Filing 898

TRANSCRIPT OF PROCEEDINGS before Judge Colleen Kollar-Kotelly held on 4-22-09; Page Numbers: 1-36. Date of Issuance:7-29-09. Court Reporter/Transcriber Lisa Hand, Telephone number 202-354-3269, Court Reporter Email Address : lisa_hand@uscourts.gov.For the first 90 days after this filing date, the transcript may be viewed at the courthouse at a public terminal or purchased from the court reporter referenced above. After 90 days, the transcript may be accessed via PACER. Other transcript formats, (multi-page, condensed, CD or ASCII) may be purchased from the court reporter.NOTICE RE REDACTION OF TRANSCRIPTS: The parties have twenty-one days to file with the court and the court reporter any request to redact personal identifiers from this transcript. If no such requests are filed, the transcript will be made available to the public via PACER without redaction after 90 days. The policy, which includes the five personal identifiers specifically covered, is located on our website at ww.dcd.uscourts.gov. Redaction Request due 8/19/2009. Redacted Transcript Deadline set for 8/31/2009. Release of Transcript Restriction set for 10/27/2009.(Courtrep, )

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UNITED STATES OF AMERICA et al v. MICROSOFT CORPORATION Doc. 898 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA UNITED STATES OF AMERICA, Plaintiff, vs. MICROSOFT CORPORATION, Defendant. ___________________________________ STATE OF NEW YORK, ET AL, Plaintiff, CA No. 98-1233 (CKK) vs. MICROSOFT CORPORATION, Defendant. ___________________________________ CA No. 98-1232 (CKK) Washington, DC April 22, 2009 10:30 a.m. TRANSCRIPT OF STATUS CONFERENCE BEFORE THE HONORABLE COLLEEN KOLLAR-KOTELLY UNITED STATES DISTRICT JUDGE APPEARANCES: For Department of Justice: AARON D. HOAG, ESQUIRE ADAM T. SEVERT, ESQUIRE U.S. Department of Justice 600 E Street, NW Suite 9300 Washington, DC 20530 (202) 307-6153 APPEARANCES continued on following page. Dockets.Justia.com APPEARANCES, continued For Microsoft: CHARLES F. RULE, ESQUIRE JONATHAN S. KANTER, ESQUIRE Cadwalader, Wickersham & Taft 1201 F Street, NW Washington, DC 20004 (202) 862-2420 KEVIN KEHOE, ESQUIRE JUDITH JENNISON ERICH ANDERSON CRAIG SHANK ROBERT MUGLIA ELLEN S. COOPER, ESQUIRE Assistant Attorney General Chief, Antitrust Division Office of Attorney General 200 St. Paul Place Baltimore, MD 21202 (410) 576-6470 RICHARD L. SCHWARTZ, ESQUIRE Office of Attorney General State of New York 120 Broadway, Suite 2601 New York, NY 10271 (212) 416-8284 For Microsoft: For the New York Group: For the California Group: STEPHEN HOUCK, ESQUIRE Menaker & Herrmann LLP 10 E. 40th Street New York, NY 10016 LAYNE LINDEBAK, ESQUIRE (Iowa) ADAM MILLER, ESQUIRE (Calif) For the California Group: Court Reporter: Lisa M. Hand, RPR Official Court Reporter U.S. Courthouse, Room 6505 333 Constitution Avenue, N.W. Washington, DC 20001 (202) 354-3269 Proceedings recorded by mechanical stenography; transcript produced by computer-aided transcription 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 record. PROCEEDINGS COURTROOM DEPUTY: Civil Case No. 98-1232, United States of America versus Microsoft Corporation, et al., and Civil Case 98-1233, State of New York, et al., versus Microsoft Corporation. Counsel, would you please identify yourself for the MR. SEVERT: Good morning, Your Honor. Adam Severt for the United States. With me at counsel table is Aaron Hoag. THE COURT: All right. MS. COOPER: Good morning, Your Honor. Ellen Cooper from the State of Maryland for the New York Group, and with me at counsel table is Richard Schwartz from New York. THE COURT: All right. MR. HOUCK: Good morning, Your Honor. Steven Houck for the California group. Seated next to me at counsel table is Layne Lindebak from the Iowa Attorney General's office, and at the head or the end of the table, whichever it is, is Adam Miller from the California Attorney General's office. THE COURT: All right. MR. RULE: Good morning, Your Honor. Rick Rule from Cadwalader on behalf of Microsoft. With me today are Bob Muglia, who you know. Kevin Kehoe and Judy Jennison from Microsoft Legal Department. Also, we have Craig Shank and 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Erich Anderson, who is deputy general counsel. And also, Jonathan Kanter, my partner from Cadwalader. THE COURT: All right. So, as has been my practice throughout these over the years, I'll summarize the status of compliance since our last court hearing based on the reports that the parties have filed. I have some questions, some comments, and then I'll call on counsel. The last hearing, which was an interim compliance status hearing was on January 28th. The focus, as it has been for the last several hearings, was on the project undertaken under Section III.E, the Communications Protocol Licensing Provision, which is presently set to expire on November 12th of this year. Also extended through November 12th, through my Opinion on January 29th of 2008, are what we call the expiring provisions of the New York and California Final Judgments, with the exception of III.B. Microsoft, since the last hearing, has filed supplemental status reports. There's both a Joint Status Report that was filed as well. It focuses on recent enforcement activities, particularly under III.E and the middleware-related provisions. Again, I'll note that the committee, TC, includes Mr. Hunt, who is the California group's technical expert. And in addition to the Joint Status Report, the United States, as well as New York and California groups, along with Microsoft, 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have filed a joint motion requesting an 18-month extension of their respective Final Judgments. That would be until May 12th of 2011. Additionally, the parties have jointly requested two additional, and I would agree, non-substantive modifications to the Final Judgments for clarification purposes. So, let me start with