Case Document 559-9 Filed 02/24/14 Page 1 of 79

EXHIBIT 9

Case Document 559-9 .Page2 of.79

 

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

 

This Document Relates to: No- ll?MD?02293 (DLC)
IN RE ELECTRONIC BOOKS

ANTITRUST LITIGATION.

 

Videotaped Deposition of Jonathan Orszag
Washington, D.C.
Saturday, December 7, 2013

9:00 a.m.

Reported by:
Laurie Bangart, RPR, CRR
Job No: 32651

 

 

 

 Document 559-9

Filed 02/24/14 Pages of 79

 

 

 

 

4
Videotaped Deposition of (Appearances ??n?nued)
2 JONATHON ORSZAG 2 ALSO ON BEHALF OF PLAINTIFF STATES:
3 3 State of New York
4 Held at the of?ces of: 4 Of?ce of the Attorney General
5 Gibson Dunn Crutcher, LLP 5 12? Emadway
6 . 1050 Connecticut Avenue, NW 6 New York New York 10271
7 Washington, DC. 20036 7 (21341643267
8 (202)95 5_8500 8 By: Robert L. Hubbard, Esq.
9 9 robert.hubbard@ag.ny.gov
1 0 ON BEHALF OF THE DEFENDANT APPLE AND THE WITNESS:
1 1 Gibson, Dunn Crutcher, LLP
1 2 12 1050 Connecticut Avenue, NW
1 3 13 Washington, DC. 20036
1 4 (202)955-8500
1 5 15 By: E. Richman, Esq.
6 1 6 
7 17 Caeli A. Higney, Esq.
8 Taken pursuant to notice, before 13 
9 Laurie Bangart, Registered Professional 19 ALSO PRESENT:
30 Reporter, Certi?ed Realtime Reporter, and 20 Steve Schaal, Videographer
21 Notary public in and for the District of 21
2 2 ColumbiaAPPEARANCES 1 EXAMINATIONINDEX
2 ON BEHALF OF THE CLASS 2 PAGE
3 Hagens Berrnan Sobol Shapiro, LLP 3 EXAMATION BY MR- HUBBARD - - - . - - - 7
4 715 Hearst Avenue, Suite 202 4 EXAMINATION BY MR FRIEDMAN - - - - - - - - - 142
5 Berkeley, California 94710 5
6 (510)725?3000 6
7 By: Jeff D. Friedman, EsqCohen Milstein Sellers T011 10 EXHIBIT DESCRIPTION PAGE
1 100 New York Avenue, NW 11 Exhibit 1 Declaration Of
12 Washington, DC. 20005 12 Jonathan Ofsmg - - - - - - - -. 9
3 By; Kit pierson, Esq 13 Exhibit 2 Contract for Professional
1 4 kpierson@cohenmilstein.com 1?4 Services betwecn Compass 
15 15 and State ofWismnsin .  13
6 ON BEHALF OF PLAINTIFF STATES: 16
1 7 Attorney General of Texas 17
8 Antitrust Section, Consumer Protectiou 18
19 RC. Box 12548 19
2 0 Austin, Texas 7871 20
21 (512)463?1262 21
22 By: Gabriel Gervey, Esq. 22
2 3 gabriel.gervey@ 23
2 4 texasattorney general(Pages 2 to 5)

DAVID FELDMAN WORLDWIDE, me.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9

Filed 02/24/14 7 Page senior managing director. I'm a
2 THE VIDEOGRAPHER: Here begins 2 member of the executive committee of the ?rm.
3 videotape number 1 in the video deposition of 3 How many senior managing directors are
4 John Orszag, in the Matter of Electronic Book 4 there?
5 Antitrust Litigation in the United States 5 A Myself and one other person are the
6 District Court, Southern District of New 6 executive committeeYork, and the deposition is being held at 7 ?rm. I believe as a matter of title, there is
8 1050 Connecticut Avenue, Northwest, 8 one other person with the title of senior managing
9 Washington, DC, on December 7, 2013. The 9 director other than myself, but that person is not
10 time on the monitor is 9:00. 1 0 a member of the executive committee.
1 .My name is Steve Schaal with the 11 Okay, and how many are on the executive
12 ?rm of DavidFeldman Worldwide. The court 12 committee?
l3 reporter is Laurie Bangart in association 13 A It?s just me and Dan Fischel.
1 4 with DavidFeldman Worldwide. 1 4 Okay.
15 Would counsel please introduce 15 So that, that makes you a member of the
6 yourself and state who you represent. 1 6 professional staff at Compass Lexecon?
17 MR. HUBBARD: I'm Bob Hubbard with 17 A Yes, I am.
18 State of New York and representing the 1 8 Okay, you're there full?time?
1 9 plaintiff states. 19 Yes, I am.
20 MR. GERVEY: Gabriel Gervey with 2 0 And your role includes management of the
21 the State of Texas, also representing the 2 1 ?rm generally?
22 plaintiffs. 22 A Yes, it does.
23 MR FRIEDMAN: Jeff Friedman from 2 3 And you're responsible for assigning
2 4 Hagens Berman on behalf of the class. 2 4 staff for speci?c matters? -
2 5 MR. PIERSON: Kit Pierson of Cohen 25 A Yes, I am. Not all matters but some
7 9
Milstein on behalf of the class. 1 matters.
2 MS. HIGNEY: Caeli Higney of Gibson 2 What matters are you responsible for
3 Dunn on behalf of Apple and the witness. 3 assigning staff for?
4 MS. RICHMAN: Cindy Richman for 4 A Well, we have a somewhat ?exible kind
5 Apple and the witness. 5 of arrangement. It would not surprise you as
6 THE VIDEOGRAPHER: ?Will the court 6 economists that there's a number of staff who
7 reporter please swear in the witness. 7 generally work with one expert or another, some
8 JONATHAN ORSZAG, 8 who work with other experts, andso those experts
9 having been ?rst duly sworn, testi?ed 9 just go directly to the staff, and I don't even
10 upon his oath as follows: 1 0 know and never see those staff assignments.
11 EXAMINATION BY COUNSEL FOR PLAINTIFF 1 1 Some come through me, becauSe somebody
12 BY MR. HUBBARD: 12 is asking for a particular person with a
13 Good morning. Could you state your name 13 particular expertise, and since I have more
14 for the record. 1 4 breadth and knOwledge about the expertise of
15 A My name is Jonathan Mark Orszag, 15 particular people, I can give them recommendations
1 6 6 about who may be better suited for a particular
17 Is there any reason you can't testify 17 case and who may not be. 
5 fully today? 1 8 MR. HUBBARD: Okay. Thank you.
1 9 A Not that I'm aware of. 1 9 I'd like to mark as Exhibit 1 the
20 You're not on any medication? There's, 2 corrected declaration. I assume no one needs
2 there's no other problems with your memory? 2 1 copies; right?
22 A Other than an Advil this morning, no. 2 2 (Exhibit 1 was marked for
23 Where are you employed? 2 3 identi?cation.)
2 4 A I'm employed by Compass Lexecon, LLC. 2 4 (Discussion was held off the
25 And what do you do there? 25 7 record.)

 

3 (Pages 6 to 9)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

?Case Document 5599

Filed 02/24/14 Page MR. HUBBARD: 1 statistics.
2 You don't have a right? 2 You're currently a full-time paid
3 A No, I do not. 3 consultant, is that right, for Compass Lexecon?
4 You have a master's in economics and 4 A In addition to other roles, yes.
5 social history; right? 5 And when were you retained by Apple in
6 A That is correct. 6 this matter?
7 And what, what was your specialization? 7 A I believe it was August of this year.
8 A Well, as an undergrad I specialized in 8 And Apple is engaged in the distribution
9 applied microeconomics, and I was a student of 9 and sale of e-books; right?
1 0 Alan Krueger's. Alan then brought me to 0 A Yes, it is.
1 1 Washington, DC, and when I worked with him, I 11 And you're testifying about the sale and
12 worked at the Labor Department doing applied 12 distribution of ewbooks by Apple and others in
13 microeconomics. That would include applied 13 this litigation; right?
1 4 econometrics. 14 A Can you repeat the question. Ijust
15 And then I went to the White House and I 15 want to make sure I heard every word there.
1 6 worked on a variety of both macro and 1 6 (Whereupon, reporter reads
17 microeconomic policy issues and applied all of 1 7 requested material.)
1 8 those techniques that I learned. 1 8 THE WITNESS: And related matters,
1 9 I then Went to graduate school and I 9 yes.
2 0 came -- and I had the choice of staying in 2 0 BY MR HUBBARD:
21? graduate school to ?nish my or come back 2 1 Before your retention, how long were you
22 and learn practical experience about how to apply 22 in discussions, you or Compass Lexecon in
23 economics to real world situations, and I chose 23 discussions with Apple about being retained?
2 4 the choice of coming back to practically apply it 2 4 A In terms of this phasc of the
25 to real world situations, and so I was applying it 25 litigation?
1 3
to again both macro and microeconomics policy, 1 In terms of being retained in this
2 including industrial organization policy, labor 2 litigation by Apple, yes.
3 economics, and applied microeconomics while in 3 A It's complicated, because as you are
4 government. 4 probably well aware, we have advisad both Apple as
5 So no, no formal training in an academic 5 well as other parties in this litigation, with
6 setting, but the practical experience within 6 ethical wall provisions that go back to the ?rst
7 the 7 phase of the litigation, and so I don't know the
8 A I have formal training in -- 8 date of the original contact in the ?rst phase.
9 THE REPORTER: I'm sorry. I didn't 9 I know when I was contacted in the second phase.
1 0 hear the end of the question. 1 0 Did you or Compass Lexecon secure
11. "Within the" -- okay. Just go on. 11 plaintiff states' consent for this retention?
12 THE WITNESS: I have extensive -- longer have an
1 3 BY MR. HUBBARD: 13 agreement with the states is my understanding, as
14 Excuse me. Please let me ?nish my 14 it was suspended in July. -
15 questions. The court reporter would prefer it. I 15 MR HUBBARD: Okay. I guess we're
1 6 would-prefer it. 1 6 talking abou -- why don?t I mark this as
17 So you have no formal academic training 17 Exhibit 2. .
18 in industrial organization or statistics? 1 8 (Exhibit 2 was marked for
1 9 A That's not tnie. I have extensive 1 9 identi?cation.)
2 formal academic training in industrial 2 0 BY MR HUBBARD:
21 organizations, statistics. In fact, [was the 21 Do you recognize this document?
22 only teaching assistant that I am aware of at my 22 A Sitting here today, I mean it looks like
23 age when I was at that time to be a teaching 23 an agreement. I haven't looked at this. It's
2 4 assistant in Professor Orley Ashenfelter's applied 2 4 from August of last year, so I can't sayI
25 and advanced econometrics, which is obviously 2 5 recognize the precise form of this agreement.

 

4 (Pages 10 to 13)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh AveHUe - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9,

Filed Did you negotiate this contract on 1 BY MR. HUBBARD:
2 behalf of Compass Lexecon? 2 But you can't point me to a document
3 A I was, I was part of the negotiation of 3 that re?ects that, oh, the suspension of this
4 this, yes. '4 contract?
5 Were you the primary negotiator on 5 A I could point you to my email exchange
6 behalf of Compass Lexe'con? 6 or my phone conversation with Mr. Baker where he
7 A I believe that both our and myself 7 said he was suSpending it.
8 participated in I don't know if I would call 8 And you have not had any communication
9 I myself primary. I focused on the con?ict 9 with the plaintiff states on that?
1 0 provisions of this agreement. 1 0 A No.
11 And you had interactions with Gwendolyn 1 1 MS. RICHMAN: Objection to form.
12 Cooley of the state of Wisconsin on this? 12 THE WITNESS: I personally have
13 A Yes, I did. 13 not. MI. Baker or Dr. Baker called me or
14 And if you turn to page 16, that's your 14 emailed me -- sitting here today, I can't
15 signature; right? 15 tell you which one and asked my opinion
1 6 A Yes, it is. 1 6 about this. In July I said ifyou want to
17 And in the l7 suspend it, that's your choice. Suspend the
18 MS. RICHMAN: Did you say page 16? 8 agreement. And he then told me he was
1 9 THE WITNESS: It's page 15. I?m 1 9 suspending the agreement.
2 0 sorry. 2 0 BY MR. HUBBARD:
2 1 BY MR. HUBBARD: 2 1 Direct your attention to paragraph 
22 I misread. Didn't have my glasses on. 22 and it de?nes the, the services here as the
23 I apologize. Yes. There are actually two page 2 3 "e?books antitrust litigation."
24 155, and it's the ?rst of the page 15s. 2 4 Do you see that? It's about ten lines
25 And is this contract effective right 2 5 down.
1 5 7
1 now? 1 A Can you point that to me more precisely.
2 A I believe it I was told by Mr. Baker 2 You said ten lines down within 1?
3 that it had been suspended. 3 If you go in section and you go
4 Did you talk with plaintiff states about 4 three, six, seVen, eight it's the e-books
5 whether it had been suspended? 5 antitrust litigation or in mediation or settlement
6 A No, I did not. 6 efforts relating to the litigation. 
7 And is it based on anything other than 7 Do you see that?
8 the statement by Mr. Baker that this was 8 A Yes.
9 suspended? 9 So this is a contract related to this
1 0 A We -- Mr. Baker, after the June or July 1 0 speci?c litigation?
1 1 decision, contacted me and said that the states 11 A Yeah, as Mr. Baker was a testifying
12 were interested in either terminating or 12 witness in this case or was potentially a
1 3 suspending I forgot the precise words the 3 testifying witness in this case.
14 agreement. He asked if I had any issues with 4 Okay. I
15 that. I said I have no issues. If you want to 15 If you could turn to page 10 of this
1 6 suspend the agreement, then suspend the agreement 1 6 contract.
17 And he said he was suspending the agreement. 17 A And if I may, can Ijust look for a
18 But you've had no communication 18 moment at the other provisions? Is that okay?
19 you've not signed a document suspending the 9 Of course.
20 agreement or any other formal means by which 20 A Thank you
21 contracts are usually suspended? 21 So you'Ve had an opportunity to review
22 MS. RICHMAN: Objection to form. 22 it? 
23 THE WITNESS: I'm not a lawyer, so 23 A Ijust was looking at the various
2 4 I can't sort of -- 2 4 provisions. Now I turned to page 10.
25 2 5 Okay, and I note that you see the

 

5 (Pages 14 to 17)

DAVID FELDMAN WORLDWIDE, me.
450 Seventh AVenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9

FiledHOZ/p?24/1u4 Page 7'of 79

 

 

 

 

1 8 2 
1 second paragraph? 1 Please, just answer the question I
2 A "The professional staff of the 2 asked, which is: You agree that this what your
3 consulting that paragraph? 3 testimony is directly related to the e-books
4 And that would apply to you; right? 4 antitrust litigation; correct?
5 You're professional staff of the consulting ?rm, 5 A That is correct.
6 which in this contract is de?ned as Compass 6 Okay, and directing your attention to
7 Lexecon; is that correct? 7 the third paragraph.
8 A Yes. 8 A Yep.
9 And -- 9 You're not with the European division;
1 0 A As long as this agreement is in place. 10 correct? 
11 Right. So your position is this 11 A Well, am. Irun the European division
12 agreement is not effective now, but if it were 12 and I hate an of?ce in London, so I'm with both.
13 effective now, you would, you would be in 13 Was the, the EurOpean division work on
14 violation of this provision? 1 4 this litigation that was disclosed to the
15 MS. RICHMAN: Objection to the 15 plaintiff states re?ecting the work that you were
1 6 form. 1 6 doing at the time? 
17 BY MR. HUBBARD: 17 MS. RICHMAN: Objection to the
18 Is that your testimony? 18 form.
19 A Without the approval of the expert 1 9 THE WITNESS: I don't know if I
20 committee, but this agreement I, I was told, 2 0 billed on the matter in Europe or not;
21 and our counsel when we took on the matter said 2 1 BY MR. HUBBARD:
22 that this agreement is no longer in place. We 22 So you would have overall - you worked
23 haVe a chief risk of?cer that deals with con?ict 2 3 on all matters, so you might have Worked on, on
24 matters. 2 4 both the work being done in Europe on this
25 Who is that? 25 litigation on Apple?s distribution and sale Either John McCall or Eric Miller or our 1 e~books and while Jonathan Baker was working on
2 counsel on these matters. 2 the for the plaintiff states? Is that your
3 So if this were in effect so you've, 3 testimony?
4 you've identi?ed yourself as professional staff 4 MS. RICHMAN: Objection to the
5 of Compass Lexecon; correct? 5 form. .
6 A Yes. 6 THE WITNESS: I just can't tell you
7 Is Dr. Kalt professional staff of 7 sitting here today, because 1 am part of the
8 Compass Lexecon? 8 European division as well. I participate in
9 A I don't know if he's technically 9 the European division meetings andI
10 professional staff, because I don't know if he's 10 participate in the management of Europe, and
11 employed by or consultant to. I think he?s a 11 I have an office in London.
12 consultant. Most of our peOpIe in that position 12 BY MR. HUBBARD:
13 who are also, who are also academics are 13 I'm trying to keep you focused on the
4 technically independent contractors. 14 question, which is: Did you work on the European
15 Would his testimony control that? Would 15 of?ce's work on Apple and the distribution of
16 he have better knowledge of that? 16 e?books?
17 A I think the, his agreement would control 17 MS. RICHMAN: Objection to the
1 8 that. 1 8 form.
19 And you see that as long as the matter 19 THE WITNESS: Sitting here today, I
20 is not directly related to this matter, so is 20 can?t tell you if I billed on the matter or
21 you would agree that your testimony now is 21 not.
22 directly related to the e?books antitrust 22 BY MR. HUBBARD:
23 litigation; is that correct? I 2 3 Could you describe the ?rewalls or
24 A This is in the e-books if this were in 24 ethical protections that were or are in place
25 place, but again, this was suspended. 2 5 for -- at Compass Lexecon for matters like this?

 

6 (Pages 18 to 21)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 Case Document 559-9__

Filed 02/24/14 Pager8 Yes. We have very extensive use of 1 then, and then turned this over to our con?icts
2 speci?c ethical wall agreements that every 2 of?ce to deal with the issues related to
3 individual has to sign who participates in, in a 3 potential con?icts.
4 case that has ethical walls, and in that case 4 Okay.
5 those ethical walls have multiple prohibitions. 5 So you said that you don't know how to .
6 One prohibition is if you have signed a 6 access, access ?les? Does that mean you have
7 ethical wall and are working on one Side of an 7 access; you just don't know how to get it?
8 ethical wall, you do not have access to any of the 8 MS. RICHMAN: Objection to fonn.
9 ?les or any of the folders of the matter, of the 9 THE WITNESS: I would, I would not
1 0 matter you are walled off from. It is actually 10 have access to any of those folders or ?les,
11 impossible as a matter of IT to get from your 1 1 because I have signed the ethical wall. That
12 computer or any computer into the, the folders 12 goes to the IT department, and it blocks, if
13 that are walled off. 13 I go through the network, any access to the
1 4 You also make a commitment not to 1 4 ?le folders on the other side of the wall.
1 5 discuss the substance of the case or nonpublic 15 BY. MR. HUBBARD:
6 information with any of the experts, et cetera, or 1 6 I was just trying to clarify your, your
17 the people on the other side of the wall, and 17 statement. You said that you don't know how to
1 8 there's other provisions that are included in 18 get access.
1 9 these written documents. 9 A I don?t even know how to get access to
2 0 Well, I'm trying to understand what role - 2 0 the actual ?les, to the ones that I am legally or
21 you had here. You seem to me to be on both sides 21 ethically able to get access to, but it still
22 of the wall. You supervise both the European 22 blocks me eVen though I don't know how to do that.
23 operation and the American operation. You were 23 So you both don't know how to do it and
2 4 the contact mm the plaintiff states for the 24 the, and the IT provisions would prevent you even
25 negotiation of this contract. I'm trying to 25 if you did? 
2 3 2 5
1 understand the ethical and ?rewall provisions 1 A Yes, and if somebody actually -- even if
2 that were in place for you. 2 you try to get into a folder that you don't have
.3 A For me? 3 access to, our IT systems will send a message to
4 MS. RICHMAN: Objection to the 4 the, to our compliance officer, telling and
5 form. Is that a question? 5 then we would receive a report that somebody has
6 MR. HUBBARD: I object to speaking 6 tried to access a folder that they do not have the
7 objections. 7 privileges to access, so that we can then remind
8 BY 8 that person that they don't have access to that
9 If you can answer the question, please. 9 folder.
1 0 A I can answer the question. 10 Okay.
11 When I was contacted and then retained 11 You also referred to you withdrew as a
12 in August, I put in place an ethical wall with A 12 manager. What form did that withdrawal take?
13 regardto me. I don't actually use the ?rm's 13 A By signing the ethical wall, then I am
14 network, 'so I have no ability to actually, I 4 sort of I take myself out of the issue of
15 don't know how to access various folders. I use 15 determining like something like a con?ict.
16 the network. I guess I should say lose the 6 And to whom is notice of your withdrawal
17 network for receiving email, but I don't know how 17 provided?
18 to get to actually file folders. 18 A It's not a formal basis. Itplace an ethical wall 19 informal basis in the sense that I say this is a
2 0 provision for me, and then for con?ict 2 decision that somebody else has to make.
2 1 provisions, turned this matter over to our counsel 2 1 This is internal within Compass Lexecon?
22 who deal with con?ict issues, for them to analyze 22 A Well, we have a little bit more complex
23 the issue, and it was their issue. 2 3 system, because we are a subsidiary of a corporate
24 So I basically withdrew myself as a 2 4 parent, and so this is also me going to the chief
25 manager when contacted as a potential expert, and 25 risk officer and saying this is we need your

7 (Pages 22 to 25)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9

Filed 02/24/14 Page assessment of this issue. 1 BY MR HUBBARD:
2 But it's internal within the business 2 So the answer is as far as you know,
3 entities of Compass Lexecon? 3 there was no notice provided?
4 A I think that's fair, yes. 4 MS. RICHMAN: Objection to form.
5 Okay, and so it didn't include any 5 THE WITNESS: At that time his work
6 notice to Jonathan Baker? 6 had ended. He had susPended the agreement.
7 A I don't understand. What notice, of 7 BY MR. HUBBARD: 7
8 what? 8 If you could answer my question. As far
9 Well, that you were new withdrawing as a 9 as you know, there was no notice provided to
1 manager from the, the work that was done by 10 Jonathan Baker or plaintiff states?
1 1 Compass Lexecon on-behalf of plaintiff states. 11 MS. RICHMAN: Objection to form.
12 A I don't understand the question. It's l2 Asked and answered.
1 3 not how we would work, because that would provide 13 . MR. HUBBARD: I object to Speaking.
1 4 information that is con?dential to a party that 4 It's been asked, not answered.
1 5 it shouldn't be provided to. So as a result, we 1 5 THE WITNESS: I believe I answered
1 6 would then -- he would be walled off from that 6 it, but I can answer it again, which is
17 information as well. 17 because there was no agreement in place,
18 Wait. So Jonathan Baker is not entitled 18 given that it had been suspended, there was
1 9 to know that Compass Lexecon is working on both 1 9 no need for any notice.
2 0 sides of a litigation? 2 0 MR. FRIEDMAN: Objection.
2 1 MS. RICHMAN: Objection to form. 2 1 Non?responsive. Move to strike.
22 THE WITNESS: Well, he knew that. 22 BY MR. HUBBARD:
23 BY MR HUBBARD: 23 i We?ll let the non-response speak.
24 You told hint that you were being 2 4 Let's go to let's go to your
25 retained 25 declaration now. Can you give me a sense of what
already knew that, because 1 materials you prefer to rely on in forming an
2 he knew obviously the judge's order discusses 2 opinion?
3 the fact that both Ben Klein and Rich Gilbert were 3 MS. RICHMAN: Objection to form.
4 associated with Compass Lexecon. The judge's 4 MR. HUBBARD: I prefer you to state
5 order speci?cally identi?es both as being senior 5 just "objection." I don't want any if I
6 consultants with Compass Lexecon. 6 want any elaboration, I'll ask for it.
7 THE REPORTER: You need to slow 7 MS. RICHMAN: This is the
8 down. 8 formulation that We've been using throughout
9 THE WITNESS: States that both Ben 9 the litigation.
1 Klein and Rich Gilbert were senior 0 MR. HUBBARD: And I wasn't part of
consultants with Compass Lexecon. 1 1 that formulation. 
12 BY MR. HUBBARD: 12 MS. RICHMAN: Your objection is
13 I'm trying to focus on you. 1 3 noted. 
1 4 A Yes. 1 4 THE WITNESS: Can 
15 Was there any notice given to plaintiff 15 MS. RICHIVIAN: Please, if you
1 6 states Jonathan Baker of your withdrawal as a 1 6 remember the question.
17 manager over e?books litigation matters for 1 7 THE WITNESS: Can you repeat the
8 Compass Lexecon? 8 question so I have it precisely?
9 MS. RICHMAN: Objection to form. 1 9 (Whereupon, reporter reads
2 0 THE WITNESS: If he had contacted 2 requested materialquestion at that point, I would 2 1 BY MR. HUBBARD:
22 have said this is a matter you should deal 22 In forming an opinion, what type of
2 3 with either Dan on, Fischel, or John McCall 2 3 materials do you prefer to rely on?
2 4 or Eric Miller. 2 4 MS. RICHMAN: Objection to form.
2 5 2 5 MR. HUBBARD: Objection to

 

8 (Pages 26 to 29)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page 10 of 79

 

 

 

 

3 3 2
speaking. 1 taking the judge's order as my starting place
2 THE WITNESS: Well, it depends on 2 for my analysis.
3 the matter at issue. 3 BY MR HUBBARD:
4 BY MR. HUBBARD: 4 Right, but it's not an alleged
5 In this matter. 5 conspiracy; it?s a conspiracy. Do you understand
6 I A In this matter, well, there would be a 6 that?
7 whole host of information, and it depends on the 7 MS. RICHMAN: Objection to the
8 question that I would want to be answerng as to 8 form.
9 what information would be most reliable and use?il 9 THE WITNESS: I think that's -- I'm
10 for the analysis. 1 0 an economist, and I analyze issues from an
11 In this case is the judge's opinion and 11 economic perSpective, and so the de?nition
12 order in the liability phase the most important 12 of whether it's an alleged conspiracy or a
13 thing and controls all else? 13 conspiracy when there's an appeal is
14 MS. RICHMAN: Objection to the 1 4 something I will leave to lawyers.
15 form. 15 I take it as given what the judge
6 THE WITNESS: It depends for what 1 6 says in the order, and I analyze based on
17 purpose. 17 that information, and so I'm using that as a
1 8 BY MR. HUBBARD: 1 8 starting point in my analysis.
19 For the purpose of you rendering an 1 9 BY MR. HUBBARD:
20 opinion. 2 0 So you have to assume that a judge is a,
21 A It's an element. It's -- actually I 2 1 is a fact?nderlin the litigation phase of this
22 start with it as abase, and I assume that it's in 22 litigation only is something that can be assumed,
23 place, and I also make the assumption of the 2 3 it can't be a given?
2 4 ?nding that she has that Apple conspired in a 2 4 MS. RICHMAN: Objection to form.
25 restraint of trade, and so I start with that as my 2 5 Calls for a legal conclusion.
3 1 3 3
1 assumption. 1 TIDE WITNESS: I'm an economist. I
2 You're taking the position that that's 2 start off with the proposition that there has
3 an assumption, that's not an established fact? 3 been a conspiracy to restrain trade. That is
4 MS. RICI-IMAN: Objection to the 4 what I start with.
5 form. 5 BY MR. HUBBARD:
6 THE WITNESS: I'm taking the order 6 Right, and you don't say there's an
7 as is. Remember, when you're a damage 7 alleged conspiracy. You say there's a conspiracy;
8 expert, which I am, and I'm analyzing issues 8 correct?
9 of whether you can, you can analyze damages, 9 MS. RICHMAN: Objection to the
1 and Professor Noll's model, whether it's 10 form.
1 1 reliable Noll, whether his model 1 1 THE WITNESS: It seems to me like
12 is reliable. You assume that there is a 2 these are legal de?nitions that are better
13 conspiracy in the trade. You start from that 1 3 stated to a lawyer. Whether I start off with
1 4 perspective. That is what I have done. 1 4 that there's, that there's an alleged
1 5 BY MR. HUBBARD: 5 conspiracy or there's a conspiracy, I?m
1 6 Well, the point is, We've had a 1 6 assuming that there's a conspiracy and the
17 litigation phase of this litigation, and there has 17 restraint of trade.
18 not we don't have to assume whether there was a 18 BY MR. HUBBARD:
19 conspiracy. There was a court order in place that 1 9 Well, the point is, I'm trying to
2 0 there was such a conspiracy. 2 0 understand your ability to be precise about the
21 Do you understand the difference? 21 7 legal context in which your opinion is offered,
22 MS. RICHMAN: Objection to the 22 and if you can't understand the difference between
23 form. 23 a found fact and an alleged fact, I want to know
2 4 THE WITNESS: I understand, and I'm 24 that, and if your, if your position is you do not
25 starting with that as my starting place. I'm 25 understand the difference between them, please so

 

