Filing 896

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FARM-TO-CONSUMER LEGAL DEFENSE FUND et al v. SCHAFER et al Doc. 896 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 September 25, 2008 10:33 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. 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 DAVID SNYDER, ESQUIRE CRAIG SHANK ROBERT MUGLIA JAY L. HIMES, ESQUIRE Bureau Chief, Antitrust Bureau State of New York Office of the Attorney General 120 Broadway New York, NY 10271-0332 (212) 416-8282 ELLEN S. COOPER, ESQUIRE Assistant Attorney General Chief, Antitrust Division Office of Attorney General 200 St. Paul Place Baltimore, MD 21202 (410) 576-6470 STEPHEN HOUCK, ESQUIRE Menaker & Herrmann LLP 10 E. 40th Street New York, NY 10016 DON ALLEN RESNIKOFF, ESQUIRE Office of Attorney General for the District of Columbia One Judiciary Square 441-4th Street, NW Suite 450N Washington, DC 20001 (202) 727-4170 For Microsoft: For the New York Group: For the New York Group: For the California Group: For the California Group: Court Reporter: Lisa M. Hand, RPR Official Court Reporter U.S. Courthouse, Room 6706 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 PROCEEDINGS THE COURT: Good morning, everyone. COURTROOM DEPUTY: Civil Action 98-1232, the United States of America versus Microsoft Corporation. Civil Action 98-1233, State of New York, et al., versus Microsoft Corporation. Both cases are set for status hearing. Counsel, would you please approach the microphone and introduce yourselves for the record. MR. SEVERT: Good morning, Your Honor. Adam Severt for the United States. I'm joined at counsel table by Aaron Hoag. THE COURT: All right. Good morning. MR. HIMES: Jay Himes for the New York Group with Ellen Cooper from Maryland. THE COURT: All right. Good morning. MR. HOUCK: Steve Houck, Your Honor, for the California Group. With me at counsel table is Don Resnikoff with the D.C. Corporation Counsel or Attorney General's office. THE COURT: Attorney General's office. MR. HOUCK: Attorney General's office, I realized I misspoke as I started to speak, so I corrected myself. And we're missing two of our usual stalworths, Adam Miller from California and Layne Lindeback from Iowa. And I want to assure Your Honor there's no diminution of interest in the 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 case, Mr. Miller is stuck in depositions in California and Mr. Lindeback is attending some meetings in Salt Lake City. THE COURT: Not a problem. MR. RULE: Good morning, Your Honor. Charles Rule for Microsoft. With me at counsel table from Microsoft Corporation are Bob Muglia, who will be speaking later, Kevin Kehoe, Craig Shank and David Snyder, and Jonathan Kanter from my firm. THE COURT: All right. All right. As has been my practice throughout this litigation, I'll summarize the compliance efforts that have been set out in the reports. I have a few questions at the end. And I'll call on counsel and Mr. Muglia to tell us where we are. This is a full compliance status hearing. The one we held in June of this year was an interim one, we have been doing a combination of these about every three or four months. The focus of the hearing in June, and to a large degree the focus today, will be on the projects undertaken under Section III.E, the Communications Protocol Licensing Provisions of the Final Judgment, which are set to expire at this point on November 12th of '09. I also extended to November 12th of '09, I'll call them the Expiring Provisions of the New York and California Group Final Judgments, with the exception of III.B. Microsoft has filed two Supplemental Reports in July and August, and you also filed a joint report in 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 September. The joint report focuses on recent enforcement activities, particularly, as I indicated, III.E, and the middleware-related provisions of the Final Judgment, III.C, III.D and III.H. As always, when I talk about the TC, I'm including Craig Hunt, the California's technical expert. So, let me start with III.E. In terms of the project schedule, as agreed, Microsoft did create a second template in response to the TC's concerns that a single template wouldn't sufficiently handle the different types of system documents that Microsoft planned to create. However, it looks like in early August the TC determined that proceeding based on those templates was not going to lead to a prompt and satisfactory resolution, in their view. And, therefore, they provided Microsoft with their own two proposed templates. And Microsoft and the TC are now using the TC's templates as a starting point for discussions and are reviewing Microsoft's suggested changes to those TC templates. Both sides, I think, and the TC, acknowledge that the challenges to creating the type of system documents the TC envisions are not easy. They also explain, and I think it's important that the goal is to minimize the miscommunication over the template's intended meaning, and to resolve any issues before they are actually finalized. And the TC, as I understand it, has begun creating examples in order to further this discussion with Microsoft for specific sections of the 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 templates, and has presented those first examples to Microsoft last week. I think it appears, and everybody seems to agree, that finalizing the system document templates is taking longer than everybody expected, unfortunately. But that the TC is pursuing the project in order to allow Microsoft to develop quality system documents. As I understand it, the targeted completion for this template finalization process should be in the next month or two. After they're finalized, then Microsoft will need to develop a new project plan to complete the system documents, which will include Milestones so we can keep track of it. I would note that the parties don't provide any estimate as to when Microsoft may be able to complete the drafting or finalizing of these system documents. But Microsoft does state that they're continuing to draft system documents in accordance with the latest templates, and it will continue to do so and revise them as necessary. As requested by the TC, Microsoft did develop a process for including change information in the new versions of the technical documentation, and provided the TC with a sample document. We had talked about that last time. The TC is satisfied with that, and Microsoft is going to go ahead, if they haven't already, in implementing the approach, I guess either in this month or in October, with the release of the technical 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 documentation. The TC's testing evidently recently disclosed a protocol not included in Project Sydney database, and evidently Microsoft also uncovered a second one. They now have been added to the database. And evidently