Apple Inc. v. Psystar Corporation

Filing 31

Transcript of Proceedings held on November 6, 2008, before Judge William H. Alsup. Court Reporter/Transcriber Joan Marie Columbini, Telephone number 415-255-6842. 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. Release of Transcript Restriction set for 2/9/2009. (Columbini, Joan) (Filed on 11/13/2008)

Apple Inc. v. Psystar Corporation

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PAGES 1 - 34 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE WILLIAM H. ALSUP ) ) ) PLAINTIFF, ) ) VS. ) NO. C 08-03251 WHA ) PSYSTAR CORPORATION, ) ) SAN FRANCISCO, CALIFORNIA DEFENDANT. ) THURSDAY ___________________________________) NOVEMBER 6, 2008 PSYSTAR CORPORATION, ) ) COUNTERCLAIMANT, ) ) VS. ) ) APPLE, INC. A CALIFORNIA ) CORPORATION, ) ) COUNTERDEFENDANT. ) ___________________________________) TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFF AND COUNTERDEFENDANT BY: TOWNSEND AND TOWNSEND AND CREW, LLP TWO EMBARCADERO CENTER, 8TH FLOOR SAN FRANCISCO, CALIFORNIA 94111 JAMES G. GILLILAND, JR. ESQUIRE MEGAN CHUNG, ESQUIRE MEHRNAZ BOROUMAND SMITH, ESQUIRE APPLE, INC. A CALIFORNIA CORPORATION,

(FURTHER APPEARANCES ON FOLLOWING PAGE)
REPORTED BY:

JOAN MARIE COLUMBINI, CSR 5435, RPR OFFICIAL COURT REPORTER, U.S. DISTRICT COURT

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

Dockets.Justia.com

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APPEARANCES (CONTINUED): FOR DEFENDANT AND CARR & FERRELL, LLP 2200 GENG ROAD PALO ALTO, CALIFORNIA 94303 ROBERT JOSEPH YORIO, ESQUIRE COLBY B. SPRINGER, ESQUIRE CHRISTOPHER PAUL GREWE, ESQUIRE

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY:

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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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 APPLE --

PROCEEDINGS; THURSDAY, NOVEMBER 6, 2008

MR. GILLILAND:

GOOD AFTERNOON, YOUR HONOR.

JIM

GILLILAND, MEGAN CHUNG, AND MEHRNAZ BOROUMAND SMITH FROM TOWNSEND AND TOWNSEND AND CREW FOR PLAINTIFF AND MOVING PARTY APPLE. ALSO PRESENT TODAY ARE DAN COOPERMAN AS GENERAL COUNSEL

OF APPLE AND CARLENE CLAUS (PHONETIC), DIRECTOR OF LITIGATION. THE COURT: WHERE ARE THEY? WELCOME. HAVE A SEAT.

MR. SPRINGER:

COLBY SPRINGER AND ROBERT YORIO AND

CHRISTOPHER GREWE FOR DEFENDANT AND COUNTERCLAIMANT PSYSTAR CORPORATION AND MR. PEDRAZA, CEO OF PSYSTAR CORPORATION. THE COURT: WHICH ONE IS HE?

YOUR NAME IS WHAT? MR. PEDRAZA: THE COURT: RUDY PEDRAZA. HAVE A SEAT. THIS IS A MOTION BY

OKAY.

MR. GILLILAND: THE COURT:

YES, YOUR HONOR.

-- TO DISMISS A COUNTERCLAIM.

PLEASE GO AHEAD. MR. GILLILAND: THANK YOU. YES, YOUR HONOR.

THIS IS APPLE'S MOTION TO DISMISS THE FEDERAL AND STATE ANTITRUST AND UNFAIR COMPETITION COUNTERCLAIMS OF PSYSTAR. PSYSTAR ASSEMBLES AND SELLS COMPUTERS THAT USE THE IT SELLS THEM

WINDOWS, LINUX OR MACINTOSH OPERATING SYSTEMS.

IN COMPETITION WITH APPLE, INCLUDING THE ONES WITH THE MAC JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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OPERATING SYSTEM. THE OPEN MAC.

IN FACT, IT ORIGINALLY CALLED ITS COMPUTERS

THEN IT CHANGED THEM TO OPEN COMPUTER AND SELLS

THEM IN COMPETITION WITH APPLE. HOWEVER, PSYSTAR DOES NOT HAVE A LICENSE TO USE THE MACINTOSH OPERATING SYSTEM. THAT IS PROPRIETARY SOFTWARE OF

APPLE'S, AND, CONSEQUENTLY, APPLE FILED A COPYRIGHT INFRINGEMENT ACTION HERE WITH COPYRIGHT INFRINGEMENT AND OTHER CAUSES OF ACTION. PSYSTAR NOW HAS COUNTERCLAIMED ASSERTING THAT APPLE'S REFUSAL TO LICENSE ITS PROPRIETARY SOFTWARE TO A COMPETITOR VIOLATES THE FEDERAL AND STATE ANTITRUST LAWS. THERE'S NO DISPUTE HERE, I THINK THAT THE COUNTERCLAIMS, THEIR SUCCESS DEPENDS UPON PSYSTAR'S ABILITY TO ALLEGE AND PROVE A SINGLE BRAND RELEVANT PRODUCT MARKET. SPECIFICALLY, THEY CLAIM THAT THE RELEVANT MARKET IS THE MARKET FOR THE MACINTOSH OPERATING SYSTEM. HOWEVER, WE THINK, ON THE

FACE OF THE COUNTERCLAIMS, THEY NEED TO BE DISMISSED FOR TWO REASONS. FIRST, THE COUNTERCLAIMS THEMSELVES CONTRADICT THE ALLEGATION THAT THERE IS A SINGLE BRAND RELEVANT MARKET. SECOND, THE ONLY TIME WHEN THERE CAN BE SUCH A MARKET, THE AFTERMARKET CONTEXT, DOES NOT EXIST IN THIS CASE. NOW, AS THE COURT KNOWS, THE SUPREME COURT A YEAR OR SO AGO IN THE TWOMBLY CASE SAID IN ANTITRUST ACTIONS THE ALLEGATIONS MUST BE PLAUSIBLE, AND HERE THERE CAN BE NO JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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PLAUSIBLE SINGLE BRAND RELEVANT MARKET LIMITED TO THE MACINTOSH OPERATING SYSTEM. THE LAW IS CLEAR THAT IT'S POSSIBLE TO HAVE A MOTION TO DISMISS AN ANTITRUST CLAIM. THE TWOMBLY CASE ITSELF GRANTED A MOTION TO DISMISS ON THE PLEADINGS. THE NINTH CIRCUIT IN TANAKA VERSUS USC

DISMISSED A CASE ON THE PLEADINGS WHERE THE PLAINTIFF ALLEGED THAT THERE WAS A MARKET LIMITED TO WOMEN'S SOCCER AT UCLA, DESPITE THE FACT THAT IN THE COMPLAINT ITSELF, IT SHOWED THAT THERE WAS COMPETITION WITHIN THE PAC TEN AND, IN FACT, IN THE ENTIRE NCAA FOR WOMEN'S SOCCER. LIKEWISE, JUST A COUPLE OF WEEKS AGO, IN THE SECOND CIRCUIT, IN THE CHAPMAN VERSUS NEW YORK STATE DIVISION FOR YOUTH, SECOND CIRCUIT, AFFIRMED DISMISSAL OF AN ANTITRUST CASE IN WHICH THE PLAINTIFF ALLEGED A RELEVANT MARKET FOR RESTRAINT TRAINING SERVICES TO PRIVATE CHILDCARE PROVIDERS IN THE STATE OF NEW YORK; AND, YET, THE ALLEGATION IN THE COMPLAINT ITSELF SHOWED THE PLAINTIFF COMPETED IN A BROADER MARKET. AND BECAUSE

THERE WERE SUCH CONTRADICTORY ALLEGATIONS IN THE COMPLAINT ITSELF, THE SECOND CIRCUIT SAID, WE ARE GOING TO AFFIRM THE DISMISSAL OF THE COMPLAINT THERE. IN OUR BRIEF -- AND WE HAVE SUBMITTED MANY OTHER CASES SHOWING THAT SINGLE BRAND MARKETS ARE SIMPLY ALMOST NEVER AFFIRMED. WHETHER THE BRAND IS FROM -- EVEN IF IT'S A SPECIAL

OR A UNIQUE BRAND FROM ROLEX WATCHES TO FIAT CARS, TO UGG BRAND JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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BOOTS AND BRIGHTON BRAND PURSES, FROM DREYER'S ICE CREAM TO A YALE EDUCATION; IN ALL THOSE CASES, THE COURT AFFIRMED THERE WAS NO SUCH THING AS A SINGLE BRAND MARKET. YET, HERE

