Explorer technology.
25 Q BY MR. BOIES: Uncertainty as to
227 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 whether you would charge for them; is that what
2 you're saying?
3 A That's right.
4 Q Okay.
5 Prior to the December 7, 1995 meeting,
6 had a decision been made to advise the world that not
7 only would the browser be free, but it would be
8 forever free?
9 A Well, it's always been the case that
10 when we put a feature into Windows, that it remains
11 part of Windows and doesn't become an extra cost
12 item. So it would have been kind of a silly thing
13 for anyone to ask including about that particular
14 feature. And by this time, of course, browsing is
15 shipping with Windows 95.
16 Q Exactly sort of the point I wanted to
17 come to, Mr. Gates.
18 When you put things into the operating
19 system generally, you don't announce that they're
20 going to be forever free, do you?
21 A Yes, we do. If anybody --
22 Q You do?
23 A If anybody asks, that's obviously the
24 answer we give.
25 Q Have you finished your answer?
228 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Yes.
2 Q Okay.
3 Could you identify for me the products
4 other than browsers that Microsoft has announced that
5 they would be forever free, expressly said, "These
6 are going to be forever free"?
7 A As I said to you, I think that actually
8 came up only in response to some questions. So it's
9 not proper to ask me and suggest that we announced it
10 like it was some, you know, press release
11 announcement or something of that nature.
12 Q Well, let me come back to that aspect
13 of it and just ask you for the present. What
14 products has Microsoft said publicly, whether in
15 response to a question or otherwise, that these would
16 explicitly be forever free?
17 A I've said that about the broad feature
18 set that's in Windows.
19 Q When did you say that, sir?
20 A I remember an analyst talking to me
21 about that once at an analyst meeting.
22 Q When was that?
23 A It would have been one of our annual
24 analysts meetings.
25 Q When?
229 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Not this year. Either last year or the
2 year before.
3 Q Is there a transcript of that analyst
4 meeting?
5 A Not with the conversation with that
6 analyst, no.
7 Q There are transcripts of analysts
8 meetings, aren't there, Mr. Gates?
9 A Only of the formal Q and A, not of
10 the -- most of the Q and A, which is where people are
11 mixing around with the press and analysts who come to
12 the event.
13 Q And this question that you say happened
14 happened after the transcript stopped being taken; is
15 that what you're saying?
16 A That's my recollection, yes.
17 MR. BOIES: We'd like to be sure that
18 if those transcripts have not been produced, that
19 they be produced.
20 MR. HEINER: Well, serve a document
21 request and we'll respond in the ordinary course.
22 MR. BOIES: Okay. If that's what's
23 required, we'll do that. We'll see if we can get you
24 a request faxed down. I would have thought it would
25 have been easier for you to take that under
230 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 advisement, but we'll proceed that way.
2 MR. HEINER: It is a nonsensical
3 request because the testimony is that it's a cocktail
4 hour, and at a cocktail hour there's no transcript.
5 That's the testimony.
6 Q BY MR. BOIES: Is that the testimony,
7 this happened in a cocktail hour?
8 A I'm saying, yeah, in the informal Q and
9 A, not the formal Q and A.
10 Q This was at the cocktail hour?
11 A Or a dinner or a lunch.
12 Q Well, which was it?
13 A I'm certain that it was in the informal
14 part of the Q and A. Exactly was it on the way to
15 the bathroom or the cookie table or the dinner or the
16 cocktail hour, I can't say.
17 Q Sir, sometime on the way to the
18 bathroom or cookie table or the cocktail hour --
19 A Or lunch or dinner.
20 Q -- or lunch or dinner, some analyst,
21 whose name you do not recall, asked you a question.
22 Is that what your testimony is?
23 A Yes.
24 Q And what was that question?
25 A They asked about were there parts of
231 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Windows that would become separate products and we'd
2 charge separately for in the future.