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 . Case lillimdi92293<DLC ,chument 559-9 PM 02/24/con?rm, 1 doesn't consider it Professor Noll's report.
2 MS, RICHMAN: Objection to the 2 It doesn't c0nsider whether his model is an
3 form. 3 appropriate model for damages. It doasn?t do
4 THE WITNESS: You're I think 4 any Of?iose 3113135, and that's What my
5 we're talking past each other. What I'm 5 report is about.
6 saying is that as a matter of economics, they 6 SO 1 thka the best way to View it
7 are identicaL 7 is I?m starting with the judge's order as my
8 For the economic analysis that I'm 8 Place, and I'm taking it from Where
9 undertaking, whether I assume that there?s a 9 it i3, and then I'm dOi?g the analysis that's
1 conspiracy in the restraint of trade, whether 1 0 116065531? to analyze the issues from all
1 1, there's a ?nding of a conspiracy and a 1 1 economic perspective that I'm?analyzing.
12 restraint of trade, or whether I assume it's 12 BY MR HUBBARD:
13 an alleged conSpiracy and a restraint of 13 "From an Perspective" ?e I'm
14 trade, it's all identical from an economic l4 quoting Paragraph 43 0f 3?01"" dedam??m- You
15 perspective of where you start. 15 say, "From an economic perspective, conduct can he
1 6 And so where you start is identical 1 5 feund to be anticompetitive to the extent that the
17 for the economic analysis, so the legal words 17 procompcti?vc effects do not outweigh its
1 8 are legal issues that I'm not going to speak 18 anticompetitive effects."
1 9 to, because I'm not a lawyer. From an 19 DO you remember that?
2 0 economic perspective, it's precisely 2 0 A Yes, I do.
2 1 identical. 2 1 
2 2 BY HUBBARD: 22 What procompetitive effects did you ?nd
3 In rendering your decision, are there 2 3 for the price-?xing conspiracy found by the
2 4 things that might'vary basedon how facts are 2 4 judge?
2 determined ultimately? I 25 MS. RICHMAN: Objection to the
35 37
1 MS. RICHMAN: Objection to the 1 form. -
2 form. 2 THE WITNESS: Well, the judge
3 THE WITNESS: Of course. 3 identi?es I have to admit that as an
4 BY MR. HUBBARD: 4 economist reading the order, there's a number
5 7 So if something is alleged, you would 5 of places that appear to be in con?ict The
6 have to consider more alternatives than if they 6 judge?s order is explicit about a number of
7 were not alleged; correct? 7 procompetitive effects associated with the
8 MS. RICHMAN: Objection to the 8 agreements.
9 form. 9 For example, she is eXplicit in the
10 THE WITNESS: If you assume that 0 order that Amazon responded directly to the
11 the alleged fact is correct, whether -- 1 impending signing of the agency agreements by
7 12 there's no then variance to it, because 1 2 changing the royalty rates for
13 you're assuming it. 3. 3 Self-publishers. She has a discussion of
1 4 BY MR. HUBBARD: 4 that fact.
15 So is the judge's opinion and order the 5 She has a discussion of the fact
16 most persuasive and binding part of the foundation 1 6 that there, having Apple have the page curl
17 on which you build your opinion? 17 while it had previously been part of the 
18 MS. RICHMAN: Objection to the 8 somebody else had been using it, that having
1 9 form. 1 9 a company like Apple involved in it would be
2 0 THE WITNESS: It's, it's a very odd 2 a bene?t to consumers and Competition.
21 concept the way you describe it, so I can't 2 1 She has adiswssion of the fact
22 agree to it, because the judge's order lays 22 that it was admirable that some of the ideas
2 3 out a number of very important things, andI 2 3 that Apple had in terms of free e~books. So
2 4 start with that, but the judge's order 2 4 she identi?es certain procompetitive 
25 doesn't do the analysis of damages. It 2 5 effects, but she also clearly has made a

 

 

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Case Document 559-9

Filed 02/24/14 Page ?nding that there was a conspiracy and 1 been introduced regardless of whether they
2 restraint of trade, and that, on net, the 2 had introduced the -- they had engaged in the
3 anticompetitive effects were larger than the 3 con3piracy or not.
4 procompetitive effects. 4 BY lVlR- HUBBARD:
5 BY MR. HUBBARD: 5 Sp there's no causal link between the,
6 So your position is the price??xing on 6 the price-?xing conspiracy on e?books and the
7 e-books should be weighed the anticompe?tive 7 introduction of the iPad?
8 effect of the price-?xing conspiracy on e-books 8 MS. RICHMAN: Objection to the
9 should be weighed against the, the effects that 9 form.
10 the introduction of the iPad had on, on the 10 THE WITNESS: The judge is clear on
11 market? 11 this. The experts were clear on this. I'm
12 MS. RICHMAN: Objection to the 1 2? clear on this, that the iPad would have been
13 form. 13 introduced whether it had the iBookstore 0r
1 4 THE WITNESS: There's multiple 1 4 not,
15 things that you said in there that I disagree 15 BY MR. HUBBARD:
1 6 with, and so we have to unpack it if you 1 6 And despite that lack of connection
17 don?t mind. 17 between them, you think that that's a
18 BY MIL HUBBARD: 8 procompetitive effect that you should weigh
9 That's ?ne. 1 9 against the higher e?book prices that resulted
20 A Okay, so let's, let's unpack it. 2 0 from the conspiracy?
2 The iPad had various effects on the 2 1 MS. RICHMAN: Objection to the
22 marketplace independent of the iBookstore. 2 2 form.
23 Professor Baker, who we have talked about already, 2 3 THE WITNESS: That's not what I --
2 4 states that explicitly in his report. Those 2 4 I'm not -- it's not a effect
2 5 effects would have changing incentives in the 25 that the'iPad was introduced. It's, ite-book market, and I discuss those at length in 1 question of how that changes incentives,
2 the report. 2 giVen the fact of how that would alter a
3 And so in constructing what the world 3 market you have to think -- the iPad was
4 would have been like without the introduction of 4 going to be introduced no matter what in the
5 agency agreements, so the introduction of the iPad 5 but-for world. The question is: What effect
6 without the bookstore, the iBookstore, what would 6 would that have on the vari0us markets at
7 the world have looked like, and Professor Baker?s 7 issue?
8 report has a number of useful insights, economic 8 [ts like a balloon, and there's
9 theories, 3 number of useful insights. The facts 9 air in this balloon, and the iPad?s
1 of this case have many use?il insights. I lay all 1 introduction has an e?'ect and it pushes air
11 of those out in discussing the incentives that 11 in a direction, and what effect that has is
3.2 would have occurred in the but-for world, an issue 12 directly relevant for analyzing what the
1 3 that is directly relevant to assessing damages in 13 but?for world would look like.
. 14 this matter. 14 BY NIR. HUBBARD: 
15 I'm trying to understand your position 15 What I'm trying to understand is what
1 6 as to the introduction of the iPad. 1 5 you think is fair to count, and if you think it's
17 So the introduction of the iPad is 17 fair to count things that are irrelevant to the
18 irrelevant to the conspiracy on price??xing; is 18 conspiracy, that's what I want to understand.
19 that correct? 19 Is that your position, that you are
2 0 MS. RICHMAN: Objection. 20 allowed to count developments that are irrelevant
2 1 BY MR. HUBBARD: 2 1 to the conspiracy in putting together your damage
22 I 0f the ewbooks? 22 estimate here? 
23 MS. Objection to the 2 3 MS. RICHMAN: Objection to the
2 4 form. 2 4 form.
25 THE WITNESS: The iPad would have 25 THE I'm only counting

 

 

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Case Document 559-9 Filed 02/24/14 Page factors that are inextricably linked to what 1 regard in his deposition, yes. I do not
2 was happening in the but-for world and how 2 know what the plaintiffs are stating as a
3 that would have affected incentives to price 3 matter of legal, their legal arguments. I
4 e-books. 4 know what Professor Noll has stated.
5 BY MR. HUBBARD: 5 BY MR. HUBBARD:
6 It was irrelevant. Now it's 6 Okay.
7 inextricably linked. Did you change on me? 7 So if you exclude from your damage
8 A Not at all. 8 estimate the portion 6 and 7 ofyour declaration,
9 ObjectiOn to the 9 and you only use section 5 are you with me?
1 0 form. 1 0 A Yes.
11 THE WITNESS: I didn't change at 1 You conclude that there was there
12 all. I?m the iPad was going to be 12 would have been a 15 percent price rise in the, in
13 introduced no matter what. I think we agree l3 e-books; is that correct? .
4 on that. 1 4 MS. RICHMAN: Objection to the
15 BY MR. HUBBARD: 5 form.
1 6 I think We do. 1 6 THE WITNESS: You can?t do that,
17 A Okay. 17 because it's not an apprOpriate but-for
8 That introduction was going to change 18 world You haven't pr0perly accounted for
1 9 both the competition in the e?reader device 19 what would happen to e?book prices.
2 0 marketplace as well as e-book marketplace, given 2 0 Under what you just described and
2 the complementarities in the inextricably linked 2 1 what Professor Noll does, too, makes no
22 nature of the markets, period. All the experts 2 2 sense. He's assuming that Amazon -- hold on
23 agree on this. Professor Baker agrees. Professor 2 3 a second - Amazon is wildly unpro?table on
24 Noll agrees, 2 4 an accounting basis, which makes no economic
2 5 Well, I would prefer you to limit 2 5 sense. It doesn't hold together as a matter
43 45
yourself to discussion of your opinions and your 1 of economic theory, economic fact in the
2 beliefs rather than others, unless I ask you your 2 strategy in the record evidence that the
3 view of their beliefs. 3 Amazon executives have stated. I
4 MS. RICHMAN: Objection to the 4 So you-can't construct a but-for
5 instruction of the witness. 5 world that doesn?t make any economic sense,
6 THE WTTNESS: Irer on certain 6 so you need to have a_ but-for world that
7 peOple's comments in here, so to the extent 7 makes economic sense. What section 6 does is
8 that I rely on them, I believe that?s 8 it lays out the important but-for world
9 appropriate to highlight that I rely on them 9 incentives that would have occurred in the
1 0 for certain points. 1 0 but-for world where there was not the alleged
1 BY MR. HUBBARD: consPiracy. 
12 Do you understand that plaintiffs 1 2 BY MR. HUBBARD:
13 believe that there were no procompetitive effects 13 I'm asking you to exclude the effects in
14 that should be weighed against the conspiracy's l4 6 and 7 of your declaration and include only the
15 effect on e?book prices in the liability stage? 71 5 effects that are discussed in section 5.
6 MS. Objection that?
17 form. 17 MS. RICHMAN: Objection to the
1 8 THE WITNESS: Can you repeat the 8 form.
1 9 question, because there was a bunch of 1 9 THE WITNESS: You can't really do
2 0 phrases in there that I'm not sure I caught 2 0 that, because what you're doing is you're
2 1 every single one. 2 comparing -- you're not comparing what the
22 (Whereupon, reporter reads 22 but-for world would have been. You're just
2 3 requested material.) 23 comparing two numbers. 
2 4 THE WITNESS: I understand that 2 4 BY MR. HUBBARD:
25 Professor Noll has made that statement with 2 5 I just 
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Case lill'md'02293'DLC Document559'9 Fi'ed 02/24/14 ..  .. 

 

?will

And is there any other systematic or
empirical Work to analyze in sections
6 and 7?

A There's extensive empirical work.

You?re referring tothe accounting 
You're referring to the accountingwork? Wait.
Withdrawn. "Strike" I guess is the word..

  



 

 

as


   

   

 

46 

1 MS. RICHMAN: Please let him . 1
- 2 finish. 

3: THE Two numbers as, as a 3

4 measure of the. difference inthe pricing of, 4.

5 in BSSencc, the publisher defendants versus .5

6 Random House. 6

7 BY  HUBBARD: 7

8 Q: Using your backup ?lesgve'tie 8'

9 calculated that the effect ofyou'r section 5 9-
3.0 by Professor Noll comes up 1 
11 with a damage number of $231.8 million. 1 

.12- Do you have any reason to dispute that 12 -
I .13 number? I I 13 
'14. MS. RICHMAN: Objection to the: 4
5 fom1.. 5
16 THE It's not a 6
'17' calculation that] have minim-taken= but it?s l7
- 1 8 notan appropriate calculation, because ifs 18
1 9; not an appropriately de?ned but-fer world. 1 9
'20: BY MR. HUBBARD: 20
2-1 But you have. - so that calculation is 2 
22- somcthing that you have not done, and you have no 22
E23 reason to dispute the number I just gave you? 23
.24. 24
2 5 form. 251. i
47 .
5%

THE WITNESS: I?m notgoing to -

2- argu I have no basis 'to argue whether you 2

3 have multiplied the numbers correctly. so I 3

4 can?t tell you whether you've done it 4. .

5 - correctly, betause'l'havenft undertaken that 5 .

5 talculatiC-IL I don't thin]; it's  6 
7 appropriate one to? undertake. 7 .3
8 BY MK-HUBBARD: 8 3:
9 Q3 Okay. . 9 3 
10 The other than. your modi?cation of' 19 
.11 Professor. Neil?s regression in section 5 ofyour 11 I -
12 declaration, you don?totherwise' use a regressiOn 12 . 
l3 for measuring any of these effectsg'is that right? 13 3 -
14 Objection to. the 14 
'15 form. 15 j.
1 6 THE ?What do You "man by 6 -
.1 7 "these e?ects"? . '17- -
18 BY MR HUBBARD: is 
1'9 I'm just. trying to see in your 19
20- declaration as an overview kind ofway_,__1 only see 20
21 a regression when you modi?ed ProfESsor'Noll?s in 21
2 2 section 5. 22

3' Is that Contact? 23
2 4 A .In terms regression analysis 24
2 5 - presented herein, yes. 2 5-

 




 

 Okay, and did you undertakeany impact
to see how and whether the, the forces that you.
discuss in parts Sand? - I'm sorry? 6 and 7
of your declaration impacted higher I

Objection to the 
form.
THE WITNESS: In the but-for world

 

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9999 lillimdj022'93-DLIC Document 559:9 Filed 02/24/14, Page 15,,of79m .

 

 

 

 

 

5 5 2
1 or the actual world? 1 In terms of averages, the aggregate
2 BY MR. HUBBARD: 2 information that's available allows me to
3 I'm, I'm talking about I was not - 3 reliably calculate the impact of the alleged
4 clear, I apoiogize for that, 4 conduct on consumers, and that's, so that's a
5 I'm trying to understand whether you put 5 different issue.
6 together some sort of regression that included 6 So [just want to make sure that
7 e-book prices, one variable, and devices held by 7 we?re not talking past each other, because
8 that individual consumer or other things as 8 there's a difference between analyzing an
9 another variable. I wonder whether you attempted 9 average and analyzing individual class
1 0 or did anything like that. 1 0 members.
1 1 MS. RICHMAN: Objection to the 1 1 BY MIL HUBBARD:
12 form. 12 Right, and that is what I?m trying to
13 THE WITNESS: I sought 13 get at. 
1 4 individualized data that would have 1 4 So you for example, if an individual
1 5 information on say prices of or what 1 5 consumer was overcharged for an e-book, you would
1 6 purchasas they made of devices and then what 16 want them to be paid less in compensation because
17 purchases they made ofe-books, but that data 17 of the e-dev ice argument that you make later in
18 were not available. 18 your declaration, without any connection at all to
1 9 That would be the kind of 3.9 that individual paying more for e?books?
2 individualized analysis that I believe 2 0 MS. RICHMAN: Objection to the
2 1 necessary to appropriately determine whether 2 1 form. 
2 2 a consumer was better off or worse off in the 2 2 THE WITNESS: That's not quite what
2 3 periods following the introduction of the 2 3 I argue, so let's just be clear.
2 4 iPad with the 2 4 What I argue is that in the but-for
2 5 2 5 world -- and when Imean clear, by the way,
5 5 3
1 BY MR. HUBBARD: 1 it's not me arguing. It?s economic theory is
2 So there was no individualized record 2 clear, the record evidence is clear, the
3 that would make such a regression reliable? 3 comments of other witnesses in this case are
4 A I'm not aware of data that would allow 4 clear, that when you have complementary
5 me to undertake that analysis, but I believe 5 products and it's probably worth me just
6 that's the -- that would be the kinds of data 6 stepping back for a moment to just make sure
- 7 necessary to analyze these issues on a granular 7 we're on the same page if you don't mind.
8 basis that would be necessary in this case. 8 Prior to the introduction of the
9 Necessary but not done for the items 9 agency agreements,
that you list in, in sections 6 and 7 of your 10
1 1 report? 11 The introduction of the iPad,
12 MS. RICHMAN: Objection to the 12 whether or not it had the iBookstore, so the
3 form. 13 but-for world did not have the iBookstore,
1 4 THE WITNESS: You?re 14 was a new and innovative device I don't
1 5 misinterpreting what I saythink anybody disagrees about that -- that
6 repeat it. 1 6 was going to cause the Kindle price to fall.
1 7 There's a difference between 17 So that meant the pro?ts that Amazon Was
1 8 measuring averages and measuring individual 18 going to cam on the Kindle device were going
1 9 experiences, became in essence the average 1 9 to necessarily go down.
2 is just an aggregation of many different 2 0 When the Kindle price goes down, by
2 1 individuals. And if you want to analyze the 2 1 definition, because of the complementarities
22 impact on an individual, an individual say 22 betWeen the products, e?book prices in the
2 3 class member, you would have to have much 23 but?for world would have gone up. So the
2 4 more detailed information about their 24 question is, for a consumer, is: What is the
2 5 purchases during the relevant time periods. 25 difference in the price that they paid in the

 

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Case Document 559-9 Filed 02/24/14 Page actual world versus what they would have paid 1 could get the question asked for all of 6 and 7.
2 in the but-for world? That's a relevant 2 That apparently is not true. So let me try again.
3 inquiry from an economic perspective for _3 So did you do any empirical work that
4 measuring damages. 4 attached the price of an e?book to the bene?t
5 BY MR HUBBARD: 5 that the individual consumer would have achieved
5 We will talk about complementarity, 6 because of the e?device effect that you discuss?
7 connections, all those kind of things later. What 7 MS. RICHMAN: Objection to the
8 I'm trying to get you to focus on is my question. 8 form.
9 Is there any connection between the 9 THE MTNESS: Did I conduct this at
1 0 e-book prices and the arguments that you make in 1 0 an individuaiized level?
11 sections 6 and 7 of your declaration? That is, 1 BY MR HUBBARD:
12 can you identify when an individual consumer who 12 Yes.
13 paid more for e-books bene?ted from what you talk 13 A I already said that the data is not
14 about in 6 and 7, or is this just an overall 14 available to conduct it on an individuaiized
15 effect that they ought to take account of? 15 level, but that's the level at which I believe you
1 6 MS. RICIMAN: Objection to the 6 would have to analyze it.
17 form. 17 And that's true for all the effects that
18 THE WITNESS: So you?re meshing so 18 you identify in sections 6 and 7 of your
1 9 much together here, I can?t actually answer 1 9 declaration? 
2 0 your question. Let me take each part in part 2 0 I MS. RICHMAN: Objection to the
2 1 maybe, or if you want to ask a mere precise 2 1 form.
22 question, I'm more than happy 22 THE WITNESS: Yes and 110. In terms
2 3 BY MR HUBBARD: 2 3 of measuring overall average damages, no. To
2 My precise question is whether there is 24 measure the individual damages for individual
2 5 a connection that you have drawn, empirically or 25 class members, yes.
55' 57
1 otherwise, between the device arguments in section 1 BY MR. HUBBARD:
2 6 of your declaration to the e?book prices that 2 Okay.
3 are in the regression that you modi?ed. 3 Going to paragraph 24 of your
4 A You have just changed your - 4 declaration, could you de?ne for me 
5 MS. RICHMAN: Objection to the 5 MS. RICHMAN: Give him a second to
6 form. 6 get there.
7 THE WITNESS: You just changed your 7 THE WITNESS: Paragraph 24 or page
8 question from one to the other. 8 24? I'm sorry.
9 BY NR. HUBBARD: 9 BY MR HUBBARD:
10 Answer my question, please. 10 I?ll be talking paragraphs, so it's
11 MS. RICHMAN: If you understand it. 1 1 paragraph 24.
12 THE WITNESS: I actually don't 12 A Okay, thank you.
123 understand, because it changed from one to 13 And 1 think you might be able to answer
14 the next, so can you repeat you had 14 my questions without looking at your declaration.
15 different things. You mentioned 6 and 7, 15 You are more than welcome to look at your
1 6 sections 6 and 7 in one question. You then I 1 6 declaration at any point.
17 'think just mentioned 6 without 7, and I don't 17 A Okay, thank you.
18 know if that was a distinction without a 18 Could you de?ne for me what you mean by
1 9 difference or -- and so I'm trying to 19 a "difference in difference methodology??
20 understand the question. I'm sorry. 2 0 A Sure. It's a ver commonly used
2 1 BY MR HUBBARD: 2 1 econometric approach that compares, in essence,
22 I was trying to prevent the detours that 22 the relative one could think about it as
23 you're going through. 1 was trying to get you to 2 3 looking at what happens before and after a
24 focus on Speci?c things, so 1 limited my question 24 particular time period, the difference in
2 5 to a more focused question. I thought that I 25 difference.

 

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Case Document 559-9 Filed 02/24/14 Page 17 of 79

 








 


Ln

So it's comparing say to try to

simplify it, if you don't mind, because I've been
doing di?erences in difference since I more
than 20 years now. This is exaCtly the kind of
applied microeconomics that my mentor pioneered is
to, is you look at say, in this case, the
publisher defendants versus let's say Professor
Ashenfelter's model, versus Random House in the
before period, and compare them to the publisher
defendants in the after period, and you assume
that the di?'erence, the differences in
ditference, any Change is attributable to that
event that occurs in the middle.

And both Professors Asheufelter and Noll
did a regression that you view as acceptable in



..,


i

MS. RICHMAN: Objection IVER. HUBBARD
20 Let's talk about the control group. You
21 want to limit the control group to Random House;
22 is that correct?
23 MS. RICHMAN: Objection to the
2 4 form.
25 THEWITNESS: Well, I,Itry
6 1
1 both -- the Random House has a control which
2 Professor Ashenfelter used, and also a
3 control that uses Random House plus the other
4 general interest publishers that are among
5 the tOp 20 publishers in the country. And
6 the results aren't materially different
7 between those two control groups, suggesting
8 that the behavior of those other general
9 interest publishers in the top 20 were
10 similar to the pricing of Random House in the
1 1 window that one is analyzing.
2 BY MR. HUBBARD:
13 Okay, and ofthose other publishers,
14 you?re not suggesting any of them acted
15 collusiver and that's why they shouldn't be
16 included in the control group; right?
17 MS. RICHMAN: Objection to the
1 8 form.
1 9 THE WITNESS: I'm -- by de?nition,
2 to be a control group, they have to be not
2 1 part of the conspiracy, or if not, they
22 wouldn't be an appropriate control.
2 3 BY MR. HUBBARD:
2 4 Right, and as applied in this
25 circumstance, you don't have any reason to exclude

 

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Case Document 559-9 Filed 02/24/14 Page them "from the control group, because they were 1 form.
2 acting collusively? 2 THE WITNESS: I don't understand
3 MS. RICHMAN: Objection to the _3 the question.
4 form. 4 BY MR. HUBBARD:
5 THE WITNESS: That is correct. I 5 Well 
6 use -- I have I believe Random House may 6 A In what context? Doing what? They
7 not be a perfect control, and there are a 7 publish different books, of course.
8 number of reasons why it's not a good control 8 In responding to the competition in the
9 or perfect controlcontrol 9 e?books market.
10 because it's the best availableWell, based on my empirical analysis, 
alternatives, including adding other general 1 1 there are a large number of publishers that behave
12 interest publishers as a control, and it 1 2 very differently than certain other publishers,
13 doesn?t materially change the results. 13 yes.
14 BY MR. HUBBARD: 14 And including the, all of the
15 In doing a regression, do you generally 15 competitive effects within the market for
16 want to include a comprehensive control group? 16 determining a control group would be better?
17 MS. RICHMAN: Objection to the 17 MS. RICHIVIAN: Objection to the
8 form. 1 8 form. 
1 9 THE WITNESS: You want to_include 1 9 THE WITNESS: No, not necessarily.
2 0 an appropriate control group. 2 0 You want to have an appropriate control
21 BY MR. HUBBARD: 2 group. If you're using as a control group --
i 22 And is a broader control group better if 22 think ab0ut the world as a lineup of?rms
23 it?s appropriate? 23 from A to Z. If ?rms A through well,
24 A With the caveat not -- if it's 24 I'll just pick this -- are very close
25 appropriate, yes. In order to be a control, it 25 substitutes, and you want to analyze the
have similar properties and similar 1 behavior of ?rms A, and versus D, E, 
2 characteristics and be, have similar incentives 2 and G, and they are all close subStitutes, it
3 and similar, react similarly to supply and demand 3 would be best to compare the behavior of A, 
4 factors in order for it to be an appropriate 4 and versus and G, their very close
5 control. 5 substitutes, than to throw in all of the
6 Are all the publishers in the same 6 potential ones that may behave differently,
7 market? 7 may have different economic forces at issue
8 MS. RICIMAN: Objection to the and different incentives, even though they
9 form. 9 may be part of the same relevant market.
10 THE WITNESS: I, I don't 1 0 BY MR. HUBBARD:
11 independently analyze that issue. I start 11 And Random House is bigger than the
12 with the assumption that the relevant market 12 other ?ve majors?
13 at issue here is the trade e-book market. 13 A Yes.
14 BY MR. HUBBARD: 14 MS. RICHMAN: Objection to the
15 And that would include all the 15 form.
16 publishers that are included in the control group 16 THE WITNESS: Yes, it is.
17 used by Professor Noll? _17 BY MR. HUBBARD:
18 A Istart with that assumption. That 18 And would a bigger ?rm not be as good
19 doesn?t mean that they are close substitutes or 1 9 an appropriate control group as possible?
2 0 behave similarly to supply and demand factors, and 2 0 MS. RICHMAN: Objection to the
21 so that you can be in the same relevant market 2 1 form,
22 and be distant substitutes. 22 THE WITNESS: Not necessarily. You
23 But different publishers behave 23 have to analyze the facts and circumstances
2 4 differently; correct? 2 4 surrouriding the incentives and the behavior
25 MS- Objection to the 25 and then look empirically as well. If

 

 

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Case rDocumernt7559-9/ Filed 02/24/14 Page adding -- if you start off u- and this is l, A No. I would not agree to that.
2 whatI do. If you start off with okay. I 2 Okay. 
3 start off where Professor Ashenfelter, his 3 Random House is appropriate to be. in the
4 analysis, and he uses Random House as a 4 control group? That's your position?
5 control. 5 A I adopt Random House as a control,
6 And there's a lot of debate in the 6 because Professor Asbenfelter did. I think there
7 ?rst phase of this case about whether it's 7 are issues with having Random House as a control,
8 an appropriate control, and I have analyzed 8 but given the lack of other controls to use, I
9 that debate, and I think that there were very 9 believe that was the best alternative to choose,
1 0 good arguments made for why it wasn't an 10 Okay, and did you consider adding other
1 appropriate control, but One needs a control. 11 publishers to the control?
12 And so it's when you're in the 12 A Yes, I did.
13 world of second best, acknowledging the 13 And which ones did you think were
1 4 shortcomings of the Random House as a l4 appropriate to add to the control group?
15 control, I use that. I start with that. I 3.5 A I tested whether adding, among the top
1 6 then add large, the largest of the general 1 6 20 general interest publishers, whether if you
17 interest publishers, the ones in the tOp 20. 17 take the top 20 publishers in the country and you
1 8 That doesn't they don't materially change 1 8 look at the general interest publishers and I
9 the results. That suggests that those 1 9 outline this in my report. I describe this in a
2 publishers behave similarly to Random House 2 footnote and then also include it in my backup
2 in the period. 2 1 materials. I, I include those general interest
22 If you then add all publishers, 22 publishers as part of my control group.
23 like Professor Noll did, it fundamentally 2 3 So 
2 4 changes the result, suggesting that those 2 4 A And in a sensitivity test, it has no
25 smaller publishers, many ofthem 25 material effect on my results one way self?published books that have very different 1 other.
2 characteristics, very different pricing in 2 Okay.
3 the pro-period, that those are not 3 Did you, did you do a sensitivity test
4 appropriate controls as a matter of empirics. 4 also for including other publishers other than
5 And then when you have an 5 those general interest publishers?
6 appropriate spot to take a break, if I can. 6" A Well, Professor Noll starts with all
7 MR. HUBBARD: If you'd like to take 7 publishers, so I ?nd that that?s not an
8 a break 8 apprOpriate way to go. 
9 THE WITNESS: Whenever you have a 9 So the general interest publishers that
0 good spot 10 you add -- that you did a sensitivity anaiysis to
11 MR HUBBARD: If you state a 11 add to the control group, can you identify which
12 preference for a break, I'll give you a break 12 those are? Kensington?
13 nowsensitivity test adding
1 4 THE VIDEOGRAPHER: Going off the 11 4 Kensington, Perseus, Headline, Norton and
5 record, the time is 10:03:32. 15 Hyperion, I believe. I think.
1 6 (Whereupon, a short recess was 1 6 And you, you did a sensitivity analysis
17 taken.) 17 for them because they were general interest
18 THE VIDEOGRAPHER: Going back on 18 publishers?
1 9 the record, the time is 10:16:32. Counsel 1 9 A Yes, that they -- you have to -- let's
2 0 may proceed. 2 0 backtrack for one second, as I describe in here.
2 1 BY MR. HUBBARD: 2 1 If you look at the non-big six
22 We were talking about the control group, 2 2 publishers, there's only two, Headline and
23 and you made a reference to the other publishers 2 3 Hyperion, among the t0p 20 who publish in all the
- 2 4 that you thought should be added to the control 2 4 genre categories that Professor Noll cites. So
25 group; is that correct? 2 5 that means that once you get beyond those two,

 

 

 

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Case Document 559-9 Filed 02/24/14 Page they are missing certain Categories that Professor 1 First you say that Dr. Noll assumes that
2 Noll identi?es as genre categories. I have tried 2 the prices of e?books by the non?defendant
3 various approaches of adding those two, adding 3 publishers were unaffected by the conspiracy.
4 others, and ones in the top 20. 4 Is that a correct summary of your view?
5 Once you get beyond and include all 5 A- I say that he implicitly assumes this.
6 publishers, you get a very different result, 6 He's not explicit in his assumptions in his
7 Suggesting that the result is being driven by the 7 declaration, and so these are implicit assumptions
8 other publishers that you're adding, which means 8 that he is making.
9 that they are acting in a different way than the 9 Okay, so it's, it?s not a, a decision
10 larger publishers. 1 0 that limits the analysis in some way? It just
11 I?d like to focus on the time periods 11 doesn't strike.
12 you used in modifying Professor Noll's 12 But the prices of those non~publishers
13 regressions. In paragraph 38 you report limiting l3 are included in the database; is that correct?
I 4 Noll's analysis to the big six publisher results 14 MS. RICHMAN: Objection to the
15 in an average conspiracy effect of 14.9 percent; 15 form.
1 6 correct? 1 6 THE WITNESS: Which database?
17 A That I didn't understand your 17 BY MR. HUBBARD:
18 question, because there was lots of words in there 1 8 The damage estimate done by Professor
1 9 that don't comport to my analysis. 1 9 Noll.
20 Well, in paragraph 38 you report that 2 0 A You mean the transaction database?
2 1 "limiting Noll's analysis to the big six 2 1 Because he uses multiple databases.
22 publishers results in an average conspiracy effect 22 Yes.
23 of 14.9 percent"; correct? 23 A Yes. It includes transactions data for
24 A I don't agree to those words, because 24 publisher defendants and non-publisher defendants.
25 you're exciuding words that I Wrote in that 2 5 And so the prices of the e-books for the
7 7 3
1 paragraph that are important to the analysis. 1 non?publisher defendants is a variable included
2 In paragraph 39 you report on limiting 2 Within the database?
3 the pre and post periods to 24 Weeks each; is that 3 A That is correct.
4 correct? 4 So it analyzes the effect instead of
5 A Yes, that is correct. 5 assuming the effect; is that fair?
5 In that analysis, is, is that iimit, is 6 MS. RICHMAN: Objection to the
7 that limited as to speci?c publishers, the big 7 form.
8 six, or does it include nonmajor publishers also? 8 THE WITNESS: What effect are you
9 A That? this is following Professor 9 talking about here?
10 I'm basically following Professor Ashenfelter?s 0 BY MR. HUBBARD:
11 approach, andI am limiting it to the big six. 1 1 Well, if you run a regression on a
12 So paragraph -- okay. 12 database that includes a variable, you're
13 In paragraph 40 you report an alternate 13 analyzing that variable instead of assuming it
14 pre?period and use the same post?period in 14 doesn?t get affected; is that correct?
15 paragraph 39; is that correct? 15 MS. RICHMAN: Objection to the
1 6 A That is correct. 1 6 form.
17 And your analysis in 40 as in 17 THE WITNESS: I'm confused by your
18 Ashenfelter is limited to the big six; is that 18 question. I?m sorry. As a matter of
9 correct? . I 1 9 econometrics, I?m confUSed.
20 A That is correct. 20 BY MR HUBBARD:
21 Okay. 2 1 Does a, does a price variable within the
22 In paragraph 27 you list what you label 22 database enable you to analyze what variables are
23 "assumptions in Dr. Noll's damage analysis," and I 23 affected by in a regression you?re trying 
24 I have some questions on that. 2 4 Professor Noll is trying to estimate the effect of
25 A Sure. 2 5 the conspiracy on prices; correct?

