"The Apple iPod iTunes Anti-Trust Litigation"

Filing 267

Transcript of Proceedings held on 10/05/09, before Judge Ware. Court Reporter/Transcriber Irene L. Rodriguez, Telephone number (408)947-8160. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Redaction Request due 11/2/2009. Redacted Transcript Deadline set for 11/10/2009. Release of Transcript Restriction set for 1/8/2010. (Rodriguez, Irene) (Filed on 10/13/2009)

"The Apple iPod iTunes Anti-Trust Litigation" Doc. 267 Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 ___ ___ ___ ___ ___ ___ ___ __ 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "T H E A P P L E IPOD ITUNES ANTITRUST LITIGATION" . ) ) ) ) ) ) ) ) Filed10/13/09 Page1 of 36 I N THE UNITED STATES DISTRICT COURT FOR T H E N O R T H E R N D I S T R I C T O F CALIFORNIA SAN JOSE DIVISION C -05 -00037 -JW OCTOBER 5, 2009 P A G E S 1 - 37 THE PROCEEDINGS WERE HELD BEFORE THE HONORABLE U N I T E D STATES DISTRICT JUDGE JAMES WARE A P P E A R A N C E S: FOR THE PLAINTIFFS: COUGHLIN, STOIA , GELLER, RUDMAN & ROBBINS BY: B O N N Y SWEENEY THOMAS R. MERRICK 655 WEST BROADWAY SUITE 1900 SAN DIEGO , CALIFORNIA 92101 F O R T H E DEFENDANTS: JONES DAY BY: R O B E R T A. MITTELSTAEDT 555 CALIFORNIA STREET 26T H F L O O R SAN FRANCISCO, CALIFORNIA 9 4 1 0 4 OFFICIAL COURT REPORTER : I R E N E RODRIGUEZ, C S R, CRR CERTIFICATE NUMBER 8074 1 U.S. COURT REPORTERS Dockets.Justia.com Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AFTERNOON. APPLE . T H E COURT: SAN JOSE , CALIFORNIA Filed10/13/09 Page2 of 36 OCTOBER 5 , 2009 PROCEEDINGS ( WHEREUPON , C O U R T C O N V E N E D A N D THE FOLLOWING PROCEEDINGS WERE HELD: ) T H E CLERK: CALLING CASE NUMBER 05 -00 37, THE APPLE IPOD ITUNES ANTITRUST LITIGATION. TWENTY MINUTES EACH SIDE. COUNSEL , PLEASE COME FORWARD AND STATE YOUR APPEARANCES. M S. SWEENEY: GOOD MORNING, YOUR H O N O R. BONNY SWEENEY FOR T H E PLAINTIFFS FROM COUGHLIN, STOIA , G E L L E R, R U D M A N & ROBBINS AND WITH ME IS TOM MERRICK FROM COUGHLIN, STOIA. M R. MITTELSTAEDT : GOOD MORNING OR B O B MITTELSTAEDT FOR T H E DEFENDANT VERY WELL. M R. MITTELSTAEDT , THIS IS YOUR C L I E N T' S M O T I O N? M R. MITTELSTAEDT : YES , YOUR HONOR . T H E CLAIM IN THIS CASE , YOUR HONOR , BOTH F O R T H E BENEFIT O F T H E COURT AND T H E F U T U R E LAWYERS IN T H E A U D I E N C E I S A CLAIM THAT APPLE' S IPOD H A S A N ENHANCED UTILITY, AS YOUR HONOR DESCRIBED IT EARLIER, IN WORKING WITH M U S I C A N D VIDEOS SOLD FROM APPLE 'S ITUNES STORE . 2 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page3 of 36 THE PLAINTIFFS SAY THAT THAT ENHANCED ABILITY TO PLAY I T U N E S MUSIC CONSTITUTES A SECTION 1 TYING VIOLATION , SECTION 1 OF THE SHERMAN ACT , A N D ALSO CONSTITUTES MONOPOLIZATION OR ATTEMPTED MONOPOLIZATION UNDER SECTION 2 O F T H E SHERMAN A C T. N O W, T H E LAST TIME AROUND YOUR HONOR RULED THAT THE TYING CLAIM UNDER SECTION 1 WHEN ANALYZED UNDER T H E P E R SE TEST W A S INVALID A S A MATTER O F LAW BECAUSE IPODS AND ITUNES MUSIC AND VIDEO ARE SEPARATELY AVAILABLE. A N D BECAUSE T H O S E T W O PRODUCTS ARE SEPARATELY AVAILABLE , T H E PLAINTIFFS F A I L E D TO SATISFY THE THRESHOLD TEST F O R T Y I N G C L A I M S, THAT TEST BEING THAT T H E R E I S C O E R C I O N T O B U Y ONE PRODUCT WHEN Y O U BUY T H E O T H E R O R SOME C O U R T S S A Y THAT THE SALE OF ONE PRODUCT IS CONDITIONED ON THE PURCHASE OF T H E O T H E R. THE ISSUE BEFORE THE COURT TODAY I S WHETHER THAT SAME ANALYSIS APPLIES TO THE TYING CLAIM WHEN JUDGED UNDER T H E RULE OF R E A S O N. A N D THIS I S T H E MOTION THAT THE COURT INVITED WHEN I T RULED O N THE PREVIOUS MOTION . A S W E S E T FORTH IN OUR M O T I O N, THE SAME ANALYSIS DOES APPLY, A N D I WANT TO JUST SUMMARIZE BRIEFLY THE THREE REASONS FOR THAT. 3 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page4 of 36 T H E BASIC ISSUE HERE, YOUR H O N O R, IS WHETHER THE THRESHOLD ELEMENT OF COERCION , O R A CONDITIONED SALE, THAT THE SALE OF ONE PRODUCT IS CONDITIONED ON T H E P U R C H A S E O F ANOTHER , I S THAT THRESHOLD R E Q U I R E M E N T, DOES I T VARY FROM A P E R SE TEST TO A RULE OF R E A S O N TEST ? A N D THE SHORT A N S W E R I S THAT IT DOESN 'T. T H E F I R S T STEP IN A N Y T Y I N G C L A I M, WHATEVER TEST IT 'S ANALYZED UNDER, IS WHETHER THERE' S A CONDITIONED SALE. I F T H E R E'S NO CONDITIONED SALE, THAT IS, IF T H E P R O D U C T S A R E SEPARATELY AVAILABLE, THAT IS T H E E N D OF THE INQUIRY. T H E R E'S NO TYING CLAIM . I T'S ONLY IF THERE' S A CONDITIONED SALE THAT THEN THE LAWFULNESS O F THAT CONDITIONED SALE IS DETERMINED BY ONE OR ANOTHER TEST. A N D THE C O U R T S HAVE FOUND THAT IF THERE' S M A R K E T P O W E R A N D THERE' S A N A P P R E C I A B L E A M O U N T OF COMMERCE THAT IS AFFECTED THEN I T'S P E R S E UNLAWFUL , U N D E R T H E PER SE TEST. B U T IF THERE' S N O M A R K E T POWER, THEN THE RULE IS UNDER THE R E A S O N TEST A N D T H E COURT WEIGHS T H E C O M P E T I T I V E A N D ANTICOMPETITIVE PURPOSES OR T H E EFFECTS OF THE CONDITIONED SALE. B U T THE K E Y P O I N T I S THAT -4 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E COURT: Filed10/13/09 Page5 of 36 THAT LAST I S THAT RIGHT ? O N E - - I 'VE BEEN FOLLOWING Y O U U P U N T I L N O W. M R. MITTELSTAEDT : T H E COURT: OKAY. A N D SO IF THERE IS NO MARKET POWER THEN YOU U S E T H E RULE O F R E A S O N? M R. MITTELSTAEDT : THE C O U R T S'S DECISIONS - - I 'M NOT REFERRING T O THIS COURT 'S DECISIONS, BUT T H E C O U R T'S DECISIONS GENERALLY ARE UNCLEAR ON THE E X T E