PSYSTAR'S COUNTERCLAIMS ARE BASED ENTIRELY ON THE ALLEGATION THAT THERE IS A SINGLE BRAND MARKET. WHAT PSYSTAR COUNTERS WITH IS POINTING TO THE NINTH CIRCUIT DECISION IN NEWCAL VERSUS IKON, AND THAT IS AN AFTERMARKET CASE. IKON IS A BRAND OF PHOTOCOPIERS, AND THE

CASE INVOLVED A QUESTION OF WHETHER THE PLAINTIFF AND THE DEFENDANT COULD COMPETE IN THE MARKET FOR EXTENDING THE LEASES FOR THE IKON BRAND PHOTOCOPIERS. IN THAT INSTANCE, THE COURT, FOLLOWING THE SUPREME COURT IN KODAK VERSUS IMAGE TECHNICAL SERVICES SAID, WELL, THIS WAS ONE OF THOSE RARE CIRCUMSTANCES WHERE THE CUSTOMER'S ALREADY LOCKED IN, YOU'VE ALREADY MADE A BIG INVESTMENT IN THEIR PHOTOCOPY MACHINES, SO THERE CAN BE A MARKET LIMITED TO THE MARKET FOR FINANCING AND SERVICES AND PARTS FOR IKON BRAND PHOTOCOPIERS. BUT THIS CASE, THE ALLEGATIONS IN THE COUNTERCLAIMS HERE ARE NOT AN AFTERMARKET CASE. THE COMPETITION THAT'S THE

ALLEGED HERE OCCURS IN THE PRIMARY MARKET FOR COMPUTERS.

COMPETITION OCCURS WHEN ONE GOES INTO BEST BUY OR CIRCUIT CITY OR GOES ON LINE AND TRIES TO BUY A COMPUTER MADE BY HEWLETT-PACKARD OR DELL OR SONY OR APPLE OR PSYSTAR. THOSE

COMPUTERS ALL COMPETE WITH ONE ANOTHER, AND THE OPERATING JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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SYSTEMS THEY RUN, WINDOWS, LINUX AND MACINTOSH OPERATING SYSTEMS, THEY ALL COMPETE WITH ONE ANOTHER AS WELL. IN FACT, PSYSTAR ADMITS THE EXISTENCE OF THAT COMPETITION IN ITS COUNTERCLAIMS. MOTION TO DISMISS. MOST TELLINGLY, YOUR HONOR, PSYSTAR DESCRIBES ITS OWN BUSINESS AS MEETING CUSTOMER PREFERENCES AS THEY CHOOSE BETWEEN PERSONAL COMPUTERS THAT RUN WINDOWS OR LINUX OR THE MAC OS. THIS IS WHAT PARAGRAPH 15 OF THE COUNTERCLAIM SAYS: "PSYSTAR MANUFACTURES AND DISTRIBUTES COMPUTERS TAILORED TO CUSTOMER CHOOSING. AS A PART OF ITS THAT'S WHY WE FILED THIS

DEVOTION TO SUPPORTING CUSTOMER CHOICE, PSYSTAR SUPPORTS A WIDE RANGE OF OPERATING SYSTEMS, INCLUDING MICROSOFT WINDOWS XP AND XP 64-BIT, WINDOWS VISTA AND VISTA 64-BIT, LINUX, AND THE MAC OS. PSYSTAR

GENERALLY REFERS TO THIS CUSTOM-TAILORED LINE OF COMPUTERS AS OPEN COMPUTERS." THAT'S PARAGRAPH 15 FROM THE COUNTERCLAIMS. SO, PSYSTAR IS ADMITTING THAT CUSTOMERS CHOOSE BETWEEN ITS OWN COMPUTERS BASED UPON THE OPERATING SYSTEMS THAT IT OFFERS AS COMPETITIVE CHOICES AMONG ONE ANOTHER. IF THEY

ARE CHOICES AVAILABLE TO THE SAME CUSTOMERS FROM THE SAME SUPPLIER, THEN THEY ARE COMPETING, AND THEY NEED TO BE IN THE SAME RELEVANT PRODUCT MARKET. MOREOVER, PSYSTAR ADMITS THAT OPERATING SYSTEMS, JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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OPERATING SYSTEMS SOFTWARE, PERFORMS THE SAME FUNCTIONS. PARAGRAPH 18 OF THE COUNTERCLAIM SAYS, QUOTE: "OPERATING SYSTEMS LIKE THE MAC OS CONTROL AND DIRECT THE INTERACTION BETWEEN SOFTWARE APPLICATIONS, SUCH AS WORD PROCESSORS, INTERNET BROWSERS, AND APPLICATIONS, AND THE CENTRAL PROCESSING UNIT OF THE COMPUTER AND ITS VARIOUS HARDWARE COMPONENTS." THEY ALLEGE ESSENTIALLY THE SAME THING IN PARAGRAPH 21 OF THE COUNTERCLAIMS. WE SUBMIT UNDER TWOMBLY, YOUR HONOR, IT'S SIMPLY NOT PLAUSIBLE TO ADMIT THAT OPERATING SYSTEMS ALL SERVE THE SAME PURPOSE. TO ADMIT THAT THEY ARE ALL SOLD BY PSYSTAR ON THE

SAME COMPUTERS, TO THE SAME CUSTOMERS, THROUGH THE SAME LINE OF COMMERCE, AND THEN TO CLAIM THEY ARE NOT IN THE SAME RELEVANT PRODUCT MARKET. OF COURSE, THIS IS A MOTION TO DISMISS, AND THE COURT IS REQUIRED TO ACCEPT THE PLAINTIFF'S ALLEGATIONS AS TRUE. BUT THE LAW IS CLEAR THAT YOU ARE NOT REQUIRED TO

SUBMIT -- TO ACCEPT CONTRADICTORY ALLEGATIONS AS TRUE, AND WE CITE RELEVANT LAW IN OUR BRIEF TO THAT EFFECT, THAT WHEN THE ALLEGATIONS THEMSELVES CONTRADICT ONE ANOTHER, THEN THE COURT IS NOT REQUIRED TO ACCEPT ALL OF THEM AS TRUE. BE TRUE. THEY CONTRADICT ONE ANOTHER. PSYSTAR TRIES TO ADVANCE ITS SINGLE BRAND RELEVANT MARKET ARGUMENT THREE WAYS. FIRST, IT SAYS, LOOK AT APPLE'S THEY CAN'T ALL

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ADVERTISING; IT SHOWS THAT APPLE IS UNIQUE, IT'S COOL, IT'S SPECIAL, EVERYBODY LOVES THE MAC. AND SINCE PSYSTAR REFERENCED THIS ADVERTISING CAMPAIGN, THE LAW SAYS THAT AS LONG AS THERE'S NO DISPUTE ABOUT WHAT IS IN THE DOCUMENTS, THAT THE COURT IS ENTITLED TO CONSIDER THEM. SO WE HAVE SUBMITTED ON DVD AND IN WRITING THE AND SOME OF THEM ARE VERY COOL TO

TEXT OF THE ADVERTISEMENTS. WATCH.

I ENCOURAGE THE COURT TO DO THAT IF YOU HAVE A CHANCE. BUT THE DIFFERENT ADS, THE FIRST ONES THEY REFER TO,

DON'T TALK ABOUT THE OPERATING SYSTEMS AT ALL.

THE OTHER ONES,

WHAT'S CALLED THE GET-A-MAC CAMPAIGN, EXPLICITLY SHOW APPLE COMPARING THE CAPABILITIES OF ITS MACINTOSH COMPUTER WITH WINDOWS-BASED COMPUTERS. ADVERTISING CAMPAIGN. THAT'S THE ENTIRE PURPOSE FOR THE

THEY TALK ABOUT FEATURES AND FUNCTIONS

AND EASE OF USE AND WHAT MAKES ONE SPECIAL AND THE OTHER LESS DESIRABLE TO CONSUMERS. BUT THAT'S PRECISELY WHAT IS THE

DEFINITION OF "COMPETITION," COMPARING YOUR PRODUCT DIRECTLY TO THE COMPETING PRODUCT. SO PSYSTAR HAS INVITED THE COURT TO LOOK AT THOSE ADVERTISEMENTS. WE DO AS WELL. WE THINK THEY PROVE THAT THE

MAC AND WINDOWS ARE IN DIRECT COMPETITION WITH ONE ANOTHER. SECOND, PSYSTAR SAYS THAT -- IT ALLEGES THAT THE PRICE OF A MAC BOOK OR A MAC BOOK PRO, WHICH ARE THE NOTEBOOK COMPUTERS FROM APPLE, THAT THAT COMPUTER IS MORE EXPENSIVE THAN A SIMILAR COMPUTER FROM DELL, AND, BASICALLY, IT'S TRYING TO JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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ARGUE THAT THERE'S A LACK OF CROSS ELASTICITY OF DEMAND BECAUSE THE PRICES ARE DIFFERENT. BUT THE ALLEGATIONS DON'T HELP

