Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 1 of 124 1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA 2 3 4 5 6 7 UNITED STATES OF AMERICA, : : Plaintiff, : : v. : : H&R BLOCK, INC., et al., : : Defendants. : ..............................: Civil Action No. 1:11-cv-00948 September 13, 2011 Morning Session Washington, D.C. 8 9 10 11 TRANSCRIPT OF PRELIMINARY INJUNCTION HEARING - DAY 6 BEFORE THE HONORABLE BERYL A. HOWELL UNITED STATES DISTRICT COURT JUDGE 12 13 APPEARANCES: 14 For the Government: 15 16 Mr. Joseph Wayland U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, D.C. 20530 (202) 514-1157 joseph.wayland@usdoj.gov 17 Mr. Lawrence E. Buterman U.S. Department of Justice 450 Fifth Street, NW Washington, D.C. 20530 (202) 532-4575 lawrence.buterman@usdoj.gov 18 19 20 21 22 23 24 For the Defendants: Mr. J. Robert Robertson Mr. Corey W. Roush Hogan Lovells 555 Thirteenth Street, NW Washington, D.C. 20004 (202) 637-5600 robby.robertson@hoganlovells.com 25 1 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 2 of 124 1 APPEARANCES (Continued): 2 Court Reporter: 3 4 Ms. Lisa Schwam, CSR, CRR, RMR Official Court Reporter Room 4702-A, U.S. Courthouse Washington, D.C. 20001 (202) 354-3238 LisaSchwam@aol.com 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Proceedings reported by machine shorthand, transcript produced by computer-aided transcription. 2 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 3 of 124 1 2 I N D E X WITNESS DIRECT CROSS REDIRECT RECROSS 3 4 DR. CHRISTINE SIEGWARTH MEYER 5 By Mr. Wayland 4 6 7 8 E X H I B I T S NUMBER MARKED FOR IDEN 9 GOVERNMENT EXHIBITS: 10 Trail Exhibit 14 20 11 Trial Exhibit 15 95 12 Trial Exhibit 16 96 ADMITTED 13 14 15 16 17 18 19 20 21 22 23 24 25 3 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 4 of 124 1 2 P R O C E E D I N G S 3 4 THE DEPUTY CLERK: Civil Action 11-948, United States of America v. H&R Block. 5 MR. WAYLAND: Good morning, your Honor. I do not 6 believe there are any administrative matters, but Mr. Robertson, 7 anything? 8 9 10 MR. ROBERTSON: to get this accomplished this morning. THE COURT: And Dr. Meyer is in the Good. Dr. Meyer, please come up to the bench. 13 14 I think we're trying courtroom so I think we can commence and keep this moving. 11 12 No, your Honor. Good morning. And I remind you you remain under oath. 15 THE WITNESS: 16 Thank you. CROSS-EXAMINATION 17 BY MR. WAYLAND: 18 Q 19 the government in this matter. Good morning, Dr. Meyer. I'm Joe Wayland, and I represent 20 Diversion. It's a word I've written on the board over 21 there (indicating). 22 A I see it. 23 Q As I listened to your testimony yesterday, it seemed to be 24 at the heart of your opinion, right? 25 A See it? Diversion is an important concept in merger analysis, yes. 4 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 5 of 124 1 Q Well, I take it it must be because you're relying on 2 diversion to support most of your opinion, correct? 3 A 4 opinion. 5 Q 6 understanding the main issue in this case, which is what happens 7 as a result if there's a price increase, correct? 8 A 9 into account when thinking about whether there's going to be a I have a lot of different pieces of evidence that support my But diversion is very important. And you told us yesterday that diversion is critical to That is certainly one of the elements that you have to take 10 price increase. 11 well. 12 Q 13 definition is wrong because we don't have the closest substitute 14 in our market, right? 15 A Yes, I believe that's correct. 16 Q And the basis for that, as I got it, the quantitative basis 17 for that is your calculation of diversion ratios, correct? 18 A 19 evidence that corroborates that. 20 Q 21 quantitative analysis that you've done, correct? 22 A 23 qualitative analysis is also important. 24 Q 25 quantitative analysis that you've done. All right. As I indicated, there are other elements as And you said that the government's market That's the quantitative basis. You're an economist. There's also qualitative You're here to tell us about the I am here to tell you about the quantitative analysis, but Well, we're going to talk this morning about the 5 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 6 of 124 1 And the diversion quantitative analysis that you've done, as 2 I understand it, a big part of it is the simulator, correct? 3 A The simulator is important, yes. 4 Q In fact, the simulator is where you get the quantitative 5 evidence that supports your diversion analysis, correct? 6 A Yes. 7 Q All right. 8 9 Let's go to the simulator. Now, the simulator was prepared on the basis of what you called in your report a "discrete choice survey," correct? 10 A Correct. 11 Q That's at Paragraph 44 of your report, right? 12 screen. 13 MR. WAYLAND: It's on the Your Honor, I think we have some binders. 14 Do you have the binders that we -- Binders 1 and 2? 15 them up. 16 BY MR. WAYLAND: 17 Q 18 "The simulator was prepared using a discrete choice survey of 19 6,119 respondents," correct? 20 A Yes. 21 Q Now, you've written about discrete choice surveys, right? 22 A Yes. 23 Q You wrote an article called "Designing and Using Surveys to 24 Define Relevant Markets," correct? 25 A All right, Dr. Meyer. Let me hand Paragraph 44 of your report says, I believe that was the title, yes. 6 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 7 of 124 1 Q 2 Yes. We've displayed it on the screen. It's at Tab 28. And that's an article you wrote, correct? 3 A That's correct. 4 Q Okay. 5 A The article appeared in a book. 6 Q Do you remember the name of the book? 7 A It had to do with antitrust. 8 the book. 9 Q And where did the article appear? I don't remember the name of And the article that we're looking at, "Designing and Using 10 Surveys to Define Relevant Markets," that reflects your views of 11 surveys and the proper use of surveys, correct? 12 A Yes. 13 Q All right. 14 surveys. 15 Let's see what you said about discrete choice Let's go to page 105. And you say in your article that "discrete choice surveys 16 refer to a form of stated preference survey in which respondents 17 are offered choices under hypothetical conditions," correct? 18 A Correct. 19 Q All right. 20 choice survey should do, right? 21 A Correct. 22 Q And then you say, "In a discrete choice survey, respondents 23 are presented with a set of alternative items with specified 24 characteristics at randomly selected prices," correct? 25 A And that's your understanding of what a discrete Correct. 7 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 8 of 124 1 Q And so a properly formulated discrete choice survey would 2 satisfy this condition, correct, "presented with a set of 3 alternative items with specified characteristics at randomly 4 selected prices," correct? 5 A Correct. 6 Q All right. 7 about it so let's keep going. 8 You give an example. Now, let's -- I think you've said some more "The respondent may be shown four 9 product options." It could be more, right, it doesn't have to 10 be four, correct? 11 A That's correct. 12 Q "Each option would be a product with a different combination 13 of attributes and prices," correct? 14 A Correct. 15 Q That's what a discrete choice survey would be; a bunch of 16 products, attributes, and prices, correct? 17 A Correct. 18 Q And makes sense. 19 would do in the real world, here's a list of products, here's 20 the prices; we're going to change something about it, we'll 21 change a price and see what happens, see how people react, 22 right? 23 A That's correct. 24 Q And then later on you say, "The range of prices of different 25 product options shown to the respondents might be randomly If you're trying to figure out what people 8 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 9 of 124 1 selected from among a set of four or five hypothetical price 2 points," correct? 3 A Correct. 4 Q So -- and I think as we see when we get into the simulator, 5 that was supposed to happen, right? 6 and see how the respondents change their reaction, correct? 7 A Correct. 8 Q Okay. 9 article, is "an attempt to create a controlled market You change the price points And the whole point of this, as you say in your 10 environment," correct? 11 A I think I say "a controlled market experiment." 12 Q "Experiment," all right. 13 market experiment." 14 You're right. "A controlled Are you trying to get as close as you can to what consumers 15 would do in the real world, right? 16 A 17 to prices within a survey environment, yes. 18 Q 19 experiment, right; what happens in the market, you're trying to 20 duplicate that, correct? 21 A 22 you're trying to get as close as possible to understanding what 23 consumers would do in the event of a price increase, that's 24 correct. 25 Q You're trying to get information about how consumers respond Okay. Because you're trying to create a controlled market Clearly, this is a survey so we have to recognize that. All right. But Let's go back to your report and see how you've 9 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 10 of 124 1 described what happened here. 2 Now, in your report you say, "The respondents were shown 3 five pricing scenarios, and the options included online 4 do-it-yourself options, software do-it-yourself options, 5 assisted tax preparation options, and other do-it-yourself 6 options, including pen and paper and friends and family." 7 Do you see that? 8 A Yes. 9 Q And that's, as far as you know, a correct explanation of 10 what happened in the simulator, correct? 11 A Correct. 12 Q And then you say, "The pricing of the various options 13 changed across scenarios." 14 And that, as far as you understand, is what happened as 15 well, right? 16 A Correct. 17 Q And that's your understanding. 18 simulator is what's set forth that we've highlighted, correct? 19 A That's correct. 20 Q All right. 21 and you interpret them to show, as you report in Paragraph 45 of 22 your report, that, "the largest diversion from HRB's TaxCut, in 23 the event of a price increase, is to CPAs and accountants," 24 right? 25 Your understanding of the Now, you looked at the results of the simulator, That's the conclusion that you reported in your report that 10 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 11 of 124 1 you submitted in this case, correct? 2 A Correct. 3 Q And that's what your simulator told you, right? 4 A That's correct. 5 Q Okay. 6 to make sure I understand because, in my view, there's a little 7 bit of uncertainty just in the sentence so let's talk about 8 that. 9 But before we talk about that conclusion, I just want First of all, CPAs and accountants, that's just a subset in 10 the assistant market, right? 11 A That's correct. 12 Q All right. 13 don't specify a particular product. 14 And by the way, when you say "HRB's TaxCut," you Do you mean to say that the largest diversion from any 15 product of HRB in the digital market? 16 say, or is there a specific TaxCut product you had in mind? 17 A 18 TaxCut products in aggregate. 19 Q 20 we've got that. 21 increase." 22 Is that what you mean to This is not a specific TaxCut product. Okay. It's all of the So all the TaxCut products in aggregate, all right, Then you say, "in the event of a price You don't say how big of a price increase. Did you have a range in mind? 23 A This is a -- looks at what's known as the "cross-price" and 24 "own-price elasticities." 25 around the base price. So these are deviations in the price So it's -- 11 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 12 of 124 1 Q 2 It doesn't say that there. So let me see if I understand this. Any HRB product, any 3 price increase, biggest diversion CPAs and accountants. 4 your testimony? 5 A Well, what the pricing simulator is able to do, it looks -- 6 Q I don't want to know what the pricing simulator is now. 7 want to know your conclusion with respect to the impact of a 8 price increase on an HRB product. 9 Is that I And as I read this sentence, it says, any HRB product, any 10 price increase, the result is most diversion goes to CPAs and 11 accountants. 12 Is that your testimony? 13 A Yes. Well, it's not any price increase. These are small 14 price increases around the starting point. 15 these calculations are done. 16 Q Okay. 17 A Again, this is based on an own-price and a cross-price 18 elasticity, which basically looks at, technically speaking, what 19 we call the "slope," right around the starting point. 20 looking at -- you know, you think about it as sort of the 21 smallest possible price increase, but it's looking at the 22 direction of the price increase right around -- and the 23 magnitude of the price increase right around the starting point. 24 This doesn't depend on a particular 5 percent or 10 percent 25 price increase. That's the way that How small a price increase? So it's 12 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 13 of 124 1 Q What's the lowest priced HRB product? 2 A Pardon? 3 Q The lowest priced HRB product -- you could take the lowest 4 price that was presented in the simulator. 5 What was the lowest price? 6 A 7 in the simulator. 8 Q 14.95. 9 A Somewhere around 70 cents. 10 Q So 70 cents, HRB decides let's give them a buck. 11 raise the price of that product by a dollar. 12 The lowest price that I recall was 14.95 for a basic price What's 5 percent of that? Let's What you're saying is that the reaction of the consumers to 13 that price, the most diversion you'd see to raise the price from 14 14.95 to 15.95, off we trot to the CPAs and the accountants. 15 Is that your testimony? 16 A My testimony is that what the pricing simulator does is 17 obviously it did not include 15.95 as a price. 18 particular prices embedded within it. 19 the prices that are within the simulator, and then you can take 20 some inferences about where consumers go. 21 pricing that was presented to consumers and you say, well, you 22 know, on average -- again, this is a statistical analysis. 23 doesn't look at one particular respondent in the survey and say 24 let's raise his price by 70 cents or a dollar and see where he 25 goes. It has But you can look at that, You look at the This 13 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 14 of 124 1 What you do is you look at all of the data for all of the 2 price changes, and you get -- as I said, it's not point-to-point 3 changes. 4 what's known as "slopes," but that's the way you do that in this 5 industry. 6 at elasticities and cross-price elasticities. The way that you do this statistically is you look at That's how you analyze diversion generally; you look 7 THE COURT: 8 what was the starting point? 9 was it higher? 10 THE WITNESS: 11 THE COURT: 12 THE WITNESS: 13 But could you answer the one question of The starting point is at the base. So that was 14.95? The base is not in this simulator always the lowest priced product. 14 MR. WAYLAND: Was the starting point 14.95 or I'd have to go back and check. We're going to look at that, your Honor. 15 I think it will become clear as we go forward. 16 BY MR. WAYLAND: 17 Q 18 result, which you've reported which is the largest diversion 19 from HRB's TaxCut, any product, in the event of any price 20 increase, is to CPAs and accountants, did you stop and say, 21 "That's kind of a bit of a weird result? 22 economist. 23 suggests that somebody who is buying something at 14.95 sees a 24 price increase is going to rush off to a CPA or an accountant," 25 did you stop to think, "Maybe I better try to figure out what's Well, when you looked at the simulator and you got this I think about the real world. You know, I'm an And a conclusion that 14 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 15 of 124 1 going on?" 2 Did you try to do that? 3 A That's why I looked at the documents in this case, yes. 4 Q But in your conclusion, you don't have any explanation. 5 you think people might want to understand, how do you explain 6 this? 7 conclusion, which most of my testimony is based on, that CPAs 8 and accountants are the closest substitute for any HRB product"? 9 Did What do you think is going on here that I come to a Did it occur to you that that was kind of weird? 10 A 11 looks at how closely it appears that H&R Block and assisted tax 12 preparation compete. 13 lot of their -- for example, in the pricing simulator, they 14 chose to include assisted tax preparation. 15 market shares and looked at switching, they look at it to 16 include assisted tax preparation. 17 about competing so -- between retail and the assisted tax 18 preparation. 19 No, not really in light of all of the other evidence that They look at assisted tax preparation in a When they looked at Mr. Smyth in his letter talks So no, I mean, this didn't seem particularly odd to me. 20 datas say what the datas say. 21 Q 22 have 19 pages of cites of documents and other things that you 23 looked at. 24 what's going on so I looked at the simulator and, gee, that's 25 not a surprise. The Your testimony is, "I read all the documents" -- and you "I read all this stuff. I sort of got a sense of The documents tell me -- I was ready for that 15 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 16 of 124 1 conclusion. 2 that the highest level of diversion would be from a 14.95 3 product to people trotting off to the CPAs and accountants. 4 That's what the documents told me." 5 The documents prepared me to believe reasonably MR. ROBERTSON: 6 about 19 pages. 7 19 pages. 8 9 Objection; form. Counsel is testifying There's a heck of a lot more than just the I think that that's misleading. THE COURT: The objection's sustained. Could you ask a question. 10 MR. WAYLAND: Sure. 11 BY MR. WAYLAND: 12 Q 13 describes the extent of the information you looked at, 14 correct? 15 A 16 you're referring to my Appendix 2, which lists all the documents 17 considered. 18 Q 19 you did a lot of work, correct? 20 A Correct. 21 Q And the amount of documents that you read and the amount of 22 data that you looked at and the amount of articles and others 23 things that you considered, took 19 pages just to list those all 24 out, correct? 25 A Attached to your report is a 19-page appendix which I'd have to go back and check the page number. Yes. I didn't mean to belittle it. I think I meant to suggest that Again, I'd have to go back and check the page count. 16 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 17 of 124 1 Q 2 know, sources for your opinion, correct? 3 A That sounds about right. 4 Q And your testimony today is having reviewed all that 5 material, "I didn't think it was odd when my simulator told me 6 that the greatest diversion was going to be to CPAs and 7 accountants," correct? 8 A 9 explained this yesterday. 10 We can look at it. Yes. As I said, I looked at all the documents and I world in different ways. 11 I'll tell you it's 19 pages of, you There are documents that look at the That wasn't surprising to me. And so this quantitative analysis was able to distinguish 12 between different views of the world and say which one is 13 relevant for my analysis, which is to look at diversion based on 14 price. 15 Q 16 accountants were the largest and then retail stores were the 17 fourth largest diversion, correct? 18 A That's my recollection. 19 Q Yeah, okay. 20 assisted, but they're lower priced generally, right? 21 A They are also another part of assisted, yes. 22 Q Okay. 23 report, you make some observations about the price of assisted, 24 and you refer in a footnote to an HRB pricing survey in which 25 there are a variety of prices for various forms of tax All right. Now, in your conclusion, I think CPAs and And retail stores, they are part of the Let's look at some -- well, at Paragraph 33 of your 17 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 18 of 124 1 preparation, okay. 2 3 And we have the page of your report up, and then the footnote is displayed, HRBDOJ00359542 at page 38. 