3 Q And what did you say?
4 A I said, "No."
5 Q Other than this conversation that you
6 say took place on the way to the bathroom or the
7 cookie table or a cocktail party or lunch or dinner,
8 was there ever any other time that Microsoft publicly
9 explicitly asserted that something would be forever
10 free?
11 A I'm sure that if anybody ever asked
12 about an operating system feature, we would have made
13 that clear to them. I don't -- beyond the one I've
14 talked about, I don't -- I don't recall that.
15 Then, again, you know, in the case of
16 the browser you have the case where another company
17 had -- it had been free and so, you know, the fact
18 that people were asking about that feature in some
19 ways is not surprising.
20 Q Well, you say another company had a
21 browser that had been free. What company was that,
22 sir?
23 A Well, certainly Mosaic was free. And
24 there are a number of other free browsers. The
25 Netscape browser in its early days was also free.
232 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q In 1996 was the Netscape browser free?
2 A I'm not sure of the exact chronology.
3 But I'm pretty sure that in 1996 anybody who wanted
4 to use the Netscape browser could download and use it
5 in any way they would want without Netscape coming
6 and asking them to pay them.
7 Q Mr. Gates, in 1996 what was Mosaic's
8 market share?
9 A I don't know.
10 Q Approximately?
11 A I really don't know.
12 Q Can you give me any estimate or range?
13 A By 1996, probably under 10 percent.
14 Q Under 5 percent?
15 A Well, now you're going to have to
16 answer what the word "Mosaic" means. For example, if
17 you get low enough, get really low, we're going to
18 get into Internet Explorer. Internet Explorer, until
19 we shipped IE3, actually had quite a bit of code in
20 it that derived from Mosaic; that is, the code went
21 from University of Illinois to Spyglass to our
22 development team who used some of that code in
23 creating both IE1 and IE2. So if you get low enough,
24 I'll have to ask you do you consider IE1 or IE2 a
25 form of Mosaic?
233 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q Not for purposes of this question, if
2 it will help you.
3 A Okay. Then you can get down below 5.
4 Q Okay.
5 In 1996 Netscape was charging OEMs who
6 it licensed to distribute its browser; correct, sir?
7 A I don't know that.
8 Q Do you know one way or the other?
9 A I think they were charging some, but
10 I'm not sure they were charging all.
11 Q Did you ever try to find out?
12 A I know we were always unclear what the
13 nature of those deals were.
14 Q Okay.
15 Did you ever try to find out how much
16 of Netscape's revenue came from charging for the
17 browser?
18 A Well, we, from time to time, looked at
19 the revenue of broad sets of competitors. And so I'm
20 sure at some point when we did -- the people in the
21 company, not me, but when people did analysis of
22 Netscape, that's one of the issues they would have
23 looked at.
24 Q Did anyone ever inform you of
25 approximately how much of Netscape's revenue was
234 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 accounted for charging for the browser?
2 A I'm sure I was present in a
3 presentation where that was one of hundreds of facts
4 presented to me.
5 Q Do you recall it?
6 A The number? No.
7 Q Or approximately how much of Netscape's
8 revenue was accounted for by charging for the
9 browser.
10 A When we say "charge" -- well, I don't
11 remember the number, so I won't plague you with the
12 question that I always have to ask about that, which
13 is: Which revenue source are you talking about? But
14 even if you tell me, I won't remember the specific
15 number.
16 Q I'm going to ask you whether you
17 remember approximately what the range of the number
18 is. And to be absolutely clear, what I'm talking
19 about is charging for the browser. I'm not talking
20 about advertising revenue, you know, or revenue from
21 the Search button or the Home Page.
22 A But that's charging for the browser. I
23 mean, it's like saying NBC has no revenue.
24 Q No. It's not like saying it has no
25 revenue. It's like saying NBC doesn't charge for its
235 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 programs to the public. It may charge advertisers,
2 and I'm not saying that there might not be
3 advertising revenue. But what I'm talking about is
4 charging for the use of the product, charging OEMs or
5 charging end users who buy it at retail or download
6 it, although I understand that your position is it's
7 downloaded for free. But I'm trying to distinguish
8 between charging for the product and whatever
9 advertising revenue they get.
