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STEPHEN D.
SUSMAN
CHARLES R. ESKRIDGE III
JAMES T. SOUTHWICK
HARRY P. SUSMAN
SUSMAN GODFREY L.L.P.
1000 Louisiana, Suite 5100
Houston, Texas 77002-5096
Telephone: (713) 651-9366
www.SUSMANGODFREY.COM
RALPH H.
PALUMBO
MATT HARRIS
PHIL McCUNE
LYNN M. ENGEL
SUMMIT LAW GROUP PLLC
WRQ Building, Suite 300
1505 Westlake Avenue N., Suite 300
Seattle, Washington 98109-3050
Telephone: (206) 281-9881
www.SUMMITLAW.COM
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PARKER C.
FOLSE III
SUSMAN GODFREY L.L.P.
1201 Third Avenue, Suite 3090
Seattle, Washington 98101
Telephone: (206) 516-3880
www.SUSMANGODFREY.COM
STEPHEN J.
HILL (A1493)
RYAN E. TIBBITTS (A4423)
SNOW, CHRISTENSEN & MARTINEAU
10 Exchange Place, 11th Floor
P.O. Box 45000
Salt Lake City, Utah 84145
Telephone: (801) 521-9000
www.SCMLAW.COM
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Attorneys for Caldera,
Inc.
IN THE UNITED STATES
DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
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CALDERA,
INC.,
Plaintiff
vs
MICROSOFT
CORPORATION,
Defendant
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CALDERA INC.'S MEMORANDUM, IN
OPPOSITION TO DEFENDANT'S MOTION FOR
PARTIAL SUMMARY JUDGMENT ON PLAINTIFF'S
"PRODUCT PREANNOUNCEMENT" CLAIMS
Judge Dee
V. Benson
Magistrate Judge Ronald N. Boyce
Case No.
2:96CV 645B
FILED
UNDER SEAL
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TABLE OF CONTENTS
TABLE OF AUTHORITIES
INTRODUCTION
RESPONSE TO MICROSOFT'S "STATEMENT OF
UNDISPUTED FACTS"
ARGUMENT
CONCLUSION
CERTIFICATE OF SERVICE
ATTACHMENT R. Prentice, Vaporware: Imaginary High-Tech
Products and Real Antitrust Liability in a Post-
Chicago World, 57 Ohio St. L. J. 1163 (1996)
TABLE OF AUTHORITIES
CASES
AD/SAT v. Associated Press
920 F. Supp. 1287 (S.D.N.Y. 1996)
American Tobacco Co. v. United States
328 U.S. 781 (1946)
Berkey Photo, Inc. v. Eastman Kodak Co.
603 F.2d 263 (2d Cir. 1979),
cert. denied, 444 U.S. 1093 (1980)
Bonjorno v. Kaiser Aluminum & Chemical Corp.
752 F.2d 802, 811 (3d Cir. 1984),
cert. denied, 477 U.S. 908 (1986)
Coleco Industries, Inc.
111 F.T.C. 651 (1989)
Commodore Business Machines, Inc.
105 F.T.C. 230 (1985)
Dasko v. Golden Harvest Products, Inc.
965 F. Supp. 1467 (D. Kan. 1997)
Eastman Kodak Co. v. Image Technical Svcs
504 U.S. 451, 112 S. Ct. 2072 (1992)\
Greyhound Computer v. IBM
559 F.2d 488, 498 (9th Cir. 1977),
cert. denied, 434 U.S. 1040 (1978)
ILC Peripherals Least Corp. v. IBM
458 F. Supp. 423 (N.D. Cal. 1978)
aff'd sub nom. Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir.
1980),
cert denied, 452 U.S. 972 (1981)
Image Technical Services, Inc. v. Eastman Kodak Co.
125 F.3d 1195, 1207 (9th Cir. 1997)
Intergraph Corp. v. Inhtel Corp.
3 F. Supp. 1255, 1277 (N.D. Ala. 1998)
MCI Communications Corp. v. AT&T
708 F.2d 1081 (7th Cir.),
cert. denied, 464 U.S. 891 (1975)
Metal Trading Svcs. v. Trans-World Svcs.
781 F. Supp. 1539, 1543 (D. Kan. 1991)
Michael Anthony Jewelers v. Peacock Jewelry
795 F. Supp. 639 (S.D.N.Y. 1992)
Oahu Gas Service, Inc. v. Pacific Resources, Inc.
838 F.2d 360, 368 (9th Cir. 1988),
cert. denied, 488 U.S. 870 (1988)
Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U.S. 134 (1968)
Southern Pac. Communications Co. v. AT&T
556 F. Supp. 825 (D.D.C. 1983),
aff'd, 740 F.2d 980 (D.C. Cir. 1984)
Stonehill v. Security National Bank
68 F.R.D. 24 (S.D.N.Y. 1975)
Todaro v. Orbit Int'l Travel, Ltd.
755 F. Supp. 1229 (S.D.N.Y. 1991)
United National Records, Inc. v. MCA, Inc.
609 F. Supp. 33 (N.D. Ill. 1984)
United States v. Aluminum Co. of America
148 F.2d 416 (2d Cir. 1945)
United States v. Griffith
334 U.S. 100, 68 S.Ct. 941 (1948)
United States v. Grinnell Corp.
384 U.S. 563, 86 S. Ct. 1698 (1966)
United States v. Microsoft
159 F.R.D. 318 (D.D.C. 1995),
rev'd, 56 F.3d 1448 (D.C. Cir. 1995)
STATUTES
Fed. R. Civ. P. 9(b)
Fed. R. Civ. P. 12(e)
Sherman Act § 2, 15 U.S.C. § 2
OTHER
P. Areeda & H. Hovenkamp, Antitrust Law
(1996) ¶ 782j
J. Moore, Moore's Federal Practice
(2d ed. 1984) Vol. 2A, ¶ 9.03 (and cases cited therein)
.3
R. Prentice, Vaporware: Imaginary High-Tech Products
and Real Antitrust Liability in a Post-Chicago World,
57 Ohio St. L. J. 1163 (1996)
5A C. Wright & A. Miller, Federal Practice and
Procedure
(2d ed. 1990) Vol. 5A, § 1394
COMES NOW Caldera, Inc. complaining of Microsoft
Corporation, and files this
Memorandum in Opposition to Defendant's Motion for Partial
Summary Judgment on Plaintiff's
"Product Preannouncement" Claims, and would show the
Court as follows:
Return to Table of Contents
INTRODUCTION
Long before April 1990, Microsoft had grown complacent
and was resting on its MS-DOS monopoly. DRI's announcement
of DR DOS 5.0 caught Microsoft by surprise. DR DOS 5.0 was
far superior to any product that Microsoft had on the
market, and had many compelling features
Microsoft did not even have under development. Moreover,
Microsoft's current version, MS-DOS 4.01, was widely
regarded as a buggy, bloated product. Microsoft realized
that OEMs and end users had a compelling reason to switch
from MS-DOS to DR DOS and that if they switched,
they might never switch back. In order to preempt the
adoption of DR DOS 5.0, Microsoft engaged in a continuous
and systematic preannouncement plan designed specifically to
injure DRI. Because the truthful release date of MS-DOS 5.0
would not preempt DR DOS sales, Microsoft did not tell
the truth.
When DR DOS 6.0 later leapfrogged MS-DOS 5.0 shortly
after it shipped, Microsoft preannounced a version of MS-DOS
that never shipped until four years later, and only then as
the DOS component of Windows 95. And when Novell DOS 7.0
loomed on the near horizon, Microsoft preannounced both
MS-DOS 7.0 and Windows 95. MS-DOS 7.0 never shipped. As to
Windows 95, Microsoft again missed its announced
release-date by over a year. Worse, Microsoft falsely
informed the world Windows 95 would not need DOS to run. In
each instance, Microsoft's modus operandi remained largely
the same: (1) preannounce a new release immediately after
DRI announced a new release; (2) falsely promise a
shorter-than-expected release date to curtail DOS users from
buying DR DOS; (3) study the new DR DOS version to ascertain
its features in order to add those features to its promised
version; and (4) deliberately slip the release date in small
increments to keep MS-DOS users within the fold. In some
instances, Microsoft went further by promising features on a
release that it knew would not be included in the next
release.
