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Case Number: CGC-05-442684
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COMPLAINT
NC., A WASHINGTON CORPORATION et al VS. MICROSOFT CORPORATION, A WASHII
001001231115
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~ ~ ORIGINAL
KELLOGG, HUBER, HANSEN, TODD,
EVANS & FIGEL P.L.L.C.
DAVID L. SCHWARZ (Cal. State Bar No. 206257)
PRIYA R. AIYAR (Cal. State Bar No. 218877)
JAMIL N. JAFFER (Cal. State Bar No. 230109) San Francis
1615 M Street, N.W., Suite 400 CASE MANAGEMENT CONFERENCE SET vancisco County Superior Court
Washington, D.C. 20036 JUN 2 9 2005
Telephone: (202) 326-7900
Facsimile: (302) 326-7999 PLANE DEC 0 2 2005 998M GORDON PARK-LI, Clerk
E-mail: dschwarz@khhte.com M Bb » Gler
NT 212 AN Be a
Attorneys for Plaintiffs DEPARTME VY MOF
GO COMPUTER, INC. and S. JERROLD KAPLAN
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE CITY AND COUNTY OF SAN FRANCISCO
GO COMPUTER, INC., a Washington CaseNo. €6C0-05-442684
corporation; S. JERROLD KAPLAN, an .
individual, COMPLAINT FOR VIOLATIONS OF THE
CARTWRIGHT ACT, BUS. & PROF. CODE
Plaintiffs, §§ 16720 et seq.
v.
[JURY TRIAL DEMANDED]
MICROSOFT CORPORATION, a Washington
corporation,
Defendants.
Plaintifnfs GO COMPUTER, INC. and S. JERROLD KAPLAN, complain of defendant
Microsoft Corporation (“Microsoft”) as follows:
NATURE OF ACTION
1. GO Computer, Inc. and S. JERROLD KAPLAN bring this action to recover the
damages they sustained as a result of Microsoft Corporation’s collusive and exclusionary actions in
violation of the Cartwright Act (California Bus. & Prof. Code §§ 16720 et seq.).
JURISDICTION AND VENUE
2. This Court has jurisdiction pursuant to California's antitrust law, the Cartwright Act
(California Businese and Professions Code 0 16720 ef seg.). This Court has jurisdiction over
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT
Case No.Microsoft because Microsoft is authorized to and does conduct business throughout California.
3. Venue is proper in the City and County of San Francisco pursuant to California
Business and Professions Code § 16750 and California Code of Civil Procedure § 395.5 as the
unlawful acts, obligations and liability that plaintiffs allege occurred and arose in part therein.
Microsoft does business in, is found in, and received substantial revenues and profits from sales of its
products in the City and County of San Francisco. Its liability thus arose in part therein.
PARTIES
4. GO Computer, Inc. is a corporation organized and existing under the laws of the State
of Washington, with its legal agent for service of process located at Unisearch, Inc., 1780 Barnes
Blvd. S.W., Bldg. G, Tumwater, WA 98512-0410. GO Computer, Inc. and S. Jerrold Kaplan are the
owners of all claims asserted herein as a result of a succession of assignments thereof from GO
Corporation to AT&T Co. (“AT&T”), from AT&T to Lucent Technologies, Inc., (“Lucent”) and from
Lucent to GO Computer, Inc. and S. Jerrold Kaplan. GO Corporation was the original holder of the
claims asserted herein as it was the competitor of Microsoft that suffered the harm that resulted from
Microsoft’s unlawful actions set forth hereinbelow. GO Corporation’s claims were assigned to AT&T
in January 1994, when GO Corporation was merged into AT&T’s subsidiary, EO Corp. GO
Corporation’s claims were then assigned by AT&T to Lucent in April 1996 when AT&T spun off all
of its GO Corporation assets, including the claims asserted herein. Lucent assigned all of GO
Corporation’s claims herein to GO Computer, Inc. and S. Jerrold Kaplan on April 14, 2005. Unless
otherwise indicated, all references to GO hereinbelow are to GO Corporation.
5. S. Jerrold Kaplan is a founder and CEO of GO, principal inventor of GO’s patented
technology and is a resident of Hillsborough, California.
6. Defendant Microsoft Corporation is a corporation organized and existing under the
laws of the State of Washington, with its principal place of business located at One Microsoft Way,
Redmond, Washington. At all relevant times Microsoft has sold and licensed and continues to sell and
license Intel-compatible operating system and applications software. Microsoft is the world’s largest
supplier of computer software for personal computers (“PCs”) and servers, which it supplies largely
through sellers of computers and independent distributors. Throughout the relevant period, Microsoft
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 2
Case No.has marketed its computer operating system software in California and elsewhere and has licensed it
to sellers of computers as well as software distributors, resellers and end users in California and
elsewhere.
7. For purposes of this action, the relevant market is the market for Intel-compatible PC
operating systems, which is the same relevant market that was alleged and established in United States
v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C. 1999) and 87 F. Supp. 2d 30 (D.D.C. 2000) (hereinafter
“United States v. Microsoft”). At all times relevant to this action, Microsoft possessed monopoly
power, i.e., the power to raise prices and exclude competition in the relevant PC operating system
market, as was alleged and proven in United States v. Microsoft. By 1990, Microsoft’s share of the
relevant market was 65%. (See Govt. Ist Am. Compl. { 25 [hereinafter “Govt. Compl.”])
8. “In the succeeding years” (i.e., 1990-1995), Microsoft “eliminated all competition” in
the relevant market (Govt. Compl. {| 26) through a pervasive and protracted campaign of collusive and
exclusionary practices designed to eliminate all threats to its operating system monopoly. Companies
that Microsoft considered direct competitive threats to its monopoly were any that had developed a PC
operating system or had developed cross-platform “middleware” that had the potential of reducing the
entry barriers that protected Microsoft’s operating system monopoly. Examples included: Netscape,
Sun Microsystems (“Sun”), Real Networks, Novell and — for purposes of this action - GO.
9. The actions Microsoft took to eliminate the competitive threats to its operating system
monopoly posed by Netscape and Sun were alleged by the Government and adjudged unlawful by the
Court in United States v. Microsoft. Microsoft took similar actions to eliminate GO from the PC
operating system market and for the same purpose: Microsoft acknowledged that GO had developed
its own PC operating system for “pen computers” (as defined below), that GO’s PC operating system
was in many ways superior to Microsoft’s operating system and that GO had to be eliminated so as to
enable Microsoft to preserve its operating system monopoly — which it was then able to deploy against
Netscape and Sun as alleged and found in United States v. Microsoft.
GO’S ATTEMPT TO ENTER THE RELEVANT PC OPERATING SYSTEM MARKET
10. GO was founded in 1987 to invent and develop a new type of personal computer
known as a “pen” or “tablet” computer that was used by writing directly onto a flat screen with a
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 3
Case No.special pen rather than by typing on a keyboard. GO’s product initially consisted of two components:
(1) a thin lightweight computer similar to a notebook or pad of paper that could be held in one hand
while writing on it with the other and (2) an operating system called “PenPoint” designed to support
special application programs that would make this new type of PC easy to use. In order to establish
PenPoint in the market, it was necessary to convince other software developers to invest their
resources in writing new applications designed for pen computing and to run using PenPoint, so GO
contacted all the major PC application software developers for that purpose. One of the application
software developers GO contacted was Microsoft.