III.E. I'm going to only discuss the steps of the reset process which are at issue at this point. The schedule is moving forward. Microsoft has now produced the first four milestones in a timely fashion, according to the project plan. The last one is slated for June 30th. The TC has now implemented its new strategy for technical documentation review, shifting the engineering resources formally used on the prototype implementation and validation projects to the direct review of the documents. The TC has already begun identifying the TDIs at a higher rate than in the past. The parties indicate that the higher TDI rate was expected and actually reflects the purpose of the revised documentation review strategy. In other words, the more resources the TC devotes to reviewing the text -- so the technical documentations -the more likely that they are going to find some TDIs, and the more pages of technical documentation they will be able to 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 review in any given period. As of March 31st there are a total 1,716 outstanding TDIs in the rewritten documentation. 233 were Priority 1, which the TC identified. 328 were self-identified by Microsoft. Microsoft, again, does note that the total number of TDIs spans the entire range of rewritten MCPP documentation, the newly released Windows 7 documentation, the overview materials system documents. So, the TDIs should be looked at in the context of the more than 30,000 pages of technical documentation. Moving on to the testing and validation. The testing of Cluster 9, which was the final cluster of rewritten protocol documentation, that was completed on March 31st. The newly created technical documentation, including that for Windows 7 will be tested using a similar method. Microsoft does note that given the unique nature of the system documents, its plan for testing these documents differs from the testing for the underlying technical documents. The interoperability lab plug-fest events have continued during the week of March 30th. Microsoft hosted a certificate plug-fest that was very well-received by the four attending companies. Microsoft's planning a file sharing plug-fest for the week of June 1st and the interoperability lab continues. The MCPP status. There's a total of 52 companies 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 licensing patents for the Communication Protocols under Section III.E, 41 have royalty bearing licenses. Microsoft is aware of 15 patent licensees shipping products under the MCPP. Microsoft also reports that 28 licensees have signed up to receive the free technical account support, and eight have signed up for the Windows source code access. As of April 16th, in terms of the documents describing the protocols that are available online, that they have been downloaded over 380,000 times. That's quite a large number. In terms of any observations or questions that I have, although the TDIs increased, we expect that, we discussed that last time. I guess the question is: Are there any surprises in the nature of the TDIs as opposed to the number? Also, I wanted to touch on -- when the Final Judgments were extended back in '06, Microsoft had committed to rebating a hundred percent of all the royalties owed by any licensee under the MCPP until the plaintiffs determined that the technical documentation was substantially complete. So when June 30th comes, which is the date that -- our hope is that it would be substantially complete, it is expected that it would be. What's going to happen? Does Microsoft want to lift the rebate? Have you discussed a process or how to deal with it? 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Moving to III.H, which is the defaults. Since the last Joint Status Report, Microsoft made significant modifications to the marketing programs, which had been the source of the complaints at the last hearing from companies that sell products to work with or interoperate with Windows. And my understanding is that plaintiffs, which of course doesn't include the United States, indicate that the modifications haven't alleviated their Final Judgment concerns. The TC has also undertaken a thorough review of Windows 7, working closely with Microsoft. And Microsoft has been responsive to issues raised by the TC, and the TC is going to continue to do their review. The TC also requested several changes in the code for its middleware simulator tool, which it had previously transitioned to Microsoft in order to make it compatible with Windows 7. A beta release of the revised code incorporating the TC's requested changes was provided to the TC on April 7th. Microsoft is incorporating the TC's feedback and indicated that it would provide another version of the simulator code to the TC for review. I think it would have been last week. Once the TC has approved the final release, then Microsoft will make the code available through the TC's ISV Readiness Tools page, which is online. In terms of observations and questions, it 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 appears that plaintiffs are satisfied with the changes that Microsoft has made in terms of the marketing program. So, is that resolved at this point? Any reactions to the TC's testing on Windows 7 that can be shared? Has Microsoft provided the TC with the most recent version of the simulator code as it said that it would, and anything else that would be needed to be added? In terms of complaints. Since the last status report the United States received eight third-party complaints, they viewed them as non-substantive and not really relating to the Final Judgments or the enforcement. The New York and California groups don't believe they received any additional substantive complaints since the last full status report. Microsoft has received two complaints or inquiries, none of which they view as being related to their compliance obligations. The compliance officers and the training are