PSYSTAR AT ALL BECAUSE THEY ARE TALKING ABOUT THE PRICE OF THE COMPUTERS THEMSELVES, FULLY LOADED WITH THEIR GRAPHICS CARDS AND THEIR SOFTWARE AND THEIR APPLICATION SOFTWARE, AND, YET, THE ALLEGATION IN THE COUNTERCLAIM IS THAT THE MARKET IS LIMITED TO THE OPERATING SYSTEM, THE MAC OS. THERE'S NOTHING IN THE COMPLAINT ABOUT THE PRICE OF THE MAC OS VERSUS THE PRICE OF THE WINDOWS, AND THERE'S A REASON FOR THAT. PSYSTAR CANNOT ALLEGE THAT. IT COULD NOT ALLEGE

THAT THERE IS A DIFFERENCE BETWEEN THEM -- AND IT WON'T ALLEGE THEM EVEN GIVEN -- ALLEGE THAT EVEN GIVEN THE CHANCE, BECAUSE IF ONE WERE TO GO TO BEST BUY.COM AND GO ON TO THE WEBSITE AND LOOK AT SOFTWARE, YOU WOULD FIND OUT THE PRICE OF A LICENSE FOR A MAC OS LEOPARD UPGRADE IS VIRTUALLY THE SAME AS THE PRICE FOR A WINDOWS VISTA UPGRADE, $129. DIRECTLY WITH ONE ANOTHER. SO THE ALLEGATIONS ABOUT THE PRICE OF THE COMPUTERS DON'T HELP SAVE PSYSTAR'S CLAIM THAT THERE'S A SINGLE BRAND RELEVANT MARKET. FINALLY, PSYSTAR SAYS, WELL, IN A CASE EIGHT YEARS AGO, IN 2000, IN UNITED STATES VERSUS MICROSOFT, THE COURT THERE FOUND AS A MATTER OF FACT THAT THE MACINTOSH OPERATING SYSTEM SHOULD NOT BE INCLUDED IN THE SAME MARKET AS THE WINDOWS JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842 THAT'S BECAUSE THEY COMPETE

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OPERATING SYSTEM.

THAT IS TRUE.

THAT WAS THE FINDING THE

COURT MADE AT THE TIME. IT'S IMPORTANT TO REMEMBER, HOWEVER, THAT EIGHT YEARS AGO, ALMOST A LIFETIME IN THIS BUSINESS, THE MACINTOSH OPERATING SYSTEM DID NOT WORK ON INTEL MICROPROCESSORS. USED THE POWER PC INSTEAD OF THE INTEL MICROPROCESSORS. THE MAC OS RUNS ON INTEL. APPLE NOW

AND, IN FACT, THE RELEVANT MARKET

THAT WAS CHOSEN IN THE UNITED STATES VERSUS MICROSOFT CASE WAS THE MARKET FOR INTEL OPERATING SYSTEMS FOR INTEL-COMPATIBLE PERSONAL COMPUTERS. PERSONAL COMPUTERS. OPERATING SYSTEMS FOR INTEL-COMPATIBLE THAT IS THE PLAUSIBLE RELEVANT MARKET THAT

WAS USED IN THAT CASE. IF THAT DEFINITION WERE USED HERE, THEN THE MAC OS WOULD BE IN THAT MARKET, TOGETHER WITH WINDOWS AND LINUX, AND APPLE'S SHARE WOULD BE LESS THAN TEN PERCENT. SO THE OLD U.S. VERSUS MICROSOFT CASE ALSO DOES NOT HELP. SO, ULTIMATELY, THE ALLEGATIONS IN PSYSTAR'S COUNTERCLAIMS CONTRADICT ITS DEFINITION OF A SINGLE BRAND RELEVANT MARKET. WITHOUT A SINGLE BRAND RELEVANT MARKET, ALL OF

PSYSTAR CANNOT ALLEGE THAT APPLE HAS MARKET POWER.

PSYSTAR'S CLAIMS REQUIRE APPLE TO HAVE MARKET POWER, ATTEMPTED MONOPOLIZATION, TYING, EXCLUSIVE DEALING. IN ORDER FOR THOSE

TO BE AN ANTITRUST VIOLATION, APPLE HAS TO HAVE MARKET POWER. IN ORDER FOR US TO HAVE MARKET POWER, IT HAS TO BE A SINGLE JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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BRAND MARKET, AND SINCE IT CANNOT BE, BASED ON THESE ALLEGATIONS, THE COUNTERCLAIM SHOULD BE DISMISSED. MAY I ANSWER ANY QUESTIONS, YOUR HONOR? THE COURT: NO, I'LL SAVE ANY QUESTIONS FOR LATER. THANK YOU. LET'S HEAR FROM THE OTHER

MR. GILLILAND: THE COURT: SIDE. MR. SPRINGER:

ALL RIGHT.

THANK YOU, YOUR HONOR.

I WOULD LIKE

TO ADDRESS FIRST THE ISSUE OF THE SINGLE PRODUCT MARKET, AND THEN I WOULD LIKE TO TURN TO THE DISCUSSION OF TWOMBLY AND THE PROPER PLEADING STANDARD IN LIGHT OF THAT SINGLE PRODUCT MARKET. COUNSEL FOR APPLE CONTENDS THERE CANNOT BE A SINGLE PRODUCT MARKET, AND THAT IS SIMPLY INCORRECT. AS AN INITIAL

MATTER, AND AS THE COURT IS WELL AWARE, MARKET DEFINITION IS A QUESTION OF FACT FOR THE JURY. THIS WAS RECOGNIZED BY THE

FORSYTH COURT IN THE NINTH CIRCUIT, AND IT WAS REAFFIRMED JUST RECENTLY IN AUGUST OF THIS YEAR BY THE THEME PROMOTIONS CASE. IN THE THEME PROMOTIONS CASE, THERE WAS A DECISION ON HOW TO FIND THE MARKET WITH RESPECT TO, AMONG OTHER THINGS, THE SSNIP TEST, AND ALSO A REFERENCE TO THE ORACLE DECISION, JUDGE VAUGHN WALKER'S DECISION, WHICH WAS BY AND LARGE ALL ABOUT DEFINING THE RELEVANT MARKET. THE ORACLE DECISION RECOGNIZED THERE IS NO BRIGHT LINE TEST FOR DEFINING MARKETS. THAT IS PROBABLY NO MORE TRUE

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IN ANY INDUSTRY THAN IT IS SOFTWARE. ONE THING I DO AGREE WITH COUNSEL FOR APPLE ABOUT. TEN YEARS IN THE SOFTWARE MARKET IS NOTHING SHORT OF A LIFETIME. TEN. MANY THINGS CHANGE IN TWO TO THREE YEARS, MUCH LESS

DEFINING A MARKET IN A SOFTWARE CASE SUCH AS THIS IS VERY

DIFFICULT. WE DO DISCUSS THE SSNIP TEST, WHICH I'LL GO BACK TO WHEN WE DISCUSS BELL ATLANTIC VERSUS TWOMBLY. THE COURT IN

ORACLE SAID MARKET DEFINITION IS A DIFFICULT TASK; WHILE THERE IS A CONCERN ON ONE END WITH RESPECT TO A SINGLE PRODUCT MARKET, THERE'S EQUALLY CAUTION WITH RESPECT TO DEFINING AN OVERLY BROAD MARKET THAT IS OVERLY EXCLUSIVE OF PRODUCTS THAT ARE NOT NECESSARILY IN THAT MARKET. SO WITH RESPECT TO DEFINING THAT SINGLE PRODUCT MARKET, WE DO DISCUSS THE SSNIP TEST. THAT IS FOUND IN OUR

COMPLAINT AT PARAGRAPHS 36 THROUGH 38 AND THEN 43 THROUGH 45. WE ALSO DISCUSS IN THE COMPLAINT -- OR, I'M SORRY, IN OUR COUNTER CLAIMS, THE ISSUE -- THE U.S. VERSUS MICROSOFT DECISION WHICH WAS REFERENCED BY COUNSEL FOR APPLE. IN THAT CASE, AND AS APPEARS IN THE MICROSOFT DECISION, THE FINDERS OF FACT FOUND THAT THE MAC OS AND THE WINDOWS OS WERE NOT INTERCHANGEABLE OPERATING SYSTEMS. MUCH HAS CHANGED SINCE EVEN THEN. AGAIN,

THE MARKET HAS CHANGED. THERE'S BEEN A NUMBER ALL THIS

IT'S NOW A POWER PC VERSUS INTEL MARKET.

OF EVOLUTIONS, A NUMBER OF CHANGES TO THE MARKET.