MICROSOFT’S RESPONSE TO GO’S MARKET ENTRY
11. As the internal records of Microsoft later revealed, Microsoft had no interest
whatsoever in writing applications for GO’s operating system for use with pen computers. To the
contrary, Microsoft saw GO’s PC operating system as a serious threat to its operating system
monopoly and took swift covert action to “kill” it just as it did the Netscape/Sun Java threat to its
monopoly. Microsoft considered its prime objective was to continue to be the dominant mainstream
PC operating system standard. Microsoft’s CEO, William H. Gates III (“Gates”), personally saw GO
as a direct competitive threat to Microsoft’s operating system monopoly, stating that “GO’s primary
strategy is to create an operating system standard that is different than and incompatible with
Microsoft’s (PX319)'; that “there was an operating system conflict between GO and Microsoft”
(PX310); and that “GO is a Windows competitor” (PX3 10). Microsoft’s other top executives agreed
with Gates, stating GO “competes with our OSs” (PX310). Gates therefore assigned Marlin Eller (a
senior developer in the Operating Systems Division of Microsoft during 1982-1995), among others,
responsibility of extinguishing the GO threat. Eller explained: “Everyone knew that [Microsoft’s]
bread and butter came from DOS, and, eventually, they would realize it [came] from Windows. The
abiding rule was to kill anyone trying to take that revenue away. The number one mission of
Microsoft was to not let anyone else poach on its core asset — the operating systems business. And
GO was looking like a serious threat.” Jennifer Edstrom and Marlin Eller, Barbarians Led by Bill
1 Documents referenced as “PX” are trial exhibits admitted in evidence during trial in Gordon v.
Microsoft, Case No. 00-005994 (MN Dist. Ct., Hennepin Cty.).
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Gates at 120 (1998).
12. Microsoft undertook to “kill” GO by resorting to many of the same collusive and
exclusionary tactics Microsoft used against Netscape, Sun, Novell, original equipment manufacturers
(“OEMs”), independent software vendors (“ISVs”) and others that were alleged by the Government
and adjudged unlawful by the Court in United States v. Microsoft — and for the same purpose: GO’s
operating system was a serious competitive threat to Microsoft’s operating system monopoly.
Microsoft began its mission in July 1988, when Gates showed up at GO’s offices in Palo Alto,
California, ostensibly in response to GO’s invitation to Microsoft and all other major PC applications
developers to write applications for GO’s PC operating system for use with tablet computers,
referenced in paragraph 10 above.
13. Gates expressed considerable interest to GO’s management in exploring the prospect of
having Microsoft develop applications for PenPoint, as Microsoft had done in the past for the Apple
MacIntosh. He therefore executed a Nondisclosure Agreement (“NDA”) and assigned a senior
executive (Jeff Raikes, Vice President of Applications) to work with GO. In February 1989, Raikes
signed a Joint Development Agreement with GO by which Microsoft was to devote resources to the
joint effort and GO was to provide confidential engineering designs, access to GO’s engineering staff
and space in GO’s office in which to work. The information was to be kept confidential, to be used
“only for the purpose of furthering this joint project,” and no copies were to be made or disseminated
without GO’s permission. (PX58) GO also relied upon Microsoft’s well known public statements to
the software industry that it maintained a veritable “Chinese Wall” between its Applications and
Operating System Divisions that would prevent GO’s valuable trade secrets, entrusted to Microsoft’s
Applications Division (which Raikes headed), from being diverted to Microsoft’s Operating System
Division for use in competition against GO. Raikes sent an engineer (Lloyd Frink, ostensibly from
Microsoft’s Applications Division) to visit GO on several occasions over the ensuing months, during
which he was given extensive access to confidential documentation, engineers, prototypes and other
valuable proprietary resources.
14. GO provided its proprietary trade secrets to Microsoft in reliance upon Microsoft’s
agreement not to disseminate or use them except for its possible development of applications for GO’s
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pen computer operating system in cooperation with GO. But that was not Microsoft’s real purpose.
Lloyd Frink reported to Gates that his real “[p]urpose of [the] trip” to GO’s offices was “for me to
learn in more detail [about] what GO is developing. . .. We can take this information into
consideration when putting Windows on similar types of machines.” (PX115) Frink also told Gates:
“[t]he one key piece we need in order to put Windows on [tablet] computers made by other
manufacturers is the handwriting recognition software. The GO people wouldn’t let me get near any
of their stuff (with good reason).” (PX115)
15. Undaunted, however, Frink continued to purloin valuable engineering designs from
GO, then reported to Gates and other Microsoft top executives on his success: “Attached is a packet
of information I have collected on GO. These are some of GO’s very preliminary specs.”
Acknowledging that GO’s technology “has a lot of appeal,” Frink assured Gates et al. “I think we can
whip something up in a year that embodies some of these [i.e., GO’s] ideas.” (PX355) Microsoft not
only stole GO’s valuable trade secrets directly from GO (ie., by entering GO’s premises and poring
over GO’s confidential records pursuant to an NDA that Microsoft honored only in its breach), but it
also got other developers to disclose trade secret information they obtained from GO under NDAs
they had signed with GO. Thus, in a report to Raikes, a Microsoft employee confided that Softview,
Inc. (an ISV beholden to Microsoft) “is quite eager to give us info [information] on GO,” that it “has
access to technical documentation and will get more detailed information” (obtained from GO under
an NDA) and is “open to giving us info [information] on GO” in direct violation of its NDA. (PX370)
The report to Raikes then described GO’s proprietary information in detail and promised even more
such information will be sent to Microsoft, adding: “Given that further information is probably more
technical, I think one of the [Microsoft] development team[s] should be here” to interpret it. (PX370)
16. While purloining technical information about GO’s proprietary technology, Microsoft
also secretly “blacklisted” GO from receiving Microsoft’s “beta releases” of software required to
properly integrate PenPoint with Microsoft’s dominant software products — “beta releases” that
Microsoft routinely made available to developers who did not seek to compete with Microsoft’s
operating system. Microsoft also withheld technical information from GO that would enable GO’s
software to remain interoperable with Microsoft’s — information generally provided to third party
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developers — unless GO would release Microsoft of any claims based upon Microsoft’s previous
exposure to GO’s proprietary technology. Microsoft’s practice of “withholding crucial technical
information” was also found to be exclusionary by the Court in United States v. Microsoft (FF90 et
seq., 84 F. Supp. 2d at 33) and was the subject of the Court’s recently affirmed injunction against
Microsoft. See 373 F.3d 1199 (D.C. Cir. 2004).
17. GO unveiled PenPoint publicly for the first time to an “invitation only” audience of
software developers in San Francisco in early 1991 and the next day to the Boston Computer Society
in Boston. Microsoft had one of its developers gain access to the GO demonstration in Boston so that
he could secretly videotape it for Microsoft executives to view back in Redmond, Washington in
search of other features to copy. The GO demonstrations were a major success, resulting in glowing
press reviews and industry magazines’ praise. It quickly became apparent to Microsoft that, despite
its best efforts to misappropriate GO’s valuable technology so that it could replicate it in a Windows-
based computer (later to be known as PenWindows or WinPad), GO’s pen computer operating system
was far superior to the Windows operating system that Microsoft used for its pen computer. One of
Microsoft’s software engineers responsible for PenWindows concluded that “GO has a technically
superior solution” whereas “Windows is too complex and inappropriate for [pen computers].”
(PX859)
18. Recognizing that Microsoft could not replicate the quality of GO’s pen computer on its
Windows operating system, even with information stolen from GO, Microsoft resorted to other
exclusionary measures — all of which are similar to the exclusionary tactics which the Government
alleged and the Court declared unlawful in United States v. Microsoft. While Microsoft was gathering
confidential information from GO under the false pretense that it planned to develop applications for
GO’s pen operating system, Gates learned that Intel planned to invest several million dollars in GO’s
development efforts and to provide a public endorsement of GO. That endorsement and support
would have virtually guaranteed GO’s success. Intel wanted to support GO for two reasons: first,
Intel believed GO’s operating system was superior to Microsoft’s operating system and, second, Intel
wanted to encourage GO to develop another operating system so that Intel would not have to be
dependent on the Microsoft operating system monopoly anymore.
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 7
Case No.19. As soon as Gates learned that Intel was planning to endorse and support GO, he
dispatched his subordinates to meet with Intel to tell Intel not to endorse or support GO. Microsoft
executives repeatedly told Intel that its public endorsement and financial support of GO “is an anti-
Microsoft move because it [GO’s operating system] competes with our OSs [operating systems].”