continued in terms of newly appointed officers getting copies of the Final Judgments, getting briefings. They are doing annual certifications and keeping records to show that that's being done. And then I guess, moving to one of the more major ones, is the extension of the Final Judgments. Plaintiffs and Microsoft have jointly moved for an extension. In terms of going back on the procedural history of this, on September 7th of '06 I entered Modified 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Final Judgments, pursuant to the parties' agreement that extended Section III.E and its supporting provisions, mostly which related to the TC for two years, which would have placed it at November 12th of '09. And provided that plaintiffs had the unilateral right to request an additional extension of the surviving provisions for up to an additional three years, which would have put it through November 12th of 2012. Then on January 29th of '08, I granted in part a motion by a number of the state plaintiffs to extend the other substantive provision, except for III.B. They were parts of the New York group and the California group Final Judgments, extending those provisions until November 12th of '09. The United States did not ask for those extensions, so they're not included in it. So, let me -- that puts it procedurally in place. Let me address the current request, the explanation of why the extension is being sought. Microsoft is on track to produce the final system documents by June of '09. And plaintiffs anticipate by the end of the year they'll be in a position to determine whether these system documents are substantially complete. Plaintiffs emphasize that this means only that plaintiffs will be in a position to ascertain whether the documents appear on an initial reading to cover the information required by the templates in a reasonably thorough and comprehensive manner. 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So, plaintiffs anticipate there will be still thousands of TDIs that need to be identified and resolved. In addition, the TC and staff will need additional time before they can be satisfied that the documents are of sufficient quality that it's appropriate to permit the Final Judgments to expire. They have emphasized -- and that will get to some of the changes, the non-substantive ones -- that it's not the upcoming release of Windows 7 or any new technical documentation covering Windows 7 that is the basis for the plaintiffs decision to request or negotiate an extension. Plaintiffs in Microsoft, therefore, have agreed to extend the Final Judgments for 18 months, that's May 12th of 2011, and to permit plaintiffs to seek an additional extension up to 18 months -- we're talking strictly Section III.E, and again, its supporting provisions, specifically those that relate to the TC of the Final Judgment. In addition, Microsoft has consented to an 18-month extension of the surviving non-III.E provisions, which are the ones that I extended by court order at the request of the New York and California group Final Judgments. They are retaining, unlike the III.E, the right to oppose any future state request to extend it further than that period of time. And as I understand it, why 18 months was chosen 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 as the amount of time. First, evidently in discussions with the TC, 18 months seemed to be a sufficient time for the TC to conduct the thorough review of the technical documents that are most likely to be used by the companies developing servers that interoperate with the Windows client, and that's very important. And then, second, it's in recognition of the importance of bringing the Final Judgments to a close in a reasonable and definite time period. Evidently, plaintiffs felt that 18 months was appropriate. It would allow for a reasonable degree of confidence that additional extensions would not be necessary. So, as I understand it, the TC has developed a schedule that will allow it to spend sufficient time with the key documents. For them to be comfortable with their overall quality. The TC's schedule provides for a wind-down period during which the TC will stop looking for new TDIs and will focus on ensuring that the previously identified TDIs are closed by the end of the 18-month period. As I understand it, the TC's ability to do all of this depends on two critical assumptions. One, that the quality of the entire set of technical documentation is comparable to what has already been reviewed and detailed by the TC. And that Microsoft is able to handle the increased flow of TDIs from the TC in a timely 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 manner. Plaintiffs and the TC will closely monitor the progress. Plaintiffs anticipate it will be clear as early as the next status report as to whether this review program is going to be on track. There are two additional requests of modifications, which I would agree with counsel, do appear to be non-substantive, and a clarification as the extensions have occurred. One is in Section V.A that makes -- the clarification makes clear that the pending release of a new version of Windows will not provide grounds for plaintiff to exercise their right to seek further extensions of the Final Judgments for an additional 18 months beyond the May 12th, 2011. And the other one is really a clarification because Microsoft is always going to be in the process of releasing a new operating system, and there needs to be some period in which the Final Judgment doesn't continue to be -to apply to the next version. However, as I understand it, there is an additional modification, Section VI.U, that -- pursuant to that section a new version of Windows client operating system, if it's distributed commercially only after the expiration of the Final Judgments, it would not be a Windows Operating System product, and therefore, would not be subject to the requirements of the Final Judgment. 