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PROVES IS THAT THE PRESUMPTIONS WE MIGHT HAVE ABOUT A MARKET, YOU KNOW, TEN YEARS AGO, HAVE CLEARLY CHANGED. THIS IS A DECISION WHICH IS NOT BEST ADDRESSED IN A 12(B)(6) MOTION TO DISMISS. THIS IS A DECISION THAT NEEDS TO

GO TO A JURY AFTER DISCOVERY SO THE RELEVANT MARKET CAN BE PROPERLY DEFINED. NOTWITHSTANDING THAT AND TURNING TO THE ISSUE THAT YOU CANNOT HAVE A SINGLE PRODUCT MARKET, AGAIN, PSYSTAR CONTENDS -- THAT CONTENTION IS SIMPLY DIRECTLY IN BUSHIE VERSUS STENOCORD CASE OUT OF THE NINTH CIRCUIT. NINTH CIRCUIT FOUND A

SINGLE MANUFACTURER'S PRODUCTS MIGHT BE FOUND TO COMPRISE BY THEMSELVES A RELEVANT MARKET FOR THE PURPOSES OF A MONOPOLIZATION CLAIM. THE COURT: WHEN WAS THAT DECISION? THAT CAME OUT -- THAT WAS THE NINTH

MR. SPRINGER:

CIRCUIT IN 1972, AND THAT IS STILL GOOD LAW TODAY. THE COURT: THERE'S BEEN THE KODAK CASE AND SOME

OTHER CASES SINCE THAT DECISION. MR. SPRINGER: YOU ARE ABSOLUTELY CORRECT, YOUR I'LL DISCUSS THAT FOR A MOMENT. THIS IS NOT AN

HONOR, WITH RESPECT TO KODAK.

KODAK IS AN AFTERMARKET CASE. AFTERMARKET CASE.

GRANTED, WE DID REFERENCE IN OUR OPPOSITION WHAT WE WERE NOT

TO THEIR MOTION TO DISMISS THE NEWCAL CASE.

RELYING ON NEWCAL FOR THE PREMISE OF AN APPLE'S MARKET, AS COUNSEL FOR APPLE POINTED OUT IN THEIR REPLY PAPERS, THERE IS A JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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DIFFERENCE BETWEEN AN AFTERMARKET AND A SUBMARKET. CONCERNED WITH THE SUBMARKET.

WE ARE

OUR RELIANCE UPON THE NEWCAL CASE WAS MORE WITH RESPECT TO ISSUES CONCERNING THE FACT THAT AN ANTITRUST CLAIM THAT CAN RESTRICT THE CLAIM TO A SINGLE BRAND, AS IS IN THE CASE LIKE AN AFTERMARKET CASE LIKE NEWCAL, BUT AT THE SAME TIME THERE IS NO PER SE RULE AGAINST RECOGNIZING A SUBMARKET THAT MIGHT BE THAT SINGLE PRODUCT MARKET. ALSO ADDRESSED IN THE NEWCAL CASE, WHICH I THINK IS, YOU KNOW, AGAIN IMPORTANT HERE WITH RESPECT TO DEFINING THE MARKET, IS THAT ISSUES OF FACTUAL DISAGREEMENT, AND THERE ARE CLEARLY ISSUES OF FACTUAL DISAGREEMENT HERE WITH RESPECT TO WHAT CONSTITUTES THE RELEVANT MARKET, ISSUES OF FACTUAL DISAGREEMENT ARE NOT APPROPRIATE FOR A 12(B)(6) DISMISSAL, ESPECIALLY IN LIGHT OF THE FACT THIS WAS A JURY QUESTION, AS WAS FOUND IN TIME PROMOTIONS, GOING BACK TO THE ISSUE OF THE BUSHI VERSUS STENOCORD DECISION. THE COURT: SECOND. LET ME ASK THE BIGGER PICTURE FOR A

HOW DO YOU SAY THE NAME? MR. SPRINGER: THE COURT: "SIGH-STAR."

WHAT HAPPENED TO THE P? P IS SILENT. PSYSTAR.

MR. SPRINGER: THE COURT:

ALL RIGHT.

SO PSYSTAR IS SELLING COMPUTERS THAT USE THE APPLE OPERATING SYSTEM? JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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MR. SPRINGER:

PSYSTAR IS SELLING COMPUTERS THAT ARE

CAPABLE OF USING THE MAC OS, CORRECT. THE COURT: WHEN YOU REVIEW -- NOT REVIEW, BUT WHEN

PSYSTAR SELLS THEM, IT DOESN'T HAVE THE OPERATING SYSTEM ON IT. MR. SPRINGER: EVERY OPERATING SYSTEM THAT IS IT

OPERATING ON A PSYSTAR COMPUTER HAS BEEN LEGALLY PURCHASED. IS EITHER AN OFF-THE-SHELF COPY OR PURCHASED ON LINE. DIFFERENCE HERE IS PSYSTAR -THE COURT: I THOUGHT APPLE SAID THAT THE -- YOU THE

CAN'T GET THE OPERATING SYSTEM EXCEPT THROUGH A LICENSE TO USE IT WITH VERY SPECIFIED EQUIPMENT. MR. SPRINGER: YOU CAN WALK INTO AN APPLE STORE AND THE MAC OS OPERATING

BUY THE APPLE MAC OS OPERATING SYSTEM.

SYSTEM HAS BEEN DESIGNED IN SUCH A WAY IT WILL NOT OPERATE ON WHAT WE REFER TO IN OUR COUNTERCLAIM, IT WILL NOT OPERATE ON ANYTHING OTHER THAN APPLE-LABELED COMPUTER HARDWARE. THERE IS

SPECIFIC CODE PUT INTO THE MAC OS THAT PREVENTS IT FROM OPERATING ON ANYTHING OTHER THAN APPLE-LABELED COMPUTER HARDWARE. THE COURT: IF THAT'S TRUE, HOW DO YOU SELL YOUR

COMPUTERS USING THE OS SYSTEM? MR. SPRINGER: PSYSTAR SELLS COMPUTERS THAT USE A

LEGITIMATELY PURCHASED MAC OS COPY FROM AN APPLE STORE, FROM ON LINE, BUT THEY HAVE ALSO DEVELOPED THEIR OWN CODE THAT ALLOWS IT TO OPERATE ON A NON-APPLE-LABELED COMPUTER SYSTEM. JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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THE COURT:

SO IT OVERRIDES THOSE, THAT EMBEDDED

CODE, THAT IT SOMEHOW GETS AROUND IT? MR. SPRINGER: IN A VERY SIMPLISTIC ANSWER, YES.

YES, IT BASICALLY -- IT BRIDGES THE GAP THAT PREVENTS MAC OS FROM RUNNING ON ANYTHING OTHER THAN APPLE-LABELED COMPUTER HARDWARE IN THAT PSYSTAR HAS DEVELOPED SOMETHING NEW THAT ALLOWS THAT MAC OS TO OPERATE ON SOMETHING OTHER THAN THE APPLE-LABELED COMPUTER HARDWARE. THAT OBVIOUSLY INTRODUCES AN

ELEMENT OF COMPETITION WITH APPLE WHICH PREVIOUSLY WAS THE ONLY MANUFACTURER, THE ONLY SELLER OF APPLE-LABELED HARDWARE OR COMPUTER SYSTEM THAT WAS CAPABLE OF OPERATING THE MAC OS. SO PSYSTAR'S ISSUE, TO CORRECT A STATEMENT OF COUNSEL FOR APPLE, PSYSTAR DOESN'T HAVE AN ISSUE WITH APPLE REFUSING TO LICENSE. COPY OF THE MAC OS. YOU CAN WALK INTO ANY STORE AND BUY A THE ISSUE IS -- PSYSTAR'S ISSUE MORE

SPECIFICALLY WITH APPLE IS THEIR ANTI-COMPETITIVE CONDUCT. THE COURT: BUT IF THEY DON'T AGREE THAT THE OS

SYSTEM COMPETES WITH THE MICROSOFT SYSTEM AND LINUX SYSTEM AND VARIOUS OTHER OPERATING SYSTEMS -MR. SPRINGER: THE VARIOUS OPERATING SYSTEMS THAT

ARE OUT THERE, CORRECT, THEY DO PROVIDE AT SOME LEVEL, SOME FUNDAMENTAL LEVEL, SIMILAR FUNCTIONALITY, BUT THE ANALYSIS WITH RESPECT TO WHAT CONSTITUTES THE RELEVANT MARKET GOES FAR BEYOND JUST WHAT CONSTITUTES SIMILAR FUNCTIONALITY. GOING BACK TO THE STENOCORD DECISION, ONE OF THE JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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KEYSTONES THEY ADDRESSED IN THAT DECISION WITH RESPECT TO FINDING A SINGLE PRODUCT MARKET WAS THAT THE PRODUCT AT ISSUE IN THAT CASE WAS SO UNIQUE AND SO DOMINANT IN THE MARKET THAT IT ALLOWED FOR THEM TO DEFINE A SINGLE PRODUCT MARKET. THERE'S OTHER CASES AS WELL FROM THE SUPREME COURT. FOR EXAMPLE, ONE OF THE DUPONT DECISIONS IN 1957, THAT FOUND THAT THE SAME PAINT IN FABRIC PURCHASED BY ONE ENTITY CONSTITUTED ACTUALLY A DIFFERENT MARKET WHEN THE EXACT SAME PRODUCTS WERE PURCHASED BY ANOTHER ENTITY. SO NOT ONLY CAN YOU