4 Do you see that? 5 A I see what you have highlighted, but the footnote doesn't 6 refer to the highlighted text so I'd have to go back. 7 Q 8 confirm that the footnote appears, we can do that, or you can 9 just take my word that the footnote's in your report. It's redacted. If you want to look at your report to 10 A Well, if I can just take a quick look to make sure what the 11 footnote is referring to, I'd appreciate it. 12 Q Sure. 13 A Yes, I see. 14 It's at Paragraph 33. MR. WAYLAND: Okay. The next couple of slides we're 15 going to look at, your Honor, one of them comes from the 16 footnote reference. 17 prepared. 18 to show them to the Court and the witness, but we're not going 19 to display them to the audience, if that's okay. 20 BY MR. WAYLAND: 21 Q 22 It's Tab 16. 23 Tax Season '10, "Market Dynamics, Switching Pricing, Competitive 24 Profiles." 25 And then we have a summary that we And they have been marked confidential so we're going All right. Let's look at the survey that you referred to. You see we've displayed the first page. It's at Do you see that? 18 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 19 of 124 1 A I see that. 2 Q We're going to go to page 38, which is what you referenced 3 in your report. 4 And again, as you answer my questions, please don't reveal 5 any of the information. We're just going to describe it, and 6 then I'll ask you some general questions about it, okay? 7 A Yes. 8 Q All right. 9 Overview by Method." So this is a chart that's entitled "Pricing And that down the left margin in the 10 chart, there are different kinds of tax preparation methods, 11 accountants and tax prep firms, correct? 12 A Correct. 13 Q And then all the way on the right, there is a pricing range, 14 Tax Season '10, that would be 2010, price range, and it lists 15 the 25th to the 75th percentile pricing, correct? 16 A Correct. 17 Q And this page only lists assisted kinds of preparation, 18 correct? 19 A 20 paid family and friend, that's a little bit of an unclear 21 category. 22 assisted category. 23 Q 24 report, correct, on page 38? 25 A With the exception that I had pointed out yesterday about Okay. But other than that, those are clearly in the This chart -- and this is the one you cited in your Yes. 19 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 20 of 124 1 Q 2 pricing of assisted products plus paid family and friend. 3 go to page 40. 4 this has "Pricing Overview by Digital Method." 5 Okay. This one has to do with the 25th to 75th percentile Let's And you'll see this is a separate chart, and Do you see that? 6 A Yes, I do. 7 Q And this has various digital competitors and also lists 8 their pricing for the 25th to 75th percentile, correct? 9 A Yes. 10 MR. WAYLAND: All right. Now, we prepared a chart that 11 puts the numbers together from page 38 and page 40, and that is 12 Trial Exhibit 14. 13 Honor. 14 but not publicly. We'll mark that as Trial Exhibit 14, your And it's displayed to you, Dr. Meyer, and to the Court, 15 (WHEREUPON, a certain document was marked Government Trial 16 Exhibit 14 for identification as of September 13, 2011.) 17 BY MR. WAYLAND: 18 Q 19 reflected in the charts, including the 25th to 75 percentile 20 numbers that you refer to in your report, okay. 21 And it reflects the 25th to 75th percentile that we see We can't reveal the numbers, but would you agree with me, 22 Dr. Meyer, that the CPAs are on the far left side, which is 23 meaning they have the highest price for the 25th to 75th 24 percentile, correct? 25 A Well, that's one category within CPAs is all the way on the 20 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 21 of 124 1 left. There are two other categories that are also within CPAs. 2 Q Right. 3 A And those don't exhibit the same characteristic as having 4 the highest prices within assisted. 5 Q 6 right, correct, the digital is on the right substantially lower, 7 correct? 8 A Blue is on the right. 9 Q Okay. All right. And then -- but the blue, the digital, is to the All right. Now, you knew that, I mean, you knew 10 this -- you cited this chart so you knew about this difference 11 in percentile pricing between the 25th and the 75th percentile, 12 right? 13 A 14 underlying document. 15 Q 16 your report, you just said, "This is my result; largest 17 diversion goes to CPAs and accountants," correct? 18 A 19 least a page and a half, about the relevance of the price 20 differential. 21 Q 22 said, "Here's what the simulator tells me," correct? 23 A 24 talk about the simulator. 25 paragraph 44, yes. I clearly didn't cite this chart, but I did cite the Okay. No. And I understand this difference, yes. And again, you didn't comment on it. You just -- in I think I did actually speak at length about it, at All right. Well, here in your report at paragraph 44, you I'd have to look and see whether it's Paragraph 44 that I I do talk about the simulator in 21 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 22 of 124 1 Q Okay. 2 find an explanation for your conclusion that any price increase 3 for any HRB product will lead to the largest diversion to CPAs 4 and accountants. 5 9231. 6 A I'm sorry; which tab? 7 Q Tab 47, yes. So if you would go to Defendants' Exhibit That's Tab 47. 8 9 Let's go to the simulator itself and see if we can MR. WAYLAND: You can turn the screen back on. BY MR. WAYLAND: 10 Q Okay. So this is a PowerPoint of the pricing simulator. 11 It's dated May 2009. 12 Do you see that? 13 A I see. 14 Q All right. 15 Now, let's go to page 2. One more page. It says, "The number of respondents in this survey was 16 6,119," correct? 17 A Correct. 18 Q That was your understanding; that's how many people were 19 surveyed. 20 And let's go page 3. And as I understand it, Dr. Meyer, these 6,119 people were 21 divided into eight groups. And each of those eight groups 22 viewed five different price scenarios, correct? 23 A That was the first task, yes. 24 Q And if you look at -- it says, "Respondents were randomly 25 assigned to one of eight cells. Each cell viewed five different 22 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 23 of 124 1 price scenarios." 2 you'll see there's a list of the pricing scenarios that were 3 tested by product, correct? 4 A Yes, that's correct. 5 Q Okay. 6 the second bullet point, "Prices changed across the scenarios 7 for three brands of tax preparation products -- TaxCut, TurboTax 8 and TaxACT -- available in two forms, online and software. 9 There were four predetermined price points for each brand or 10 If you drop down to page 4 for a minute, Let's go back up on page 3. And it says that, in, form." 11 Correct? 12 A Correct. 13 Q And that's your understanding of what happened in the 14 simulator, correct? 15 A 16 This is one part of the simulator. 17 well. 18 simulator. 19 Q 20 we're talking about what happened in this simulation, correct? 21 A In this task, yes. 22 Q Yeah, okay. Well, I have to be a little -- clarify that a little bit. There was a second part as But this is what happened in this part of the We'll look at the second part if we need to, but right now 23 THE COURT: 24 MR. WAYLAND: 25 THE COURT: Which tab is this PowerPoint in? This is at Tab 47, your Honor. Thank you. 23 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 24 of 124 1 BY MR. WAYLAND: 2 Q 3 "respondents selected which tax preparation method we were most 4 likely to choose," correct? 5 A Correct. 6 Q And each task scenario that a respondent faced, included 7 34 different product choices, correct? 8 A Yes. 9 Q Okay. Okay. And then what happened was for each scenario, 34. When each time you had to make a choice, your 10 respondent -- 34 choices, your job is to choose one of them, 11 right? 12 A Correct. 13 Q Okay. 14 came from, okay. 15 Let's count up and find out where those 34 choices Let's go to page 4. And you see, Dr. Meyer, that there are three columns; TaxCut 16 Online Scenarios, TurboTax Online Scenarios, and TaxACT Online 17 Scenarios across the top of the page, correct? 18 A Correct. 19 Q And underneath each column, there are separately numbered 20 boxes, correct, one, two, three, four? 21 A Correct. 22 Q Okay. 23 scenarios, correct? 24 A 25 products, yes. Remember we said there were going to be four We can go back and look at that. There were four scenarios with regards to each of the 24 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 25 of 124 1 Q 2 Correct. Okay. And each scenario we're going to see 34 products, correct, 3 34 different choices? 4 A Correct. 5 Q Let's look at choice -- scenario one, so we're going to look 6 at the 1 boxes and start counting. 7 TaxCut Online Scenarios, choice one on the upper left hand 8 column. 9 correct? Start one, two, three, four, five choices in box one, 10 A Correct. 11 Q And then in box one for TurboTax, so now we have five so 12 far. 13 And there's one, two, three, four, five. Five more, right? 14 A Correct. 15 Q And then there are -- then in the TurboTax line, there are 16 three, correct? 17 A Are you referring to the TaxACT? 18 Q Yeah, TaxACT. 19 TurboTax number one, there's three choices? I'm sorry. TaxACT, three, correct? 20 A There are three choices listed there, yes. 21 Q And then you also have to count in the software choices 22 because you got online and software. 23 you'll get TaxCut, there are four choices there. 24 A I see four choices there. 25 Q And then there are four choices in the TurboTax and there If you go down below, 25 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 26 of 124 1 are four choices in TaxACT in scenario number one software, 2 correct? 3 A Yes. 4 Q All right. 5 25 products so -- you get 25 product choices so we still need to 6 find nine more, okay? 7 right, Dr. Meyer? 8 Now, if you add those all up, you get Let's see where we can find those, all Are you still with me? 9 A I'm with you. 10 Q Okay. 11 "Base Case Scenario" -- "Scenario" is shaded -- "Other 12 Non-Priced Choice Options." 13 Let's look to the bottom of the page. And it says, Do you see that? 14 A I see that. 15 Q Let's count those up, and then we'll go back and look at 16 them. 17 Jackson, Liberty, other retail office, that's six. 18 accountant, friend or family, paper and pencil, that's nine. 19 Other online, other software, that's two. That gives us our 34. H&R Block, CPA or And that makes sense, right? They 20 got these choices that they saw from the TaxACT, TurboTax and -- 21 well, the Intuit, H&R Block, and TaxACT choices that we counted 22 on the top, correct? 23 A Correct. 24 Q And as the simulator said, you're also going to see some 25 other things, correct? 26 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 27 of 124 1 A In this task, yes. 2 Q Let's go back and look at what these options are. 3 Other online, there's no differentiation among the different 4 possible vendors. 5 online, correct? 6 A Correct. 7 Q And your choice was other software, right? 8 A Correct. 9 Q And then you could choose from H&R Block retail office, et 10 Your choice was other online -- just other cetera, or you could choose CPA or accountant. 11 Do you see that on the right side? 12 A Yes, I do. 13 Q Okay. 14 free or pretty cheap, right, friend or family or paper and 15 pencil, right? 16 A 17 cheap. 18 yes. 19 Q 20 Dr. Meyer? 21 of them for those scenarios, those nine scenarios, right? 22 A 23 wrong. 24 the question that's being asked here is when the price of TaxCut 25 changes, what happens to the shares of the other options? Now, they are actually grouped with products that are I don't know whether friend or family would necessarily be Paper and pencil I would assume does not cost very much, And that's the thing that's wrong with the survey, isn't it, It's a nonprice choice that the people had in front I don't understand why you think that's wrong. That's not What you're looking at is when the prices of -- I mean, 27 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 28 of 124 1 What the survey can't tell us -- I agree with that -- is 2 what happens when the price of a CPA goes up because it doesn't 3 vary the price of a CPA. 4 course of business for H&R Block's online and software products 5 to help them figure out how to price those products. 6 But this was done in the ordinary So this -- it's a setup that makes sense for the purpose 7 that it was intended, and it is also relevant to, you know, the 8 purpose that I'm looking at, which is what happens when the 9 price of H&R Block's online and software products goes up. 10 THE COURT: Well, Dr. Meyer, you're clearly more of a 11 survey expert than I am, certainly, but if you're given a choice 12 with numbers next to a whole bunch of choices and then also 13 given choices without numbers next to them, does that have an 14 impact on how respondents might view that other option? 15 THE WITNESS: I don't think so in this case, 16 particularly because CPA and accountant can mean different 17 things to different people. 18 what kind of tax return you have, how expensive that's going to 19 be for you. 20 I mean, it depends on, you know, So it should be in the mind of each respondent the way 21 that they think about that option and whether or not that's an 22 option for them based on, you know, whatever their particular 23 tax, you know -- their tax situation is. 24 25 THE COURT: Couldn't they also look at that and say, "Wow, if I were a millionaire and price wasn't even an issue, 28 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 29 of 124 1 I'd like to go to my own personal financial advisor, CPA"? 2 wouldn't this sort of lead respondents, as opposed to being 3 practical and focusing on what the price might be, on what their 4 wishful thinking might be if they didn't have to think about the 5 price of those people if there was no price next to it? 6 THE WITNESS: So In a survey, there is always the issue 7 that people don't have to plunk down real money for any of these 8 choices so we realize that. 9 why I said yesterday in situations where -- 10 THE COURT: That is what a survey is. Excuse me. But if you don't have a price 11 next to it, would it help encourage that kind of wishful 12 thinking? 13 THE WITNESS: That's I don't think any more so than any of the 14 other products. 15 be truthful in what they would do. 16 of what they would do given the choices. 17 putting down a particular price for a CPA or accountant when we 18 don't know what kind of CPA or accountant that person would go 19 to or what kind of, you know, tax return they have, you know, I 20 don't think that's a bad way of going. 21 I mean, what we're relying on is for people to It's their best estimation And I think, you know, And I can tell you -- say the following: The firm that 22 does this research does a lot of research for H&R Block, and 23 they have thought very hard about how to do that. 24 25 THE COURT: Dr. Meyer, if you were doing this survey and you were designing this survey, would you want to have all 29 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 30 of 124 1 of the choices presented in basically a uniform manner? 2 you're presenting choices with all the other choices, would it 3 be your preference, if you were designing this survey and doing 4 it, would you want to have some prices down to help avoid some 5 of the wishful thinking that you've already said is part of the 6 problem with surveys anyway? 7 THE WITNESS: So if I would have to think about that. I 8 don't know sitting here whether it would be better to put in a 9 price for the CPA and accountant and then perhaps have that be 10 an irrelevant price for the respondent, or rather let the 11 respondent have in their own mind what a CPA or accountant 12 choice means for them. 13 think about that some more. 14 BY MR. WAYLAND: 15 Q 16 because you cited material in your page 38 of your -- page 38 of 17 that survey, right? 18 a mystery. 19 A 20 product or an online product has a list price and perhaps -- and 21 some discounting as well, but there's a specified price there. 22 My understanding of CPAs and accountants is that the price I don't know sitting here. I'd have to But we know in the real world what CPAs and accountants cost We know what those costs, right? Well, but there's a range of prices. It's not I mean, a software 23 can vary depending on what you need them to do. How many 24 schedules you have to fill out, you know, what type of tax form 25 you have, and other factors like that. So I don't think there's 30 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 31 of 124 1 one particular price that's associated with the CPA or an 2 accountant in the same way that you have, you know, a price 3 associated with a particular software package, let's say. 4 Q 5 prices you've listed for software products ranging from, just on 6 the first box on the top left, 14.95 to 19.95. 7 Dr. Meyer, there are literally tens and tens of individual That's a pretty big range in percentage terms, isn't it? 8 A That's a pretty big range in percentage terms. 9 Q And you couldn't come up with some kind of price that 10 represents CPA numbers? 11 you had the information. 12 A Well, look, I didn't do the survey. 13 Q That's exactly right. 14 piece of evidence that you're citing that you say is data that 15 supports your diversion analysis, you didn't do it, and you 16 can't explain why they didn't use pricing data for the number 17 one diversion choice, right? 18 A 19 Directions that did the survey does a lot of work for H&R Block. 20 It's done in the ordinary course of business. 21 that it's valuable enough to be used in making pricing 22 decisions. 23 Q 24 aren't here to explain what they did. 25 I mean, we looked at a footnote where You didn't do the survey. Like I said, I did not do the survey. The only I do know that H&R Block thinks So to me that's valuable information. And they're not here to testify, as far as -- right? They You're here to say that you don't know what they did or why 31 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 32 of 124 1 they did it, correct? 2 A 3 they did and why they did it. 4 price on the CPA or accountant, I don't recall having a 5 discussion on that. 6 Q 7 somebody was given a choice of a 19.95 product on the one box 8 and an accountant that cost them 150 bucks, you'd want -- it 9 would make a difference whether the accountant was free or 10 I wouldn't agree with that at all. I know a lot of what That particular question of a Don't you think, just as a matter of practicality, that if 5 bucks? 11 You think it would make a difference in determining what the 12 diversion rate is to know how people would respond to the way 13 the CPA was priced? 14 A 15 respondent, they'll have a different perception in their head, 16 and as well they should, about what a CPA or accountant would 17 cost for them. 18 has a very simple tax form and who -- perhaps, you know, the 19 value of their time is very high such that really at the end of 20 the day, a CPA or accountant is not all that much more expensive 21 for them, then they should have a certain thought in their mind 22 as they're answering the survey about what the price of CPA or 23 accountant is. 24 25 Yes, but again, the point is that for each individual So in other words, if there is a respondent who The same thing with someone who has a very complex tax return. They'll have a different perception. They, I would 32 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 33 of 124 1 think, would be less likely to choose a CPA or accountant 2 perhaps because it's more expensive. 3 course, it would take them longer to do the tax form themselves. 