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 But if there's a reasonable expectation that a new version of Windows will be distributed commercially prior to the expiration, then the plaintiffs can consider, after talking to Microsoft, whether and to what extent the pre-release review of the new version of Windows would be necessary and appropriate. And I think those two extensions make sense. So, let me in terms of -- call on you to -- I've labeled a couple of things here, and if you want to explicate anything further in terms of the extensions. I know there was an issue made last time as to whether potentially people were looking at whether or not there should be extensions, and it's always good to see that you've negotiated and worked it out, as opposed to having to do it through briefing, that's always helpful from the Court's perspective. So, let me start calling on Justice first in terms of the III.E, and then I'll go through the rest. MR. SEVERT: Thank you, Your Honor. I'll start with the initial questions that you asked and then I'll move to the extension. The first question you had was: Were there any surprises with the nature of the TDIs we found so far? And I think the answer so far is: No. I think Your Honor is correct when you said by the time of the next status conference, the next status report, is when we'll have a good idea of whether Microsoft is able to 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 keep up with the increased flow of TDIs, which has really just started quite recently and Microsoft is still ramping up to try to handle that flow of TDIs. So, I think we should know relatively soon, in the next few months, we'll have a better understanding of that. The second question you had was related to the lifting of the rebates on the licensing fees. I want to emphasize that the substantially complete standard is -- which is the trigger for the rebates of the licensing fees, though the documents are scheduled to be delivered on June 30th of this year, it will likely take a few months for the TC to be able to review the documentation to be able to make sure that it is substantially complete. And sort of what that means is that on an initial reading it covers the information it's intended to cover. It follows the specification in a reasonably thorough and comprehensible manner. But it is not a sign-off that the documents are done, that there's no more work. As Your Honor said, there could be thousands of TDIs yet to resolve, some of them could be blocking, there will still be work to be done. But it will be a signal that we are certainly in the right direction. I think it will be a very good sign that things are on track. And, again, we expect that by the end of this year. THE COURT: So, would that mean, assuming that that 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 comes up, is there an expectation then that -- and I'll hear from Microsoft, too, in terms of whether they would be lifting the rebate or not or is it too premature? MR. SEVERT: Sure. I'll let Microsoft address the mechanics of how that will actually be lifted, but at that point they will be free to charge a royalty that's in the license now that's currently being rebated. I know there's a process for doing so, and I'll let Microsoft address the mechanics of how that will actually work. As far as the extension goes, there are a few things that I'd like to emphasize. First is the circumstances surrounding this extension, I think from our perspective, are markedly different from those surrounding the 2006 extension. At the time of the 2006 extension, if you recall, the plaintiffs believed that a two-year extension was necessary and that at the end of those two years we thought we would reevaluate where we were and see where things stood at the end of those two years. Microsoft was at the time about to begin rewriting the technical documentation, and given the difficulties we had had up to that point, it was hard to have a great deal of confidence in any schedule. That's why at that time we negotiated the right to request the three additional years without Microsoft's ability to object. And that's why we did that at that time. 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I think here things are markedly different. The rewritten TDs, technical documents, are done. The SDs are scheduled to be done at the end of June. And the task Microsoft is now facing I think is far more concrete. First, as Your Honor noted, they have to maintain the quality of the TDs, the ones -- the SDs that haven't been reviewed yet, and they also have to keep up with the increased flow of TDIs. If they are able to meet those two obligations, it's our expectation that an additional extension will not be necessary. So, I think there's a greater sense of confidence that this extension could be all that's necessary in this case as opposed to where we were in 2002. And this time I think we have a couple of milestones coming up this year that should be helpful to give us some indication of where we are. I think as I've outlined, the first is by next conference when we have some sense of whether Microsoft is keeping up with the increased TDI flow, and the second is the substantially complete determination that we hope to make by the end of the year. So, I think those will be very good milestones for Microsoft, for the plaintiffs, and for Your Honor to see how the project is progressing. And in terms of the actual length itself, the 18 months, I think as we've said and as Your Honor outlined it, we think that amount of time will allow the TC sufficient time to thoroughly review all of the SDs and all the TDs that are 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 covered in those SDs. And from our perspective, those we believe are the documents that are most important and are most likely to be used by companies that are developing products to interoperate with the Windows clients. THE