HAVE A SINGLE PRODUCT MARKET, IT CAN ACTUALLY BE THE SAME PRODUCT IN DIFFERENT MARKETS. THESE ARE TWO CASES WHICH ARE ON VARIOUS ENDS OF THE EXTREME -- I'M SORRY -- DIFFERENT ENDS OF THE SPECTRUM, WHICH IS, AGAIN, WHY THE RELEVANT MARKET QUESTION IS A QUESTION FOR THE JURY. AS COUNSEL FOR APPLE APPROPRIATELY POINTS OUT, THE ALLEGATIONS MUST BE ASSUMED AS TRUE, AND THERE IS THE PLAUSIBLE ISSUE AS WELL, BUT PLAUSIBILITY WITH RESPECT TO TWOMBLY IS NOT -- PLAUSIBLE SHOULD NOT BE CONFUSED WITH PROBABILITY. WE

DON'T HAVE TO GIVE ORDERS OR TAKE BETS ON WHAT ARE THE CHANCES THIS CLAIM WILL SURVIVE TWOMBLY. IF ANYTHING, JUST RAISED THE

BAR, QUITE FRANKLY, WHAT WAS AN INSUFFICIENT PLEADING STANDARD. ALL IT DOES IS REQUIRE MORE THAN LABELS AND CONCLUSIONS; WHEREAS, IN THE PAST, UNDER THE OLD NOTICE PLEADINGS STANDARD, A COMPLAINANT COULD SIMPLY GO IN AND BASICALLY TAKE A FORM BOOK JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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AND SAY, I NEED TO ALLEGE X, Y, Z, DROP THAT INTO A PLEADING, AND THEY SATISFIED THE PLEADING REQUIREMENT. TWOMBLY RAISES THE BAR. DEGREE, IS MUCH ADO ABOUT NOTHING. COUNTERCLAIM IS VERY FACT SPECIFIC. TWOMBLY, TO A CERTAIN IN THIS CASE, PSYSTAR'S IT MAKES A NUMBER OF

ALLEGATIONS WITH RESPECT TO NOT ONLY THE SSNIP TEST, BUT ALSO WITH RESPECT TO -- IT DEFINES THE APPROPRIATE MARKETS, BUT IT ALSO DOES SO IN THE CONTEXT OF USING LANGUAGE FROM APPLE'S OWN COMPLAINT, DISCUSSING THE DIFFERENTIATION OF THE MAC OS VERSUS THE OTHER OPERATING SYSTEMS THAT MIGHT EXIST ON THE MARKET. SO, IN THAT SENSE, WHILE THERE ARE DIFFERENT OPERATING SYSTEMS ON THE MARKET, WE DON'T DENY THERE'S THE MAC OS, THERE'S THE WINDOWS OPERATING SYSTEMS, THERE'S ALSO LINUX AND A NUMBER OF OTHER OPERATING SYSTEMS. THE MAC OS IS

SO UNIQUE, IS SO DIFFERENTIATED, AND APPLE HAS EVIDENCED THIS IN BASICALLY PROSELYTIZING, THIS NOT ONLY WITH RESPECT TO THEIR ADVERTISING, BUT ALSO WITH RESPECT TO ITS PRICING MECHANISMS, AND ALSO WITH RESPECT TO ITS CUSTOMER BASE. APPLE ENJOYS A CUSTOMER BASE AND A DEGREE OF CUSTOMER LOYALTY THAT IS, QUITE FRANKLY, UNHEARD OF ANY IN OTHER INDUSTRY. APPLE HAS ROUTINELY BEEN RECOGNIZED YEAR AFTER

YEAR AFTER YEAR AS HAVING ONE OF THE MOST LOYAL CUSTOMER BASES. IT'S BECAUSE THEY KEEP COMING BACK TO THIS VERY UNIQUE, VERY DISTINCT, VERY SPECIAL PRODUCT IN THE MAC OS. APPLE USERS

WOULD NEVER BE CAUGHT DEAD, QUITE FRANKLY, SWITCHING OVER TO JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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ANOTHER OPERATING SYSTEM, AND THIS IS ANOTHER ASPECT THEY ADVERTISE HEAVILY. THE COURT: THERE ARE PEOPLE THAT LIKE A FORD PICKUP I DON'T THINK

TRUCK THAT WOULDN'T BE CAUGHT DEAD IN A CHEVY.

ANYBODY IS GOING TO SAY FORD AND CHEVY -- THAT ANYBODY HAS A MONOPOLY ON THE PICKUP TRUCK MARKET. MR. SPRINGER: I APPRECIATE THE ANALOGY, BUT THE

REALITY IS, IN GOING BACK TO THE ORACLE DECISION, FORD AND CHEVY PICKUP TRUCKS ARE TWO VERY DISTINCT MARKETS. THE COURT: WHAT IS SO SPECIAL ABOUT THE SOFTWARE

VERSUS OTHER KINDS OF PRODUCTS? MR. SPRINGER: WELL, LOOKING AT APPLE'S OWN IF YOU WILL ALLOW ME

COMPLAINT, THEY TALK ABOUT THE MAC OS. JUST ONE SECOND?

THEY TALK ABOUT MAC COMPUTERS BEING FAMOUS

FOR EASE OF USE, INNOVATIVE INDUSTRIAL DESIGN -- I'M SORRY. THAT'S PARAGRAPH THREE OF THEIR COMPLAINT. PARAGRAPH FOUR OF THE COMPLAINT, THEY TALK ABOUT THE TENTH GENERATION OF THEIR OPERATING SYSTEM. "MAC OS X REVOLUTIONIZED OPERATING SYSTEM ARCHITECTURE, ADDING EXTRAORDINARY CAPABILITIES, SPEED AND STABILITY. APPLE'S MOST RECENT VERSION OF

THE MAC OS X, VERSION 10.5, KNOW AS LEOPARD, HAS BEEN DESCRIBED BY REVIEWERS AS, 'VISUALLY STUNNING,' 'POWERFUL, POLISHED AND CAREFULLY CONCEIVED,' AND 'ELEGANT'." JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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THE COURT:

SLOW DOWN JUST A LITTLE. I APOLOGIZE.

MR. SPRINGER:

OTHER REVIEWERS HAVE SAID -- AND THIS IS AGAIN FROM PARAGRAPH FOUR OF THEIR COMPLAINT. QUOTE: "THE GRACE OF LEOPARD'S INTERFACE ELEMENTS MAKES PRODUCTIVITY MORE PLEASURABLE WITH A MAC, ALL THE RESULT OF YEARS OF HARD, DILIGENT WORK BY THE DEVELOPMENT TEAMS AT APPLE," UNQUOTE. GOING TO PARAGRAPH FIVE, THEY TALK ABOUT THE MAC OS COMBINING THE USE OF COLOR, TRANSPARENCY, ANIMATION TOGETHER WITH THE OVERALL ARRANGEMENT AND SET UP OF VARIOUS ICONS IN A UNIQUE AND CREATIVE MANNER. "IN ADDITION, THE FINDER TOOLBAR CONTAINING THE FAMOUS APPLE MARK IS COMBINED WITH A DISTINCTIVE THREE-DIMENSIONAL APPLICATIONS BAR (OR DOCK) ON WHICH VARIOUS ICONS RESIDE. THE DISTINCTIVE NONFUNCTIONAL OTHER REVIEWERS HAVE SAID,

COMBINATION OF ELEMENTS THAT MAKES UP THE MAC OS X USER INTERFACE IS WELL-KNOWN TO CONSUMERS AND HAS BECOME ASSOCIATED WITH APPLE MAC OS X LEOPARD." THE REALITY IS APPLE TOUTS THE DISTINCTIVENESS OF THIS OPERATING SYSTEM, AND THEN IN THE CONTEXT OF THIS MOTION TO DISMISS, THEY SIMPLY SAY IT'S JUST ANOTHER PIECE OF SOFTWARE. THEY CAN'T HAVE IT BOTH WAYS. THE COURT: ALL RIGHT. THANK YOU.

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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MR. SPRINGER: MR. GILLILAND:

THANK YOU. YOUR HONOR, VERY BRIEFLY.