4 And that's why -- you know, all of those things are going on On the other hand, of 5 within a respondent's head, and that's fine, because we want to 6 know, you know, for respondents what they're likely to do. 7 want them to have in their mind what their choices are. 8 Q 9 diversion rate that you see in this pricing simulator, did you We Dr. Meyer, when you reached your conclusions about the 10 know that there was no price choice associated with the boxes on 11 the bottom? 12 A Yes, I did. 13 Q All right. 14 time, correct? 15 A Correct. 16 Q Let's go to your report and see what you said. 17 You did know that, okay. MR. WAYLAND: 18 BY MR. WAYLAND: 19 Q 20 You knew it at the Can we blow up the sentence ahead of it. "The respondents were shown" -MR. WAYLAND: Yeah, that's great. 21 BY MR. WAYLAND: 22 Q 23 pricing scenarios, and the options included DIY options, 24 software DIY options, assisted preparation options and other DIY 25 options, including pen and paper and friends and family." So this is what you said, "The respondents were shown five Then 33 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 34 of 124 1 you said, "The pricing of the various options changed across 2 scenarios." 3 Do you think that accurately describes the understanding of 4 the survey that you've just given now? 5 A 6 of different options changed. 7 you know, it's clear to understand that the pricing, for 8 example, of pen and paper doesn't change so perhaps, you know, I 9 could have worded the sentence a little bit more -- in a What that sentence was meant to convey was that the pricing Clearly, reading of that is -- 10 different way, but it still conveys the general sense that the 11 pricing of options changed. 12 survey works. 13 Q 14 kind of explanation you've given to the Court today about why it 15 doesn't matter that CPA pricing wasn't listed when you described 16 your conclusions that diversion to CPA was the largest 17 diversion? 18 A 19 was sufficient to come to my conclusion. 20 understanding of the survey. 21 every, you know, last understanding of the survey. 22 have taken pages and pages. 23 All right. I was just explaining how the You didn't think it was necessary to give the Obviously, I included in my report what I included. This I had a broader I wasn't going to write down That would And I didn't think -- I don't think that's in any sense a 24 fatal flaw of the survey such to render it not useful for my 25 analysis. 34 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 35 of 124 1 Q 2 paper acknowledges the need for prices for all the products. 3 That's what you said in your paper. 4 And in your paper that you wrote that we looked at, your We looked at it. Otherwise, it makes no sense, right, Doctor? 5 A No. 6 a product with different combinations of attributes and prices." 7 If I have something like a pen and paper, which is a product 8 whose price doesn't change, then it wouldn't make sense within 9 the survey to change its price. 10 Q 11 change, right? 12 A 13 doesn't have to change within the survey. 14 the purpose of the survey is. 15 Q Doesn't say that in your paper. 16 A I'm not sure whether it says that somewhere else in the 17 paper or not, but that's -- it's true. 18 designed based on what you're looking for. 19 focusing on a change in the price of the HRB product, then you 20 don't have to have every other price changing in order to get 21 some insights as to the change in that price. 22 Okay. I mean, look, here it says, you know, "Each option is But accountants, they do have prices and they do Their price can change, but the price of every product It depends on what I mean, each survey is So if you're really One thing to keep in mind with surveys as well is that there 23 is a tradeoff between adding more information to the survey and 24 getting, you know, results, first of all, that respondents can 25 understand and also that can be analyzed. You know, there are 35 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 36 of 124 1 time constraints and other sorts of constraints. 2 So there's a tradeoff. And you obviously look to change the 3 prices of the things that matter in your inquiry. And the way 4 in which H&R Block used the survey was to think about what price 5 it should be charging for its products. 6 Q 7 happen as a result of a price change, right, that's what you're 8 using it for? 9 A And so -- But the way you're using it is to tell us what's going to But I'm only using it with regards to a price change on the 10 HRB products. 11 Q 12 survey is to do a market experiment, right, simulator market 13 experiment? 14 experiment, right? 15 A I think this is a controlled market experiment, yes. 16 Q And in a real market, people know the different prices of 17 the products that they're choosing among, right? 18 A Generally speaking, yes. 19 Q All right. 20 raises it the next day to 6 bucks, I reach my hand in blindly 21 and say, "I'll take this one, whatever the price is," that 22 doesn't happen in the real world, does it? 23 A 24 respondents have an idea in their mind of what it means to go to 25 a CPA. As your article says, the purpose of the discrete choice No. We can look at the words. I think market If I want to buy one product at 5 bucks, a guy But that wasn't happening in the survey either. The 36 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 37 of 124 1 THE COURT: Dr. Meyer, you don't know what was really 2 in the respondents mind. 3 been saying, "I know a CPA is really expensive so I'm going to 4 calculate that in my mind." 5 have been saying, "Wow, so in this survey, I have a choice of -- 6 I didn't have to think about the price of a CPA or accountant 7 because there's no price there. 8 Would I like the benefit of going to a personal person?" 9 10 And for all you know, they might have But they just have easily might Would I like to go to that? As you sit here today, you don't know what was in the mind of the respondents; isn't that right? 11 THE WITNESS: I don't know what's in the mind of the 12 respondent. 13 BY MR. WAYLAND: 14 Q 15 of your book is your report and, as I said, there are 19 pages 16 of citations. 17 That certainly is the case. All right, Dr. Meyer. Now, Tab 1 of your report -- at Tab 1 And you can look through them. But as I understand it, you looked at a lot of documents, 18 correct? 19 A I looked at a lot of documents, yes. 20 Q You looked at a lot of data, correct? 21 A I did. 22 Q You spoke to a number of people? 23 A I did. 24 Q You looked at depositions? 25 A That's correct. 37 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 38 of 124 1 Q And I think you did other things. You listened to testimony 2 here, correct? 3 A I listened to testimony here, yes. 4 Q Now, in all of that, all of that wide range of evidence, 5 only the pricing simulator in your mind provides a 6 quantification of diversion, correct? 7 A 8 diversion. 9 diversion as well and the documents that I believe corroborate That's the best direct test of a quantification of I think that the TaxACT survey sheds some light on 10 that quantitative evidence. 11 Q 12 quantification, and I haven't seen another document that 13 provides the specific quantification of diversion." 14 Okay. You said, "It's the pricing simulator that provides a You haven't changed your view about that, have you? 15 A No. 16 Q And if calculation of diversion based on a survey in which 17 respondents didn't even know the price of the choices they had 18 is flawed, then you don't have any quantification of diversion, 19 do you? 20 A 21 case. 22 flawed, and I also think there are other pieces of evidence that 23 shed some light on diversion, while not perhaps being a precise 24 quantification of diversion, they shed some light on 25 diversion. Well, your hypothetical is not what I think is true in this I think, first of all, the pricing simulator is not 38 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 39 of 124 1 Q When were you hired for this case? 2 A I was hired in June of this year. 3 Q Do you remember the date? 4 A I don't remember the date. 5 Q All right. 6 report? 7 A 8 9 When was your report -- when did you file your It was in July. Oh, I'm sorry. Q August 12th. I can look at the date. It was in August. August 12th. So you had just a couple months to come to 10 your conclusions, right? 11 A That's correct. 12 Q Now, you haven't previously been qualified as an expert 13 economist to testify in a relevant antitrust product market, 14 correct? 15 A Correct. 16 Q And you have not previously been qualified as an expert 17 economist on the competitive effects of a merger or acquisition, 18 correct? 19 A Correct. 20 Q And you haven't been previously qualified as an expert 21 economist on entry or expansion on relevant market, correct? 22 A Correct. 23 Q And you haven't been -- you've never submitted an expert 24 report under your name regarding the competitive effects of a 25 merger or acquisition except for the one in this case; is that 39 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 40 of 124 1 right? 2 A Correct. 3 Q And your doctoral dissertation was related to labor 4 economics and not IO, correct? 5 A Correct. 6 Q And you've never written any peer-reviewed articles on any 7 antitrust issue, correct? 8 A Correct. 9 Q Did you have tenure, Dr. Meyer? 10 A No. 11 Q In the DOJ matter that you mentioned, you weren't the lead 12 economist. 13 direction, correct? 14 A Correct. 15 Q Do you know who Dr. Dennis Carlton is? 16 A I've heard the name. 17 Q Do you know anything about his reputation in the business? 18 A Yes. 19 Q What is it? 20 A He has a good reputation in the business. 21 Q As what? 22 A He's a well-known antitrust economist. 23 Q All right. 24 number of peer-reviewed articles about antitrust matters? 25 A You were working for somebody else under his As a leading economist? You know whether Dr. Carlton has written in a I don't know Dr. Carlton's CV. 40 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 41 of 124 1 Q Do you follow the economic literature -- the antitrust 2 literature at all? 3 A I certainly do. 4 Q Ever come across Dr. Carlton's name? 5 A I have come across his name. 6 Q All right. 7 expert for the defendants before you were? 8 A No. 9 Q Did you ask when you got hired in June, with only a couple Did you know that Dr. Carlton was hired as an 10 months before trial, whether any other experts have been 11 hired? 12 A No. 13 Q You didn't? 14 A Whether there was another expert? 15 Q Whether anybody else had preceded you. 16 A Oh, I understand that someone else -- another firm assisted 17 counsel in their analysis in front of the agencies. 18 Q Okay. 19 A No. 20 regarding some of the data that they sent -- some of the IRS 21 data -- and so we clarified, you know, what the files were. 22 that's the extent of our conversations. 23 Q 24 to be the testifying expert in this case in June, correct? 25 A You didn't ask? Did you ever ask to speak to them? Let me clarify. My staff did speak with someone But And you don't know why, one way or the other, you were asked I don't have an understanding of that, no. 41 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 42 of 124 1 Q All right. 2 minutes. Let's go back to the simulator for a few 3 You understand that Dr. Rick Warren-Boulton looked at the 4 simulator, and one of the problems that he identified was the 5 fact that when you increased price in one scenario, it actually 6 predicted an increase in share and revenue. 7 that you described we talked about yesterday? 8 A 9 that I heard right what you said. Could you repeat your question. That's the anomaly I just want to make sure 10 Q 11 identified was that when you looked at the scenarios -- you 12 looked particularly at the 19.95 scenario -- it had a funny 13 result because it seemed to suggest that there would be an 14 increase in share and revenue as the price increased to 19.95. 15 That one of the problems that Dr. Rick Warren-Boulton Do you remember that, that's what he said? 16 A Yes. 17 Q Okay. 18 version of the simulator actually shows that result, right? 19 A 20 "simulator" in a slightly more expansive way so let me just, in 21 light of the clarification that I gave yesterday, that anomaly 22 is not in the simulator -- what I would call the simulator -- 23 which is the drop-down menu simulator. 24 spreadsheet that was used to make the PowerPoint slides. 25 Q And you don't have any reason to dispute that that Well, because -- I had previously been using the term Okay. It's an Excel But wherever it is, you understood that there was a 42 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 43 of 124 1 problem. You acknowledged -- it showed some kind of problem, 2 right? 3 A It showed some sort of anomaly, yes. 4 Q So Dr. Rick Warren-Boulton had correctly pointed out some 5 kind of an anomaly, wherever it resided, correct? 6 A Correct. 7 Q All right. 8 do a little bit more work, correct? 9 A Correct. 10 Q And one of the things that you did was to run a regression, 11 correct? 12 A Correct. 13 Q And the regression is based on the same underlying data, 14 right? 15 A 16 Excel spreadsheet. 17 was based on the drop-down menu simulator. 18 Q 19 the same survey that we've been talking about, right? 20 A 21 Directions Research that comes out of that survey. 22 Q 23 with the survey, right? 24 A Yes. 25 Q And your regression didn't change the questions in the In response to that, you decided you needed to Two of the regressions are based on that same underlying Okay. And as I explained yesterday, one regression But the regression is based on the same responses to The regression is based on the simulator that was created by Okay. But there's a lot of steps to get there, but we start There are a lot of steps. 43 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 44 of 124 1 survey, right? 2 A Correct. 3 Q And it didn't change the respondents' answers looking at the 4 choices, correct? 5 A Correct. 6 Q You just took the answers from that survey that didn't have 7 price points for a number of options, and you ran a regression 8 against it, right? 9 A Correct. 10 Q All right. 11 before we leave. 12 Let's do one more thing with the simulator You said yesterday that you can get very different diversion 13 rates depending on which scenario you look at, correct? 14 A I think I was talking about which slide you looked at. 15 Q Okay. 16 Which slide. Depending on which slide. The slides represent runs of the simulator, correct? 17 A No. The slides don't represent runs of the simulator. The 18 slides represent subsets of that Excel spreadsheet which is the 19 intermediate step, if you will, between the simulator and the 20 PowerPoint presentation. 21 Q All right. 22 A Can you refresh my recollection on which tab. 23 Q 47. 24 A I'm just finding the page. 25 the hard copy than on the screen. Let's look at page 18 of DX 9231. Are you with, Doctor? It's easier for me to see it on 44 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 45 of 124 1 Yes. 2 Q Okay. So this is titled "Case D: 3 Maximizing TaxCut Share." 4 Do you see that? Who is Affected Most by 5 A Yes. 6 Q And you're familiar with this case, right? 7 A Yes. 8 Q This is the case that you used to calculate your diversion 9 ratio, right? 10 A This was the case that was used to get my diversion ratio 11 that was reported in my report. 12 subsequent work on the regressions that you mentioned previously 13 and I testified to yesterday. 14 Q 15 beginning of where you started with your work, okay? 16 A Yes. 17 Q So just so we have a clear record, Case D is your initial 18 calculation of the diversion ratio, correct? 19 A Correct. 20 Q All right. 21 that? 22 A 23 the bottom. 24 Q 25 the last line. I understand that, Doctor. This doesn't reflect the I'm just starting at the And tell us what you did. How did you do Well, that comes from the changes in share that come from Maybe we can blow that up. Just down at the very bottom, 45 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 46 of 124 1 A 2 Right. 3 Yes. The last two -- I think you'll need a little bit more. So you can see, for example, the change in share of TaxCut 4 was 1.86. 5 accountant was negative 1.06. 6 that basically says is TaxCut's share went up by 1.86 percentage 7 points, and CPA's share went down by 1.06 percentage points. 8 9 And the share -- the change in the share of the CPA So if you take the -- so what And so the diversion ratio from TaxCut to CPA is 1.06 divided by 1.86. 10 Q 11 different case. 12 All right. Now, let's go up to page 17. And that's a "What Prices Minimize TurboTax Share, Individual Pricing," 13 correct? 14 A Correct. 15 Q And at the bottom of the page, we don't have the same totals 16 that you used, but we can do the same calculation because the 17 information is set forth on the page, correct? 18 A Correct. 19 Q Let's see what happens when we do that. 20 percent for the top ten lines of data is 5.0, right, Doctor? 21 We're not going to go through all the calculations, but we 22 assume that we're correct. 23 turns out we're wrong, we'll correct the record. 24 25 The average share And if we check it later and it But for our purposes today, let's assume that we've done the calculations correctly, okay? 46 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 47 of 124 1 A 2 purpose of this question, yes. 3 Q 4 lines of data is 5.06. 5 I'll assume that you did the calculations correctly for the Then the average share percent of TaxCut for the bottom ten See that calculation, Doctor? 6 A I don't see a calculation. 7 Q You see the results? 8 A Likewise, I'll assume for the purpose of the question that 9 it's true. 10 Q 11 percent correct in order to do a diversion calculation? 12 A Yes. 13 Q All right. 14 2.92. 15 All right. Then we need also to get the average share Let's do that. The top ten lines for TaxACT, Assume with me, Doctor, okay? 16 A Yes. 17 Q And the average percent -- the average share percent of 18 TaxACT for the bottom ten lines is 3.06, correct, or assume with 19 me? 20 A I'll assume with you. 21 Q All right. 22 the way you did for slide 18, we need to first calculate the 23 difference of the average percent share for the top ten rows 24 versus the average percent share for the bottom ten rows, right? 25 To calculate the diversion of TaxCut to TaxACT That's what you did on page 18, right? 47 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 48 of 124 1 A Correct. 2 Q Okay. 3 5.5, subtracted 5.06 to get .44, right? 4 A Correct. 5 Q For TaxACT, that would mean taking 2.92 and subtracting 3.06 6 to get .14. 7 And the average difference is .44 because we've taken Does that look right to you, the calculation? 8 A The calculation looks right to me, yes. 9 Q Okay. Then a diversion ratio is simply .14 divided by .44, 10 right? 11 A That's what comes out of the slide, yes. 12 Q All right. 13 different diversion ratio than using Case D, correct? 14 A I agree. 15 Q All right. 16 correct? 17 A Correct. 18 Q All right. 19 explanations -- but you would agree that you can get very 20 different diversion ratios depending on what case you use in 21 this simulator, right? 22 A 23 correct. 24 Q 25 understanding is that you wound up at Case D because that's what I agree. All right. And so using Case C, we get a very, very 1.6 in the case that you used and 32 percent, And so you would agree -- and I'm sure there are And that's why I did further work, that's Now, when you did your first set of work, my 48 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 49 of 124 1 the research company told you you should look at, right? 2 A 3 That's because that was the case in which they chose to report 4 diversion to HRB for the purpose of HRB thinking about prices to 5 charge. 