Realnetworks, Inc. et al v. DVD Copy Control Association, Inc. et al

Filing 241

Transcript of Proceedings held on 03/23/09, before Judge MARILYN H. PATEL. Court Reporter/Transcriber MARGARET "MARGO" GURULE, Telephone number 415-504-4204 or [e-mail]. 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 6/29/2009. (mng, COURT STAFF) (Filed on 4/2/2009)

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Pages 1 - 47 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE MARILYN H. PATEL REALNETWORKS, INC., ) ) Plaintiffs, ) ) vs. )NO. C 08-4548 MHP ) DVD COPY CONTROL ASSOCIATES, et ) al., ) )SAN FRANCISCO, CALIFORNIA Defendant. )Monday, March 23, 2009 )2:41 P.M. ___________________________________) ) UNIVERSAL CITY STUDIOS PRODUCTIONS,) ) Plaintiffs, ) ) vs. )NO. C 08-4719 MHP ) REALNETWORKS, INC., ) ) Defendant. ) ___________________________________) (HEARING ON MOTIONS)

APPEARANCES:

For RealNetworks Entities: Wilson, Sonsini, Goodrich & Rosati, PC, One Market Street, Spear Tower - Suite 3300 San Francisco, CA 94105 [phone] BY: MICHAEL A. BERTA, ESQ. and LEO P. CUNNINGHAM, ESQ. Reported by: MARGARET "MARGO" GURULE, CSR #12976 Pro Tem Court Reporter - US DISTRICT COURT 1

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APPEARANCES CONTINUED: For Realnetworks Entities: Bartlit, Beck, Herman, Palenchar & Scott 1899 Wynkoop Street - 8th Floor Denver, CO 80202 [phone] BY: DONALD SCOTT, ESQ. For Disney Enterprises, et al.: Munger, Tolles & Olson 560 Mission Street 27th Floor San Francisco, CA 94105 [phone] BY: ROHIT K. SINGLA, ESQ. and BART H. WILLIAMS, ESQ. For DVD Copy Control Association, Inc.: Akin, Gump, Strauss, Hauer & Feld, LLP 580 California Street - 15th Floor San Francisco, CA 94104 [phone] BY: REGINALD D. STEER, ESQ.

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March 23, 2009; 2:42 p.m.; Courtroom #15, 18th Floor TONY BOWSER - Courtroom Deputy o0o PROCEEDING THE CLERK: Calling Civil 08-4548, Civil 08-4719,

Realnetworks, Inc. vs. DVD Copy Control Associates, et al. THE COURT: May I have your appearances, please. Leo Cunningham from Wilson, Sonsini,

MR. CUNNINGHAM:

Goodrich & Rosati on behalf of the RealNetworks entities, and I have some other people to introduce, if I may. THE COURT: Yes. So to my right is Robert Kimball.

MR. CUNNINGHAM:

Mr. Kimball is the Senior Vice-President and General Counsel of RealNetworks. He came down from Seattle at the Court's

direction for this hearing. THE COURT: Very good. Thank you.

MR. CUNNINGHAM: THE COURT:

And also here is William Way.

You guys are going to have some Yes.

responsibilities when you walk out of here today. MR. KIMBALL: Thank you.

MR. CUNNINGHAM:

William Way is the Deputy General

Counsel from RealNetworks who also came down from Seattle for the hearing. THE COURT: And thank you. And to my left is new counsel 3

MR. CUNNINGHAM:

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joining our team, Mr. Don Scott, from the Colorado Bar, who has been admitted pro hac vice for this matter. MR. SCOTT: THE COURT: Good afternoon, Your Honor. Good afternoon. And I believe my partner, Mike

MR. CUNNINGHAM: Berta, is also here. THE COURT: Yes.

Good afternoon. Bart

MR. WILLIAMS:

Good afternoon, Your Honor.

Williams on behalf of the defendants and counter-complainants, Motion Picture Studios. THE COURT: MR. STEER: Good afternoon. And I'm Reginald Steer on behalf of the

DVD Copy Control Association, Your Honor. THE COURT: Good afternoon. Who is going to be heard

on the motion to dismiss? MR. CUNNINGHAM: that motion on Friday. THE COURT: MR. STEER: Oh, really? Um-hum. Okay. Your Honor, we attempted to withdraw

And we stated to counsel that we did not

oppose the withdrawal of their motion. THE COURT: Well, I would assume that if they're Is that

going to withdraw it, you don't have any opposition. right, Counsel? And excuse me.