(PX310) Gates himself reported that he told Intel management “there was an operating system
conflict between GO and Microsoft” (PX310) and that Intel therefore should not help GO. In an effort
to dissuade Intel from helping GO, Microsoft even showed Intel a prototype of Microsoft’s
PenWindows that was implemented by Frink based on what he had secretly taken from GO. Intel
resisted, telling Microsoft that Intel was “very impressed with GO’s software and with GO in
general,” (PX310) whereas the Windows operating system was “too complicated.” (PX310) Given
that Intel continued to resist Microsoft’s pressure, Gates finally wrote Intel’s CEO (Andrew Grove)
directly to insist that Intel not support GO:
GO’s primary strategy is to create an operating system standard that is
different and incompatible with Microsoft’s. . . . An Intel investment in
GO would send a strong message to both OEMs and ISVs. . . . Intel’s
investment in GO will be seen as an endorsement of GO’s platform and
system software. This will be a very powerful effect which you should
not discount — in fact it is almost certainly a stronger effect than the
value of the actual money that GO receives. . . . I guess I’ve made it
very clear that we view an Intel investment in GO as an anti-Microsoft
move, both because GO competes with our systems software and
because we think it will weaken the 386 PC standard. . . . I’m asking
you not to make any investment in GO Corporation.
(PX319)
20. Asaresult of Microsoft’s pressure, Intel substantially reduced its investment in GO
and, more importantly — because Gates convinced Grove that any investment in GO “will be seen as
an endorsement of GO’s platform and system software” and would “almost certainly [have] a stronger
effect than the value of the actual money that GO receives” — also prohibited GO from publicly
disclosing the fact that Intel had made any investment in GO. Microsoft’s pressures on Intel to
withhold its endorsement of GO are similar to the pressures it exerted on Intel and others to refrain
from dealing with its competitors, as the Government alleged and the Court found unlawful in United
States v. Microsoft. \t was “Microsoft’s corporate practice to pressure other firms to halt software
development that either shows the potential to weaken the applications barrier to entry or competes
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 8
‘Case No.directly with Microsoft’s most cherished software products.” (FF93, 84 F. Supp. 2d at 34) In
particular, “Microsoft successfully pressured Intel, which was dependent in many ways on Microsoft’s
good graces, to abstain from aiding in Sun’s and Netscape’s Java development work” (87 F. Supp. 2d
at 43). The Court found that “Microsoft’s interactions with Netscape, Intel, Apple and Real Networks
all reveal Microsoft’s business strategy of directing its monopoly power toward inducing other
companies to abandon projects that threaten Microsoft and toward punishing those companies that
resist.” (FF132, 84 F. Supp. 2d at 43) GO was a direct target of that business strategy because GO’s
operating system directly threatened to erode Microsoft operating system monopoly.
21. Intel, Apple, Netscape and Real Networks were not the only developers who, the Court
found, were pressured by Microsoft to abstain from helping Microsoft’s rivals erode its operating
system monopoly. Microsoft also “targeted individual ISVs, directly extracting from them
commitments” to write applications for Microsoft exclusively (FF337, 84 F. Supp. 2d at 93).
“Microsoft’s exclusive deals with the ISVs,” the Government claimed and the Court found, “had a
substantial effect in further foreclosing rival browsers from the market” (253 F,3d at 72). GO was the
brunt of this exclusionary tactic as well. Determined to “stop GO,” Microsoft strategized that it could
do this by “making sure they sign up no OEMs or ISVs, hence have no customers.” (PX443)
Microsoft did this by launching a project that was expressly designed to destroy GO by locking up
almost 500 ISVs to work exclusively on Microsoft’s pen computer so as to make certain GO had no
ISVs to write applications for GO’s pen computer — leaving GO with “no customers.”
22. Coercive strategies employed by Microsoft to foreclose rivals from access to the OEM
distribution channel, alleged by the Government and found unlawful by the Court in United States v.
Microsoft, were also employed against GO with extraordinary success. The Government alleged:
In the succeeding years [i.e., from 1990 to 1995], Microsoft effectively eliminated
all competition in the operating system . . . markets. It used, inter alia, its market
power in the operating system [market] to pressure OEMs into agreeing to
restrictive licensing terms for MS-DOS. These terms included “‘per processor”
operating system licenses, which required OEMs to pay Microsoft an operating
system royalty for every computer they sold, regardless of whether the computer
included Windows/MS-DOS, thus discouraging sale of non-Microsoft GUIs and
operating systems. These licenses also included other restrictions, such as tying
Windows and DOS through licensing agreements, large minimum commitments
and long license terms.
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(Govt. Compl. { 26) Microsoft’s “restrictive dealing agreements with OEMs,” the Government
alleged and the Court found (Govt. Compl. 4 48), “prevented, or significantly handicapped, the
licensing, sale, distribution and promotion of technologies competing with Microsoft’s” (ibid.) and
were a major cause of GO’s ultimate expulsion from the PC operating system market. While the
Government “obtained a consent decree enjoining certain . . . practices” (Govt. Compl. { 26), it
alleged that “by the time of the consent decree [entered in August 1995], the damage had already been
done.” (Govt. Compl. 27; see also] 54-69 [Foreclosure Of The OEM Channel”; FF144, 84 F.
Supp. 2d at 46-47)
23. As the Government alleged and the Court found in United States v. Microsoft,
Microsoft “used incentives and threats in an effort to secure the cooperation of individual OEMs” in
helping Microsoft preserve its operating system monopoly. (FF230 et seq., 84 F. Supp. 2d at 67)
Microsoft employed those same “incentives and threats” which the Government alleged and the Court
found to block GO from distributing its rival operating system for pen computers through the OEMs.
Gates was assured by his subordinates that “[o]ur primary mission right now is to stop GO” and that
“[w]e could do this” by “making sure they sign up no OEMs”and thus “have no customers.” (PX443)
24. Microsoft’s use of “incentives and threats” (FF230, 84 F. Supp. 2d at 67) to coerce
Compaq, Fujitsu, Toshiba and other OEMs into contracts that prohibited them from making pen
computers using GO’s operating system epitomizes the collusive and exclusionary strategy which the
Government alleged and the Court found (and finally enjoined). For example: by late 1992, Compaq
— then the leading PC manufacturer — decided to expand into the emerging PDA market. “PDA” (or
personal digital assistant) was the acronym used then for handheld portable computers, mainly pen
computers. The ubiquitous PDAs of today — Palm, Handspring, Microsoft “Tablet” — are the
conceptual descendants of GO’s pioneering technology of a decade earlier. During 1992-1993, GO
and Microsoft were competing head to head for Compaq’s PDA operating system business. Compaq
assembled a team of software engineers to conduct a complete technical analysis of both GO’s and
Microsoft’s pen computer operating systems. The results were unequivocal: “GO offers Compaq the
best opportunity to dominate the PDA market. . . . The potential for Compaq . . . with GO far exceeds
opportunities with Microsoft. ... PDAs {using GO’s operating system] represent the most attractive
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opportunity . . . [to] break-out of the Microsoft architectural prison. . .. GO solution appears to better
meet user needs as we can see them.” (PX1522) Conclusion: “Choice: GO’s PenPoint.”
25. GO thus won on the competitive merits but lost to Microsoft’s strategy of “incentives
and threats,” which the Court found and ultimately enjoined — in United States v. Microsoft (FF230,
84 F. Supp. 2d at 67). Compaq’s top management overruled its engineering team’s recommendation
of GO, listing as reasons: “What is at risk? What really are the risks of using alternative operating
systems in part of our business? ... Microsoft does not really want us developing software. ... How
can Microsoft negatively impact our core business?” (PX1521) It could “sabotage our efforts.
