Microsoft's best offer

Day 12: Microsoft executive Jon Tinter testified as Judge Mehta pushed for more open court testimony.

Today we heard testimony from another Microsoft executive as the company’s corporate vice president for business development Jon Tinter took the stand. Tinter’s testimony extended almost the whole day and he still has more questions to answer tomorrow.

(Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)

There was too much testimony from Tinter for me to succinctly summarize, but it touched on a lot of familiar themes and issues: the importance of scale, Bing’s quality, the challenge of displacing Google’s defaults — the list goes on. Instead, I want to focus on a portion of Tinter’s testimony that struck me as particularly interesting.

Tinter testified at length about the extreme lengths Microsoft went to in its attempts to secure a default search engine placement on any of the main search entry points for Apple or Samsung.

According to Tinter, Microsoft made offers to Apple that would share greater than 100% of its revenue or gross profit — and yet Apple would still stick with Google’s revenue share offer, which Tinter mentioned in passing might be 60%.¹ This created a dynamic that Tinter believes drove up the value of Google’s search default agreements for Apple. “We were just big enough to play but probably not big enough to win, if that makes sense.”

Tinter didn’t publicly testify about the absolute dollar amount size of Microsoft’s or Google’s offers to Apple, but he said that Microsoft thought its financial offer actually topped Apple’s “based on our best estimates of the revenue payments that Google was making to Apple in the United States.”

A few moments later he added: “The optimal thing for Apple to have done — and again, I think in closed session, maybe we’ll end up looking at some of the sort of math on this — would have been to have switched to Microsoft in the United States, taken our aggressive offer there, and continue with sort of Google in the rest of the world.”

If it’s true that Microsoft was willing to pay Apple more than Google for search default status in the US, that’s a pretty significant revelation. But it is not actually clear which side’s case this revelation would best support.

On the one hand, it underscores the power of defaults, which has been a core element of the DOJ’s theory of the case. Microsoft was willing to make an offer so high that it would sustain a short-term loss of several billion dollars — but felt this loss could be justified as an investment given the strategic importance of default status on popular search access points.

On the other hand, however, it plays into Google’s core defense that the search default agreements “reflect choices by browsers and device makers based on the quality of our services and the preferences of consumers.“ In other words, it suggests that Apple’s choice to make Google its default search engine wasn’t just about the size of the payment.

Tinter also testified about the attempts Microsoft made to secure default agreements with Samsung, but Samsung apparently didn’t allow Microsoft to take these very far. Tinter said he told Samsung that they should at least allow Microsoft to make them an offer to leverage against Apple, but Samsung told him it wasn’t even worth it given the company’s relationship with Google.

Judge Mehta changes course

I wrote on Tuesday that we got some signals that public access to the trial may be starting to improve. Over the last couple of days, we’ve seen several improvements to public access including the re-posting of admitted exhibits on the DOJ’s website; by now, it seems clear that the rest of the trial will be much more open than it was last week.

Today, Judge Mehta repeatedly asked lawyers for both sides to do as much of their questioning in open court as possible. At one point when the DOJ lawyer said she had asked everything she could in public, Judge Mehta asked her to “take another look” during lunch and confer with Microsoft’s counsel to figure out how much more of her direct examination could be public. Sure enough, the DOJ attorney had more questions in open court when the trial resumed after lunch. And as the day ended, Judge Mehta announced that he wants Microsoft CEO Satya Nadella’s testimony next Monday to be as open as possible.

Judge Mehta’s change of course coincides with increased media attention on the trial’s confidentiality. Last week, there wasn’t much open court testimony for reporters to write about and broader media coverage of the case seemed to wither. This week, the closed sessions became the trial’s big story. On Tuesday, The New York Times detailed the trial’s “‘unprecedented’ secrecy”, and this morning, The Wall Street Journal described the “blame game” dynamic that had emerged out of the secrecy.

But now for the first time this trial, Judge Mehta is taking matters into his own hands with respect to confidentiality issues. He’s not just asking the DOJ to object to improperly closed sessions — he’s pushing the lawyers to avoid going into closed sessions in the first place. Today he even said that he would be unsealing portions of testimony from previous closed sessions with key witnesses like Apple executives John Giannandrea and Eddy Cue. The DOJ never asked Judge Mehta to do this, at least in any public session. The noticeable shift towards increased public access is largely coming directly from the bench.

That’s all I have for today. The trial was originally scheduled to be off tomorrow, but they need another hour or so to finish up Tinter’s testimony tomorrow morning. I probably won’t send out another post for it, but I’ll definitely be writing about the testimony we hear on Monday from Microsoft’s CEO.

1. I want to be precise about exactly what Tinter said, because it was not made clear that 60% of revenue is what Google actually pays to Apple for the Safari default search placements. Here’s exactly what Tinter said according to the transcript: “What I would sort of say is I certainly think that, you know, our bidding and participating in the market certainly, you know, probably drove up what partners were getting from it. You know, we’re getting back what ultimately Google would have to bid to secure business over us. But, you know, when we’re in a situation where, you know, we’re bidding 100 percent of our revenue and Google can bid 60 percent of your revenue (sic), that’s a really challenging spot to be in.”