Well, that makes it easy, And But I 4

because you probably would have lost that one anyway. maybe you saw the handwriting on the wall on that one.

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don't know about how you can decide, you know, whether it's a contract of adhesion or not on a motion to dismiss. few facts. MR. CUNNINGHAM: I thought that might be the case, You need a

Your Honor, and I'm sorry we put you through the effort of figuring that out. THE COURT: Well, we might just issue the order

anyway, but we'll see. MR. STEER: THE COURT: through it. We would not object to that, Your Honor. We will weigh that one over, having gone

So then what we're in here about is both, I guess,

setting a new date for the preliminary injunction motion, which at this point seems like we should be up to the permanent injunction motion. And then the discovery that goes -- you Is that

know, the issues, I guess, that go along with that. correct? And then, of course, the spoliation issue. MR. CUNNINGHAM: Honor. MR. WILLIAMS: THE COURT: That's right, Your Honor.

I believe those are the issues, Your

That's correct.

Well, maybe what we

ought to do is work from this. date.

We are going to need a new

I understand a whole slew of papers came in, and I don't

know what your briefing schedule is or if the briefing is completed on the preliminary injunction. But as you know, I'm not available on the 1st. And 5

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that's awfully short after this. need some time in between.

And I thought you'd probably

In addition, I'm not sure if all

the discovery is done for the preliminary injunction motions. MR. SINGLA: Your Honor, this is Rohit Singla, I think I forgot to make an

Munger, Tolles and Olson. appearance. THE COURT: MR. SINGLA:

You didn't make an appearance. I apologize, Your Honor. I believe the But I

discovery is done, substantive discovery, on the motion. understand the Court -- we understand the Court is not

available, and we've been speaking to RealNetworks, the Wilson Sonsini firm, about a new date. And I think we have, at least from the defendant's perspective, a date to propose. We would propose a date at the

end of April, we believe April 27th, which I understand is available on the Court's calendar. I believe that the defense

counsel and the witnesses are generally available during that period. THE COURT: MR. SINGLA: THE COURT: What date? I'm sorry. That's a Monday. Starting on the 28th, then. I don't know. Have

Starting the 28th.

you checked with Mr. Bowser on that? MR. SINGLA: THE COURT: MR. SINGLA: We did check with Mr. Bowser. What did he say? I believe Mr. Bowser said on Friday, 6

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Thursday, that those dates were available.

We do have one

witness from the defense side, Ms. Marsha King, we are trying to track down and confirm. We believe she will be available

during that week, but that's one small caveat from our side. I understand from opposing counsel, Mr. Cunningham, that they are available that day except for their new co-counsel. But we have struggled very mightily over the

weekend with Mr. Cunningham to try to find dates that worked for everybody and all the witnesses, and that seems, from our perspective at least, to be the least problematic dates. MR. STEER: Your Honor, if I may add -- it's Reg Our expert,

Steer speaking on behalf of the DVD CCA. Dr. Kelly, is in trial that week.

We think we can work to Nevertheless,

schedule him so that he can handle both matters. our acquiescence is subject to his availability. MR. CUNNINGHAM: for us -THE COURT: Oh, it is?

Your Honor, that week is problematic

MR. CUNNINGHAM: unavailability.

Yes, it is, because of Mr. Scott's

Although he's new to the case, he had arranged

his schedule in light of the prior scheduling decisions that had been made, and therefore had to make commitments in at least another court around that week. So I know that he does not have the entirety of that week available. I don't know whether he can press anything to 7

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get some aspect of it available.

So I think you're going to

hear that we probably need to do a little bit more conferring. I will note that I think that we had initially been opposed to doing a piecemeal hearing and had requested that the days be continuous or contiguous. We no longer have any objection to

picking days as we can in order to make it a little easier to work with so many lawyers and witness's schedules. THE COURT: Well, what we need to do instead of

increasing the number of lawyers is decreasing the number of lawyers, and that might also assist in the objective. But Tony, what does that week, in fact, look like? Can I see the calendar? THE CLERK: THE COURT: THE CLERK: THE COURT: Sure. That's the 27th? That's the 29th. Um-hum. 29th. Um-hum. Well, can you -We might be

so Tuesday, Wednesday, Thursday are available. able to do Friday.

I'm not suggesting we're going to take all

of those days, but how many days do you think we need? MR. SINGLA: Your Honor, we believe we need two days.