N T O F M A R K E T POWER THAT I S N E E D E D E I T H E R FOR T H E P E R SE TEST O R T H E RULE O F REASON TEST . A N D INDEED IN T H E HONEYWELL CASE THAT WE CITED IN O U R M O T I O N, T H E C O U R T F O U N D THAT T H E T W O TESTS HAVE REALLY MERGED. BECAUSE IN SOME OTHER AREAS OF ANTITRUST L A WS THE P E R S E TEST IS VERY STRINGENT , A N D YOU D O N'T INQUIRE INTO A N Y T H I N G. Y O U JUST INQUIRE AS TO WHETHER THERE WAS AN AGREEMENT T O F I X PRICES , FOR EXAMPLE . A N D WITH A N AGREEMENT TO FIX P R I C E S THAT' S P E R SE UNLAWFUL, REGARDLESS OF MARKET POWER OR ANYTHING ELSE. B U T AS THE P E R S E TEST H A S DEVELOPED IN THE TYING AREA , THE COURTS PERMIT THE DEFENDANTS T O OFFER JUSTIFICATIONS , B U S I N E S S JUSTIFICATIONS, FOR 5 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page6 of 36 EXAMPLE, A N D S O T H E HONEYWELL CASE SAYS THAT THOSE TWO TESTS HAVE ESSENTIALLY MERGED. THAT 'S A FURTHER R E A S O N B Y T H E WAY F O R GRANTING THIS MOTION THAT THERE' S VERY LITTLE DIFFERENCE BETWEEN T H E RULE O F R E A S O N AND P E R S E TEST AS TO THE ELEMENTS ONCE YOU G E T B E Y O N D A CONDITIONED SALE. B U T TO THE E X T E N T THAT THERE 'S A DIFFERENCE IN THE P E R S E A N D RULE O F R E A S O N TEST I N DETERMINING T H E LEGALITY O F A CONDITIONED SALE, THEY BOTH D E P E N D ON THIS THRESHOLD SHOWING O F A CONDITIONED SALE. T H E COURT: N O W, T H E CASE THAT YOU CITED T H E LAST TIME AND T H E O N E THAT I KEPT GOING BACK T O HERE IS THIS F O R E M O S T A N D KODAK CASE. K O D A K CAME O U T WITH T H E 1 10 CAMERA . THE FILM, T H E P A P E R, THE CHEMICALS WERE DIFFERENT THAN H A D BEEN PREVIOUSLY ON THE M A R K E T. HAVE TO BUY A L L O F T H O S E S U P P L I E S. COERCION . B U T IN ORDER TO EFFECTIVELY USE T H E C A M E R A Y O U HAD TO B U Y FILM , A N D THE FILM ONLY F I T THAT CAMERA . AND IN ORDER TO S E E T H E -- THIS W A S Y O U D I D NOT THERE WAS N O W A Y B E F O R E DIGITAL P H O T O G R A P H Y, OF COURSE . B E F O R E YOU COULD ACTUALLY S E E T H E RESULT 6 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page7 of 36 OF YOUR TAKING PHOTOGRAPHS , Y O U HAD TO GO THROUGH THIS DEVELOPMENT PROCESS THAT ALSO WERE SUPPLIES THAT YOU COULD ONLY GET FROM KODAK. W H Y ISN 'T THAT LIKE THIS? M R. MITTELSTAEDT : WELL, IN THAT CASE -- I MEAN, I T H I N K THIS IS A CASE W H E R E T H E R E I S EVEN LESS COERCION BECAUSE I THINK AS A MATTER OF R E C O R D THAT THE IPOD WILL WORK WITHOUT ITUNES MUSIC . IT WILL WORK T O PLAY YOUR CD COLLECTION, FOR EXAMPLE. IT WILL WORK T O PLAY MUSIC THAT YOU HAVE BURNED A N D RIPPED. L I K E W I S E I T U N E S MUSIC WILL PLAY ON DEVICES OTHER THAN A N IPOD . COMPUTER , FOR EXAMPLE. IT WILL PLAY ON A A N D I F Y O U BURN I T T O A CD IT WILL PLAY O N A C A R R A D I O. S O U N L I K E THE FILM AND T H E C A M E R A IN THE FOREMOST CASE -- AND IN THAT CASE, AS I R E C A L L IT, YOUR HONOR, Y O U H A D TO USE T H E FILM IN T H E C A M E R A. IT W O U L D N'T WORK WITH SOME OTHER FILM. S O WHAT T H E C O U R T F O U N D I N THAT CASE -A N D I 'M READING FROM 54 2. "I N T H E ABSENCE O F A N ALLEGATION THAT T H E PUR C H A S E OF THE ALLEGED TIED PRODUCTS W A S R E Q U I R E D A S A CONDITION O F SALE OF T H E ALLEGED TYING PRODUCTS, " S O I N THE ABSENCE O F A N ALLEGATION THAT O N E WAS CONDITIONED ON T H E O T H E R, 7 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page8 of 36 "RATHER THAN A S A PREREQUISITE T O T H E PRACTICAL A N D EFFECTIVE U S E OF THE TYING PRODUCTS , F O R E M O S T COMPLAINED IT FAILED TO PLEAD T H E C O E R C I O N ESSENTIAL T O A PER S E UNLAWFUL TYING ARRANGEMENT. A N D IF THAT'S TRUE IN THAT CASE WHERE Y O U N E E D E D T O U S E THE T W O A S A PRACTICAL A N D EFFECTIVE MEANS , HERE Y O U D O N' T NEED TO DO THAT. T H E COURT: B U T THAT'S WHERE I START OUT . I N O T H E R W O R D S, THAT CASE SAID, A N D I AGREE WITH YOU , THEY HELD THAT T H E R E W A S NO PER SE VIOLATION BECAUSE THERE WAS N O COERCION BECAUSE YOU DIDN' T HAVE TO B U Y A L L OF THOSE THINGS . JUST COMPATIBLE. THEY WERE TECHNOLOGICALLY TIED AS THE LANGUAGE IN T H E CASE SUGGESTS B U T T H E COURT THERE LEFT OPEN T H E POSSIBILITY OF A RULE OF R E A S O N ANALYSIS . A N D SO THAT BECOMES T H E I S S U E. WHY WOULD THEY WERE T H E C O U R T L E A V E OPEN RULE OF REASON WITHOUT A COERCIVE RELATIONSHIP U N L E S S RULE O F R E A S O N WAS AVAILABLE B A S E D O N A N O NCOERCIVE RELATIONSHIP? N O W, IT COULD BE THAT THE COURT JUST LEFT IT OPEN BECAUSE SOMETIMES I S A Y I'M N O T G O I N G T O ADDRESS IT AND IT 'S NOT BECAUSE I THOUGHT ABOUT IT A N D I THINK IT H A S VIABILITY BUT IT 'S JUST I 8 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HAVEN 'T ADDRESSED IT . Filed10/13/09 Page9 of 36 B U T OTHER TIMES THE C O U R T S S A Y ALTHOUGH -- BECAUSE THERE' S L A N G U A G E I N T H E CASES THAT I F A L L O F T H E ELEMENTS ARE N O T AVAILABLE FOR A PER SE VIOLATION, YOU NEVERTHELESS C A N STATE A RULE OF REASONS. WELL , WHAT ELEMENTS A R E T H E R E? A N D SO THE CASES D O N'T S A Y - - A T L E A S T I HAVEN 'T READ A CASE THAT SAYS THAT IF THERE IS NO COERCIVE T I E, YOU C A N'T DO A RULE O F R E A S O N ANALYSIS A N D THAT SEEMS TO ME WHAT I NEED TO FIND IN ORDER TO GO YOUR WAY ON THIS MOTION . M R. MITTELSTAEDT : OKAY. AND I THINK I FIRST OF C A N PROVIDE THAT IN THIS W A Y, YOUR HONOR: A L L, I A G R E E THAT IF IN FOREMOST P R O T H E COURT HAD SAID THAT T H E R E I S N O C O E R C I O N, THE PLAINTIFFS D O N'T SATISFY COERCION FOR T H E P E R SE TEST A N D NOW WE 'RE GOING TO