10 A Okay.
11 Q Now, with respect to charging for the
12 product, charging for the use of the browser, do you
13 have any idea, any approximation or range, of how
14 much of Netscape's revenue was attributed to that?
15 A If you give me a time period, I can
16 narrow it down from the zero to 100 percent range.
17 Q 1996.
18 A Around 20 to 50.
19 Q Today.
20 A Today the advertising revenue from
21 browsers --
22 Q No, not advertising. We're talking
23 about the revenue from the use of the browser, not
24 the advertising. We're just talking about --
25 A I know, that's right. But let me
236 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 complete my sentence.
2 Q Okay.
3 A Today the -- what you would call
4 nonuser revenue sources are very substantial, and,
5 you know, more than cover what people are doing with
6 browser. So that's become the primary revenue source
7 that you get specifically related to the browser.
8 Q Indeed today the amount of Netscape's
9 revenue that's attributed to charging people for the
10 use of the browser is zero; right, sir?
11 A I don't know that.
12 Q Because they don't charge for the
13 browser; right? You know that, don't you?
14 A No, I don't know if, you know, they had
15 some commitment contracts with various people and you
16 can do special things with browsers. And understand,
17 they -- you know, they do lots of different deals
18 that include various special things. And so I don't
19 think it's fair for me to sit here and tell you what
20 Netscape's revenue are from a particular source.
21 If you want to ask me about Microsoft,
22 that would be a different thing. But I'm not an
23 expert on Netscape revenue.
24 Q And so you just don't know, is your
25 answer, as you sit here now?
237 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A Yeah. It may have dropped down to
2 zero. I don't know.
3 Q Okay.
4 Was it part of your intent in taking
5 the actions that Microsoft took to drive that down to
6 zero?
7 MR. HEINER: Objection.
8 THE WITNESS: We price our product,
9 Windows. That's the only thing we do relative to
10 pricing. The most important thing we do is we create
11 the features of the product including improved
12 versions.
13 Q BY MR. BOIES: Let me be sure my
14 question is clear.
15 Was any part of Microsoft's actions
16 with respect to its browser or, as you sometimes
17 refer to it, browser technology, motivated by desire
18 to drive Netscape's revenues from users of Netscape's
19 browser down to zero?
20 A Well, I think you're getting a little
21 bit psychological there.
22 Q No. I'm asking what you intended.
23 What was the purpose of what you were doing?
24 A My purpose was to make Windows a better
25 product and maintain and increase the popularity of
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1 Windows.
2 Q Was that the only purpose?
3 A That was the purpose on which the
4 decision was made.
5 Q I just want to be clear.
6 It's your testimony that an intent to
7 deprive Netscape of revenue played no role in any of
8 the decisions that Microsoft made with respect to
9 browsers or browsing technology? Is that your
10 testimony?
11 A Well, our decision to have the browser
12 be a feature of Windows was in no way motivated by
13 something to do with Netscape. We had chosen that
14 that was a logical evolution of the Windows feature
15 set before Netscape was a factor at all.
16 Q Mr. Gates, if your answer is that it
17 played no role, that is your answer. But I need to
18 get on the record what your answer is.
19 And my question is whether an intent to
20 deprive Netscape of revenue played any role in any of
21 the decisions that Microsoft made with respect to its
22 browser or browsing technology.
23 A We decided that it was a logical
24 improvement of Windows to put the browser into
25 Windows before we had much awareness of there even
239 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 being a Netscape. So the decision that that would be
2 a feature -- and as I've said, when we make something
3 a feature of Windows, that means that it's available
4 along with all the other features and the license
5 fee, that decision had been made very early on.
6 We also had a very early recognition of
7 the potential revenue sources from things like the
8 Search button and the Home Page and that those would
9 become quite substantial.