they don't need additional documentation. Finally, Microsoft has informed the TC that changes to protocols in Windows 7 will result in a significant number of new and modified technical documents. These technical documents will be delivered to the TC later this year, and the TC is developing a plan for reviewing them. In terms of the TC's Prototype Implementation Activity, as of August 31st of this year there are a total of 1,360 outstanding TDIs in the rewritten documentation, of which 184 are Priority 1 TDIs, which were submitted by the TC, and 651 were self-identified by Microsoft. I would note that the numbers seem to be going up since June. Microsoft notes, again, which they did the last time, that the total number of TDIs spans the entire range of rewritten MCPP documentation as well as the overview materials and system documents, and that the numbers of TDIs should be considered in the context of more than 20,000 pages of MCPP technical documentation. We can talk about that a little later. Testing and Validation. Microsoft and the TC met 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 in July to review the results of Microsoft's Cluster 6 testing. Microsoft is continuing to test Cluster 7, which is expected to be out by the end of -- or completed by the end of this month. In terms of Interoperability Lab Plug-Fest Events. Microsoft completed an interoperability lab with one implementer in July, got very positive feedback. Another one has been scheduled at the end of this month. Microsoft is also planning a Media Streaming Plug-Fest for October, an Active Directory Plug-Fest for January of '09, and the they'll also hold a File Systems Plug-Fest in September, which has some interesting people that will be attending. In terms of the MCPP Status. Microsoft reports there are a total of 50 companies licensing patents for Communications Protocols under III.E, 40 of which had royalty-bearing licenses, that's up slowly, it's been increasing, but it's up since June. Lucent Technologies, DayTek, Storwize have signed patent licenses. Microsoft is aware of 14 patent licensees shipping products under the MCPP, and also reports 28 licensees signed up to receive free Technical Account Manager Support, and seven have signed up for the Windows source code access. As of September 18th, documents describing the protocols that are available on the Internet have been downloaded over 209,000 times. That's also a number that has increased since June. Are there any remaining issues regarding the 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 protocol elements deleted from the revised technical documentation, which was an issue last June? Regarding finalizing the templates for the overview system documents, I'm assuming that we're not on track for drafts in March of '09 and finalizing it in June of '09, but I'd like to hear about that. Do we have any sense from the parties and Microsoft as to when that is likely to be finalized? And are Plaintiffs satisfied with the progress. I'm concerned because, although I'm happy on the one hand that you're cooperating and that this is moving, I'm also troubled, however, about the overall delay. Hopefully we're not going to have a substantial delay as we've had in the past on III.E. They're set to expire November 12th of '09, which is less than 14 months away. And I guess one question: Is it expected that you would still be finding protocols that have been excluded from Project Sydney database or is that sort of a natural thing that happens, or is this something that should have been picked up? In terms of moving to III.C, the competing middleware, this really relates more to New York and California Plaintiffs. They're monitoring the developments regarding Windows XP and Vista to assure compliance with the Final Judgments. They have been reviewing early builds of Windows 7. As those builds of Windows 7 progress, the TC is going to conduct middleware-related tests in order to ensure 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 that the middleware-related bugs fixed in Vista don't show up again in the next operating system. The TC is also testing the version of Windows XP that Microsoft developed for the XO laptop computer, which is being offered by the One Laptop Per Child Foundation. Plaintiffs also report that the TC has completed its testing of the new desktop search features introduced as a result of the Google complaint, and reports that the new features are working as agreed, and promote user and OEM choice for desktop search and Vista. So, that seems to be an issue that hopefully has been put to rest. The TC has continued to work on the operating system code scan that's aimed at determining whether there's a commonality in the Windows code accounts for browser overrides. The TC is also continuing its investigation of certain default browser overrides and has reported issues in this vein to Microsoft, which is still looking into it. The TC has completed its testing of Microsoft's publicly released version of IE 8 beta 1, and is now testing the recent release beta 2. Based on the testing of beta 1, the TC discussed with Microsoft the behavior of placing its icon in the Start menu under certain middleware default-setting scenarios, and Microsoft has changed that behavior in beta 2. Microsoft also made changes in beta 2 based on the TC's discussion of certain aspects of Windows' 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 Internet Options interface. Plaintiffs indicate that these changes make the interface more browser independent. I'm pleased to hear that and pleased to hear the progress. The TC has made certain changes to its simulator tool, which it had transitioned to Microsoft. Once it completes that it will pass that on to Microsoft. Any initial reactions to the TC's testing of Windows 7 or IE 8, or is it too early to tell anything further that would need to be added? It looks like that one is moving fairly smoothly. In terms of complaints, we still have the one that has been left or noted as being investigated by the Plaintiffs, which does include the United States, including some discovery. And I assume that that's continuing. There don't seem to be any additional substantive complaints since the last report. Are we satisfied with the progress? I don't know what the complaint is, which is fine, I'm not supposed to know. But are we satisfied with the progress that's been occurring with this complaint in terms of how it's moving forward to get resolved? Anything else to add? Compliance efforts. Microsoft has been actively engaged in their ongoing training programs, monitoring, making sure that newly appointed individuals, officers, directors, et cetera, get the necessary materials. So, we're sort of narrowed down on what the issues are, although they are certainly very important issues. And each time we come there 