GO ON TO S E E I F THEY SATISFY SOME L E S S E R SHOWING OF COERCION F O R A RULE OF REASON , THAT WOULD BE ONE THING . B U T THE COURT DIDN' T D O THAT . AND T H E R E A S O N I T DIDN 'T DO THAT I S THAT IT W A S N O T SUGGESTING THAT T H E R E W A S A DIFFERENT STANDARD FOR COERCION . IT SAID, AND THIS IS AT 542 -- 54 1, SO A "F O REMOST H A S N O T CHALLENGED T H E 9 PAGE BEFORE . U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INTERRUPT. Filed10/13/09 Page10 of 36 ALLEGED TYING ARRANGEMENT UNDER THE RULE OF REASON." S O T H E DISPOSITIVE QUESTION IS WAS IT A PER S E VIOLATION? S O THAT 'S JUST LIKE A N Y CASE WHERE YOUR HONOR SAYS, I FIND THAT T H E F A C T S D O N' T SATISFY WHAT THE PLAINTIFFS HAVE ALLEGED . T H E R E'S NO IMPLICATION OR SUGGESTION THERE THAT IT WOULD BE DIFFERENT IF THEY HAD ALLEGED SOMETHING ELSE. T H E COURT: WELL , D O Y O U -- LET ME D O YOU HAVE A CASE WHICH SAYS EXPLICITLY THAT THE LACK OF A C O E R C I V E T I E AND WHERE T H E RESTRICTED CONDUCT I S T Y I N G, OR THE LACK OF A COERCIVE T I E D E P R I V E S T H E PLAINTIFF OF T H E ABILITY TO STATE A SECTION 1 CLAIM UNDER T H E RULE OF REASON? M R. MITTELSTAEDT : T H E COURT: YES . GIVE ME THAT CASE. I HAVE T W O C A S E S. ONE M R. MITTELSTAEDT : MORE EXPLICIT THAN T H E OTHER. T H E COURT: I 'LL TAKE TWO . THE FIRST O N E I S AND 10 M R. MITTELSTAEDT : NORTHERN PACIFIC, T H E SUPREME COURT CASE. U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page11 of 36 THAT' S T H E CASE THAT IS CITED IN T H E C O U R T'S -YOUR HONOR' S P R E V I O U S D E C I S I O N, AND IT SAYS "WHERE T H E B U Y E R I S FREE TO TAKE EITHER PRODUCT BY ITSELF , THERE IS NO TYING PROBLEM. " T H E COURT: AGREE WITH THAT. I N O T H E R W O R D S, THAT'S JUST THE GENERAL STATEMENT THAT THERE 'S NO TIE IF T H E P R O D U C T S A R E N O T TIED , B U T THAT D O E S N'T STATE , A S I INVITED Y O U GIVE ME A CASE THAT SAID IF THERE IS NO TIE , THEN YOU C A N'T ANALYZE A SECTION 1 CLAIM UNDER THE RULE OF REASON . M R. MITTELSTAEDT : I'L L GIVE Y O U T H E I KNOW THAT L A N G U A G E, AND I S E C O N D CASE , B U T I'M GOING TO COME BACK T O THAT O N E BECAUSE I T H I N K I T'S PRETTY GOOD . T H E COURT: A L L RIGHT. THE S E C O N D O N E IS M R. MITTELSTAEDT : ADVANCED COMPUTER , A N D THAT'S CITED IN O U R B R I E F. IT 'S 845 F. SUPP 3 56. A N D THERE THE COURT SAYS, A N D I T'S SUMMARIZING ITS DISCUSSION , BECAUSE PLAINTIFFS C A N N O T SHOW THAT THE LICENSING O F T H E SOFTWARE AT ISSUE THERE W A S EXPRESSLY OR IMPLICITLY C O N D I T I O N E D UPON THE PURCHASE OF T H E C O M P U T E R EQUIPMENT SERVICING A T I S S U E T H E R E, THEY F A I L E D TO RAISE A 11 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WHAT PAGE? M R. MITTELSTAEDT : T H E COURT: Filed10/13/09 Page12 of 36 GENUINE ISSUE OF MATERIAL FACT REGARDING THE PRESENCE OF A TYING ARRANGEMENT. ACCORDINGLY, PLAINTIFFS CANNOT MAINTAIN A P E R S E O R A RULE OF REASON TYING CLAIM . T H E COURT: THAT LANGUAGE. S O W H E R E A M I GOING TO FIND THAT? ON A H. I DIDN'T S E E THAT CASE, PAGE 3 69. NEXT . A L L RIGHT. M R. MITTELSTAEDT : AND , YOUR HONOR , T H O S E A R E T H E -- OR THAT I S T H E EXPLICIT REFERENCE THAT WE HAVE BEEN ABLE TO FIND. B U T IT STANDS TO R E A S O N BECAUSE ALL OF T H E C A S E S D E S C R I B E T H E COERCION ELEMENT AS THE THRESHOLD ELEMENT IN T H E SAME TERMS . A N D THERE JUST I S N' T A COURT THAT SAYS THAT THE TEST IS DIFFERENT DEPENDING O N WHETHER Y O U APPLY RULE OF REASON OR P E R S E. T H E COURT: L E T ME INTERRUPT . IF THAT CASE DOES BEAR Y O U O U T, AT LEAST A N D THAT 'S A DISTRICT COURT CASE, B U T THAT HELPS . L E T ME HEAR FROM YOUR OPPONENT. JUST ONE MOMENT. ( PAUSE IN PROCEEDINGS. ) G O A H E A D, COUNSEL. 12 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 M S. SWEENEY: Filed10/13/09 Page13 of 36 FIRST I' D LIKE TO TALK A A P P L E'S L I T T L E B I T ABOUT THE COERCION ELEMENT. COUNSEL HAS SAID THAT T H E PLAINTIFF 'S COUNSEL H A S N O T PLEADED COERCION HERE. A N D AS YOUR H O N O R WILL R E C A L L FROM A L L O F T H E BRIEFING AND ARGUMENT THAT H A S P R E C E D E D THIS O N E, THE QUESTION IS WHETHER THE KIND OF IMPLICIT COERCION THAT T H E PLAINTIFFS HAVE ALLEGED IS SUFFICIENT F O R A RULE OF R E A S O N T Y I N G CLAIM , A N D WE CONTEND I T I S. A N D WHEN I S A Y " IMPLICIT, " I 'M REFERRING TO T H E FACT THAT A C O N S U M E R C A N BUY I T U N E S M U S I C AND U P UNTIL RECENTLY COULD NOT DIRECTLY PLAY BACK THAT MUSIC ONTO A N Y PORTABLE DEVICE OTHER THAN AN IPOD DEVICE . WHEREAS T H E CONDITIONING IS NOT EXPRESSED IN T H E S E N S E THAT APPLE DIDN' T P L A C E C O N T R A C T U A L RESTRICTIONS O N T H E CONSUMER AT THE TIME OF PURCHASE , I T I S NONETHELESS THE KIND O F IMPLICIT COERCION THAT HAS BEEN RECOGNIZED B Y O T H E R C A S E S. A N D YOUR H O N O R I S VERY FAMILIAR WITH THE MOORE CASE FROM THE NINTH CIRCUIT WHICH HELD THAT IMPLICIT COERCION CAN SATISFY THE REQUIREMENT FOR A TYING CLAIM WHERE AN APPRECIABLE N U M B E R O F B U Y E R S HAVE BEEN F O R C E D TO ACCEPT A BURDENSOME C O N T R A C T U A L RESTRICTION OR OTHER KIND OF RESTRICTION. 