COURT: Okay. MR. SEVERT: Thank you. THE COURT: All right. Ms. Cooper of the New York group. MS. COOPER: Yes, for the New York group. Thank you, Your Honor. I'd first like to answer your question about the simulator. And through the joint efforts of Microsoft and the TC, the TC simulator tool has been updated for Windows 7 compatibility. The TC did in fact receive the simulator back from Microsoft within the agreed upon timeframe. And Microsoft has said that it will be available on MS stand soon. The other thing I'd like to address is just -- I'd like to make a few comments about TC resources and scheduling. The TC made certain assumptions about what it would take for the technical documents to reach an acceptable quality by May 2011. And as has been mentioned, the quality of Microsoft TDs would continue to be the same as they have been recently. Second, that Microsoft's estimate of the total number of pages would come to be seen as reasonably accurate. Third, that approximately 35 TC staff engineers would be working on the TDs. And, finally, that Microsoft would be 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 able to keep up with the TC. The TC has already added 15 new engineers to technical -- direct technical documentation review. Five are new hires and 10 are engineers that formerly worked on validation and prototyping projects. So, because more people are looking directly at the TDs, they are finding more TDIs, and the TC expected this, as we all did. And so we believe the numbers will continue to rise for a time. And then as Microsoft closes TDIs, they will begin to fall, so long as Microsoft is able to keep to its promised schedule. So, with the additional 18 months the TC should be able to review all the system documents and all the TDs that are important for the licensees to use, and that will ensure that the documents reach the target quality level. THE COURT: Okay. All right. Mr. Houck. MR. HOUCK: As Your Honor pointed out, the most important issue before the Court today is the extension. So, I want to spend a little bit of time going over the reasons why the California group is making the motion it is at the risk of maybe repeating some of what has been said by Mr. Severt and Ms. Cooper. First, I wanted to address Your Honor's question about the marketing programs which were the subject of our concern at the last status conference. And as Your Honor noted, the Joint Status Report says that there have been 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 significant modifications. Actually, what happened was that Microsoft completely withdrew the aspects of the program that we were concerned with so that our concerns now are completely resolved and Microsoft replaced those portions of the program with something entirely different. And I did want to note that this was done voluntarily by Microsoft. We'll never know to what extent, if any, raised a significant problem under the Final Judgment, but the important thing is that it was resolved. I think it's made a lot of people happy, it has made us happy. I know it's made some OEMs and some ISVs happy, and I think probably ultimately rebounds to Microsoft's benefit because Microsoft was crosswise -- some important parties of theirs, as well as partners of the OEMs. Turning to the extension, I wanted to address four aspects of that. One is why the California group believes that III.E should be extended. Secondly, why it believes that the middleware provisions or the non-III.E portions ought to be extended. Why it is that we're proposing 18 months. And, finally, I wanted to talk a little bit about some of the reasons for the modifications and the language of the Final Judgment. And I noted Your Honor says that they seem to make sense, I hope I won't disabuse you of that opinion by what I say. I'll start off by saying that there are two major 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 factors that we look to in -- that we look to in determining whether we ought to make the motion that we did. And the first factor, of course, is our assessment of what's required under the Final Judgment. And the second factor, Your Honor will be reassured to know, is what Your Honor had said in various opinions and on the bench here. And, of course, in the past those two haven't always jived, but we think they are perfectly congruent here. So, I want to go back and actually cite some of the things as Your Honor said, at the risk maybe of boring Your Honor with Your Honor's prose, but I will do that. The reason -- the basic reason for the extension of III.E is that the technical documentation is still incomplete and inaccurate. There are three more milestones to be delivered, and Your Honor pointed out the last one is due on June 30th. Also, as Your Honor pointed out, as of the time the Joint Status Report was filed there were 1,716 outstanding TDIs. So, it's pretty clear to us that more testing was warranted before we could certify to the Court that the technical documentation was reasonably complete, accurate and usable. And we think that's quite consistent with what Your Honor has said in the past. I want to quote here from Your Honor's decision last January of 531 F.Supp 2d, and I'll have some other quotes from that opinion as well. 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 But at Page 183, Your Honor said, quote: The Court is unaware of any reason that the technical documentation required by Section III.E should not be complete, accurate and usable to licensees long before Section III.E expires. Closed quote. And then a couple status conferences ago on September 25th of last year, Your Honor addressing Microsoft said, quote: I can tell you one thing, I don't want to have this so you complete the project the day before this expires and we don't have any sense of how it works. I can tell you that's not going to happen. So, you just be aware of that. Closed quote. So, we think there's adequate justification here for extending Section III.E. With respect to the middleware provisions, as Your Honor pointed out, these of course are enforced only by the states and the technical committee. And sometimes they sort of get lost in the shuffle because of the focus on the TDIs in III.E, but we think they continue to be very important. And there are two main reasons why we believe an extension is warranted. The first reason is, as Your Honor held in your Opinion of 531 F.Supp 2d, the provisions were intended to work together in a unitary framework, and there were many examples of that in Your Honor's Opinion, and I just wanted to quote a couple, which I think make the point. 