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 is some new little wrinkle to it. So, let me call on everyone at this point. Let me start with the federal people, Justice and, then I'll work my way around. MR. SEVERT: Thank you, Your Honor. I think I'll start by updating you on recent developments since the filing of the status report, because I think they'll address most of the questions related to III.E. THE COURT: All right. MR. SEVERT: I'm pleased to report that the TC and Microsoft have reached agreement on at least the first template for the system documents. THE COURT: Okay. MR. SEVERT: And this has been a result of the TC, Craig Hunt, and Microsoft working really around the clock for the last few weeks to get resolution on the open matters. So, the agreement so far is on the protocol family system document, which is the first of the two types of templates. And most of the system documents actually fall into this category. The defined task, which is the second type of system document, work is still ongoing to reach resolution of those, however, most of the discussions relating to the first type of system documents also relate to the second type of system documents. So, at this time we don't anticipate any major obstacles in reaching an agreement on the second type of system document. And we also have a little bit of time to 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 reach agreement, as none of the system documents which Microsoft has already drafted or is currently writing are of the second type, they are all the first type. THE COURT: Okay. So, where does that put us on the timetable? MR. SEVERT: I think we are -- now that we have reached agreement on the template, Microsoft is now working on putting together what a schedule might look like. I think that is certainly the next step. THE COURT: That's very gratifying to hear. I was concerned we were back to more delays. MR. SEVERT: Absolutely. And let me just take a moment to talk a little bit more generally about the system documents. THE COURT: Okay. MR. SEVERT: We continue to believe that they are critical to interoperability, and just as an example of that, the TC has really dropped everything the last few weeks to work with Microsoft to develop these concrete examples to move the discussions on the template along. And in their portion of the status report, Microsoft notes that the system documents may be the first of their kind, and that may technically be true, but from our perspective that's not really a complete answer. The template was adapted from industry standards 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 and from academic texts, so what perhaps is unique about this undertaking is Microsoft is attempting to document its interoperability information for a highly complex system that was neither designed or intended for interoperability. So, I don't think anyone will tell you this is not very, very difficult. But by the same token, it's also very important. In fact, there is already information in the systems documents that is not in the technical documents that is essential to interoperability. THE COURT: All right. MR. SEVERT: Now, your other couple questions. Well, first, anything else on the templates or system documents? THE COURT: No. Certainly, the progress that has been made -- and I do appreciate the TC, they obviously have a vision of how this should be done and they've presented it, and I'm gratified to hear that Microsoft has worked cooperatively to make this work. I'm always thankful that I decided to adopt the idea of using the TC and Craig Hunt because they have turned out to be invaluable -MR. SEVERT: As are we, Your Honor. THE COURT: -- in terms of having this actually work. So, I'm pleased in terms of -- it made sense in the discussion that a systems document -- the concept made sense in terms of the discussions, and I'm glad to see that it's 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 picking up on things that will aid not only in the technical documentation, but obviously in our ultimate goal, which is interoperability. MR. SEVERT: Sure. Sure. So, as far as the other questions you had, the deleted protocol elements, that has been resolved and Microsoft is doing additional training to make sure this doesn't happen again. And, of course, we certainly expect that it will not. And your last question relating to the protocols that were excluded and -THE COURT: Right. I don't know whether that's something that just happens and it's to be expected, or whether that's something that shouldn't happen. MR. SEVERT: I think from our perspective that it's not wholly unexpected. And I think that the nature of, so far, the protocols that have been found recently is they are not particularly common or necessarily the most useful. THE COURT: Okay. All right. Thank you. MR. SEVERT: Thank you. THE COURT: Mr. Himes. MR. HIMES: Good morning, Your Honor. I want to reiterate what Mr. Severt said that the system documents, as we have said consistently, are essential and integral to the rewrite project and having technical documentation that is usable by licensees. You know, these past few status conferences we go through this ritual of our saying that, and 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 Microsoft comes back and says, well, they are not really required, we're acting as a volunteer. All the while, of course, you heard Mr. Muglia say that these documents -- these system documents definitely aid interoperability. They're very useful documents, there is no question about that. And I must say, Microsoft also has e-mails from people out in the world who are now using the documents that are online, which are saying what we have said. I saw a copy of one recently from a couple of weeks ago. No where is there a good protocol overview showing the actions and impacts from the top down. Could you please provide an overview? And that's illustrative of what Microsoft, we understand, is getting from the people out in the public that are able now to use materials that are online. So, I must say, I have to express my concern with this attitude that they're behaving as a volunteer, that position simply doesn't send a good message to the individual engineers at Microsoft who are doing the work on the system documents. I don't see how that position can convey to those engineers the sense of importance in what they're being called on to do. That they would have, if they understood these documents, to be part of Microsoft's obligations under the Final Judgment. So, there is a tension here and it's very troubling. I think it fosters the sort of grudging commitment 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 to getting the system documents done, and I think that's been a persistent and a pervasive concern that we've had. Now, you heard about how we have indeed come to agreement on the first template, and