10 MR. HEINER: Mr. Boies, we're prepared
11 to go right through to 6:00, but we would like to
12 have one more brief break when you come to a logical
13 stopping point. I'm having trouble seeing when the
14 stopping points are. But if you could have one come
15 up soon, I'd appreciate it.
16 MR. BOIES: Okay. Let me just try to
17 get this question answered, and then we'll take a
18 break.
19 Can I have the question back?
20 (The following question was read:
21 "Q Mr. Gates, if your
22 answer is that it played no role,
23 that is your answer. But I need to
24 get on the record what your answer
25 is.
240 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 "And my question is whether
2 an intent to deprive Netscape of
3 revenue played any role in any of the
4 decisions that Microsoft made with
5 respect to its browser or browsing
6 technology.")
7 Q BY MR. BOIES: If your answer's "no,"
8 we'll simply go on. If your answer is "yes," then
9 I'm going to ask what role it was. But I'm just
10 trying as a predicate to find out whether it played
11 any role in any of your decisions.
12 A I don't know what you mean "any of our
13 decisions." Now, that is the vaguest thing I've ever
14 heard.
15 Q Okay. Any of your decisions with
16 respect to the browser or what you have referred to
17 as your browsing technology.
18 A Wait a minute. Have you completely
19 changed the question?
20 Q I don't think so. But let's go back
21 and reread the question.
22 And when you read it this time, type it
23 into the record again so it appears so that a reader
24 of the transcript doesn't have to go back and find
25 it.
241 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 (The following question was read:
2 "Q Mr. Gates, if your
3 answer is that it played no role,
4 that is your answer. But I need to
5 get on the record what your answer
6 is.
7 "And my question is whether
8 an intent to deprive Netscape of
9 revenue played any role in any of the
10 decisions that Microsoft made with
11 respect to its browser or browsing
12 technology.")
13 MR. HEINER: Object to the question as
14 vague and ambiguous on several counts.
15 THE WITNESS: Yeah. It's pretty vague.
16 Let's say we decide --
17 MR. BOIES: This is the same question
18 that we've gone through three times.
19 MR. HEINER: Yeah, I know. I'm only
20 making the objection now.
21 MR. BOIES: Okay.
22 THE WITNESS: Let's say we decide to
23 put a new feature in, is that included in what you're
24 asking about?
25 Q BY MR. BOIES: A new feature in what?
242 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 A In our Internet browser technology.
2 Q If the purpose is to deprive Netscape
3 of revenue, if that's why you put it in, yes, it is
4 included, sir.
5 And if you don't understand the
6 question, if my question is not clear, I will
7 rephrase it. You can tell me the answer is "yes,"
8 you can say the answer is "no," you can say the
9 answer is "I don't recall," you can say "Your
10 question is so confusing to me, I can't answer it."
11 But all I'm trying to do is find out what your answer
12 is.
13 Do you have the question in mind?
14 A I think it's quite a vague question.
15 Let me just give you a hypothetical to understand.
16 Let's say we think users want a
17 feature, and it can be a feature that we're doing
18 first or it's a feature that Netscape has done first.
19 When we decide to put that feature in, our primary
20 goal is to make Windows more popular and build
21 momentum for Windows. But certainly there is --
22 let's say it's a feature that Netscape's done first,
23 then we are thinking, okay, will users be interested
24 in our browser? If it's a feature we've done first,
25 we're thinking will users be interested in our
243 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 browser?
2 So you can't say that, you know, as you
3 get into 1996 that we're unaware of Netscape. And
4 even though what we're primarily doing is related to
5 making better experiences for customers and all that,
6 the fact that we'll be compared with them in terms of
7 how people chose browsers, we're aware of that.
8 Q I didn't mean my question to suggest
9 that you might have been unaware of Netscape in 1996,
10 Mr. Gates. I assume that you were aware of Netscape
11 in 1996.