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 One is at Page 164. Quote: Because of the delay, the various provisions of the Final Judgments have never been given an opportunity to operate together as the Court and the parties envisioned when the Final Judgments were entered. Closed quote. And Page 170, Your Honor said: Nor can it be denied that, as a result of the delay in Section III.E's implementation, the provisions of the Final Judgments have not had the chance to operate together as a comprehensive remedy. As moving parties repeatedly stress, the Final Judgments were constructed as a unitary framework, with the various provisions intended to complement and reinforce each other. Closed quote. And, of course, the technical documentation is still not complete. So, that's the first reason. The second reason is that we believe these provisions have proved their worth and have continuing vitality. If they hadn't been extended we would not have been able to respond to the concerns that were expressed to us by OEMs and ISVs about the various marketing programs that have now been resolved. And on this aspect as well, I wanted to note that as Your Honor just said today and throughout your Opinion, you've noted that Microsoft has cooperated in various points to resolve things without litigating. And here, as Your Honor knows, Microsoft had waived its right to oppose an extension 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of III.E. They could have opposed an extension of non-III.E provisions, but they did not. And so I just wanted to note that. That saved substantial court time and plaintiffs' resources. Why 18 months? And I wanted to start off here again by quoting Your Honor, and going back to Your Honor's Opinion from last year. In an ultimate sentence of that Opinion, and I think it's there for a reason, this is what Your Honor said, quote: The Court certainly anticipates that there will, and must, be finality to its oversight of the Final Judgments. That's something that we certainly agree with. And, also, relevance I think is -- is a quote at Page 183 of Your Honor's Opinion, where Your Honor said, quote: This Court thus concludes that the most appropriate approach is to assess the need for continued Court oversight in reasonable incremental periods. Closed quote. That is also something that we had in mind when we thought about how long the Final Judgment ought to be extended. Basically, the reason is, as I said last time, we thought long and hard about what was required and we believed that 18 months is a time that is doable and is necessary to do the testing on the documents that haven't been delivered. It's what we need to be in a position to certify that the documents are complete and accurate and usable, and to achieve 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 finality. We thought about doing it maybe in six month installments and that didn't seem to make sense. We thought we needed more time than that, and it didn't really allow for ordered planning and would require us to come back to the Court. And as I noted, we could have asked Your Honor for three years without Microsoft being able to oppose that, but we didn't think that was necessary. So, we think 18 months is a reasonable time. And then I also wanted to talk a little bit about why the changes in the language. And, essentially, what the language is intended to deal with is a very unlikely contingency, and that is that Windows 8 will somehow get caught up in the Final Judgment. It's very unlikely because aspirationally Microsoft has three year intervals between major releases of Windows. Windows 7, of course, has not yet been released. So, probably at the earliest we're talking about Windows 8 commercial release in the third or fourth quarter of 2012, well after May of 2011. But Microsoft was concerned, since there's code existing somehow, it might get caught up in the Final Judgment. We didn't read the Final Judgment that way. So, we agree with Your Honor, these are really non-substantive changes. And so we agreed to these changes to give Microsoft some comfort and to eliminate any ambiguity. 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 But, by the same token, we wanted to make sure that if for some reason this remote contingency came to pass, that we would have sufficient time to take a look at Windows 8 and make sure it's compliant. And so Microsoft's portion of the Joint Status Report essentially acknowledges that it is its obligations. If Windows 8 for some reason, perhaps because there is another extension or that a release date gets pushed up, it's their obligation to make sure it's compliant. Essentially, what would happen is we would sit down and talk with them if it becomes a reasonable likelihood that that eventuality might come to pass, so that the technical committee would have sufficient time to review it. Now, if I were Your Honor on the bench, I might reasonably ask: Why should I believe this forecast since we've given you so many other forecasts that haven't come true? And I'm talking about the 18 months now. And so I wanted to just address that. We, being the plaintiffs and the technical committee, believe that we have constructed a solid workable plan. And as Your Honor pointed out, it's