yes, that's a very good thing. Let me tell you a little more about that. Your Honor remarked, and it was in the JSR, that in early August after we had had TC engineers review Microsoft's own version of the template, and several of them reviewed it and reviewed it for an extended period of time, and they all found it to be inadequate. We concluded that the only way we were going to get a template in a sensible period of time was not to sit there and argue about Microsoft's but to start with the TC's own version of a template. And we sent them ours and we said we will meet with you and work with you on that. So, that resulted in meetings beginning in August, and those meetings intensified last week where they were going day-to-day. By my estimate, there were over 150 TC person hours dedicated simply to the meetings with Microsoft last week that included a half a dozen TC representatives and at least one TC member in person, another on the telephone for a number of those meetings. Meanwhile, the entire TC implementation group, that's nearly 30 engineers, had been pulled off of everything else, all the other III.E tasks of implementation, to support the template effort. And that activity began even before the day-to-day meetings that took 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 place last week. Now, you know, Your Honor, we created the TC in 2003, that's when the members were first approved. They added a couple of administrative people to build the office from scratch, and you know, over time to help Microsoft identify bugs in their own documentation. We built up staff. Those individuals, you know, work mostly below the hood, they're not visible as industry people, they are uncommonly dedicated. And what we have today is the TC and its staff spoon-feeding the world's biggest and most profitable software company, not only with a template, but with the details that Microsoft says -- the examples that Microsoft maintains that they have to have in order to create a template that will describe the interactions of parts of the technical documents that Microsoft has written to cover protocols in its own software. And I suggest to you that something about that just isn't right. We're well past the time when Microsoft should just get over it. I mean, they should stop the posturing and they should send the right message to their engineers and the others involved with these system documents. And that message is that this is part of their Final Judgment obligation, and that's how they have to treat it. And maybe, just maybe, if they would do that we would get through this process with a 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 little less wear and tear on everybody, maybe even a little faster. There is still no project schedule. They have told us now that we have the first template, and that is the most significant template, we recognize that. They will work on a schedule. That's good. I don't mean to suggest that these system documents aren't challenging, they certainly are. But they're essential and they are part of Microsoft's obligations, and they really ought to be treated that way, and I think thus far they haven't been. Now, I would respond briefly on the middleware. I don't think we have any current issues with Microsoft on Windows 7, it is still an early version that we're testing, but we will continue with the subsequent versions. And on the IE 8 beta 2, I think that's undergoing testing now, but we have no current ongoing issues. Anything else, Your Honor? THE COURT: No. No. MR. HIMES: Thank you. THE COURT: Mr. Houck. MR. HOUCK: Good morning, Your Honor. Let me start by agreeing with you, once again, that it is a good thing that Your Honor established the TC and Mr. Hunt, even though it was over our objection. But in retrospect it is a good thing. THE COURT: I didn't bring it up. MR. HOUCK: I knew you were thinking about it. THE COURT: In terms of the TC has been -- without 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 it, it certainly would make my job much more difficult in terms of having this work. MR. HOUCK: Absolutely. Your Honor asked about the one complaint that we're still investigating, and indeed we are investigating it, and we hope to wind it up in one fashion or another before the next status conference. So, we'll be reporting to Your Honor then, if not before, on that. But I did want to address most of my comments this morning to the technical documentation and the system documents where most of the effort has been concentrated over the last few months, and where we still do have some concerns. As Mr. Severt said, it is certainly good news that we got an agreement at last on the templates. But there is some bad news with that as well. The bad news is that it took so long. And as Mr. Himes indicated, had this been done sooner, more effort could have been devoted over the last several months to actually working on the system documents and to dealing with the TDIs, which still remain. As Your Honor pointed out in your summary, Microsoft does say in its submission that the 1300 or so TDIs ought to be taken in the context of 20,000 pages of documents. I was curious about the number of TDIs actually over time since the rewrite, and I asked Mr. Hunt to compute that, and he came up with a figure of 4,000. So, we're really talking about 4,000 TDIs, or more actually, since the rewrite. Now, 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 to be sure -- it's our view that those TDIs tend to be less significant and more easily correctable than the TDIs in the initial documentation. But, nevertheless, we believe that's a fairly high and unacceptable number. Now, why did it take so long to get an agreement on the system documents template. As Mr. Severt pointed out, and Microsoft believes they're working on uncharted territory, we think that's probably an exaggeration. I think the other interesting thing to point out is, by the time we submitted the written materials to Your Honor for this conference, there had been no agreement. The agreement was actually achieved in the last week or so, which again, reflects how so many of these disagreements have been resolved over the course of time here. It happens at the very last minute right before we come to see Your Honor. THE COURT: That's why I set them every three months. MR. HOUCK: Precisely. And that's why we ask to have them every three months. It definitely plays a useful role. We have a second more serious concern, which is a theme that Mr. Himes alluded to, and I think he actually understated that a bit, and that's the concern about whether Microsoft recognizes that these system documents are required as opposed to voluntary. Mr. Himes said we come into court every time and say we think they are required. But I wanted to remind 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 Your Honor that at the