IN MY HOUSE HALF OF THE REFRIGERATOR IS PEPSI AND HALF IS COKE. ANOTHER. COUNSEL REFERS TO THE DUPONT CASE AND THE UNITED STATES VERSUS ORACLE CASE. PAGE 7 OF OUR REPLY BRIEF. IN THE DUPONT CASE, THE SUPREME COURT SAID: "THE POWER THAT, LET US SAY, AUTOMOBILE OR SOFT DRINK MANUFACTURERS HAVE OVER THEIR TRADEMARK PRODUCTS IS NOT THE POWER THAT MAKES AN ILLEGAL MONOPOLY." IN THE ORACLE CASE JUDGE WALKER SAID: "JUDICIAL REJECTION OF MARKETS NARROWLY DEFINED TO A SINGLE MANUFACTURER'S PRODUCT HAS BEEN EVEN MORE PRONOUNCED THAN JUDICIAL SKEPTICISM ABOUT NARROWLY DEFINED SUBMARKETS." FINALLY, COUNSEL AGAIN MENTIONED THE SSNIP, SMALL BUT SIGNIFICANT NON-TRANSITORY INCREASE IN PRICE, BUT HE DID NOT TALK ABOUT THE PRICE OF THE OPERATING SYSTEMS. THE WE QUOTE FROM BOTH OF THEM ON THAT DOESN'T MEAN THEY DON'T COMPETE WITH ONE

ALLEGATIONS IN THE COMPLAINT TO WHICH HE REFERRED THE COURT TALK ABOUT THE PRICE OF THE COMPUTERS. THAT DOES NOT HELP

ESTABLISH A SEPARATE SINGLE BRAND MARKET FOR THE OPERATING SYSTEMS. JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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THAT'S ALL I HAVE, YOUR HONOR. THE COURT: ALL RIGHT. WE NEED TO ADDRESS THE --

BECAUSE, REGARDLESS OF THE OUTCOME OF THIS MOTION, WE HAVE THE OTHER COMPLAINT. WE HAVE A CMC TODAY, RIGHT? YES, YOUR HONOR. THAT'S CORRECT.

MR. GILLILAND: THE COURT:

ALL RIGHT.

I'VE READ YOUR STATEMENT. I WANT TO MAKE SURE THAT

LET'S TALK ABOUT DATES AND SO FORTH.

EVERYONE KNOWS THAT MEGAN CHUNG WHO IS COUNSEL ON THIS SIDE WAS MY LAW CLERK ABOUT FOUR YEARS AGO, FIVE YEARS AGO, SOMEWHERE IN THERE. I DON'T REGARD THAT AS ANY KIND OF A DISQUALIFICATION

ISSUE, BUT I WANT TO MAKE SURE YOU ARE AWARE OF THAT. ARE YOU AWARE OF THAT ON YOUR SIDE? MR. SPRINGER: WE BECAME AWARE OF THIS ISSUE

YESTERDAY, YOUR HONOR, AND WE ARE AT THIS POINT STILL THINKING ABOUT HOW WE WANT TO ADDRESS THAT ISSUE. THE COURT: WELL, WHAT'S THE PROBLEM? WHILE WE HAVE NO DOUBT THAT YOUR

MR. SPRINGER:

HONOR WOULD HAVE NO BIAS ONE WAY OR THE OTHER, WE ARE NOT SUGGESTING THAT IN ANY WAY, BASED ON THE GENERAL EXPERIENCE THAT ANY LAW CLERK WOULD HAVE FOR ANY JUDGE, AND WE HAVE NO REASON TO BELIEVE MS. CHUNG'S EXPERIENCE WAS DIFFERENT, AND IF IT WAS, PLEASE FEEL FREE TO CORRECT ME, THAT SHE HAD SPECIAL INSIGHT INTO THE DELIBERATION PROCESS, THE WAY YOUR POTENTIAL THINKING WORKED WITH RESPECT TO HOW YOU LOOK AT VARIOUS DIFFERENT ISSUES. JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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MS. CHUNG'S BIOGRAPHY ON THE TOWNSEND WEBSITE THAT SHE WAS RESPONSIBLE FOR, QUOTE, "ALL OF THE PATENT, TRADEMARK AND COPYRIGHT CASES" THAT WERE BEFORE YOUR BENCH. WHILE OUR COUNTERCLAIM IS OBVIOUSLY AN ANTITRUST ISSUE, APPLE'S CLAIMS RELATE SPECIFICALLY TO INTELLECTUAL PROPERTY, NAMELY COPYRIGHT AND TRADEMARK. SO, IN THAT SENSE,

MS. CHUNG MAY HAVE EFFECTIVELY WHAT IS INSIDE INFORMATION INTO HOW YOUR HONOR'S MIND MIGHT WORK WITH RESPECT TO COMING TO A CONCLUSION ON CERTAIN ISSUES. THE COURT: WELL, DO YOU -- ARE YOU SAYING THAT A

LAW CLERK CAN NEVER APPEAR BEFORE THE JUDGE THAT THEY WORKED FOR? MR. SPRINGER: PERSONALLY, FOR MYSELF, YOUR HONOR, I

WOULD ASK -- I WOULD NEVER -- I'VE APPEARED BEFORE A JUDGE -- I CLERKED FOR THE SUPERIOR COURT IN SANTA CLARA COUNTY, AND I WOULD NEVER ASK A JUDGE BEFORE ME TO HEAR A CASE IN WHICH I WAS INVOLVED. THAT IS ME PERSONALLY. AGAIN, I'M NOT SUGGESTING

YOUR HONOR WOULD HAVE ANY SORT OF BIAS ONE WAY OR ANOTHER, BUT WE ARE DISCUSSING THE ISSUE OF MRS. CHUNG'S INVOLVEMENT IN THIS CASE. THE COURT: MIND ON THIS? MR. SPRINGER: WE CAN PROBABLY RESOLVE THIS IN THE HOW LONG DO YOU NEED TO MAKE UP YOUR

NEXT 24 HOURS, YOUR HONOR. THE COURT: ALL RIGHT. WELL, IF YOU ARE GOING TO

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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MAKE A MOTION ON THIS, I'LL GIVE YOU UNTIL MONDAY AT NOON TO MAKE ANY MOTION FOR RECUSAL, AND IF THAT IS MADE, THEN I WILL HOLD UP ANY RULING ON THIS CASE, PENDING THE OUTCOME OF -- BUT YOU SHOULD -- I WILL SAY I DON'T THINK IT'S A BASIS FOR DISQUALIFICATION, AT LEAST IN TERMS OF HOW I FEEL IT WOULD HAVE ANY EFFECT, BUT -- AND I KNOW WHAT THE NORMAL PRACTICE IS. THE

NORMAL PRACTICE IS THAT A JUDGE, AT LEAST IN THIS DISTRICT, I THINK COUNTRYWIDE, ROUTINELY HEAR CASES IN WHICH ONE OF THEIR FORMER LAW CLERKS IS A PARTY -- OR COUNSEL, I MEAN. MIGHT FIND SOME CASE LAW I DON'T KNOW ABOUT. BUT YOU

IF IT IS A LEGAL

BASIS FOR DISQUALIFICATION, THEN, OF COURSE, I WILL HONOR THAT. MR. SPRINGER: AGAIN, WE HAVE NO DISAGREEMENT OR AND, AGAIN, WE FOUND

WITH YOUR HONOR PRESIDING OVER THIS CASE. ABOUT THIS LATE YESTERDAY.

IT DOES COME BACK TO AN ISSUE,

HOWEVER, THAT A GOOD 15, 20 YEARS AGO, WE DID -- OUR FIRM DID PATENT WORK FOR APPLE, AND WE WERE REQUIRED TO MAKE CERTAIN REPRESENTATIONS CONCERNING THAT INFORMATION, AND OTHER ATTORNEYS AT OUR FIRM WHO, I GUESS, WORKED FOR APPLE MANY, MANY YEARS AGO, IN THAT SAME TIMEFRAME WERE ALSO ASKED TO BE DISQUALIFIED AND WALLED OFF FROM ANY INVOLVEMENT IN THE CASE. THE COURT: BUT LAWYERS ARE ONE THING. THAT'S

BECAUSE OF CONFIDENTIAL INFORMATION AND DUTIES OF LOYALTY THAT YOU HAD TO APPLE, I GUESS. MR. SPRINGER: THE COURT: ABSOLUTELY.

BUT THERE'S NO WAY THAT MS. CHUNG EVER

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WORKED ON THIS CASE, BECAUSE THIS CASE IS BRAND NEW, AND SHE WAS HERE FOUR OR FIVE YEARS AGO. MR. SPRINGER: THE COURT: AS I SAID, YOUR HONOR --

SO THIS CASE -- NO ONE WAS EVEN THINKING

ABOUT THIS CASE FOUR OR FIVE YEARS AGO. MR. SPRINGER: PROBABLY RESOLVE THIS. THE COURT: YOU THINK ABOUT IT. BY MONDAY YOU ABSOLUTELY, YOUR HONOR. WE CAN

DECIDE IF YOU ARE GOING TO FILE THAT AT NOON. ALL RIGHT. NOW, ON THE ASSUMPTION THAT I'M GOING TO IT'S GOING

STAY ON THIS CASE, LET ME GIVE YOU YOUR SCHEDULE.