6 Not because they told me that's what I should look at. So I didn't ask Directions which case I should use. I 7 looked at, in the ordinary course of business, which case they 8 chose to report. 9 spreadsheet that had all the data for all of the cases so I had I didn't have at that point in time the Excel 10 to make a determination of which one to choose. And the one 11 that made the most sense was the one that the firm who was 12 reporting these results thought was relevant to HRB, who was 13 thinking about pricing. 14 Q 15 your independent judgment to review all of the cases and make 16 your own determination as to which case you should use, 17 correct? 18 A 19 And I just described that judgment. 20 Q 21 Diversion -- is that the name? 22 A Directions Research. 23 Q Directions Research had made a choice, and you relied on 24 their choice. 25 their choice, right, for your first run? So in the first instance, you, the expert, didn't exercise No. I did make a judgment about which case I should use. As you described it, it's a judgment you relied on What's the name of the firm? You thought it was reasonable, but you relied on 49 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 50 of 124 1 A 2 in the ordinary course of business. 3 advising H&R Block on their pricing. 4 that they thought was most relevant in terms of reporting 5 diversion to report to H&R Block. 6 It's reasonable to rely on choices that business people make You know, they were And that's the scenario Once I received the fuller set of data, I analyzed the 7 fuller set of data. 8 Q 9 we're going to turn to the 2011 survey right now. I like the phrase "ordinary course of business" because And you know 10 what the 2011 TaxACT survey is, right? 11 A Yes. 12 Q That's another piece of paper or evidence that you rely on 13 at least a little bit for diversion, right? 14 A Correct. 15 Q And that wasn't prepared in the ordinary course of business, 16 was it? 17 A No. 18 Q It was prepared in the course of preparing for litigation, 19 right? 20 A 21 part of the discussions with the Department of Justice and its 22 merger analysis. 23 Q 24 survey firm for telling you what you should do with respect to 25 the division ratio in the simulator was because they are doing My understanding, it was prepared before litigation and as Now, you just told us one of the reasons you relied on the 50 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 51 of 124 1 it in the ordinary course of business, right? 2 A Yes. 3 Q And now you're relying on a 2011 survey that wasn't prepared 4 in the ordinary course of business, right? 5 A Correct. 6 Q All right. 7 little bit and see what it actually asks. 8 9 10 Let's talk about the details of that survey a Now, yesterday the Judge asked you whether the survey was about price changes, and you said yes. And let's see exactly what the survey did. 11 Before we get there, let me ask you: Here's the -- page 68 12 of the transcript. 13 TaxACT survey specifically asked about price change. That's why 14 you viewed that as more pertinent to your analysis?" And your 15 answer to the Judge was, "Well said, yes," correct? 16 A Correct. 17 Q All right. 18 change. 19 questions. 20 The Judge asked you, "And it's because the Let's see whether it's really about price But before we get there, let's ask a couple of Your view is that simply looking at switching data between 21 various tax preparation methods doesn't measure the degree of 22 commission between firms, right? 23 A Correct. 24 Q So if we just know that people switched, but we don't know 25 that it was in respect to a price change, you don't think that 51 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 52 of 124 1 tells us very much, right? 2 A 3 regarding diversion. 4 Q 5 because you say he too much on switching data, which doesn't 6 tell us very much about price changes, right? 7 A 8 is incorrect, yes. 9 Q It gives us information, but it doesn't give us information And you've been particularly critical of Dr. Warren-Boulton Yes. I believe that is an important reason why his analysis For example, if a customer switched to a different tax 10 preparation method because of a change in his or her tax 11 complexity, that wouldn't be because of a change in price, 12 right? 13 A Correct. 14 Q Or if they changed because something happened in their life 15 besides complexity, that wouldn't be because of price, right? 16 A Correct. 17 Q And if you are going to look at switching data, whatever it 18 tells us, it's better to look at the IRS data than to look at a 19 subset of some sample of people, isn't it? 20 A Yes. 21 Q Okay. 22 did it? 23 A It did not specifically ask about a price change, no. 24 Q So when you said yes to the Judge yesterday, you weren't a 25 hundred percent accurate, were you? Now, the survey didn't ask about a price change, 52 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 53 of 124 1 A That's correct. 2 Q Litigation survey. 3 It's Tab 43. 4 A I'm sorry. Which tab? 5 Q 43. The questions are laid out for us, I think, so 6 let's look at them. 7 That's Defendants' Exhibit 9015, Tab 43, page 1. Okay. "If you became" -- 8 9 Let's look at the litigation survey. MR. WAYLAND: Can we pull up the question. BY MR. WAYLAND: 10 Q 11 that was asked, "If you became dissatisfied with TaxACT's price, 12 functionality or quality, which of these products or services 13 would you have considered using to prepare your federal taxes? 14 Please select all that apply." 15 This is Exhibit 9015, the 2011 TaxACT survey. The question That's the question -- the fundamental question -- that was 16 asked that you rely on, correct? 17 A Correct. 18 Q But you'd agree that a change in complexity could lead 19 someone to be dissatisfied with their tax preparation method, 20 correct? 21 A 22 for a new tax preparation method. 23 related to dissatisfaction regarding price, functionality, or 24 quality. 25 that I think is important. A change in complexity certainly could lead someone to look I don't see how that would be There particular is a modifier to the dissatisfaction 53 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 54 of 124 1 Q All right. That's your view of what the survey means, 2 right? 3 A 4 you can see what the questions are. 5 Q 6 ask the survey takers what tax preparation product they would 7 choose in the event of a change in the price of a TaxACT 8 product, correct? 9 A Correct. 10 Q In fact, there's no specific price change indicated anywhere 11 in the survey, is there? 12 A There's not a specific price change indicated. 13 Q There is not a specific amount, correct? 14 A There's not a specific amount, no. 15 Q There's not a range, correct? 16 A There's not a range. 17 Q There's not even a percentage increase listed, right? 18 A Correct. 19 Q It doesn't even allow the respondents to distinguish in 20 their response between dissatisfaction among price, quality, or 21 functionality, correct? 22 A Correct. 23 Q Now, to answer your question that you think is at the heart 24 of this case, wouldn't it have been better to ask, "If the price 25 of a TaxACT product went up by this amount, what would you do"? I think the survey means what the survey means. You know, Well, you would agree that the survey did not specifically Didn't ask that question? That's not the way the question was worded. 54 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 55 of 124 1 Isn't that a better way to get at what you're trying to get 2 at? 3 A 4 have to think about it some more. 5 this survey shed any light on the question at issue? 6 You know, we can -- that may have been a better way. I'd But the question is, does You know, I wasn't involved with this survey. I saw it when 7 I reviewed the evidence in the case. And the question to me was 8 not is this survey prepared perfectly or could I have prepared 9 the survey better. It was, you know, does this shed any light 10 on the questions that I'm being asked to analyze? And I thought 11 it shed some light on it. 12 Q Not much, though, right? 13 A I wouldn't say not much. 14 example, the TaxACT document that's looked at when TaxACT 15 changed its -- was considering changing its state price, you 16 know, what was it concerned about? 17 and paper. 18 much so, you know, looking at historical evidence on price 19 changes, wasn't going to yield much in terms of diversion from 20 TaxACT. 21 at issue. 22 Q 23 you? 24 A I did not. 25 Q Now, the article that we looked at earlier, "Designing and You know, in connection with, for It was concerned about pen And the fact that TaxACT's price hadn't changed very This survey certainly sheds some light on the questions You never talked to the survey firm about this survey, did 55 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 56 of 124 1 Using Surveys to Define Relevant Markets," you have a section 2 entitled "Distinguishing Good Surveys from Bad Surveys," 3 right? 4 A I don't recall the sections. 5 MR. WAYLAND: 6 Your Honor. 7 BY MR. WAYLAND: 8 Q 9 Bad Surveys." 10 Tab 28. That's Government Exhibit 622, You have a section called "Distinguishing Good Surveys from Do you see that? 11 A I see that. 12 Q And one of the problems that you identify in the bullet 13 points is, "The survey should address nonresponse bias." 14 Do you see that? 15 A Yes. 16 Q Now, could you tell us what "nonresponse bias" is, just 17 generally. 18 A 19 some respondents -- there are people to whom the survey is sent 20 who respond, and there are people who don't respond to the 21 survey. 22 different, then you have to take that into account when you're 23 analyzing the survey. 24 Q How many people responded to the survey? 25 A I don't recall the response rate. Generally, nonresponse bias is when there is -- there are And if there's reason to believe that those groups are 56 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 57 of 124 1 Q 2 hundred people that responded, a few thousand, 20,000? 3 A 4 document that you just showed me before. 5 recollection. 6 Okay. Did you do anything to -- did you think it was a few I know it's actually on that -- I think it was on the I can refresh my I don't recall offhand. I would say a relatively large number of respondents. 7 Q Like 1 -- less than 2 percent, right? 8 A Oh, before I thought you were talking about numbers of 9 people versus percent. 10 Q 11 particular nonresponse bias with regard to the survey? 12 A No. 13 Q All right. 14 look at Tab 34, Government Exhibit 1351. 15 All right. Yes, I think it was. Did you do anything to attempt to address any Let's look at another survey, Dr. Meyer. First page is displayed on your screen. It's entitled "H&R 16 Block Market Research, Outline of Free File Alliance, Free 17 Filing Brand Loyalty Study, Final Report." 18 April 11th, 2008. 19 Let's It's dated Do you see that? 20 A Yes. 21 Q Do you have any recollection of reviewing this among the 22 many thousands of documents that you reviewed in the case? 23 A This looks familiar. 24 Q All right. 25 "Action If Brand Charged A Fee" and among those planning to file Let's go to page 38. The title of the page is 57 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 58 of 124 1 online next year. 2 their current brand charged a fee next year?" 3 And it says, "What would online filers do if Do you see that question? 4 A Yes. 5 Q The question is, if you get it free this year and we charge 6 a fee next year, what would happen, right? 7 A Correct. 8 Q And then the results are listed below. 9 TurboTax free. 10 What would you do? And the first one is Switch to a free online program, pay to keep paying your current brand. 11 Total of that is -- they call it 70, 97 minus 2 -- it's 12 95 percent of people would stick in the online world, right, in 13 response -- 14 A I'm not sure which line you're referring to. 15 Q Oh, I'm sorry. 16 line. 17 were not free to you next year?" 18 next year you have to pay money. 19 Right now we're just looking at the first Under the subheading, "What would you do if current brand Meaning, this year it's free, So there's a price increase, right? 20 A Correct. 21 Q And they surveyed TurboTax, TaxCut, and TaxACT users and the 22 answers are on -- and then they gave the answers. 23 line has the answers for people who are using TurboTax, and 24 95 percent of the people would either keep their brand or stick 25 in another -- stick to another online digital product. And the first 58 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 59 of 124 1 That's what the survey seems to suggest, right? 2 A 3 understand which line you were referring to when you talked 4 about a number just a moment ago. 5 Q Oh, I'm sorry. 6 A I see. 7 Q Okay. 8 A 68 plus 97. 9 Q 68 plus 27. 10 A Yes. 11 Q It's 95 I think. 12 sorry; keep a clear record. 13 No, I understand what you're trying -- I just didn't The first line I'm adding 68 and 97. Right? For TurboTax it's 89. For TurboTax free it's 89. For TaxCut it's 92. 14 TaxACT free it's 92. 15 keep their brand -- keep their current brand. 16 For TaxCut -- I'm And for Would either switch to another free or Do you see that? 17 A Yes. 18 Q Okay. 19 survey results that you were testifying about, right? 20 A 21 yes. 22 Q 23 wanted to rely on. 24 was prepared in connection with the investigation, right? 25 A And that -- a little bit different than the kind of The results are from a different survey, they're different, And this survey you read and decided it's not the survey you You wanted to rely on the 2011 survey that Well, this survey didn't give enough information to analyze 59 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 60 of 124 1 what would happen to customers, for example, of the TaxACT paid 2 products. 3 Q 4 that's pretty straight forward that says if you charged money, 5 if you raise the price from zero to something, what's the 6 reaction? 7 price change, here's the effect, right? 8 A 9 is asked is something that I think I talked about yesterday in I'm not saying that it did. I'm just saying it's a question It was a pretty straightforward question. That's true. Here's a But this -- the way that this type of question 10 the type of way that you wouldn't want to ask a question in a 11 survey like this. 12 You know, if you ask a respondent, so what would you do? 13 You know, I know that you, for example, bought -- you know, like 14 to drink Diet Coke, and the survey says, well, what would you do 15 if the price of Diet Coke went up, you know, you think that what 16 the company is doing is thinking about a price increase on Diet 17 Coke and you certainly don't want that. 18 likely to do is answer more than they actually would, that they 19 would leave the product. 20 So what respondents are So you know, this is not the kind of question that I think 21 is really the best way to ask a question related to pricing. 22 think I mentioned that yesterday as well. 23 MR. WAYLAND: All right. 24 change topics. It's 11 o'clock. 25 time for a morning break? I Your Honor, I'm about to Would this be an appropriate 60 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 61 of 124 1 THE COURT: 2 MR. WAYLAND: 3 THE COURT: 4 Thank you, your Honor. We'll break for ten minutes. (Recess was taken.) 5 THE COURT: 6 MR. WAYLAND: 7 THE COURT: 8 MR. WAYLAND: 9 Yes. Mr. Wayland. May I proceed? Yes, please. Thank you. BY MR. WAYLAND: 10 Q 11 little bit and talk about market definition. 12 Doctor, we're going to put away simulators and surveys for a As I understand your market definition, it's all forms of 13 tax preparation, correct? 14 A Correct. 15 Q And you get there because your diversion data tells you that 16 all those things are close substitutes for each other in some 17 way or another, right? 18 A 19 true that there are substitutes for each other. 20 substitutes, assisted on the H&RB side, and pen and paper on the 21 TaxACT side, that that comes from the survey, yes. 22 Q 23 market definition is wrong? 24 A 25 pricing simulator and the TaxACT survey are certainly the I wouldn't characterize it exactly in that way, but it's Okay. All right. And the closest So if your survey is wrong, maybe your I think I indicated this before. The survey of both the 61 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 62 of 124 1 pricing simulator, the best evidence, direct evidence, of 2 diversion in response to a price increase. 3 TaxACT survey sheds some light on it as well. 4 documents as well that deal with the general issue of 5 substitutes and closeness of substitution. 6 Q 7 are a number of documents in which the parties identify a 8 separate market for digital and identify the big three as direct 9 competitors, right? And I think the But there are I think you acknowledged yesterday, Dr. Meyer, that there 10 A There are documents in which they talk about the big three. 11 I don't think they ever define a relevant antitrust market for 12 digital DIY and, of course, that's the question at hand. 13 THE COURT: Can I interrupt you just for a question 14 because I want to go back to one question to make sure I 15 understand the answer about it. 16 MR. WAYLAND: 17 THE COURT: Okay, your Honor. Dr. Meyer, in answer to the question about 18 if the survey is wrong, then the market definition is wrong, if 19 you took out the simulator -- the 2009 simulator -- would that 20 change your definition of the market at all or would your 21 reliance on the documents and the TaxACT survey, in your view, 22 be sufficient for you to continue to have your view of the 23 market? 24 THE WITNESS: 25 THE COURT: It would still be sufficient. Okay. That's what I wanted to be clear 62 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 63 of 124 1 about. 2 BY MR. WAYLAND: 3 Q 4 the context of the documents in order to understand why they 5 might have identified a separate digital market, correct? 6 A Correct. 7 Q We're not going to look at many of those documents today, 8 Dr. Meyer, but I did want to look at one. 9 Defendants' Exhibit 493 -- I mean, Government Exhibit 493, 10 Okay. And I think yesterday you said it was important to look at And that's Tab 65. 11 MR. WAYLAND: This is sealed so it's off. 12 BY MR. WAYLAND: 13 Q 14 that Project Island is HRB's acquisition of TaxACT, right? 15 A Correct. 16 Q And this was a presentation -- there's been other testimony 17 about it -- "Senior Level Executive Presentation." 18 discussing the transaction. 19 There is an executive summary of the reasons. 20 Exhibit 493, "Project Island Overview." And you understood And they are And you can look at the first page. And let's go to the market share chart. And this page has 21 market share for the digital market, correct? 22 A 23 looks like the pie chart has to do with online -- 24 Q And the -- 25 A -- which is a subset of digital. This looks like it is actually online. Let me just -- it 63 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 64 of 124 1 Q Right. Subset of digital. 2 share -- you can look through it. 3 that's displayed for an analysis of the transaction, right? 4 A 5 share information. 6 Q 7 least when they are talking about the transaction, what its 8 effect might be, they are looking at market share and digital, 9 right? Within this document. All right. And this is the only market This is the market share data I didn't see any additional market So as I said, we could look at many, but at 10 A 11 antitrust and anticompetitive effect of the market 12 transaction is. 13 Q 14 back to your market definition. 15 Well, I don't see this document as talking about what the All right. You can put that aside, Dr. Meyer. Let's start with pen and paper. Let's go It's literally not pens and 16 reams of paper, correct? 17 A 18 obviously, could be a pencil. 19 to get. 20 They are also are included in that what I call fillable forms. 21 Q 22 competitors that you are counting in this market, correct? 