last status conference on June 24th, this is what Your Honor said: System documents seem to be integral to interoperability and usefulness of technical documents, and therefore, are required. So, I thought that was put to bed. But oddly enough, six weeks later, in Microsoft's July 15th, 2008, Supplemental Status Report, we find this language, which has been repeated in subsequent reports and indeed is in the current report for this conference. This is what Microsoft says: Microsoft firmly believes that the current protocol documentation available to implementers enables interoperability with Windows and fully complies with the Final Judgment. So, it would seem as if they don't think anything else is necessary. In fact, the next sentence they say: In response to the Technical Committee's request, Microsoft is undertaking a new effort to supplement the existing protocol documentation with additional systems document. So, we share Mr. Himes' concern that Microsoft, we think erroneously at this point, regards the systems documents as something voluntary on their part, not obligatory. And voluntary commitments are certainly nice, but they usually don't get the same level of the concern and attention something would get if it's actually required by the Court. So I wanted to note that that is a significant 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 concern we have. As I said, the agreement on the templates is good news, but I would say it's tempered good news, because past experience in this case has taught us that when we think we have an agreement with Microsoft, it doesn't necessarily mean that there aren't going to be problems of understanding down the road. And I'd be interested to hear from Mr. Muglia if he does in fact believe he fully understands what it is that the TC expects, and I hope he does. And in addition to that, of course, there is likely to be problems of implementation and execution. So, based on past experience, we're certainly pleased that there is agreement at this point, but we're sort of in a watchful waiting mode to see what happens. Now, we certainly agree with Your Honor that we like to bring some closure to this thing here. But we also want to make sure that the documents are done right and that Microsoft fulfills its obligations with respect to interoperability as required under the Final Judgment. And, as also, we remain ready, willing and able to work with Microsoft and the other Plaintiffs to make that come to pass as soon as possible. That's what I wanted to say, if Your Honor has questions I'm happy to -THE COURT: No, I'm fine. MR. HOUCK: Thank you. THE COURT: Mr. Rule. 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 MR. RULE: Your Honor, good morning. THE COURT: Good morning. MR. RULE: Let me start by reiterating that we take our -- Microsoft takes its responsibility under the decree very seriously. THE COURT: Why don't you deal right up front with the issue in the reports about the systems documents being voluntary and not requirements. I did make it clear, I thought, at the last hearing that I did not see them as something -- sort of icing on the cake. I saw them as something that was integral to making this work. MR. RULE: Your Honor, we definitely heard Your Honor last time, and we understand that that is a requirement, and the company is very committed to getting these documents done. There's no question about that. You know, one can't say whether, you know, that what people understood and expected and foresaw in the Fall of 2001, you know, we may not have fully contemplated or understood, which doesn't matter, I will grant you at that point, what was going to be required. If you'll remember, Your Honor, the decree that we negotiated that Your Honor entered had the notion that the Communications Protocol documentation would be done in nine months. I think everybody -THE COURT: That was obviously very unrealistic. MR. RULE: Right. 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 THE COURT: But, at any rate -- certainly it's something that -- but it is certainly a key feature, and in terms of the other options that were proposed to the Court, it certainly is the lesser of the options from, I'm sure, Microsoft's perspective. You may not look at it that way now, but I think in '01 you did. MR. RULE: Your Honor, I'm not disputing that at all. I got up in front of Your Honor and defended various parts of the decree, and so I don't disagree with that at all. I'm simply saying -- I'm not saying that -- I mean, I could be critiqued, as well as others, who were in the process of not foreseeing that it was a more complex project. The fact is that we are where we are and Microsoft -- and this I guess is what I want to start by responding to, Microsoft is completely committed to getting these documents done. The delays have not been a result of Microsoft taking a lackadaisical attitude towards this project or sending a message out, gee, don't worry about this, get to this when you can. The issue has been -- Microsoft has been writing these documents since the first quarter of this year. We've presented pilot documents to the TC and to the Plaintiffs, and we've gotten feedback. Quite frankly, because of certain elements that the Plaintiffs and the TC feel are necessary, we've had an ongoing discussion back and forth to try to understand exactly what would be desired. And the reason for 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 that is because the templates go to engineers, and engineers need clear directions on what they have to produce. And so it is that -- it's that back and forth, which I think we are reaching the end of, we're expecting something back from the other side in light of some of those discussions. But just so Your Honor is absolutely clear, we are not waiting on those documents to write the documents themselves. The templates are not -- we're not sitting back waiting until the templates arrived. When the templates do and everybody has agreed to them, we'll go back and make sure the other documents that are in progress conform to those, but we take that responsibility very seriously. The other point I would say is, I think that the report on the TDIs is actually very encouraging. No one has ever said that you can develop documents of this technical detail that are not going to have issues, and that's why you test -- we're in the middle of the testing. The testing is pretty much going to be complete, as Mr. Muglia told Your Honor last time, by the end of the year, and you would expect things to -- the TDIs to go down even more quickly, but actually they are going down. So, I think that's positive. The company is committed to getting this done. The other point that I would make is, as important and as urgent as the discussion of the technical documentation is, and as seriously as Microsoft takes it, it should not 