13 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page14 of 36 A N D IN ADDITION, T H E N O R T H E R N PACIFIC CASE WHICH APPLE' S COUNSEL RELIED O N A N D YOUR H O N O R CITED IN T H E O R D E R ALSO S T A N D S F O R THE PROPOSITION THAT, THAT COERCION NEED N O T IN EVERY CASE B E EXPRESSED I N O R D E R T O SATISFY A TYING CLAIM. THE NORTHERN PACIFIC CASE SAYS THAT A TYING ARRANGEMENT M A Y B E D E N I E D AS AN AGREEMENT BY A PARTY TO SELL O N E PRODUCT B U T ONLY O N T H E CONDITION THAT THE BUYER ALSO PURCHASE A DIFFERENT PRODUCT OR AT LEAST IT REQUIRES THAT H E, THAT H E WILL NOT PURCHASE THAT PRODUCT, THAT I S T H E SECOND PRODUCT, FROM ANY OTHER SUPPLIER . A N D THAT'S T H E KIND OF IMPLICIT COERCION THAT PLAINTIFFS A R E ALLEGING IN THIS CASE . BECAUSE ONCE A CONSUMER HAS PURCHASED I T U N E S M U S I C, AND IT C A N N O T THEN PORTABLY PLAY THOSE SONGS ON A N Y O T H E R D E V I C E BESIDES A N IPOD , THAT CONSUMER IS LOCKED IN . T H E COURT: N O W, THIS IS A M O T I O N FOR JUDGMENT ON T H E PLEADINGS? M S. SWEENEY: T H E COURT: RIGHT . A N D I'V E T R I E D T O A D H E R E TO T H E RULE THAT I HAVE TO A C C E P T YOUR ALLEGATIONS AS TRUE BECAUSE Y O U' RE THE N O NM O V I N G P A R T Y. AND TO T H E E X T E N T THAT I HAVE ALLEGATIONS ON THE OTHER 14 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HONOR . Filed10/13/09 Page15 of 36 SIDE, I HAVE T O C O N S I D E R THAT THEY ARE UNDISPUTED. B U T THERE ARE A BUNCH OF ALLEGATIONS BETWEEN THE T W O S I D E S THAT A R E N O T DISPUTED. Y O U DON 'T DISPUTE THEN THAT THESE PRODUCTS A R E SOLD SEPARATELY AND THAT IN THE TERMS OF PURCHASE OF O N E, THERE' S N O R E Q U I R E M E N T THAT Y O U PURCHASE T H E O T H E R? M S. SWEENEY: T H E COURT: THAT' S CORRECT , YOUR HONOR . A N D IT IS UNDISPUTED THAT IPODS WERE ON THE M A R K E T LONG B E F O R E T H E R E EVER W A S AN I T U N E S? M S. SWEENEY: THEY WERE O N THE MARKET FOR APPROXIMATELY 18 MONTHS B E F O R E I T U N E S. T H E COURT: EIGHTEEN MONTHS? I THOUGHT IT W A S L O N G E R, B U T L E T' S A S S U M E IT WAS 18 M O N T H S. THAT' S S T I L L A CONSIDERABLE P E R I O D OF TIME WHEN Y O U HAVE AN IPOD A N D IT HAS A FUNCTION, IT H A S A U S E THAT IS INDEPENDENT OF BUYING ON -LINE MUSIC. M S. SWEENEY: THAT' S A GOOD POINT, YOUR AND I WOULD LIKE T O D I R E C T YOUR H O N O R'S ATTENTION T O UNITED STATES VERSUS MICROSOFT, THE S E C O N D CIRCUIT DECISION WHICH IS T H E ONLY COURT OF A P P E A L D E C I S I O N O R R E A L L Y ANY DECISION THAT I'M AWARE OF WHERE A COURT ACTUALLY WENT THROUGH A DETAILED ANALYSIS OF A TYING CLAIM AND SAID THAT 15 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page16 of 36 THIS IS A TECHNOLOGICAL T I E, THIS I S O N E WHERE THE RULE OF REASON AS OPPOSED TO THE P E R S E RULE OUGHT TO APPLY . N O W, IN THAT CASE T H E UNITED S T A T E S GOVERNMENT AND T H E S T A T E S ALLEGED THAT MICROSOFT - THERE WERE A N U M B E R OF CLAIMS IN T H E CASE . THERE W A S A MONOPOLIZATION CLAIM , A N D THERE WAS ALSO A TYING CLAIM . A N D THE GOVERNMENT ALLEGED THAT MICROSOFT - - T H E TYING PRODUCT I N THAT CASE WAS WINDOWS, THE WINDOWS OPERATING SYSTEM. A N D MICROSOFT TIED TO WINDOWS T H E BROWSER OR INTERNET EXPLORER WHICH MANY VIEWED AS AN INFERIOR PRODUCT TO ITS COMPETITORS SUCH AS NETSCAPE . A N D IN THAT CASE , YOUR HONOR , T H E WINDOWS OPERATING S Y S T E M AND T H E BROWSER WERE ALWAYS AVAILABLE SEPARATELY . PURPOSES . MANY PEOPLE ONLY BOUGHT THE WINDOWS OPERATING S Y S T E M AND DIDN' T B U Y THE BROWSER AND VICE VERSA. A N D IN THAT CASE WHICH APPLE TRIED TO THEY WERE USED FOR SEPARATE DISTINGUISH ON T H E GROUNDS THAT THERE WAS EXPRESSED CONDITIONING. THAT EXPRESSED CONDITIONING ONLY APPLIED TO A PORTION OF T H E M A R K E T. 16 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "A N D. " Filed10/13/09 Page17 of 36 S O W E H A D CONTRACTUAL RESTRICTIONS IN T H E CONTRACTS BETWEEN MICROSOFT A N D ITS OE M'S . THOSE RESTRICTIONS PROHIBITED T H E O EM' S FROM ALLOWING T H E USER TO S E E A N Y POTENTIAL BROWSERS OTHER THAN INTERNET EXPLORER AND IT ALSO -T H E COURT: WELL , JUST ON T H E T Y I N G SIDE AND OF THAT -- THERE' S A DIFFERENCE IN TECHNOLOGICAL TIES WHERE TWO PRODUCTS A R E INTEGRATED AS O N E. THAT CASE INVOLVED A CIRCUMSTANCE WHERE WHEN YOU B O U G H T WINDOWS , Y O U ALREADY H A D TO BUY T H E EXPLORER , THE BROWSER. IT W A S ALSO INTEGRATED W I T H I N T H E PRODUCT, WASN'T IT ? M S. SWEENEY: Y O U BOUGHT -T H E COURT: M S. SWEENEY: I S THAT TRUE? NO , N O T FOR EVERY U S E O F I E WELL, THAT' S ONLY TRUE IF OR F O R WINDOWS , YOUR HONOR . T H E COURT: WASN 'T THAT A CASE WHERE THE ARGUMENT THERE W A S A R E A S O N T O INTEGRATE THE PRODUCTS A N D THEY WERE PROPERLY SOLD A S O N E? M S. SWEENEY: AND THAT ARGUMENT WAS REJECTED BY T H E D I S T R I C T C O U R T A N D THE COURT OF APPEALS. T H E COURT: A N D I LIKE WHEN PEOPLE GO IS IT YES OR NO , I S THAT T H E ALLEGATION ? 17 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 M S. SWEENEY: Filed10/13/09 Page18 of 36 THAT WAS MICROSOFT'S DEFENSE, ONE O F ITS DEFENSES. T H E COURT: B U T THIS I S DIFFERENT IN THE SENSE THAT YOU C A N G O T O A STORE A N D B U Y AN IPOD A N D N E V E R SUBSCRIBE TO ITUNES ; CORRECT ? M S. SWEENEY: B U T THAT W A S ALSO TRUE IN T H E CASE OF WINDOWS, YOUR HONOR. T H E COURT: M S. SWEENEY: T H E COURT: I S THAT CORRECT? THAT IS CORRECT. A ND YOU C A N G O T O I T U N E S AND Y E S OR NO? DOWNLOAD MUSIC A N D PLAY IT A N D I T WILL PLAY FUNCTION ALLY WELL WITHOUT EVER B U Y I N G AN IPOD; CORRECT? M S. SWEENEY: T H E COURT: THAT' S CORRECT . S O I S N' T T H E TECHNOLOGICAL T I E I N V O L V E D HERE , I T I S TRUE THAT TO DIRECTLY DOWNLOAD INTO A PORTABLE PLAYER, A PORTABLE DIGITAL P L A Y E R, IT WILL ONLY PORT DIRECTLY INTO A N IPOD , B U T Y O U CAN THROUGH A S E R I E S OF STEPS PLAY I T O N A PORTABLE PLAYING, Y O U JUST C A N'T DO IT DIRECTLY ; CORRECT? M S. SWEENEY: JUST AS I A S A COMPUTER USER