Caldera has overwhelming evidence that Microsoft made
preannouncements about their products that were not only in
bad faith and objectively unreasonable, but also were
knowingly false and misleading. This evidence is more than
sufficient to raise a genuine issue of fact regarding the
legality of Microsoft's vaporware practices. Summary
judgment should be denied.
Return to Table of Contents
RESPONSE TO MICROSOFT'S
"STATEMENT OF UNDISPUTED FACTS"
Caldera disagrees in every material respect with
Microsoft's purported "Statement of Undisputed Facts."
Caldera incorporates by reference its Consolidated Statement
of Facts as if set forth here in its entirety.
Caldera responds to the numbered paragraphs in
Microsoft's purported "Statement of Undisputed Facts." as
follows:
1. Disagreed. The testimony and exhibits referred to
confirm only that, prior to November 1989, Mircosoft had
entirely abandoned architectural design and control of
future MS-DOS versions, but that at some point after
December 1989 took such control back from IBM. See
Consolidated Statement of Facts, 20-26,33-33.
2. See response to ¶ 1, supra. Microsoft also
ignores that its only plans by the end of 1989 were to
release MS-DOS 4.1 in 1990. See Consolidated Statement of
Facts, ¶ 87.
3. Disagreed. The cited testimony does not support
Microsoft's assertion. To the extent that more developers
were assigned to the MS-DOS team, such assignment was made
only after DR DOS 5.0 was announced. Lennon Depo. at 42.
4. Agreed.
5. Lennon's testimony speaks for itself. Caldera
disagrees that the cited testimony supports Microsoft's
assertion. At best, by April 1990 Microsoft had been
thinking about a next version of MS-DOS for only four
months. See Consolidated Statement of Facts, ¶ 87.
Microsoft also ignores all evidence that its witnesses'
self-serving testimony was not credible, and that testimony
about purported schedules was neither objectively reasonable
nor actually held in good faith. See id. at ¶¶
87-101, 307-318, 353-374. Moreover, Microsoft ignores that
its internal schedules are "fake." See id. at ¶¶
85-86, 101, 309, 311, 315, 361-363, 368, 370.
6. Werner's testimony speaks for itself. See response to
¶ 5, supra.
7. Chestnut's testimony speaks for itself. See response
to ¶ 5, supra.
8. The status report is quoted accurately. See response
to ¶ 5, supra. The "MS-DOS 5.0 Postmortem Report"
confirmed this schedule was false and not realistic. See
Exhibit 195; Consolidated Statement of Facts, ¶ 86.
9. See response to ¶ 8, supra.
10. See response to ¶ 5, supra. Microsoft also
ignores that it was adding significant features in response
to DR DOS 5.0, and that this would necessarily delay the
schedule. SeeConsolidated Statement of Facts, ¶¶
88-89, 95-96, 99.
11. Disagreed. MS-DOS 5.0 was nowhere near "code
complete" by May 1990.
Important features were still being added at least until
July 1990. See Consolidated Statement of Facts, ¶¶
95-97, 99.
12. The document is quoted accurately. But see response
to ¶¶ 5 and 8, supra. Microsoft was clearly
ignoring what impact features added in response to DR DOS
5.0 would have on its schedules. See Consolidated Statement
of Facts, ¶¶ 99-100.
13. Caldera agrees only that a bogus first beta shipped
on June 11, 1990. The beta was nowhere near a final product,
and Microsoft knew that. See Consolidated Statement of
Facts,
¶¶ 95-97, 99.
14. A beta version may generate "talk" within the
industry. Such fact has absolutely nothing to do with
Microsoft's conduct in proactively contacting the media to
announce an imminent ship date, and to contact its OEMs
around the world to fully disclose its plans and purported
schedule. See Consolidated Statement of Facts, ¶¶
90-94, 102.
15. Disagreed. The exhibit cited is merely a public
relations memo, and itself suggests a release to manufacture
in 1991. Feedback from the first beta revealed numerous
bugs, and Microsoft already knew that its schedule was going
to be much-delayed. See Consolidated Statement of Facts,
¶¶ 95-97, 99.
16. Caldera's First Amended Complaint speaks for itself.
17. Disagreed. The DR DOS 5.0 beta test cycle lasted five
months. Microsoft's cited exhibits do not support a shorter
time estimate. Moreover, Microsoft ignores the fact that no
significant new features were added to DR DOS 5.0 after
the first beta.
18. Disagreed. Exhibit 25 refers only to a "retail"
product, which Microsoft at the time was planning to be
MS-DOS 4.1. See Consolidated Statement of Facts, ¶ 87.
Exhibit 26 contains within it no reference to DRI's
purported perception of availability of any MS-DOS product
in Summer 1990.
19. The document says what it says. Microsoft's
interpretation is incorrect. By "announcement," it is clear
DRI was at best asserting an understanding that Microsoft
planned to ship a beta version by May 22, 1990.
20. Agreed that DRI discussed DR DOS 5.0 publically on
April 23, 1990, and May 14, 1990.
21. Disagreed. DRI released DR DOS 5.0 in June 1990. See
Consolidated Statement of Facts, ¶ 73. Indeed,
Microsoft states this elsewhere as an undisputed fact. See
Disparagement Memorandum, ¶ 13. Moreover, the delay was
not because of any known incompatibility problem, but was
simply to ensure the fact that DR DOS 5.0 was compatible
with Windows 3.0, which shipped in May 1990. See
Consolidated Statement of Facts, ¶ 90 n.15.
22. The document says what it says. Microsoft wishes to
downplay the devastating testimony elicited in regard to
this document's content. See Consolidated Statement of
Facts, ¶¶ 90-93, 108.
23. Disagreed. The industry's perception of Microsoft's
neglect and stagnation of MS-DOS 5.0 was accurate. See
Consolidated Statement of Facts, ¶¶ 15-16, 20-26,
30-33, 71-73.
24. The magazine articles say what they say. Microsoft
ignores the fact that its employees initiated contact with
these magazines to "leak" plans. See Consolidated Statement
of Facts, ¶¶ 90, 91, 98, 107-108.
25. As to the truthfulness of Chestnut's statements, see
response to ¶ 5, supra.
26. Microsoft did not just discuss its plans with
"various OEMs," but with virtually all of its OEMs
worldwide. See Consolidated Statement of Facts, ¶¶
90-94, 100, 102. Microsoft ignores the nature of the
presentations given, and the fact that they were given
specifically to diffuse interest in DR DOS 5.0. See Id.,
¶¶ 91-93, 102, 104. Moreover, Microsoft ignores
that disclosure to an OEM under a non-disclosure agreement
is a fiction insofar as Caldera's vaporware allegations are
concerned. See Id., ¶ 104.
27. Discussing plans with ISVs is not a "public
announcement" per se. But Microsoft ignores that its own
witnesses have stated such disclosure under NDA is a
complete fiction, and that Microsoft expects there to be
leaks. See Consolidated Statement of Facts, ¶¶
104, 314.
28. Agreed.
29. The articles speak for themselves. Mark Chestnut
provided the information regarding estimated ship date,
which by that time was contradicted even by Microsoft's
internal records. SeeConsolidated Statement of Facts,
¶¶ 98-100.
30. See response to ¶ 5, supra. The credibility of
these witnesses is clearly at issue.
31. The document speaks for itself. See response to
¶¶ 5 and 8, supra. This schedule is clearly of the
"fake" variety explained in the Consolidated Statement of
Facts, ¶¶ 85-86.