23 A 24 the pen. 25 Q There are some individuals that fill it out with a pen or, And specific pieces of paper, forms -- paper forms. Okay. No. I'm not sure how specific we need But manufacturers of pens and paper are not It's the method of tax preparation, not the sale of Right. You're talking about an act that you've put into 64 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 65 of 124 1 your product market, correct, the act of filling out a form, 2 right? 3 A It's a method of filling out a form. 4 Q And that, in your mind, is a product? 5 A It's a method of filling out the form that consumers can 6 turn to. 7 market definition -- is to think about the alternatives that 8 consumers can turn to. Again, the purpose of relevant market definition -- 9 And sometimes those alternatives include, you know, doing it 10 completely yourself without having a particular, you know, piece 11 of software, for example, as in this case. 12 Q 13 assistance or I can go to the drug store and buy some cold 14 remedies produced by a bunch of manufacturers of drugs or I can 15 sit at home and drink chicken soup, is my sitting at home and 16 drinking chicken soup part of the market for cold remedies? 17 A 18 saying I haven't studied that market -- just because in some 19 markets the possibility of, you know, sort of completely doing 20 it yourself may or may not be an alternative. 21 it may be, and that's the question that we're really asking. 22 If I have a cold and I can go to a doctor to get some Look, in that situation -- you know, I'll start off by In other markets, The question is if the price of cold medicines went up 23 sufficiently, would people turn to chicken soup? I'm not saying 24 that they would -- logically, they probably wouldn't -- but in 25 some markets that is an important constraint, and in some it's 65 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 66 of 124 1 not. And so that's the question that we're asking here: Is 2 this a market in which the choice of really doing it yourself -- 3 and here I'm distinguishing that from DIY software, I mean, just 4 sort of really pen and paper, is it a constraint? 5 question. 6 out of the market automatically. 7 question. 8 Q 9 the market as you've described it? That's the It's not either a constraint automatically or it's You have to ask the Are there any competitors in the pen-and-paper segment of 10 A Those forms are provided by the Internal Revenue Service 11 freely. 12 Q 13 adding in? 14 A No. 15 Q So there are no competitors in this segment of the market 16 that you're including, the pen-and-paper segment, right? 17 A 18 themselves. 19 Q 20 part of the market? 21 A 22 filing their taxes. 23 Q 24 competitors in the tax preparation market? 25 A So is the Internal Revenue Service a competitor that we're These are consumers who are choosing to do the work And it's an alternative that consumers have. So all consumers, all people who on earth do dwell, are they No. We're obviously talking about individuals who are So all individuals who are filing their taxes are That's not what I said at all. What I said is that the 66 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 67 of 124 1 option of going and using pen and paper is an option to which 2 consumers -- it's an alternative or a substitute that consumers 3 can turn to in the event of a price increase on the products at 4 issue. 5 And that's exactly the question that we're asking. I mean, 6 to -- that's at the heart of the question of market definition. 7 That's what it's all about. 8 Q 9 sold by one merging form competes against one or more products 10 sold by the other merging firm, the agencies define a relevant 11 product market around Product A to evaluate the importance of 12 that competition. 13 group of substitute products including a Product A. 14 relevant product markets may thus be identified." 15 Section 4.1 of the Merger Guidelines say, "When a product Such a relevant product market consists of a Multiple Pen and paper is not a product. 16 A 17 software product, but it is relevant and it still fits into that 18 same concept by saying it's a way of filling out your taxes. 19 the same way that digital software is a way of filling out your 20 taxes and assisted tax preparation is a way of filling out your 21 taxes. 22 It's not a product in the sense of a firm is putting out a In It's a piece of paper -- it's several pieces of paper -- 23 provided by the IRS, and it's an alternative that consumers can 24 turn to and it's a constrain on pricing. 25 Q And 4.1 talks about product markets. Now, markets are where 67 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 68 of 124 1 there is an exchange of economic activity, right, good for 2 money, right, that's what a market is? 3 A That's one definition of the word "market." 4 Q And that's not what's happening with pen and paper. 5 Nobody's exchanging money. 6 a task and not spending money, right? 7 A 8 by -- that are not sold, but that are provided by H&R Block or 9 TaxACT or some of the other firms in this industry. It's just somebody's choosing to do Well, the same is true for the free products that are sold I mean, not 10 every element of this product market involves an exchange of 11 money. 12 certainly have an understanding that some of the free products 13 lead to monetization, but there are certainly consumers that -- 14 tax filers who use free products and never pay for anything. 15 For example, the free products -- the ones -- and I Those are -- likewise, there's no exchange there, but that 16 doesn't mean that they are not in the relevant market. 17 I think they are even in Dr. Warren-Boulton's relevant product 18 market. 19 Q 20 let's keep focusing on pen and paper. 21 All right. Indeed, We'll get back to the free in a little bit, but You said you read depositions of various parties, right, as 22 part of this? 23 A Correct. 24 Q And you see the answers where the executives said we don't 25 think pen and paper, we don't compete with pen and paper? Did 68 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 69 of 124 1 you take that into account? 2 A I did take that into account. 3 Q Let's look at a couple of those. 4 Government Exhibit 293. 5 audience because it's an Intuit executive. 6 A What page? 7 Q Tab 55, Government Exhibit 293. 8 page 38, line 2. 9 that the Intuit executive was asked, "Did you compete with free We'll put up Tab 55, This, again, can't be shown to the Page 37, lines 20 to And we can't read it out loud, but you'll see 10 fillable forms in seeking to attract tax preparation?" 11 you'll see his answer there. 12 And Do you see that? 13 A I do. 14 see the context. 15 Q 16 is Mr. Houseworth's testimony. 17 whose testimony you've cited in your report and declaration, I 18 think, correct? 19 A 20 have reviewed his deposition. 21 Q 22 of the digital business right now at H&R Block? 23 A Yes, that's my understanding. 24 Q All right. 25 page 89, line 2, to 90, line 1. Okay. If I can just find it on my page to make sure that I Let's look at Tab 56, Government Exhibit 296. This He is an executive at H&R Block I'd have to go back and check what I cited, but I certainly Okay. And you agree that he's actually -- is he in charge If you would look at his deposition. We're at 69 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 70 of 124 1 2 MR. WAYLAND: it should be. 3 This isn't sealed, is it? Mr. Robertson, could you just -- MR. ROBERTSON: We can display it. 4 BY MR. WAYLAND: 5 Q 6 page 89, line 2, to 91, 1. 7 8 "What do you mean by 'constraint'? "That's what I'm trying to understand." Line 14, "Do you view -- do you believe that pen and paper is a constraint on H&R Block's digital business?" "The Witness: 16 "Question: Constraining how? Does it constrain H&R Block in terms of the prices it can charge?" 18 19 And then there's some colloquy. 15 17 How could it be a constraint?" 13 14 Do you believe that pen and paper is a constraint on H&R Block's digital business?" 11 12 So this is testimony of Mr. Houseworth on August 4th, "Question: 9 10 I'm not sure Answer from the head of the digital business, "I don't think so." 20 That was part of the deposition record that you considered, 21 right? 22 A Yes. 23 Q You think that Mr. Houseworth knows more about his business 24 than you do? 25 A Yes. 70 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 71 of 124 1 Q 2 business, don't you think we should listen to him? 3 A 4 put it into its context of he is a business person who is 5 thinking about constraints in a certain way. 6 economist who is thinking about things perhaps in a slightly 7 different way than he is because I'm thinking about it in terms 8 of an antitrust context. 9 So if he testified that pen and paper doesn't constrain his I think we should certainly take account of what he says but And I'm an As a starting point, we're talking about TurboTax, Intuit -- 10 I can say that much, right -- and H&R Block in these particular 11 deposition excerpts. 12 of diversion or at least the closest thing that we have to a 13 quantification of diverse, the place where the constraint seems 14 to be most prevalent for pen and paper is with regards to 15 TaxACT. 16 products are at a lower price point. 17 think that the constraint would be more so at that part of the 18 marketplace. 19 And indeed, in terms of the quantification And that's not surprising, because that's -- TaxACT'S So it's reasonable to But even so, I mean, when business people think about the 20 primary constraints on their business, you know, they are 21 usually thinking -- you know, a lot of times business people say 22 what keeps you up at night? 23 their minds. 24 you know, all of the evidence and in terms of where customers 25 would go. It's the primary things that are on But what I have to do is step back and look at, 71 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 72 of 124 1 So the analysis is a little bit different. I do believe 2 that he knows his business, at least I have no reason to believe 3 he doesn't, but it's a different question that he is sometimes 4 thinking -- that a business person is sometimes thinking about 5 than what an antitrust economist is thinking about. 6 Q 7 the price of another? 8 you're here, right? 9 A Correct. 10 Q And Mr. Houseworth, the head of the business, is answering 11 that question. 12 A 13 expect that the effect of pen and paper is most prevalent on H&R 14 Block. 15 stated before. 16 Q 17 defining a relevant market is known as the hypothetical 18 monopolist test, correct? 19 A 20 relevant market, yes. 21 mentioned in my direct testimony, that are also important in 22 defining relevant market. 23 Q 24 Paragraph 152 where you said, "The standard methodology for 25 defining a relevant market is known as the hypothetical And aren't you thinking about whether one product constrains Isn't that your fundamental -- that's why Again, as I indicated, this is H&R Block, and I wouldn't Indeed, I think it's more prevalent for TaxACT, as I All right. You agree that the standard methodology for The hypothetical monopolist test is an element in defining a There are some other principles, as I Actually, Dr. Meyer, I was quoting your report at 72 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 73 of 124 1 monopolist test." 2 You haven't changed your view, have you, since you wrote 3 your report? 4 A 5 methodology but in light of other factors as well. 6 I was clarifying. 7 Q 8 test on the digital do-it-yourself market that the government's 9 alleged, correct? No. I was just clarifying that it's the standard That's all And you did not yourself perform a hypothetical monopolist 10 A No. Because I don't think it's a proper relevant antitrust 11 market. 12 Q 13 market," right? 14 A 15 relevant market so there was no point, in some sense, of running 16 a SSNIP test on something that starts out fundamentally as not 17 being a proper relevant antitrust market because it omits the 18 important alternatives. 19 Q 20 your own market, right? 21 A 22 explained in my direct testimony that it's clear that my market 23 passes a SSNIP test. 24 Q 25 "inherent" in what I did, right? So you just said, "Okay, I'm not going to run a test on that Well, it doesn't conform to the other principles of a And you didn't perform any kind of calculation SSNIP test of As I said, there's not a particular calculation, but I I think at your deposition, you said the SSNIP test was 73 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 74 of 124 1 A I don't recall the exact language that I used. 2 Q All right. 3 recollection as to what you said. 4 deposition on August 22nd, 2011. 5 Let's look at your deposition to refresh your And we're at page 38 of your And at line 12, you were asked, "Which product set did you 6 apply the hypothetical monopolist test in?" And your answer 7 was, "Inherent in the opinions expressed in my report are 8 hypothetical monopolist tests to the relevant market that I've 9 determined all tax preparation methods," correct? 10 A Correct. 11 Q Does that refresh your recollection that you've described 12 your test as being inherent in what you did? 13 A Yes. 14 Q All right. 15 16 THE COURT: Is this in the notebook? 17 18 MR. WAYLAND: It's not in the book, your Honor. We can provide you with a copy. 19 THE COURT: 20 MR. WAYLAND: 21 What is the tab for Dr. Meyer's deposition? It's okay. It's Government Exhibit GX 666, your Honor. 22 THE COURT: Thank you. 23 BY MR. WAYLAND: 24 Q 25 small but significant nontransitory increase in price, right? Now, let's talk about the SSNIP test a little bit. It's a 74 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 75 of 124 1 A That's what "SSNIP" stands for. 2 Q And we're generally talking about 5 or 10 percent. 3 what economists, the government, that's how we talk when we're 4 doing merger analysis generally, right? 5 A I believe that's in the Merger Guidelines, yes. 6 Q Now, in Section 4.11 of the Guidelines says that "groups of 7 products" -- and we're going to display this, "may satisfy the 8 hypothetical monopolist test without including the full range of 9 substitutes from which consumers choose," correct? That's 10 A 11 product that's a closer substitute for the first product than is 12 the second product -- 13 Q This is yours. 14 A -- which is the point that I've been making. 15 Q That's what you said, right. 16 I actually see something that talks about not excluding a MR. WAYLAND: I'm sorry. Let's back up. Let's display that again. 17 BY THE WITNESS: 18 A 19 really important. 20 Q 21 that you quoted from yesterday, correct? 22 A Correct. 23 Q All right. I'm glad this is coming up so many times because this is All right. This is the section of the Merger Guidelines Let's look at Section 4.1, see some more of it. 24 It says, "Groups of products may satisfy the hypothetical 25 monopolist test without including a full range of substitutes 75 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 76 of 124 1 from which consumers choose," correct? 2 disagreement? 3 A 4 Merger Guidelines to me so I don't know what that was. 5 Q 6 you? 7 A This document -- 8 Q It's not. 9 that, or you can accept that we've typed it out correctly. 10 Do you have any reason to believe that that doesn't -- Any I don't know what the -- it doesn't look like the Horizontal This doesn't look like the Horizontal Merger Guidelines to If you want me to get the actual copy, we can do 11 A No. 12 Q It's my script. 13 reason it's not here. 14 A 15 that -- 16 Q 17 have the text. 18 event, we've typed it out. 19 That's a quote. I thought that you were -- I understand. I understand. We should have a copy for you. So I'm just -- I'm sorry. I was just confused. It's out fault for the confusion. It's not here for some reason. And you don't disagree. 20 For some MR. ROBERTSON: I thought We should But in any You've read them, right? Objection. If we can just ask a 21 question rather than have counsel show the witness his own 22 outline. 23 MR. WAYLAND: 24 THE COURT: 25 We'll just put it aside. Read from the Horizontal Guidelines as opposed to showing us all your work product, as much as we enjoy 76 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 77 of 124 1 looking at it. 2 MR. WAYLAND: I don't usually follow a script either. 3 BY MR. WAYLAND: 4 Q 5 Guidelines aside because they say what they say. 6 about applying a test here. All right. We're going to put the Horizontal Merger Let's talk 7 In your market, a market you've defined, the hypothetical 8 monopolist monopolizes all forms of tax preparation, correct? 9 A Correct. 10 Q So I -- in order to do your taxes, you have to come to me. 11 That's your hypothetical monopolist, right? 12 A Correct. 13 Q So the SSNIP test is sort of silly in that case because he 14 can charge -- or she can charge -- an infinite price because 15 everybody has to do their taxes, right? 16 A 17 because at some point in time, people don't have the income to 18 pay that price. 19 logic to its conclusion. 20 of that market could certainly increase the price and people can 21 continue to pay their taxes, yes. 22 Q 23 you to do a SSNIP test because you're not going to get any 24 result that tells you anything because the hypothetical 25 monopolist can charge to infinity, essentially. I don't know whether he could charge an infinite price Right. But, I mean, that's -- just to follow out your But I agree, a hypothetical monopolist And so that's why it didn't really make sense for 77 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 78 of 124 1 A It's true. 2 Q But the SSNIP test, you're supposed to be getting a yes or 3 no. 4 or maybe it's not enough and I have to try another test, right? 5 You're trying to get a yes or no out of the SSNIP test. 6 That's why it passes the SSNIP test. Either I raise the prices 5 or 10 percent and see a change, Is it a relevant market or not, right? 7 A The SSNIP test is a yes-or-no type test, yes. 8 it passes. 9 passes the SSNIP test. In my market, I would say, yes, it is a relevant market. It 10 Q 11 everyone has to pay and everyone has to pay whatever the 12 monopolist demands. 13 A 14 which the proper relevant market is all of the alternatives to 15 which people would practically turn. 16 that, and that happens to be the case in this matter. 17 Q 18 could reasonably say at some point some price that the digital 19 monopolist monopolizes all digital prices is too high, people 20 will go back to pen and paper, or they'll switch to assisted. 21 Because there can never be a no in your market because As I said yesterday, I mean, there are certainly times in There's nothing wrong with But in the government's market, the one we've defined, you As an economist you'd say, yeah, that makes sense. At some 22 point, somebody would switch to pen and paper or somebody would 23 switch to assisted, right, and you could test that? 24 A You could test that. 25 Q All right. So that's a market you can actually apply the 78 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 79 of 124 1 SSNIP test to. 2 it is, you can apply the SSNIP test and get a reasonable answer. 3 Whether you agree that it's the right market, if Some price people will switch out or switch up to assisted, 4 right? 5 A 6 you outlined, but that's not the SSNIP test. 7 not would it be a relevant market at a 5 percent price increase, 8 but would it not be a relevant market if I applied a higher 9 price increase. Yeah, but that's not the SSNIP -- you can do the test that The SSNIP test is That's not the SSNIP test. 10 Q 11 go to the other side of it which you include, and that's the 12 assisted side. 13 This is a white paper that was submitted to the government on 14 May 2nd, 2011. 15 economist. 16 defendants. 