12 My question is whether an intent to
13 deprive Netscape of revenue played any role in any of
14 the decisions that you made about browsers or
15 browsing technology. I'm not talking about a
16 decision where you say, "I understand this would have
17 an effect on Netscape but I don't care, I'm going to
18 do it anyway." I'm talking about a situation in
19 which, at least in part, you take an action with the
20 intended purpose of depriving Netscape revenue.
21 Did you do that?
22 A Well, the original decision to include
23 the browser into Windows as a feature of Windows was
24 not taken in response to some thinking about
25 Netscape. But once you get out into a period where
244 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 we're looking at Netscape as one of our competitors,
2 it's very hard to say, you know, did that influence
3 our decisions or not. To me that's a very vague
4 question. It's one of the facts we are aware of.
5 Our primary goal, of course, is to make Windows
6 better for customers. And we were doing a lot of
7 great stuff there and were actually very successful
8 once we got past a certain point in doing a product
9 that people did decide to choose.
10 But, you know, how can you -- how can
11 you say, you know, when every person at Microsoft
12 makes any decision -- you know, we don't get to run
13 it where there's no thought about Netscape and there
14 is a thought about Netscape. So you're asking me to
15 reach into people's minds and do something that I
16 think is strange.
17 MR. BOIES: Would you read back my
18 question one more time and again incorporate it?
19 (The following question was read:
20 "Q Mr. Gates, if your
21 answer is that it played no role,
22 that is your answer. But I need to
23 get on the record what your answer
24 is.
25 "And my question is whether
245 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 an intent to deprive Netscape of
2 revenue played any role in any of the
3 decisions that Microsoft made with
4 respect to its browser or browsing
5 technology.")
6 Q BY MR. BOIES: Have you answered that
7 question now to the fullest extent that you can,
8 Mr. Gates? Because if you can't, we'll just stop.
9 A I find the question unclear enough,
10 that I'm afraid I won't be able to do any better than
11 I already have.
12 MR. BOIES: Okay. We can take a break
13 now.
14 THE VIDEOGRAPHER: The time is 5:22.
15 We're going off the record.
16 (Recess.)
17 THE VIDEOGRAPHER: The time is
18 5:36 P.M. We are going back on the record.
19 Q BY MR. BOIES: Mr. Gates, before the
20 break you said that Microsoft recognized early that
21 there would be browser revenue from advertising
22 revenue from the Search button and the Home Page.
23 Do you recall that?
24 A That's right.
25 Q When did Microsoft first project what
246 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 its revenue would be from browser advertising from
2 the Search button and/or Home Page?
3 A Well, we actually didn't have enough
4 share with IE1 or IE2 that we built that much value
5 at all because we just didn't have much traffic.
6 When it came to IE3 we had a discussion
7 about how we would take that asset and what we would
8 do with that traffic. And we actually chose at that
9 stage instead of charging for it, to build some
10 partnerships by working with people who we directed
11 traffic to.
12 And I don't know if anybody had done --
13 I know there was discussions, I don't know if there's
14 a formal document, but we discussed the notion of
15 licensing that out versus just using it to build
16 partnerships.
17 In terms of actually having people pay
18 us large amounts of money, that's really gotten big
19 in the last year.
20 MR. BOIES: Would you read the question
21 back, please?
22 (The following question was
23 read:
24 "Q When did Microsoft first
25 project what its revenue would be
247 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 from browser advertising from the
2 Search button and/or Home Page?")
3 Q BY MR. BOIES: Do you understand the
4 question, Mr. Gates?
5 A Yeah. And the answer is: Probably as
6 part of that decision what to do with the IE3 traffic
7 we would have looked at the choice of charging or
8 using it in partnerships.
9 Q Could you tell me, just for the record,
10 when you're talking about?
11 A Oh, during the planning cycle for IE3.
12 Q Which was when?
13 A That would have been sometime in '96.
14 Q Okay.
15 So at some time in '96, according to
16 your testimony, Microsoft made a projection of how
17 much money it could expect to receive from browser
18 advertising from the Search button and/or the Home
19 Page; is that what you're saying?
20 A Advertising in the very broad sense.
21 The principle that there would be that
22 revenue predated that. That was an insight we had
23 quite a bit before that.