32. See response to ¶ 31, supra.
33. Agreed.
34. Disagreed. Microsoft has long attempted to use the
arrival of Brad Silverberg as an after-the-fact alibi for
its knowingly false and misleading preannouncement of MS-DOS
5.0.
Microsoft would have this Court believe that an outsider
from Borland came to Microsoft and knew more about getting
the Microsoft core product which accounted for over forty
percent of its yearly revenue to market than did the senior
Microsoft officials in charge of the product. It is utterly
a matter of credibility. Whether the jury wishes to believe
Microsoft's self-serving explanations in this regard is up
to them. Brad Silverberg is clearly the least credible of
all of Microsoft's many
veracity-challenged witnesses. See Consolidated Statement
of Facts, ¶¶ 106-107, 210, 214-215,
236, 238, 310 n. 29, 330-331.
35. See response to ¶¶ 5 and 34, supra.
36. See response to ¶¶ 5 and 34, supra.
37. See response to ¶¶ 5 and 34, supra.
38. See response to ¶¶ 5 and 34, supra. A full
explanation regarding the schedule for MS-DOS 5.0 appears in
Caldera's Consolidated Statement of Facts, ¶¶
83-109.
39. Agreed that MS-DOS 5.0 was commercially released on
June 6, 1991. Evidence in the case shows that Microsoft
announced the product would be available as early as August
1990.
See Consolidated Statement of Facts, ¶ 91.
Accordingly, counting the month of August 1990, there was
actually a delay of eleven months. Microsoft also attempts
to downplay that MS-DOS 5.0 did not ship until fifteen
months after being originally "leaked" to media and OEMs.
40. Some delay and slight schedule slips may be normal.
However, the delay attendant to MS-DOS 5.0, 6.0, 7.0 (which
still has not shipped) and Windows 95 are not at all normal
and common.
41. Only truthful product preannouncements are a common
industry practice.
42. The announcement of DR DOS 5.0 was entirely truthful.
To the extent its schedule was delayed for less than a month
it was to ensure compatibility with Windows 3.0, a major
product that happened to ship immediately prior to the
planned shipment of DR DOS 5.0. SeeConsolidated Statement of
Facts, ¶ 90.
43. DRI's announcement of DR DOS 6.0 was truthful, and
the predicted dates were met.
See Consolidated Statement of Facts, ¶¶ 186,
307. Microsoft makes no assertion to the contrary.
44. Novell's announcement of Novell DOS 7.0 was truthful.
The delay in its release arose when Novell decided to more
closely integrate the product with networking capabilities.
SeeConsolidated Statement of Facts, ¶ 349 n. 33.
45. Edwards' testimony speaks for itself. He explicitly
confirmed that the Novell DOS 7.0 feature set was largely
complete, and had in fact entered early beta tests. Edwards
FTC Decl.
¶ 65. A larger question, however, was whether the
FTC could fashion relief to make its marketing worthwhile.
Id. ¶ 73.
46. The testimony is quoted accurately. But see response
to ¶ 44, supra.
47. Disagreed. Microsoft's plans for Windows 95 never
changed after June 1992. SeeConsolidated Statement of Facts,
¶¶ 328-331. Microsoft's plans for Windows 95 were
constantly and ceaselessly communicated to OEMs and the
entire world. See Consolidated Statement of Facts,
¶¶ 356-360, 364-367, 369, 371-373.
48. Only truthful product preannouncements serve
procompetitive functions.
49. See response to ¶ 48, supra.
Return to Table of Contents
ARGUMENT
Caldera has set forth the controlling summary judgment
standards in its Consolidated Statement of Facts at 7-11. As
shown above, numerous issues of fact exist, requiring jury
trial. More importantly, as to Caldera's allegations
concerning vaporware, a controlling issue is the credibility
of Microsoft's witnesses. Doubts as to the credibility of
Microsoft's witnesses infect these summary judgment
proceedings, especially as to whether its personnel have
been candid about their beliefs when Microsoft products
would be available. Such doubts are only to be resolved by
the jury, and the Court should deny summary judgment for
this reason as well. See Id., at 9-11; Metal Trading Svcs.
v. Trans-World Svcs., 781 F. Supp. 1539, 1543 (D. Kan. 1991)
("summary judgment is rarely appropriate where the
factfinder must determine state of mind").
I. CALDERA'S FIRST AMENDED COMPLAINT
COMPLIES WITH RULE 9(b)
Microsoft argues in passing that certain of Caldera's
preannouncement allegations are not pleaded with the
particularity required by Fed. R. Civ. P. 9(b), and thus
should be dismissed as a matter of law. Preannouncement
Memo. at 9-10. Rule 9(b) states: (b) Fraud, Mistake,
Condition of the Mind. In all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be
stated with particularity. Malice, intent, knowledge, and
other condition of mind of a person may be averred
generally.
Fed. R. Civ. P. 9(b) (emphasis added).
Caldera has not pleaded fraud. As discussed below,
Caldera need only prove, at most, that Microsoft's product
preannouncements were "knowingly false or misleading" when
made. Both "knowledge" and "intent" are specifically
exempted from Rule 9(b)'s specificity requirement. Fed.
R. Civ. P. 9(b).
Beyond this, Microsoft has waived any objection to the
particularity of Caldera's preannouncement claims. The
proper vehicle to raise such a challenge is by a Rule 12(e)
motion for a more definite statement. Fed. R. Civ. P. 12(e).
Microsoft filed a detailed answer to Caldera's First Amended
Complaint on January 23, 1998. Although it raised 12
affirmative defenses, Microsoft raised no Rule 9(b)
objection. Only now over one year later has Microsoft
identified this purported pleading deficiency. It is too
late for Microsoft to raise this challenge. See Dasko v.
Golden Harvest Products, Inc., 965 F. Supp. 1467, 1474
(D. Kan. 1997): "Defendants cannot argue almost a year later
that plaintiff failed to plead fraud with particularity."
The specificity requirements of Fed. R. Civ. P. 9(b) have
been imposed to ensure that a defendant is apprised of the
fraud claimed in a manner sufficient to permit the framing
of an adequate responsive pleading. A party who fails to
raise a timely Rule 9(b) objection normally waives the
requirement. See Todaro v. Orbit Int'l Travel, Ltd., 755 F.
Supp. 1229, 1234 (S.D.N.Y. 1991); United National Records,
Inc. v. MCA, Inc., 609 F. Supp. 33, 39 (N.D. Ill. 1984); see
also Stonehill v. Security National Bank, 68 F.R.D. 24, 44
n.38 (S.D.N.Y. 1975); 5A C. Wright & A. Miller, Federal
Practice and Procedure § 1394 at 778 (2d ed. 1990); 2A
J. Moore, Moore's Federal Practice ¶ 9.03 at 9-35 (2d
ed. 1984) (and cases cited therein).
Beyond waiver, Microsoft is clearly on notice of
Caldera's allegations in this regard. Microsoft propounded,
and Caldera answered, an interrogatory specifically
addressing this claim.
Brad Silverberg, Brad Chase, Mark Chestnut, Tom Lennon,
Russ Werner and Rich Freedman senior Microsoft employees
responsible for various versions of MS-DOS and Windows 95
were each subjected to extended cross-examination on
Microsoft's vapor practices regarding MS-DOS 5.0, 6.0, 7.0
and Windows 95. Caldera's allegations regarding vaporware
are of no surprise to Microsoft.
Return to Argument
Return to Table of Contents
II. TO ESCAPE LIABILITY, MICROSOFT
MUST DEMONSTRATE THAT ITS
PREANNOUNCED EXPECTATIONS WERE BOTH ACTUALLY HELD IN
GOOD
FAITH AND OBJECTIVELY REASONABLE
Microsoft disclosed false and misleading information
prior to releasing three separate products in order to
divert purchasers from buying superior DOS products marketed
as DR DOS 5.0, 6.0 and Novell DOS 7.0. Microsoft engaged in
this conduct with the intent to maintain a monopoly in the
DOS market. See Goodman Report at 6.