 

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 Document 5579-9 ,Filed02/24/14 Page 2_71,_of7,_79 

 

 

 

 

7 4 7 6
A That's what he says he's trying to i have an e-reading device. You can't just purchase
2 estimate, yes. 2 an e?book in the ether. It's just not possible to
3 I And he includes the prices for the 3 do that.
4 non-publisher defendants in the database? 4 So that when, when products are used in
5 A The non-publisher defendants are in the 5 combination, they can be complements, like, like
6 database, yes. i 6 these two products, and all the experts ?nd them
7 And so the regression includes that as a 7 to be complements, and all the evidence in the
8 variable that's analyzed? 8 record makes them, shows them to be complements.
9 - A You mean -- by "analyzed," what do you 9 Now, I?m trying to understand what you
1 0 mean here? 10 mean by "complement" as opposed to "connected."
11 Well, when you have the output from the 11 Many products are connected in one way, and others
12 regression, it includes coef?cients for various 12 are, from an economic perspective, complements.
13 factors, it finds the relationship, and it 13 Could you explain to me the difference?
1 4 separates out what is the effect of the 14 A From an economic perspective, let's, let
15 conspiracy, and prices are one of the variables 15 me perhaps We can Start at baSiCS. don't
1 6 that are analyzed within the regression. 1 6 mind I'll do a little bit of teaching, which I
17 A I do not agree with your statement. 17 enjoy, and We can start with the concept of
1 8 And why don't you? 1 8 economic substitutes, which are, if you think
1 9 A There?s multiple parts okay. 19 abou -- you go into a store and you want to buy
2 Do you agree that Dr. is trying to 2 0 sneakers, and there?s a Nike pair, Nike sneakers
2 1 estimate the amount of damages for those who 2 and a pair of New Balance sneakers, and you're
2 2 purchased e?books? 22 considering buying those two sneakers. Well, you
2 3 MS. RICBNIAN: Objection to the 23 have to you're going to make a choice. You
2 4 form_ 2 4 have a choice between Nike and New Balance. Those
2 5 THE WITNESS: Do I agree that he's 2 5 become substitutes for that consumer.
7 5 7 7
1 trying to? Yes. That's what he says he's 1 There's a different question when
2 trying to do. 2 products are complements, if you want to go in and
3 BY MR. HUBBARD: 3 buy a -- I mean a classic example is left and
4 - And that if, if the, if the goal of the 4 right shoes, obviously. Those are purchased in
A 5 regression is to estimate the overcharge that 5 ?xed proportions. If you want to buy a left
6 that's, that's the goal -- withdrawn. 6 shoc, you almost always have to buy a right shoe.
7 So Noll is trying to measure the effect 7 Doesn't make Sense, so those are complements-to
8 ofthe conspiracy and not the pricing behavior of 8 each other. i
9 the big six publishers; is that correct? 9 Other products that an: complementary
0 MS. RICHMAN: Objection to the 10 are things like if we do games and video game
1 1 form. 11 consuls or, in this case, e?book readers and
2 THE WITNESS: I'm confused by the 1-2 e-books. If you want to purchase an e-book, you
1 3 question. So I'm not sure what'you mean by 13 need an e-reading device, a device that allows you
3. 4 the question, so perhaps you can reward it or 14 to read the book. So they have to be, they have
1 5 . perhaps we can take it, unpack it. 15 to be used together, and you observe that
1 6 BY MR. HUBBARD: 1 6 complementarity in the record in this case-
17 Weil, let's move on to complements. 17 I'm trying to get you to tell me what as
18 What do you mean when you say an e-book 18 an economic matter distinguishes a complement from
1 9 and an e?device are complements? 19 products that are just connected.
2 0 A That all parties, I mean let me just 2 0 A So, for example, that if the price of
2 1 start with the introductory economics kind of 2 1 One goes up, demand changes for the other one, or
22 example, and I described this a little bit, that 22 if the price of the other product g0es up or down,
2 3 demand and prices are interconnected for those 23 demand changes for the alternative product; that
24 products; that is, that consumers, in order to 24 they're interconnected, and complementarity
2 5 if you want to read a book, an e-book, you need to 2 5 complements in their usage and in their demand.

 

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Case 7559-9, Filed 02/24/14, ?Pagen22 of 79__  

 

 

 

 

7 8 8 
1- And a c0mplement, that connection will 1 connected.
2 be inextricable, it's, it's rigid, it happens 2 What do you mean by "closely connected"?
3 automatically? 3 A What do I mean by "closely"? That is
4 MS. RICHMAN: Objection to the 4 that the pricing and demand of one directly
5 form. 5 affects the pricing and demand of the other.
6 THE WTNESS: Products have 67 And in analyzing that connectivencss,
7 different forms of complementarities, and so 7 would you look at factors like whether the device,
8 some are closer complements to each other 8 the products were sold differently by different
9 than others, and it depends on the product at 9 divisions? 
10 issue. 10 MS. RICHMAN: Objection to the
1 1 BY MR. HUBBARD: 1 1 form.
12 i So, for example, Amazon presents when 12 THE WITNESS: I don't understand
13 you buy a product, it displays other products as 13 your question.
1 4 suggested purchases. 1 4 BY MR. HUBBARD:
15 Are you using those other productsas 15 Well, if?
1 6 suggested purchases as complements, because they 1 6 A Divisions of what?
17 go together for purchasers? 17 For example, you said that Apple would
18 MS. RICHMAN: Objection to the 18 have introduced the iPad without the iBookstore;
1 9 form. 1 9 is that correct?
2 0 THE WITNESS: Not necessarily. 2 A In the but-for world.
21 They may not be complements. 21 In the but?for world?
2 2 - BY MR. HUBBARD: 2 2 A Yes.
2 3 What would you analyze to determine 2 3 So the so Apple did not 'viewthose
24 whether they were? 24 two products as so connected that they had to be
2 5 A Issues of pricing and demand. 2 5 both offered; is that correct?
7 9 8 1
1 And how closely connected do pricing and A As I?ve said, they would have introduced
2 demand have to be for the products to be 2 the iPad without the iBookstore.
3 complements? 3 Right. So from Apple's perspective,
4 A Well, it's just a degree of 4 those tw0 products Were not connected and they
5 complementarity. Products are either close 5 Were not com plem cuts?
6 complements or distance complements. They're 6 MS. RICHMAN: Objection to the
7 stili complements. 7 7 form. 
And are e-devices more complements than THE WITNESS: I disagree with you.
9 other - than the right and left shoe, for 9 They were, they were connected, and they are
3. 0 example? 1 0' complements.
11 MS. RICHMAN: Objection to the 11 BY MR. HUBBARD:
12 form. 12 So that a if, if Amazon treated its
13 THE WITNESS: The question as 13 e?device -- its e?readers and its e?books in a
4 articulated doesn't make sense, because -- 4 separate analysis, you would still say they are
15 BY MR HUBBARD: 15 complements?
16 Well, let me try again then. 16 MS. RICHMAN: Objection to the
17 The you, you referred to different 17 form.
1 8 levels of complement w- of connectedness that 1 THE WITNESS: I don't understand
1 9 would be different degrees of, of complementary 9 What you mean by "separate analysis."
2 0 products; correct? 2 0 Separate analysis of what?
2 1 A That is ?ne. 21 BY MR. HUBBARD: 
22 And I'm trying to understand where on 22 E-books might have a separate demand
23 that continuum e-books and e-devices fall. 23 analysis than e?devices.
2 4 How connected are they, in your View? 24 Do you understand that?
2 5 A The evidence is they are closely 25 A They're, they're two products that are

 

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Case Document 559-9 Filed 02/24/14 Page part of a system sold to consumers at different 1 providing of Kindles?
2 times, if that's what you mean. Yes, they're, 2 MS. RICHMAN: Objection to the
3 they're two products, and the demand for those 3 form. 
4 products will depend on a Variety of 4 THE WITNESS: The economics
5 circumstances, but the demand in the pricing will 5 literature has a lot of di3cussion of the
6 be interconnected inextricably. 6 concept of learning by doing, and it can mean
7 And the e?readers would have a different 7 ?di?crent things to different people, so I'm
'8 business strategy that related to them, and that 8 going to ask if you can give me a more
9 wouldn't a??ect the connectedness? I 9 precise definition of how you?re using the
0 MS. RICHMAN: Objection to the 10 term so I can reSpond as an economist w0uld,
1 form 1 1 which is within the context of the economics
1 2 THE WITNESS: - I don't understand 1 2 literature.
1 3 your question. 13 BY MR. HUBBARD:
14 BY MR HUBBARD: 14 I'm just trying to understand whether
15 Well, for example, if, as a matter of 15 you considered alternative explanations for the
6 business, they adopted a longer term strategy for 6 pricing behavior by Amazon of its Kindle, and, and
17 reaching pro?tability for the e-reader than they 17 I was you, you weren't understanding my
18 did for e-books, would that affect the connection 18 question, so I was, I was making the suggestion
9 between the demand and price between those two 1 9 that the concept of learning by doing might be a
2 complements? . 20 useful framework to analyze that.
2 A No. It would affect the pricing and 2 1 Might it be a useful way to analyze how
2 2 demand of the two in an interconnected way. 2 2 Amazon is pricing its Kindle?
2 3 So that if e?devices had a longer, 23 MS. RICHMAN: Objection to the
2 4 long?term pricing strategy, and e?books had a much 2 4 form. I
25 shorter term pricing, that would haVe no impact on 25 THE WITNESS: If by learning by
8 3 8 5
1 the demand connectedness? 1 doing you mean when Amazon obtains new
2 A It would have a differential effect on 2 information, it updates its views and
3 pricing and demand but not necessarily 3 opinions about pricing and demand, I would
4 interconnectedness. 4 expect every rational business to do that.
5 7 Are there explanations for the pricing 5 BY IVIR. HUBBARD:
6 of e-devices that are separate from this 6 And they would present a product that
7 complementary idea that you considered? 7 . they were selling at a lower price than the
8 MS. RICHMAN: Objection to the 8 manufacturing cost, because they believed that
9 form. 9 they could improve the manufacturing costs and
0 THE WITNESS: I don?t understand 1 ultimately make that pro?table?
1 1 your question. 11 MS. RICHMAN: Objection to the
12 BY MR. HUBBARD: 12 form. 
13 Well, for example, did you consider that 13 THE WITNESS: I don't understand
14 Amazon might have had a desire to achieve a ?rst 1 4 your question.
15 mover advantage and would be willing to sell its 15 BY MR. HUBBARD:
1 6 Kindle for significantly less in order to get that 1 6 Might Amazon's pricing have been related
17 advantage? 17 to its belief that it could lower man ufacturiug
1 8 MS. RICHMAN: Objection to the 1 8 costs going forward?
1 9 form. 9 MS. RICHIVIAN: Objection to the
2 0 THE WITNESS: I considered that in 2 0 form. 
21 the sense that they had, they've had a Kindle 21 THE WITNESS: I'm still confused by
22 before and after the introduction of the 22 your question, what you?re hypothesizing
2 3 agency agreements. 2 3 their incentives would be in terms of
2 4 BY MR. HUBBARD: 2 4 pricing. So as I understand what you're
25 .And they tried to learn by doing in the 25 suggesting is that they set a price today,

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Case Document 559-9 Filed 02/24/14 Page 24 of?79

 

 

 

 

8 6 8 8
1 assuming that at some point in the future 1 complementary products.
2 they'll negotiate better costs for themselves 2 Okay. Holding all else constant. I
3- on the product that they're selling today? 3 want to understand what you mean by that.
4 BY MR. HUBBARD: 4 What are you holding constant?
5 What I'm trying to understand is I 5 A This is atheoretical perspective, and
6 A I don't - that doesn't make economic 6 this is holding all else constant in that moment.
7 sense as you, as you articulate it. 7 So you asked the question of if consumer
8 . What I'm trying to understand is whether 8 demands are interconnected such that when the
9 you considered alternative ways to understand 9 price of one product increases, so Product A
1-0 Amazon's behavior here, other than it being a 10 increases, demand for the other decreases, and
11 complement to the e-book. That's my question. 11 there are no other changes to prices or demand for
12 MS. RICHMAN: Objection to the 12 any other competing products, they are
1 3 form. 1 3 complements. 
14 THE WITNESS: I examined carefully 14 I don't think you answered my question,
15 and in great detail -- I believe in the 15 so let me try again.
16 section where I talk about the incentives pre this way.
17 and post conduct, I have something on the 17 In paragraph 63 you refer to things like
18 order of magnitude of 90 footnotes citing to 1 8 consumer demand, com petition, production costs.
1 9 both economics literature, the record 19 Are those items that have to be equal
2 0 evidence, economic papers, other experts in 20 for the complementarity to continue?
2 1 this case, third-party that I 2 1 MS. RICHMAN: Objection to the
22 consider carefully their incentiVes pre and 22 form. 
2 3 post conduct, in both the device market as 23 THE WITNESS: What do you mean by
2 4 well as in the e-book market and how those 24 "equal"?
2 5 are part of one system and how those 25
8 7 8 9
considerations are inextricably linked. 1 BY MR. HUBBARD:
2 BY MR. HUBBARD: 2 You refer to in your declaration "all
3 You say in paragraph 2, "The 3 other things being equal," and I'm trying to
4 complementarity depends on all other things being 4 understand what you meant by the word "thing," and
5 equal." 5 - so I am asking whether you whether one of the
6 Do you remember that? 6 things is consumer demand for the products.
7 A 1 Paragraph 2, I believe I talk about my 7 A I don?t, I don't say "all other things
13 bio, so I'm not sure 8 being equal." I say "everything else constant."
9 I thought I said paragraph 42. 9 It's a di?erent concept.
1 0 A 42. Okay. Sorry. I'm at 42, yes. 10 So everything else constant is, that is
1 Okay. 1 something that has to be constant, consumer demand
12 So you refer to complementarity 12- for both products?
13 depending on all other things being equal? 13 MS. RICHMAN: Objection to the
1 4 A Yes. 14 form.
15 And all those things being equal makes 15 THE WITNESS: It doesn't make sense
1 6 the connection stronger; is that correct? 16 how you describe No. This is for the purpose of 17 economics way of answering your question if
1 8 analyzing, because one wants to think about 18 you don't mind
1 9 causation versus correlation, because you can have 9 If you think about two demand
2 0 lots of situations where multiple things are 2 0 curVes for Product A and Product B, ifthere
2 occurring at the same time that would hide what 2 l_ is an exogenous increase in the price of
2 2 was happening in terms of the price of one product 22 Product A, let's just say, if the products
2 3 affecting the demand for the other product, and so 2 3 are complements, the demand curve for Product
2 4 the purpose of the analysis is to -- is holding 24 will shi? in. People want to consume less
2 5 all else constant, if those occur, then they are 25 of the combined products, because now the

 

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Case Document 559-9 Filed 02/24/14 Page price is higher. 1 times or -- I'm sort of confused by the question.
2 That will shift the demand curve 2 It?s a iittle bit vague.
3 in, lowering the price of Product but also 3 Well, you refer to complementary
4 lowering the quantity of Product B, using 4 products needing to be inextricably linked or
5 traditional demand curves and supply curves, 5 intertwined; is that correct?
6 just so we're all clear, because obviously if 6 A They don't need to be inextricably
7 there there are certain conditions under 7 linked. Complementary products that are close
8 which that wouldn't hold. 8 complements are inextricably linked. It's not a
9 BY MR HUBBARD: 9 need. It's that they are. .
10 I don't think you answered my question. 1 0 I'm trying to understand from a
11 My question is whether the, the consumer demand 11 economic perspective when this analysis of
12 for the products has to be constant for the 12 complementary products applies.
13 complementarity to hold. 13 Does it only apply when the products are
14 MS. Objection to the 14 inextricably linked or intertwined?
15 form. 15 A Well, I'll go back to what I said
1 6 THE WITNESS: The question doesn't . 6 previously.
17 make sense, so that's what I'm struggling 17 Products have different levels of
1 8 with. So I can?t answer y0ur question, 1 8 complementarities. In this case Professor Noll
19 because by de?nition there's shifting in the 1 9 and I agree that e-books and e?readers are
2 0 supply and demand curves, so demand changes 2 0 inextricably linked. He testi?ed to that, and I
2 for the products, because the price changes. 2 1 write that, so we're in the same place, that they
22 BY MR. HUBBARD: 22 are inextricably linked, and obviously there are
23 In your discussion you referred to 23 complementarities that may be Weaker, but in this
2 4 "exogenous events," correct, for demand? 24 case the products are inextricably linked. There
25 A Ifthere's an exogenous change in say 25 is no debate among the experts here.
I 9 9 3
the price ofA, that has an effect on the, on both 1 Do you only go through a complementary
2 the demand for Product A and the demand for 2 product analysis when the products are
3 Product B. 3 inextricably intertwined or interlinked?
4 And if there's an exogenous event that 4 MS. RICHMAN: Objection to the
5 happens with Product A, that affects both the 5 form.
6 price and demand for Product correct? 6 THE WITNESS: Inextricably linked
7 A Yes. 7 is just that, is no. You couid go through
8 And if there's an exogenous event that 8 it in lots of different circumstances. The
9 impacts Product B, that affects the demand in 9 importance of it grows as the closeness and
1 0 price of Product 1 the complementarity increases.
1 A That is correct. 1 1 BY MR. HUBBARD:
12 And those exogenous events -- do those 12 Did you consider ways that the closeness
13 exogenous events break the connectedness between 13 of that complementarity might be affected in this
14 the complements? 14 market?
15 A No, not at all. They?re still 15 A Yes, I did.
1 6 complements. 6 And did you consider thatthe, that
17 If the production costs for the, for 17 hardware prices are going down, usually go down
18 Product A changed signi?cantly, that affects the 1 8 quickly, including for e?readers?
9 price and demand for that product; correct? 19 A Absolutely.
2 A I will say that that's acceptable as a 2 0 MS. RICHMAN: Objection to the
2 1 general proposition Obviously, there are 2 1 form.
2 2 conditions in which that wouldn?t happen. 2 2 THE WITNESS: Absolutely. I
2 3 Okay, and the production costs might 23 incorporate that directly into my analysis.
24 also change for Product correct? I 24 BY MR HUBBARD:
25 A At what time? The same time? Different 25 Would the inextricable link be weakened

 

 

 

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DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page there were different consumer demand for 1 computer?
2 Product A as opposed to Product 2 A Certain e?books, yes.
3 MS. RICHMAN: Objection computer a complement
4 form. 4 to an e~book?
5 THE WITNESS: I don't understand 5 A Yes, but it's just a dramatically weaker
6 the question, so we have to delve a little 6 complement than an e?reading device.
7 bit into what you mean by "different consumer 7 And is it, for purposes of e-reading, a
I 8 demand" for A and B. 8 substitute for an e-device?
9 BY MR. HUBBARD: 9 A I don't - if we can reread the
10 You I'm that's what I'm trying to 10 question.
11 understand. A left and right shoe has the same 11 (W-hereupon, reporter reads
12 quantity. You buy them together. An e?book, you 3.2 requested material.)
13 buy lots of e-books, you buy fewer e-devices, and 13 THE WITNESS: By "it" do you mean
14 I'm asking you whether that makes any difference 1 4 the computer?
15 to you. 15 BY MR. HUBBARD:
6 MS. RICHMAN: Objection to the 1 6 Yes.
17 form. 17 A For some consumers it could be.
18 THE WITNESS: If What you're if 1 And reading it on a phone, you can read
19 what you?re saying is if the products are 9 an embook on a phone; correct?
2 0 purchased in ?xed proportion, like left and 2 0 A It's not a very enjoyable experience,
2 1 right shoes, does it alter the idea of 21 but you can do it, and some people may enjoy that.
22 complementary products relative to say game 22 Well, my wife will disagree with you,
23 consuls and the games themselves or e?readers . 23 but the but it's --
2 4 and e?devices or DVDs and DVD players. No. 24 A Your wife must have great eyes, by the
25 The economics are identical. It's just 25 way, because I couldn't do that.
9 5 9 7
1 it's a variation on the same idea 1 So the, the, the e-book can be read on a
2 BY MR HUBBARD: 2 variety of devices; correct?
3 But the parity is a stronger 3 A I discuss that in my report.
4 link? 4 And that some of those devices are
5 MS. RICHMAN: Objection to the 5 iess complements than the e-reader?
6 form. 6 A I agree with that.
7 THE WITNESS: If we go back to what 7 And the, the substitutions that
8 1 said before, in that case for Ithink just 8 consumers could have on this affect the strength?
9 about everyone, left and right shoes are 9 of the link in the complementary analysis you
1 0 perfect Complements, and perfect complements, 0 haVe?
11 I will agree, are different than strong 1 1 MS. RICHMAN: Objection to the
12 complements or complements that are 12 form.
13 inextricably linked or complements that are 13 I THE WITNESS: I actually don't 
14 close complements, so there's a degree of 4 substitution of what? On the e?book side,
15 complementarity. 5 the e-reader side, or What do you mean there?
1 6 BY MR. HUBBARD: 1 6 BY MR HUBBARD:
17 And I'm okay, and you can read an 17 Well,_does substitution on the e?reader
18 e-book on a variety of devices; correct? 18 side affect your analysis?
1 9 A Depending upon who you purchase the 1 9 A Substitution of what?
2 0 e-reader that you have, yes. 20 Substitution by a consumer for the means
21 Soyou could read an e-book on a laptop? 21 to read the e?book.
22 A Certain e-books, yes. . 22 MS. RICHMAN: Objection to the
23 And you could read an cubook on an iPad? 23 form. 7
2 4 A Yes. 2 4 THE WITNESS: Well, if an c-book
25 And you could read an e~book on a 25 device, e-reader device faces increased

 

25 (Pages 94 to 97)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 .DQCumefnt 92/24/14 Page 27 01579 

 

iw? F-J P4 P4

as 

competition from either another .e-reader

device or a non?, a general :use e?reading

deviCe we canjust use those terms, it i

may beeasier'.

BY MR. HUBBARD:

Okay.

A That will affect the demand for the, .in
pricing of the epreading deviceif those other
products are substitutes, which in turn for the
company that has both e-reader device and e-books
will change its economic incentives onhow it

priCes its complement:

The are you aware that Amazon dealt
With e-books and Kindles differently in deciding
the pro?tability of them?

7 MS. Objection to the.

 farm.
BY IVER. HUBBARD:

I see you're qu'izzicai.

A I'Idon?t understand the question.

Let, let me  again.

Are you aware that Amazon anaiy'Zed the-
of its Kindle'separate from
analyzing the pro?tability of its e?book Sales?

A- Iam aware of both the fact that th e?y

1 0' 0'
that they don?t?
MS- MCI-MAN: Objection to the

 

25

 



 

99 

haVe, they have they maintain accounting of
each product separater andthen analyze each
product separately and as a system.

And are you aware that Amazon tries to
make both e-books and e?devices profitable
separately? I

MS. RICIHMEAN: Objection to the
form.
THE WITNESS: They have stated

that; that there-- that they don't believe.

that they should be subsidizing one side of 

the business for the other side of the

business. Their goal is to make each part of

the system pro?table.

BY MR. HUBBARD: 

And do you. have any reason to doubt
that, that statement by Am anon?

A I cite it. I adopt that that's their
It?s actualiy one of: the reasons why I
believe Professor. Noll?s-mode] is so wrong,
because his, model implies that they in the but-,
thatAmazon in the'hut-for world Would not do
preciSely what you just said.

So it's your position that Amazon would
link those and price them despite Amazon saying




11

 

.1- Ql 
BY MR. HUBBARD:

I'm confused, because I thought you said
that you ateepted that Amazon considered
pro?tability separately for ea-devices and for
e?books. I 

Is that correct? .

A They maintain: separateaccounting for
both devices, accessories and'co?ntent.