24 But the first time we looked at, okay,
25 what should we do with this traffic would have been
248 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 when we were thinking that IE3 would garner
2 significant traffic.
3 Q When you say "the first time we looked
4 at what we would do about the traffic," I want to be
5 sure again that the question and answer is meeting
6 because I know you use words very precisely.
7 What my question is is: When did you
8 first make a projection, when did Microsoft first
9 make a projection, of how much money Microsoft would
10 receive from advertising revenue in connection with
11 the browser?
12 MR. HEINER: Certainly asked and
13 answered.
14 MR. BOIES: You may be right. But
15 because he keeps changing the language he uses, and I
16 know from prior answers that usually when he changes
17 the words, he means something by it, I need to have
18 it tied down.
19 MR. HEINER: Okay. And I think he does
20 mean something by his use of words. I'm just saying
21 that you asked the question and you got the answer.
22 Q BY MR. BOIES: Okay. What's the
23 answer?
24 A We looked at charging as part of the
25 IE3 planning during 1996.
249 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q I'm not asking when you looked at
2 charging. I'm asking when did Microsoft first make
3 an estimate or projection of how much money it would
4 receive.
5 A Oh, when we looked at the issue of
6 whether we -- it was a better idea to charge or not
7 as part of the IE3 planning.
8 Q And that would have been in 1996; is
9 that correct?
10 A Uh-huh.
11 Q You have to say "yes" or "no" for the
12 record.
13 A Yes.
14 You don't get "uh-huh's"?
15 Q She does, but it doesn't always come
16 out exactly the way you think.
17 And who made that estimate or
18 projection?
19 A I know there was discussion with Pete
20 Higgins and Peter Neupert and myself about that, and
21 each of us would have hazard some view of the value
22 there.
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9 You were asked some questions earlier
10 about a June 21, 1995 meeting with Netscape. And
11 that's a meeting you did not attend; am I correct?
12 A I've never met with Netscape.
13 Q And did you know that Microsoft people
14 were meeting with Netscape before they actually met?
15 A I don't recall knowing in advance.
16 Q You did know after the fact because you
17 got the e-mails that we saw; correct?
18 A Yeah. That's right. I recall getting
19 those e-mails, at least the Thomas Reardon/Silverberg
20 one.
21 MR. HEINER: Mr. Boies, it's 6:00 now,
22 it's been a pretty full day. If this is a relatively
23 short line of questioning, why don't you finish it
24 up, we'll go to about 6:15.
25 MR. BOIES: Okay.
265 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 MR. HEINER: Okay.
2 Q BY MR. BOIES: You are aware that it
3 has been asserted that at that meeting there was an
4 attempt to allocate markets between Netscape and
5 Microsoft; correct, sir?
6 A My only knowledge of that is that there
7 was an article in the Wall Street Journal very
8 recently that said something along those lines.
9 Otherwise, no.
10 Q Is it your testimony that the first
11 time that you were aware that there was an assertion
12 that there had been a market allocation meeting or an
13 attempt to allocate markets at a meeting between
14 representatives of Microsoft and Netscape was a
15 recent Wall Street Journal article?
16 A I'm not sure how to characterize it.
17 The first I heard anything about that meeting and
18 somebody trying to characterize it in some negative
19 way was an Andreessen quote that was in the Wall
20 Street Journal very recently. And it surprised me.
21 Q Are you aware of any instances in which
22 representatives of Microsoft have met with
23 competitors in an attempt to allocate markets?
24 MR. HEINER: Objection.
25 THE WITNESS: I'm not aware of any such
266 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 thing. And I know it's very much against the way we
2 operate.
3 Q BY MR. BOIES: It would be against
4 company policy to do that?