Product preannouncements are analyzed under Section 2 of
the Sherman Act. 15 U.S.C. § 2.
"The offense of monopoly under Section 2 of the Sherman
Act has two elements: (1) the possession of monopoly power
in the relevant market and (2) the willful acquisition or
maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business
>acumen, or historical accident." United States v.
Grinnell Corp., 384 U.S. 563, 570-71, 86 S. Ct. 1698, 1704
(1966). The second element refers to "the use of monopoly
power 'to foreclose competition, to gain a competitive
advantage, or to destroy a competitor.'" Eastman Kodak Co.
v.
Image Technical Svcs, 504 U.S. 451, 481, 112 S. Ct. 2072,
2089 (1992) (quoting United States v. Griffith, 334 U.S.
100, 107, 68 S. Ct. 941, 945 (1948)).
Microsoft does not contest that it has possessed and
maintained monopoly power in the relevant market. Alcoa was
decided under unique circumstances that enhance its weight
and as precedent. The Second Circuit sat under a statute
that authorized it to render a decision "in lieu of a
decision by the Supreme Court," and provided that such
decision "shall be final and there shall be no review of
such decision by appeal or certiorari or otherwise." 28
U.S.C. 21§ 09 (formerly 15 U.S.C. § 29). Microsoft
has not contested the fact that its many preannouncements
were, indeed, false. Microsoft supports its motion for
summary judgment solely on the contention that there is no
evidence of Microsoft's knowledge that its statements were
false when made. Preannouncement
Memo. at 4-5.
As developed below and in its Consolidated Statement of
Facts, Caldera has compiled a massive record that easily
withstands summary judgment.
Return to Argument
Return to Table of Contents
A. The Legal Standard Has Both
Subjective and Objective Components
A monopolist, like any other vendor, is free to make or not
to make advance announcements of new products. Such
announcements are lawful so long as they "truly reflect the
monopolist's expectations about future quality or
availability where that expectation is both actually held in
good faith and objectively reasonable." P. Areeda & H.
Hovenkamp, Antitrust Law ¶ 782j, at 267-68 (1996)
(emphasis added). Although Microsoft cites several cases
discussing predatory product preannouncements under Sherman
Act § 2, the appropriate standard of conduct that
suffices as "willful maintenance" of Microsoft's monopoly is
more relaxed than that distilled by Microsoft.
Areeda & Hovenkamp discuss predatory product
preannouncement at length in their highly regarded antitrust
treatise. They specifically address and condemn the precise
tactics identified by Caldera here against Microsoft:
Consider a rapidly evolving product, such as a computer.
A monopolist's announcement that a greatly improved model
will soon be available may discourage present sales of a
rival's product that is superior to the monopolist's present
product. Buyers may prefer the monopolist's promised model.
If that new model appear later than announced and is
actually comparable to or only slightly better than the
rival's unchanged product, buyers may nevertheless purchase
it, although they would have dealt with the rival at the
time of the monopolist's original announcement if they had
known then the actual deliver dates or quality of the
monopolist's new model. In that event, rivals would have
been unfairly disadvantaged by the monopolist's false
statements or predictions about its future product quality
and availability dates.
If the monopolist's original announcement was a knowingly
false statement of material fact designed to deceive buyers,
it would easily qualify as an exclusionary practice when
potentially significant in effect. Ordinarily, however, the
monopolist would not be describing a present state of facts.
It would be making an estimate about the quality and
production timetable of products not yet in existence.
Statements leading the reasonable buyer to believe future
quality or availability of the product will be better than
the monopolist expects should be treated just like a false
statement of present fact. But no liability should attach to
statements that truly reflect the monopolist's expectations
about future quality or availability where that expectation
is both actually held in good faith and objectively
reasonable. Such reasonable good faith statements about
research, development, and forthcoming production serve the
social interest in maximizing the relevant information
available to buyers.
P. Areeda & H. Hovenkamp, Antitrust Law ¶ 782j, at
267-68 (1996) (emphasis added).
As such, a monopolist clearly may not make advance
product announcements that are "knowingly false or
misleading." MCI Communications Corp. v. AT&T, 708 F.2d
1081, 1129
(7th Cir.), cert. denied, 464 U.S. 891 (1975). Such
preannouncements amount to exclusionary conduct in violation
of Section 2 of the Sherman Act. Id.; accord Berkey Photo,
Inc. v. Eastman Kodak Co., 603 F.2d 263, 288 (2d Cir. 1979),
cert. denied, 444 U.S. 1093 (1980): "A monopolist is not
forbidden to publicize its product unless the extent of this
activity is so unwarranted by competitive exigencies as to
constitute an entry barrier." But Microsoft fixates only on
the "knowing falsehood" standard, and thus loses sight of
the more important, overarching enquiry: whether its
preannouncements were not actually held in good faith or
otherwise were objectively unreasonable. Even under the
"knowing falsehood" standard, Caldera clearly meets its
burden merely by showing some evidence of misleading
statements. None of Microsoft's cases are to the contrary,
and indeed, the opinions are filled merely with skepticism
about the quantum of evidence there presented. For instance,
in ILC Peripherals Leasing Corp. v. IBM, 458 F. Supp. 423,
442 (N.D. Cal. 1978), aff'd sub nom. Memorex Corp. v. IBM,
636 F.2d 1188 (9th Cir. 1980), cert. denied, 452 U.S. 972
(1981) (emphasis added), the court stated "[i]t was
never entirely clear to the court what
Memorex claimed was inaccurate about the announcement of
NCP." See also MCI, 708 F.2d at 1129 ("Neither AT&T's
application to the FCC for permission to file the Hi-Lo
rate, nor the accompanying press release contains any false
or misleading information about Hi-Lo or its availability");
Berkey Photo, 603 F.2d at 287-88 ("Advertising that
emphasizes a product's strengths and minimizes its
weaknesses does not, at least until it amounts to deception,
constitute anticompetitive conduct violative of § 2");
AD/SAT v. Associated Press, 920 F. Supp. 1287, 1301
(S.D.N.Y. 1996) ("There is no evidence in this case to
support the claim that AP knowingly made false statements in
announcing AdSEND, and there is some evidence to contradict
it"); Southern Pac. Communications Co. v. AT&T, 556 F.
Supp. 825, 965 (D.D.C. 1983) ("as the Court views the
evidence, it was the FCC and the specialized carriers, not
AT&T, that brought about the delay of which plaintiffs
complain here"), aff'd, 740 F.2d 980 (D.C. Cir. 1984).
Caldera's case suffers from no such similar evidentiary
deficiency: Microsoft's practices are well-documented,
long-standing, and replete with willful deception.
Return to Argument
Return to Table of Contents
B. Industry Background: A Context for
Procompetitive Product Preannouncement
In order to appreciate the impact of Microsoft's
vaporware campaign, the Court must understand the importance
of the market introduction period to a software vendor in
general, and in particular, to a competitor in the DOS
market. The effort required to build and bring to market a
new piece of operating system software is substantial, in
terms of both human and financial capital, and requires an
investment of tens of millions (and possibly hundreds of
millions) of dollars in development and marketing. Because
of the particular competitive situation that DRI foresaw
when it decided to bring a directly competitive DOS product
to market, it knew that the product's market introduction
period would be critical. See Consolidated Statement of
Facts, ¶ 74. Given Microsoft's size, resources, and
monopoly position in the DOS market, DRI reasonably expected
that Microsoft would not sit idly by in the face of a major
technological advance. After some period of time, DRI
expected that Microsoft would be able to bring a competitive
product to market and that competition would likely grow
intense. The key was thus to recoup some if its investment
and obtain a return reflecting the product's innovations in
the window between introduction of successive versions of DR
DOS and the introduction of a competitive Microsoft product
an opportunity that a competitive marketplace should
reasonably be expected to provide. See Consolidated
Statement of Facts, ¶¶ 71-75.