And are you, are yen separate from
accounting, do they, as a- business strategy,
.Separ'ately analyze the pro?tability of e?d'eyices
and ear-cadets of 'e?d'evice's: ands-books 

A Yeah, they are Very explicit and
was -. there?s a lot of back-and?forth in the
?rst phase-of this litigation about the fact'that
they Weren?t subsidiaing one side of the business

for the other. that they 

    

 

 

2-6 (Pages 98 to 101)

DAVID FELDMAN WORLDWIDE, I
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 7 Filed 02/24/14 Page you listen to them- I 1 form.
'2 2 THE WITNESS: Not at all.
a 3 Mm mama:
4- 4  In paragraph 92 you said that.? I read
5 5 it to say that Your View is?
.6 6' 
I 7 
'82  And that?s based on your factual .  . . Do read that correctly?
conclusion of the record? 9  
l. .A It's based o'nfall'the information that i 
11 is detailed in my'rep'ott There's dozens of 11  
 footnotes that highlight the different evidence on 12 
13 escapes: 13. 
14 And focusing on thepro?tability 14  
15 analysis of Amazon for 'e?boolts, one way that. 15 
1 26' pro?tability might be affected by Amazon is by'a 1 .6 RICHMAN: Objection to the
7 lower wholesale price; is that'correct? ?17 form-
1 8 A That is correct.- 1 8 THE WHNESS: 
1 9 So that the, Amazon could impact its 1 .9 1
20 pro?tability for e?devices by, with a lower 20 -
2 acquisition cost; correct? 2 l: - 
2 2 MS. Objection form. 23 And why is it that Amazon didn't do that
2 4 THE We just talked about 2 4. earlier?-
2 5 two different concepts. So I want to make 25 MS. RICHMAN: Objection to the
103 105
3 1 sure we?re you said wholesale cost, which 1 form.
.2 generally is a discussion and you . 2  WITNESS: Amazon didn't do that
3 said acquisition costs, which do you mean I 3 earlier:?
4 on the content side or the device side? 4 
over?ow: 
5. ?7e11, let's stay on the content side. 6 
7 By "content side," you mean e?books0.11.33" 9 0k3Y-
1 0 So on 'e-book's they could increase their 10 Quoting to you from paragraph 104(b) of
1 1 pro?tability by, by loworing the wholesale price;- ll Professor Kalth declaratiOn I?m not'going to:
12 correct? 12 ma it I'm-just'going to read this to you, and
l3 A- Holding prices constant, yes. 13 I just need to clarify something.
1 4 And they could have done that absent the 14 It says, "Orszag reports that the Kindle-
'15. conspiracy: correct? 15 e??reader. was priced during the claimed damage.
16 A That is one possible outcome, yes. 1 6' period at
17 And that would have increased Amazon?s l7 
18 pro?tability? . 1'8: - citing paragraph 85 of your 7
19 A Not necessarily. It's It's 19: report.
2 0 not necessary. 2 U. YOur declaration and again I?m
21 If it-(lid ifAmazon were able to 21 talking'about?that paragraph 85;. Are y0n with. me? -
22' negotiate lower wholesale price,'would that have 22 A I'heard the words you said. I don?t
23 any effect on your aSsumptions about complementary 2 3 know all the words you chose in Professor Kalt?s
2 4 products? I I 2 declaration by hearhbutl know the thought that
25 Objection to the 2 5- you have here, so you Can continue; 7

 

 

27 {Pages 102 to 105)

DAVID INC,
450 Seventh Avenue - Ste 500, New York, NY 101.23 1-800.642.1099

Case Document 559-9 Filed 02/24/14 Page 29 of 79

 

105your paragraph 85, you say that. 3 (Whereupon, a short recess was-
.2 . 2 taken.)
.3 3 
4 the time is 11:24:30. Counsel
5 3 5 may proceed. This is the beginning of
6 6 videotape numberll.
7 . 7 BY MR. HUBBARD: 
8 Do you'remembe'r making that statement? 3- Qi Okay; I'd like to turn to your
9 A Yes; 9. calculation of the admin: offset.
1 I 1.0
1 1 What I'm-frying. to understand is 1'1
12 12
13 13' MS. RICHMAN: Objection to the
14 Is that correct? 1 4 ?rm, 
15 Objection tothe 15 BY HUBBARD:
1'3 - form. I .16 Q1 It?s paragraph 83, if that helps.
17 7"  17 A Those nt'tmbers Seem abdut right, and
18 the record is clear, that?s
1 9 devices plus accessories! .
.20 Okargthank you, and-
2 1
23 MS. RICHMAN: Objection Io-the
2 4? I
25 THE. WITNESS: 1 111in misstated. Ithinkyo'u said "products." Did
3' . 3 BY MR. HUBBARD:
5 5 A. raglan.
6 And did you consider the competition
7 that Amazon might have faced from companies like
8 8. Sony, Barnes Noble and Google?
9 9. MS. RICHMAN: Objection to the
10 form.
1 11: THE WITNESS: Yes,.I did.
12. 12 BY pm HUBBARD15- Objection to the
1 6' 1 6- form. -
1? - l7 Inpartyes andin
18' . 18 part-n01
9 I   ?mm HUBBARD: I think we?re out of. 19-
20 tape, 301' think WE'r'egoi?g to take a break. 20'
21 THE WITNESS: Sure- 21
22' THE Going off the 2 2
23- record, the time is 11:10. This isthe end 2 3' Objcc?onto the
'34 oftape-nmnber 1. 24 form;
2 2 5 THE WITNESS: '1 don't understand 

 

 

 

 

28 (Pages 106 to-log)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue- Ste 500;. New York, NY 10123 1.800.642.1099

Case Document 559-9 Filed 02/24/14 Page the question, because costs are part of the 1 report.
2 pro?t calculation. 2 So the costs incurred by Amazon in
3 BY MR. HUBBARD: 3 e-devices affected its pro?tability for the sale
4 And so did you look at the, the cost 4 of e?devices?
5 component of that pro?t calculation in, in 5 MS. RICHMAN: Objection to the
6 determining whether the pro?tability could be 6 form.
7 determined for reasons of costs as opposed 7 THE WITNESS: Yes.
8 to e-books? 8 BY MIR. HUBBARD: 
9 MS. RICHMAN: Objection to the 9 And there might be changes in those cost
10 form. 1 0 numbers beyond the accounting of them?
11 THE WITNESS: I'm sorry. I'm 11 MS. RICIMAN: Objection to the
12 struggling with your question. 12 form.
13 BY MR. HUBBARD: 13 THE WITNESS: If they're paying a
14 So I?m trying to understand your- different price for -- if they're, they're
15  acquiring a cost -- I don't understand your
16 question. The cost is in the accounting.
17 BY MR. HUBBARD: 
18 And did you look at the factors that
1 9 affect the cost?
2 0 MS. RICHMAN: Objection to the 2 A I looked at their costs and I looked at
21 form. 2 1 the trend in their costs, and I looked at
22 THE WETNES S: The costs are 22 third-party data on trends and costs as part of my
2 3 directly inthe pro?t calculation, so 23 analysis.
24 they -- costs are absolutely included in the 2 4 And the costs that they have is part of
2 5 analysis. 25 the that, that could in?uence the
1 1 3
1 BY MR. HUBBARD: - 1 pro?tability of Amazon for e-?devices?
2 And did you look at what were the 2 MS. RICHMAN: Objection to the
3 components ofAmazon's price? Did you analyze 3 form.
4 that in any way? 4 THE WITNESS: Pro?ts are equal to
5 - MS. RICHMAN: Objection to the 5 revenue minus costs, so costs then by
6 form- - 6 de?nition have an effect on pro?ts, and
7 THE WITNESS: What do you mean 7 those are fully incorpo'rated into my
8 which price? 8 analysis.
9 BY MR. HUBBARD: 9 BY MR HUBBARD:
1 0 As an accounting matter, we know that 1 Okay. .
1 cost is there. I just wonder whether you looked 1 1 Just to be sure I understand, the - I
12 at the, the components of cost beyond that 12 I 
l3 accounting device. 13
14 MS. RICHMAN: Objection form. 7 15 MS. Objection to the
16 THE WITNESS: Yes, I did. 1 6 form.
17 BY MR. HUBBARD: 1 7 THE WITNESS: It's not just Apple's
1 8 And might that have impacted the 1 8 entry. It's due to more vigorous competition
1 9 pro?tability of the Kindle device for Amazon? 19 after Apple's entrytalking past each other, but 2 0 BY MR. HUBBARD:
21 the, the role of costs and acquisition costs 21 So more e?d evices are available,
22 and the cost of the components of the device are 22 including the iPad?
23 re?ected in my analysis. I have a diseassion of 2 3 A Yes, that the introduction of the iPad
2 4 those costs, and they're directly re?ected in the 2 4 changed the competitivo dynamics in the device
25 pro?tability of Amazon that I talk about in my 25 space and 

29 (Pages 110 to 113)

DAVID ELDMAN WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642-1099

 

 

Case ierocumen?t 

Filed 02/24/14 Page 31 of_79 

 

 

 

 

 

 

  

 

 

1 1 4 1 6
1 pro?ts from the competition. That's the ?rst
2 2 one. The shorter useful life for the Kindle, a
3 3 discount rate for future revenue, positive growth
4 4 in e~book revenue, additional revenues from
5 5 physical books or unrelated content.
6 MS. RICHMAN: Objection to the 6 And then I say that that range of
7 form. 7 results that I test, in all cases the result in
8 THE WITNESS: Yes, and that's 8 offset range from 9 percent, between 9 percent and
9 because based on the fact that the Amazon 9 17 percent of publisher defendants' e?book prices.
10 business executive stated clearly that that 1 0 Andthen I say "these calculations are included in
1 was how they ran the business, and we talked 1 1 my backup," and they are, and Itry various
1 2 about that earlier. 1 2 alternatives. 7
13 BY MR. HUBBARD: 13 And you assign theMS. RICHMAN: Objection to the
17 17' form.
18 MS. RICI-IMAN: Objection to the 1 8 THE WITNESS: Consistent with the
9 form. 19 record evidence, yes, but then I test how
2 0 THE WITNESS: Well, that's their 20 sensitive my result is to alternative
2 1 change in relative to what they had said 2 1 assumptions, assuming that perhaps the Amazon
2 2 pre-agency they were doing, so that meant 2 2 executives Would have, would have gotten rid
2 3 that that part of it either would have 2 3 of their business strategy of, of trying to
2 4 resulted in higher e?book prices or a bene?t 2 4 be pro?table or at least break even on both
2 5 to consumers in terms of lower device prices. 2 5 sides of the system.
1 5 7
.1 This is then the air in the balloon that I 1 And I believe that there was
2 talked about resulting in higher e-book 2 signi?cant testimony ?om the expert
3 prices or lower device prices in the actual 3 witnesses in the ?rst phase that I cite in
4 world. 4 here, that says that they believe that they
5 BY MR. HUBBARD: - 5 wouldn't have changed that strategy in the
6 I 6 but-form-
7 BY MR HUBBARD:
8 8 Is there a one?to?one correlation
9 A Yes, I did, and I have sensitivity 9 between      'analysis showing that. 10 bene?ts to consumers?
11 Could you show me what sensitivity 1 1 A Yes and no. Depends on which part. It
12 analysis you're referring to? 12 depends on what?s happening here, so some of this
13 - A Of course. I would be more than happy 13 is the answer is some re?ects bene?ts that
14 to. 14 are not ?owing to consumers and some flows to
15 If we can turn to paragraph 155, and 15 consumers.
1 6 this is all included in my backup material, which 16 Can you elaborate for me what you were
17 I'm sure you have either here or elsewhere. 17 referring to when you said "signi?cant testimony
18 I mean I'm sorry. I meant Footnote 155. 18 I from the expert witnesses" in the ?rst cite about
19 I apologize. 1 9 the pro?table or break-evengoodness. 2 0 A Yes, if I may. If you give me one
2 A The report has just gotten longer. 2 1 second.
22 In Footnote 155 I discuss the 22 Sure. Three, four. 7
23 sensitivity checks on the main parameters within 23 A I'll start from the beginning- I?m
2 4 this, and so I try various versions. I look at a 2 4 sorry. Going backward doesn't work as well as
25 shorter life for the Kindle, ?irther losses in 25 going forward sometimes.

 

?30 (Pages 114 to 117)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 Document559-9 Filed 02/24/14 Page?32 of79m 

 

 

 

 

 

 
  

1 1 8 1 2 
1 I'm looking for the quote from Professor 1 A I cite to a signi?cant amount of Amazon
2 Noll from his deposition where he said he assumes 2 testimony.
3 them to be pro?table, but they would have been 3 Did you review executives other than
4 pro?table in the but~for world, and that's the 4 Mr. Grandinetti?
. 5 quote that I'mlooking for as the start of this 5 A Yes, I did. I cite to executives other
6 discussion. So if you hold on one second, 6 than Mr. Grandinetti. I apologize for
7 there's, as I think I noted already, 90 footnotes, 7 mispronouncing it. I?m sure I will do that more
8 so Ijust want to make sure that I ?nd the right, 8 than once today.
9 the right footnote. 9 And would their testimony be a better
1 0 If I go to Footnote 147 - sorry that it 1 0 source than the expert testimony on this question?
1 1 took me so long to get there. In this section, as 1 A i incorporate their testimony directly
12 I said, there's a lot of footnotes detailing each 12 into my analysis. My m- their testimony concerns
1 3 of my assumptions. Let me read the whole thing so 13 a pre-conduct period in the actual world in which
1 4 the record is clear. 14 We lived. I'm not aware of their testimony with
15 "Note that Amazon's vice president for 15 regard to the but-for world, other than to the
1 6 Kindle, Mr. Grandinetti" I apologize if I 1 6 extent that they would have continued the same
1 7 pronounced that wrong, it's l7 policy of having each of their business
1 8 -- "testi?ed that Amazon?s goal was not to use 1 8 sustainable in its own right, and so that's the
1 9 sales of e-books to subsidize" and that's in 19 assumption that is, I make and is based on their
2 0 quotes "the Kindle device. Instead, Amazon's 2 0 direct testimony.
21 goal had been to," quote, "?to have both parts of 21 
22 the business sustainable in their own rightFootnote, "Professor N011 and other 24 MS. RICHMAN: Objection to the
2 5 plaintiffs experts argue that Amazon would not 2 5 formhave changed its business strategy in the but?for 1
2 world in April 2010 forward." 2
3 Footnote, "Noll depositionreason to believe that there would be a change in 4
5 Amazon?s pricing policy on April 1. See also 5
6 Baker testimony, paragraph 114 and note 43, and 6
7 Gilbert testimony, 64 and note 25." 7
8 1 then continue. If I may just skip a 8
9 little bit, because Ithink it will help. Let me 9
1 0 read the whole thing so it's clear. 1 
11 ?If Professor Noll is correct, that 11 BY IVIR. HUBBARD:
12 Amazon's strategy in the but-for world would have 12 I'm trying to ask a more focused
13 been would have continued to emphasize low 13 question, which is I'm trying to understand
14 prices, not to 'subsidize the device,? then 14 where you get from the accounting of pro?ts to
15 it is reasonable to assume that Amazon would have 1 5 bene?ts to consumers.
6 reduced device prices in the presence of 1 6 And so my question was: Does that
17 competition from the iPad, but it would not have 17 change in pro?tability one-to?one correspond to
1 8 sold the devices at a loss; that is, devices would 1 8 consumers?
1 9 have been sustainable 'in their own right.? 1 9 MS. RICHMAN: Objection to the
2 0 Moreover, Professor Noll claims that Amazon would 2 0 form_
2 1 have been pro?table in the but-for world. 2 1 THE WITNESS: 
2 2 (Footnote to his deposition.) Yet his damage 2 2 
2 3 model assumes that Amazon would have lost money on 2 3 
2 4 devices and overall." 2 4 
25 So did you review anyAmazon testimony? 25    

 

 

31 (Pages 118 to 121)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page booksback to something.
3 3 If the cests were the same, so if you
4 4 have a you have a device, and let's just make
5 BY MR HUBBARD: 5 it relatively simple. I'm going to abstract fr0m
6 My question remains. What takes you 6 reality for one second just to make it a simpler
7 from that accounting of pro?ts to bene?t to 7 1 example. If you have a device that?s let's say
8 consumers? . 8 selling for $100, because I'm picking a round
9 A Their precise words that we've already 9 number, if that device costs you 5 120, you have a
1 0 reviewed. 1 0 loss of 20 bucks.
1 How does an accounting device translate 1 1 If you sold the device, you're paying
12 to bene?t to consumers? 12 $120 to get that device. That's the cost. If you
1 3- MS. RICHMAN: Objection to the 13 sold that device for $101, your pro?t margin is
14 form. - 14 now 19. Censumers are paying a dollar more, and
15 THE WITNESS: Quite, quite directly 15 so that is an increase in price for consumers by a
1 6 in this case, because if they otherwise would 1 6 dollar, and now the pro?t/loss goes from $20 to
17 have had a dollar of pro?ts, they have to 17 $19.
18- get that dollar someplace, so they get the 18 Do all e-book purchasers buy Kindle?
19 dollar from say increasing, in the but?for 19 MS. RICHMAN: Objection to the
2 0 world, increasing the price of an e-book. 2 0 form.
2 1 BY MR. HUBBARD: 2 1 THE WITNESS: The answer is no.
22 The world is a balloon. 22 They there is some share of consumers who
2 3 The, the price of the device is not what 23 buy through the iBookstore or thrOugh the
24 you're analyzing here. You're analyzing the 24 Nook app or alternative apps, and some buy
25 pro?t; correct? 25 through the Kindle, and there are some people
MS. RICHMAN: Objection to the 1 who obviously use a Kindle, and so there's
2 form. 2 different products in the market.
3 THE WITNESS: That is derived 3. BY MR. HUBBARD:
4 directly from their pricing and their costs 4 And so those consumers who don't buy
5 of the products. 5 Kindles would not have bene?ted from whatever
6 BY MR. HUBBARD: 6 impact this had? Strike that.
7 Well, there?s lots of things that go 7 So the consumers who don't buy Kindles
8 into pro?ts correct? It's an accounting 8 would not have been impacted in any way by the
9 device; correct? 7 9 pro?tability analysis you made of their Kindle,
10 MS. RICHMAN: Objection to the 10 Amazon's Kindle books?
1 1 form. 1 1 MS. RICHMAN: Objection to the
12 THE WITNESS: And I'm using 12 form.
5.3 variable costs, contribution pro?t, and I 1 3 THE WITNESS: Not precisely, but I
14 identify the costs that are part of these 1 4 will and I can explain why I say "not
15 costs, and they have a cost of goods sold, 15 precisely," but I agree with the proposition
1 6 obviously the revenue of the product, I 1 6 that there are consumers who did not purchase
17 believe it's called transport costs, and then 17 Kindles who bene?ted ?om either the lower
18 digital delivery browser. In essence, they 18 price Kindle or, because of the nature of the
1 9 pay for certain wireless services that people 1 9 books that they purchaSed, bene?ted from the
20 receive so they can download content, and 2 0 fact that prices were lower for them post
21 that's being counted as a marginal cost. 21 agency, and there were consumers who were
22 BY MR. HUBBARD: 22 banned; that is, that prices went up for
23 I'm just trying to understand Where the 23' them. I agree with that proposition that
24 price to consumers, how that is causally related 2 4 there are different groups of consumers.
25 to the accounting pro?t in the, the Amazon's 25 

 

32 (Pages 122 to 125)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

ease 559-9 Filed 02/24/14 Page 34.9179MR. HUBBARDdevice get less recovery because
2 So were iPads priced lower because of 2 of this device/e-book complementarity?
3 the conspiracy? 3 MS. RICHMAN: Objection to the
4 A I adopt in my analysis the same 4 form. 
5 assumption that Professor Baker does, that the 5 THE WITNESS: I believe that you
6 introduction of the iBookstore had no material 6 need to have a different model for the
7 effect on the pricing of the iPad. 7 consumors who behaved differently, so that's
8 Okay, but so for the balloon analogy, 8 ?why I d0n't think Professor Noll?s model is
9 if you apply the balloon analogy to Apple, itjust 9 reliable for estimating damages, because he
1 0 wasn't much of an effect? 1 has not factored in the economic incentives
1 1 MS. RICHMAN: Objection to the 1 1 that would have occurred in the but?for world
12 form. 12 for Amazon to raise e?book prices or the 
1 3 THE WITNESS: It - there was 13 change that they would have had in device
1 4 directionally, all other things being equal, 1 4 prices, because remember, this is the
15 if prices would act exactly the same way for 15 balloon.
6 Apple as they do for Amazon. The difference 1 6 It could end up on the side of
1 7 is that the iPad is a general use device, 17 e?book prices, and so this is why he doesn't
18 whereas the Kindle is an e-reader, so the 18 factor in these incentives, and so as a
9 degree of the complementarity is different. 1 9 result, his model misestimates and is
2 Directionally it has the same effect. It's 2 0 unreliable for measuring damages both on an
2 - just then a question of the magnitude. 2 aggregate basis but also on an individual
22 BY MR. HUBBARD: 2'2 basis.
23 Were there e?book purchasers that didn't 2 3 BY MR HUBBARD:
2 4 buy any type of device? 24 And you didn?t do that either; right?
25 A Well, by de?nition -- 25 A What do you meanDuring the, during the conspiracy 1 You, you didn't construct a model that
2 period. 2 would take this pricing behavior for e-devices
3 A I - there are certainly people who did 3 into account in estimating the impact to -
4 not purchasc an e-reading device or a general use 4 individual consumers.
5 tablet that would allow you to read or any other 5 i A I measure the average effects, as I talk
6 device during the period from April of 2010 to May 6 about here. I do not have data to measure
7 of 2012- 7 individualized effects which I believe are
8 And are those people should those 8 absolutely necessary.
9 people get less money because of the effect of, on 9 Let's talk about Barnes Noble for a
0 e-device that you posit? 10 while. This is in paragraph 123, beginning.
1 Objection to the 1 1 A Paragraph 117, I think you mean.
12 form. 12 Maybe I 
13 THE WITNESS: No. I believe that 1 3 A That's where the section begins.
14 if you want to analyze impact, you should 1 4 Paragraph 123 is the last paragraph of that
15 analyze each consumer based on their behavior 1 5 section.
1 6 in terms of the number of e?books that they 1 6 Okay.
1?7 purchaSed, which books they purchased, and 17 Well, you, you us ei$6 million in that
1 8 whether they purchased a device or not, and 1 8 paragraph, and did you calculate the percentage of
1 9 so when you then averaged all that out, you 1 9 Barnes Noble sales that would not occur in the 
2 0 would end up with the average results that I 2 0 but-for world?
2 1 have. 21 MS. RICHMAN: Objection to the
22 BY MR. HUBBARD: 22 form.
23 Separate and apart from averaging, for 2 3 THE WITNESS: I the answer is I
2 4 purpose of estimating damage su?'ered by an 2 4 provided an illustrative example of the
2 5 individual consumer, should an individual consumer 2 5 potential overstatement in Professor Noll's

33 (Pages 126 to 129)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page__35 of79

 

 

 

1 3 1 3 2
1 model for his failure to analyze what Barnes ,1 THE WITNESS: That's not correct.
2 Noble would -- how Barnes Noble would 2 By de?nition, I'm analyzing data to produce
3 have performed in the but-for world. 3 this estimate.
4 BY MR. HUBBARD: 4 BY MR. HUBBARD:
5 So, so you did, you did not calculate 5 What calculations led to the $6 million
6 the percentage of, of Barnes Noble sales that 6 to $18 million range? .
7 did not occur in the but?for world? 7 A Well, you start with sales through
8 MS. RICHMAN: Objection to the 8 Barnes Noble and e?book sales through Barnes 
9 form_ 9 Noble, and you ask the question of what percentage
1 0 THE WITNESS: I provide an 10 of those sales would have been lost if Bames 
1 1 illustrative example of the potential 11 Noble exited the e?book marketplace, the device
1 2 overstatement in Professor Noll?s model for 12 marketplace in the butafor world, and I asked the
13 his failure to consider at all or even 13 question of whether, it, what percentage of those
14 examine or look at Barnes Noble?s 1-4 would exit, andI analyzed those different
1 5 incentives and pro?tability and how they 15 percentages in my calculation of to
1 6 would have behaved in the but-for world. 16 $18 million.
17 BY MR. HUBBARD: 17 Did you try to probe causation inanything beyond an 18 your analysis?
1 9 illustrative example? 1 9 MS. RICHMAN: ObjectiOn to the
2 A In terms of -- I analyzed the record 2 0 form.
2 I evidence and the available Barnes Noble 2 1 THE WITNESS: Causation of what to
2 2 documents regarding their pro?tability, their 2 2 what?
23 incentives, and their actions in the pre?conduct 23 BY MR. HUBBARD:
2 4 period and the post-conduct period. 2 4 Well, the changes that might have been
25 In terms of calculating that 6 million 25 impacted by something other than the conspiracy?gure, that's an illustrative example. I'm 1 MS. RICHMAN: Objection to the
2 asking whether you did more than that illustrative 2 form. 
3 example. i 3 THE WITNESS: Well, Professor 
4 MS. RICHMAN: Objection to form. 4 Claims that in the but-for world, prices
5 Asked and answered. 5 would be 20 percent, 19.9 percent lower than
6 THE WITNESS: Just so the record is 6 they otherwise would be. If prices were --
7 clear, I provide an illustrative example of 7 than they were. If 19.9 percent, if those
8 it?s approximately to $18 million, just 8 prices are that much lower, Barnes Noble
- 9 so we're on the same page. Depending upon 9 would be, which was already unpro?table in
the assumptions that one makes about what 1 0 the pro-conduct period, according to their
1 1 would have happened to customers in the 1 1 own data and statements, they would have
12 but-for world if Bames Noble's presence 12 become they would have remained
1 3 was weakened or eliminated because they could 1 3 unpro?table or become even more
1 4 not survive with lower e?book prices that 1 4 unpro?table, depending upon various
15 would have occurred in the but~for world 1 5 assumptions,
1 6 I so I provide these examples to 1 6 And so the key question is: Could
17 show that directionally we know which way 1 7 they have sustained that degree of
1 that would go, and these are illustrative 1 8 unpro?tability or ever become pro?table
1 9 examples. I do not have the data to conduct 1 9 given what has occurred in the but?for world?
2 a more rigorous analysis of this issue. 2 0 And I consider that they may not
2 1 BY MEL HUBBARD: 2 have ever become pro?table and that they may
22 Okay, that so the - you didn't 22 have had to exit the market, and if that were
23 perform any analysis on data to do this; correct? 2 3 the case, some of those customers and the
24 MS. RICHMAN: Objection to the 2 4 sales to those customers would be lost, and
25 form. 2 5 the order of magnitude is what's analyzed

 

 

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450 Seventh AVenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page 36 of 79

 

 

 

 

 

 

134 136
.1 here, but I don't have suf?cient information 1?5 .3 pro?tability; So it could go both ways.
to that 'i'nclude this in my damage Zj Q: Might thcyihavc gotten better at doing
.  calculation.  3 the business So that what 
.42 BY MR. HUBBARD: 4: unpro?table becamepro?table over time?
I 5' Would consumers have had alternatives 5 RICHMAN: Objection to the
6; if, that .if Barnes 8; Noble had withdrawn? . 6_ 3 form. 
7? A Some c'onsuo'lers'= yes. Not all consumers. 7 I THE That is a possible
8 And did you" analyze "the extentto which 8 . outcome, and that'swhy andI articulate
9 consumers had alternatives? 9 .that that?s a possible Outcome-
1 0 Ms. RICHMAN: Objection. to the '1 BY HUBBARD:
11 form. I 11 I And that's what our competitive system
12  WITNESS: I censide'red the" 12 allows or requires; correct?
'13 Variouseviden Cc that?s availablezin _l'3 MS. RI-CHMAN: Objection to the
1 4 informing my illustrative example; :1 4 3 form.
15.. BY MR. HUBBARD: 215 THE WITNESS: It doesn't require.
1 6- ?mad. you have no certainty that, that 1 6 yOu to. get better in-some sense. You could
17' Barnes &?Noble would have withdrawn absent the .17 say it allows youto get 
1'8- conspiracy; correct? . 18 - Competition is one of the elements in which
19. MS. RICE-IMAN: Objection to the '1 9" you want to get better? but you want to get
2  form. 20 i better isi?iout-COD1petition, too,? by the way.
21 THE WITNESS: Certainly is awry 21:2 BY 
22 oddeoncept-always for an because 2 2 Q. Right, and ifyou don't get better; you
2 3 1 I. thinkwe always-view anythingthat involves 237f might have to close the business; right?
24 forecasting to have uncertainty by 2 4; MS. Objection to the
2 - de?nition}, but I think the statements of the 2 53 ?formw 
7 135 137
1 ?r executives suggest very Strongly that john: 1 THE That is correct
- . 2 but-for world they Would have found it very 2 BY MR. HUBBARD:
3 dif?cult to survive as an ongoing 3 Q- So are you, are you saying that. the
4 enterprise. 4 conspiracy should keep someone who-shouldn't be in
5 BYMR. HUBBARD: 5. the business continuing in the business?
6 They have? Barnes Sr. Nuble had 6 MS. RICHMAN: Objection to-the
. 7. alternatives available, though; Correct? 7 fume
. 8 A What do you mean by "alternatives"? 8  WITNESS: I'm not making a View
9 1 .Q hey couldhavc partnered with Google; 9 one way or the other on that issue. I?m
1'0 correct? 7 10 saying that if prices Were lower, they would
1 A That is correct :11 have had a harder time surviving in the
12- They could have negotiated lower 12 business, and that's something that Profes'sor
13 wholesale prices with Noll failed to consider and failed did not
1 4 A It?s not clear to me their leverage. and 1 even consider. Hie-didn?t even look at it
i 55 how they Would have achieved that in the butwat 15 He didn't even examine the question. He just
1 6 world relative to the pre-world; Ifyou want't'o 16 ignored it
1 7: - articulate a theOgr, I can. tell you whether that 1 7 BY MR. HUBBARD:
18  I theory is plausible or not. 1 You main tain that as a result of the.
19   I They chuld have bene?ted from Amazon 1'9 higher ewbook prices due to 'the'c'onspiracy, Barnes
2 0 5  I negotiating such lower wholesale priceS?? 2'0 &?N.oble has had funds to expand im technology and
2 1. i A Ifthey- have an MFN provision I guess 2:1 innovate; is that correct?
2 2 maybe that?s possible= hut it'snot clear if those 2 2 7 A Sounds familian lfyou want to point
2 3' 5 would be Amazonespeci?e? improvements inwholesale 23 me to' a speci?c section1 lean 
2 4 costs or for all disuibutors;;aud if .it'siiust I 24 Well, so happy. No, that?s We're
2 5h All Amazon, it could'actually harm their 25 still in that, that section which is around 123.

 

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450 Seventh Avenue Ste 500, New York, NY 10123 1.800.542.1099:

 

. Page?? 7.9. . .