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 obscure the fact that they are a means to an end. If we look at how the decree is working, how the MCPP project is working, I don't think we should overlook the fact that it is working very well. If you look at the degree to which the documents are being used, the number of downloads. You know, Mr. Muglia maybe can discuss this a little bit more, was telling me this morning about the software or the System Network Industry Association meeting recently where SAMBA and Sun and a number of other participates actually demonstrated implementations of the MCPP protocols, you know, things that I'm not sure in 2001 even I would have thought that a SAMBA implementation of the protocols would have occurred, but it's there. So, I don't -- I think that it's important not to overlook the fact that there are implementations out there. There's a lot of use and a lot of reviewing of these documentation that is going on at the same time that Microsoft is committed to doing the system documents and getting them accomplished on a reasonable schedule. And, again, we started, they're underway. We agree with sort of the complexity and length of the program as the Plaintiffs have laid out. But, you know, it's underway now. We're trying to move forward as quickly as we can, as quickly as we're on the same page, and we understand what the TC thinks should be in those documents, to get them to our engineers and make sure that those system documents provide all the information that 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 the TC believes is necessary, and we all agree is necessary. So, I just want to make that absolutely clear. This is not a situation where anybody is saying, gee, it's voluntary, if you get around to it, just get to it. THE COURT: Why do you still have it in the reports? MR. RULE: I'm sorry? THE COURT: Why do you still have it in the reports? Why do you have language that doesn't make it quite as clear in the reports, I mean, those are easy to -MR. RULE: Your Honor, we will take your comments on our language to heart in the future reports. And it was certainly not intended, Your Honor, as any shot at you or any statement that we take our responsibility anything less than seriously. I think it's not -- I'm happy to go through how we perceive the chronology of events, but I don't think that's particularly productive this morning. I think what is clear is that we heard Your Honor last -- at the last hearing, we understand that those system documents need to be done. We are doing everything we can, but this back and forth to make sure that the template is right and it gives guidance to engineers and we know what we're supposed to put in those documents is a process that has taken longer than we expected. But it has not stopped us from putting the effort in to writing those documents as we are speaking. 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 sure. THE COURT: All right. MR. RULE: I'm not -- I think, Your Honor, all the other issues have been addressed. I don't know if you have any other questions for me? THE COURT: No. The reports are getting shorter, which means we are having fewer issues. The documentation is the key one, for the most part. There's still some things with middleware that are being presented to me, but they seem to be moving smoothly, as far as I can see. The documentation is obviously the key part to this. MR. RULE: Your Honor, should I ask Mr. Muglia -THE COURT: If he has something he wishes to add, MR. MUGLIA: Good morning, Your Honor. THE COURT: Good morning. MR. MUGLIA: First of all, I would like to state that -- say that I generally concur with what Mr. Severt said about the progress that's been made across the board, and certainly including the systems documents. And I'm very gratified by the work that the combination of the TC and the engineering team at Microsoft had made in the past set of weeks to really reach resolution on the system document templates. In terms of those documents, I want to just really emphasize that regardless of anything that may have been 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 written in any reports that I myself and my engineering team are operating with absolute clarity that they are fully required. And we are working very, very hard to get them done. We have assigned a significant number of senior engineers to this project. And, in fact, while we have been discussing and working on the final templates structure with the TC, my teams have been proceeding ahead making progress on these documents. As Mr. Severt indicated, it is agreed by all of us that this is a complex project, and that the documents -- the system documents are something that has a level of complexity that was not originally anticipated. And given that, we know that this is a multi-month project. And originally in conversations with the TC, we've heard that they have an expectation that the project would take on the order of 18 months. In the context of that, when we became aware of the need to do the system documents in the first quarter of this calendar year, we began working on it and have proceeded completely on that with the engineers working on the documents as the templates have been finalized. And, in fact, we have now released a total of six early -- I'll call them early documents that do not fully conform to the TC template to the TC, three of those are posted on the Web, and we are continuing a pace on that. Now that we have reached resolution with the Technical Committee 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 on the first template, we will begin the process of finalizing our schedule and taking the documents that we've already written and converting them to the new template, and then of course, will write future documents according to that template. THE COURT: Okay. Good. How much -- what do you see -- I mean, I realize that you have not proposed a particular milestones or whatever, that you will be in the near future, hopefully. MR. MUGLIA: Absolutely. THE COURT: But do you have some sense at this point of how this is going to progress? It sounds like you now have agreed on the template, you're proceeding with the documentation. If it turns out that the documentation doesn't work with the systems, you're going to have to be making changes, right? MR. MUGLIA: I think the purpose of the documents is to describe the system, and like anything, we will undoubtedly have a conversation -- we're planning a conversation in fact with the TC, we're planning a test process against those documents. So, the process which will unfold will be somewhat similar to what we did with the original blue line process, but it's because these documents are very detailed and very technical and not quite as many pages total, I think the schedule will be somewhat different. 