The Court had indicated, I believe back in October, that the issues in which the Court was interested in hearing live testimony was the technology, our DVD function. There is a

dispute among the lawyers at least at that time about how it functioned, and also the license and some questions about the 8

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license.

And we think both sides can put forward one or two

experts and a couple of fact witnesses to deal with that in two days. THE COURT: Now, is this also going to include the

Facet technology, as well? MR. SINGLA: Yes, Your Honor. It's based on your We are prepared to

rulings on December 22nd, the last hearing. discuss and address the Facet issue also. THE COURT: Real DVD technology? MR. SINGLA:

How different is that technology from the

There are differences.

There are

specific differences, for example, on how we believe it circumvents ARccOS and RipGuard. pretty much the same thing. But fundamentally they do

And so we think they can be

addressed together in one hearing. THE COURT: What do you think? We have no doubt they can be I'm skeptical

MR. CUNNINGHAM:

addressed together in one hearing and should be. that we can complete it in two days. and maybe a little bit more.

I would have said three

I'm assuming three full days of

evidence when I say a three-day hearing, and assuming there would need to be some additional time before and after for opening and argument. None of the parties have ever worked through, nor have we invited the Court to direct us as to how you feel about 9

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openings, closings and further briefing. THE COURT: Openings, we don't need. You know, we

know what this case is about.

Let's just get to the evidence.

Closings, I'll give you -- you know, I think it would be helpful probably. MR. CUNNINGHAM: MR. SINGLA: Okay.

Your Honor, in terms of the timing and

the length of the hearing, from our perspective, we continue to believe this can be done in two days easily. We put on two

experts and a couple of fact witnesses to talk about the technology and the license, maybe some videotapes of some of the witnesses. Now, RealNetworks has identified about 16 or 17 witnesses designated for the hearing, 6 experts and something like 9 or 10 fact witnesses. And very frankly, from our And given

perspective, a lot of that seems very duplicative.

that there is extensive briefing, declarations from the various witnesses, depo excerpts, it doesn't seem to us the Court needs three or four days of witnesses coming in and telling the Court -- fundamentally, we believe that, on the technology, there's actually not a lot of room between the experts and the witnesses. I believe the Court will see that there is a lot of agreement about what Real DVD does, some disagreement about how you apply the law to those facts. 10

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MR. CUNNINGHAM:

Your Honor, I believe that the

actual number of witnesses we're likely to call is about a quarter of the 16 or so that we've disclosed. So I

realistically, I think it's going to be far fewer than that. still think it would be a mistake for people to plan their lives as if it will only take two days. THE COURT:

Well, what days that week, if any -- I'm

sorry, is it Mr. Scott -- yes, you -- are you available? MR. SCOTT: Your Honor, I had a hearing at a court in And my request, that Court

Delaware set for April 1st and 2nd.

moved it to -- I'm sorry -- yes, March 30th and April 1st were the dates that the Court gave me. THE COURT: April the 27th. MR. SCOTT: My -- I'm sorry. April 30th and May 1st. April 30th and Well, we're talking about the week of

I don't have a calendar in front of me.

May 1st, whatever days of the week those fall upon. THE COURT: That would be Thursday and Friday, I

Is that correct, Tony? MR. SCOTT: THE CLERK: MR. SCOTT: THE COURT: I thought so. That's correct, Your Honor. I could participate earlier in the week. Tuesday and Wednesday? Monday, we do fun

things like this.

But Tuesday and Wednesday of that week, And what's the following 11

which would be the 28th and the 29th.

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week like if we didn't quite finish?

I would like to do it as

contiguously, consecutively as possible. MR. WILLIAMS: the defendants. Your Honor, Bart Williams on behalf of

I have a trial starting on May 4th, Monday,

May 4th in Los Angeles. THE COURT: Is it going to go? I think so.

MR. WILLIAMS: THE COURT:

May I look at your calendar, Bart? Sure.

MR. WILLIAMS: THE COURT:

If we back up and -- April 30th. Your Honor, while you're looking, my

MR. CUNNINGHAM:

understanding was that the prior week, the reason it was problematic for certain of the parties was the unavailability of a particular expert witness. It may be more than that, and

I don't mean to belittle anyone's schedule. So that made me invite the consideration that if we could stagger the days, perhaps we could even move things up a little bit, go without the witness who I understood is an expert named Tollar, I think with an A-R, and then perhaps pick up that week of the 27th. THE COURT: Well, that's what we were just looking to

see, if we could put it on some Thursday or Friday? THE CLERK: THE COURT: MR. SINGLA: Thursday we have a hearing at 2:30. That's in the afternoon? Your Honor, perhaps we could -12

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THE COURT:

Could we do Friday and then Tuesday and

Wednesday of the following week? MR. SCOTT: Yes. Yes.