_..Microsoft would withhold Chicago [WIN 95] information and SDK. .. . How retaliatory would
they get? [Listing 12 actions Microsoft might take to harm Compagq.]” (PX1521) “Attempts by
Microsoft to sabotage Compaq/GO integration to the desktop is likely.” (PX1522) A senior Compaq
executive briefed the CEO in advance of an upcoming personal visit by Gates as to “the effect of a
non-Microsoft decision [i.e., working with GO] on the rest of our business.” (PX1519) He
recommended against GO because “[i]f we . . . enter into an agreement with GO, Inc., we might stress
the Microsoft relationship to the breaking point.” (PX1519) Those were the “threats” of the
“incentives and threats” which the Government alleged and the Court found Microsoft used to bar
operating system competitors from the OEM channel. (FF230, 84 F. Supp. 2d at 67) The
“incentives”: The very next day, in preparation for Gates’ personal visit to Compaq, Microsoft’s
Vice-President of OEM Sales, Joachim Kempin instructed Compaq’s CEO to be prepared to
“[d]iscuss the WinPad [PenWindows] project and outline the significance of our proposed exclusivity
and sustained market advantages to Compaq.” (PX1520) After the Microsoft/Compagq meeting,
Compaq cryptically informed GO that Compaq would not be using GO’s operating system even
though it prevailed on the merits. Microsoft and Compag later publicly announced a “Strategic
Relationship” that included Microsoft’s inferior WinPad operating system on an exclusive basis.
26. — Microsoft used similar coercive tactics to prohibit Fujitsu, Toshiba and other OEMs
from using GO’s superior operating system for pen computers. Microsoft’s Jeff Raikes instructed his
subordinates to “show no mercy” toward Fujitsu if Fujitsu supported GO’s operating system, referring
to Microsoft’s threat to withhold monies due Fujitsu for overpayments made by it for its Windows
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license. Fujitsu was thus forced to forego a superior open computer operating system. Microsoft’s
exclusion of GO’s operating system from the OEM channel was so effective that GO was forced to
develop a means to port its operating system to a non-Intel processor, outside the market that
Microsoft had monopolized. That altemative was the “Hobbit” processor chip that AT&T had
developed as a low cost and low power alternative to the Intel processor that Microsoft used.
27. With backing and support from AT&T, GO shifted its focus and resources to the
development of its PenPoint operating system based on the Hobbit chip, resulting in two highly
acclaimed pen computer products — E0440 and E0880. Those products demonstrated how much
better GO’s pen computers were than Microsoft’s Windows-based pen computers. In response,
Microsoft continued to exert pressure on Toshiba and other OEMs to agree not to manufacture pen
computers for GO — even though GO was no longer able to use the Intel microprocessor that
Microsoft used as a result of Microsoft’s previous blockade of the OEM channel from GO.
28. Seeing that GO was unable to gain a foothold in the Intel-compatible operating system
market and was financially constrained from circumventing Microsoft’s barriers, AT&T acquired GO
in a non-cash merger for stock in its subsidiary (EO Corp.) in January 1994. However, because
Microsoft had already closed the OEM channel to any operating system competitor (whether it used
the Intel chip or the Hobbit chip), AT&T was forced to shut down EO Corp. (and thus GO) in July
1994. In November 1994, barely six months after GO was shut down, Microsoft quietly withdrew
PenWindows from the market before even shipping the final version. Microsoft accomplished its
goal. Microsoft’s pen computer software engineer (Marlin Eller) explained:
[PenWindows] wasn’t a thing about making money. This was all about
‘Block that kick.’ ... We were preventing GO from running away with
the market. That was our job. . .. We weren’t trying to sell software, we
were trying to prevent other people from selling software. From my
view, PenWindows was a winner. We shut down GO. .. . That
company is dead. They won’t sell their [expletive deleted] anymore.
We did our job.
Jennifer Edstrom and Marlin Eller, Barbarians Led by Bill Gates at p. 144 (1998).
MICROSOFT’S HARM TO COMPETITION, TO CONSUMERS AND TO GO
29. Microsoft’s exclusionary combinations and other exclusionary acts in furtherance
thereof have caused substantial harm to competition in the relevant PC operating system market,
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 12
Case No.a DA WU RF WN
enabling Microsoft to strengthen and preserve the monopoly it had unlawfully acquired by 1995. Its
conduct has suppressed innovation and extinguished competition by foreclosing competitors from the
resources and outlets they needed to compete and it has denied consumers the benefit of new
technologies by preventing those new technologies from competing with Microsoft’ inferior products
on the merits.
30. Through its unlawful conduct, Microsoft has also destroyed GO. But for Microsoft’s
violations, GO would have acquired a going concern value of more than $200 million by the date of
its demise in July of 1994 and a much higher going concern value by the time of trial.
THE STATUTE OF LIMITATIONS REMAINS TOLLED BY MICROSOFT’S ONGOING
UNLAWFUL CONDUCT
31. Microsoft’s exclusionary combinations and other exclusionary acts in furtherance
thereof, as well as their harmful effects on competition and consumers, have been perpetrated by
Microsoft on a continual basis from the late 1980s to the present. The statute of limitations therefore
has not yet begun to run on any of GO’s claims. Moreover, GO’s discovery of Microsoft’s
exclusionary combinations and covert acts in furtherance thereof was delayed by Microsoft’s
fraudulent concealment and affirmative denials of its unlawful conduct to the present day. GO could
not, in the exercise of reasonable diligence, have discovered Microsoft’s fraudulently concealed
violations alleged herein any earlier than it did. Consequently, the statute of limitations was tolled as
to Microsoft’s fraudulently concealed violations until GO could be reasonably deemed to have
discovered them shortly before commencing this action.
FIRST CAUSE OF ACTION:
FIRST CAUSE OF ACTION:
COMBINATIONS IN RESTRAINT OF TRADE
[Violation of Bus. & Prof. Code §§ 16720 et seq.]
32. Plaintiffs incorporate herein by reference the allegations contained in paragraphs 1-31
above.
33. Microsoft’s conduct alleged herein constituted numerous combinations in restraint of
trade in violation of the Cartwright Act (Bus. & Prof. Code §§ 16720 et seq.), resulting in substantial
harm to GO’s business and property.
I
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 13
Case No.Co eo YN DA HW F YW N &
bo RN RN YN NN YD SF ETRE HF FE BH TS
BNR A&E BSF SOHO ADAH FY N = ODO
SECOND CAUSE OF ACTION:
COMBINATIONS TO M INOPOLIZE THE RELEVANT MARKET
[Violation of Bus. & Prof. Code §§ 16720 et seq.]
34. Plaintiffs incorporate herein by reference the allegations contained in paragraphs 1- 31
above.
35. Microsoft’s conduct alleged herein constituted numerous combinations to monopolize
the relevant PC operating system market and numerous acts in furtherance of those combinations in
violation of the Cartwright Act (Bus. & Prof. Code §§ 16720 et seq.), resulting in substantial harm to
GO’s business and property.
PRAYER
WHEREFORE, plaintiffs pray for judgment and relief against Microsoft as follows:
A. Actual and treble damages pursuant to § 16750 of the California Business &
Professions Code;
B. Reasonable attorneys’ fees pursuant to § 16750 of the California Business &
Professions Code;
Cc. Interest as provided by law;
Dz. Such other relief as the Court may deem appropriate.
Dated: June 28, 2005 KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL P.L.L.C.
2 da Cr SEEE
“Da Schwarz (Cal. State Bar No. 206257)
Priya R. Aiyar (Cal. State Bar No. 218877)
Jamil N. Jaffer (Cal. State Bar No. 230109)
Attorneys for Plaintiffs GO Computer, Inc. and S.
Jerrold Kaplan
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 14
Case No.DEMAND FOR JURY TRIAL
DESH
Plaintiffs hereby demand a jury trial on the issues raised by this Complaint.
Dated: June 28, 2005
KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL P.L.L.C.
w aldaale
David. Schwarz (Cal. State Bar No. 206257)
Priya R. Aiyar (Cal. State Bar No. 218877)
Jamil N. Jaffer (Cal. State Bar No. 230109)
Attorneys for Plaintiffs GO Computer, Inc. and 8.