17 We talked about the pen-and-paper part of the market. Let's Let me show you Tab 29, Government Exhibit 629. I think it was before you were retained as an But submitted by counsel on behalf of both Let's look at page 92. By the way, did you see this document among the things that 18 you read in coming to your conclusion about the market? 19 A 20 in the ordinary course of business and so I didn't base my 21 opinions on anything within this document. 22 seen this document. 23 Q 24 government with the parties' positions. 25 worked on white papers that go to the government, right? I have seen this document. This was not a document prepared But I certainly have Well, it was prepared in the course of providing the And I assume -- you've 79 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 80 of 124 1 A I have. 2 Q And when you prepared white papers that went to the 3 government, you made your best effort to faithfully represent 4 the truth to the government, right? 5 A That's correct. 6 Q All right. 7 right? 8 A That's my understanding. 9 Q All right. So that's the course in which it was prepared, And on page 92, the paper says, "After several 10 painful years of confusion, indecision, apprehension, and false 11 starts, H&R Block has finally arrived at a coherent business 12 strategy on which to base its efforts to compete with Intuit. 13 It has recognized that the digital tax preparation business 14 serves do-it-yourself customers and does not adversely affect 15 its much larger tax preparation business." 16 You read the paper. You took that into account when you 17 came to your opinion that assisted and digital were in the same 18 market, right? 19 A I saw this, and I took this into account, yes. 20 Q Okay. 21 A I was not. 22 Q Did anybody tell you what Mr. Bennett said about assisted 23 and digital? 24 A I read Mr. Bennett's testimony. 25 Q Okay. Were you here for Mr. Bennett's testimony? Do you recall that Mr. Bennett agreed that the 80 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 81 of 124 1 digital tax preparation business serves do-it-yourself customers 2 and does not adversely affect its much larger assisted tax 3 preparation business? 4 A I don't recall specifically what he said. 5 Q I think you also read the Intuit declaration that was 6 submitted, right? 7 A 8 9 Yes. MR. WAYLAND: All right. Let's look at that and that cannot be displayed. 10 MR. ROBERTSON: Your Honor, I'll explain that documents 11 were flashing on the screen that were under seal, and I wanted 12 to make sure that he was aware of that. 13 MR. WAYLAND: We have the screen turned off. 14 BY MR. WAYLAND: 15 Q 16 "Similarly, when setting prices, Intuit" -- 17 A Which tab is this? 18 Q This is Tab 29. 19 Government Exhibit 29. 20 We're looking at Paragraph 25. This is Intuit's pricing. It's Government Exhibit -- it's Tab 8, And in that -- do you have it, Dr. Meyer? 21 A Yes, I do. 22 Q All right. 23 Intuit executive writes, "Similarly, when setting prices, Intuit 24 relies primarily on its own consumer behavior studies and looks 25 to the pricing of TaxACT and H&R Block." So in Government Exhibit 29, Paragraph 25, 81 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 82 of 124 1 Do you see that? 2 A Yes. 3 Q All right. 4 Mr. Ernst? 5 A 6 however, I did review his testimony. 7 Q 8 CEO of H&R Block? 9 A Yes, I understand that. 10 Q And he was asked at line 33 -- Were you here for the trial testimony of No, I was not in the courtroom when Mr. Ernst testified; All right. 11 And you understood that Mr. Ernst is a former MR. WAYLAND: Do we have that? 12 BY MR. WAYLAND: 13 Q 14 33 -- at page 33, line 23. The trial testimony of Mr. Ernst on September 7th, line 15 "Did H&R Block view the digital market -- the digital method 16 and the assisted method of tax preparation as competing with one 17 another?" 18 "Not to any large degree, no." 19 And you read that, right? 20 A Yes. 21 Q Now, it's your view that if the prices of H&R Block's 22 digital products went up, customers would switch in greater 23 numbers to assisted tax preparation than they would switch to 24 anywhere else, right? 25 A Correct. 82 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 83 of 124 1 Q And it's your view that, for example, if the price of basic 2 went from 30- to $35, people would -- biggest switch would be to 3 assisted, right? 4 A 5 products. 6 another product. 7 Q 8 price of the $30 product went up to $35? 9 A This is looking at the prices generally of H&R Block I didn't do a specific analysis of one product or Well, can you shed any light as to what would happen if the Again, what I looked at in terms of the statistical 10 analysis -- I just want to be clear as to what I did -- was 11 looking at the prices across the board of H&R Block products. 12 Q 13 to tell the Court anything at all about what would happen if the 14 price of H&R Block's basic product went from 30- to $35? 15 A 16 portfolio, and that would -- the statistical analysis tells me 17 that that would tend to lead to a diversion to assisted. 18 Q 19 the $30 product would leave to go to assisted if the price went 20 up to $35? 21 A 22 statistical analysis can tell us and what it can't tell us. 23 Okay. No matter what you did, I'm asking if it allows you That would increase the overall pricing of HRB's pricing So how many people -- what percentage of people who bought Again, this was -- I just want to be clear as to what the It can tell us that in general when HRB's prices go up, that 24 the first place -- and this is in general across the board -- 25 that they go to assisted. It doesn't identify one particular 83 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 84 of 124 1 price from one particular product. That's not what the 2 statistical analysis does. 3 prices in the portfolio. 4 Q 5 it's going to go from H&R Block to assisted, right? 6 assisted, right? 7 A Yes. 8 Q Okay. 9 assisted group of various segments it would go, right? It's looking at across all of the Now, you are saying that it would just -- whatever happens, You defined And you haven't -- you can't tell us where in the 10 A That's incorrect. 11 different types of assisted tax preparation, and the most -- the 12 highest diversion would go to CPA and accountants within even 13 the assisted group. 14 Q 15 is there any other basis to tell us where a customer who is 16 buying the $30 Block product is going to go when the price goes 17 to $35? 18 A 19 me put it this way: 20 looks just at the price of that one product and where people 21 would go. 22 generally what happens when pricing goes up. 23 Q 24 the simulator -- put that aside, pretend you didn't do it -- do 25 you have any other basis to tell us what would happen if the Okay. The pricing simulator does break out And apart from what you learned from the simulator, There's not a specific pricing test that identified -- let Okay. There's not a particular analysis that I make -- I look at the data that's available on So if we put aside all the work that you've done with 84 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 85 of 124 1 price of H&R Block's basic product went from 30- to $35? 2 A 3 seen a lot of documents in which H&R Block talks about competing 4 with assisted tax preparation which Mr. Smyth, for example, 5 talks about the importance of digital competing with assisted 6 and assisted competing with digital. 7 I don't have a specific quantification. However, I have So there's a lot of qualitative evidence that indicates that 8 they're competing. What you're asking about in terms of a 9 specific quantification that, in the case of H&R Block, comes 10 from the pricing simulator. 11 Q 12 price changes in, for example, the TaxACT products? 13 you what would happen in response to a change in price from 9.95 14 to 10.95, would you have a different answer? 15 A 16 documents that speak generally to the competition that TaxACT 17 faces. 18 specific price increase on the TaxACT side of a state increase 19 by a dollar and the thinking of management as to why they 20 couldn't do that. And they are concerned that people would turn 21 to pen and paper. That's perhaps a bit closer to asking the 22 specific question of what would happen if the price went up by a 23 particular amount of money. 24 Q 25 TaxACT has been constant for a long time. And your answer would be the same if I went through various If I asked Generally speaking, as well, you know, there are a lot of There is certainly a document that contemplates a I think we've had a lot of testimony about the 9.95 price at If it goes up 10 85 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 86 of 124 1 percent to 10.95, your testimony is that the result of that 2 would be largest diversion would be people stopped doing 3 their -- stopped using digital products? 4 A 5 talking about diversion, we're talking about the difference 6 between what would happen at one price, the higher price versus 7 the lower price. 8 there are each year, even on net, consumers coming from pen and 9 paper and beginning to do their taxes digitally. 10 Well, I think it's important to realize that when we're So you know, generally speaking, we know that And so it could be that in response to a price increase, 11 what would happen would be that a former TaxACT customer would 12 switch back to pen and paper. 13 that's what is specifically contemplated in the TaxACT survey. 14 But its diversion would also refer to in a year -- if we compare 15 how many new customers TaxACT got at the 10.95 price coming from 16 pen and paper, that they would get fewer customers from pen and 17 paper at the 10.95 price as they would from the 9.95 price. 18 in other words, that it slows down their growth of customers 19 coming from pen and paper. 20 That's one possibility. And So So I just want to be clear that diversion could be either 21 one of those because it's comparing, you know, what would my 22 world look like in a 10.95 price scenario versus a 9.95 price 23 scenario? 24 many are using my product? 25 important in this case where TaxACT and, indeed, all of the How many customers are using pen and paper and how It's a subtle distinction, but it is 86 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 87 of 124 1 firms, are looking to get tax preparation customers from across 2 the spectrum. 3 And so in order to keep that pipeline going of new 4 customers, that's an important component of how they compete and 5 what they care about. 6 more confusion, but I just wanted to be clear there. 7 Q 8 You testified in response to the Court's question that if the 9 simulator were disregarded, there is sufficient basis for your All right. So I just hope that was -- didn't add Just a couple more questions on this, Dr. Meyer. 10 relevant market opinion, right? 11 A Correct. 12 Q The TaxACT survey, that doesn't quantify diversion from 13 H&R Block, right? 14 A Correct. 15 Q Okay. 16 A Well, it is -- it's switching, but within a mind towards 17 dissatisfaction with regards to price, features, or quality. 18 it's certainly closer to diversion than is pure switching 19 data. 20 Q But in any event, it doesn't quantify diversion, right? 21 A It is not a specific direct test of diversion, but it sheds 22 light on the question. 23 And it just addresses switching, right? THE COURT: So Can I just follow up on that one question 24 because I know you asked about this, and I wasn't sure I 25 followed it then so thank you for giving me another opportunity 87 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 88 of 124 1 to clarify this in my own mind. 2 MR. WAYLAND: 3 THE COURT: Yes. So the 2011 survey asks about price 4 features and quality satisfaction. 5 complexity. 6 for purposes of your analysis of the diversion ratio and 7 diversion generally. 8 between the switching data and this survey is that the survey 9 doesn't ask about complexity, but it does ask about three other 10 It doesn't ask about So you say that that's better than switching data And so as I see the only difference different characteristics associated with the software. 11 Why is it that you don't think -- why is it 12 specifically that you think that the switching data isn't better 13 than that survey? 14 thing it seems to be not asking about -- let me put it to you 15 this way: 16 there was a difference in satisfaction in pricing, features, 17 quality, and there was a change in the complexity of your tax 18 situation, would it then, in your mind, be analogous to 19 switching data? I still don't understand. Since the only If that survey had said tell me about your -- if 20 THE WITNESS: 21 THE COURT: 22 THE WITNESS: No. You want a clarification. Yes. Because why are people switching in the 23 switch data? Part of it could be because of price, features, or 24 quality dissatisfaction. 25 complexity. Part of it could be changes in But there are lots of other reasons why they could 88 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 89 of 124 1 be changing as well. 2 For example, we've heard about advertising. It could 3 be that they saw some advertising, and that's why they switched. 4 It could be that their friend told them about the product and 5 they switched. 6 something different. 7 return from a different product or method. 8 9 It could be that they just wanted to try THE COURT: They wanted to see if they got a higher So the reason you prefer the survey is because unlike switching data where there's this whole panoply 10 of reasons, at least it just refines the answers to those 11 respondents who participated in the survey to those three 12 different aspects that were asked about in the survey? 13 THE WITNESS: 14 THE COURT: 15 BY MR. WAYLAND: 16 Q 17 Okay. Correct. Okay. Just finish up on this line, Dr. Meyer. So if you disregard the pricing simulator, there's no 18 quantitative basis to support your view that assisted is a 19 closer substitute to H&R Block than other digital products, 20 right? 21 A 22 yes. 23 Q 24 on assisted and competing from digital that you used yesterday. 25 This is your demonstrative. At that point, I would have to look to the qualitative data, Okay. Let's take a look at the slide again with the numbers 89 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 90 of 124 1 MR. WAYLAND: 2 BY MR. WAYLAND: 3 Q 4 book. 5 Do you know what tab it was in her book? It's tab 52 in our book. I'm not sure what it was in your If you recall, Dr. Meyer, after you testified about how the 6 simulator provided your basis for diversion conclusions, you 7 said, "Okay, well, I'll look at some other data too to see what 8 it says." 9 that HRB's closest competitor is assisted. And here's what you presented to support your view And you have the 10 simulator data. 11 Warren-Boulton pointed out the problem with the 19.95 and so you 12 ran some other numbers, right? 13 A Correct. 14 Q Then you also lined up the IRS switching data. 15 presented your results, right? 16 A 17 that is diversion data. 18 Q 19 using it to show even with the switching data, I can support my 20 position, right? 21 A 22 switching data and then the data with regards to TaxACT. 23 Q 24 25 And then you correct it after Dr. Rick I lined up the IRS switching data, yes. I know. And you I don't think that You think it's switching data, but you were just Well, the switching data would have to include both this Okay. This is your chart. You presented it yesterday. I'm not -- you had a purpose, right? A Correct. 90 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 91 of 124 1 Q 2 improper aggregation? 3 A I have not heard of that particular term. 4 Q Well, do you understand just as a matter of logic that if 5 you're comparing a group of something to individuals, 6 individuals in another set, that that doesn't really work? 7 Okay. And do you know in statistics the basic problem of Do you know anything about that? Do you understand that's a basic concept in statistical 8 analysis? 9 A I'm not familiar with that concept. 10 Q Okay. 11 Well, let's just look at what you did. In getting your numbers, you have assisted listed as a 12 single group, as if it's a thing, a one thing, right? 13 A Correct. 14 Q And then you've broken out TurboTax, TaxACT, other digital, 15 right? 16 They are separate. You didn't group them together as digital, right? 17 A Correct. 18 Q Okay. 19 segment to another segment if the numbers came out 20 differently? 21 A 22 into, for example, the CPA. 23 diversion from the pricing simulator. 24 Q 25 firm, Liberty Tax? No. And did you do that to see if you compared one As I said, I mean, you can also break out assisted And that still has the highest What if you broke out assisted into Jackson Hewitt, CPA What if you broke it out that way just as 91 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 92 of 124 1 you've broken out digital in some respects? 2 different? 3 A Well, the CPA group still has the highest diversion. 4 Q We took your numbers and we did group to group, and we're 5 going to show you what that is. 6 digital switching or diversion in your sense, switching on the 7 IRS numbers, and we've added them together. 8 9 Would it look So we've added together all the And if you compare group to group, again, just using your way of looking at it, it turns out that the closest competitor 10 by group is digital, right? 11 A 12 is a comparison between -- you know, the merger here is between 13 HRB and TaxACT. 14 within the digital space. 15 HRB. 16 If you add up the numbers of digital, but the question here And those are distinct entities, you know, And they are looked at separately by On the other hand, assisted is looked at as a group by HRB. 17 So I'm not sure what this shows. 18 looking at. 19 Q 20 result than if you sort of mix things up a bit, doesn't it? 21 A No, I don't think so. 22 Q All right. 23 24 25 But I see the math that you're It shows if you compare apples to apples you get a different THE COURT: I'm sorry. I don't understand why you don't think so. THE WITNESS: Because when H&R Block looks at its 92 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 93 of 124 1 competition, when it talks about where its customers go, it 2 considers TurboTax separately because, you know, that has a 3 particular set of product features and has particular products. 4 It looks at TaxACT separately and, of course, we have to look at 5 them separately because that's the other party merging. 6 But then for assisted, it doesn't know where those 7 customers are going to assisted. 8 it breaks things down in its ordinary-course-of-business 9 documents, it looks at either assisted as a group or it looks at 10 11 And when you see the way that CPAs as a group versus tax stores at a group. THE COURT: But that's not really right, isn't it, 12 because in the simulator that you looked at yourself, I mean, 13 they took assisted and they broke it down to a different 14 groups -- friends and family, CPAs and accountants, retail 15 stores -- and then you took all those and you put them together 16 into assisted. 17 So just like you did that, why isn't a group of DDIY, 18 why doesn't that include all the DDIY ways of performing your 19 tax preparation in the way that this shows? 20 not apples to apples, and I'm really having difficulty 21 understanding why comparing assisted as a group, and all the 22 different methods combined into assisted, why isn't that one 23 group and all of DDIY digital tax preparation methods, why isn't 24 that another group and why isn't that a better way of grouping 25 these numbers? You're saying it's 93 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 94 of 124 1 THE WITNESS: Well, I would say the question is really, 2 the way that I would think about it, is it correct to break down 3 assisted into its individual components? 