In a very real sense, Microsoft's preannouncement
campaign slammed DR DOS's window of opportunity shut indeed,
never even allowed it to be opened. Neither DRI nor Novell
was allowed their rightful marketplace recognition or reward
for the very real advances made with DR DOS 5.0, 6.0 and
Novell DOS 7.0 particularly in regard to the lucrative,
high-volume OEM channel. Without such recognition or reward,
little incentive exists to continue to bring such
technological advances to computer users throughout the
world. See Goodman Report at 6. Before considering
Microsoft's preannouncements of MS-DOS 5.0, 6.0, 7.0, and
Windows 95, the Court should also understand the nature of
the software development process.
There are a number of milestones recognized in the
industry:
specification
a written description of the functions and structure of
the program
prototype
a program that actually provides a sample of the product
as it would function
coding
writing of the actual code to be used in the commercial
product
alpha
fully functional, stable program with all features
contained in specification; in the alpha stage the code may
be sent to a limited number of users who often have a close
relationship with the developer
alpha 1.x - x.x
revisions of original alpha code
beta
fully functional, stable code, sufficient to allow
productive work and outside testing; beta test sites are
normally unrelated to the developer and often include major
customers
beta 1.x - x.x
revisions and enhancements to original beta based on beta
site input and internal testing
finished code
code frozen for commercial production and
distribution
See generally Ivie Report at 14-19; Goodman Report at
4-5.
The above milestones inform whether a product
preannouncement is made in good faith and objectively
reasonable. Within this system of milestones, an
"announcement" which suggests the imminent availability of a
commercially viable product must be judged to be, at a
minimum, clearly misleading until the product's development
has at least resulted in a stable, fully functional, program
containing all of the features anticipated to be in the
finished code. In terms of the above milestones, this would
mean a product which has reached an advanced beta state.
Prior to this point, there is simply too much chance for
problems to arise which would require deletion or major
revision of a feature or function and postponement of
commercial availability to allow a representation of this
type to be made. One of Microsoft's own chief developers
confirmed this exact point: "at least until the feature set
was completely defined for a new release like [an
operating system], any schedule is going to be largely
meaningless." Lipe Depo. at 90.
Indeed, the "schedule slips" Microsoft now tries to foist
on the Court as excuses arose only because Microsoft made
its preannouncements during the "specification" and
"prototype" phase of development while at the same time
making specific representations of imminent availability of
the commercial product. See Consolidated Statement of Facts
¶¶ 87-89, 95-97, 100, 309, 310-313, 315, 357-363,
368.
Withholding predictions as to availability would in no
way prevent Microsoft or any other developer from releasing
information about a product under development at any stage
of its process.
The developer simply cannot assert that a product is
nearing commercial viability until it has reached a stage
that is close enough to its final commercial form to allow
reasonably accurate claims to be made. Federal Trade
Commission consent orders under Section 5 of the FTC Act
have taken this general approach, and banned announcements
concerning product availability when made without a basis in
fact. For example, in Commodore Business Machines, Inc., 105
F.T.C. 230, 244 (1985), the Commission alleged that
Commodore had falsely stated that it had developed a
microprocessor that permitted its computer far greater
software processing capability. In its consent order,
Commodore agreed not to represent that a "product will be
available for sale to the public or will have any
capability, unless at the time of such representation
respondent possesses and relies upon a reasonable basis for
said representation." See also Coleco Industries, Inc., 111
F.T.C. 651, 660 (1989) (same language as to false claim that
certain product enhancements were presently available for
sale).
Microsoft's actions should similarly be condemned.
Microsoft has a legitimate right only to communicate honest
information about real products. It cannot use lies and
disinformation to insulate its monopoly position against
competition. Any restriction on false and misleading product
preannouncements in no way threatens to chill the
procompetitive conduct of successful firms, for false and
deceptive statements can never serve a procompetitive
purpose. Even Microsoft's own economist agrees with this
proposition. Schmalensee Depo. at 183-184.
Return to Argument
Return to Table of Contents
III. MICROSOFT'S PRODUCT
PREANNOUNCEMENTS WERE NOT MADE IN
GOOD FAITH AND WERE OBJECTIVELY UNREASONABLE
A. Microsoft knew what vaporware was and how it could
be used effectively
to curtail adoption of competitive products by deceiving end
users
Microsoft is well-versed in the use of vaporware tactics
to dampen interest in the products of its competitors.
Microsoft's use of vaporware traces back to the very origins
of the company, when Bill Gates informed MITS the
manufacturer of the world's first PC that he had a version
of BASIC ready to run on the first personal computer, when
he had yet to write a single line of code. See Consolidated
Statement of Facts, ¶ 5. Gates received a mock honor of
the "Golden Vaporware Award" for his preannouncement of the
first version of Windows to preempt entry by VisiOn, a GUI
announced in 1983 when by 1985 it still had not shipped. See
R. Prentice, supra n.3, at 1181 (attached). When Microsoft
entered into the Consent Decree with the DOJ in 1994, Judge
Sporkin refused to enter it based on the DOJ's refusal to
address Microsoft's rampant vaporware practices. See United
States v. Microsoft, 159 F.R.D. 318, 334-36 (D.D.C. 1995),
rev'd, 56 F.3d 1448 (D.C. Cir. 1995) (finding district court
to have exceeded permissible scope of review).
Moreover, Microsoft frequently appears on industry
"vaporware" lists, and has a long list of vaporware "kills"
to its credit. See R. Prentice, supra n. 3, at 1178-1184
(attached). These aprocryphal stories are confirmed by
documents produced by Microsoft in this case.
On October 1, 1990 five months after Microsoft begins its
vaporware campaign against DR DOS 5.0 Nathan Mhryvold (in
discussing a threat from Sun Microsystems) sent the
following memo to the Microsoft executive staff, explaining
why and how Microsoft could use preannouncement to crush the
demand for a competitive product:
The purpose of announcing early like this is to freeze the
market at the OEM and ISV level. In this respect it is JUST
like the original Windows announcement. This time we have a
lot better development team, so the time between announce
and ship will be a lot smaller. Nevertheless we need to get
our message out there.
We certainly do need to follow this announcement up with a
good demo in 6-8 months when the SDK ships, but
preannouncement is going to give Sun a real problem.
Exhibit 83 (X0195817-821) (emphasis added)
Mhyrvold elsewhere explained at length how Microsoft
killed VisiCorp with vaporware: Microsoft "preannounced
Windows, signed up the major OEMs and showed a demo to
freeze the market and prevent VisiOn from getting any
momentum. It sure worked VisiOn died, VisiCorp died, and
DOS kept on chugging." Exhibit 21.
By Spring 1991, Microsoft's executive staff considered a
fpresentation from Jeremy Butler a senior executive that
"business tactics" of "destroying the competition" with
"preemptive announcements" was a "questionable" practice.
Exhibit 121 (emphasis added). But by that time, egregious
damage had been inflicted on DR DOS sales.
Return to Argument
Return to Table of Contents
B. Microsoft had a strong motive to
lie
Microsoft had a tremendous motive to lie. In June 1990,
DR DOS surged ahead of MS-DOS in the "feature war," and
never fell behind. Microsoft at every point thereafter had a
motive to lie about forthcoming, imminent availability of
new versions of MS-DOS.
DR DOS 5.0 shipped in June 1990. In April 1991, Joachim
Kempin confirmed that DR DOS 5.0 had been "a far superior
product to MS-DOS for the preceding nine months." Kempin
Depo. at 263. Moreover, the MS-DOS 5.0 Post Mortem Report
noted that the compelling DR DOS 5.0 feature set was
"[o]ne of the most important stimulants for adding
features" to MS-DOS 5.0. Exhibit 195; see Consolidated
Statement of Facts, ¶ 96.
DR DOS 6.0 shipped in September 1991. Microsoft
executives had already recognized that it would be available
"at least a year ahead of MS-DOS 6." Exhibit 153; see
Consolidated Statement of Facts, ¶ 307. Bill Gates also
acknowledged that, for Microsoft's next version of MS-DOS to
be competitive to DR DOS, they would have to "match the
garbage that DR DOS does."