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 We have a smaller number of documents, each of which are much harder to write than the 200, roughly, documents we've already created. It is my anticipation, as I said, that the TC is approximately correct, although we don't have an actual final schedule. In engineering terms we call this is a top down schedule versus a bottoms up schedule. And us managers create these top down schedules, they're not always accurate in the end. But that sort of top down schedule that the TC suggested was approximately an 18 month project. THE COURT: We've only got 14 months for it to expire. MR. MUGLIA: We started this, though, in Q1. So, if you work back -- if you worked back, we should be able to be completing this -THE COURT: 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. MR. MUGLIA: I concur with you exactly, Your Honor. And my goal is to get them done much sooner than that, and in fact, what we expect is that these things will be coming out in the format as soon as we're able to begin the conversion process. But it will be into next year, there's no question 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 that the date will go into next year, and I would guess roughly somewhere in the middle of next year, when all is said and done. THE COURT: Okay. MR. MUGLIA: And expect that we will have our schedule for you -- we'll be able to have our schedule for you before the next one of these hearings, we'll be able to have a final schedule. THE COURT: Okay. So, you don't think it will be one of the interim reports that I'll be hearing about it? MR. MUGLIA: It could be, Your Honor, but we're still waiting to get agreement on that final template, and until we have that, I can't really work back on the date. THE COURT: All right. MR. MUGLIA: In terms of some of the other questions that Your Honor had. In terms of the TDIs, this is very common for a project of this complexity. If we looked at any Microsoft engineering project we would see what we -- we call them bugs, we would see similar numbers for something of this level of complicity. As I reported to Your Honor in June, it was my expectation that given the volume of testing that is being done, as we speak, that the number of TDIs will actually continue to increase. We are able to keep them relatively flat and constant, but just the amount of testing will likely generate a significant number of new TDIs coming 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 in, that will ramp down. Our testing is mostly complete this calendar year. It is fully complete after the first quarter of next year. So, we expect that as we move into 2009, the outstanding TDIs will begin to ramp down, and they should over time begin to ramp down pretty quickly, because as the incoming rate goes down, our ability to fix them will more than catch up. Right now we are balancing the incoming rate with the fix rate. That was Your Honor's question around the TDIs, is that clear? THE COURT: Yes. MR. MUGLIA: You asked the question about the Sydney protocols and why we did not discover two of those. If Your Honor might recall, when I talked about the process we used to determine the database of protocols, that was a process where our engineers looked at everything, we believe we got -- we believed very strongly we got all the important ones, and we tried to get every other one we possibly could. The protocols that were missed, I would describe as either obscure or obsolete, and as we determined with the TC, they don't really need to be documented anywhere. So, I feel pretty okay about what happened there, and it is possible that we'll find more in that category, but I really do believe we're not hitting anything that would impact a licensee in any way, shape or form. 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 And, finally, Your Honor, just commenting on the plug-fest, I will say the following, which is, it's been -it's actually very gratifying for me to see the shift that's happening in the industry, together inside Microsoft, that this project has done. We, this week at the Storage Networking Industry Association Plug-Fest that we worked with, we had quite a number of Microsoft engineers working directly with SAMBA people and Apple people and Sun people, and we are really beginning to see some very sophisticated implementations of interoperable systems coming out of this effort. And the way the engineers are working together is quite a bit different than in the past. So, we see them getting together after the plug-fest and going out to dinner and working together, and it's quite a different atmosphere than might have occurred even three or four years ago. So, I feel very good about that kind progress, both in terms of the actual products and the quality of the interoperable products that are being produced as a direct result of this effort, and the consent decree as well as, frankly, the way the engineers are working together. THE COURT: All right. MR. MUGLIA: Anything else, Your Honor? THE COURT: No. MR. MUGLIA: Thank you very much. 37 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: Anything anybody wants to respond to? MR. HIMES: I do have a couple of things, Your Honor. First of all, I heard Mr. Muglia refer to the system document project as going back to the first quarter of this year. The first quarter of this year was the point that Microsoft renamed the overview documents the system documents. The system documents, in concept, go back to the beginning of the rewrite project in the Spring of 2006, and it was a subject of discussion with the TC and Microsoft at that point in time. The notion was overview documents, the nomenclature changed at a given point in time, but not the concept. And, in fact, our reviewing the technical documents themselves took into account the fact that there were going to need to be what are now called system documents. We did not fight a religious war over whether particular items of information had to be in particular technical documents, because we had made clear there was going to have to be a system document or an overview document that would describe interactions, and therefore, there was no need necessarily to worry about whether bits of information made it into technical documents or not, it would be included in the overall rewrite project. So, it is not accurate to say that the system document project began in the first quarter of this year, it did not. Now, one other thing. We made reference to the 38 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 fact that Windows 7 will result in new documentation that needs to be done, and we do have subsequent information, and I'm sorry that we didn't bring it to your attention earlier. We are now told by Microsoft that at least on the current version of Windows 7 there will be 26 new documents required and another 68 will need to be modified. So, that's