COULD HAVE GONE OUT AND PURCHASED WINDOWS OPERATING S Y S T E M AND NEVER H A D A N Y INTEREST IN MICROSOFT'S BROWSER PRODUCT. A N D I DIDN' T HAVE TO 18 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 B U Y I T. T H E COURT: THAT CORRECT? Filed10/13/09 Page19 of 36 WELL , I 'M JUST S A Y I N G; IS A N D I F THAT IS CORRECT, THEN THE QUESTION BECOMES IS IT A VIOLATION TO MAKE I T MORE CONVENIENT OR TO GET AN OPTIMUM BENEFIT BETWEEN T W O PRODUCTS TO T I E THEM SO THAT THEY A R E COMPATIBLE? A N D THAT 'S WHY I' VE BEEN LOOKING AT THESE CASES SUCH AS FOREMOST BECAUSE T H E R E AREN 'T A L O T OF TECHNOLOGICAL CASES OUT THERE WHERE T W O P R O D U C T S ARE MADE COMPATIBLE. I S T H E R E A CASE WHERE THE COURT H A S HELD THAT TWO PRODUCTS THAT ARE SOLD SEPARATELY B U T WHICH ARE MADE TECHNOLOGICALLY COMPATIBLE HAVE BEEN HELD TO BE A T I E? M S. SWEENEY: THE FOREMOST CASE I THINK AS YOUR HONOR POINTED O U T PROVIDES THE CLOSEST EXAMPLE. A N D IN THAT CASE T H E C O U R T R E J E C T E D T H E PLAINTIFF'S C L A I M S, AND I THINK THAT CASE IS VERY ILLUSTRATIVE O F W H Y PLAINTIFFS' CLAIMS IN THIS CASE ARE SUFFICIENT . N O W, IN THAT CASE K O D A K MANUFACTURED THE 11 0 C A M E R A AND IT CAME OUT WITH THE COMPLEMENTARY PRODUCTS , T H E FILM, ET CETERA , E T C E T E R A. A N D THE PLAINTIFF COMPLAINED THAT, G E E, 19 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page20 of 36 WE DIDN' T KNOW Y O U WERE GOING TO COME OUT WITH THIS PRODUCT. W E H A V E N'T H A D TIME TO PRODUCE OUR O W N VERSION OF COMPLEMENTARY P R O D U C T S. A N D THE COURT SAID, WELL, Y O U H A V E N'T ALLEGED ENOUGH F O R A P E R S E T I E. B U T I Q U E S T I O N WHETHER T H E PLAINTIFF IN THAT CASE EVEN H A D E N O U G H FOR A RULE O F R E A S O N TIE A N D HERE 'S WHY : AS THE COURT POINTED OUT , T H E FORECLOSURE IN T H E TIED PROVIDE MARKET , A N D ESPECIALLY WHEN Y O U' RE LOOKING A T A CASE OF RULE O F R E A S O N Y O U HAVE T O LOOK AT ANTICOMPETITIVE EFFECTS . Y O U HAVE TO LOOK AT THE TIED MARKET . F O RECLOSURE IN T H E TIED M A R K E T? A N D THE W A Y THAT KODAK ENGINEERED ITS N E W PRODUCT WITH I T S COMPLEMENTARY P R O D U C T S, THERE WAS NO REAL FORECLOSURE IN THE TIED PRODUCT M A R K E T. A L L Y O U HAD W A S A TIME LAG . A N D THE COURT SAID, A N Y S H O R T R U N ABSENCE OF COMPETITION IN T H E M A R K E T FOR T H E TECHNOLOGICALLY TIED PRODUCT COULD JUST A S LIKELY BE D U E T O T H E UNWILLINGNESS O R INABILITY OF COMPETITORS TO D E V O T E SUFFICIENT ECONOMIC RESOURCES TO MATCH T H E PACE OF TECHNOLOGICAL DEVELOPMENT SET BY T H E I N D U S T R Y'S L E A D E R. N O W, HERE WE DON 'T HAVE THAT SITUATION. 20 WAS THERE U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page21 of 36 WE D O N'T HAVE A SITUATION WHERE RIVAL MAKERS OF PORTABLE PLAYERS CAN GO O U T A N D MAKE A PRODUCT THAT WILL PLAY ITUNES DIRECTLY. A N D, IN FACT, APPLE , A N D THIS I S ALLEGED IN NUMEROUS ALLEGATIONS IN O U R COMPLAINT, APPLE DELIBERATELY D E S I G N E D I T S SYSTEM WITH THE PROPRIETARY FAIR PLAY D RM SO THAT I T S RIVALS IN T H E P L A Y E R M A R K E T COULDN 'T DO THAT. AND ONCE THOSE RIVALS, THOSE COMPETITORS OF APPLE IN T H E P L A Y E R MARKET D I D F I G U R E OUT A WAY THAT THEY COULD DIRECTLY PLAY ITUNES MUSIC O N ITS PLAYERS, WHAT DID APPLE DO ? THEY IMMEDIATELY ISSUED A SOFTWARE UPDATE AND KNOCKED THAT SYSTEM O U T. A N D THEY D I D I T A G A I N. T H E COURT: AND I LEFT OPEN YOUR MONOPOLY CLAIM BECAUSE I T H I N K THAT THAT MIGHT SPEAK TO THAT CLAIM , B U T EVEN A S Y O U DESCRIBE THE RULE OF REASON , Y O U EXPRESS IT IN TERMS OF AN APPRECIABLE -AFFECTING APPRECIABLE COMPETITION I N THE TIED PRODUCT MARKET . S O Y O U HAVE G O T TO HAVE A TIED PRODUCT B E F O R E Y O U ANALYZE I T U N D E R RULE OF R E A S O N. I F I FIND THAT T H E R E'S NO TIED PRODUCT, THAT' S T H E PROBLEM THAT I FACE. I HAVE FOUND I N M Y PREVIOUS ORDER THAT THERE WAS NO TYING BECAUSE 21 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page22 of 36 THERE IS NO TIED -- THERE' S N O T Y I N G PRODUCT , THERE 'S NO TIED PRODUCT . CONSUMERS CAN B U Y EACH INDEPENDENTLY AND THERE 'S NO COERCION. AND UNLESS I BACK OFF FROM THAT AND I NOW SAY I NOW RECOGNIZE THAT A TECHNOLOGICAL COMPATIBILITY IS A T I E, THEN I C A N' T G E T TO A RULE OF R E A S O N A N A L Y S I S. S O I WOULD HAVE TO -- YOU WOULD HAVE TO A S K M E T O S A Y FIND A T I E BECAUSE THAT' S T H E ONLY RESTRICTION THAT YOU 'RE ASSERTING I N T H E S E T W O CLAIMS. YOU CALL THEM TYING CLAIMS . I F I SAID THERE IS NO TIE , H O W DO I G E T TO A RULE O F R E A S O N ANALYSIS? I S T H E R E SUCH A THING AS A RULE OF R E A S O N ANALYSIS A N D A TYING CLAIM WITHOUT A T I E? M S. SWEENEY: T I E, YOUR H O N O R. TO DRAW: I THINK WE HAVE ALLEGED A A N D HERE 'S THE DISTINCTION I WANT W E A L L E G E AN IMPLICIT TIE . A N I M P L I C I T T I E, WHICH W A S RECOGNIZED BY T H E N I N T H CIRCUIT IN T H E M O O R E CASE A N D R E M E M B E R THAT WAS A CEMETERY CASE A N D WHERE THE CEMETERY O W N E R S TIED PURCHASE OF A PLOT A N D A M A R K E R BUT N O T IN EVERY CASE. THERE WERE I THINK SEVEN CEMETERIES A N D F O R THE 22 A N D ONLY FIVE OF THEM H A D THE T I E. U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page23 of 36 NINTH CIRCUIT THAT W A S ENOUGH BECAUSE AN APPRECIABLE N U M B E R O F B U Y E R S WERE F O R C E D TO BUY T H E MARKET. T H E COURT: THAT SAYS THAT THERE WAS I HAVE SAID THAT THERE I S ENOUGH TYING T O SATISFY . NO TYING . M S. SWEENEY: WHAT ABOUT THE WAYS AND MEANS CASE, YOUR HONOR, WHICH RECOGNIZES IF A DOMINANT