5 A That's right.
6 Q Now, subsequent to being apprised that
7 Mr. Andreessen, at least, was asserting that this had
8 happened, did you make any effort to find out what
9 had actually happened at that meeting?
10 A Well, first of all, I don't want to be
11 involved in characterizing what Mr. Andreessen said
12 because I -- I -- all I know is something about a
13 quote about a dead horse head or something like that.
14 That was what I recall from the Wall Street Journal
15 article.
16 I did, after the Wall Street Journal
17 article, see some e-mail that Andreessen had sent our
18 people after the meeting saying it was a great
19 meeting, and I did see the Reardon mail that I
20 deleted but somebody gave back to me and some Reardon
21 notes from the meeting.
22 Now, I think we're talking about the
23 same meeting. I think there may have been more than
24 one. But in any case, I think we're talking about
25 the same meeting.
267 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q I think the record may show that there
2 was a meeting before the June 21 meeting.
3 A That sounds right.
4 Q But the meeting that I was particularly
5 asking about was the June 21 meeting. And I think
6 that that probably was what was in the Wall Street
7 Journal.
8 A No. You can't really say because the
9 Wall Street Journal talked about a May meeting, and
10 May is not June, not by a long shot.
11 Q You're right. May is not June. I
12 agree that May is not June. And maybe there were two
13 such meetings.
14 A Well, I'm not aware of any meeting
15 between us and Netscape in May. So that seems very
16 strange. And that confused me about that Wall Street
17 Journal article.
18 Q Let me ask you: Did you -- when you
19 saw the Wall Street Journal article that talked about
20 a May meeting in terms of allegedly market dividing
21 conduct, did you try to find out whether there had
22 been a May meeting between representatives of
23 Microsoft and representatives of Netscape?
24 A Well, again, I wouldn't characterize
25 the article in that way. When I read the article,
268 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 what it said interested me enough and concerned me
2 enough, I did seek to find out if there was a May
3 meeting. But I don't think the article is what
4 you're suggest -- said what you're suggesting. I
5 mean, we should get a copy of the article. I don't
6 remember it that way. I remember Andreessen talking
7 about how he had been in fear that Don Coerleone had
8 come to see him. And, you know, once I realized that
9 there was no meeting in May and that it wasn't -- you
10 know, that he after the meeting said he enjoyed the
11 meeting and that it was, you know, just a group of
12 our guys down there trying to talk about if there was
13 any areas of cooperation, it seemed -- the whole
14 thing seemed very strange to me.
15 Q Did you talk to people to find out
16 whether there was a May meeting?
17 A Yes.
18 Q Who did you talk to?
19 A I consulted with my lawyers.
20 Q Other than consulting with your
21 lawyers, did you try to find out whether there was a
22 May meeting?
23 A Well, my lawyers then talked to all the
24 people that might have met with Netscape, and I made
25 sure they did that pretty broadly.
269 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 Q And you were informed that there was no
2 May meeting; is that your testimony?
3 A That's the understanding I was given,
4 yes. And then I was given some of the other
5 information that I've already mentioned.
6 Q But all that information came from your
7 lawyers not from nonlawyer employees of Microsoft; is
8 that what you're saying?
9 A It came to me through my lawyers.
10 Q Did you ever have a conversation with
11 anyone in the last 12 months other than your lawyers
12 concerning whether there were meetings in May or June
13 of 1995 with Netscape, and if so, what happened at
14 those meetings?
15 A Well, there might have been a point
16 after I got all the data from the lawyers where I
17 said to some of the PR people what an outrageous
18 slander that article had been and how unfair I felt
19 it was. And so I may have mentioned that to them.
20 Q Did you have any conversations in the
21 last 12 months with any person who was dealing with
22 Netscape in 1995 about whether there were May or June
23 meetings and if so, what happened at those meetings?
24 A No. I relied on the lawyers to go and
25 meet with those people and gather the facts and
270 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 educate me about was there a May meeting and what was
2 the agenda or what was Andreessen's state of mind
3 after the meeting, what did the notes look like. But
4 that's all very recent. That is after the Journal
5 article.