Jerrold Kaplan
GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT
Case No.
16
Preview
OA San Francisco Superior Courts Information Technology Group Document Scanning Lead Sheet Jun-29-2005 2:27 pm : Case Number: CGC-05-442684 Filing Date: Jun-29-2005 2:17 Juke Box: 001 Image: 01231115 COMPLAINT NC., A WASHINGTON CORPORATION et al VS. MICROSOFT CORPORATION, A WASHII 001001231115 Instructions: Please place this sheet on top of the document to be scanned.Co Oem YN aD 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 5g ~ ~ ORIGINAL KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL P.L.L.C. DAVID L. SCHWARZ (Cal. State Bar No. 206257) PRIYA R. AIYAR (Cal. State Bar No. 218877) JAMIL N. JAFFER (Cal. State Bar No. 230109) San Francis 1615 M Street, N.W., Suite 400 CASE MANAGEMENT CONFERENCE SET vancisco County Superior Court Washington, D.C. 20036 JUN 2 9 2005 Telephone: (202) 326-7900 Facsimile: (302) 326-7999 PLANE DEC 0 2 2005 998M GORDON PARK-LI, Clerk E-mail: dschwarz@khhte.com M Bb » Gler NT 212 AN Be a Attorneys for Plaintiffs DEPARTME VY MOF GO COMPUTER, INC. and S. JERROLD KAPLAN SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE CITY AND COUNTY OF SAN FRANCISCO GO COMPUTER, INC., a Washington CaseNo. €6C0-05-442684 corporation; S. JERROLD KAPLAN, an . individual, COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT, BUS. & PROF. CODE Plaintiffs, §§ 16720 et seq. v. [JURY TRIAL DEMANDED] MICROSOFT CORPORATION, a Washington corporation, Defendants. Plaintifnfs GO COMPUTER, INC. and S. JERROLD KAPLAN, complain of defendant Microsoft Corporation (“Microsoft”) as follows: NATURE OF ACTION 1. GO Computer, Inc. and S. JERROLD KAPLAN bring this action to recover the damages they sustained as a result of Microsoft Corporation’s collusive and exclusionary actions in violation of the Cartwright Act (California Bus. & Prof. Code §§ 16720 et seq.). JURISDICTION AND VENUE 2. This Court has jurisdiction pursuant to California's antitrust law, the Cartwright Act (California Businese and Professions Code 0 16720 ef seg.). This Court has jurisdiction over GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT Case No.Microsoft because Microsoft is authorized to and does conduct business throughout California. 3. Venue is proper in the City and County of San Francisco pursuant to California Business and Professions Code § 16750 and California Code of Civil Procedure § 395.5 as the unlawful acts, obligations and liability that plaintiffs allege occurred and arose in part therein. Microsoft does business in, is found in, and received substantial revenues and profits from sales of its products in the City and County of San Francisco. Its liability thus arose in part therein. PARTIES 4. GO Computer, Inc. is a corporation organized and existing under the laws of the State of Washington, with its legal agent for service of process located at Unisearch, Inc., 1780 Barnes Blvd. S.W., Bldg. G, Tumwater, WA 98512-0410. GO Computer, Inc. and S. Jerrold Kaplan are the owners of all claims asserted herein as a result of a succession of assignments thereof from GO Corporation to AT&T Co. (“AT&T”), from AT&T to Lucent Technologies, Inc., (“Lucent”) and from Lucent to GO Computer, Inc. and S. Jerrold Kaplan. GO Corporation was the original holder of the claims asserted herein as it was the competitor of Microsoft that suffered the harm that resulted from Microsoft’s unlawful actions set forth hereinbelow. GO Corporation’s claims were assigned to AT&T in January 1994, when GO Corporation was merged into AT&T’s subsidiary, EO Corp. GO Corporation’s claims were then assigned by AT&T to Lucent in April 1996 when AT&T spun off all of its GO Corporation assets, including the claims asserted herein. Lucent assigned all of GO Corporation’s claims herein to GO Computer, Inc. and S. Jerrold Kaplan on April 14, 2005. Unless otherwise indicated, all references to GO hereinbelow are to GO Corporation. 5. S. Jerrold Kaplan is a founder and CEO of GO, principal inventor of GO’s patented technology and is a resident of Hillsborough, California. 6. Defendant Microsoft Corporation is a corporation organized and existing under the laws of the State of Washington, with its principal place of business located at One Microsoft Way, Redmond, Washington. At all relevant times Microsoft has sold and licensed and continues to sell and license Intel-compatible operating system and applications software. Microsoft is the world’s largest supplier of computer software for personal computers (“PCs”) and servers, which it supplies largely through sellers of computers and independent distributors. Throughout the relevant period, Microsoft GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 2 Case No.has marketed its computer operating system software in California and elsewhere and has licensed it to sellers of computers as well as software distributors, resellers and end users in California and elsewhere. 7. For purposes of this action, the relevant market is the market for Intel-compatible PC operating systems, which is the same relevant market that was alleged and established in United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C. 1999) and 87 F. Supp. 2d 30 (D.D.C. 2000) (hereinafter “United States v. Microsoft”). At all times relevant to this action, Microsoft possessed monopoly power, i.e., the power to raise prices and exclude competition in the relevant PC operating system market, as was alleged and proven in United States v. Microsoft. By 1990, Microsoft’s share of the relevant market was 65%. (See Govt. Ist Am. Compl. { 25 [hereinafter “Govt. Compl.”]) 8. “In the succeeding years” (i.e., 1990-1995), Microsoft “eliminated all competition” in the relevant market (Govt. Compl. {| 26) through a pervasive and protracted campaign of collusive and exclusionary practices designed to eliminate all threats to its operating system monopoly. Companies that Microsoft considered direct competitive threats to its monopoly were any that had developed a PC operating system or had developed cross-platform “middleware” that had the potential of reducing the entry barriers that protected Microsoft’s operating system monopoly. Examples included: Netscape, Sun Microsystems (“Sun”), Real Networks, Novell and — for purposes of this action - GO. 9. The actions Microsoft took to eliminate the competitive threats to its operating system monopoly posed by Netscape and Sun were alleged by the Government and adjudged unlawful by the Court in United States v. Microsoft. Microsoft took similar actions to eliminate GO from the PC operating system market and for the same purpose: Microsoft acknowledged that GO had developed its own PC operating system for “pen computers” (as defined below), that GO’s PC operating system was in many ways superior to Microsoft’s operating system and that GO had to be eliminated so as to enable Microsoft to preserve its operating system monopoly — which it was then able to deploy against Netscape and Sun as alleged and found in United States v. Microsoft. GO’S ATTEMPT TO ENTER THE RELEVANT PC OPERATING SYSTEM MARKET 10. GO was founded in 1987 to invent and develop a new type of personal computer known as a “pen” or “tablet” computer that was used by writing directly onto a flat screen with a GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 3 Case No.special pen rather than by typing on a keyboard. GO’s product initially consisted of two components: (1) a thin lightweight computer similar to a notebook or pad of paper that could be held in one hand while writing on it with the other and (2) an operating system called “PenPoint” designed to support special application programs that would make this new type of PC easy to use. In order to establish PenPoint in the market, it was necessary to convince other software developers to invest their resources in writing new applications designed for pen computing and to run using PenPoint, so GO contacted all the major PC application software developers for that purpose. One of the application software developers GO contacted was Microsoft. MICROSOFT’S RESPONSE TO GO’S MARKET ENTRY 11. As the internal records of Microsoft later revealed, Microsoft had no interest whatsoever in writing applications for GO’s operating system for use with pen computers. To the contrary, Microsoft saw GO’s PC operating system as a serious threat to its operating system monopoly and took swift covert action to “kill” it just as it did the Netscape/Sun Java threat to its monopoly. Microsoft considered its prime objective was to continue to be the dominant mainstream PC operating system standard. Microsoft’s CEO, William H. Gates III (“Gates”), personally saw GO as a direct competitive threat to Microsoft’s operating system monopoly, stating that “GO’s primary strategy is to create an operating system standard that is different than and incompatible with Microsoft’s (PX319)'; that “there was an operating system conflict between GO and Microsoft” (PX310); and that “GO is a Windows competitor” (PX3 10). Microsoft’s other top executives agreed with Gates, stating GO “competes with our OSs” (PX310). Gates therefore assigned Marlin Eller (a senior developer in the Operating Systems Division of Microsoft during 1982-1995), among others, responsibility of extinguishing the GO threat. Eller explained: “Everyone knew that [Microsoft’s] bread and butter came from DOS, and, eventually, they would realize it [came] from Windows. The abiding rule was to kill anyone trying to take that revenue away. The number one mission of Microsoft was to not let anyone else poach on its core asset — the operating systems business. And GO was looking like a serious threat.” Jennifer Edstrom and Marlin Eller, Barbarians Led by Bill 1 Documents referenced as “PX” are trial exhibits admitted in evidence during trial in Gordon v. Microsoft, Case No. 00-005994 (MN Dist. Ct., Hennepin Cty.). GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT Case No.oo YN HW 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Gates at 120 (1998). 