SUPPLIER OF A PRODUCT O F PRICING THOSE PRODUCTS IN SUCH A W A Y, OR PUTS CERTAIN K I N D S O F RESTRICTIONS O N THEM SO THAT ONE PRODUCT IS LESS U S E F U L WITHOUT T H E O T H E R, THAT ALSO IS AN IMPLICIT T I E. T H E COURT: WELL , THAT 'S WHY I FOCUSSED ON WHAT EVIDENCE THERE IS OR WHAT A L L E G A T I O N S T H E R E A R E B U T YOU C A N'T -- T H E IPOD H A S N O REAL FUNCTION WITHOUT ITUNES , THAT THEY' RE FUNCTIONALLY HOBBLED. I F A P E R S O N - - I WOULD AGREE WITH YOU , I F A MANUFACTURER H A S T W O SEPARATE PRODUCTS AND TECHNOLOGICALLY HOBBLES THEM ONE TO T H E O T H E R S O THEY HAVE N O FUNCTION INDEPENDENT O F T H E OTHER, Y O U'R E THEREFORE FORCED TO B U Y BOTH , Y O U MAY HAVE G O T T E N C L O S E T O WHAT I WOULD CONSIDER TO BE A TECHNOLOGICAL TIE . B U T IF THE T W O P R O D U C T S A R E SOLD I N 23 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page24 of 36 SEPARATE MARKETS AND THAT THEY F U N C T I O N INDEPENDENTLY WITHOUT T H E OTHER, ALTHOUGH BETTER TOGETHER , THAT 'S NOT T H E KIND OF HOBBLING THAT WOULD DEPRIVE EACH O F THE FULL FUNCTIONALITY . M S. SWEENEY: WELL, T H E QUESTION O F WHETHER A RULE OF R E A S O N T Y I N G C L A I M Y O U TO HAVE B E DEPRIVED OF COMPLETE A N D FULL FUNCTIONALITY. HERE WE 'RE ALLEGING PARTIAL IMPAIRMENT O F FUNCTIONALITY AND IT IS E N O U G H U N D E R A RULE OF R E A S O N C L A I M, AND I WOULD LIKE T O G O BACK TO WHERE YOUR HONOR STARTED THIS CONVERSATION WHICH I S WHAT IS T H E DIFFERENCE BETWEEN A RULE OF R E A S O N C L A I M AND A TYING CLAIM ? A N D AS APPLE' S COUNSEL RECOGNIZED, THERE IS A DEARTH OF L A W O N RULE OF R E A S O N T Y I N G C L A I M. WE HAVE THE FOREMOST P R O D E C I S I O N W H I C H S E E M S T O SUGGEST THAT I F Y O U HAVE A TECHNOLOGICAL TIE , THEN Y O U S H O U L D LOOK U N D E R T H E LENS O F A RULE OF REASON PER S E ANALYSIS. YOU ALSO HAVE THE MICROSOFT CASE WHICH H A S A VERY EXTENSIVE DISCUSSION OF WHY T H E P E R SE D I D N O T APPLY TO THAT TECHNOLOGICAL T I E A N D WHAT A COURT S H O U L D LOOK AT IN -- BECAUSE THE COURT REMANDED TO T H E D IS T R I C T C O U R T. OF C O U R S E T H E CASE SETTLED THEN S O THE COURT NEVER WENT THROUGH THE 24 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page25 of 36 ANALYSIS , B U T THE COURT GAVE EXPLICIT INSTRUCTIONS AS TO WHAT THE DISTRICT COURT WOULD DO . N O W, APPLE SAYS THE ONLY DIFFERENCE BETWEEN A RULE OF R E A S O N A N D A P E R SE TYING CLAIM IS THAT THE U S E T H E RULE O F R E A S O N CLAIM WHEN T H E DEFENDANT D O E S N'T HAVE MARKET POWER , A N D THAT'S SIMPLY N O T TRUE. THERE IS NO BASIS F O R THAT STATEMENT I N T H E CASE L A W OR IN THE A R E E D A T R E A T I S E WHICH APPLE RELIES UPON . I N T H E MICROSOFT CASE, WHEN THE COURT OF APPEALS SENT T H E CASE BACK DOWN TO BE ANALYZED UNDER A RULE O F REASON STANDARD, THE COURT HAD ALREADY HELD THAT THERE WAS A MONOPOLIZATION CLAIM UNDER SECTION 2 AND THAT I T AFFIRMED THE LOWER COURT 'S FINDING THAT APPLE H A D M O N O P O L Y P O W E R I N THE TYING PRODUCT . S O T H E R E, OF COURSE , I T WASN 'T A Q U E S T I O N OF APPLYING RULE OF REASON S I M P L Y BECAUSE T H E DEFENDANT D O E S N'T HAVE MARKET POWER . AND THEN - T H E COURT: WELL , YOUR RULE OF REASON -- A R E Y O U STATING A RULE OF REASON CLAIM UNDER YOUR MONOPOLY CLAIM AS WELL? M S. SWEENEY: Y E S, THE MONOPOLY CLAIM IS A RULE O F REASON CLAIM, YOUR HONOR. 25 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E COURT: Filed10/13/09 Page26 of 36 S O I 'M NOT , I 'M NOT D I SAGREEING WITH YOU JUST AS TO THAT GENERAL PROPOSITION . BUT AS TO T H E T Y I N G C L A I M. I T I S DIFFICULT TO ARTICULATE WHAT RESTRAINT I 'M APPLYING THE RULE OF REASON TO WITHOUT THE T I E. I N O T H E R W O R D S, IT' S N O T A RULE OF R E A S O N; IT' S THIS RESTRAINT I S UNREASONABLE. WHAT IS THE RESTRICTION ? RESTRICTION IS A TIE . WHAT Y O U ALLEGE AS A SO AND SO IF I FIND THAT THERE IS NO T I E, THEN T H E R E'S NO RESTRAINT T O W H I C H I 'M APPLYING MY ANALYSIS . M S. SWEENEY: WELL, WE S A Y T H E R E I S A RESTRAINT BECAUSE OF T H E I M P A I R E D FUNCTIONALITY . T H E COURT: M S. SWEENEY: T H E COURT: N O W, THAT' S T H E QUESTION. Y E S. I S IMPAIRED FUNCTIONALITY SUFFICIENT AND SO IF Y O U CITE TO ME A CASE THAT SAYS THAT I M P A I R E D FUNCTIONALITY IS SUFFICIENT TO BASE A SECTION 1 CLAIM UNDER THE RULE OF REASON , THEN I'M INTERESTED. M S. SWEENEY: WELL THEN A G A I N I WOULD GO BACK TO FOREMOST PRO BECAUSE I T H I N K THAT 'S THE CLOSEST ANALOGY. T H E COURT: WELL , I T'S CLOSE , B U T IT 26 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DOESN 'T DO THE ANALYSIS . Filed10/13/09 Page27 of 36 IT JUST SAYS THAT WE THAT DOESN' T D O N'T HAVE TO REACH THAT A N A L Y S I S. HELP ME TO KNOW WHAT T H E A N A L Y S I S I S I F T H E COURT SAYS WE' RE NOT DOING THAT. M S. SWEENEY: AND THEN I WOULD POINT YOUR HONOR TO T H E A R E E D A TREATISE BECAUSE A S E V E R Y O N E H A S RECOGNIZED THERE 'S NOT A LOT OF CASES ON RULE OF REASONING T Y I N G B U T THE A R E E D A T R E A T I S E LAYS O U T AN ARGUMENT W H Y TECHNOLOGICAL TIES SHOULD BE SUBJECT TO A RULE OF R E A S O N A N A L Y S I S. A N D THE R E A S O N THAT A R E E D A G I V E S I S VERY SIMILAR TO THE O N E G I V E N B Y T H E COURT OF APPEALS I N THE MICROSOFT DECISION. I N THE MICROSOFT DECISION THE COURT SAID THAT THIS TECHNOLOGICAL T I E I S U N L I K E ANY THAT THE SUPREME COURT HAS EVER ADDRESSED A N D P E R SE RULES OF LIABILITY O N ANTITRUST LAWS A R E RESERVED FOR THAT COURTS HAVE SEEN TIME AND TIME AGAIN THAT THEY