Exhibit 285; see Consolidated Statement of Facts; ¶
188. Yet, the specifications for MS-DOS 6.0 were not even on
the drawing board until February 1992. Consolidated
Statement of Facts, ¶¶ 311, 315-318.
When Novell announced its feature set for Novell DOS 7.0
in March 1993, Microsoft knew again that DR DOS had hit the
mark. Richard Freedman MS-DOS product manager since MS-DOS
6.0 wrote Chase and Silverberg: if they really release a
version with all this junk in it, it will mean that for
three ms-dos releases in a row (5, 6 and 7), DR will have
had our key features in their product 12-18 months before us
(kernel in HMA, compression, VxD/multitasking). given that
track record, it's going to be impossible to shake this "MS
as follower" image. it's been very difficult so far as it
is.
Exhibit 350 (MS7085933-934) (emphasis added)
In each instance, Microsoft realized it was behind. In
each instance, the record confirms that Microsoft
deliberately chose to begin leaking its "plans" to dampen
interest in the products. SeeConsolidated Statement of
Facts, ¶¶ 87-109, 307-319, and 353-374.
Return to Argument
Return to Table of Contents
C. Microsoft lied to trade
publications and the government on this exact issue
Caldera's Consolidated Statement of Facts sets forth at
great length the evidence pertaining to Microsoft's
preannouncement of MS-DOS 5.0 to kill DR DOS 5.0 sales. As
explained there, the industry became rightly suspicious of
Microsoft's conduct, and PC Week investigated, ultimately
writing an article entitled "Microsoft Outlines DOS 5.0 to
Ward Off DR DOS." Consolidated Statement of Facts, ¶
105. Brad Silverberg replied in a letter submitted to PC
Week shortly thereafter. Id. ¶ 106. Because Silverberg
knew that his letter would be reprinted for everyone in the
industry to read, the Court may assume Silverberg knew he
was, in fact, addressing the entire industry. His
misrepresentations are set forth alongside directly
contradictory evidence in the record:
What Brad Silverberg said:
The truth of the matter is:
"The feature enhancements of MS-DOS version 5.0 were decided
and development was begun long before we heard about DR DOS
5.0"
Exhibit 90.
"One of the most important stimulants for adding features
was competitive pressure from DR DOS 5.0, which we first
learned of in the Spring of 1990. The DR DOS feature set led
us to add UMB support, task swapping, and undelete." Exhibit
195(MS-DOS 5.0 Post Mortem Report);
Consolidated Statement of Facts, ¶ 96.
"As for the timing of the leaks, it was not an
orchestrated Microsoft plan nor did the leaks come from
Microsoft."
Exhibit 90.
"On the PR side, we have begun an 'aggressive leak'
campaign for MS-DOS 5.0. The goal was to build an
anticipation for MS-DOS 5.0, and diffuse potential
excitement/momentum from the DR DOS 5.0 announcement."
Exhibit 49(DR DOS 5.0 Competitive Analysis);
Consolidated Statement of Facts, ¶ 90.
"Aggressive it means that we were calling them, basically."
Chestnut Depo. at 118; Consolidated Statement of Facts,
¶ 108.
"Thus, to serve our customers better, we decided to be
more forthcoming about version 5.0."
Exhibit 90.
". . . diffuse potential excitement/momentum from the DR
DOS 5.0 announcement."
Exhibit 49 (DR DOS 5.0 Competitive Analysis);
Consolidated Statement of Facts, ¶ 90.
"We are distributing to you a comparison between MS-DOS
5.0 and their version. Inform your customers as discussed.
Keep them at bay." Exhibit 51 (Kempin directive to domestic
and international OEM sales force); Consolidated Statement
of Facts, ¶ 94.
"Virtually all of our OEMs worldwide were informed about
DOS 5, which diffused DRI's ability to capitalize on a
window of opportunity with these OEMs." Exhibit 62(Chestnut
performance review);
Consolidated Statement of Facts, ¶ 102.
Microsoft misled the government in the exact same way. The
Department of Justice briefly looked into vaporware
allegations. Bill Neukom submitted a letter to the
Department of Justice on May 19, 1994. His
misrepresentations are emphasized: Reporters from PC Week,
Infoworld and Computerworld contacted Microsoft for comments
on MS-DOS 5.0. At the same time, Microsoft was concerned
about reports that DRI was telling OEMs that Microsoft had
no ongoing commitment to MS-DOS, and Microsoft's PR
Department was advising product groups to be more responsive
to inquiries about products under development to avoid a
repeat of the problems caused by Microsoft's 'no comment'
approach to questions about Windows 3.0 prior to its May
1990 release. Prompted by these concerns, Microsoft
responded to the unsolicited inquiries of these three
publications. Articles disclosing Microsoft's work on MS-DOS
5.0 were published in the April 30 editions of PC Week,
Infoworld and Computerworld. Microsoft conducted no
'proactive' briefings on MS-DOS 5.0 with any reporter who
wasn't under NDA.
Exhibit 423 (emphasis added)
Mark Chestnut directly contradicted these statements in
his deposition in this case, and he (not Bill Neukom) was
the man in charge of this campaign at the time Microsoft
took it. Chestnut Depo.at 118 ("Aggressive it means that we
were calling them, basically").
Microsoft was clearly not telling the truth. Moreover,
doubts as to Microsoft's credibility infect the testimony of
all of Microsoft's witnesses on this issue. If Caldera is
right that Silverberg, Chestnut, Lennon, Werner and others
were lying at the time or more gently stated, were making
claims not actually held in good faith or which were
objectively unreasonable then, not surprisingly, those
witnesses would continue that self-same lie in this case.
Indeed, that appears to be Microsoft's true defense:
consistently repeat the same falsehood, and maybe some day,
someone will believe it is true. See Preannouncement Memo.
at 5-6. Whether the jury chooses to believe Microsoft at
trial is up to them. Under controlling summary judgment
standards, however, this Court is not to assess credibility,
but must instead simply view the evidence in the light most
favorable to Caldera. See Consolidated Statement of Facts at
7-11 (Summary judgment standards). This Court is entitled to
send the matter to trial based solely on the severe damage
Caldera has inflicted on Microsoft's credibility on the
whole. See, e.g., Consolidated Statement of Facts,
¶¶ 45, 58, 106-108, 115, 210, 214-215, 236, 238,
246-247, 253, 258-259, 266-270, 310 n. 29, 314, 330-331,
334, 342, 389-390, 400.
Return to Argument
Return to Table of Contents
D. Microsoft knew that its internal
schedules were "fake"
One of the chief architects of Windows 95 testified that
"at least until the feature set was completely defined for a
new release like Windows 95, any schedule is going to be
largely meaningless." Lipe Depo. at 90 (emphasis added).
Because Microsoft always preannounced long before its
feature set was complete, its predictions were always
misleading:
The Windows 95 feature set was changing all the way into
mid-1994. Lipe Depo. at 90. Microsoft began its
preannouncement in August 1992. Consolidated Statement of
Facts, Id., ¶ 356.
The MS-DOS 7.0 feature set was never finalized. Id.,¶
368. Microsoft began its preannouncement at least by August
1993. ¶ 367.
The MS-DOS 6.0 feature set was not final until at least
February 1992. Id.,¶317 Microsoft's first leaks were in
September 1991. Id. ¶¶ 310-312.
The MS-DOS 5.0 feature set was not final until July or
August 1990 Id. ¶ 99.
The "aggressive leak" campaign began in April 1990. Id.
¶ 90.