 

 
 

 

 

 

 

138 140
1 Idon't have the speci?c cite. a if Barnes Noble had exited the market.
2 7 A  it's at paragraph 12.0,  say, 2 '3 I l-cnow directionally whiCh way it goes.
3 ?Acco?rdingtoBarnes Noble eXeeutivest absent 3  I do' not have empirical evidence to support a 7.
4 the agency Noble would have 4  conclusion about the. numbed and that?s why I
5 been unlikely to make the investments :it made on.   discuss it in the way I discuss it, as. something
- 6 its electronic bookstore Nook devices: and would 6 i that Professor Noll should have included and that
7 notbe operating anywherenear the scale?it 7 illega?edto
8 operated after. the. agenCy agreements?" 8 - FRIEDMAN: Objection.
9 Okay. .- 9 Non?'responsiVe. .Move?to strike.
1-0 So that expanding technoiogy and 10 BY MIL HUBBARD:
11 innovative was? ?nanced by the arti?cially 11 Do. yousagree that Barnes 8: Noble
11:2 cusmme.? ?1193? reading? . . - I
3. MS. RICEMAN: Objection to the 13 MS. Objection'to the
1' .4 form. 1 4 form. .
1.5 THE WTTNESS: That's what the. 15 THE WITNESS: I haven't talked to
1 6 Barnes ?clNoble executive, Mr. stated. 16 all Barnes Noble customers. I presume that
BY  HUBBARD: 17 they enjoy readinginore-?than- maybe some other
1'8. And that's -- you're saying that's a 18 people, but Lhaven?tanalyzed that question.
1 9 precompeti?ve effect? 19 BY MR. HUBBARD: I -
2-0 A l-ufould say it?s an offsetting effect, 20 And they .haVe alternatives to read
'2 the bene?t to. consumers, if they get a better 21 e?books other than the Nook?
2 2 producgfand 'so onewould Want to  about'is 22' MS. RICHMAN: Objection to the
2. 3 the, how these relate 23' form.
2 4 And we have to remember, While this is 2'47  WITNESS: You have to factor in
2 5 an? issue that Professor Noll ignoresl doesn't even 25 price- Given that they hadalready purchased
1 319' 4 1
1 consider, doesn't look at any of the ?nancial 1 a? Nook, could they then afford, if Barnes 8:
2 information'with regard to. Barnes Noble: doesn't 2 Noble exited themarket, to ?purchaSe an
.3 factor into his analySis Whether they would be 3 alterh atiVe e-reading device, and that is an
4 present post agenclr;r without Ime?anin the .4 empiricai question that has to be analyzed on
5. but-for world, and I. discuss this, becauSe it?s 5 an individualized basis?.
6 illustrative of the fact thathe failed to 6 MR Move to strike.
consider it and it's he should have 7 Nonre?s?pbnsive.
a considered, but I don?t'h1c1udeit'in my damage 8 BY MR. HUBBARD:
9 Calculation for the reagon's'We?ve already. 9 Could a Nook owner buy e?bOoks from.
10 discussed 10 Barnes Noble, the e-book store Eor other stores
_:11 MFRIEDMAN: Objection. 11. like Kobe?
'12 Non?responsive; Mave to strike. 12 MS. RICEMANE. Objection'to form.
13 BY 13' THE WITNESS: "The ewbook store 
1 4 you have any proof that if Barnes 1 4 they can't. buy beaks from the. iBookstore, if
1 5 3 Noble had exited the e?book market, fevvejr 'e?books 15 that's what he meant, [mean unless they own
1 6 would have been purchased during the relevant 6 an iPad orian'other device that has -- I, I
1.7 period? I I 17' believe you. have 'to?ha_ve the .108 operating
18 A Logic and the fact that there are people 18' .systemzin order to use die iBookstore; .
1 9. . who have only the Nook e-reader device do not also. 1 9- BY HUBBARD:
20 '7 own a Kindle device or an iPad 0r another general, 2-0 But the iPad would have an app where
21 general  tablet orother device to read that; 231 they could read the, read the e?book on the iPad? 
22. they would have read books on, and so for those 22 A The Nook -- there is a NookJiPad app, so
2 3 individuals1 it's plausible that they may'not have. 23 if an individual owned'both a Nook and an iPad,
2 4% 1 gone and purchased another device oriafforded to 2 4 they could then have access to the, I believe
25 ?i purchase been able to purchase another device 2 5- technologically the Neck content via the iPad

 

36 (Pages 138 to 141)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh.Avenue.?. Ste 500, New Yorle NY 10123 1.800.642.1099-

 

Case Document 559-9 Filed 02/24/14 Page dEVice. 1 What?s the anSWer to my question?
2 And you wouldn't need the Nook. You 2 A Unfortunately, that?s a question you
3 would just need the iPad and the app; correct? 3 have to -- the general counsel of the ?rm would
4 A You?d have to be somebody who owns both 4 have to answer, not myself
5 a Nook and an iPad. If you don't own an iPad, 5  Are You instructing
6 then you couldn't do that. 6 him not to answer?
7 MR. HUBBARD: I'm actually done. 7 MS. RICHMAN: He's given you an
8 Let's take a break. 8 answer. He can't answer_
9 THE VIDEOGRAPHERI Going off the 9 THE WITNES S: I have a contractual
10 record, The time is 12111305. 10 relationship with them that governs my
11 3 511011 recess was 1 1 con?dentiality associated with that.
12 ?ika 12 BY MR. FRIEDMAN:
13 THE VEEOGRAPHEK Going back on 13 And so your contract precludes you from
14 the ?55?de the time is 12353320 Counsel 1 4 providing your salary in sworn testimony; is that
1 5 may proceed. 1 5 correct?
1 6 EXAMINATION BY COUNSEL FOR CLASS PLAINTIFFS 1 6 A My it's governed by it's
17 BY MR FRIEDMAN: 17 information that?s business?sensitive and
1 8 Good afternoon, Mr- 018mg 1 8 SEC-related information, so it's governed by the
1 9 A Good afternoon 1 9 general counscl of the corporate parent, so I'd
20 My name is JeffFriedman, and I 2 0 have to turn to him. I don't -- according to my
21 represent the class of consumers who are alleging 2 1 contran this is his decision: not mine;
22 they've been injured by Apple's conspiracy to 2 2 Objectiom Nou_respousive_
23 elevate pricm ate-books, and I have some 23 So I'm asking you; Do you understand if
24 questions for you today, and I hope we're able to 2 4 your contract prevents you from providing sworn
25 ef?ciently move through them- 25 testimony as to the amount of your salaryOkay? 1. MS. RICHMAN: Objection. Asked and
2 A I hope so, too, and I look forward to 2 answered.
3 answering them. 3 BY MIL HUBBARD:
4 Great. 4 Yes or no?
5 How much are you getting paid per hour 5 A My understanding of my contract, and
6 for your work in this case? 6 it's been a while since I?ve looked at it, this
7 A Zero_ 7 provision of it at least, that the general counsel
8 Are you getting paid at all for your 8 has to be party to that discussion because of the
9 work in this case? 9 confidential nature of the information.
1 0 A I don?t get paid for, on an hourly basis 10 Has to be part of the discussion whether
1 1 for my work. 11 or not you can disclose your salary in a federal
1 2 Objection. Non-responsive. proceeding where you?re providing sworn testimony?
13 Are you getting paid at all for your 13 That's your understanding?
1 4 work in this case? 14 A That's my understanding getting paid a rate of $895 15 provision- 
6 per hour for the case. 16 All right. So you refuse to answer the
17 .Do you receive any of this money? 17 question of what your salary is; is that correct?
1 8 A I have a ?xed salary, and then I 18 MS. RICHMAN: Objection.
1 9 receive a percentage of pro?ts on the ?rm. 19 THE WITNESS: I can say that it's
2 0 What's your ?xed salary? 2 0 quite modest, but it's not 1 do not, I'm
2 1 A Unfortunately, I'm part of a publicly 21 not allowed to answer that according to my
22 traded ?rm, and details like that are business 22 understanding of my agreement
2 3 confidential information to the publicly traded 23 BY MR. FRIEDMAN:
24 ?rm. 24 Okay. So you won't answer the question?
2 5 We're designating it con?dential. 25 MS. RICHMAN: Objection. Asked and

 

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7 450 Seventh Avenue - Ste 500, New York, NY 10123_ 1.800.642.1099

 

Case v,Document559:9, Filed 0212,4/14 ,Page 39 of79,

 

 

 

 

1 4 6 4 8
answered 1 think about my life in that way.
2 THE WITNESS: My understanding is I 2 Okay.
3 cannot. 3 So you don?t think about your life in
4 BY MR FRIEDMAN: 4 terms of how much money you make from Compass
5 So you won?t; correct? 5 Lexecon work versus how much money you make
6 A Since I cannot, I won?t. 6 outside of Compass Lexecon; is that correct?
7 Now, with respect to?the pro?ts that 7 A Idon't think of it that way.
8 you've received, tell us how much pro?t you have 8 All right.
9 received from your work with Compass Lexecon in 9 So you have no idea whether or not
10 the last two years. 10 Compass Lexeeon accounts for 95 percent of your
11 MS. RICHMAN: Objection to the 11 income versus 5 percent of your income; is that
1 2 form. 1 2 correct? I
13 THE WITNESS: Again, that falls 13 MS. RICHMAN: Objection to the
14 under the same category. 1 4 form.
15 BY MR FRIEDMAN: 15 THE WITNESS: Sitting here today, I
6 So you refuse to answer that question? 16 can't give you a precise point estimate of
17 A We an maybe cut this short and just say 17 what percentage of my income comes from
18 this casc will represent less than one of 8 Compass Lexecon and from outside sources.
1 9 my income this year. 1 9 BY MR. FRIEDMAN:
20 Well, that means nothing unless you tell 2 0 When you say "a precise point," I gave
21 me you made 45 million, $20 million, $25 million. 2 1 you a range. You can't even give me a range of
22 Do you understand that? 22 your income; is that correct? 
2 3 A Iunderstand your question. I'm just 23 A I couldn't tell you what percentage of
724 saying that it represents less than one percent of 2 4 my income comes from capital gains, capital gains
25 my income. 25 associated with the sale of Compass LexeconAil right. So now that you've 1 Compass side of the business years ago. That's
2? represented a percentage, why don't you now 2 earnings, salary. I couldn't tell you any of
3 disclose to me, relative to what your income is, 3 those percentages.-
4 how money you've made from Compass Lexecon? in 4 Okay, and in terms of your willingness
5 the past two years? 5 to tell us how much money you?ve made as a result
6 MS. RICHMAN: Objection to the 6 of Compass Lexecon being retained by Apple in this
7 form. 7 matter, you refuse to answer that question; is
8 THE mass: As a share ofmy a that correct? 
9 overall personal income? 9 .MS. Objection to the
10 BY NIR. FRIEDMAN: 0 form.
11 Yes. 11 THE WITNESS: In dollar terms? I
12 A {have no idea how to answer that 12 wouldn't even be able to tell you that
13 question. Ihaven't I don't look at it like 1 3 answer. It?s not even a knowable answer.
14 that. 14 BY MR. FRIEDMAN:
15 So you don?t how much of your total 15 You couldn't calculate that; is that
16 income have you made as a percentage from Compass 16 what you're saying?
17 Lexecon versus outside work that you've done? 17 A . I could not calculate that, no.
18 A It's not something looked at. 18 You couldn't apply some microeconomie
19 All right. So it's not something you 19 analysis to that1 even, with your experience in
20 locked at, meaning you've never Soaked at it for 2 0 building models to even calculate that, sir?
2 1 your tax returns? 21 MS. RICHIVIAN: to the
22 A My accountant would know it. 2 2 form,
2 3 But you wouldn?t? 2 3 BY NIR. FRIEDMAN:
24 A Sitting here today, I couldn't tell you 2 4 That's impossible for you; is that
2 5 that answer. It's not something I I don?t 2 5 right?

 

38 (Pages 146 to 149)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 Case i=11-md-02293w-DLC? ., Documen.t559-9

Filedy02/2?4/14 Page MS. RICHMAN: Objection to the 1 So you believe, I take it, that you?ve
2 fonn, 2 made less than $10,000 as a result of Compass
3 THE WITNESS: Let me have the 3 Lexecon?s representation of Apple in this matter?
4 question. Can you repeat the original 4 A Ihave no idea One way or the other what
5 question. 5 . my percentage pro?t interest would be if you
6 MR. FRIEDMAN: Could you read it 6 allocated the pro?ts of this as a share of our
7 back, please. 7 overall ?rm's pro?ts. It's not a calculation
8 (Whereupon, reporter reads 8 I've undertaken.
9 requested material.) 9 In formulating your opinions in this
10 BY MR. FRIEDMAN: 10 matter, sir, you in part apply economic theory;
11 All right. So, Mr. Orsmg, could you 11 right?
12 please tell me how much you have made as a result 12 A In part, yes, I agree to that.
13 of Compass Lexecon representing Apple in this 13  In addition to applying economic theory,
14 matter? 14 you also look at statements made by executives for
1 5 A In dollar terms, I could not tell you 15 various companies in the market; right?
1 6 that answer sitting here today. Sorry. 1 6 A That is correct
17 So in what type of terms could you give 17 And you look at those statements, sir,
18 me the answer? 18 and apply those statements to economic theory in
9 A I know that it will represent less than 1 9 part; correct?
2 0 one percent of my income this year. 2 0 A In part that is correct.
2 1 Okay, and so you can't tell me if that 2 1 And then after looking at economic
22 translates to $300,000 or $3 million; is that 22 theory, applying statements, you then do some
23 right? 23 assuming in your analysis; right?
24 A Well, if it translated to $3 million, I 2 4 MS. RICI-IIVIAN: Objection to the
2 5 would be a very happy person, and I could sort 25 formdon't know if I'd be sitting here today, 1 THE WITNESS: I take some of those
2 because obviously 100 times 3 million would be 2 statements as given and then analyze based on
3 quite a good year. I can assure you it?s not 3 those statements and economic theory, yes.
4 that. I don't know -- I don?t know how much I'll .4 MR. FRIEDMAN:
5 make this year until the end of the year, becauSe 5 And you also make some assumptions;
6 I'm only paid on the pro?tability of the ?rm. 6 right?
7 So 7 A Yes.
8 A Other than I have a base salary. 8 Okay, and then doing both your
9 How much did you make from this matter 9 application of economic theory, taking statements
10 last year? 10 as true, applying assumptions, you then come up
11 MS. RICHMAN: Objection to the 11 with a quanti?cation of offsetting dollars; 
12 form. 12 correct?
13 THE WITNESS: It Would have been 13 MS. RICHMAN: Objection to the
14 less than one percent of my income. 1 4 form.
- 15 BY MR FRIEDMAN: .15 THE WITNESS: Quantification of
1 6 So you can?t, as you sit here today, 1 6 what would have occurred in the but~for
17 tell us whether or not in 2012 and for 2013 17 World.
1 8 whether your work in this matter, as well as your 1 8 BY MR. FRIEDMAN:
1 9 ?rm's Work in this matter, accounts for $500,000 1 9 You translate that into dollars that in
2 0 of income for you? 20 effect the conspiracy bene?ted to consumers;
2 1 A That would suggest $50 million of 21 right?
22 income. I can guarantee you I don't have 22 A No.
2 3 $50 million of income, because that would be 23 You don't?
2 4 almost the entire -- nothing would make sense. 2 4 A That's not you're not quite
2 5 7 Okay. 25 articulating it correctly, and that?s why I say

 

 

 

39 (Pages-150 to 153)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page no, because you made it you, you overstepped 1 So thedevice'sWould have gone up
2 whatI have 'done. 2 12.9 percent; is that correct??
3 Okay. A  percentage is not correct because-
4 So. Why dOn't you putzin the extra step 4' youjust did it on devices.
5 or mOre thatI missed. 5 Yea-h.-
6 A Okay. 6 A So either device prices would have been
7 There are two effects that Occur. The 7 higher ?or e?book prices Would have been higher in
8 ?rst effect. is the introduction of new device 8 thebut-f'or world, and that e?hct equals
9 competition that would have occurred in the 9 12.9 percent of the relevant. erbookireivenue.
1-D but?for world, would hate changed the. economic 10 So I'm sorryif I'Was? confused. It
ll incentives asSociated with Amazon, and also the 11 sounded to me like you were saying that inthe
12' level of pro?tability of Amazon. So that?s one 12 but?fOr world, both device prices'and e-book:
713' step. 13 prices would have gone-up 
4. The other step is' that. the alleged l4 A I did not mean to say that previously.
'_15 conspiracyr Changes the economic incentives of how 15 said 'andfor.
1 6' you price devices: and that those two are the air ?1 6- Okay.
1'7 in the balloon that would have corneout of one 1 7 A It's the air in the balloon is equal to
1-8. side or the other. 1 12.9 percent and how no and so it?s equal to
19- So how did I miss a step? 1 9 12.9 percent ofe-book revenue.
2 0 A Because you didn?t factor in the ?rst 2 0 Okay.
2'1 part about competition from devices that Wouid 2 1 A Ofrclevaut e?biooklreyenue.
22 have occurred in the but~for world, elevating 22 So thank yen for clarifying, because I
23' but?for world e?book prices. 23 think that maybe I?m ?Tong, but I?m pretty sure
24 Q- Now, let's bemore preciSe. You mean 24- you said both, but "now let?s lock it in, and if we
25 competition in. the but-for world that would have 25 can get rid of the ballOon metaphor and talk
1 5 5  5-7
1 elevatedIe-book prices because there was no 1 specifics, i would appreciate it.
2 iBookstore; right? 2 The device prices would hatre gone up'
3 A No. 3' 12.9 percent in the but~f0r world, or 13-11001;-
4 So you think that even if there was no 4 prices would'have gone up 12.9 percent in the
5 iBookstore in the but?for world, ewbook prices A 5.3 but-for World; correct?
6 would have gone. up; right? 55  You didnotstate it correctly-
'7 .A Yes, and I explain Why in here. 7' Qj_ So yen state it correctly.
8 Q. And soyon atso. say that ifthere'Were - 
,9 no .iBookstore in the but-for world, device prices 9. g:
103 would have gone up; right? 1-0 
11- A In the but?fer world= the alleged 11' i
1.2 conspiracy created anotherfeedback effect of in. .12 i. i
13 terms of. lower device prices, so yes, you are 13 Which one?
14 correct that in the but-for Worlda device prices 14 ObjeCtion to the
15 would have also been higherg 15 Horm.
16' Okayyour but-for world where-there was. 17
18 no iB'ookstore, right, device prices would have 18 .
19 been higher and e?book prices Would have been 19
20 higher; is that right? Beth WOuld have been 20 3'
.2 1 higher? 2.1 
22 A Relative to the actual World. 22 t. FRIEDMAN:
23 Relative to the actual, so they both 23 So you don?t know if it would have been
24 would have gone up in your hypothesis; correct? 24 all 12.9 percent for devices; correct?
2 5'7 A Yes. 2 5 A 7 Sitting here today; I cannot allocate

 

40 (Pages 154 to 157)

DAVID ZFELDMAN INC.
4'50 Seventh Avenue - Ste 5003 New York, NY 10123 1.800.642.1099

 

   Docume'lni5l59-9 Filed   

 

 

 

 

 

5 8- 60
the ,percentag'eibemeen the bene?ts consumers BY MR RIEDMAN:
2 receiVe- bettveen the two. 2 ISn't that true?
3 So you don't. know Whether it would have 3 A I think" you know 'far more about dog
4 been 12.9 percent for e?bOok prices going 'up; '4 balloons than Ido.
5 right? I 5 Igasked yOu not'to use the balloon
6 :6 analogy, but you Seem. to like it, so let's' keep
7 7 going with it
8 I In your balloon-analogy, it?s not
9 9 perfect-symmetry. You could have some sort of
10 .19 shape change in one part of the balloon, another
11 ll shape in another part of the balloon, another 
12 12 shape in another part of the balloon, another-
13 l3 shape in another part of the balloon, and you
14 4 can't tell me or anyone, for that matter, let
15 - 15 alone a' juryin May, all right, What. the shape of
1 6  6 that balloon would look like. You just know
7 12.9 percent is going to shift around in that
18 18 balloon; right, sir?
9 I 9. MS. RICI-EIIAN: Objection 'to the
20 20. form.
2 1 21 THE WITNESS: Ifiyou want to move
2 2 2 out from the balloonscale on the other side-
2 4 FRIEDMAN: 24 BY MR FRIEDMAN:
2 5 Now, you keep going back to the ballOon 25 Oh, no. I asked you abOutthe balloon.
159 161
1 eVen th0ugh I had asked you not to, but that's 1 Answer my question.
12 Okay? Keep going back to balloon- I?m going to 2 A As I said, the bene?t to consumers from
3 use Seesaw. All right? 3 :is equal to 12.9 percent of e?book
4 -- So ow it'loolis like are you saying 4 prices= (if-relevant e?book prices.
5 that it's a seesaw? Because you keep saying 5 '0 Okay.
6 balloon, and there's some. ambiguity when you uSe 6 'So you can't tell usif that consumer or
7 to me is amorphous. It- 7 in the aggregate Would have paid 3 percent more
3 Shapes You can'dr-es's it up like-a 8 for a Kindle device on June 10, 2010 or would have
9 deg, you Can turn itiinto 'a-cat, a mouse, shape it . 9 paid 7 percent well, iet's add up to
10 all different ways. You-agree with that? You?ve 10 12.9 percent; right?
11 seen those clowns do that, haven't you, sir? 11. Ithink that makes sense.
32 MS.  Objection to the 12  or e-book elevation on that same: date.
.13 form, 13 You can?t tell us that; right, sir?
1. 4- BY MR. FRIEDMAN: 4 MS. Objection to the.
15: Clowns do animal balloons; don?t they, 15 form.
'16 sir? 6 THE WITNESS: Based Onth'e data
17} A That wouldn?t make any sense in this 1 7 available, I can tell you on an aggregate
18 case, because then the air would be locked in one 18 average basis the effects, but on an
1-9, cabinet versus the other, and that?s not what 1 9 individualized. basis you would need
2'0 occurs inmarkets that are complem'entaiy. 20 additional mformation about peoplelocked. HaVe you ever seen 21 AI purChascs and their willingness to pay for;
22 like a dog balloon startslosing its air from one 22 devicos? and information alongthose lines;
23 compartment into another, sir? 23' BY MR. FRIEDMAN:
24 Ms. RICHMAN: Objection to the 24 
2 5. ?rm. 2 5 

 

 

 

 

  
 

 

 

 

41 {Pages 158 to 16.1).

DAVID FELDMAN WORLDWIDE, mo. 
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.641] 099

Case Document 559-9 Filed 02/24/14 Page 43 of 79

 


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Amazon has not made certain_infonnation that would
have been help?ilavailable;
Sir, nonresponsive. Move to strike.
The question is: Did you have it? I
know you Want to inject. in your argumentam.-
2 Q. Did you have demand information
3 available fol-you to use; yesor no?
4 MS. RICHMAN: Objection to the
5 form. 
'6 THE WITNESS: And already
7 answered I didnot'have demand informatier
B. BY MR. FRIEDMAN:
9.  Thank you.
1 0? Now, in your methodology, We'll call it,
11" in coming up with your conclusions accepted 7
'12- certain. statements as true; right? 
'13 MSLRICHMAN: Objection to the
14 form.
15 THE WITNESS: I -- yes.
1 6 BY  FRIEDMAN:
'17- You. did, didn't you?
18 A Yes.
19 And you looked at executivestatements
2 and you selected which statements you wanted to
21 use in your-methodology to shape your opinion;
2 2 correct?
23 Objection to the
24 form
.25 THE WITNESS: I-don't LI
163; 165
It looked at the record in terms of their
2 testimony, I examined their testimony, I
3 examined their statements, and then I
4' considered \vhat'was relevant in terms of
5 fitting into an economic framework.
6 They obviously testi?ed to lots of
7 different things, and] read their testimony
8 carefully, and a lot of what they teSti?ed-
9 to was irrelevant, Obviously, because it
1-0 dealt with other issues that aren?t germane
11 to my analysis: and] read their testimony in
12- terms of what was relevant to my analysis,
?13 andI considered those issues.
1 4 
15  Okay, and you considered,trying't0 be
1 6 objective you were. trying to be objective,
1'7 weren"t"you? 
18 A Of course.
19  You wanted to come and give a fair
20 opinion. Even if it ended up demonstrating that
21 Apple Was going to have to pay hundreds of
22 millions of dollars in damages, you were wide open
23, to that conclusion; right? I
2 4 RICHMAN: Objection to the

right, but try and be-Objective for a moment, for
a moment, and answer my question.

 

25

form.

 

42 (Pages 162 to 165)

DAVID WORLDWIDE, INC. 7
450 Seventh Avenue - Ste 500, New York,  10123 1.800.6421099.

 

Case Document 559-9

Filed 02/24/14 Page THE WITNESS: The facts fall Where 1 MS. RICHMAN: Objection to the
2 they may, and whatever I come at this and 2 form.
3 look at it as an analyst, and whatever the -3 THE WITNESS: Education is a
4 facts hold are what the facts hold. 4 classic example.
5 BY MR. FRIEDMAN: 5 BY MR. FRIEDMAN:
6 So you let the facts drive your 6 Move to strike. NonresponsiVe.
7 decision, not some idea that because you represent. 7 So, sir, you agree with the principle 
8 AppEe and they? re paying you, that you?re going to 8 you agree with the principle that you considered
9 try and come to a conclusion and then backnsupport 9 fairly, using a scienti?c approach, all
10 it with cherry-picked information; right? You 10 reasonable alternatives, even if those 7
ll dorl?t do that, do you? 11 alternatives pointed you in a direction that would
12 MS. RICHMAN: Objection to the 12 be adverse to Apple; right? You agree with that?
13 form. 13 MS. RICHMAN: Objection. Asde and
14 THE WITNESS: That makes no 1 4 anSWered.
1 5 economic sense whatsoever on a lot of levels. 1 5 I THE WITNESS: Yes.
1 6 BY MR. FRIEDMAN: 6 BY IVER FRIEDMAN:
17 It does make economic sense ifyou want 17 Okay, all right. .
18 to get hired by AppEe again, doesn't it? 1 8 So now, when you looked at statements
19 MS. RICHMAN: Objection to the 19 and you accepted their truth, what lens did you
2 0 form. 2 0 use to determine whether the statement you were
2 1 THE WITNESS: You know, in my life 21 accepting as true was, in fact, true?
2 2 Ihave told clients that they were very wrong 22 MS. RICHMAN: Objection. Vague.
2 3 before, and I've told clients that they were 2 3 BY  FRIEDMAN: 
24 right based on the facts and analysis that I 2 4 Do you understand my question?
25 conduct. I have been ?red by clients by 2 5 A I use the lens of an economistsaying something that they didn't like, and 1 So as an economist, you decided that
2 you know what? I'm going to be around this 2 statement to me by Russ Grandinetti is true,
3 business for a long time, and if I just 3 right, as an economist? Is that correct?
4 looked out for what Apple was interested in, 4 A If the statement is consistent with
5 that would make me a short-timer in this 5 economic logic in theory in the empirical
6 business. 6 evidence, then yes- -
7 BY MR. FRIEDMAN: 7 And so you would look at and
8 Right. You would have a short?term 8 determine if they were consistent with economic
9 outlook as opposed to a long-term outlook; right? 9 theory. Then you would accept they were true;
1 0 A I have a long horizon, so personally I 10 correct?
1 1 consider -- I look out for the bring neutral 1 1 A Not just that.
12 principles to cases and look out for the long-term. 12 What else?
1 3 interest of myselfconsistent with the other
1 4 And you think it's advantageous, even in 14 evidence that?s available and the other facts.
15 the short run if you were to lose money, that in 15' You would look at other evidence besides
1 6 the long run you would be better off, your 1 6 economic theory; right?
17 Welfare, maybe your family, maybe it?s just the 17 MS. RICHMAN: Objection to the
18 right thing to do long run, so you make decisions 18 form.
19 that short run are not pro?table; right, sir? 19 THE WITNESS: As I did in here, I
2 0 MS. RICI-EMAN: Objection to the 2 0 looked at a lot of different evidence.
2 1 form. 2 1 BY MR. FRIEDMAN:
22 THE I make investments 22 Would you try to see if the witnesses'
2 3 for today to bene?t myself in the long run. 23 statements were inconsistent and make a judgment
24 BY MR FRIEDMAN: 24 based on inconsistent statements?
25 Right. A little bit of right? 25 A If the wimesses? statements were

 

43 (Pages 166 to 169)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500= New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page inconsistent, I would, I would present the fact there's a conspiracy or restraint of trade to
2 that they were inconsistent, or I would put more 2 raise e-book prices.
3 weight on the statements that Were consistent with 3 Move to strike. Nonresponsive.
4 economic theory and the empirical facts. 4 Do you or don't you consider the
5 So I'd like ask you a series of 5 statement that without Apple's orchestration of
6 questions, and we'll see if we can move through 6 this conspiracy, it would th have succeeded as it
7 this ef?ciently. I'm going to ask you to tell me 7 did in the spring of 2010 in formulating your
3 whether you agree or disagree with these. All 8 opinions; yes or no?
9 right? And if I want a further explanation as to 9 MS. RICHMAN: Objection. Asked and
10 why you disagree or agree, I will ask you. Okay? 1 answered.
11 All right. 11 THE WITNESS: I can't answer it
12 For each opinion you have formed, have 1.2 clearly, because I did -- it wasn't necessary
13 you taken as true that Apple conspired with ?ve 13 for me to agree or disagree with it. Or
14 defendant publishers to eliminate retail price 1 4 formulating my opinions, I understand it was
15 competition in order to raise e?book prices; yes 1 5' part of the complaint, I assume what assume, which is that there was a conspiracy
17 A I state in my declaration clearly that I 1 7 in the restraint of trade to raise the price
1 8 assume that they conspired to raise the retail 1 8 of e-books. How that occurred is not
19 price of e?books. 1 9 somethingI have analyzed.
20 So you agree yes to what Ijust said? 20 BY MR. FRIEDMAN:
21 A Ithink my answer stands for itself. 21 So you haven't analyzed how the
22 No. Yes or no to what I just asked you. 22 conspiracy occurred?
23 Do you agree that you have found as true that 23 A Not with an economic lens. I've read
24 Apple conspired with ?ve defendant publishers to 24. the judge's order.
25 eliminate retail price competition in order to 25 With a drinking-a?beer lens? 15 that 
7 1 1 7 3
1 raise e-book prices? 1 what lens did you read it with?
2 A I assumed in my analysis that Apple 2 MS. RICHMAN: Objection to the
3 conspired to raise e-book prices as stated in the 3 form.
4 judge's order and opinion. 4 THE WITNESS: I read it through an
5 So if that came directly from the order 5 economic lens, but I didn't go when I
6 and opinion, you agree with that statement; 6 meant economic lens, I didn't go into the
7 correct? 7 actual information underlying to determine
8 A I agree with I assume that there was 8 whether I agreed or disagreed with the
9 a conspiracy in the restraint of trade, and Apple . 9 assessment I just read the order. It
1 0 conspired to raise the price of e?books in the 10 wasn't necessary for my analysis for me to
1 1 relevant market - 11 agree or disagree with that analysis.
12 Do you accept as true for all ofyour 12 BY MR. FRIEDMAN:
13 opinions that without Apple's orchestration of 13 Sir, I'm not asking you that. I?m not
14 this conspiracy, it would not have succeeded as it I 14 asking you whether - I'm asking you, and please,
15 did in the spring of 2010? And I'll represent to 15 because you know, answer my questions and We
1 6 you it came from the opinion. 16 won't have to be here longer than necessary or I
17 Do you accept that as true? 17 won't have to move the court to be here again, so
1 8 A It's not something I have analyzed as 8 please. We have a right to get direct answers to
1 9 part of my analysis. I start from the proposition 19 my questions. Please listen to them and follow 
20 that they have conspired, so I can?t agree or 2 0 give a response.
2 1 disagree to something that I haven't analyzed or 21 Do you m? if you don't, that?s fine, but
22 considered. I don't remember those preciSe words. 22 I'm asking you, if you turn around and say I
23 So you haven't considered that in your 23 didn?t have to analyze it, so I didn't accept it
24 opinion; correct? 2 4 as true one way or another, that's ?ne. All
2 5 A I start with the proposition that 2 5 right?