12. Microsoft undertook to “kill” GO by resorting to many of the same collusive and exclusionary tactics Microsoft used against Netscape, Sun, Novell, original equipment manufacturers (“OEMs”), independent software vendors (“ISVs”) and others that were alleged by the Government and adjudged unlawful by the Court in United States v. Microsoft — and for the same purpose: GO’s operating system was a serious competitive threat to Microsoft’s operating system monopoly. Microsoft began its mission in July 1988, when Gates showed up at GO’s offices in Palo Alto, California, ostensibly in response to GO’s invitation to Microsoft and all other major PC applications developers to write applications for GO’s PC operating system for use with tablet computers, referenced in paragraph 10 above. 13. Gates expressed considerable interest to GO’s management in exploring the prospect of having Microsoft develop applications for PenPoint, as Microsoft had done in the past for the Apple MacIntosh. He therefore executed a Nondisclosure Agreement (“NDA”) and assigned a senior executive (Jeff Raikes, Vice President of Applications) to work with GO. In February 1989, Raikes signed a Joint Development Agreement with GO by which Microsoft was to devote resources to the joint effort and GO was to provide confidential engineering designs, access to GO’s engineering staff and space in GO’s office in which to work. The information was to be kept confidential, to be used “only for the purpose of furthering this joint project,” and no copies were to be made or disseminated without GO’s permission. (PX58) GO also relied upon Microsoft’s well known public statements to the software industry that it maintained a veritable “Chinese Wall” between its Applications and Operating System Divisions that would prevent GO’s valuable trade secrets, entrusted to Microsoft’s Applications Division (which Raikes headed), from being diverted to Microsoft’s Operating System Division for use in competition against GO. Raikes sent an engineer (Lloyd Frink, ostensibly from Microsoft’s Applications Division) to visit GO on several occasions over the ensuing months, during which he was given extensive access to confidential documentation, engineers, prototypes and other valuable proprietary resources. 14. GO provided its proprietary trade secrets to Microsoft in reliance upon Microsoft’s agreement not to disseminate or use them except for its possible development of applications for GO’s GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 5 Case No.wn Co ON DO 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 pen computer operating system in cooperation with GO. But that was not Microsoft’s real purpose. Lloyd Frink reported to Gates that his real “[p]urpose of [the] trip” to GO’s offices was “for me to learn in more detail [about] what GO is developing. . .. We can take this information into consideration when putting Windows on similar types of machines.” (PX115) Frink also told Gates: “[t]he one key piece we need in order to put Windows on [tablet] computers made by other manufacturers is the handwriting recognition software. The GO people wouldn’t let me get near any of their stuff (with good reason).” (PX115) 15. Undaunted, however, Frink continued to purloin valuable engineering designs from GO, then reported to Gates and other Microsoft top executives on his success: “Attached is a packet of information I have collected on GO. These are some of GO’s very preliminary specs.” Acknowledging that GO’s technology “has a lot of appeal,” Frink assured Gates et al. “I think we can whip something up in a year that embodies some of these [i.e., GO’s] ideas.” (PX355) Microsoft not only stole GO’s valuable trade secrets directly from GO (ie., by entering GO’s premises and poring over GO’s confidential records pursuant to an NDA that Microsoft honored only in its breach), but it also got other developers to disclose trade secret information they obtained from GO under NDAs they had signed with GO. Thus, in a report to Raikes, a Microsoft employee confided that Softview, Inc. (an ISV beholden to Microsoft) “is quite eager to give us info [information] on GO,” that it “has access to technical documentation and will get more detailed information” (obtained from GO under an NDA) and is “open to giving us info [information] on GO” in direct violation of its NDA. (PX370) The report to Raikes then described GO’s proprietary information in detail and promised even more such information will be sent to Microsoft, adding: “Given that further information is probably more technical, I think one of the [Microsoft] development team[s] should be here” to interpret it. (PX370) 16. While purloining technical information about GO’s proprietary technology, Microsoft also secretly “blacklisted” GO from receiving Microsoft’s “beta releases” of software required to properly integrate PenPoint with Microsoft’s dominant software products — “beta releases” that Microsoft routinely made available to developers who did not seek to compete with Microsoft’s operating system. Microsoft also withheld technical information from GO that would enable GO’s software to remain interoperable with Microsoft’s — information generally provided to third party GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 6 Case No.oOo YN DH F Ww NY wmoR RY NNN RN YN fF Fe Se Pe Se Se Sr Ss RB Ya aD BH Fe So eH DH eF Ye NY FF SO developers — unless GO would release Microsoft of any claims based upon Microsoft’s previous exposure to GO’s proprietary technology. Microsoft’s practice of “withholding crucial technical information” was also found to be exclusionary by the Court in United States v. Microsoft (FF90 et seq., 84 F. Supp. 2d at 33) and was the subject of the Court’s recently affirmed injunction against Microsoft. See 373 F.3d 1199 (D.C. Cir. 2004). 17. GO unveiled PenPoint publicly for the first time to an “invitation only” audience of software developers in San Francisco in early 1991 and the next day to the Boston Computer Society in Boston. Microsoft had one of its developers gain access to the GO demonstration in Boston so that he could secretly videotape it for Microsoft executives to view back in Redmond, Washington in search of other features to copy. The GO demonstrations were a major success, resulting in glowing press reviews and industry magazines’ praise. It quickly became apparent to Microsoft that, despite its best efforts to misappropriate GO’s valuable technology so that it could replicate it in a Windows- based computer (later to be known as PenWindows or WinPad), GO’s pen computer operating system was far superior to the Windows operating system that Microsoft used for its pen computer. One of Microsoft’s software engineers responsible for PenWindows concluded that “GO has a technically superior solution” whereas “Windows is too complex and inappropriate for [pen computers].” (PX859) 18. Recognizing that Microsoft could not replicate the quality of GO’s pen computer on its Windows operating system, even with information stolen from GO, Microsoft resorted to other exclusionary measures — all of which are similar to the exclusionary tactics which the Government alleged and the Court declared unlawful in United States v. Microsoft. While Microsoft was gathering confidential information from GO under the false pretense that it planned to develop applications for GO’s pen operating system, Gates learned that Intel planned to invest several million dollars in GO’s development efforts and to provide a public endorsement of GO. That endorsement and support would have virtually guaranteed GO’s success. Intel wanted to support GO for two reasons: first, Intel believed GO’s operating system was superior to Microsoft’s operating system and, second, Intel wanted to encourage GO to develop another operating system so that Intel would not have to be dependent on the Microsoft operating system monopoly