Microsoft repeatedly suggests that its own internal
schedules reflect the "truth" of the preemptive
announcements its executives were making. See, e.g.,
Preannouncement Memo. at 5-7. Internal records, however,
amply demonstrate that Microsoft's schedules do not in any
way reflect reality. For instance, Windows 3.0 had shipped
in May 1990 just as Microsoft began its vaporware
announcements concerning MS-DOS 5.0. The "Windows 3.0 Post
Mortem" contained the following remarkable admissions:
Schedule
*Set by BillG (upper management) before feature
definitions are outlined.
*Problem motivating people to achieve "fake" ship dates.
*Need to be more realistic in our schedules.
*Lying to people on the team about schedules. Morale hit
to the team.
*How to separate out development schedules and the
schedules we give to other groups (USSMD or upper
management) without appearing to "lie" to the product
team.
Exhibit 47 (emphasis added)
The "MS-DOS 5.0 Postmortem Report" similarly reveals a
"fake" schedule had been set up
for MS-DOS 5.0:
[I]t did seem at times that individuals were
confused about how Program Management intended to use their
time estimates. Some individuals produced estimates that
represented best-case scenarios, rather than realistic ones,
and then were surprised to see their best-case guesses show
up on schedule charts. Others felt a lack of trust when they
found their estimates questioned by Program Management.
Better explanation of the goals and methods of scheduling
could have helped clear up some of these problems.
Exhibit 195 (emphasis added)
Microsoft suggests that Brad Silverberg's arrival is an
after-the-fact alibi for its knowingly false, misleading,
bad faith, objectively unreasonable preannouncement of
MS-DOS 5.0. See Preannouncement Memo at 6-7. Microsoft would
have this Court believe that an outsider from Borland came
to Microsoft and knew more about getting the Microsoft core
product which accounted for over forty percent of
Microsoft's yearly revenue to market than did the senior
Microsoft officials in charge of the product. It is utterly
a matter of credibility. Whether the jury wishes to believe
Microsoft's self-serving explanations in this regard is up
to them. Brad Silverberg is clearly the least credible of
all of Microsoft's many veracity-challenged witnesses.
SeeConsolidated Statement of Facts, ¶¶ 106-107,
210, 214-215, 236, 238, 310 n. 29, 330-331. And
Phil Barrett a senior developer put on the MS-DOS 5.0
team in May 1990 testified that he knew then that neither
the schedules, the beta test plans, nor even the overall
assignments of responsibility were reasonable. Id. ¶
97.
As to DR DOS 6.0, Microsoft initially responded by
leaking plans about MS-DOS 5.1 a product for which no final
specifications or schedules even exist. See Consolidated
Statement of Facts, ¶ 309. Brad Silverberg as early as
September 6, 1991, was making presentations to OEMs stating
that a new version of MS-DOS was "coming soon." Yet he had
been specifically advised that version 6.0 "was not defined
yet and we need to know what it is before we ship it."
Exhibit 162.
Silverberg admitted that disclosure of a version as
"coming soon" does not comport with shipping eighteen months
later as was the case with MS-DOS 6.0. Silverberg Depo. at
128. Even as late as February 1992, Silverberg was
acknowledging the falsity of the prior preannouncements:
"but realistically, msdos6 is still quite a ways off. . . .
i presume msdos won't be until mid-to-late '93."
Exhibit 274 (MS7022698).
As to Novell DOS 7.0, Microsoft frequently leaked and
discussed its "plans" for MS-DOS 7.0, although no final,
confirmed specification even exists. See Consolidated
Statement of Facts, ¶ 368. Richard Freedman MS-DOS
product manager at the time specifically testified that any
leak as to MS-DOS 7.0 alone (as opposed to "Chicago") would
have been vaporware, because "there was never a formal
schedule and a launch plan and a marketing team and the
whole nine yards for this thing." Id. at 118; see also id.
at 125, 134, 161-162.
Moreover, leaks as to Windows 95 began as early as August
1992, predicting a late 1993 release. See Consolidated
Statement of Facts, ¶ 353-356. The leaks continued
unabated through the launch of MS-DOS 6.0 in March 1993. See
Id., ¶¶ 357-360. Direct evidence shows internal
awareness that such schedules were never realistic. For
instance, in April 1993, David Cole reported to Bill Gates
that internal schedules were, as always, of the "fake"
variety he had identified as long ago as May 1990 with
Windows 3.0, see Consolidated Statement of Facts, ¶ 85:
Getting this product out quickly is serious business for
us. The original RTM goal we established was Dec 93. I don't
think anyone believed this date, but we built our feature
set and scheduled for that goal. As expected the minimum
compelling feature set could not be completed and tested in
time. The team was not making the optimistic progress
planned for in the schedule.
Exhibit 353 (emphasis added)
Also in April 1993, Cole sent the following e-mail to Paul
Maritz and Brad Silverberg to not reveal that the Windows 95
schedules were unrealistic and would not be met:
I'm really counting on you to keep mum about the
potential Chicago schedule slip, even within systems. All
plans should proceed toward April. Apparently carl stork
knows about the situation and will probably loosen his belt,
if he even hints at this to Intel we are really screwed. The
pressure must stay on. Making statements to the Cairo group
really has potential to screw us up. Same for OLE. For now
it must be M4, M5, M6 then April.
ok?
Exhibit 352 (emphasis added)
Indeed, the leaks and promises that continued all the way
into 1994 were based on fake schedules that continued to be
out of step with developers' internal views. On April 7,
1994, a schedule circulated to Microsoft marketing personnel
that "Chicago" would be released to manufacturing on
September 30, 1994, provoking the following comment:
WOW If you are REALLY still telling the field the RTM is
Sept 30 and if you are REALLY serious we have a ton of work
to do VERY fast?!!
Is this just propaganda mail???
Making me nervous about getting the channel lined up this
fast if you are serious. . . . .
Exhibit 418
Return to Argument
Return to Table of Contents
E. Microsoft's product
preannouncements were objectively unreasonable
and were not good faith estimates of product
availability
Caldera's technical expert, Evan Ivie, has looked at the
facts and circumstances surrounding Microsoft's
preannouncement of MS-DOS 5.0 in connection with the
evidence showing the work required to be done to ship a
product meeting the announcements. His opinion is that
Microsoft's preannouncements were objectively unreasonable.
Ivie Report at 38. As to MS-DOS 5.0, Silverberg confirmed
the schedule was unreasonable, as did Phil Barrett. See
Consolidated Statement of Facts, ¶ 97. Similar
recognition appears as to MS-DOS 6.0, 7.0 and Windows 95.
Microsoft musters no evidence in its summary judgment papers
to counter this opinion, which the jury is entitled to hear
and consider when it weighs the evidence.
Return to Argument
Return to Table of Contents
F. Microsoft's vaporware
dramatically impinged sales of DR DOS
The entire purpose of Microsoft's vaporware campaign was
to stifle sales of DR DOS. Microsoft had seen these tactics
work before. See Consolidated Statement of Facts,
¶¶ 84, 109. They also acknowledged, especially in
regards to DR DOS 5.0, that these tactics snuffed out DRI's
sales. Caldera's industry expert, John Goodman, emphasizes
the severe damage inflicted by preannouncement of MS-DOS
5.0, 6.0, 7.0 and Windows 95. Goodman Report at 6. Microsoft
began preannouncing MS-DOS 5.0 in May 1990. By the end of
August 1990, Microsoft knew its tactics were working indeed,
OEMs were already actually licensing MS-DOS 5.0, over ten
months before launch. See Id., ¶ 102. Chestnut's
self-evaluation in his performance review for the period
ending June 15, 1990 was quite candid: "virtually all of our
OEMs worldwide were informed about DOS 5, which diffused
DRI's ability to capitalize on a window of opportunity with
these OEMs." Exhibit 62; see also Exhibit 94 ("DR-DOS has
not yet been able to gain any momentum in Korea. We have
slowed them down with consistent seminars on MS-DOS 5.0 . .
."). See generally Goodman Report at 6.
Silverberg, too, acknowledged that vaporware puts a
competitor behind, and keeps him behind: "Once you lose a
lot of ground it is very very hard to pick up." Exhibit 274.