4 and say, well, I'm going to start with all digital DIY and just 5 put them together as a group, then you've done, in essence, 6 exactly what Dr. Warren-Boulton has done, which is you assume 7 your conclusion. 8 together, I assume that they all compete, you know, with H&R 9 Block, and then I'll just test to see whether they do. Because if you do that You just say I assume that they're all And as 10 we can see, the diversion to TaxACT, for example, is relatively 11 low. 12 On the other hand, the question of assisted, can you 13 break it up? Yes, you can break it up. And sometimes the firms 14 look at groups like CPAs and separately tax stores. 15 you look at that, there's still very high diversion to CPAs. 16 even if I did it that way, there would still be very high 17 diversion to CPAs. And when So 18 So I don't think doing more aggregation is the answer. 19 I think the question is, could there be less aggregation on the 20 assisted side, and you can but the conclusions are still the 21 same. 22 THE COURT: Well, I think the discussion about 23 aggregation is -- not to get granular on exactly where people 24 are being diverted -- but if you're going to put up a number for 25 assisted of 41.8 percent or 38 percent, what is the comparable 94 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 95 of 124 1 number? And I think that that's the purpose. 2 So anyway, I'm sorry, Mr. Wayland; please continue. 3 MR. WAYLAND: 4 Just as a clear record, are we marking this? 5 Do we have a separate exhibit number for this? 6 7 That's fine, your Honor. This will be Government Exhibit 15, your Honor, which just for the record -- 8 THE COURT: 9 MR. WAYLAND: This is a trial exhibit? Yes, I'm sorry. Government Trial 10 Exhibit 15 which is the calculation we've just displayed that 11 aggregates the do-it-yourself market, your Honor. 12 THE COURT: 13 MR. WAYLAND: Is that a tab in the notebooks? It is, your Honor. Tab 52, your Honor. 14 (WHEREUPON, a certain document was marked Government Trial 15 Exhibit 15 for identification as of September 13, 2011.) 16 BY MR. WAYLAND: 17 Q 18 issue. 19 yesterday. 20 paper. 21 All right. We have another slide which deals with the same This is another one of the slides that you presented This is TaxACT's closest competitor is pen and And you have the assisted batch -- before I go any further, 22 now, as I understand it, Doctor, the IRS switching data, you can 23 look individually at every single -- you can get the data on 24 every single preparer, right? 25 A I'm sorry. You know that, right? Say that again. 95 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 96 of 124 1 Q You can get switching data by individual preparer, 2 correct? 3 A 4 actually tell you the preparer but the way in which it was 5 prepared. 6 words, it says that it was Jackson Hewitt software that was used 7 and so you can bring that back and say, well, that was Jackson 8 Hewitt that prepared the return. 9 Q Sort of. You have to do a little bit of work. It doesn't But you can match up the way in which -- so in other All right. So you could have looked at the data and said 10 preparer by preparer, where are people going to on the switching 11 analysis, right? 12 A For the switching data, yes? 13 Q Okay. 14 we've prepared another slide that does the same thing, adding up 15 the digital shares. 16 Let's just stick with the aggregation issue. And And you'll see that if you calculate digital shares, it's 17 actually higher than assisted or pen and paper by a substantial 18 amount, right? 19 A 20 I see the numbers that you're talking about, yes. MR. WAYLAND: All right, your Honor. This will be 21 Government Exhibit -- Trial Exhibit 16, Tab 51. And this again, 22 for the record, is the aggregation of digital in the chart 23 "TaxACT's Closest Competitor is Pen And Paper." 24 (WHEREUPON, a certain document was marked Government Trial 25 Exhibit 16 for identification as of September 13, 2011.) 96 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 97 of 124 1 BY MR. WAYLAND: 2 Q 3 in the market, did you think about what Mr. Houseworth thought 4 about that, the head of the digital business at H&R Block? 5 A Yes. 6 Q And what did he think about it? 7 A H&R Block, actually not all that different from TaxSlayer I 8 believe that I -- Mr. Rhodes who was here -- has both a digital 9 DIY product and an assisted product. Now, when you were thinking about whether assisted would be And for both of those 10 firms, there's obviously a consideration within the firm that 11 they had these two products and a question of how hard that they 12 want one product to compete against the other, you know, within 13 that firm and taking sales. 14 And that's always been, I think, its attention and a 15 constraining factor on firms that are set up in that way. 16 have to take into account all of the products in their 17 portfolio. 18 of H&R Block's business, and so there's certainly a hesitancy on 19 the part of the management in certain documents to promote a 20 whole lot of competition within the firm. 21 know, compete outside the firm. 22 They So -- you know, the retail business is a large part They'd rather, you But, you know, even Mr. Smyth, who was the CEO I believe in 23 2010, has recognized that that's just not a feasible way to 24 proceed. 25 and retail does compete with their digital business, whether That digital does compete with the retail business, 97 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 98 of 124 1 that's something that they like to admit or not. 2 Q 3 testimony which you said you read, right? 4 A Yes. 5 Q And when Mr. Houseworth said, "No, I don't view H&R Block's 6 assisted business as competing with its digital business," did 7 you have any reason to doubt that he knew what he was talking 8 about? 9 A We talked about documents. No. 10 MR. WAYLAND: All right. 11 inquire as to the schedule? 12 Are we having lunch? 13 14 I'm talking about sworn THE COURT: Your Honor, could I just I know that you're stopping early. Are we working through? I'd like to go through to 1 o'clock if we can. 15 MR. WAYLAND: Okay. Thanks. 16 BY MR. WAYLAND: 17 Q 18 diversion purposes, what you want to look at is increases in 19 prices and see what happens, right? 20 A 21 correct. 22 Q 23 figure, Figure 1. 24 the prices of certain products increased over a number of years, 25 correct? Now, yesterday I think, Dr. Meyer, you testified that for It's the responsiveness to a change in price, that's Okay. Now, in your report at page 29, you included a And that's a chart that purports to show that 98 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 99 of 124 1 A 2 because it's -- 3 Q 4 is Government Exhibit 854. 5 A 6 see if it's here. 7 If I can just look at my report so I can see it in color I'm sorry, Doctor. Oh, okay. Your report is at Tab 1, page 29. I was hoping for a version in color. This Let me just Here's a version in color. 8 Q Okay. And for this chart, you picked a few products, and 9 you laid out the price increase -- or the price change or lack 10 of change over a period of time, right? 11 A Yes. 12 Q And this shows, would you agree, that -- and I think it was 13 the point you put in your report for, that over the last four or 14 five years or so, the prices of H&R Block's and TurboTax's 15 products has increased, right? 16 A 17 with this chart. 18 Q 19 Intuit have increased over the last five years or so? 20 A 21 Block product that I'm showing here has increased over time. 22 Q 23 switch from H&R Block to assisted, right, or from Intuit 24 either? 25 A I think I was trying to show something slightly different Well, does the chart show that the prices of H&R Block and It certainly shows that the price of the particular H&R And during that period of time, there hasn't been much of a I haven't looked at that specific question. Obviously, 99 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 100 of 124 1 controlling for all other factors. 2 Q 3 circle chart -- let me see if I can find it. 4 Tab -- I don't know what the tab number is, but it's in your 5 binder, Doctor. 6 Well, in one of the charts that you presented yesterday, the Your binder, And net switching from assisted to digital DIY was 7 1.3 million. 8 there's a movement from assisted to do-it-yourself, right? 9 A No. So the testimony you presented yesterday was That's -- what I was showing here is that the net 10 switching masked -- if you only looked at net switching, that 11 masked a lot of switching in both directions between DIY and 12 assisted. 13 That was the purpose of this particular chart. And as I realized as I was thinking about this yesterday, I 14 may have mentioned that I thought this came from a HRB document. 15 I thought about it, and I believe this comes from switching 16 data, just to be clear. 17 Q You created it? 18 A Yes. 19 Q Let's go back to your chart, Figure 1, and see if we can 20 learn anything about increases of prices and switching to 21 digital. 22 Did you -- you presented some information showing that there 23 was an increase in price for certain digital products, 24 correct? 25 A Correct. 100 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 101 of 124 1 Q Did you do any investigation to see what the consequence of 2 what that was, whether there was any switching to assisted as a 3 result of these price increases? 4 A I did not do that particular analysis, no. 5 Q And that's what you're here to testify about, increased 6 prices and switching, right? 7 A Diversion, yes. 8 Q All right. 9 part of the equation, and, you didn't try to solve the other And here was some information you at least had 10 side of the equation which was to see whether it resulted in any 11 diversion, right? 12 A 13 make -- to get information about diversion? 14 myself that question because, as you said, it would be -- one 15 might think that you could use this kind of data to get 16 information about diversion. 17 possibility. 18 Well, the question is can you use this type of data to I certainly asked I certainly considered that as a The problem is that, as you can see, that the prices only 19 change, you know, once or maybe twice, maybe three times a year. 20 That's not a whole lot of price variation, and so this is not 21 the kind of data that you can use to get information about 22 diversion. 23 happens with one price, for example, HRB's price, and assisted 24 tax preparation and say, "I just compared those two things. 25 look at what happened to HRB's price, I look at what happened to And the reason is this: You can't just look at what I 101 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 102 of 124 1 the share of assisted, and I stop there," because you have to 2 control for all the other factors. 3 TurboTax pricing. 4 products. 5 new products that are introduced. There are changes in There are changes in pricing perhaps of other There's advertising that's happening. There may be 6 So it may appear at first glance -- and I certainly 7 considered this possibility -- that you can use this type of 8 data to come to diversion numbers and to come to an analysis of 9 diversion rates, but when I looked at it more closely, I 10 realized that you really can't because there's just not enough 11 variation in these data. 12 you actually do use actual changes in prices and use them to 13 estimate diversion data, I do that a lot in my work, but that is 14 where prices change, for example, on a weekly basis. 15 I mean, the typical type of data where I was describing for you earlier the supermarket scanner 16 data. 17 of observations about prices at different levels, and you can 18 see -- and you can control for the prices of other products at 19 different levels. 20 factors. 21 statistical -- or show the relationship between a product's 22 pricing and share controlling for other factors. 23 Prices there change on a weekly basis so you have a lot You can control for advertising in all of the So you can actually make a quantitative and But just, you know, this data just doesn't have enough 24 variation in it within to do it. And any comparison of one set 25 of particular data points on here with a share of assisted -- 102 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 103 of 124 1 and I pointed this out in my report because Dr. Warren-Boulton 2 did that kind of analysis -- that just doesn't -- it just 3 doesn't shed any light on the issue. 4 Q 5 chart. 6 Well, let me see if I can understand why you used this If you look at the text, it says, "Figure 1 provides a clear 7 picture of HRB's murky middle period. Before 2010, HRB's online 8 premium product had been priced between TurboTax's online 9 premiere and the value products. However, realizing that the 10 old strategy was not successful, HRB has been focusing on 11 positioning itself more clearly as a premium product. 12 2010 as discussed above." 13 See since You're using this data to show that HRB has increased its 14 prices which is enough for you, right? 15 increased its prices? 16 A 17 product. 18 particular purpose which was to, as I said, describe what I had 19 seen in the documents. 20 concept of the murky middle. 21 This tells you that HRB This shows that it increased its prices on the HRB premium This was really -- I mean, the chart was meant for a It was a lot of discussion about this And so I was using this graph to try and come up for myself 22 with a way of thinking about whether or not H&R Block had been 23 in a murky middle, how to think about that concept that I had 24 heard people talk about, and then think about the concept that 25 H&RB saying that it was trying to get out of that murky middle. 103 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 104 of 124 1 So I asked myself what kind of data can I use to show or to 2 indicate that trend. 3 Q 4 that HRB has -- had at the time, and some of those prices didn't 5 go up, they actually came down, right? 6 A 7 came down. 8 Q 9 you're telling us is it's a little tricky, it doesn't really That's really all that this was doing. And you understand that there are a lot of other products I think there may have been a product or two whose prices I'd have to look at the data again to remember. So looking at these individual provides points, I think what 10 tell you a lot about what's happening in the market? 11 A 12 think about what you're using the data and statistics to show. 13 This doesn't show that HRB's pricing on all products went up. 14 Again, it's like data and statistics generally. No, I'm not saying that it does. You have to I use this for a 15 particular purpose, and that's the purpose -- that's the reason 16 why it was in my report. 17 Q 18 premium plus state? 19 A Yes. 20 Q Okay. 21 A No. 22 obviously if this is the highest priced products, all of the 23 other products are below the highest priced product. 24 what this shows is that, you know, in the middle part of this 25 middle, the murky middle period, the products had a range, but You actually chose their highest priced product, right, HRB Now, you didn't use average price, right? And I did that exactly because what I was showing was And so 104 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 105 of 124 1 even the top end of the range was not at the level of TurboTax's 2 price. 3 was at TurboTax's prices. 4 By the end, the top end of the range approached -- or That's what I was showing. That's what the graph shows. 5 Q Now, you -- do you know whether the companies in this 6 business track average price? 7 A I have seen mention and data about average price, yes. 8 Q And you were critical of Dr. Warren-Boulton for using 9 average price as a way of measuring anything about this 10 transaction, right? 11 A 12 think, again, statistics are -- you have to understand what 13 question you're asking and what pieces of data and what 14 statistics are informative as to that question. 15 Q 16 is distributed for free, correct? 17 A There is a sizeable percentage distributed for free, yes. 18 Q And in fact, that percentage has been increasing in recent 19 years, right? 20 A 21 percentage for each company, whether it's been increasing or 22 decreasing, but it's a sizeable percentage. 23 Q 24 part of them coming out of the murky middle and deciding to 25 launch free in a more aggressive way? I wouldn't say you can't use average price for anything. I This is a business where a large percentage of the product I'd have to look specifically -- I just don't recall the And for H&R Block it's been increasing, right? Isn't that 105 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 106 of 124 1 A Again, I'd have to look at the data. I really can't 2 remember every single data point. 3 Q 4 are not giving it away because they are a charitable 5 organization? 6 away free, right? 7 A Certainly. 8 Q So a company would put value on free, right? 9 A Free is important to these firms, yes. 10 Q Okay. 11 taking the product for free. 12 not paying any money, but there's clearly some economic value to 13 them, right? 14 A Yes. 15 Q So when you're thinking about the company's business and 16 you're trying to understand what's going on in the business, 17 you'd want to put into your calculation what's happening with 18 free, wouldn't you? 19 A 20 you're asking. 21 to average pricing, then you look at free and you include free. 22 But if you're asking a question did the firm change pricing, did 23 the firms increase pricing, then looking at average pricing 24 isn't correct because you're mixing -- there are two things that 25 can change an average in this case. And free has value to a company, right, free product? They They think there's a business purpose for giving And customers are clearly getting some value by They are satisfying their need, Well, it depends what purpose, you know, what question If you're asking a question about what happened It could be changes of 106 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 107 of 124 1 individual prices or it could be that there's a change in the 2 mix of prices. 3 And so, you know, again, it depends on what question you're 4 asking. But if you're asking the question are firms behaving in 5 such a way as to increase pricing, then looking at an average is 6 not the right way to go. 7 you're asking. 8 Q 9 keeps track of average pricing as part of its basic statistical All right. So it all depends on what question And you agree, though, that H&RB, for example, 10 analysis of its business, right? 11 A I have seen average pricing on HRB spreadsheets, yes. 12 Q Okay. 13 described as the "Single Point of Truth" for understanding the 14 company's financial position? 15 A 16 Point of Truth" document, but that was a spreadsheet that talked 17 about financials. 18 Q 19 And we have to turn off the screen for this. 20 entitled "Digital Tax Solutions." 21 And you've seen it on their documents that are I can't recall whether it was specifically on the "Single All right. It may well have been on there. Let's look at Tab 24, Government Exhibit 296-7. This is a document And you understood that Digital Tax Solutions, Dr. Meyer, is 22 a separate business unit within H&R Block, right? 23 A Yes. 24 Q Their assisted and their digital are run by separate people 25 and separate, right? 107 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 108 of 124 1 A That's my understanding, yes. 2 Q Okay. 3 And it consists of a number of pages of information. 4 look at the "Single Point of Truth" page, which is the very 5 first page, you see it says, "Single Point of Truth" at the top. 6 This is called "Fiscal Year 11, Actual Deep Dive." And if you Do you see that? 7 A Yes. 8 Q All right. 9 And underneath HRB four or five down, it says, "HRB Average 10 Then it has various categories of information. Sales Price." 11 Do you see that? 12 A Can you point it out in the monitor. 