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editor, it was the cheapest of the custom XML editors available on the market at the

time, and it was one of three principal competitors Microsoft identified in the custom

XML market. Microsoft contended that a better estimate of the custom XML editor’s

value was $50, the difference in price between versions of Word with and without the

editor. Microsoft also argued that because XMetaL has many additional features

besides custom XML editing, the $499 retail price overestimated the value of the

custom XML editor. In response, Wagner acknowledged that not all users of custom

XML would have switched to a high-end product like XMetaL, but that those “who really

needed that functionality” would have, requiring them to buy one of the commercially

available products, even if it had many superfluous features. Wagner clarified that his

damages estimate only considered users who “really needed” the custom XML editor,

making it inappropriate to use the $50 price difference paid by all purchasers of Word,

regardless of whether they infringed or not.

As for using the baseline royalty rate ($96) as the starting point for the Georgia-

Pacific analysis, Wagner opined that it was necessary because of Microsoft’s business

strategy.

According

to

Wagner,

Microsoft’s

primary

goal

is

to

make

sales,

not

to

maximize the price it charges for each additional feature. In making sales, Wagner

explained that Microsoft’s biggest competitor is always itself: Microsoft has to convince

consumers to purchase new versions of its products, even if they already have a

“perfectly good” copy of an older version. To incentivize users to upgrade, Wagner

testified that Microsoft included new features at no additional cost, making it difficult to

value the new features.

2009-1504

32

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