 

44 (Pages 170.to 173)

DAVID FELDIVIAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page MS. RICKMAN: That?s what he just 1 A Number one is the statement of the Apple
2 said, Ieftl 2 executives, but I also, because I -- the
3 MR FRIEDMAN: You know, there?s a 3 witnesses, the experts on both sides, defendants
4 lot he just said. I'm not going to argue 4 and plaintiffs, in the ?rst phase agreed that,
5 with it. 5 that Apple would not have launched the iBookstore
6 MS. RICHMAN: Well, it's good that 6 in the absence of the agency agreements.
7 you're going to accept that going forward, 7 What plaintist expert agreed
8 though. 3 explicitly that Apple would not have - that they
9 BY MR. FRIEDMAN: 9 decided that they would not have launched the
10 Do you accept as true for all of your 10 iBookstore inthe absence of the conspiracy?
ll opinions that Apple and the publisher defendants 1 1 You're free to look at your report.
12 shared one overarching interest that there be no 12 A Sorry. It's relatively -- there are a
13 price competition at the retail level for e?books? 13 lot of footnotes.
14 A I did not analyze agree or disagree. I 1 4 You're moving fast. I appreciate it.
15 started with I assume that there was a 5 A The Kindle app. At some point they'll
1 6 conspiracy and a restraint of trade to raise the 6 have a PDF version that makes searching quicker.
17 price of e-boolcs. 17 So ifI go to paragraph 111 of my
18 All you have to say is it had no bearing 1 8 report, "Plainti??s' and defendants? expert" -
1 9 on your opinion. 1 9 Excuse me. I don't want you to read. I
20 A That's fine. 2 0 just want you to cite to me exactly which expert
21 Do you accept as true in formulating 2 for the plaintiffs. I don't want you to read the
22 your opinion that Apple did not want to compete 2 2 paragraph for me. Tell me the name.
23 with Amazon or any other embook retailer on price 2 3 A Baker testimony at note 165.
2 4 for e-book sales? 2 4 Okaybearing on my opinion, given 2 5 A See also deposition of Jonathon Bakerthe assumptions that I make. 1 225 to 226 and 265. The rebuttal report of Baker
2 Thank you- We?ll go through it exactly 2 at 43. Gilbert testimony at 54.
3 that way, if you don't mindfootnote?
4 have to modify it because something unique comes 4 A I'm in Footnote 197. I
'5 up, that's ?ne. All right? 5 Okay. So Footnote 197 is y0ur citation;
6 For formulating your opinions, do you 6 correct? 
7 accept as true that the publisher defendants 7 A Yes, it is, and also, obviously,,I
wanted to end Amazon's $9.99 pricing and increase 8 continue to cite not just the experts for 
9 signi?cantly the prevailing price point for 9 I understand. That's not my question.
10 e?books? 10 A also the experts 
1 1 A That speci?c point had no bearing on my 1 1 Not my question. Right? My question is
12 analysis, because I assumed that there was a 12 what plaintiffs? experts. Do you recall?
1 3 conspiracy and a restraint of trade to raise 1 3 A Okay. 
14 e-book prices. 1 4 Okay, so you're relying on 197 as your
15 Do you assume for any of your opinions 5 citation; correct?
1 6 as true that unless Apple entered into the 1 6 A That is correct.
17 cOnspiracy to eliminate retail price competition 1 7 Thank you,
18 for e?books, it would not have launched the 8 A In addition to other information.
19 iBookstore? 9 Move to strike. That wasn't my
2 0 A I assume that they would not have 2 0 question.
2 launched the iBookstore. 2 1 MS. RICHMAN: It was your question.
22 What do you base that on? 22 MR. FRIEDMAN: I asked him what
23 A A series of pieces of information. 2 3 plaintiffs' experts he was relying on was my
2 4 Number one - and I cite this in my report. 2 4 question,
25 From your best memory. 25 MS. RICHMAN: Well, I 

 

45 (Pages 174 to 177)

DAVID FELDMAN WORLDWIDE, INC. 7
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case1;11emd-02293-DLC_ Document 559-9

 Filed 47, 915,79

 

 

1 7 8 
1 MR. FRIEDMAN: He was saying other 1 June 1, 2010, would that affect your damages
2 things besides plaintiffs' experts. Okay? 2 analysis?
3 All right. 3 A In terms of the way, the quanti?cation
4 BY MR FRIEDMAN: 4 that I make, it would not -- ?rst of all, I have
5 So is there any other feature of the 5 no evidence to support the view that it would.
6 iPad you're assuming would not have existed other 6 That wasn't my question.
7 than the iBookstore had Apple not entered into the 7 A No testimony to support it.
8 conspiracy? 8 That's not my question.
9 A I'm making no additional assumption 9 A In terms of my quanti?cation of
1 0 whether the that the iBookstore wouldn't -- 1 0 damages, it would not.
11 well, that?s not true. I assume that the Kindle 11 So if the but?for world was the iPad
12 app would have existed in the but-for world for 12 launches on April 3, 2010, and the iBookstore
1 3 the iPad, so that's a feature of the iPad in some 13 launches'on June 1, 2010, without the con5piracy,
l4 sense, that it has an app for the Kindle. 1 4 in terms of your analysis as to offsetting
15 My question was: Are you assuming that 15 bene?ts that were produced from the iBookstore,
6 any other feature of the iPad would not have 1 6 that doesn't change your analysis whatsoever; is
17 existed other than the iBookstore had Apple not 17 that right, sir?
18 entered? 18 A Well, it would have changed in terms of
19 A Sorry about that. 19 . my -- there?s two parts to this. You're changing
2 Okay, 2 0 multiple factors now in this relative to what I
21 A I am assuming that, yes. 2 answered previously, so let's unpack this.
22 So you're assuming that everything was 22 If you could repeat the question so I
23 the same except the iBookstore was not launched; 2 3 unpack it correctly, because it's a little more
2 4 correct? 2 4 complicated now the second time.
2 5 A In terms of the iPad features, yes. 25
7 9 8 
1 Yes. 1 (Whereupon, reporter reads
2 Are you taking the position that at no 2 7 requested material.)
3 time during the damages period, April 2010 to 3 THE WITNESS: So Ijust want to
4 May 2012, that Apple would have launched the 4 understand the world we?re in. Are there
5 iBookstore? Is that your position? 5 agency agreements associated with those, the
6 A I'm taking no position one way or the 6 iB ookstore in June of 2010?
7 other on that. At the time of the launch of the 7 BY MR FRIEDMAN:
8 iPad, they Would not have had the iBookstorc. I 8 Why does it matter?
9 have not seen any evidence to suggest in that 9 A Because it matters to whether the -
1 0 damage window that they would have launched the 10 what we actually observed in the real world in the
1 1 iBookstore, however. 11 period following the introduction of the iPad,
12 But using your economic lens and 12 whether the prices that We observed are the
13 assumptions looking at the marketplace, are you 13 relevant prices to consider. .
14 taking the position that at no time between 14 So let's assume that there's agency, but
15 April 2010 and May 2012, that Apple would have 15 . they weren't a product ofa concerted effort by
16 decided it was in its economic interest to launch 16 the publishers and defendant?in a conspiratorial
17 the iBookstore without the conspiracy? 17 way. Now answer the question. Would it affect
18 MS. RICHMAN: Objection to form. 1 8 your analysis?
19 BY MR. FRIEDMAN: 1 9 A So there was agency, but it wasn't
20 Is that your position, sir? 20 concerted?
2 1 A For purposes of calculating damages in 21 Right.
22 my analysis here, I did not have to make an 22 And so it was introduced inIune?
23 analysis of that one way or the other in the 23 Yes, 2010.
24 quanti?cation of my damages. 24 A That?s not an analysis I have
2 5 So if the iBookstore was launched on 25 undertaken. I'd have to think through about

 

 

 

46 (Pages 178 to 181)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page whether you can look at. the actual prices that we 1 have launtihed the iBookstore in the absence.
I 2 observe. given the. change in the struc'mre of 2 or -- in the but-for world, and I- considered-
3 pricing relative to the'rbut-for- World. That?s not 3 that-because ofthe section I have about the
4 something that wonld affect I would have to 4 iBookstor-e, but I did nothave suf?cient
5 think through whether that-has any" effect given 5 datagor- evidence to support a View about.?- what
6 the signi?cant changes that you're sort of 6 would have happened or when would it have
7 layerin in. You're layering in more than One '7 happened and thus how to calculate damages in
8 change. You're layering in multiple changes. I '8 that-world. I considered that for sure};
9 So you haven't thought about that in 9. because it's in essence implicit in the
'10 your preparation and analysis of whether you're- 1.0 discussion I have of the iBoolcstore.
1 1 going to let the evidence lead you to one. 11 BY MR.

.12 direction or? another? Youjust haven't thought 123 So if the iBookstore do'yonbelieve 
13 about that. Is that true, sir? 13? the iBooksto're Was a competitive advantage-to
14' MS.  Objection to the 14 Apple over the Kindle, for example? I
15 form. 15 MS. mcmn; Objection. to the
1 6 THE WITNESS: Again, I go bach 16 form;

17 to I need I looked to the evidence in 1.7 THE WITNESS: What do you mean by

13 the record, and there?s not evidence that I'm 1-8 -- "competitive advantage" has a lot of

9 aware of that suggests during the window in 1 9 meanings, so I'd like to parse this. Did you

2 0' question whether Apple w0uld have launched 20 mean by that does  improve the quality of

2 1 the iBookstore in the absence of the agency. 21 the ?iPad relative to theiKindle?

22 agreements in the structure that they have 22 BY MR. FRIEDMAN:

23 launched 23' Let?s take that one.

2 4 BY MR. FRIEDMAN: 2 4 A. 'Yes, it?s. a yOu're adding a feature".

25 So what I?m asking you, sir, is because 25? Well, youeo'uld add a stupid feature,

183 - 185

we?re starting from the premise remember this? 1 and it wouldn?t-neCessai-ily improve demand much;
2 I asked you if you Were objective. Of course, I?m 2 right? Could actually hurt demand; right?
3 objective. I'm a long-term thinker, not'a 3 A - Intheory, yes.
4' short?term thinker, and so I asked you :in that 4' (2 Okay, but actors actually'want to add

 5 centextdiid' you seriously-consider all the 5 features that Will improve demand; right?

3 6 alternatives in fairneSS to. eVerybodjr. Of course 6 A That is correct.

. 7 you did._ I 7 And so my question to you is; Looking
 3 380 I'm asking you in that context, geez, B. at Apple's incentives to include the. iBookstore 

9 here is One consideration. Apple launches the; 9 they'obtziOusly decided to inclu dc the iBookstore;
:10 iPad. Couldn't get the deal done, because, boy, 10 right?

.11 looked like-we'd have to conspire to do it. Let's. A That is-correct.

:12 actually not. work in a concerted manner, but let's I 
13 sort of tease this out over time and see if the
_1 4 economic incentives drive the actors to do this
'15 unilaterally instead of -a concerted action.

1.6 You didn't thinkabout that, did you,

1.7 sir? I

18- . MS. Objection. -

1 9 Incomplete hypothetical.

20. THE But I did too}; at

2 1 whether there was evidence to support a View .
22: that they would have launched the .iBookstore,

2 3? because I have a discussion that the

2 a Bookstore. the presence of the .iBDORStore, I 1 
25 didlook for evidence onwhetherthey would -

 

 

 

47 (Pages 182 to 185)

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450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

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48 (Pages 186-t0 189)

DAVID FELDMAN INC.
450 Seventh Avenue Ste 500, New York,- NY 10123 1099

Case Document 02/24/14? Page 50 9f 79

 

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in(Pages'190 to 193)

DAVID FELDMAN WORLDWIDE, INC.-
450 Seventh Avenue - Ste 500, New York, NY 10123 1-300.642.1099

 

Case Document 559-9 Filed 02/24/14 Page 51 of 79

 

 

 

 

 

 

 

I 194 .196'
it .
1  1 - assumption.
 1? 2 Thank-you?
 3 ?Immin- Objection.
4-  4 
s:  I 5- Inthe assump?oanantyou to take!
5' i   6 sire being open-minded and I take you at your
7 - i, I 7 word that you?re open-minded assume that Judge
87 5 '8 Con: found: that the launch of the iBookstore was a
9 I 9 phenomena independent of the agency agreements and
1.0 i. 10 did not demonstrate any procompe?tive bene?t
11 I 1 1'1 ?owing from the agreements. I
12 12? Making that assumption as 
13. i 13 I I   four   an}r ivziyisirwould change-my discussion in certain
15- 1? rs sections-ammonIt'would change my dianSSion 
18 I  regard to section, I believe it's 
19 1 19 And which One is that?
2 2 A Whethe?r'the, in the but~ for world,_ Apple
21 I  21 Would have had sales ??oni the Bookstore;
22  2.2 Would?it havechangedany of your other
23  23 opinions?
2 4 2 4 Not based on the analysis that I have
2.5. a; 25 if conducted in terms of quanti?cation of damagesare you characterizing let me ask
2' 1 . 2 'it-this Way. You assert that there?s a causal
3' .  I 3 relationship between the conspiracy and the launch
4 I 4 of the iBookstore and consumers getting lower
5 I 5- prices by 12.9 percent in the but-for world;
  rightMS. Objection to the
.8 I  8 3 fem.
9 - Are yOu ac?ceptiugas true that the 9: THE WITNESS150 launch of the lBookstore-was a phenomena 1.0. 3 can explain. 
11- I independent of'the agency agreements and did not 11  3 BY him. FRIEDMAN:
12 1 demonstrate any procompetitive bene?t ?owing '12-  i Shre. Ga ahead.
13 - from the agreement? You are accepting that as 13'  A Regardless-ofwhether the :iP?d had the
14 true your assumptlons'? l4 iBookstore or not so that assumption is
15 A. Again, this  a statement that seems to 15 irreievant theintroduction of the iPadwas
l. 6 3 cou?iot with other statements in that, uh, in the 6 I going to ?mdamentally change the economic
17 opinion, so as an ecOnOmist, 1 will leaVe that to l7 incentives ofAmazon.
18 lawyers to ascertam which statement governs 1 Without the conspiracy?
19 you?re aneeonomistwho lives in 1 9 A Without the conspiracy.
2 0 assumptions, and I'm?e? and you've hide a ton of 20  Right.
21 them? here, so I'm asking-you, .as_"the objective 21 A BeCause whether it had the iBookstore or
. 22 open?minded person you?ve testi?ed under oath you ?22 not, '?indamentally change. That depression of 
223 are, is to change your assumption. 23 if you want to use a Scale now, the depression on
_2 4  1 Fair? 24' . this side of the scale-i became of the 
2 5  .A In this hypothetical I?ll change my 25" ?at! introduction of the iPad with or Without the

 

 

50 (Pages 194 to_197)

DAVID FELDMAN WORLDWIDE, INC. 
450 Seventh AVenue - Ste 500.1 New York,- NY 10123 13606421099

  Document 55.9.79 . Filed 52 (Di-7.9, . --

 

200:

 

 

 

 

 

. 198
1  iBOOksto're, Was going to change Arna'zonis 1  discussion and how that in?uences the
incentitres and cause them to raise, in that a 2 interconnectedness andhow it impacts e?book
but?for world, e?book' prices. i 3 pricies. It Would not alter that analysis.-
4 3 Without the :iBookstore? 4 1Q Whether the Bookstore launched or did
5 A Wither without the iBookstore; - I 5- not?
6 so you?re saying with or without the - 6.3 . MS. RICHMAN: Objection to the
7 I I iB'ookstore, device prices would have Come down and 7 form.
8 . ewhook priceswould have gone up is What yml'rc 7 t3. BY-  
9 Saying; right? 9 That-wouldn't alter- your analysis;
10 A That isicorrect. 10 Correct?
11 Allright?, and then What you're saying 11  RICHMAN: Aisked and answerer-L;
12  is that but: the additionof the iBODI'rstore 122 THE I said that in my-
13 5 caused prices to  down; right? 13 3 report. I said whether or not they launch
14 i A I diinkwelrei - I  you're 14  the iBookst?ore, that does not affect that
15 misspeaking. 15 5 discussion. I
1.6 _1 don?t think so. 1 16 FRIEDMAN:
'17 A Would you like me to esplain? 17 . '80 isn't it true that you're attempting
'18 Go ahead. - - 18. . focapture in your analysis the incremental
:19 A: That the additiOnal effect of the agency  - bene?t that consumers received from the
'2 0 agreements, the alleged collusion, elevated-eebooli: '2 0 conspiracy?
'21 prices and that'sthe, in essence, the damage, and .2 1i - MS. Objection to the
22 that induces the, a change in intentives with 22' I form. 
2-3 regard'to how you price devices. 23 . THE WITNESS: There's elements,
2.4 (2- Let?s be clear, becausemaybe you?back through {hie
25 ?g confused, and thatis the only difference in the 25 it. I 7_ There is one element; that 
9.9 2 
1  but_f0r world is. that, according to you, at least 1 ?t increase in device competition in the but-for
2 at the launch on April 201.0, there would be no- 2 world necessarily caused Amazon to change its
3 iBookstore; right? 7 3 its economic:
4 A For this part of the analysis= it 4 incentives necessarily changed7 so that
5 doesn?t -- for this part of the analysis, in terms 5 would hate to seek pro?ts on the eebook side.
6 - of-my quanti?cation;  doesn't have a 6 of the system, because it could no longer get
.7 signi?cant effect one way or the other on the 7 the pro?ts on the  side of the
8 analysis; . B. 3 business.
9 When you say "this," you mean the 9 2 BY MR FRIEDMAN
1 0 1 O. I And you?re-saying that that fundamental
1 I A The Bookstore. 1 change in the hut?'for world was in'part caused by
12 So whether the iBookstore launched or 12  the iBookstore; right? -
13 didn't launch has very little. effect .on_ your 13 A No. I said  effect would have
1.4 -  quanti?cation'analys'is; is that right? 14 - occurred with or without the iBookstoret
15 i A Therels two parts to the analysis= so if 15  So, but without the excuse me with
_1 6 - we can go through it, we can go through it, but 1 6. the iBookstore, that caused Amamn to lower device
17 I'd like you to .ansyizer my question. All 17 prices even that right, in the. as?is?
1:8- . right? 1 8 - That's year claim?
319. V- Could you read my question back, please. .19 A That the agency agreements and the
2-0 (W ereupon, reporter reads- 2 O. elevation of'priee as aresult caused Amazon to
2 1 requested material.) 21 haVe greater incentives to lower device prices.
22 BY MR. FRIEDMAN: 22 But, so'you'rie basingjit on the ?'are'
23 Does it or does it not have an effect on 23 . you di??erentiating between the agency agreements
24 your quanti?cation analysis; yes 0r no? 24 and the iBookstore?
 A  was talking about my device price A In terms of at that time, yes.

 

51 (Pages 198 ta 201)

DAVID WORLDWIDE, INC.-
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page the agency agreements.- There are speci?c.
2 2 facts that appear to be consistent with the
3 - 3  introduction of the agency agreements.
5'  
7 7 
a 8* 
anaemia-13m: 9- 
10 I So agency is interlinked with the 10? I 
 right?  I 
12 A In launch at the time of  :1 7 I I
 Memes-  
3.4 Are you accepting as true 'step back, because we started this dialogue with. 15 
16: me asking you a question from a quote from Judge 16. 
1?7' 2  Cote on page 121 of her Opinion Where she says 17 - 
18. 3 that "the launch of the iBookstore? was a phenomena 1'8. 
1'9 I 2 independent of the agency agreements'and did not 19. 
20 I 2 demonstrate any procompetitive bene?t flowing- 20. . 
21 I from the agreements." 7 2:1; -
 So accepting that statement as true, 22 - 
23 does that change your analysis? 2335: 
2?4 A It wouldn?t change the quanti?cation And When there?s a- good time for a - i
2' bremjusuetmeknow. I 
3 Sure. A couple minutes and then we'll Z. 
5 Areyou accepting as?true that the 5 
6 technical novelties of'theiiPad were phenomena 6-  
7: independent of the agency agreements and did not 7' i 
demenstrate any procompetitive bene?t ?owing 8. 
9 fromtheagrmm '91  
10 A ?Tecl'mieal novelties oftheiPadthe iPad WQuld have been; 12 
1'3 launched regardless of whether there were agency 13 I - 
15 So you?re accepting thatastrue? 15 -   
'16 A Iao?oeptthatastrue. I  
17  Are?you accepting as trufe that the 
18 evolution of digital publishing generally was a 
1:9 phenomena independent of'the. agency agreements and
20 2 did not demonstrate any procompetitii'e bene?t 2.0 
21 ?owing from the agreement? 21 I - i
2213. A Iwbitlds'?xyyeSandno. Imean thegeneral "phenomena, and I talk about them, 2 3 I
24' directionally were changing dramatically abom 24 i
25  this time, andI aerpt that as being independent

 

52 (Pages.202 tn 205)

DAVID WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York, NY 10123. 1.800.542.1099

 

Case Document 559-9.. P619654. 9W9

 


Least1-2- 
'13All right.
21 So in your reliable point estimate.
22 3 Category, we have your device price, e?book price, .
23 complementarity analysis; right?
24 MS. RICHMAN: Objection,
25 Y?ousaid it wrong. 
2 9
1  FRIEDMAN: 
72 [know I did. Got that one; right? And I
3 then is that correct? So that's one that We I
4' put in your reliable point estimate category;
5. right?
. 6, A That is correct; .
'7 And then we also have your criticism of
DrsNoll?s use of too many publishers; correct?
9. A That?s one factor in his-? one "amt he
1 2 makes in his econometriCS. 
ll. Okay, and we'll get back When We-come
12 i back. I jus?tlwant to see,r is there any other
13 i category besides-your criticisms of Dr.- Noll's
14 econometrics separate from that?
15  A there are other factors 1
1-6 that We -- that "are discussed. For example, he
17 drops negatives? He includes potential-entities
18 3 thatshonldn?t so 4:
19' Like the publishers; do youmean?
20 .. A No. I?m taking
.21- I that whole bucket 
22 Okay,
.23 A and saying all of my criticisms of
24 . his ecohometn'cs and why they're unreliable I
253; should. are reliably estimated in terms of my

 

53 (Pages-206 to 209)

DAVID FELDMAN WORLDWIDE, INC-L
450 Seventh Avenu'e..- Ste 500,.New York, NY 10123. 1.800.642.1099

 

Case Document 559-9 Filed 02/24/14 Page iicn?ticisms, and then also'he' includes; as I think; 1 Absent the conspiracy; right?
2-  Idiscuss in a footnote nearithe end, that he 2 A In essenee I'm assuming than becauseI
.3- includes certain purchases that maybe should be 3 have" no evidence one way or the other to, to'
i 4  excluded. 4 ascertain when, if at all, it would have ever been
i .5 - - - MR, FRIEDMAN: Fair enough; Okay. '5 launched.
I 6 Let?s give you a break. Thank yen. 6' Right; So it?s your opinion that 
7 Going off the 7 it?s a sy?ogism, basically, that because the
8 record, the time is 2:00. This is the end of 8* iBooksto?rc- would not have existed during the-
9 tape number 7 9 damages period Without the conspiracy, and the
3.0 (Whereupon, a short recess was 1 iBookst'o're, accordin'gto you, caused in'crease'in
ll taken?) 11 self?published titles:g ergo, the conSpiracy.
12 THEVHDEOGRAPHER: Going back on 12 increased Self?published titles.
13 the record; the time is 2:12:23; This marks 13 That?s your th'eOry'; right? 
4 the beginning of. videotape number 3. Counsel 14 MS. Objection to the
1 5 may proceed: 15 form. 
1 6 BY FRIEDMAN: 6  WITNESS: lthink already
17 Mr- Orszag'; you .I believe assert that 17 answered'what my'asSIHmpti ons' are and my
13 the growth of the Volume of self-published titles 13 analysis with my previous answer.
19 increased because of the conspiracy; right? 1 9 BY MR. FRIEDMAN:
20 A I ?nd that a'ee0rding to the that the 20 Answer'my question. Yes or no?
2 1 self~publishinglroyalty rates of. Amazon induced 2 A Again I'll say how I state it, 'which is
22 more people to books, that those 22' that there are two effects, that: the introduction
2 3 self~published royalties Were a response to the 2 3 of the iBookstore with the iP'ad induced there
24 introduction of the. iBookstore with theagency 2 4 Was a by Amazon to change its self?
-2 5 agreements. 2 5 published royalties. That then cauSed an increase
211 213
1 So I think your. answer is that the in self?publishing because of the incentives
2 conspiracy, according to you, caused the rate of 2 o?ered by those new royalties, A, and B, the
3 growth for self~published titles 'to inc rease. It 3 introduction of the iBoolcstore induoed anthers Who
4 was a'causa} factor; right, sir? 4 previously would not have published to publish
5 MS. RICHMAN: Objection. to the 5 their books through a self-published
6 tom 5 whats the, what?s' the problem with
7 BY MR. FRIEDMAN 2 7 answering a question that?s your theory in' the way I .
-8 That?s your opinion? 8 framed it, unless it?s how. is mine 
9 A My opinion is that the jself-, that the 9' misleading?
10 introduction of the agency agreements'with the. 1?37 MS. RICHMAN: You 'started'with
11 iBookstore induced Amazon to change its 11_ "isn?t your opinion a syllogi'sm-?
12 sel?publishedroyalty rates, which in turn 12 MR. FREEDMAN: ObjeCtiori. Move to
13' increased selfipuhlis'hing, A, and-then that the 13' strike counsel?s testimony. Improper 
14 iBookstore. itselthad certain features that may 1-4 objectihn.
15 have been more attractive to semi sets. 15- WITNESS: l-l?te my words.
16 pUinshers which they would have published books i 6' better than yours.
17 tluough the iBookstorethatthey otherwise would 17 
18 not have pijbliShed._ I 183  They soundi'bettcr, don?t they?
19. But you assumption, your operating 39 Objection
20 principle is that there would have been no? 2 0 1WICITINIESS: It?s not a question
2 1 iBookstore dui?ing the entire damages period absent 2 of sound. It's the analysis I undertook.
2. 2' the conspiracy; rightassume that the iBookstore was not 2 3'  Okay, but I?m trying present during the entire during the relevant 2 4 think we're entitled to and the jury is going to
25. period, yess I I 25: I be entitled to clarity in your opinion, and what

 

54 (Pages 210 to 2133

DAVID me.
450 Seventh, Avenue Ste 500; New York; NY 10123 1.800.642.1099

 

 

Case Document 559-9 Filed 02/24/14 Page 56 of 79

 

   

 

 

 

   
 

 

1 your opinion is and this is'realiy important, 1 Sure.-
2 because there's a differenCe betWeen cauSa?on and 2 Reread the question, please.
3 co rrelation, isn't there? 3' (W hereupon, reporter reads
4 A Of course there is. 4 requested materiaL)
5 Of course there is, and your opinion is 5 BY MR, FRIEDMAN:
5 not a correlation Opinion. It?s acausation 6 Is that your opinion; yes or no?
7 opinion, isn't it? 7 A I'm comfortable saying directiOnally
8 MS. Objection to the '8 that'smy opinion, but] prefer drawingthe
9 form. 9 linkages the way draw? them asaneconom'ist,
10. THE 'Directionallyg yes, .10 becausc'it?s the linkagesthat matter in tenns of
1'1 I do not estimate a magnitude of the effect. 1 1 the causation, and youtv'cjun'iped a nitmber of steps
12. . . FRIEDMANthe way that you described it. 
13 Q. So directionally you're saying the 13 Q- Move to. strike everything after
14 conspiracy caused seiprublished' titles to 14 "directionally" I'm comfortable saying yes to
1'5 increase more than if there Was no conspiracy. 15. that.
16 That?s directionally your opinion; correct? 16 So let's go to your causaliliukages that
l7 A What I?m saying is what I've already 17 you like to talk abdut.
1.82 articulated, that the introduction of. the agency 1 8 ii
19 agreements and the ijBojolcstore caused Amazon to: 19
2 0' respond and change  royalty rates, thereby - 2 0
2i giving incentives to self-published authors to use 2 1
22 the Kindle self-publishing app or selprubh?shing 
23' platform, and that increased self?publishing. II 23 7
2  citethe evidence here, and then also that the 2 4  So it's your opinion that the agency
25 iBookstore had features that the Kindle did not 25 agreements that caused the launch haVe, which because the 1B00kstorc was present 1. - . iBookstore caused Amazon 'to create the 70130 split
2' with the launch of the iPai that induced 2: I for self?published titles; is that your opinion?
3 self-publishers to want to selfvpublish on the .3- 3"
4? iBookstore; 4. -
5 So if Judge Cote instructs you in front -
6 ofthe jury invM'ay to answer the question as 6' i
7 phrased, will you refusa to answer the question, 7
8 if you?re instructed by Judge Cote, and Only put 3
9 it in the language you likebetter? 9' I
10 MS. RICEMAN: Objection to the 10'
11 form; 11
12- THE-WITNESS: I?ll answer the 12
1 3 question as I can ansvver it as an economistyou. can?t answer it? Excuse me. You 15 
16 will not answer it as I posed if, even if Judge 1 6 
l7 Cote directs you todo so in Federal District 17
18 Court in the Southern District York? 18 -
19: A Obviously if Judge Cote directs me to 1.9
2'0: an'sn'er the question, I'm going to answer as best I 20
21 can as an economist 2'1
22 Q: And so if she-instructs you to answer my 22
233 questioniyes or no, What will you tell Judge Cote? 23 a
24 I A I'd have to  "about" can you 24
25 rephrase the question. 25 

 

'55 (pages 214'te'217)

DAVID WORLDWIDE, INC.
450 Seventh Avenue Ste 500, New York; NY 10123 1.800.641] O99

 

Case Document 559-9 Filed 02/24/14 Page (55.

p4
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218

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220

about?
RICHMAN: Objection ?to the
form. 
THE WITNESS: on an Expected value
basis, yes, 
BY MR. FRIEDMAN:
So if you don'tk'now about something to
occur, you respond to thatunknown; right?
Objection'to the
form. -
BY  FRIEDMAN i
Let'mezstrike that. Let me ask you this 
question.
. If it if you're presented with facts
at trial, sir, that demonstrates Amazon was

 

 

Do you respond to things you don't know

  

1 6 planning on launching a? 7-0130 split before it ever
- l7: knew that Apple was either going to launch an
18 iBookstore or'anything-abnut agency, if you're
- I 1 9 presented with that evidence, are you willing to
I 20 change your opinions that you?ve offered?
2 A Yes. It doesn't necessarily take away
22' from the .fact that there was. an increase in
i 2 3 self?publishing because there were other reasons-
,1 2 4' why SCif?publiShing Went up, like I described the
25 differential product offering of the iBookstorebut obviously if there is evidence that says that
3 2 this would have occurred no -matter_what, that
3 would have changed my Opin?ion__
I 4 You're applying the "no matter whatf'
5 standard?Tween clear abtmt this 1 4 
disintermediatiOn. Disintermedi?ation has to do 15'
with Amazon wanting to disintermediate .the 6:
pubiishers from the authors; right? 1'7 -
A That's-WhatselfspublishinngES. .1 8
Yeah. That?s not having to. do with 19 
Apple; .cOrrect? 2 0
A- Competition works. in lots 2 1 
ways, and this is people respond in different 22 
ways to Competitiog and their respo'nse'was to .2 3
continue 'a trend t0wa'rd increased se1f?publiShing.. 2 4-

 

 

257%"

 

 

 

56. (Pages 218 to 221).

navn) WORLDWIDE, INC,  
450 Seventh Avenue - :Ste 500, New York,  10123 1.800.642.1099

 case _..D_ocUment 5.59:9 Filed 02124114 589157292  

 











?003 


+4

 

2'22

 

?mat if thEy were going to announce it
On January 23'?