13 Q On the monitor, we're just pointing it out to you. 14 A Thank you. 15 Q Okay. 16 the average sales price, right? 17 A Yes. 18 Q And this is confidential so we're not going to reveal what 19 it says, but you can see the trend on there, right, Doctor? 20 A 21 are trends in several of the lines. 22 Q 23 describe the trend. 24 okay? 25 A Yes, I see that. So on the "Single Point of Truth," HRB is tracking Is there a particular line that you're referring to? Pick H&R Block online. There And again, I don't want you to We just want to draw your attention to it, Yes. 108 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 109 of 124 1 Q All right. Let's look at Government Exhibit 492. 2 A Is there a particular tab that you would like me to look at? 3 Q 64. 4 Exhibit 492 in front of you, Doctor? 5 A Yes, I do. 6 Q And as you said yesterday, context matters when you look at 7 documents. 8 that this is an HRB board presentation from June of 2010, 9 correct? And do you have Defendants' Exhibit -- Government And so let's look at the front page, and we'll see 10 A Correct. 11 Q And I think this is one of the documents you reviewed in the 12 course of your work? 13 A This looks familiar, yes. 14 Q All right. 15 presented to the board of H&R Block. 16 So this is a board. This is information being Let's go to page 11. And the information that was thought important to share with 17 the board was the average sales price of H&R Block digital 18 versus TaxACT and TurboTax. 19 Do you see that? 20 A I see that. 21 Q All right. 22 doesn't deal directly with the average price issue, Doctor, but 23 I just wanted to bring to your attention the fact that in this 24 board presentation, the information is segmented -- market share 25 information is segmented by assisted and digital, correct, two And let's go to page 8 of the document. This 109 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 110 of 124 1 separate market shares? 2 A Yes, I see that. 3 Q Okay. 4 A Of the same document? 5 Q Yes. 6 deciding what the board should know about competition. 7 they've listed out the assisted competitor analysis. 8 All right. Let's go to page 10. And again, this the board presentation, and people are So Do you see that? 9 A Yes. 10 Q All right. 11 there's a separate breakout for the digital competitor analysis, 12 correct? 13 A I see the title, yes. 14 Q Okay. 15 presented to the board, which you would expect as you were 16 talking about context, that's a pretty important context; don't 17 you think? 18 A 19 case. 20 Q 21 context because you said that was important yesterday. 22 And then if you go to page 12, you'll see And this is the way that the information was This was one of many, many documents that I reviewed in the We're not talking about that, Doctor. We're talking about So we're now looking at a board document in which people are 23 describing the competitive environment that HRB faces, and they 24 have distinguished between assisted and digital markets, 25 correct? 110 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 111 of 124 1 A I don't know if they distinguish between what they would 2 call markets, and certainly they didn't distinguish between 3 antitrust markets, but they looked at digital and assisted 4 separately, yes. 5 Q All right. So your view as an economist, you -- well -- 6 All right. Now, you ran -- let me start over. 7 You didn't run a merger simulation on your own, correct? 8 A I ran a merger simulation, yes. 9 Q You ran Dr. Warren-Boulton's merger simulation, right? 10 A I ran -- I used the same approach to merger simulation, the 11 same formulas that he used. 12 Q 13 you got hired in June to run a merger simulation. 14 Dr. Warren-Boulton's report, and you looked at his -- he had a 15 merger simulation and you said, "Oh, okay, I'll take that and 16 I'll put -- I'll do my own work with the same simulation," 17 right, same merger? 18 A Yes. 19 Q Okay. 20 yesterday, "Merger Simulation Predicts an Increase in Consumer 21 Welfare." 22 number. 23 Exhibit 9808. 24 25 Right. I ran it myself. What happened is you got -- you didn't start when You got I'm sorry; same merger model, right? And you presented your results in one of your tabs And I'm sorry; I don't have the plaintiff's exhibit It's our Tab 63 of your binder, and it's Defendants' And this is your result, right? A Correct. 111 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 112 of 124 1 Q And the top one is running essentially Dr. Warren-Boulton's 2 model, but you changed some inputs, right? 3 A I just included efficiencies. 4 Q Right. 5 right? 6 A Yes, I accounted for efficiencies. 7 Q And the bottom one is using your diversion data, which was 8 based on the simulator, right? 9 A Correct. 10 Q Okay. 11 assumptions, shows consumer harm, right? 12 A 13 course that's not the end of the story with regards to 14 unilateral effects. 15 Q 16 model with your numbers, your assumptions, you get consumer 17 harm, right? 18 A No, that's not true at all. 19 Q What do you mean? 20 A Running Dr. Warren-Boulton's model with my numbers is the 21 second set which actually shows an increase in consumer 22 welfare. 23 Q 24 his model, but including efficiencies because that was one of 25 your criticisms of his model; you show consumer harm, right? You changed an input. You added efficiencies, And using Dr. Warren-Boulton's model, even with your Again, as I said, the model shows consumer harm, but of And I described that in detail yesterday. I understand that, but just running Dr. Warren-Boulton's All right. Running his models, but you're right. Running 112 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 113 of 124 1 A That was one -- of course, one of only several criticisms, 2 but just looking at that -- just including efficiencies reduces 3 the consumer harm substantially. 4 a negative number. 5 Q And a negative number means consumer harm? 6 A Correct. 7 Q And then underneath, you've got your numbers. 8 the same model, right, you didn't switch models? 9 Dr. Warren-Boulton's model? But it does still come up with You're using You took 10 A Correct. 11 Q And then you put in this data that you got from the 12 simulator. 13 consumers, right? 14 A 15 pressure on price, and that is beneficial for consumers. 16 know, that's why we think that a lot of mergers are beneficial 17 because they lead to efficiencies which leads firms to be able 18 to compete more effectively and indeed lower prices according to 19 the model. 20 21 22 23 24 25 That's how you showed how it actually helped Yes, because of efficiencies. THE COURT: Efficiencies have a downward You While you're thinking, Mr. Wayland, can I just ask -- if you're about to move on to a different area. MR. WAYLAND: I'm moving to a new topic. It would be perfectly timed for you to ask follow-up on this one. THE COURT: Okay. Do you feel that it's important to look at historical experiences that H&R Block has had with other 113 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 114 of 124 1 purchases of tax preparation software in your evaluation of 2 efficiencies? 3 THE WITNESS: You know, I think it's important to look 4 at everything that has happened in an industry. 5 itself, you know, throw away a piece of information one way or 6 the other. 7 I wouldn't by But again, the question is, does that shed light on 8 what's going to happen here? 9 question. I think that's really the And if a firm -- in this case, my understanding is 10 that H&R Block had some difficulties achieving efficiencies 11 perhaps in some of its previous acquisitions, but, you know, 12 firms learn from their mistakes. 13 time. 14 That's what they do all the And so, you know, whether -- the probative value that 15 that has, I think here, as far as I can tell what my -- in 16 discussing the efficiencies with the business people, is that 17 they took that information from their previous acquisitions, 18 learned from it, and they believe that their efficiencies 19 estimates in this matter are conservative. 20 21 THE COURT: Did you look at specific documents related to H&R Block's purchase of TaxNet or RedGear? 22 THE WITNESS: I don't recall. 23 documents related to that. 24 document. 25 There may have been some I don't recall a particular Nothing comes to mind. THE COURT: Thank you, Mr. Wayland. 114 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 115 of 124 1 MR. WAYLAND: Thank you, your Honor. 2 BY MR. WAYLAND: 3 Q 4 different products that you see as coming into the market and 5 that H&R Block has been doing, its hybrid products and different 6 kind of products you described. 7 Dr. Meyer, you testified yesterday about a number of You remember that yesterday? 8 A Yes. 9 Q All right. I mean, in general, none of these products have 10 worked so far, right? 11 A 12 product right now. 13 amount -- were perhaps in the order of a hundred thousand units. 14 When I spoke with Mr. Ciaramitaro at H&R Block, what he said My understanding is that they are selling a "Best of Both" The sales -- I can't recall the exact 15 was, you know, they think that it's an important concept, this 16 idea of hybrid, the fact that consumers are looking for some 17 elements of the assisted experience, if you will, and some 18 elements of the DIY experience, but that they're still working 19 to come up with a product that does that, you know, as optimally 20 as they can. 21 will really assist them in that. 22 Q 23 heard it, that there are all these products out there and they 24 are going to change the world, and it turns out that they're not 25 because they haven't been successful yet, right? And they think that some of the new technology Well, you testified yesterday with a lot of certainty, as I 115 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 116 of 124 1 A 2 said -- I don't remember the exact words, but my -- the context 3 that I put them in is that when we look out into the future, 4 when we look at -- merger analysis is a phrase in the 5 industry -- is a merger analysis is inherently a forward-looking 6 emphasis, and so the question is, is leaving out -- you know, 7 one of the questions is, is leaving out assisted from a relevant 8 market appropriate considering the fact that merger analysis is 9 a forward-looking exercise? 10 I didn't say anything about changing the world. What I I don't think it is even based on the historical data. But 11 I think looking forward, there's even more reason to believe 12 that the competition between digital and assisted is going to 13 intensify. 14 you know, for example, Thomson Reuters -- oh, this probably is 15 sealed. 16 It's not just the hybrid products. Indeed, it's -- When firms are thinking in the future about what's 17 competing, there are a number of different pieces of evidence 18 that indicate that increasingly digital and assisted tax 19 preparation is competing. 20 can say. 21 Q 22 actually happened to a particular product, don't you think that 23 should factor into the calculation of whether there's really 24 going to be much change? 25 A I think in open court that's what I But when you have evidence as opposed to conjecture of what I think I should take all factors into account, and I did. 116 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 117 of 124 1 Q Okay. And with respect to "Best of Both," how long has that 2 product been out? 3 A I can't recall exactly when it was -- 4 Q It's been out for a while? 5 A It's been out for a couple of years. 6 Q And the conclusion of H&R Block is, essentially, that it 7 doesn't work, right? 8 A 9 believe that there's no plan to discontinue the product, at I don't recall H&R Block saying that in particular. I 10 least as far as I am aware. And as I said, when I spoke with 11 Mr. Ciaramitaro of H&R Block, what he indicated to me was that 12 they are involved in an ongoing process to figure out the best 13 way to provide consumers with options that combined some 14 elements of the assisted experience and some elements of the 15 digital DIY experience, and that they're continuing to 16 experiment with exactly which format and which approach is 17 best. 18 Q 19 Exhibit 2112. 20 A Which exhibit? 21 Q It's Tab 60, Government Exhibit 2112. 22 second request interrogatory response. 23 at it to establish a date. 24 A 25 turn to? If you would look at Tab 60 of your binder, Government Okay. These are H&R Block's And we're just looking Is there a particular page that you wanted me to 117 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 118 of 124 1 Q Page 13. It says -- do you see the year? 2 this is confidential. 3 MR. WAYLAND: I don't think That's not being shown, right? I won't say this in court if you think 4 it's confidential, Mr. Robertson. 5 date of when "Best of Both" introduced its product. 6 7 MR. ROBERTSON: MR. WAYLAND: I can't The only thing I'm going to read into the record is that block that I pulled out. 10 11 Counsel, that's one block. It has a read the whole page. 8 9 It's on the screen. MR. ROBERTSON: Counsel can read that particular line in. 12 MR. WAYLAND: Why don't we just take it down. 13 BY MR. WAYLAND: 14 Q 15 product now known as 'Best of Both.'" 16 It says, "In 2001, H&R Block introduced its integrated Do you see that? 17 A Yes. 18 Q So it's been out for about ten years, right? 19 A Yes. 20 Q All right. 21 but actually I think that might be confidential as well so I'm 22 not going to repeat it, but I think you've established what it 23 is. 24 25 You testified earlier as to the number of users, It's in the record. That's a hybrid product, right, as far as you understand? A Yes. Hybrid being some elements of assisted and some 118 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 119 of 124 1 elements of DIY, yes. 2 Q 3 a success, right? 4 A 5 seen any evidence at least that I know of that they are planning 6 to discontinue the product. 7 using technology and other changes to continue to appeal to that 8 and to address that perceived consumer demand for products that 9 integrate both. For ten years Block's been trying to sell it without much of Well, I know that they're continuing the product. 10 Q 11 Doctor. 12 And they are looking for ways of I apologize for making noise in the middle of your answer, Just trying to get us moving along. If you'd look at Tab 29, Government Exhibit 629. 13 MR. WAYLAND: And this may be -- this is sealed so we 14 need to turn off -- it's off. 15 BY MR. WAYLAND: 16 Q If you would look at page 36. 17 A I'm sorry; which tab was it? 18 Q This is Tab 29. 19 direct your attention to page 36. 20 made. 21 the government in May 2011. 22 I haven't It's Government Exhibit 629. And I'd This is another submission This is the submission we looked at earlier submitted to And looking at the last full paragraph, it says, "The view 23 that prevailed for several years" -- and I'll skip ahead -- "was 24 that H&RB needed to deploy advanced, state-of-the-art, 25 best-in-class technology to support its digital products and 119 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 120 of 124 1 accomplish integration of HRB's digital and assisted tax 2 preparation business to facilitate hybrid digital/assisted 3 products and to promote customer migration from digital to 4 retail. 5 develop new technology, including a failed product called 6 'TANGO.'" 7 That view led to several expensive, failed efforts to I think that was a product you mentioned yesterday, right? 8 A No. 9 Q Oh, if you didn't, I'm sorry. 10 11 I don't recall mentioning that. "And an abandoned effort to implement a technology called 'Silver Light' into the existing online product," correct? 12 MR. ROBERTSON: May we have the document that's 13 confidential. Just because we don't have it on the screen, 14 doesn't mean that he can read it into the record. 15 MR. WAYLAND: 16 THE COURT: He may be right. Thank you, Mr. Robertson, for raising that. 17 I thought he was reading a portion that has been cleared as 18 releasable. 19 MR. WAYLAND: And I apologize. 20 that. 21 think there's any mystery. I should have just brought her attention to it. 22 MR. ROBERTSON: 23 MR. WAYLAND: 24 25 I shouldn't have read I don't It's a little late now. Actually, I'm told by my side that this page was actually cleared in advance so we're okay. THE COURT: Mr. Robertson, is that consistent with your 120 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 121 of 124 1 view? 2 MR. ROUSH: It's not consistent. 3 THE COURT: Okay. So there seems to be a dispute about 4 whether it was cleared or not so we're not displaying it on the 5 screen. You will stop reading from it. 6 MR. ROBERTSON: 7 MR. WAYLAND: 8 BY MR. WAYLAND: 9 Q Thank you, your Honor. Thank you, your Honor. Now, with respect to the "Best of Both," do you recall 10 Mr. Bennett's -- did you look at Mr. Bennett's testimony from 11 September 6th in the trial? 12 A I did. 13 Q And do you recall that he testified with respect to "Best of 14 Both," that it had very high costs, even higher costs and had 15 poor financial results? 16 Do you remember that? 17 A I don't recall that specific testimony. 18 Q All right. 19 yesterday was something called "Second Look"? 20 A Yes. 21 Q And this is a product that's aimed at attracting customers 22 by promising to find errors made by other preparers, right? 23 A 24 limited to other preparers. 25 that phrase comes from. Another product I think you talked about I'm not sure if it promises to find errors, and it's not I'm not sure if that's -- where 121 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 122 of 124 1 Q All right. And your understanding of -- that you think it 2 was targeted at digital customers? 3 A 4 because a tax filer -- a taxpayer -- could take either a 5 pen-and-paper tax return into the HRB store, they could take a 6 tax return done by another digital DIY software program in, they 7 could take a tax return that was done by another preparer in and 8 any of those could be -- you know, could go through the 9 second-look process, if you will. I said it was targeted at all tax preparation customers 10 Q 11 Exhibit 1357. 12 A Just to clarify, Tab 59? 13 Q Tab 59, yes. 14 A Okay. 15 Q And this begins, Dr. Meyer, with an e-mail, and then it has 16 an attachment. 17 All right. Let's look at Tab 59. This is Government And this is the ad for 2nd Story. "We found errors in 2 out of 3 Jackson Hewitt tax returns." 18 That seems to be -- what's Jackson Hewitt; do you know? 19 A 20 services. 21 Q All right. 22 A They may also have a digital product. 23 moment. Jackson Hewitt is a provider of assisted tax preparation 24 25 MR. WAYLAND: area. I can't recall at the Your Honor, I am about to move into a new It involves efficiencies, and then the next area would be 122 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 123 of 124 1 the entry and expansion which deals with confidential 2 information from third parties. 3 maybe a little bit longer, maybe 40 minutes at most, but it is 4 new. 5 6 7 8 9 10 11 It's probably half hour or so, If we're going to stop at 1:00, we should probably finish up when we next meet and then we can do their redirect. THE COURT: All right. So we are going to stop for the day and resume Thursday morning at 9:30. MR. WAYLAND: THE COURT: Thank you very much, your Honor. Thank you. (Proceedings adjourned at 12:53 p.m.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 123 Case 1:11-cv-00948-BAH Document 131 Filed 12/27/11 Page 124 of 124 1 CERTIFICATE OF OFFICIAL COURT REPORTER 2 3 I, Lisa S. Schwam, certify that the foregoing is a 4 correct transcript from the record of proceedings in the 5 above-entitled matter. 6 7 8 9 10 _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ SIGNATURE OF COURT REPORTER DATE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 124