going to be an additional part of the overall III.E project as it currently exists, I'm sure that number could change, but that is our current information and I wanted to bring it to your attention. THE COURT: All right. Thank you. All right. There's obviously the positive side. There's progress on all fronts. Certainly, other than the documentation, I think other areas are moving smoothly, the middleware area, you know, there's monitoring and that seems to be moving the way it should or the way I had contemplated it. I mean, the documentation is still the issue. Obviously, there's two views when you come into court, since I'm not at the meetings, I'm not with the TC in terms of how they're working here, but I am concerned that despite the cooperation, and there certainly has been, that there seems to be a sharp divergence in view of -- between, say, the non-federal Plaintiffs and Microsoft as to the attitudes and approaches that have been taken. I'm not in a particular way to totally resolve it, 39 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 the fact that it's there tells me that this isn't all working as smoothly as it might. I don't expect -- you obviously have differing points of view, and I don't expect Mr. Himes and Mr. Houck would raise an issue if they didn't have concerns. And I have to say, the TC was -- and I'm so pleased that I adopted this, but it was expected to review, to be the technical group that would come in, that would make sure that all of it was done the way it was supposed to. They moved into doing testing, which I assume we would have expected. But, frankly, they're doing a lot of work in the firsthand, which has happened before. We've had this happen at various points where the TC has picked up work that I think would have been expected to have been done by Microsoft. And I will just throw this out, I don't have a full understanding. I understand -- I do appreciate the fact that these are not simple, that these are complex. But I think it's interesting that it appears that the TC is able to do what is necessary and brings Microsoft along, not the other way around. And I'm pleased that we have the TC and they're able to do this so we can get this done. I do want to make sure -- I realize that Microsoft has indicated, and I'm not in any way indicating that you have not sent them the message, hopefully you'll change it from the written materials, but have not sent the right message. On the other hand, there must be something in the 40 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 contacts between the technical people that's raising this issue for them to go back and talk to the Plaintiffs, because Mr. Himes is not sitting at the table there. And the Technical Committee generally has not complained in this vein. So, I am a little concerned about hearing this because my assumption is, even though they are working together, that there is some frustration here about how this is -- we certainly have had a lot of changes around this. I'm hopeful that what we're doing with the systems documents, et cetera, that this will finally come to fruition in terms of having the interoperability that we need. So, somewhere the message needs to be filtered down lower or something, but I think you need to at least take it seriously. I made my comment last time and I'm reiterating it. The systems documents, as far as I'm concerned, are required. I mean, interoperability is really the key part to this whole thing. And, frankly, Microsoft, I'm sure at some point wants this consent judgment to terminate, as do I, sometime in the near future. But that's not going to happen unless these things get done and there is enough time, frankly, to see that they are actually going to work. And it's 14 months away that the next deadline comes up. And I'm certainly not going to let it be that it's shortly before that we get this all together with no opportunity to see how it works. So, it behooves everybody to take a look at this. 41 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 This may not be how Microsoft usually does things or whatever, but I want to make sure that all the way down completely, whoever is working on this, that it be done all along, not just killing yourself and the TC just before you're coming to court. I realize that's why judges set hearings, frankly, in all of their cases, it's the best way of making sure there is progress, because nobody wants to come in and say, we haven't got things done. So, I mean, this isn't just you, this is everybody. Otherwise, we probably wouldn't have as many court hearings. I want this to be -- as I said, I'm not suggesting that you're not doing what you're supposed to, but I am concerned there's something going on here and you all need to look at it. Because we don't usually get this -- you know, there have been complaints and differing views about progress. This is a different one. And this is one that I think you need to take seriously, and it's just not the spoken word that, yes, you understand it's required and you're making sure everybody does it. Something's missing here, and I'll leave it up to you to figure out where it is, to plug it in and make sure this moves forward the way it should. I hope not to hear the same thing next time. So, let's pick a timeframe for the next -- I would like to do it in the beginning of new year, I have a whole series of trials through the rest of this Fall. So, it would 42 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 work better for me to try and do it some time in the January timeframe, near the end because I do have a trial the first two weeks in January. So, if we did it -- is it better to do it in the middle of week? MR. HOUCK: Yes. THE COURT: How about January 28th? That's the week after the election and all the other stuff. So, the 28th is a Wednesday. Does that work for people? I'll be finished with -- in terms of traveling, et cetera, it should make it easier for you to get here. My trial should be done. Or pick another day. MR. HOUCK: That's fine with the California Group, Your Honor. THE COURT: Federal, Mr. Himes, everybody else? MR. RULE: Yes. MR. SEVERT: Yes. THE COURT: All right. Then why don't we set it -we've been setting this I think at 10:30, which is fine, so those of you who can get in in the morning can do so. And so we would expect the report -- if you can get the report in on the 21st. Anything else from anybody? (No response). THE COURT: I won't be seeing you until the new year. Have a good Fall. Take care. END OF PROCEEDINGS AT 11:36 A.M. 43 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 /s/ Lisa M. Hand _____________________________ Lisa M. Hand, RPR CERTIFICATE I, Lisa M. Hand, RPR, certify that the foregoing is a correct transcript from the record of proceedings in the above-titled matter.

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