TO BE PRETTY CLOSE TO WHAT YOU ASKED FOR, BUT IT WILL BE SLIGHTLY DIFFERENT. DISCLOSURES. YOU SHOULD HAVE ALREADY MADE YOUR INITIAL YOU

I'M NOT GOING TO GIVE YOU UNTIL NOVEMBER 30. BUT I'LL GIVE YOU UNTIL

SHOULD HAVE ALREADY DONE THEM.

NOVEMBER 14TH TO MAKE YOUR INITIAL DISCLOSURES.

YOU SHOULD NOT

HAVE TAKEN IT UPON YOURSELF TO PRESUME YOU COULD JUST BLOW OFF THE DEADLINES. EXPLAIN TO ME WHY YOU DID THAT. MR. GILLILAND: YOUR HONOR, THE REASON THAT WE

DISCUSSED AMONG OURSELVES POSTPONING UNTIL THE END OF THE MONTH WAS BECAUSE WE THOUGHT THERE MIGHT BE GUIDANCE AS TO WHETHER THERE WERE OR WERE NOT ANTITRUST ISSUES IN THE CASE. THE COURT: YOU HAVE YOUR OWN CASE. YES.

MR. GILLILAND:

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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THE COURT: ANTITRUST GOES AWAY?

IS THAT GOING TO EVAPORATE EVEN IF THE

MR. GILLILAND: THE COURT:

ABSOLUTE NOT.

YOU STILL HAVE YOUR OWN ISSUES, AND YOU

STILL HAVEN'T DISCLOSED. MR. GILLILAND: YES, YOUR HONOR. THE COURT: WELL, NOVEMBER 14TH. WE WILL DO THAT. WE DO HAVE THE AFFIRMATIVE CASE,

MR. GILLILAND: THE COURT:

HAVE YOU HEARD THE IRON CURTAIN SPEECH? NO, SIR. NO, SIR. I HAVE A FEELING WE'RE

MR. GILLILAND: MR. SPRINGER:

THE COURT:

YES.

WHAT DOES RULE 37(C) SAY? MR. SPRINGER: I WILL BE ON HONEST THAT I CAN'T TELL

YOU WHAT RULE 37(C) SAYS OFF THE TOP OF MY OF HEAD. THE COURT: MAKE THIS UP. I'LL TELL YOU WHAT IT SAYS. I DIDN'T

ARE THERE LAW STUDENTS HERE? SEE, THEY DON'T KNOW.

WHAT DOES BUT LET

RULE 37(C) SAY?

NOBODY KNOWS.

ME TELL YOU WHAT IT SAYS. IT SAYS IF YOU DON'T DISCLOSE IT UNDER RULE 26 AND YOU ARE REQUIRED TO, THEN YOU MAY NOT USE THAT ITEM OR USE THAT WITNESS FOR MOTION, FOR TRIAL, FOR ANYTHING, PERIOD, UNLESS ONE OF TWO THINGS IS SHOWN. ONE, THAT IT WAS HARMLESS, AND, TWO --

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OR, TWO, THIS IS OR, THAT THERE WAS A SUBSTANTIAL JUSTIFICATION FOR A LATE DISCLOSURE. NOW, AN EXAMPLE OF A LATE DISCLOSURE THAT'S JUSTIFIED. LET'S SAY HALFWAY THROUGH THE DISCOVERY PERIOD YOU

GET AN INTERROGATORY ANSWER FROM THE OTHER SIDE, AND, FOR THE FIRST TIME IT PUTS YOU ON FAIR NOTICE OF SOME NEW ISSUE IN THE CASE. NO PROBLEM. THEN YOU HAVE A REASONABLE PERIOD OF TIME

IN WHICH TO UPDATE YOUR DISCLOSURES TO SAY, TO MEET THIS NEW ISSUE, HERE'S SOME ADDITIONAL DISCLOSURES. OKAY. AN EXAMPLE OF HARMLESS. LET'S SAY THAT ON NOVEMBER 15TH, WHICH IS ONE DAY AFTER THIS CUTOFF, YOU MAKE A ONE-DAY LATE DISCLOSURE. PROBABLY HARMLESS. I'LL SAY "PROBABLY," BECAUSE AS SOON AS I THAT'S PERFECTLY

SAY ONE DAY IS OKAY, YOU START THINKING THAT ONE MONTH IS OKAY. WRONG. AS SOON AS DISCOVERY STARTS, AND PREJUDICE STARTS TO SET IN, AND DEPOSITIONS START TO BE TAKEN, AND OTHER THINGS CONTINUE, THE DAY COMES WHEN THERE'S TOO MUCH RELIANCE AND PREJUDICE. SO I DON'T KNOW WHERE THE CUTOFF IS. IT DEPENDS ON

THE FACTS AND CIRCUMSTANCES. WHAT I DO KNOW IS THIS, I DID WHAT YOU ARE DOING FOR 25 YEARS. FOR ALMOST THE -- FOR THE ENTIRE TIME THIS WAS WHAT I'D BE ABOUT TO TAKE A DEPOSITION, HALFWAY

WOULD HAPPEN:

THROUGH THE DISCOVERY PERIOD, AND THEN THE OTHER SIDE WOULD DROP IN FRONT OF ME A STACK OF DOCUMENTS ANYWHERE FROM ONE TO JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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TWO INCHES AND SAY, HERE'S SOME ADDITIONAL DOCUMENTS; WE KNOW YOU ALREADY HAVE ALL OF THESE, BUT WE FOUND THEM IN A DIFFERENT FILE; THESE ARE JUST DUPLICATES; HERE YOU ARE; WE WANT TO MAKE SURE WE ARE GOING TO LEAN OVER BACKWARDS. OF THEM. I'D NEVER SEEN ANY IT WAS ALWAYS

NO ONE HAD PRODUCED THEM IN ANY FORM.

THE SAME SPEECH AND ALWAYS THE SAME RESULT.

IF I HAD HAD THOSE

IN THE EARLIER DEPOSITION, IT WOULD HAVE BEEN VERY USEFUL. NOW, THAT PROBABLY STILL GOES ON BUT NOT AS MUCH IN MY COURTROOM BECAUSE I MAKE THE IRON CURTAIN SPEECH. CURTAIN SPEECH IS THIS: THE IRON

ON NOVEMBER 15TH, WHICH IS ONE DAY AND IF YOU

AFTER NOVEMBER 14TH, THE IRON CURTAIN COMES DOWN.

DISCLOSE SOMETHING ONE DAY LATE, THE BURDEN WILL BE ON YOU TO SHOW IT'S HARMLESS OR THAT THERE IS A SUBSTANTIAL JUSTIFICATION. AND IF YOU DON'T, YOU CAN'T USE IT. UNDERSTOOD, YOUR HONOR.

MR. SPRINGER: THE COURT:

NOW, THE REASON I GIVE THIS SPEECH IS

WHEN I WAS FIRST ON THIS JOB AND WE WERE TRYING CASES, I HAD TO EXCLUDE EVIDENCE UNDER RULE 37(C), BECAUSE, YOU SEE, THE LAWYERS ALWAYS SAY, OH, HE'S A STICKLER, BUT ONE SIDE OR THE OTHER ALWAYS STANDS UP AND SAYS, EXCLUDE IT. IF YOU BOTH WANT TO AGREE -- IF YOU WERE TO AGREE THIS WILL BE TRIAL BY AMBUSH AND THE RULES DON'T COUNT, I WILL BE VERY GRATEFUL TO YOU BECAUSE I WOULDN'T HAVE TO ENFORCE A THING. I COULD NEVER GET TWO PEOPLE TO AGREE TO THAT, SO I

HAVE TO ENFORCE THE RULES AS THEY ARE, UNLESS YOU AGREE TO JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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RELAX THEM IN WRITING. BUT SINCE I HAVE BEEN GIVING THIS SPEECH, WHICH IS NOW ABOUT SEVEN OR EIGHT YEARS, I HAVE NOTICED THAT THE LAWYERS DO A PRETTY GOOD JOB ON THEIR DISCLOSURES, AND I DON'T HAVE TO EXCLUDE VERY MANY ITEMS ANYMORE. BUT I WILL HAVE NO PANGS OF

CONSCIENCE WITH YOU WALKING THROUGH THOSE DOORS WITH YOUR ARM AROUND THE CLIENT EXPLAINING WHY THE BEST PIECE OF EVIDENCE CANNOT COME INTO EVIDENCE ON ACCOUNT OF YOUR FAILURE TO DISCLOSE IT. SO, THAT'S THE IRON CURTAIN SPEECH. IT'S A BAD NAME

BECAUSE IT MAKES IT SOUND LIKE I'M A COMMUNIST, BUT I'M NOT. IT'S JUST A GOOD ANALOGY. MR. GILLILAND: THE COURT: CURTAIN" COMES FROM? MR. SPRINGER: CHURCHILL, WAS IT NOT? THE COURT: YES. VERY GOOD. I BELIEVE IT WAS A SPEECH BY WINSTON OR PITTSBURGH STEELERS FAN.