A .  would materially change my analysis
because ofthe dates. I agree with that.

Do you agree that. afte'r'tht: cons'piraCy

P. 
b) 

F4.
4?4






.
(3

MR.  Form, please.
THE WITNESS: Analyzing their
incentives

 




20

 

a: to; 

mm?mUT

.223

commenced, thodefendant publishers roceived :1
lower effective-wholesale price per unit sold than
before the conspiracy. tookieffect?

A On avorage, yes.

Did you analyze how much iower per. unit
as a percentage the defendant publishers r?tieiiv?d
per unit? I I
a A Yes and no. Not" in that.? not in the-
way you a?icul'a'fed it. I did not anaiyzo it that
Ihavo considered Whai share of'tho pro?ts,
th'ai they occurred in tho actualworli wereto
shifting mix' and changes in cost relative: to other
factors.-

So I'm going to ask you some .q'?'estions
about'your opinions'about'Amazon?s pricing
strategy as a ?rm. All right? I

A Sine.

Now, the Centerpiece of You'ranalysis
abOuf thee-books being complements to'e?readEr
devices and ivice van is your analysis- of:
Amazon'spricing strategy; right? 

MS. mcmm: Objection.

_Chatacte?2a1i0m

 WITNESS: Analyzing their
incentives18Amazonis historical? business model; right?

3 book;: it" would be generally
consistent,- although whether thatpreciss quote is

 

?i

said, I can't say one; way or the other.

That qu ote sounds consistent with

A Haxiing read a good portion of

 

 

57' (Pages 222 to 225).

DAVID FELDIVIAN WORLDWIDE, INC 
450 Seventh Avenue Ste 5009 NEW York, 1.800.642.1099

Case Document 559-9 Filed 02/24/14 Page 59 of 79

 

226 228-

   
 

   

its
1- Do you know Brad? Is that true? I
2  A- do not know Mr. Stone. 2 A The'ironic thing is that Professor Noll
3- (2- He's a good guy. I 3 and I have written or been on? the same panels-
4 A I-may have met him. ijust don?t 4 about similar topics many times on the sports
35: there'lets Of people I?ve met. I can't recall. 5 economics issues-
6 - Fair enough. 6 How do you ?nd irony in that, sir?
7' 3 Do you accept as true thatAmazon never 7- A Because we are -- I'm critiqi?ng his
BS us'ed'the Salesof e?bjooks to directly subsidize 8 analysis here, and we have had a' 
9 the Kindle device; yes or no? 9 relationship Over the years.
1 - 10 So it's it'ouicthatyou?friendly relationship, and nevir you choose to

 

 

 

 

12 . 12 criticize his work?
13 i "'Wouid you accept as true that Amazon 13 MS. RICHIVIAN: Objection.
4 doesn't think of pricing-simplisticaliy as one 14 THE WITNESS: No, live-actually
15 part of the business subsidizing another part of 15. criticized his work pretty signi?cantly in
1 6 the business? 16- the Sp orts e'c'onomics World, too- We've been
17. Objection. 17 on opposite sides of sports emuomie iSsues
18  WITNESS: Ithiukiljust'said 8 as Well, and We disagree vigorously in that:
19 pmgmelr?t?the same ceneepu so yes, 19? way, "and. always believe you Cari have
2 0 BY FRIEDMAN: 2.0 disagreements with people and still iike them
2 1 Do you accept as true thatA'mazon Would 2-1. pers'ouaily;
22 from time to tiinje look at the Kindlezbuism'ess. '22 BYMR. FRIEDMAN:
23 holistically as the sum of what the deviCe and: 2 3 .  That Soundsiike an irony.
24 content provide together?" I 2 4  RICHMAN: Objection.
25 A Ithin I may" cite that precise quote report. 1 BY MEL 
2 So you accept thatas true? 2 Withdrawn.
3 A Yes. 3' 
4 Q- Do you accept as true that Amazom their 4
. 5. goal has been to have devices and e?books both be 5
6' sustainable? 6
i 7 A. 'Y'es- .7
. 8-  Do you accept as true that some pe0ple 8
9' buy tthiudle Fire who don?t read much, and some 9
- buye?hooks who don?t own Kindle soi'tuiare'i 10
11 A 'I?here?fs two parts, so lets - do you ll. 
312- 1'11in ifwe take. them apart? .12
13- First, as you acceptss-true that some . 13- 
14 Pe?plebur Kindle Firewth donlt'rcad'much? D0 '14 
3.5 you accept that as true? 15 3
16 A Yes, 1 - 3
17' .Doyou accept as true that some poopile 1'7 3 
1 8 buy e?hooks who deaf-t own Kindle-.hardwm? 13: .
9 A Ofeourse; 1'9} - 
2 0  Okay.   
21 I I. looked at your-CVspeeches and papers and op-eds' and testimony, and 22. -.:
23 there's a long list ofSports entries, it seemed 23' .
'24 like. It appearsyou like to spend yOur time 24 
25 analyzing and discussing sports. 257? 

 

 

 

58 (Pages 226 to 229)

DAVID FELDMAN INC.
450 SeVenthAvenue. - Ste 500, New York, NY 10123 1.300.642.1099

 

Case Document 02/24/7147? 

 





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23.3

?Are you accepting. as true the court's
?nding that it was doubfful that Apple. Was
suggesting at trial that the only way it could
have entered the e~book market was to agree with
the-defendantsto raise e-book prices?

HEW-AN: Objec?on the
form. 

THE I'm not would.
say the samejthing I said previously with
regard to "this line-of questioning. which is
that a question like that, I'm starting with

the assumption that there was 'aeons'pira'cy'

and: a restraint to raise e-book

prices, -

BY MR. FRIEDMAN:

Q3 ?Well, I understand that, but I?m
actuallj,r asking aflittle bit more specific
question, and that  Whether you're accepting
that Judge Cote was skeptical that Apple was
suggesting at trialthat the only jway it Could
have entered the e-book? market was'to agree with
the defendants to raise e?'bookprices.

MS. RICHMAN: Objectionto the

 

59 (Pages 230 to 233)

DAVID FELDMAN WORLDWIDE, 
450 Seventh Avenue - Ste 500, New York; NY 10123 1.800-642.1099

 

Ca?e Document 559-9 Page610f79

 






234

farm.

THE WITNESS: I think I said that

it?s not an issueI have analyzed one way 'or

the other for my analysis. I start with the.

assumption that there was the conspiracy.
BY. MR. FRIEDMAN:

But you also start with the assumption
that the iBook-store wOuld not have been launched
during the entire damages period; right? You said
that at the beginning of my examination of you.

A Thatis correct. 

Q: _So_ if] understand, your testimony is 
that the conspiracy caused Amazon to lower
e-r'ezi'der device prices lower than they would have

7 been had there not been a conspiracy; right?

A Yes;

And is it true that the compiracy
caused Barnes Noble to lower the price of the-
Nook lower than it would have been, absent the
conspiracy?-

A- That have not -- I do not have the
?nancial data. to analyze Barnes Noble-as-
direetly, given the ?nancials that are available,-
but directionally they would have that incentive,
yes236-_

 

 

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60 (Pages 234 to 237)

DAVID FELDMANWORLDWIDE,  .
450-.Seventh Avenue Ste 500, New York, NY 10123? 1.800.642.1099-

I case .P_ag.e.62_0f  . 

 

240

_9f? 9
1101 10
11 11
12- ?12_
13 133
14_ 14?
15 1-Right, so your assumption is that'iu

 



2 4 2010, Amazon, at the very least, would have been

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125 margin neutral for both businesses; right?

 

 

241

 

    

1 BY MR. A That's the that] make.
2 Whatif it's inconsistent with other 2 7 'So your assumption, sir, i's;that Amazon
3 information? 3 Wouldn't invest a dollar below marginal cost?
4 A If it?s inconsistent with other .4 A That's not true. I do assume that
5 information, then I wouldnt have Cited it. 5  How do you assume that?
6 So do. you believe that that information 6 A In my use of the life of the device,
7 and your assumptions that you draw are consistent 7 that by assuming that the device exists: they?re
8 with Russ'Gmndinetti's direct testimony? . 8 implicitly investing 'in ?Jture revenues in my
9 A Yes, 1.110. 9' calculation in my offset.
10 Okaythey would have been
11 11 negative in your calculations in terms ofthey
12 12 would have lost money in 20101, accordihgto your



calculations?

A. No, I'm assuming that they are investing
in the de?ne- . 

And so you're aswming they 'are.

1?1- '9?1
1.11 as w-

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0?1

17 investing in the device, and therefore they are-
18 18- doingiit at a lethal where they would actually lose
19 19 money in 2010 on the device, in the but-for worldtalking about economic pro?ts. or-

2 accounting? I meanl think We're talking past-

A 







each other a little bit
We're talking about your, your analysis.
A In my analysis they are --

they have zero pro?ts in both, and they are 

 


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61 (Pages 238 to 241)

1 DAVID FELDMAN WORLDWIDEINC, 
450 Seventh Avenue - New York?NY 10123 11.8006411099

 

 

Case 1:1-1-md-02293-IDL9MPoeument 559-9 Filed 02/24/14 Page assuming that deviCe that the},r sold; that 1 relevant market 
2 they would get a stream of revenue frorn that 2 Well, you've assumed the militant market-
3 device more than just in this 'year-?- 3 for devices?
4 And so-? 4 A Assumed the relevant market for the
. 5 A which is,. which is. investing inthe 5 case, whichis trade e?books.
6 device: . 6 ?WelL I'm asking you about the relevant
7 I understand your theory. The argument 7 market for devices. Have you assm'ned the relevant
8 you?re making, though,  that they would not, 8 market for devices? 
9 other than the investment in the device, that they. 9 A I take no view one' way or the other on
10 actually- would not be'mar'giu negative, according 10 that.
1 1 to your acet'mnting calculations, in 2010; right? 11 All right. So' youdon't assume at all
12 A Well, again, it depends how you Want to 12 that the iPad is a'substitute for the Kindle?
1 3 allocate their overall system. I'm assuming that 13 A No. The iPad clearly caused Kindle
1 4- the pro?ts on the system. are-zero. 14 prices to fall, and the experts in die case have
1 5 So you're assuming that Am azon was 15 all shov'vn that too,
1 6. unwilling to-ha've negative pro?ts in the but?for 16 [understand you want to bear-hug the.
17 World. even 'for a single year? 1 7 other experts, but I?m asking about your opinion.
1 8 A I test alternative to that 18 A My opinion is?that the introduction of"
1 9  Answer my Question, sir. 9 the iPad caused. a signi?cant drop in Kindle and
20 A My 1333:: assumption is that they have 9 30 Nook prices.
21 zero pro?ts for the-system in the but-for world. 2 1 So you believe the il?ad is a substitute
2.2 And starting in 2010, they have'zeru 22 for the Kindle; right?
23 pro?ts but also zero negative profits, right, for 3?33- A Right.
'24 the business? I I 2-4 And you helieVe the Kindle is a
25 A From an economic basis, yes, and by the 25 substitute for the iPad; rightway: it's consistimt with their behavior in the A. For some customers, yes.
2 pre?pe1?i0d. I 2  And you believe the Nook is a substitute
3 Thanks for the ?by the Way.? Appreciate 3 for the Kindle; right? 
4 you getting- it'in there. .4 A Fer some customers, yes.
5 So.when did the Nook launch? 5 Q- And you believe the Kindle is a
6 A Fall of 2009, 'if I?m not-mistaken. I 6 substitute for Sony?s e-rhader; right?-
7 don?t have the precise data It?s in my report; 7 A Sony?s erreade'r is goueas oftoday, but
I 8 the precise date. 8 at a point in time fatsome cuStomers it was a
9 November shund right? I 9 substitute;
20 A :I?m net going to disagree that; Nevem her, 10  m?
11- is the launch o'fthe Nook. 11 .
12 That Was a head?to-head competitor with '12 3
1-3 the Kindle; right? It 3 
15 611,- you agree it's' a substitute? 15  -
1:6 A Yes. 1:622 
17 Do you think it's  pretty-elem 13'  
1.8 substitute? 1 8' 
9' A haven?t- conducted that analysis to 1 9 3:
say? the degree of closeness; but I?ll agree it?s :a 20 _r 
.21 close substitute.- 21 3
32 You haven't anaIyzed substitute really 22 
23 _ataHihaveyou? 23 
2 4 A I have not analyzed the closeness of 2 4
2 5 substitution I have  for example. the 25 =57 -

62 (Pages 242 to 245)

Dav-n) 1N0. 
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

Case Document 5594-9 Filed_02_/24/_14 Page 64 of

 

 

 

 

 

 

246 248
11.12. 12_25?? 235'? I- 
247' 249
lii_ 11-- 
11? 11
12 111111111111111111:
13 .1 13'  We agreeto that.
'14 I .14 A. Inthe bub-for world, that would have
15" 15 changed Amazods incentives,1 given the increased

 
   


0'1


LU

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1 6 competition dueto the introduction of the iPad,

17 and there is testimony over and over again. about
181 that poine that the giP-ad had signi?cant e??eets,

19 regardless of whether the iBooksio're was: included
2 inrhatg on Kindle pricing. 

21 You understand the difference between

1? you asserting that the iPa :1 ea used competitive.

pressure on prices'and the iBookstore c'ausing
24 competitive'pressure on?prices? You understand
the diffErence? 

name?114+?:








 

25?s-

 

 

 

 


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6.3 (Pages 24.6 to 24.9)-

DAVID FELDMAN INC.
450 Seventh Avenue - Ste 500, New York1 NY 10123 1.800.642.1099

..  .. .. 9359 Document 559-9

Filed 02/24/Of-course I do. 1. in agreement,
2 Andsoj What you're opini'ng? about, in 2 The question, though, is: If you
3 addition to the. fact that prices were driving- 3- look at the tear?down costs, for example, and
4 lower in part, because you would agree the 4 the analyses of'tear-down costs for deviCeS,
5 introduction of the Nook; right? 5 . ?what'happe'ned before and after the
6 A Well, the N001: had. already 6r introduction of the 
7 you hadn?t seen a ?indamental change in the Kindle 7 And prior to-the' introduction of
8 strategy in that pericidin terms of 111a changes in . 8 the iPad, the retaii price, based on the
9 prices that had Occurred previously relative to. 9 tear?down costs and-this is just one of
0 their cost. 10 the analysesthat's in here were still
11 Wait a Second. The Nook was launched 11 higher, even'though the Nook had been
12' November 2009- 12 launched And then afterwards you had. a
13' Right, and you can-look at the various 13 different-?4 you had them either pricing at
I 4 costs of theirs items relative to the price-they  or below, even, the tear-down costs.
15 were selling at.  BY MR. FRIEDMAN:
16 The. data you rely on'in part to compare 16 So you?re using, ifI understand, for
17' 2009 and 2009,1his fundamental strategy, is based 17 your conclusion the difference in time between the
18 on .a year of sales of the Kindle in 2009, and the 18 launch of November 2009 for the Nook and the
1.9 Nook didn?t eVen launch How 19 1 launch in April of 2010 for the iPad to make your
20 can you make that statement? 20 conclusion as to the different levels of pricing
2 1  Obj eetiona Are you 21 pressure-applied, basad on those twu devices, and
2.2 asking a question? 22 then the incremental effect of the iBooltsto?re.
2 3 MR. FRIEDMAN: Yeah, how- can he 23 Is that right, sir?
2 4 make that statement? He gets it. 2 4 MS. RICH MI AN Objection to the-
25 THE WITNESS: Because there?s other 25 formevidence I cite to, and you are wanting to? 1 THE WITNESS: No. You?ve confused
2 ignore that Other evidence, 2 it pretty signi?cantly.
3 FRIEDMAN 3 BY MR. 
4 I'don't want to ignore anything. Infant 4. Okay.
5 you to answer your opini.on'th'at'the Nook didn?t?r 53 A That?s not What I'm saying.
6 if this is your opinion. Ifit's not, correct me, 6- All right.
7 but'?I think I just heard you say that the Nook 7 What's Moore's Law?
8 didn't put competitive pressure on the Kindle to B: A That every a doubling,
9 drive Kindle prices down in 2010. If- I"m wrong, 9' doubling in the Speed Of a Computer chip, or the
0 correct me. 10.- inverse would be applied tosornetimes the price at
11- A I Can connect you. 11 the same speed.
12 okay. 12 Do you believe Moore's Law applies to
13' A- The Nook clearly. is a competitive 13 digital goods such as e?reading devices?
1 4 alternative. I don't think We're going to. 14 A That's not something-I have analyzed to
15 disagree aboutthaif. 15. I .seeif the pattern of behavior wOuld'r?tiprecisely
15 Q- You said it?s a substitute. 1 6= Moore?s Law;
17' A I agree. 17. So you have no opinion?
18- Okay. 13 A It's not some??ng I've -
1:9 Can you lethim 19 Ms; mommy; Objection.
20 answer the question, e?i 2'0 THE WITNESS: It's not something-
2'1 THE WITNESS: So it's Competitive 2-1 analyzed one way or theothen
22: alternatives Substitute. I?m willing to 22 BYMR. 
23; concur on either'word or either phrase. The 23 I So for you, in terms of being objective
2 4 introduction of the Nook imposed competitive 2 4' and fair when you testify in front of a jury, you
25' pressure onAmazon?s Kindle. We?re I think 2 5  haven't analyzed Moore's Lawwhich could, in fact,

 

64 (Pages 250 to 253)

DAVID WORLDWIDE, IN C. 
450 Seventh Avenue - Ste 500, New York, NY 101-23 1.800.642.1099

 

Case Document 559-9

.. Fi'ed 02/24/14. 55.91579 

 

 

 

 

 

  
 

 

254 256
i  explain the downward pricing IeVeIsj that were 1 not a number I've committed to memory; and"
2 going on with eareading devices; right? 2 - I?d rathernot hazard a guess.
3 MS. RICHMAN: Objection. - 3. BY MR. FRIEDMAN:
4 Moore-?5 Law 4 So in preparing?y'ou'r report, did. you
5 actually - you Woold' expect in'Moore's Law 5. consider, rely on howmany .iPads Apple sold in'
6 not the pattern that We have observed, so- in. 6 2010? I
- 7 acme sense it's Orthogonal to. the issue's: that 7 MS. RICIMAN: Objection.
8 we haVe right here, so the applicability of 9 S: It's a number that:
9 What You?re discussing doesn?t make much 9. I'm pretty sure I?ve seen. I justcan't tell
i110 sense. I 1 0 you one "way or- the other What it is.
'1 BY MIL FRIEDMAN: 11 BY  FRIEDMAN:
12 Okay. So' you. think it doesn't apply, 12 Is. it relevanttoiyou at all whether 
1'3 '1 and therefOIe you didn?t-look at it;_ right? 13' Apple sold 15 million iP-ads or "25' million iPa?dsin
14 "Objection, 1 4 2010? Does that matter to you; at all?
15 THE That?s not what I 1 5' MS. Objection.
1 6 said. 1 6 THE WITNESS: Not directly.
17 . BY MR. FRIEDMAN: 17 BY MR. FRIEDMAN:
18 So you think it does apply? 18 Okay. Indirectly now, we have to follow
19 MSQRICHMAN: objection. 1-9 up. Indirectly-does .it matter to you?
20 THE-WITNESSES Are costs declining 20 A What?s important is .th'atit was an
21 of e-readers? Of Course, Whether it?s. 21 innovative device that consumers demanded that
.22 follOwing a Moore's Law trend?is not .22 caused signi?cant changes in the pricing behavior
23 something I've analyzed, but remember I?m not 2 3 of the Kindie for my analysis. That's what
24' I analyzingjust Cost.- I'rn analyzing pro?ts. 2'4: matters. 7
2.5 - 25 Wellgisn't'it actually what matters the
2.5 5 2 57
1 FRIEDMAN: 1 incremental demand ofthe iBookstore? 
2 I understand. 2 MS. RIG-MAN: Objection._
3 How many iPads were sold _in.2010? 3. THE WITNESS: No, not for what the.
4 A A lot; Sitting heretoday, I don't'have 4 but?for world would look like.
5 a precise number. 5 BY MR. FRIEDMAN:
6 Okay. Give me your estimate. 6 Because in the but?for werld, there
7 A It?s actually funny. 7: would be no iBOOksto're, but therewomd be an
8 8 iPad; right?
9 which I believe is ?ve andahalfrnilliom 9 A I've already said multiple times, in
10' In 2010?. I 1 O. tel-ms of my analysis with regard to  issue,-
1 A In 2010. The preciSe homber of iPa'ds, I. 11 it's invariant to whether the iPad had been
12 can't tell'you sitting here today. I. don?t know :12 launched with the iBoolcstojre or with0ut= the
13 one way or'the other the precise number, 1 3 Bookstore, for purposes of analyzing" this issue.
14- Q- Ididn?t ask you the precise number, 14 But you?re saying that if there was
15 Give me an estimated 15 no;- youTre saying the but-for World has got the
6 A I don?t it?s notsornething I have 1 6 Wild in it; right? - I
717 committed to memOIy. I?ve seen those numbers. I 175 A Yes.
18 just haven't committed them to memory. 1'8: .Q And you?re saying in that-werl'd', but?for
19 Ididn't ask yen for a committed memory. 1 93 world, prices for devices would have been lower;
20 I?m asking do you have any estimationIas you sit- 2 0' right?
21 here being paid by Apple to testify on its- behalf, 2.1 A Yes.
2'2 how many iPads it. Sold in 2010. 2-2 And you?resaying thatjwi-th 
2.3 . MS. RICHMAN: Objection; 2 3 A wen, let me pause.
24 THE WITNESS: I don't know what 24 Yes?. .
 .re'leVance that I?m working for'them. It's 2 5 Or e-bookpric?es would have. been higher 

 

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Case Document 559-9 Filed 02/24/14 Page 67 of779

 

 

 

 

 

2 5 8 2 6 
1 because of the economic incentives. 1 BY MR. FRIEDMAN:
2 I understand. The 12.9 percent which 2 Right.
3 you can't tell us which way it goes in terms of 3 A Yes.
. 4 . division; right? 4 But you don?t have a speci?c number to
5 MS. RICHMAN: Objection. 5 say that absent the conspiracy, the iPad, instead
6 BY MR. FRIEDMAN: 6 of being 800, would have been 700? You don't have
7 But there's 12.9 percent either all of 7 that; right?
8 devices or part devices, part e?books or all 8 A The iPad? I've already said that absent
9 e?books, right, that 12.9 percent? 9 the alleged conspiracy, the iPad price would have
1 A We've had that discussion, yes. 1 0 been the same.
1 1 so my question to you though, is, is 11 Right, and you don?t have that absent
12 that in the butmfor world, what yo u're saying is 12 the conspiracy instead of the Kindle being 200, it
13 that the conspiracy the only thing different in 13 would have been 150? You don't have that number
1 4 the but-for world is that the conspiracy caused 14 either; right?
15 the launch of the iBookstore. That?s the only 15 A Well, you could translate it into that
1 6 difference, sir; right? 1 6 number if you wanted me to.
17 MS. RICHMAN: Objection to the 17 Well, you just make up a number.
1 8 form. 1 8 A No, I don?t.
1 9 THE WITNESS: No. That's not the 1 9 MS. RICHMAN: Objection.
2 0 only difference. 2 0 THE WITNESS: I would not make up a
2 1 BY MR. FRIEDMAN: 2 1 number.
22 Well, in terms of what you're saying 22 BY MR. FRIEDMAN: .
2 3 caused prices to go down more in the as-is World. 23 Okay, so let's just go to this, through
2 4 A So we're maybe talking past each other. 24 the hypothetical.
2 5 There's two effects going on in concert with each 2 5 A I can tell you What the maximum effect
2 5 9 2 6 
1 other. 7 1 is.
2 Yep. - 2 Understood.
3 A And that the introduction of the iPad, 3 The in the but-for world, there's
4 regardless of whether it had the iBookstore or 4 no - let's assume in the but-for world, before -
5 not, was changing the economic incentives of 5 you have the but-for world and you have the Kindle
6 Amazon. In addition, the alleged conspiracy to 6 at $200, and now the iPad launches; right?
7 raise e-book prices changed Amazon's incentives in 7 A So we're let's justsay April 2010.
8 terms of pricing devices. Those tw0 effects are 8 Let's say March 2010 or April 2010.
9 occurring simultaneously. 9 A March or April. How about that?
1 0 Okay, so here's the deal, and maybe 10 Before the launch it?s $200 for the
11 We're talking past each other or maybe one of us 11 Kindle; right?
12 is talking around each other. All right? It's 12 A Yes.
13 pretty clear to me that your opinion is that 13 Launch April 2010, the iPad, and it has
14 device prices, if there had been no conspiracy and 14 no it has no iBookstore; right?
15 the iPad was going to launch in the but?for world, 15 A Yes.
1 6 device prices would have gone down; right? 1 6 All right. You agree with me that the
17 That is correct 17 Kindle price would go down; right?
18 And what your opinion is is that the 18 A Holding all el'se constant, yes.
19 - conspiracy let?s assume that the device price 19 Okay.
I 20 went and you don't have a number in terms of 20 Now, let's just assume I'm picking a
21 the actual prices for devices; right? 21 number. I'm not holding you to this number. Just
22 MS. RICI-MAN: Objection. 22 for ease of math- Goes from 200 to 150.
23 THE WITNESS: I have an estimate of 2 3 Okay?
2 4 the consumer bene?ts. 2 4 A Sure.
25 2 5 All right.
66 (Pages 258 to 261)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 Case Document 55959 Page768 Now, you're not saying the conspiracy 1
2 caused the 200 to go to the 150, because this is 2
3 the but?for world; right? 3
4 A That's correct 4
5 Okay, so no conspiracy, Kindle goes from 5
6 200 to 150; right? _6 
7 A That is correct. 7
8 Now, what you're saying is that with the Okay, so now let's unpack this, because
9 addition of the iBookstore that was caused by the, 9 they didn?t say that, but you're saying that's how
10 conspiracy, that the Kindle 150 went down even 10 they acted? 
11 lower, and I'm making up a number. I'm not 11 MS. RICHMAN: Objection.
12 holding you to a number. Let's say it went to 12 THE WITNESS: It would be
1 3 125. Right? 1 3 consistent with their statements about their
1 4 A If you want to use that number, sure. 1 4 policies prior to the introduction of the
1 5 Okay. 5 iPad.
1 6 Alternatively, if the Kindle price 1 6 BY MR. FRIEDMAN:
1 7r didn't go down to 125, you are saying that e-book 17? And you say "they." You're referring to
1 8 prices would have gone up; is that right? 18 Mr. Grandinetti's testimony; correct? That's what
1 9 A Let's unpack it a little bit further if 19 you're relying on? 
2 0. you don't mind. 2 0 A And their incentives today, for example,
2 1 Sure. Go ahead. 2 1 that they Mr. Bezos says they're trying to make
22 A So in the but-for world, I?ll start with 22 money on content instead of devices.
2 3 your assumption. 23 Okay.
2 4 Sure. 24 So now let's assume that we're down- 
25 A We?re at $200, and it falls to 150. 25 they drop prices down with the iPad launch to 150With the iPad with no iBookstore? 1 right? Let's just assume this for me. I'm not
2 A Some portion of that fall was due to the 2 holding you to a number. To 150, and they drop it
3 introduction -- due to cost changes, which would 3 to 150, and that's break-even; right? I'm
4 obviously be re?ected in pro?ts, because the 4 assuming.
5 I costof e?reader devices are falling. 5 A You?re not doing the analysis correctly,
6 Which would happen with or without the 6 but I'll let you assume whateVer you want to
7 conspiracy? 7 assume.
8 MS. RICHMAN: Can you 8 Go ahead. Thanks.
9 BY MR. FRIEDMAN: 9 So that's break-neven for the devices,
10 I'm trying to get on the same page. 10 and they're still pricing at break-even for
11 A With or without the conspiracy and with 11 content. All right?
12 or without the introduction of the iPad. 12 Now, what you're saying is, the fact is
1 3 Okay. 13 that prices went down for the whole, the system,
14 A The introduction of the iPad now causes 14 but potentially for devices, even further than
I 15 the price of-- because of new competition, causes 15 they would have by the launch of the iBookstore?
1 6 the price of the Kindle to fall even further. 1 6 MS. RICI-MAN: Objection.
17 17 mums: 
1 8 1 8 BY MIL FRIEDMAN:
19 19 So tell me where I'm wrong on that.
2 0 2 A It's not necessary that it's 150 where
2 1 2 1 they have the break-even price for thethe device side. The break-even for them could
2 3 23 have been 170 in the example you're giving, but
2 4 2 4 because of the increased competition, they could
25 change their incentiVes to where they at where

 

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450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

 

 Caselrll?md-022937DLC Documentw559-9. Filed 69.0179

 

 

 

 

they're going to seek the price. They could have 1 A It's the increased pressure from the
2 said 170. We go to 170 on the Kindle, but we push 2 iPad and device competition that would have then
3 up e?book prices in the but~for world. - 3 induced increases in ewbook prices in the but-for
4 Well, I get that. I'm not saying 4 world, regardless of whether there was a
5 that so you're now changing it, because ail I'm 5 conspiracy. .
6 simply saying is, consistent with your theory, 6 So you're saying that if there was no-
7 they would have, in the but-for world, priced at 7 conspiracy and no iBookstore, there would have
8 break?even in total. 8 been an increase in prices regardless?
9 A Their system, their system would be 9 A I say that in my report explicitly
10 break-even. 1 0 because of the change in the competitive dynamics
11 Correct, and I?m not - you know, you 1 1 on the device side. 
12 were unwilling to tell me and I understand 12 Right That's what you okay. Yeah.
13 why whether or not they were going to get 13 I don't know why you think that that's different
14 positive margin on one or both. Okay? So I'm not 14 than what we just talked about.
15 trying 15 A It?s very different.
1 6 MS. RICHMAN: Hold on. 1 6 It's very different 
17 THE WITNESS: It couldn't get 17 MS. RICHMAN: Wait for a question.
1 8 positive margin on both, given the facts. 1 8 BY MR FRIEDMAN:
19 BY MR FRIEDMAN: 1 9 Tell me Why you think that's very
20 Okay. 2 0 different. I
21 So what I'm trying to get to is that, in 2 A Because you're only including one
22 my hypothetical, right, you have a breakneven 22 factor, and there's multiple factors going on
23 number at 150 for the device, and let's say 23 here. In some sense you could break it into three
2 4 they're also pricing content at margin as well, so 2 4 parts. I've broken it into the parts, and you're
2 5 they have, as a system, they're both pricing at 25 focusing on one element of thisbreak-even. 1 FRIEDMAN: Okay. You want to
2 What you?re saying is that the 2 take a break?
3 introduction of the iBookstore moved the lever, 3 THE VIDEOGRAPHER: Going off the
4 shifted the balloon, changed the scales we can 4 record, the time is 3:14:02.
5 talk about all the metaphors in the world, but the 5 (Whereupon, a short recess was
6 netof it was is that the combination of the 6 taken.)
7 system ended up where prices went down more 7 THE VIDEOGRAPHER: Going back on
8 because of the introduction of the iBookstore; 8 the record, the time is 3:31:54. Counsel may
9 right? 9 proceed.
10 MS. RICHMAN: Objection to form. 10 BY MR FRIEDMAN:
1 1 THE WITNESS: You are ignoring 1 Mr. Orszag, I believe in your report you
12 elements of the analysis, but for the one 12 attribute, based on your analysis of Dr. Noll?s
l3 element you're talking about, the 13 model, that there was an estimated overcharge in
1 4 introduction of the iBookstore, or the 1 4 2010 through the Amazon platform of about
15 elevation of price due to -- the alleged 15 $40 million.
1 6 elevation of price due to the conspiracy and 1 6 Do you recall that you wrote that? 
17 restraint of trade, that factor cauSed a 1 7 A I believe that's what Mr. Noll's
18 lowering of device prices, that one factor. 1 8 analysis would suggest.
9 You're ignoring another factor in 1 9 Okay.
2 0 here. I don?t know if it matters for this. 2 0 A I want to get the precise language,
2 1 If you want to discuss it, you're ignoring a 2 1 because I want to make sure that the words you
2 2 key factor in my analysis. 22 said match up to the precise articulation thought. 7
24 Just tell me what it is, and then we'll 24 I'd like you to. I'll see which one of
25 take a break. 25 us goes faster to get there.