MR. CUNNINGHAM: THE COURT:

Would that work? That would work for us, Your Honor. So it will

MR. WILLIAMS: THE COURT:

Then why don't we plan that?

be Friday the 24th and then Tuesday and Wednesday, the 28th and 29th. Okay? MR. STEER: Again, Your Honor, those dates are all And so subject to his

difficult for our expert, Dr. Kelly.

availability, what I would like to have, you know, is a representation of some flexibility among the parties that we may need to put him on out of order in order to accommodate him. MR. CUNNINGHAM: THE COURT: MR. STEER: THE COURT: No problem. It's a bench hearing.

Well, that's fine. Of course.

But tell him to be available one of those

days, whichever one it is, I don't care. MR. SINGLA: Would the Court expect the schedule to

be 8:00 to 1:00 or 9:00 to 2:00 or something like that on those days? THE COURT: We might just do it most of the day, you

know, because it's -- you know, I do that -- I have that 13

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practice with respect to jury trials for the convenience of the jurors. So I would rather just get through this rather than So probably it would be 8:30 or 9:00

use that other schedule.

to 4:00, 4:30 or 5:00, whatever. MR. SINGLA: Your Honor, then one last issue before

we turn to the spoliation issues, just one procedural issue that we'd like to raise. If it's true that RealNetworks would

really only be having four or so witnesses out of the sixteen or so they've designated, we'd like to get those names so that we can start preparing, we can decide which witnesses we need to bring, start getting all those schedules done. And we haven't been able to get to an agreement with the other side about disclosure and exchange of witness names for live testimony. So I would ask the Court if there is a way

to have an agreement that those names be disclosed in the next day or two so that we can start planning. THE COURT: Well, we can set some dates by which

those things need to be accomplished -MR. SINGLA: THE COURT: Thank you, Your Honor. -- and also the briefing schedule. But

before doing that, I understood there were some issues with respect to this -- the nonCSS technologies and whether there was still some remaining discovery with regard to -- was it ARccOS and -- the other name is escaping me. MR. CUNNINGHAM: RipGuard. 14

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THE COURT:

RipGuard.

How could I forget that?

But

wasn't there some discovery issues with regard to getting that done before the preliminary injunction? MR. SINGLA: I believe the discovery about ARccOS and We've had expert reports I know that

RipGuard has been completed. exchanged.

We have had expert witnesses deposed.

both sides have complaints. of their people.

You know, we wanted to depose some

They may want to -- I don't know -- maybe But we were all prepared, We've filed opening

depose some of our people some more. both sides, to go forward next week. papers -THE COURT: Okay, fine.

Is that correct? We think that we

MR. CUNNINGHAM:

It is, Your Honor.

haven't been provided with certain kinds of particulars about those technologies that we would have expected. But that may

be an argument that is going more to the merits than to the status of discovery. So everyone who has been identified by

any party has now been deposed in the documents such as they are -- have been provided and exchanged. THE COURT: Well, maybe we can do this also. First

of all, what is the briefing situation? done now? MR. SINGLA:

Is all the briefing

Opening papers have been filed, Your

The parties had agreed -- I believe the Court has

ordered that a mutual exchange of opening papers and then a 15

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mutual exchange of responsive papers. have not yet been filed.

So the responsive papers

We held off when we found out that We do need a date for

the April 1st hearing was being moved. exchange of those. THE COURT: MR. SINGLA: Okay.

Well, when can those be filed?

I believe, Your Honor, from our

perspective, it's really up to when the Court would like them. If the hearing is on the 24th, perhaps the 17th or earlier that week, just as much time as the Court needs to review the papers. THE COURT: MR. SINGLA: THE COURT: MR. SINGLA: the 10th. THE COURT: would be helpful. MR. SINGLA: THE COURT: How about the 10th, Your Honor? The 10th? That's fine for us. I think for a full-blown hearing, it Well, give us a little more than that. Okay. Usually we have two weeks. Okay. Well, we can certainly do it by

MR. CUNNINGHAM: THE COURT:

Do you think that's adequate? That's fine.

MR. CUNNINGHAM: THE COURT:

Okay. That's fine. Thank you, Your Honor.