KNOW THE PERNICIOUS AFFECTS O F T H O S E, SUCH A S P R I C E F I X I N G, SUCH A S T H E TYPICAL EXPRESSED CONDITION AL TYING AGREEMENT BUT A TECHNOLOGICAL TIE I S A SLIGHTLY DIFFERENT SPECIES OF A TYING AGREEMENT . A N D I W O U L D ALSO LIKE TO POINT OUT BECAUSE I'M SURE APPLE' S COUNSEL WILL BRING THIS U P THAT THE A R E E D A T R E A T I S E ALSO SUGGESTS THAT IN THE 27 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page28 of 36 CASE OF A TECHNOLOGICAL T I E Y O U SOMETIMES D O N'T HAVE THE KIND OF CONCERTED A C T I O N THAT IS REQUIRED F O R A SECTION 1 SHERMAN A C T C L A I M. A N D I W O U L D JUST LIKE TO SAY THAT INITIALLY A S A N INITIAL MATTER THAT THE AREEDA TREATISE DOESN 'T SAY THAT YOU NEVER HAVE THAT KIND OF CONCERTED A C T I O N. A N D MORE I M P O R T A N T L Y, ALL OF T H E CASE L A W, AND WE CITE A L O T OF THIS I N O U R BRIEF, A L L O F THE CASE LAW I S UNANIMOUS THAT I N ORDER T O SATISFY T H E CONCERTED REQUIREMENT OF SECTION 1 F O R P U R P O S E S OF T H E T Y I N G C L A I M, ALL T H E PLAINTIFF NEEDS TO A L L E G E I S THAT T H E DEFENDANT SOLD A PRODUCT TO THE PLAINTIFF A N D IT' S THAT AGREEMENT, THAT AGREEMENT TO PURCHASE T H E PRODUCT THAT CONTAINED THIS RESTRAINT THAT SATISFIES THE CONCERTED REQUIREMENT OF SECTION 1. WELL -T H E COURT: WELL , Y O U CAN APPRECIATE MY CONCERN BECAUSE Y O U' RE ASKING ME TO E X T E N D T H E LAW , A N D W E'R E A L L OPERATING WITH THAT I N MIND . D I D YOU WANT TO RESPOND T O COUNSEL 'S ARGUMENT ABOUT THIS ADVANCED COMPUTER SERVICES CASE? MYSELF. 28 I HAVEN 'T HAD A CHANCE TO STUDY IT AGAIN U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HONOR . Filed10/13/09 Page29 of 36 I D I D READ IT AT SOME POINT, B U T H E C I T E D IT F O R T H E PROPOSITION THAT I F T H E R E I S N O T I E, THEN YOU C A N'T U S E RULE OF R E A S O N A N A L Y S I S A N D IT' S A DISTRICT COURT CASE THAT COMES OUT O F THE EASTERN DISTRICT OF VIRGINIA . M S. SWEENEY: SURE. AND THAT CASE AGAIN , LIKE THE FOREMOST P R O CASE IS DISTINGUISHABLE FROM THIS ONE IN THAT THERE WAS NO FORECLOSURE IN T H E TIED PRODUCT MARKET BECAUSE THERE WAS NOTHING PREVENTING THE R I V A L S O F T H E DEFENDANT FROM MAKING AND DEVELOPING THEIR OWN SOFTWARE AND COMPETING WITH THE DEFENDANT I N T H E TIED PRODUCT M A R K E T. HERE APPLE H A S DONE EVERYTHING IT CAN TO KEEP ITS R I V A L S FROM COMPETING WITH IT A N D I N T H E MARKET WITH ITS PORTABLE DEVICES . SO THAT'S H O W I WOULD DISTINGUISH THAT CASE, YOUR H O N O R. T H E COURT: M S. SWEENEY: T H E COURT: T H A N K Y O U. ANY OTHER QUESTIONS? N O. FINAL WORDS ? JUST BRIEFLY , YOUR M R. MITTELSTAEDT : WHEN COUNSEL TAKES ABOUT AN EXPLICIT OR IMPLICIT T I E, WHAT THEY 'RE TALKING ABOUT IS HOW THEY WOULD GO ABOUT PROVING A CONDITIONED SALE. B U T THE CASES D O N'T TURN ON WHETHER T H E TIE I S PROVED EXPLICITLY O R IMPLICITLY . THEY TURN 29 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page30 of 36 ON WHETHER THERE' S A T I E, WHETHER T H E R E'S A CONDITIONED SALE AND WHERE T H E PRODUCT S WERE SEPARATELY AVAILABLE , T H E R E'S N O T A CONDITIONED SALE. T H E R E I S N O CASE THAT SAYS THAT IN A RULE OF R E A S O N CASE T H E PLAINTIFF CAN G E T B Y WITH LESS COERCION THAN IN A P E R SE CASE. P E R SE CASES AND RULE OF REASON CASES APPLY THE SAME STANDARD , THE SAME THRESHOLD STANDARD F O R WHETHER THERE 'S A T I E. AND AREEDA TALKS ABOUT A TECHNOLOGICAL T I E B U T -- AND THIS MAY BE A TECHNICAL POINT , B U T I THINK IT 'S WORTH MAKING . WHEN H E TALKS ABOUT A TECHNICAL T I E, HE 'S TALKI N G A B O U T I T I N T H E SAME TERMS OF FOREMOST P R O W H E R E Y O U CAN 'T USE O N E PRODUCT WITHOUT T H E OTHER, WHERE AS A PRACTICAL MATTER YOU HAVE T O BUY THEM TOGETHER. B U T AGAIN, AS WE HAVE BEEN OVER , THAT 'S NOT THE CASE HERE . SO I D I SA G R E E THAT THIS RISES TO T H E L E V E L O F A TECHNOLOGICAL TIE . BUT EVEN I F I T WERE CONSIDERED A TECHNOLOGICAL TIE , WHAT A R E E D A SAYS IS THAT ORDINARILY THE CHALLENGED PRODUCT D E S I G N, A N D THAT' S WHAT THIS CASE I S REALLY ABOUT, WHAT SOFTWARE APPLE CHOSE TO U S E I N I T S PRODUCT. 30 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E COURT: Filed10/13/09 Page31 of 36 WELL , Y O U KNOW, THAT'S O N E O F T H E T H I N G S THAT I THOUGHT THAT I WOULD HELP US ALL O U T I S A N ARTICULATION OF THIS S T A N D A R D O F TECHNOLOGICAL TIE . WOULD YOU REGARD FOREMOST PRO A S A N EXAMPLE A TECHNOLOGICAL TIE I N THE SENSE THAT YOU COULD N O T U S E ONE PRODUCT WITHOUT T H E OTHER? BECAUSE THEY I N THAT CASE TALK ABOUT COMPATIBILITY A N D S A Y THAT I T'S N O T A TECHNOLOGICAL TIE , A N D SO I WAS ACTUALLY LISTENING HARD A S BOTH SIDES WERE ARGUING TO SEE WHERE Y O U W O U L D P U T THAT CASE . M R. MITTELSTAEDT : WELL, I T H I N K WHAT LABEL Y O U P U T ON IT, WHETHER YOU CALL THAT A TECHNOLOGICAL TIE OR N O T I S LESS IMPORTANT. JUST A L A B E L. I N THAT CASE, AS I READ I T, YOUR H O N O R, T H E C O U R T W A S SAYING THAT YOU C O U L D N'T U S E A S A PRACTICAL A N D AS AN EFFECTIVE M A T T E R, YOU N E E D E D T O U S E T H E TWO PRODUCTS TOGETHER , B U T THE COURT SAID THAT WASN'T ENOUGH T O SHOW COERCION . HERE WE HAVE GOT LESS THAN THAT BECAUSE T H E P R O D U C T S A R E SEPARATELY AVAILABLE AND C A N B E USED SEPARATELY. S O I THINK THAT I, I - - A N D I E N D AS I STARTED, FOR THE SAME REASONS THAT YOUR HONOR FOUND 31 IT 'S U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THANK Y O U. Filed10/13/09 Page32 of 36 THAT THERE WAS N O T - - THEY DIDN' T SATISFY T H E THRESHOLD C O E R C I O N ELEMENT F O R