based really on two assumptions. One is that the new documents will continue to be of the same quality as the ones we've been seeing, and we have no reason to expect otherwise. So, we think that's likely. And then, secondly, whether Microsoft has the resources and the commitment to keep up with the additional TDIs that the 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 technical committee is going to identify. Microsoft assured us last week when we met with them in Redmond that they would have those resources and they make that commitment in the Joint Status Report. So, while no predictions are an absolute guarantee, we're fairly confident about this one. And we do intend to monitor the situation very closely. I think the key thing will be when the TDIs, instead of going up, start to come down. So, that's something that we'll look at very closely. And I can assure Your Honor that the California group and all the other plaintiffs are committed to working with Microsoft to achieve finality in May of 2011. So, we respectfully request Your Honor to grant our motion. THE COURT: Okay. Having quoted extensively from my prior orders and statements in court, I can hardly disagree. MR. HOUCK: That was my hope, Your Honor. THE COURT: All right. Mr. Rule. MR. RULE: Good morning, Your Honor. I don't think I or Mr. Muglia will need to spend too much time, but obviously if you have any additional questions we will do that. With respect to the TDIs, I'm going to let Mr. Muglia address that, largely, but I think it's -- certainly from what I've heard, there are no surprises. Surprises in terms of the nature of the TDIs, although we are pretty new into this 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 process of the TDIs being provided by the TC. With respect to the -- what we sometimes call the royalty holiday, we -- again, the royalties now apply only to the patent licenses. We are giving some thought to how we would implement the change once the TDs are deemed substantially complete. But, obviously, we're going to consult with the licensees, we're going to consult with the plaintiffs and the TC before we make any final decisions there. Mr. Muglia may have some additional comments on that. With respect to the non-III.E provisions of the decree, I don't think I need to say too much. With respect to the marketing program, I would just say very briefly that Microsoft instituted those programs in the expectation and hope, as we discussed last time, of improving the consumer experience, it was consumer driven. Issues came up that were expressed by OEMs and by the plaintiffs. And we, essentially, in talking to them, decided that it was better to drop that aspect of the program to basically address their concerns. And we view it as essentially a resolved issue. I should say, though, Your Honor, that we did not view it as an issue under the decree, and I would take some issue with Mr. Houck. I think that whether or not there had been a decree, we understand that going forward the regulators will be in touch with us, as will our OEMs, the people in the ecosystem. And we're going to respond going forward. 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 As Your Honor knows, we have the Windows principles, we have the interoperation principles. And those are perhaps certainly due in part to what this Court has done, but they will be ongoing and continue in existence long after the degrees are gone. And I think that should give folks a lot of comfort. I think that's all I -- I think that addresses the issues that are out there that Your Honor asked about. If you don't have any other questions, I'll ask Mr. Muglia to come up and address the Court. THE COURT: I think those were it. Mr. Muglia. MR. RULE: Thank you. MR. MUGLIA: Good morning, Your Honor. I just have a couple of quick comments today. First, just a further clarification on the simulator code. Ms. Cooper described the process we worked with the TC on very accurately. But the only thing I would add is that it is our plan to release that simulator code publicly later this week. So we're very much on track to get that done in the very short term. In terms of the TDIs and the questions that have been raised there, I think there's been a lot of good discussion here. I will emphasize that we are very committed to putting the resources on that are required to keep up with the inflow of the TDIs. In terms of the technical documentation, the systems documents, we are committed to 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 continuing the work that we've been doing at high quality. I would remind Your Honor that we have now completed all the technical documents for both the original project, the so-called Blue Line Project, as well as Windows 7. And we have completed 12 of the 19 system documents, and we have seven remaining. And it is our intent to complete those on schedule with high quality. With regard to the TDIs, we have the resources to continue to work closely with the TC to resolve them in a timely manner. I'll just give you a little bit of incremental data that's happened since the JSR. I think it's kind of illustrative of the sort of process that we'll be working very closely with the TC on. As Your Honor recalls earlier, the JSR as of March 31st said there were 1,716 TDIs outstanding. As of Sunday, the 19th of April, we had resolved 567 of them with the technical committee. So, a total of 1,149 outstanding. So, that gives you an idea of the kind of change that can happen in just a few short weeks. Now, for completeness, I will tell you that on Monday the TC submitted 367 TDIs. So, we'll continue to work with them. It just shows that there is a high inflow of new TDIs being reported as the TCs have changed their process, and there is a high outflow of resolve as our engineering teams are working with the TC to resolve those. 