MR. CUNNINGHAM: MR. SINGLA:

Thank you, Your Honor. 16

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THE COURT:

The person who's got the first crack at Tell me what I

them, you know, has to have the time, you know. don't need to look at. "It's a waste."

"This is important."

Now, how soon can each of you prepare the list of witnesses that you intend to call at the hearing and a brief, you know, synopsis statement of what they're going to testify to? MR. SINGLA: couple of days. THE COURT: And how about for you? I would like until next week to do Your Honor, we could do that within a

MR. CUNNINGHAM:

THE COURT:

You want to respond first, since you're

the ones who are seeking the preliminary injunction, and do it in a couple of days? Give me a day. MR. SINGLA: THE COURT: That's fine. Thursday? Thursday, Your Honor. So, by Wednesday, Thursday of this week?

And then by Tuesday of next

MR. CUNNINGHAM: THE COURT:

Yes. Now, and the briefs, you know,

Okay.

just a brief summary of what they're going to testify to, just generally. and pages. MR. SINGLA: You want those filed with the Court, 17 I don't want, you know, paragraphs and paragraphs

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Your Honor? THE COURT: Yes, and filed with the Court. And then

I think what you can do is, to the extent there may be some issue with regard to RipGuard and ARccOS, you would take a look and see whether you have what you need, and if there are going to be any witnesses on that list that are going to shed any light on it and whether you need to take the depositions. I presume that the witnesses you're calling, you will have taken their deposition. Somebody will have deposed them. That's right. I will be shocked if But

MR. CUNNINGHAM:

there are further depositions to be taken. THE COURT: Yeah. Okay. But I was going to say, if

you have to, you can squeeze one in between now and then, and the hearing, if there is somebody that shows up on the list that you haven't deposed. You can work that out, I presume,

without a discovery battle. MR. CUNNINGHAM: THE COURT: discovery battle. MR. CUNNINGHAM: THE COURT: MR. SINGLA: THE COURT: Thank you, Your Honor. We could.

You will work that out without a

Would that be the better way to say it? Yes. Okay. All right. Now, anything else we

need to worry about in terms of that hearing? MR. SINGLA: I don't think so, Your Honor. 18

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MR. CUNNINGHAM: THE COURT:

No.

And at the hearing, is there enough in

the depositions if all these people have been deposed to use their depositions to put them on the stand with or to have a declaration or something like that -MR. WILLIAMS: THE COURT: Your Honor --

-- to put them on the stand with and then

make them available for cross-examination, and then, of course, you'll have at them as far as redirect and then re-cross. MR. WILLIAMS: Right. Your Honor, what we had

thought might be helpful -- I realize that the Court has indicated that you aren't inclined to allow openings. But

since there a number of witnesses who we think will appear only in the form of their deposition testimony, we thought that a very short opening statement to put in context who you are going to be hearing from and what it means, 20 minutes, something like that, would be helpful, because at least in our presentation -- and we're the moving party -- that's what we anticipated doing, putting a number of witnesses in front of Your Honor, via the deposition testimony, then calling a few live witnesses and then allowing some of the experts. We could

do some of that, I think, by affidavit, and some by live testimony. THE COURT: MR. SINGLA: Were these depositions videoed? Yes, Your Honor. 19

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MR. STEER: THE COURT:

Yes, Your Honor, all of them were. Well, I don't even need you here if I I'll just watch them.

have the depositions, do I? MR. WILLIAMS: THE COURT:

It would take a long time.

So you would rather that I spend it with

you and the deponent rather than just by myself and the deponent. Is that it? MR. WILLIAMS: THE COURT: No. We think we can cut them down.

You think you can shorten it? Yes. I'll give you 15

MR. WILLIAMS: THE COURT:

Well, we'll see.

minutes opening, okay, each of you. MR. WILLIAMS: THE COURT: I'm sorry. MR. STEER: THE COURT: MR. SINGLA: MR. STEER: Your Honor. I would like to have part of that opening, as well. I don't think it will be imposing on the Court if we each, each of the three parties, has 15 minutes. it even shorter than that. THE COURT: Well, how significantly different are 20 I'll do my best to make Steer. -- Steer? Although we do call him "Mr. DVD." I'm flattered to be called "Mr. DVD," Okay.

Now, where does that put Mr. DVD here --

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your arguments going to be from the Studios'? MR. STEER: The Studios, Your Honor, have additional Our argument has

issues that they need to cover in some depth.

to do with the license agreement and the law that applies to it. THE COURT: MR. STEER: THE COURT: getting. Okay. Now, anything else we need to do as far as I'll give you ten minutes. Ten minutes will do. That's all you need. How's that?

