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Deposition of Bill Gates
August 27, 1998, Page 2

On Wednesday, April 28, 1999, the official transcript of the
deposition of Microsoft Chairman Bill Gates was released.

	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.
	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.
	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.  
	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
	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
	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?
	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
	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
	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
	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
	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
	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.
	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
	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
	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
	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?
	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.) 
	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. 
	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.  
	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
	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. 
	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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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

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