anymore. GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 7 Case No.19. As soon as Gates learned that Intel was planning to endorse and support GO, he dispatched his subordinates to meet with Intel to tell Intel not to endorse or support GO. Microsoft executives repeatedly told Intel that its public endorsement and financial support of GO “is an anti- Microsoft move because it [GO’s operating system] competes with our OSs [operating systems].” (PX310) Gates himself reported that he told Intel management “there was an operating system conflict between GO and Microsoft” (PX310) and that Intel therefore should not help GO. In an effort to dissuade Intel from helping GO, Microsoft even showed Intel a prototype of Microsoft’s PenWindows that was implemented by Frink based on what he had secretly taken from GO. Intel resisted, telling Microsoft that Intel was “very impressed with GO’s software and with GO in general,” (PX310) whereas the Windows operating system was “too complicated.” (PX310) Given that Intel continued to resist Microsoft’s pressure, Gates finally wrote Intel’s CEO (Andrew Grove) directly to insist that Intel not support GO: GO’s primary strategy is to create an operating system standard that is different and incompatible with Microsoft’s. . . . An Intel investment in GO would send a strong message to both OEMs and ISVs. . . . Intel’s investment in GO will be seen as an endorsement of GO’s platform and system software. This will be a very powerful effect which you should not discount — in fact it is almost certainly a stronger effect than the value of the actual money that GO receives. . . . I guess I’ve made it very clear that we view an Intel investment in GO as an anti-Microsoft move, both because GO competes with our systems software and because we think it will weaken the 386 PC standard. . . . I’m asking you not to make any investment in GO Corporation. (PX319) 20. Asaresult of Microsoft’s pressure, Intel substantially reduced its investment in GO and, more importantly — because Gates convinced Grove that any investment in GO “will be seen as an endorsement of GO’s platform and system software” and would “almost certainly [have] a stronger effect than the value of the actual money that GO receives” — also prohibited GO from publicly disclosing the fact that Intel had made any investment in GO. Microsoft’s pressures on Intel to withhold its endorsement of GO are similar to the pressures it exerted on Intel and others to refrain from dealing with its competitors, as the Government alleged and the Court found unlawful in United States v. Microsoft. \t was “Microsoft’s corporate practice to pressure other firms to halt software development that either shows the potential to weaken the applications barrier to entry or competes GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 8 ‘Case No.directly with Microsoft’s most cherished software products.” (FF93, 84 F. Supp. 2d at 34) In particular, “Microsoft successfully pressured Intel, which was dependent in many ways on Microsoft’s good graces, to abstain from aiding in Sun’s and Netscape’s Java development work” (87 F. Supp. 2d at 43). The Court found that “Microsoft’s interactions with Netscape, Intel, Apple and Real Networks all reveal Microsoft’s business strategy of directing its monopoly power toward inducing other companies to abandon projects that threaten Microsoft and toward punishing those companies that resist.” (FF132, 84 F. Supp. 2d at 43) GO was a direct target of that business strategy because GO’s operating system directly threatened to erode Microsoft operating system monopoly. 21. Intel, Apple, Netscape and Real Networks were not the only developers who, the Court found, were pressured by Microsoft to abstain from helping Microsoft’s rivals erode its operating system monopoly. Microsoft also “targeted individual ISVs, directly extracting from them commitments” to write applications for Microsoft exclusively (FF337, 84 F. Supp. 2d at 93). “Microsoft’s exclusive deals with the ISVs,” the Government claimed and the Court found, “had a substantial effect in further foreclosing rival browsers from the market” (253 F,3d at 72). GO was the brunt of this exclusionary tactic as well. Determined to “stop GO,” Microsoft strategized that it could do this by “making sure they sign up no OEMs or ISVs, hence have no customers.” (PX443) Microsoft did this by launching a project that was expressly designed to destroy GO by locking up almost 500 ISVs to work exclusively on Microsoft’s pen computer so as to make certain GO had no ISVs to write applications for GO’s pen computer — leaving GO with “no customers.” 22. Coercive strategies employed by Microsoft to foreclose rivals from access to the OEM distribution channel, alleged by the Government and found unlawful by the Court in United States v. Microsoft, were also employed against GO with extraordinary success. The Government alleged: In the succeeding years [i.e., from 1990 to 1995], Microsoft effectively eliminated all competition in the operating system . . . markets. It used, inter alia, its market power in the operating system [market] to pressure OEMs into agreeing to restrictive licensing terms for MS-DOS. These terms included “‘per processor” operating system licenses, which required OEMs to pay Microsoft an operating system royalty for every computer they sold, regardless of whether the computer included Windows/MS-DOS, thus discouraging sale of non-Microsoft GUIs and operating systems. These licenses also included other restrictions, such as tying Windows and DOS through licensing agreements, large minimum commitments and long license terms. GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 9 Case No.Do wom Nd a 10 ul 12 1B 14 15 16 17 18 19 20 21 22 2B 24 25 6 21 28 (Govt. Compl. { 26) Microsoft’s “restrictive dealing agreements with OEMs,” the Government alleged and the Court found (Govt. Compl. 4 48), “prevented, or significantly handicapped, the licensing, sale, distribution and promotion of technologies competing with Microsoft’s” (ibid.) and were a major cause of GO’s ultimate expulsion from the PC operating system market. While the Government “obtained a consent decree enjoining certain . . . practices” (Govt. Compl. { 26), it alleged that “by the time of the consent decree [entered in August 1995], the damage had already been done.” (Govt. Compl. 27; see also] 54-69 [Foreclosure Of The OEM Channel”; FF144, 84 F. Supp. 2d at 46-47) 23. As the Government alleged and the Court found in United States v. Microsoft, Microsoft “used incentives and threats in an effort to secure the cooperation of individual OEMs” in helping Microsoft preserve its operating system monopoly. (FF230 et seq., 84 F. Supp. 2d at 67) Microsoft employed those same “incentives and threats” which the Government alleged and the Court found to block GO from distributing its rival operating system for pen computers through the OEMs. Gates was assured by his subordinates that “[o]ur primary mission right now is to stop GO” and that “[w]e could do this” by “making sure they sign up no OEMs”and thus “have no customers.” (PX443) 24. Microsoft’s use of “incentives and threats” (FF230, 84 F. Supp. 2d at 67) to coerce Compaq, Fujitsu, Toshiba and other OEMs into contracts that prohibited them from making pen computers using GO’s operating system epitomizes the collusive and exclusionary strategy which the Government alleged and the Court found (and finally enjoined). For example: by late 1992, Compaq — then the leading PC manufacturer — decided to expand into the emerging PDA market. “PDA” (or personal digital assistant) was the acronym used then for handheld portable computers, mainly pen computers. The ubiquitous PDAs of today — Palm, Handspring, Microsoft “Tablet” — are the conceptual descendants of GO’s pioneering technology of a decade earlier. During 1992-1993, GO and Microsoft were competing head to head for Compaq’s PDA operating system business. Compaq assembled a team of software engineers to conduct a complete technical analysis of both GO’s and Microsoft’s pen computer operating systems. The results were unequivocal: “GO offers Compaq the best opportunity to dominate the PDA market. . . . The potential for Compaq . . . with GO far exceeds opportunities with Microsoft. ... PDAs {using GO’s operating system] represent the most attractive GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 10 Case No.on A WH BR WN .o 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 opportunity . . . [to] break-out of the Microsoft architectural prison. . .. GO solution appears to better meet user needs as we can see them.” (PX1522) Conclusion: “Choice: GO’s PenPoint.” 