A P E R S E C L A I M, THE SAME THING APPLIES T O T H E TYING CLAIM. T H E, T H E LAST THING I WANT T O S A Y IS THAT THERE W A S A S E C O N D A N D ACTUALLY A T H I R D G R O U N D IN O U R M O T I O N AND O N E O F THEM I THINK IS A VERY INTERESTING ISSUE A N D THAT IS WHEN THEY'R E CHALLENGING A PRODUCT DESIGN, WHETHER THAT SATISFIES ANOTHER ELEMENT OF SECTION 1 CASES , W H I C H IS THAT THERE NEEDS TO BE AN AGREEMENT . A N D SOME O F T H E TYING CASES, Y O U KNOW , JUST REALLY CASES WHERE O N E PRODUCT W O N'T BE SOLD WITHOUT THE OTHER , T H E COURTS HAVE FOUND THAT THERE 'S AN AGREEMENT BECAUSE THE BUYER A G R E E S T O B U Y BOTH A N D S O THAT SATISFIES T H E CONSPIRACY, IF Y O U WILL , ELEMENT OF SECTION 1. B U T AS AREEDA SAYS IN THE TECHNOLOGICAL AREA WHERE THE PLAINTIFFS ARE BASICALLY C H A L L E N G I N G A PRODUCT D E S I G N, WHERE IS T H E AGREEMENT? A N D IF ANYTHING , A R E E D A SAYS THAT THOSE OUGHT TO BE CHALLENGED UNDER SECTION 2 . T H E COURT: I UNDERSTAND YOUR ARGUMENT. MATTER SUBMITTED. M R. MITTELSTAEDT : THANK YOU , YOUR HONOR . C O U L D I RAISE O N E B R I E F M A T T E R AND THAT' S 32 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Filed10/13/09 Page33 of 36 SCHEDULING THE NEXT ROUND OF MOTIONS? T H E COURT: Y E S. AS YOUR H O N O R K N O W S W E M R. MITTELSTAEDT : HAVE BEEN INVITED TO MOVE TO DECERTIFY T H E INJUNCTIVE RELIEF CLASS , A N D WE HAVE DONE THAT AND THAT HEARING I S S E T FOR NOVEMBER 9T H. BRIEFING IS COMPLETE D. W E HAVE ALSO MOVED TO DECERTIFY T H E (B )(3 ) C L A S S, THE DAMAGES CLASS IN THIS CASE , T H E DIRECT PURCHASER CASE. AND W E HAVE GOT A QUESTION AND THE ABOUT WHEN THAT I S GOING T O B E BRIEFED . W E H A D SUGGESTED TO YOUR HONOR THAT T H E HEARING BE PUT OVER TO DECEMBER 14T H S O W E C A N GET THE BRIEFS DONE AND DEPOSE EACH SIDES EXPERTS AND SO FORTH . YOUR HONOR INSTEAD OF ACCEPTING T H E STIPULATION F O R D E C E M B E R 1 4TH P U T T H E HEARING O N NOVEMBER 9T H WITH T H E F I N A L B R I E F, WHICH WOULD BE APPLE 'S REPLY BRIEF, D U E OCTOBER 19 TH. W E S A T DOWN T O T R Y AND NEGOTIATE WHEN THEIR OPPOSITION WOULD BE DUE A N D H O W MUCH TIME WE WOULD HAVE TO RESPOND T O I T, AND THEY' RE UNABLE TO DO THEIR OPPOSITION, THEY SAY , B E F O R E OCTOBER 1 2TH . T H E I R E X P E R T ON WHO THEY INTEND TO RELY IS UNAVAILABLE T H E WEEK OF OCTOBER 12T H, WHICH 33 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CALENDAR ? Filed10/13/09 Page34 of 36 WOULD MEAN THAT OUR BRIEF WOULD HAVE T O B E FILED I N A ONE WEEK' S TIME WITHOUT THE BENEFIT OF DEPOSING THEIR EXPERT. W E HAD ASKED YOUR HONOR T O REQUIRE THEM TO FILE THEIR BRIEF LAST F R I D A Y OR TODAY. OBVIOUSLY THAT 'S IMPRACTICAL AT THIS P O I N T. AND SO I WANTED TO S E E I F YOUR HONOR W A S OPEN TO E I T H E R PUTTING THE HEARING ON DECEMBER 14T H S O W E C O U L D HAVE ADEQUATE TIME O R S H O R T O F THAT TO GIVE US UNTIL OCTOBER 26T H T O FILE O U R B R I E F W H I C H W O U L D STILL BE T W O W E E K S B E F O R E THE HEARING ALBEIT O N E WEEK LESS THAN WHAT YOUR H O N O R'S SCHEDULE WOULD HAVE PROVIDED. T H E COURT: L E T ME ASK BECAUSE MY STAFF DOES THE SCHEDULING FOR ME . I S T H E 14T H A REGULAR LAW A N D M O T I O N ( PAUSE IN PROCEEDINGS. ) T H E COURT: COUPLE MOTIONS . Y O U' RE ASKING TO COMBINE A THE DECERTIFICATION M O T I O N I A S K E D F O R I S N O W SET F O R T H E 9TH ? M R. MITTELSTAEDT : T H E COURT: YES . A N D YOU WANT TO BRING THIS ADDITION AL MOTION A N D Y O U ALSO WANT TO BRING THIS ON T H E 9 TH? 34 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 TOGETHER . M R. MITTELSTAEDT : T H E COURT: Filed10/13/09 Page35 of 36 THAT'S T H E N E T EFFECT . B U T IT' S HARD TO F I T LET ME STUDY YOUR REQUESTS AND S E E WHETHER OR NOT WE C A N A C C O M M O D A T E I T. S O A R E YOU CONTENT TO HAVE T H E ONE M O T I O N ON T H E 9 TH, OR WOULD Y O U LIKE A DELAY SO BOTH A R E HEARD AT T H E SAME TIME? M R. MITTELSTAEDT : THEM HEARD ON SEPARATE DATES. T H E COURT: M S. SWEENEY: HEARD ON T H E 9 TH. A R E YOU ? I' M CONTENT TO HAVE THEM I'M CONTENT TO HAVE I D O N'T OPPOSE WHAT MR . MITTELSTAEDT SUGGESTED . T H E COURT: S O L E T' S L E A V E WHAT IS N O W O N T H E 9 TH ON THE 9T H, AND I' LL COME BACK TO Y O U I N A N ADMINISTRATIVE ORDER SETTING A BRIEFING SCHEDULE O N T H E O T H E R M O T I O N AND S E E I F I C A N A C C O M M O D A T E YOUR REQUEST. T H E REASON T H E 1 4TH IS A PROBLEM I S THAT' S M Y LAST HEARING DATE B E F O R E THE HOLIDAYS , A N D M Y S T A F F I S G I V E N L E A V E T O G O A N D DO OTHER THINGS BETWEEN THE HOLIDAYS. A N D S O SOMETIMES I'M HERE BY MYSELF A N D S O I D O N'T P U T A L O T O F T H I N G S THE LAST DAY O N THAT AND S O I MIGHT EVEN MOVE YOU FURTHER OUT . 35 U.S. COURT REPORTERS Case5:05-cv-00037-JW Document267 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HONOR . T H E COURT: T H E CLERK: THOUGH? M R. MITTELSTAEDT : T H E E A S I E R WAY . M S. SWEENEY: M R. MITTELSTAEDT : Filed10/13/09 Page36 of 36 OKAY. WHEN THE COURT SEES THE ADMINISTRATIVE M O T I O N, THAT R E A L L Y FOCUSES ON IF IT 'S GOING TO BE ON NOVEMBER 9TH , WHAT S H O U L D T H E B R I E F I N G S C H E D U L E B E. T H E COURT: R I G H T. SO YOU W O N'T S E E T H E M R. MITTELSTAEDT : REQUEST TO GO BACK T O T H E 15T H. T H E COURT: THAT 'S YOUR PREFERENCE YES , I THINK THAT' S THANK Y O U, YOUR H O N O R. THANK YOU , YOUR M R. MITTELSTAEDT : I S THAT OUR LAST MOTION? THAT CONCLUDES THE CALENDAR. ( WHEREUPON , T H E PROCEEDINGS IN THIS M A T T E R WERE CONCLUDED .) 36 U.S. COURT REPORTERS