As to DR DOS 6.0, Silverberg knew that by February 1992,
Microsoft's vaporware had thus far been effective in keeping
DRI at bay: "We can't just sit on the sidelines 'til MS-DOS
6, hoping FUD and leaks will carry us." Exhibit 273.
As to preannouncement of MS-DOS 7.0 and Windows 95, Paul
Maritz and Brad Silverberg as early as July 1992 had
identified vaporware of "Chicago" as the best way to keep
Novell DOS 7.0 at bay. See Consolidated Statement of Facts,
¶¶ 353-354. But apart from misrepresentation about
when the products would ship, Microsoft told the world
"Chicago" was a Windows operating system that would not
require MS-DOS to run. See, e.g. Exhibit 316 ("Maybe we need
a corporate Chicago tour later this year that under NDA
shows how we are going to mate DOS and Windows and shows how
Chicago technically can't work on DR-DOS?"); Exhibit 347
("The next version of Windows . . . will not need DOS to
run, Maritz said"); Exhibit 364 ("Code-named Chicago, the
next version of Windows will not need DOS in order to run").
This signal from Microsoft that the DOS market would be
destroyed under Windows 95 led Novell to withdraw from
active development and marketing of successor versions of DR
DOS. See Consolidated Statement of Facts, ¶ 374. As
shown in Caldera's forthcoming Response to Microsoft's
Motion for Partial Summary Judgment Regarding "Technological
Tying," all of these many preannouncements were false.
Return to Argument
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IV. MICROSOFT'S ASSERTION OF AN IN
PARI DELICTO DEFENSE IS TO NO AVAIL
Microsoft appears to suggest that both DRI and Novell also
preannounced successive versions of DR DOS to preempt
Microsoft. Preannouncement Memo. at ¶¶ 18-20,
42-46. Yet this allegation, even if true, would present no
defense for Microsoft. First, Microsoft is a dominant
monopolist with 90% market share. See Consolidated Fact
Statement at 2 n.2. As one court recently observed in a case
involving a similarly dominant monopolist (Intel), the
antitrust law imposes "affirmative duties"on monopolists to
refrain from anticompetitive conduct. Intergraph Corp. v.
Intel Corp., 3 F. Supp. 1255, 1277 (N.D. Ala. 1998). As
noted there, even conduct by a monopolist that is otherwise
lawful may violate the antitrust laws where it has
anticompetitive effects. Image Technical Services, Inc. v.
Eastman Kodak Co., 125 F.3d 1195, 1207 (9th Cir. 1997)
("Legal actions, when taken by a monopolist, may give rise
to liability, if anticompetitive."); Greyhound Computer v.
IBM, 559 F.2d 488, 498 (9th Cir. 1977), cert. denied, 434
U.S. 1040 (1978) (otherwise lawful conduct may be unlawfully
exclusionary when practiced by a monopolist); Bonjorno v.
Kaiser Aluminum & Chemical Corp., 752 F.2d 802, 811 (3d
Cir. 1984), cert. denied, 477 U.S. 908 (1986) ("When a
monopolist competes by denying a source of supply to his
competitors, raises his competitor's price for raw materials
without affecting his own costs, lowers his price for
finished goods, and threatens his competitors with sustained
competition if they do not accede to his anticompetitive
designs, then his actions have crossed the shadowy barrier
of the Sherman Act"); Oahu Gas Service, Inc. v. Pacific
Resources, Inc., 838 F.2d 360, 368 (9th Cir. 1988), cert.
denied, 488 U.S. 870 (1988) ("Because of a monopolist's
special position the antitrust laws impose what may be
characterized as affirmative duties").
Second, Microsoft's argument is nothing more than the
assertion of the long-discredited "in pari delicto" defense:
"Although in pari delicto literally means of 'equal fault,'
the doctrine has been applied, correctly or incorrectly, in
a wide variety of situations in which a plaintiff seeking
damages or equitable relief is himself involved in some of
the same sort of wrongdoing." Perma Life Mufflers, Inc. v.
International Parts Corp., 392 U.S. 134, 138 (1968). The
Supreme Court has been emphatic: "[W]e held in
Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211
(1951), that a plaintiff in an antitrust suit could not be
barred from recovery by proof that he had engaged in an
unrelated conspiracy to commit some other antitrust
violation." Perma Life Mufflers, Inc. v. International Parts
Corp., 392 U.S. 134, 138 (1968). At best, Microsoft is
simply asserting that DRI and Novell also engaged in
vaporware practices similar to Microsoft. As Perma Life
points out, such assertion, even if true, provides
absolutely no defense against Caldera's antitrust claims.
And clearly, DRI's and Novell's practices are in no way
similar. DR DOS 5.0 was delayed, at most, one month to
confirm compatibility with Windows 3.0, a major software
introduction that
occurred just prior to the intended release of DR DOS
5.0. See Consolidated Statement of Facts¶ 90 n. 15. Dr
DOS 6.0 shipped exactly as announced. Id. ¶ 186.
Although originally slated for release in late Summer 1993,
Novell briefly delayed release of Novell DOS 7 until
December 1993, see Exhibit 394, due primarily to Novell's
decision to include Novell's peer-to-peer networking
product, Personal NetWare, in the final version of Novell
DOS 7. Personal NetWare was also released as a standalone
product in January 1994. Tucker Depo. at 273; Corey Depo. at
231-232;
Exhibit 380. See Consolidated Statement of Facts ¶
349 n. 33.
Significantly, Microsoft makes absolutely no argument
that any announcement by DRI or Novell was anything but
completely truthful.
Return to Argument
Return to Table of Contents
CONCLUSION
For all of the foregoing reasons, Microsoft's Motion for
Partial Summary Judgment Regarding Plaintiff's "Product
Preannouncement" Claims should be denied.
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Max D. Wheeler (A3439)
Stephen J. Hill (A1493)
Ryan E. Tibbitts (A4423)
SNOW, CHRISTENSEN & MARTINEAU
10 Exchange Place, Eleventh Floor
Post Office Box 45000
Salt Lake City, Utah 84145
Telephone: (801) 521-9000
Ralph H. Palumbo
Matt Harris
Phil McCune
Lynn M. Engel
SUMMIT LAW GROUP
WRQ Building, Suite 300
1505 Westlake Avenue North
Seattle, Washington 98109
Telephone: (206) 281-9881
Return to Table of
Contents
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Respectfully submitted,
SUSMAN GODFREY L.L.P.
Stephen D. Susman
Charles R. Eskridge III
James T. Southwick
Harry P. Susman
SUSMAN GODFREY L.L.P.
1000 Louisiana, Suite 5100
Houston, Texas 77002-5096
Telephone: (713) 651-9366
Parker C. Folse III
SUSMAN GODFREY L.L.P.
1201 Third Avenue, Suite 3090
Seattle, Washington 98101
Telephone: (206) 516-3880
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ATTORNEYS FOR PLAINTIFF
CERTIFICATE OF SERVICE
I hereby certify that on April ____, 1999, true and
correct copies of the above and foregoing
instrument (Case No. 2:96CV0645B, U.S. District Court,
District of Utah, Central Division) were
sent via Federal Express to:
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Richard J. Urowsky
Steven L. Holley
Richard C. Pepperman, II
SULLIVAN & CROMWELL
125 Broad St.
New York, N.Y. 10004
James R. Weiss
PRESTON, GARES ELLIS
& ROUVELS MEEDS
1735 New York Avenue, N.W.
Washington, D.C. 20006
Return to Table of
Contents
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James S. Jardine
Mark M. Bettilyon
RAY, QUINNEY & NEBEKER
79 South Main, Ste. 500 (84111)
Post Office Box 45385
Salt Lake City, UT 84142
William H. Neukom
Thomas W. Burt
David A. Heiner, Jr.
MICROSOFT CORPORATION
One Microsoft Way
Building 8
Redmond WA 98052
Charles R. Eskridge III
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