25. GO thus won on the competitive merits but lost to Microsoft’s strategy of “incentives and threats,” which the Court found and ultimately enjoined — in United States v. Microsoft (FF230, 84 F. Supp. 2d at 67). Compaq’s top management overruled its engineering team’s recommendation of GO, listing as reasons: “What is at risk? What really are the risks of using alternative operating systems in part of our business? ... Microsoft does not really want us developing software. ... How can Microsoft negatively impact our core business?” (PX1521) It could “sabotage our efforts. _..Microsoft would withhold Chicago [WIN 95] information and SDK. .. . How retaliatory would they get? [Listing 12 actions Microsoft might take to harm Compagq.]” (PX1521) “Attempts by Microsoft to sabotage Compaq/GO integration to the desktop is likely.” (PX1522) A senior Compaq executive briefed the CEO in advance of an upcoming personal visit by Gates as to “the effect of a non-Microsoft decision [i.e., working with GO] on the rest of our business.” (PX1519) He recommended against GO because “[i]f we . . . enter into an agreement with GO, Inc., we might stress the Microsoft relationship to the breaking point.” (PX1519) Those were the “threats” of the “incentives and threats” which the Government alleged and the Court found Microsoft used to bar operating system competitors from the OEM channel. (FF230, 84 F. Supp. 2d at 67) The “incentives”: The very next day, in preparation for Gates’ personal visit to Compaq, Microsoft’s Vice-President of OEM Sales, Joachim Kempin instructed Compaq’s CEO to be prepared to “[d]iscuss the WinPad [PenWindows] project and outline the significance of our proposed exclusivity and sustained market advantages to Compaq.” (PX1520) After the Microsoft/Compagq meeting, Compaq cryptically informed GO that Compaq would not be using GO’s operating system even though it prevailed on the merits. Microsoft and Compag later publicly announced a “Strategic Relationship” that included Microsoft’s inferior WinPad operating system on an exclusive basis. 26. — Microsoft used similar coercive tactics to prohibit Fujitsu, Toshiba and other OEMs from using GO’s superior operating system for pen computers. Microsoft’s Jeff Raikes instructed his subordinates to “show no mercy” toward Fujitsu if Fujitsu supported GO’s operating system, referring to Microsoft’s threat to withhold monies due Fujitsu for overpayments made by it for its Windows GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 11 Case No.om YN DH F BW YN bp NM Ye NY RN NR NK Feo ec SF ES xs BX RABE BSF SO eH ADH FY NF SC license. Fujitsu was thus forced to forego a superior open computer operating system. Microsoft’s exclusion of GO’s operating system from the OEM channel was so effective that GO was forced to develop a means to port its operating system to a non-Intel processor, outside the market that Microsoft had monopolized. That altemative was the “Hobbit” processor chip that AT&T had developed as a low cost and low power alternative to the Intel processor that Microsoft used. 27. With backing and support from AT&T, GO shifted its focus and resources to the development of its PenPoint operating system based on the Hobbit chip, resulting in two highly acclaimed pen computer products — E0440 and E0880. Those products demonstrated how much better GO’s pen computers were than Microsoft’s Windows-based pen computers. In response, Microsoft continued to exert pressure on Toshiba and other OEMs to agree not to manufacture pen computers for GO — even though GO was no longer able to use the Intel microprocessor that Microsoft used as a result of Microsoft’s previous blockade of the OEM channel from GO. 28. Seeing that GO was unable to gain a foothold in the Intel-compatible operating system market and was financially constrained from circumventing Microsoft’s barriers, AT&T acquired GO in a non-cash merger for stock in its subsidiary (EO Corp.) in January 1994. However, because Microsoft had already closed the OEM channel to any operating system competitor (whether it used the Intel chip or the Hobbit chip), AT&T was forced to shut down EO Corp. (and thus GO) in July 1994. In November 1994, barely six months after GO was shut down, Microsoft quietly withdrew PenWindows from the market before even shipping the final version. Microsoft accomplished its goal. Microsoft’s pen computer software engineer (Marlin Eller) explained: [PenWindows] wasn’t a thing about making money. This was all about ‘Block that kick.’ ... We were preventing GO from running away with the market. That was our job. . .. We weren’t trying to sell software, we were trying to prevent other people from selling software. From my view, PenWindows was a winner. We shut down GO. .. . That company is dead. They won’t sell their [expletive deleted] anymore. We did our job. Jennifer Edstrom and Marlin Eller, Barbarians Led by Bill Gates at p. 144 (1998). MICROSOFT’S HARM TO COMPETITION, TO CONSUMERS AND TO GO 29. Microsoft’s exclusionary combinations and other exclusionary acts in furtherance thereof have caused substantial harm to competition in the relevant PC operating system market, GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 12 Case No.a DA WU RF WN enabling Microsoft to strengthen and preserve the monopoly it had unlawfully acquired by 1995. Its conduct has suppressed innovation and extinguished competition by foreclosing competitors from the resources and outlets they needed to compete and it has denied consumers the benefit of new technologies by preventing those new technologies from competing with Microsoft’ inferior products on the merits. 30. Through its unlawful conduct, Microsoft has also destroyed GO. But for Microsoft’s violations, GO would have acquired a going concern value of more than $200 million by the date of its demise in July of 1994 and a much higher going concern value by the time of trial. THE STATUTE OF LIMITATIONS REMAINS TOLLED BY MICROSOFT’S ONGOING UNLAWFUL CONDUCT 31. Microsoft’s exclusionary combinations and other exclusionary acts in furtherance thereof, as well as their harmful effects on competition and consumers, have been perpetrated by Microsoft on a continual basis from the late 1980s to the present. The statute of limitations therefore has not yet begun to run on any of GO’s claims. Moreover, GO’s discovery of Microsoft’s exclusionary combinations and covert acts in furtherance thereof was delayed by Microsoft’s fraudulent concealment and affirmative denials of its unlawful conduct to the present day. GO could not, in the exercise of reasonable diligence, have discovered Microsoft’s fraudulently concealed violations alleged herein any earlier than it did. Consequently, the statute of limitations was tolled as to Microsoft’s fraudulently concealed violations until GO could be reasonably deemed to have discovered them shortly before commencing this action. FIRST CAUSE OF ACTION: FIRST CAUSE OF ACTION: COMBINATIONS IN RESTRAINT OF TRADE [Violation of Bus. & Prof. Code §§ 16720 et seq.] 32. Plaintiffs incorporate herein by reference the allegations contained in paragraphs 1-31 above. 33. Microsoft’s conduct alleged herein constituted numerous combinations in restraint of trade in violation of the Cartwright Act (Bus. & Prof. Code §§ 16720 et seq.), resulting in substantial harm to GO’s business and property. I GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 13 Case No.Co eo YN DA HW F YW N & bo RN RN YN NN YD SF ETRE HF FE BH TS BNR A&E BSF SOHO ADAH FY N = ODO SECOND CAUSE OF ACTION: COMBINATIONS TO M INOPOLIZE THE RELEVANT MARKET [Violation of Bus. & Prof. Code §§ 16720 et seq.] 34. Plaintiffs incorporate herein by reference the allegations contained in paragraphs 1- 31 above. 35. Microsoft’s conduct alleged herein constituted numerous combinations to monopolize the relevant PC operating system market and numerous acts in furtherance of those combinations in violation of the Cartwright Act (Bus. & Prof. Code §§ 16720 et seq.), resulting in substantial harm to GO’s business and property. PRAYER WHEREFORE, plaintiffs pray for judgment and relief against Microsoft as follows: A. Actual and treble damages pursuant to § 16750 of the California Business & Professions Code; B. Reasonable attorneys’ fees pursuant to § 16750 of the California Business & Professions Code; Cc. Interest as provided by law; Dz. Such other relief as the Court may deem appropriate. Dated: June 28, 2005 KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL P.L.L.C. 2 da Cr SEEE “Da Schwarz (Cal. State Bar No. 206257) Priya R. Aiyar (Cal. State Bar No. 218877) Jamil N. Jaffer (Cal. State Bar No. 230109) Attorneys for Plaintiffs GO Computer, Inc. and S. Jerrold Kaplan GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT 14 Case No.DEMAND FOR JURY TRIAL DESH Plaintiffs hereby demand a jury trial on the issues raised by this Complaint. Dated: June 28, 2005 KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL P.L.L.C. w aldaale David. Schwarz (Cal. State Bar No. 206257) Priya R. Aiyar (Cal. State Bar No. 218877) Jamil N. Jaffer (Cal. State Bar No. 230109) Attorneys for Plaintiffs GO Computer, Inc. and 8. Jerrold Kaplan GO COMPUTER, INC.’S COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT Case No. 16