6 Q Now, have you ever read the complaint
7 in this case?
8 A No.
9 Q Have you ever received a summary of the
10 complaint in this case?
11 A I wouldn't say I've received a summary,
12 no. I've talked to my lawyers about the case but not
13 really the complaint.
14 Q Do you know whether in the complaint
15 there is an assertion -- I'm not talking about the
16 Wall Street Journal article, I'm talking about the
17 complaint that was filed last May.
18 Do you know whether in that complaint
19 there are allegations concerning a 1995 meeting
20 between Netscape and Microsoft representatives
21 relating to alleged market division discussions?
22 A I haven't read the complaint so I don't
23 know for sure. But I think somebody said that that
24 is in there.
25 Q Did you find that out before or after
271 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 the Wall Street Journal article?
2 A The first time I knew about these
3 allegations was the Wall Street Journal article.
4 Q That is, that article preceded any
5 knowledge that you had or didn't have related to the
6 complaint?
7 A That's right.
8 MR. BOIES: Okay. That completes that
9 line of questioning.
10 MR. HEINER: Okay.
11 Pick up tomorrow at 8:30?
12 MR. BOIES: That would be good.
13 THE WITNESS: Yeah. The 4:00 deadline
14 tomorrow is unfortunately not a movable deadline.
15 THE VIDEOGRAPHER: This is the end of
16 the deposition. The time is 6:12. This is the end
17 of Tape 4 of the videotaped deposition of Bill Gates
18 to be continued tomorrow morning at 8:30 A.M. which
19 is August 28th.
20
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272 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 I hereby declare, under penalty of 2 perjury, that the
foregoing answers are true and 3 correct to the best of my knowledge and belief.
4 EXECUTED AT _________________, CALIFORNIA,
5 this ______day of _________________, 1998.
6
7 _________________________
8 Bill Gates
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273 BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 STATE OF CALIFORNIA )
) ss.
2 COUNTY OF LOS ANGELES )
3
4 I, Katherine Gale, CSR 9793, a Certified
5 Shorthand Reporter in and for the State of
6 California, do hereby certify:
7 That prior to being examined, the witness named
8 in the foregoing deposition was by me duly sworn to
9 testify the truth, the whole truth, and nothing but
10 the truth;
11 That said deposition was taken before me at the
12 time and place named therein and was thereafter
13 reduced to typewriting under my supervision; that
14 this transcript is a true record of the testimony
15 given by the witness and contains a full, true and
16 correct report of the proceedings which took place at
17 the time and place set forth in the caption hereto as
18 shown by my original stenographic notes.
19 I further certify that I have no
20 interest in the event of the action.
21 EXECUTED this 28th day of August, 1998.
22
23
____________________________
24 Katherine Gale, CSR #9793
25
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BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
1 STATE OF CALIFORNIA )
) ss.
2 COUNTY OF LOS ANGELES )
3
4 I, Kathleen Barney, CSR 5698, a Certified
5 Shorthand Reporter in and for the State of
6 California, do hereby certify:
7 That prior to being examined, the witness named
8 in the foregoing deposition was by me duly sworn to
9 testify the truth, the whole truth, and nothing but
10 the truth;
11 That said deposition was taken before me at the
12 time and place named therein and was thereafter
13 reduced to typewriting under my supervision; that
14 this transcript is a true record of the testimony
15 given by the witness and contains a full, true and
16 correct report of the proceedings which took place at
17 the time and place set forth in the caption hereto as
18 shown by my original stenographic notes.
19 I further certify that I have no
20 interest in the event of the action.
21 EXECUTED this 28th day of August, 1998.
22
23
____________________________
24 Kathleen Barney, CSR #5698
25
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BARNEY, UNGERMANN & ASSOCIATES 1-888-326-5900
Released Pursuant to 15 U.S.C. ۤ30