 

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 .9359.ilill'md'02293'DLC DOCUWGUP55979.

Filed92/24/14 P619670 of(Discussion was held off the A That is correct-
2 record.) 2 And that $40 million caused by the
3 BY MR. FRIEDMAN: 3 conspiracy of overcharge was based on purchases by
4 All right. So direct your attention 4 Amazon Kindle customers; right?
5 and tell me if I'm wrong. I asked you the 5 A Through Amazon.
6 question about the $40 million, and I direct your 6 Fair enough. Through Amazon.
7 attention to paragraph 85 of your report. 7 That $40 million is $40 million additional revenue that, according to Dr. Noll?s
9 A Yes, I do. I 9 model, would not have been taken from the
10 And so tell me ifI'm correct, that in 10 consumers had there not been a conspiracy; right?
11 paragraph 85 essentially what you do is you look 11 A That is correct.
12 at Dr. Noll's model, and you say what is 12 How much ofthe revenue did Amazon
13 calculated from Dr. Noll's model is approximately 13 receive of that $40 million? 7
1 4 $40 million in 2010 of associated overcharges 14 A This is a $40 million -- this is a
15 based on e?books sold by Kindle purchasers 15 change in pro?ts at Amazon, according to this
1 6 Kindle through Kindle; correct? 1 6 analysis.
17 A Yes, through Amazon, yes. 17 Is it a change in pro?t, or is it a
18 Through Amazon? 13 change in the revenue?
19 A Yes, 19 A Well, we?re holding costs constant here,
2 0 Q. All right. 2 0 so they're one and the same.
2 1 So if I understand it, you've looked at 2 1 But you?re saying that dollar for
22 and calculated that $40 million of overcharge 22 dollar, every dollar of overcharge goes to Amazon?
23 revenue was produced as a result of the 23 A This is again, this is the
2 4 conspiracy; is that right? 24 implications of the sales that their prices at
25 A N0, 25 Amazon were higher in this - well, are you saying
2 7 2 7 3
1 All right. So tell me what that is. 1 the split between Amazon and, in terms of the
2 A You said I calculated. This is based on 2 agreements that they had with the publisher
3 Professor No]1-- this is Professor Noll's 3 defendants? 
4 analysis. The implications of his analysis are 4 You got it.
5 this. 5 A Ijust wouid want to go back and just 
6 But he doesn?t break out the 6 I don?t have the backup sitting here. If you do,
7 $40 million, does he? 7 we can go through it.
8 A No, he does not. I have taken his 8 No.
9 analysis and I have -- but it's not my calculation 9 A I can?t recall precisely- I'm pretty
10 in tenns of my analysis. It's his analysis. I 10 sure this is the change in pro?ts for Amazon,
11 have just parsed his analysis and calculated it, 11 based on his calculations.
12 parsing his analysis. a 12 You think that you did the change in
13 You've just triple parsed, because you 13 pro?ts, because he didn't calculate the change in
14 also parsed my question, so here we go. 14 pro?ts; right?
15 So you have taken the implication from 15 A Based on his model, it's actually what a
16 the model and calculated the $40 miliion using his 1 6 change in revenue would be, but sitting here
17 model; right? 17 today, I would need to go back and look at the
8 MS. RICI-HVIAN: Objection. 8 underlying calculation here.
1 9 THE WITNESS: This is what his 19 Okay.
20 model suggests for Amazon in 2010. 20 So this could be the change in revenue,
21 BY MR. FRIEDMAN: 2 1 not the change in pro?t; right?
22 Okay. 22 A Sitting here, I?m not sure I?d have
23 So now the $40 million represents 23 to go back and look at the calculation.
24 $40 million of overcharge caused by the conspiracy 24 Okay.
25 as calculated by Dr. Noll; correct? 25 A I mean it is what it is. It's in the

 

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274 276
1 backup material. 1 than $12 million.
2 Understood. 2 That I know without a - well, neither
3 So assuming for our discussion, if it's 3 of us have a in economy.
4 a change in revenue and not a change in pro?t, 4 MS. RICHMAN: Objection.
5 what would be Amazon?s take of the $40 million for 5 BY MIL FRIEDMAN:
6 2010? - 6 Without any economics courses, I know
7 A Well, there would be a 70/30 split. So that, so can you tell me how much lower than
8 We can do the multiplication if you?d like. 8 $12 million it is?
9 Please do. 9 A As a rough order of magnitude, it would
10 A So it would be $12 million. I 10 be a quarter lower.
11 To Amazon? 11 So eight million bucks?
12 A To Amazon. I would need to go look at 12 A Nine million.
1 3 the calculation. 13 Thank you.
14 All right. ?14 So $9 million of additional revenue, if
15 So that $12 million to Amazon well, 15 it's revenue, that Amazon received, according to
1 6 first .. 6 you?
17 A Assuming, assuming again that it's 17 A Assuming you've done all the
18 measuring revenue, if it?s measuring pro?t 18 calculations correctly, roughly 75 percent of
1 9 We built that into my question. 1 9 $12 million is $9 million. That's a truism.
20 A Okay. 2 0 So I want to talk to you brie?y
21 I'm not saying you're agreeing that it's 2 1 about I don?t want to go back and talk about
22 revenue. We'll look at that. Right? Okay. 22 balloons and all this stuff, but I do want to
23 Now, you think that $40 million is an 23 understand, because I think counsel from New York
2 4 overestimate; right? Forget the device argument 24 asked you a little bit about it, but ?rst let me
25 for the moment. You think it actually because 25 ask a couple of prefatory questions.
275 277
of the controls, criticisms that you make of 1 Again, in fairness to you, I took your
2 Dr. Noll, for example, that $40 million is a high 2 statement as true that you take your work
3 side; right? 7 3 seriously and you understand there's implications
4 A The controls, the timing, and it's not 4 for corporation involved here, Apple, a very large
5 just a device argument; it's also the but-for 5 corporation, as well as for millions of consumers
6 world for e?book prices, so I just want to make 6 who are alleging that they were harmed by the
7 sure the record is clear. 7 conduct here? 
3 Fine. 8 A Absolutely.
9 So you think that actual $40 millibn is 9 MS. Objection.
0 overstated. It actually if it is revonue, that 10 BY MR. FRIEDMAN 
11 the additional revenue, as a result of the 11 So I?d like to talk to you a little bit
12 conspiracy, actually is far lower than 12 about, in your methodological search for the truth
13 $12 million, right, to Amazon? 13 here, whether in taking your task seriously and
14 A If it's actually the way starting 14 honorably, that you considered other alternatives
15 with the prOposition, the answer is yes. 15 to the two that you have adamantly described under
16 So how much lower than $12 million, 16 oath here to the pricing that could have occurred
17 according to you, setting aside the device 17 but for the conspiracy.
1 8 argument, do you think it is? 18 And speci?cally, if I understand, the
9 A I haven't done that calculation, 1 9 two pricing dynamics here that you've sworn are
20 Is that a complicated one for you? 20 the most likely to have occurred in the but?for
2 1 A I could do it. i 2 1 world is that prices for &books in the but-for
22 But not something you can do easily 22 world either would have gone up, prices for
23 here? 23 devices and this is retail prices would have
24 A I would need again, I would want to 2 4 gone up, or some combination of both in the
2 5 make sure I'm doing it correctly, so it's less 25 but?for world; right?

 

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case lrll-md-02293?PLC . Filed 92/24/14-. Page 72? 0f79

 

 

 

 

MS. RICHMAN: Objection. 1 THE WITNESS: Again, I don't
2 BY MR. FRIEDMAN: 2 necessarily agree with the precise words that
3 That's, that's what you say are the, in 3 you're using, because you're using words that
4 your expert opinion, is the most likely outcome 4 I think are more akin to a lawyer than they
5 applying your views of the economic lenses and 5 are an economist.
6 economic principles; right? 6 BY MR. FRIEDMAN:
'7 MS. MCI-MAN: Objection to the '7 What don't you like about them?
8 form. 8 A I think I could agree to the proposition
9 I THE WITNESS: You haven't described 9 that the publishers were concerned that as a
0 my views precisely accurately, but if you'd 1 0 result of Amazon's market position, that they, in
1 like me to describe them, I'm more than happy 1 1 the but?for world, could obtain lower wholesale
12 to do so. 12 prices for e?books. A
13 BY MR FRIEDMAN: 13 Okay. That's a quadruple parse.
14 No. I'd like you to tell me if you 14 Now, the publishers weren't concerned
15 disagree that, in your view, absent the 15 that Amazon was going to raise retail prices;
16 conspiracy, either device prices would have gone 1 6 right? I
17 up more or e?book prices would have gone up more 17 A I have not Seen them express that
18 or some combination of both. 18 concern. They may have been. I haven't seen
1 9 MS. RICHMAN: Objection to form. 1 9 that
20 BY MR FRIEDMAN: - 2 0 Well, actually, sho uld n't you have seen
2 1 Does that fairly capture the two pricing 21 that the publishers were expressing the exact
22 eVents that would have occurred in the but?for 22 opposite concern, that Amazon was driving retail
23 world? 23 - prices down?
24 MS. RICHMAN: Objection to the 2 4 MS. RICHMAN: Objection to the
2 5 form. 2 5 formTHE WITNESS: That is correct. 1 THE WITNESS: They were concerned
2 BY MR. FRIEDMAN: 2 the prices were low.
3 All right. 3 BY MR FRIEDMAN: .
4 So do you agree with me that one of the 4 Too low from their perspective; right?
5 driving forces, Mr. Orsmg, in the minds of the 5 A There's a di?'erencebetween levels and
6 publishers in engaging in the conspiracy was to 6 changes, and that's why I'm correcting the words
7 try and limit Amazon?s leverage in pricing 7 that you're using. 
negotiations with the publishers? 8 Thanks for the correction, but isn?t it
9 MS. RICHNIAN: Objection to the 9 true that the publishers felt that Amazon was
10 form- 10 pricing its books, e~books too low?
1 1 THE WITNESS: I don't like the use 1 1 A That was a current concern I've seen
12 of the words that you use, because they're 12 them express.
13 not the kind of words that as an economistl 13 And they wanted retail prices to
14 would use precisely. So I can't agree to 4 actually increasc; right?
15 them, because I don't like all the words that 15 A That?s - I've seen them make thosc
1 6 you used. 6 expressions.
17 BY MR FRIEDMAN: 17 Q. And one of the reasons they wanted
1 8 Okay. 8 retail prices to increase was in order to help
1 9 So I understand you don?t like them, but 19 Barnes Noble and other retailers to have more
2 0 fairly would you agree with me that the publishers 2 0 margins; right?
2 were extremely concerned that Amazon was going to 2 1 A I've seen them express that view, too. 
22 use its market share in the e-book market to drive 22 And isn't it true that Amazon refused
23 wholesale prices down for e?books? 23 when Arnaud Nourry had requested Amazon to raise
2 4 MS. RICHMAN: Objection to the 2 4 e-book priCes? 
25 form. 2 5 A I would need to look at that, the

 

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282 '284
precise interaction. I saw all kinds of 1 terms in? front of a- jury. Okay?
2 disoussions inmy reading of various background 3 2 RICHMAN: Objection.
3 materials. That precise one, sitting here today, '3 3 BY MR FRIEDMAN:
4 I don't remember it. - 7 4  so it's' your opinionthat the
5. Isn?t it true that Amazon was committed  5 publishers engaged in the conspiracy in part to
5 6 to a low pricing strategy f0r e?books-and felt: 7 6' try and preYentAmazon front reducing retail-
7 they made a promise to consumers toprice 7 prices; right?
8 low? 8. Msgmornm: ObjectiOm
9 Ms; RICHMAN: Objection to the 9 THE Can yen reread the
10 form, 1 0 question? because I want to make sure that I
11 THE WITNESS: I believe the promise 11 heard all the word's?in there, because there
12 that they made was to have prices- at $9.99 31.2 was a few phrases.
'1 3 Ear certain books(Whereupon, reporter-reads I
1.4 BY MR. FRIEDMAN l4. requested materials-)7. .
15 So you don?t believe that Amazon 'was 15' 5 THE WITNESS: .It's my View that the
16 committed to a low price. strategy? :1 6 5 publishers had a concern that Amazon could
17 MS. Objehtion to the: 17 obtain [Ower Wholesale prices in the but?for
18 form 3.8 world. 
9 IHE WITNESS: 19  BY MR. FRIEDMAN:
20 20 Q. I understand, but 'one of the reasons
21 21 'thatthe publishersengaged in their conspiracy to
22 22 raise retail prices is becausethey didn't Want
2 3 233 Amazon to keep prices low; rightThere's a difference between the conCept
25 Isn't that evidence ofAmaZOn being? 252% of keep prices low and lower wholesale prices.
.283 'g-j 2185
committed to a low price strategy? II Those are different concepts'
2. A As 'a-general proposition, I?minot going 2  I'un'derstand. I?m not asking you right
3 to disagree that that's how they viewed their 3j  now about wholesale prices- I'm asking about
4 pricing of content. 4 3 retail prices, and right now I?m asking you about
5 Wow. Is that aneg??ye version of 5; the conSpiraey, and One the concerns of the
6 agree with you?? 6 - publishers Was that they didn't want Amation to
- '7 Objection. 7' I keep retail e-book prices l0w; right? i
3 8 BY MEL FRIEDMAN: 8? 3 A I'm assuming that there?s "a conspiracy
. 9- Do you agree? 9 . to raise e-booli prices, so by' de?nitiOn in the
1 .0 A I like the Way I say things better than 10 but-fer world Without the conspiracy, e-book
11 the way you say them sometimest but :11 prices wouldhave been 10wer; 
.12 They're more helpful to your client the '12 Okay, but according to you, without the
13 way you say them? 13? conspiracy, e-book prices potentially would have
14  RICHMAN: Objection. 111 been higher? 
15  WITNESS: No. They?re more 15 A The pricing incentives would have driven
6 economics?based. - 5 those prices higher;
17' BYMR. FRIEDMAN: 71373 Right. So the conspiracy was;
18 I see. I 18'; ridiculous. They didn?t need to do it. They-"d
9. A You, you put out legal'tenns and 19.- just sit back, and they would haVe raised prices.
2 qt'rali? ers in Ways that wealdn't 'dothat. 2 0'   Objection.
21 Q. I understand. 21 BY 
22 A So? explain things as I would as an ?22 i: "Excusemej. Amazon would have raised
2 3 economist. 23:  prices, according to you, so the publishers didn't
24 we'll-be able to see your'transeript 24'} need to conspire to raise prices; right?
2'5 when you testifyas to how those were? economic 2 53%, MS. RICHMAN: Objection to the

 

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 Filed 02/24/1747 Page 74 of 79 

 

 

2 8 6
form; '1
2 i  There's - again, ?3
3 these are additional effects, and so the. 3
4 effects that they would have had in that 4
5 but-for world are directionally; "of course, 5'
.6 3 correct, because that's whattheir economic 6
7 Lj incentives would-have been no matter what, 7
8  and the magnimdecan be measured by looking 8
9: 3 at their statements of fact; .9
10 3. BY MR.. FRIEDMAN: '1 0'
ll  Right, and your Opinion is that the 1:1
12 Conspiracy actually raised e?book'pricesgrig'ht? 
l3  I I A Over and above what they othernzise Would 1.3
14. ha?: been increased; 1.4?
15 By? how much? 15
6 A By roughly the percentage that l0utline 1 6
17 I: in my-rep'ort; 1'7
18 By 15 percent? 18. 3 -
9 A No. It's by roughly 2' percentage points. 1 9 I 
2 abbveand beyond. 2 0 i
21 Q. You're including your, your; d'eVice 21
22 offset argument; is that right? 22' .
23 A We'Ve gone back and forth. 2 3
2 4  No,.no. 242
25 A. Some of this would have resulted gig" increase  regardless of eebook prices no. matter 3
2- What121'251' 215%

 

 

 

 

 

 

 

 

 

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DAVID FELDMAN WORLDWIDE, INC .-
450 SeVenth Avenuei- Ste 500, New York, NY 1012-3 1.800.642.1099

 

 

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- DAVID FELDMAN INC.
450 Seventh Avenue - 816500, New York, NY 10123 1.800.642.1099

Case Document 5579-97 Filed 02/24/14 Page 76 of. I I   

 

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'22MR. FRIEDMAN:
2 0ka?y.- No further question on that.-
3 A Are you assuming in the but?for world,
4 that the Kindle app is on the iPad?
- 5 A Yes.
- So excluding- let's go with an
. 7 assumption here. All right? I?m not-having you
. 8 agree with the assumption, but let's operate with
. 9 this 
10 Judge Cote Exciudes on s'omegmuuds your
'11 opinion-5' about. the offsetting effects of the -
12 strike that
13 Let?s assume that Judge Cote excludes
14 from your opinions the uncompetitive effects that
315 you've identi?ed in terms of lo'Wered device
16 prices in a butwfor world.- Okay? Assume that.
17 Don?t agree with me? Just assume it.
318' So you're not all0wed to testify about
19 your procompetitir?e effects analysis on the
20 devices. So now you?re going to testify about
2 1 your criticisms of Dr. Noll separate and apart
22 from his not factoring in?the devices.
23 Are you With inc?
2 4 A We're hypothesizing. I'm with you, I
25 thinkOkay.
2 So in that world, according to your
3 report, all right, are you offering any opinions
4 as to the amount of the overcharge that was caused
5 by the causpiracy?
6 A So just so we're on the same page: I?m'
'7 oniy- - and then analyzing the issue ofloo'king at
8 the tansactions data and-What happened before and
3 9 after the introduction of the {Pad with the
 iB-ookstore or the-alleged conspiracy in the
Li restraintof trade 
-- 12 Yep.
13  m- thenl wouldsay that The but?for
1?1 worldin-?lai Circumstance is not a reliable
1.5 so one is. not accuraiely
1 6 measuring damages, and II would expiain why.
17 Dr. NOH?S'niodel is not Correct.
18 Well, you're saying it's not reliable
9 because it deecn?t take into account your {Pad
2 0 argu'm en t; right?
2 A Welh I think his model is not reliable
2.2 for a number of reasons.
23  So Pin Excluding the {Pad and iBookstore
24 offsetting argument. I'm asking you: For the I
2 5

 

other reasons, I want you to tell me what is" your;

 

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298

quanti?cation of damages ifyou remove from your
analysis because you're not permitted to

testify about it your procompetitive effects
device argument?

A Again, what I've analyzed is the effect
on both e-book prices as a system and?device
prices, so it?s one and the same. 

I know, so you have no opinion then?

A Well 

MS. RICHMAN: Objection.
THE WITNESS: -- I do have an 
opinion. I have a strong Opinion.
13 BY MR. FRIEDMAN301

   




MR. FRIEDMAN: Okay.

.Why don't we take a quick break.? I
may be either done or very close after I talk
to my colleagues; Okay?

(Discussion held off the record.)

THE VIDEOGRAPHER: Going off the
record, the time is 4:06:03.

(Whereupon, a short recess was

taken.)

THE VIDEOGRAPHER: Going back on
the record, the time is 4:11:46. Counsel may
proceed-

BY MR. FRIEDMAN:

Okay, Mr. Orszag, I appreciate that the
hour is getting late, and let's see if we can i
?nish up ef?ciently.

A That sounds great.

Did you estimate the market share of
Apple's e-book sales for 2010, for example?

A Using the transaction data from

 

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3 02 3 4
1 Professor Noil, yes. 1 with and without other applications.
2 And what was your estimate? 2 So you don't know the aggregate number,
3 A If we can turn, if you don't mind 3 an average?
4 I don't mind at all. 4 A The average may not .be what happens in
5 A -- to Figure 3-2, which is on page 5 the real world.
6 My estimate, and sitting here with the chart, I 6 I understand. What would the average
7 can't quite tell the number, but roughly speaking 7 be? 
8 I'll say it's somewhere between 5 and -7 percent 8 A Wei], if you're assuming that the
9 Okay. 9 distribution of purchases by people who only have
10 A Maybe 5 and 8 percent, but that kind of 10 the iBookstore app and no, and no other app is the
11 ballpark. You didn't print this in color, 11 same as the distribution of people with other
12 unfortunately, for me. 12 e?reading apps, if you make that assumption, then
13 Oh, you're very kind Yeah, so I'll 13 it wouid be 19 percent times something on the
14 stick with my 5 to 8 percent. 1 4 order of magnitude of 10 or less.
15 And I want to ask you one more 15 So is that 1.9 percent?
1 6 follow-up. What was Apple?s highest market share 1 6 A If you make that assumption of the same
17 according to your review of Dr. Noll?s 17 distribution, which is an absolutely critical
18 information? 1 8 assumption, because the distribution may not be at
l9 A Just below ten percent. 1 9' all the same.
20 And what year was that? 2 0 And what percent of iPad owners also
21 A Late 2011, it looks like about November. 2 I owned a Kindle? I believe you cited some
22 Okay. Thank you. 22 statistics; right?
23 Do you understand from did you review 23- A Yeah, I believe it was 60 to 67 percent
24 Dr. Kalt's rep0rt in this matter? 24 also had a Kindle, if my recollection is correct.
25 A Ihave reviewed it, yes, I have. 25 I may have said it backwards.
3 03 3 5
1 Okay. 1 I think you said it backwards, fairness
2 So my question for you is: Are you 2 to you.
3 aware of whether Dr. Kalt did an analysis of the 3 A Let's get the precise number if you
4 percentage of iPad users who exclusiVely had the 4 don't mind. 
5 iBookstore and no other e?reading application on 5 I don't mind at all. Let's get the
6 the iPad? 6 precise number.
7 A Yes, I did see that analysis. 7 A "Survey data show that between 60 and
8 And isn't it true that his analysis 8 67 percent ofiPad owners did not have Kiddies."
9 . showed that 81 percent of iPad owners had an 9 So 1 got it half backwards. I apologize.
10 e?reader appiication in addition to the 10 No.
11 iBookstor?? 11 A The problem of trying to do something
12 A I believe that's the right number, but 12 from memory.
13 sitting here today, I don't remember the precise 13 So between 33 percent and 40 percent of
14 words, but I believe that's the right number. 14 people who own iPads also owned a Kindle; is that
15 So if it is true - and I'll represent 15 right? 
6 to you I think that Dr. Kalt testi?ed to that 16 A That's what that survey data would
17 then what percent of e-book sales to iPad l7 suggest,_yes-
18 customers would have been to customers who only 18 And then there may also be did the
19 had the iBookstore app? 1 9 survey data show what percent of people also owned
2 0 A It's not a fact that we have suf?cient 20 a, who owned an iPad, also owned a Nook?
2 1 information to analyze. We'd need more 2 A I need to go back to the survey, because
22 individualized analysis, 22 I don't it's not fresh in my recollection
2 3 Why is that? 23 whether that was also as part they also had
2 4? A Because you need to know the 2 4 that as part of the survey.
25 distribution of purchases by those individuals 25 So in terms of the lower bounds of the

 

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3 6 3 8
1 percentage of people who own an iPad and an i
2 e~reader device, the lower bound is 33 percent; 3
3 right? 4
4 A Yes, owned That is correct. 5
5 A 9 6 CERTIFICATE OF SHORTHAND REPORTER -- NOTARY PUBLIC
Oppose 0 7 1, Laurie Bangart, Registered .
6 A Use- I 39111le own bOt-h- Ihaven't Professional Reporter, Certi?ed Realtime
7 turned on my  in years? 8 Reporter, the o?ice?r before whom'the
8 MIR-   SO no further foregoing deposition ryas taken, do hereby
9 certin that the foregorng transcan IS a
9 qucsnons- I true and correct record of the testimony
1 WITNESS: Thank you 10 given; that said testimony was taken stenographically and thereafter reduced to
1 1   . N0 qucsuoflS' ll typewriting under my supervision; and that I
12 THE VIDEOGRAPHER: This concludes am neither counsel fore related to, ?or
1 3 the deposition of John Orszag. The total 1 2 employed hr any 9fthc parties to this cafe
1 4 number of videotapes is three. We're going @411? imam? Emma?! or Omem?se?
. . 1 3 111 its outcome.
1 5 Off the record. The IS 4:18:09. We 1'6 14 IN WITNESS I have hereunto
1 6 Off the record. set my hand and a?ixed my notarial seal this
1 7 (Signature having not been waiVCd, 15 9?h day ?f_D??cemberf 2013'
I 1 6 My commissron expires: March 14th, 2016
1 8 the Video deposrtron of JONATHAN 17 
1 9 ORSZAG was concluded at 4:18 pm.) 1 8
2 0 LAURIE BAN GART
2 1 NOTARY PUBLIC AND FOR
2 2 2 1 THE DISTRICT OF COLUMBIA
INSTRUCTIONS TO WITNESS
2 7 2 
3 3 Please read your deposition over carefully
4 4 and make any necessary corrections. You should state
5 5 the reason in the appropriate space on the errata
6 ACKNOWLEDGEMENT OF WITNESS 6 sheet for any corrections that are made.
7 1, Jonathan Orszag, do hereby 7 After doing so, please sign the errata sheet
3 acl-mowledge that I have read and examined the and date it.
9 foregoing testimony, and the same is a true, 9 You are signing same subject to the changes
10 correct and complete transcription of the 0 you have noted on the errata sheet, which will be
11 testimony given by me, and any corrections 11 attached to your deposition.
12 appear on the attached Errata sheet signed by 12 It is imperative that you return the original
13 me. 13 errata sheet to the deposing attorney within thirty
14 4 (30) days of receipt of the deposition transcript by
15 15 you. If you fail to do so, the deposition transcript
16 16 may be deemed to be accurate and may be used in court.
17 (DATE) (SIGNATURE(Pages 306 to 309)

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