NOW, WHO KNOWS WHERE THE TERM "IRON

MR. SPRINGER: THE COURT:

HISTORY DEGREE WORKS FOR SOMETHING.

WHERE WAS THAT SPEECH GIVEN? I BELIEVE -- I DO BELIEVE IT WAS AN

MR. SPRINGER:

AMERICAN UNIVERSITY, WAS IT NOT? THE COURT: YES, IT WAS. AND I BELIEVE IT WAS -YOU CONTINUE ON,

MR. SPRINGER: THE COURT:

THIS IS LIKE CASH CAB.

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YOU GET UP TO $300. WHAT WAS THE UNIVERSITY? MR. SPRINGER: SCHOOL OF -THE COURT: NO. ACTUALLY, I TAKE THAT BACK. WHAT STATE WAS IT IN?

I BELIEVE IT WAS JOHN F. KENNEDY

MR. SPRINGER: THE COURT: THEN.

JOHN F. KENNEDY SCHOOL DIDN'T EXIST

HE WASN'T PRESIDENT YET. MR. SPRINGER: IT WAS -- I WANT TO SAY GEORGE

WASHINGTON, BUT I THINK THAT'S WRONG. THE COURT: NAME OF THE COLLEGE. I KNEW IT WAS 1946. ONE LAWYER ASKED ME ONE DAY, WAS I THERE? HOW OLD DO YOU THINK I AM? ALL RIGHT. I WAS ONLY ONE YEAR OLD. YOU ALL TAKE I SAID, IT WAS IN MISSOURI, AND I BLANKED ON THE IT'S A TINY LITTLE COLLEGE IN MISSOURI.

SO NOW I MADE MY SPEECH.

IT TO HEART AND DO THE RIGHT THING. OKAY. NEXT DATE IS GOING TO BE LEAVE TO ADD ANY NEW

PARTIES OR PLEADING AMENDMENTS, MUST BE SOUGHT BY NOVEMBER 30. FACT DISCOVERY CUTOFF WILL BE JUNE 26. WANTED. I'M GOING TO REVISE SLIGHTLY YOUR OTHER DATE. EXPERT REPORTS ARE DUE ALSO ON JUNE 26TH, BUT THERE'S A SEQUENCING OF THEM SO THAT THE REBUTTAL REPORTS AND SO FORTH COME AFTER THAT. JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842 THE THAT'S THE DATE YOU

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LAST DATE TO FILE FOR SUMMARY JUDGMENT IS GOING TO HAVE TO BE -- YOU WANT IT ON SEPTEMBER 24. BACKWARDS FROM THE WAY YOU DID IT. WHEN YOU HAVE TO FILE YOUR MOTIONS. FINAL PRETRIAL CONFERENCE -- YOU WANT A TRIAL ON NOVEMBER 9. THAT'S FINE. FINAL PRETRIAL WILL BE OCTOBER 26, I HAVE TO WORK AUGUST 20 IS

LET'S SEE.

WHICH IS WHAT YOU WANTED. IS THIS A JURY CASE? MR. GILLILAND: MR. SPRINGER: THE COURT: YES, YOUR HONOR. YES, YOUR HONOR. JURY CASE.

GREAT.

AND ON ADR, WHAT DID YOU ASK ME TO DO? MR. GILLILAND: BEFORE THE END OF JANUARY. THE COURT: END OF JANUARY? MR. GILLILAND: THE COURT: YES, SIR. YOU MEAN COMPLETE THE MEDIATION BY THE WE'VE AGREED TO GO TO JAMS SOMETIME

ALL RIGHT. WE'VE AGREED ON A -HAVE YOU

MR. SPRINGER: THE COURT:

I'LL PUT DOWN JAMS MEDIATION.

GOT SOMEBODY LINED UP ALREADY? MR. GILLILAND: WEINSTEIN'S CALENDAR. THE COURT: JANUARY 31. JAMS MEDIATION WILL BE COMPLETED BY THAT'S FINE WITH ME. 2009. ANY OTHER WE HAVE GOTTEN OURSELVES ON JUDGE

ALL RIGHT.

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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ISSUES YOU WANT ME TO DISCUSS OR TALK ABOUT TODAY? MR. GILLILAND: MR. SPRINGER: THE COURT: MANAGEMENT ORDER OUT. NOW, I WILL BE YOUR DISCOVERY REFEREE. THOSE GUIDELINES. PLEASE READ NO, SIR. I THINK THAT'S ALL. I WILL GET THIS CASE

ALL RIGHT.

DID YOU READ MY GUIDELINES ABOUT DISCOVERY? YES, WE HAVE. YES, SIR.

MR. GILLILAND: MR. SPRINGER: THE COURT: CASE? MR. GILLILAND:

ARE YOU LAWYERS GOING TO BEHAVE IN THIS

WE HAVE HAD A GREAT WORKING I DON'T ANTICIPATE ANY

RELATIONSHIP SO FAR, YOUR HONOR. PROBLEMS. THE COURT:

YOU HAVEN'T DISCLOSED ANYTHING YET. THAT'S WHY IT'S SO PERFECT. WE DON'T WANT TO RUIN IT. WELL, THEN IF YOU DO HAVE A

MR. GILLILAND: MR. SPRINGER: THE COURT:

ALL RIGHT.

DISPUTE, PLEASE READ THOSE GUIDELINES AND SEND IN A SHORT THREE-PAGE LETTER. I USUALLY GET IT RESOLVED VERY QUICKLY, AND I WILL WORK VERY HARD

THEN I WORK HARD TO KEEP YOU ON TRACK. ON THIS SCHEDULE.

I GET THE ORDERS OUT REASONABLY QUICK, BUT I'M GIVING YOU MORE

THAT MEANS YOU'VE GOT TO WORK HARD, TOO. OR LESS THE SCHEDULE THAT YOU WANT. MR. GILLILAND: YES, YOU DID.

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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THE COURT:

SO PLEASE STICK TO IT AND BE READY AND

DON'T ASK FOR ANY CONTINUANCES UNLESS THERE'S A VERY GOOD REASON. TRYING TO SETTLE THE CASE IS NEVER A GOOD REASON. IF

THAT WERE ENOUGH, NO CASE WOULD EVER GO ANYWHERE. TO DO TWO TRACKS; SETTLEMENT, LITIGATION. THEM.

SO YOU HAVE

WORK HARD ON BOTH OF

BE READY TO GO TO TRIAL WHEN THE DAY COMES, BECAUSE ALMOST ALWAYS I GET THE CASES TO TRIAL. I THINK I'VE ONLY HAD SO IT USUALLY

TO TRAIL THREE CASES IN NINE AND A HALF YEARS.

WORKS OUT THAT YOU WILL BE IN TRIAL ON THIS CASE ON NOVEMBER 9 OF NEXT YEAR UNLESS YOU SETTLE YOUR CASE. MR. GILLILAND: THE COURT: WE'LL BE READY, YOUR HONOR. YOU ALL MAYBE -- I'M JUST

ALL RIGHT.

GOING TO WAIT AND SEE ON WHAT YOU DO ON MONDAY AT NOON, AND IF YOU DON'T, THEN I CAN'T PROMISE YOU I'LL HAVE AN ORDER NEXT WEEK, BUT CERTAINLY THE FOLLOWING WEEK I WOULD HAVE AN ORDER ON YOUR MOTION TO DISMISS. OKAY. THANK YOU, COUNSEL. THANK YOU FOR YOUR TIME, YOUR HONOR.

MR. GILLILAND: THE COURT:

YOU'RE MOST WELCOME.

(PROCEEDINGS ADJOURNED.)

JOAN MARIE COLUMBINI, CSR, RPR OFFICIAL COURT REPORTER, USDC, 415-255-6842

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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 S/ JOAN MARIE COLUMBINI JOAN MARIE COLUMBINI, CSR 5435, RPR THURSDAY, NOVEMBER 13, 2008 CERTIFICATE OF REPORTER I, JOAN MARIE COLUMBINI, OFFICIAL REPORTER FOR THE UNITED STATES COURT, NORTHERN DISTRICT OF CALIFORNIA, HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS IN C 08-03251 WHA, APPLE INC. V.PSYSTAR CORPORATION, WERE REPORTED BY ME, A CERTIFIED SHORTHAND REPORTER, AND WERE THEREAFTER TRANSCRIBED UNDER MY DIRECTION INTO TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS AS BOUND BY ME AT THE TIME OF FILING. THE VALIDITY OF THE REPORTER'S CERTIFICATION OF SAID TRANSCRIPT MAY BE VOID UPON DISASSEMBLY AND/OR REMOVAL FROM THE COURT FILE.