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Okay. So, I take it that at least at this point you're relatively confident that this is going to work in terms of being able to keep up with the schedule? MR. MUGLIA: Yes, I am, Your Honor. The one thing that is shifted is that Microsoft's testing process for the original Blue Line has been completed as of the end of March. We will be doing testing for Windows 7 documents, but that's an overall smaller number of documents that we need to go through and test. So, the inflow of TDIs that are coming out of our own testing processes is down somewhat. So, in some senses there's a shift in balance of where the inflow will come from, but our engineering team, I'm very confident, will be able to keep up with it. THE COURT: All right. Well, that's good to hear. MR. MUGLIA: Are there any other questions for me, Your Honor. THE COURT: No, that's it. Anything else anybody else wants to talk about? Let me just make a couple of comments, particularly about the extensions. In terms of the 18 months, I think I would agree that we are in a different and a much better place than we were when the Final Judgments were extended the last time. And for all of the reasons that have been stated in the reports, past orders and the statements here today, I think that the extension of III.E is 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 certainly in the public interest to ensure that the relief and the judgments are actually effectuated. That will give enough time to allow this access to the completed documentation to have desired effects and hopefully to meet the goals of the Final Judgment. Also, I'll find that it's in the public interest. As I stated in my order in 2008, as to the non-III.E provisions, except for III.B, that the extension of those provisions will allow the Final Judgment for a commensurate period of time to operate as a comprehensive remedy so that all the remedies will have their full and intended effect. They will be moving forward together, which was a concern that I had back when I issued my Opinion in January of 2008. And I think having them go forward at the same time, hopefully, will have the full effect. In addition, I would say in terms of the two non-extensive, non-substantive modifications, I would note for the record that Microsoft is not relieved in any way of its obligation with those modifications, they're truly clarifications. And the two non-extensive, non-substantive modifications are consistent, I think, with the intent as to whether later versions of Windows would be subject to the Final Judgment. The demarcation you've come up with I think makes sense and is reasonable, and clearly Windows was not expected 34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to be subject to Final Judgments in perpetuity. So I think those -- I'll make those findings at least in terms of the motion, and I will go forward and sign the proposed orders that you have provided us. So, the next thing we need to do is to figure out when we're here next, which I suppose comes up to a little bit -- I don't know whether you want to do something in the summer, I'm around, but -- or whether you want to do something starting in early September. I mean, part of it depends on where you are and what's a good time. If you want to talk among yourselves and with Microsoft as to when would be a good time where certain things would be accomplished. MR. RULE: Your Honor, it seems that July 28th, Tuesday, is the winner. THE COURT: I'm sorry, the what? MR. RULE: July 28th. That doesn't work for you? That's more important than all of us, so... THE COURT: I should have pointed this out when you were looking. I'm not going to be sitting from the 22nd through, really, the 29th. I can do it before that. If you want to do it like the 20th or 21st. The 21st would be a Tuesday. We can do it the 31st, that's a Friday, if you want to do it later that week. MR. RULE: How about the 15th, Your Honor. I hate to bring you back in the middle of summer, but that's okay. 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: No, that's fine. No. No. No. It is okay. I just need to look at -- I have a sentencing at 9:00. Is that it? We'll set this at 10:30, so, that's fine. So, 10:30 on July 15th? MR. RULE: It doesn't work. Does the 4th work, Your Honor? THE COURT: That's a Saturday. I have emergency duty, so I actually will be here. MR. RULE: If we do the 4th or 5th of August is that going to be a real problem for you? MR. HOUCK: Let's do it then. THE COURT: I think August 5th, let me check. Yes. August 5th at 10:30. Is that all right? Does that work? MR. RULE: Thank you, Your Honor. THE COURT: So we'll set it for August 5th at 10:30. And I do want to say that I'm very hopeful in terms of the documentation, I think we're finally on the right track. And I also do commend you once again in terms of being able to work this out in terms of the extension of the Final Judgments of feeling that all of the parties are interested in making this work and have the intended effect and goals of the Final Judgments actually accomplished. So, I commend you for that. And, of course, always the work of the TC and Mr. Hunt, who, without their -- I would have a lot more work to do, I'm sure, if they were not 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 actually involved in this process. So, I thank you all. Have a good summer until I see you in August. MR. HOUCK: Thank you. THE COURT: Oh, if we can have it the week before. Let me just -- we usually set the report -- actually, how about Friday, July 31st, does that work for the report -- the Joint Status Report? MR. RULE: Yes, Your Honor. THE COURT: Okay. All right. Parties are excused then. Take care. END OF PROCEEDINGS AT 11:25 A.M. CERTIFICATE I, Lisa M. Hand, RPR, certify that the foregoing is a correct transcript from the record of proceedings in the above-titled matter. /s/ Lisa M. Hand _____________________________ Lisa M. Hand, RPR

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