Thank you. That's all you're

that hearing is concerned right now? MR. CUNNINGHAM: THE COURT: I think that does it. And I think since this is a bench So you show up at 9:00 on

Okay.

trial, let's just do it at 9:00.

Friday the 24th, I guess it is, and we will plan to go through the day. You know, we will take a break for lunch and come

back -- I don't know, recess around 4:30, 5:00, something like that. Okay? So maybe we can get through with it in a shorter

time than certainly when I use my trial schedule, jury trial schedule. So then we're to the issue of spoliation, right? MR. WILLIAMS: THE COURT: Yes, Your Honor.

Now, as I understand it, an actual order

with respect, internally, with respect to preservation took place for the first time on October 6, 2008, correct? 21

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MR. CUNNINGHAM: THE COURT: in September? MR. CUNNINGHAM: THE COURT:

That's right, Your Honor.

And these lawsuits were being filed when,

September 30th.

And when was -- when was your lawsuit

This was -- your suit was filed in Central District,

right, and then transferred up here? MR. WILLIAMS: THE COURT: It was the same day.

So the same day? Yes. In the proverbial race to the

MR. WILLIAMS: THE COURT: courthouse? MR. WILLIAMS: THE COURT:

Um-hum.

That's right. You had different targets, I

Okay.

guess, but in any event, there is some discussion in your papers about, you know, there -- for example, among, I guess employees and there was testimony by at least one of the employees and perhaps others that there had been discussions about a fear of litigation, right, just sort of talking about -- but a generalized fear is not the same thing as a specific threat of litigation. MR. WILLIAMS: THE COURT: have arisen? MR. WILLIAMS: The obligation arose, Your Honor, when 22 That's true, Your Honor.

So when would this obligation to preserve

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the litigation was anticipated and when that anticipated litigation threat was real. And here the evidence is pretty

clear that, from the very beginning, the planning stages for this product that Real DVD anticipated litigation, they anticipated litigation with regard to this specific product, litigation with the motion pictures studios, the content holders of this protected material. So this was not some theoretical possibility, but rather part of the business plan. And indeed, the business

plan documents that have been produced by Real evidence that anticipation of litigation. And I can point the Court to

specific documents that speak to that and make it far different from speculation, but rather part of the actual business plan, if I may, if the Court is interested in hearing those or having me focus on those. THE COURT: No, we have those. Um-hum. You know,

MR. WILLIAMS: THE COURT:

But still, my question is:

aren't those really more of a -- yes, they know who would be suing them, I guess, because the nature of what -- you know, if there was going to be any litigation, they would have a sense of who it would be because of the nature of the equipment that's at issue, right? I mean, we're not talking -- you know, We're talking

we're not talking about copying shoes here.

about copying movies and whether or not movies can be copied, 23

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you know, once for fair use or whether this was essentially a copying that will allow a much more wholesale kind of distribution system, correct? MR. WILLIAMS: Well, a couple of points, Your Honor.

First, Ms. Nichole Hamilton, who was one of the project managers for the Facet Program -THE COURT: How disgruntled is she? I think it's fair to say she's pretty But the key

MR. WILLIAMS: angry at the company.

I think that's fair to say.

components, though, of her testimony, at least as far as we are concerned, are corroborated by documents that existed at the time. For example, Ms. Hamilton says that, from the very beginning of the project, she was told, in no uncertain terms, there is going to be litigation here. It's almost certain.

Her testimony was that she was told that by Mr. Barrett, who is the person who was running the so-called Facet Program. There is a document that was produced in discovery that was actually written by Ms. Hamilton. It's Exhibit A to

our reply brief and the declaration of Mr. Katz from our firm. And there is a sentence I would like to read that puts in perspective exactly what the anticipated litigation would be. It says, under the heading "Competition" -- and again, this is Ms. Hamilton writing for the Facet Program -"What is likely keeping these other larger entrants" -- that 24

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is, other larger companies that could make a product similar to Real DVD -- "what's likely keeping these other larger entrants at bay is the threat of a lawsuit. Risk of damaging business

relationships with content providers and/or desire to avoid doing anything that might breathe new life into current-generation DVDs, slowing the shift to blue ray or HD/DVD. Facet is intended to be the first to market with a

modest cost-consumer device while the political landscape is still unsettled before any of the other larger competitors enter the market." In other words, it was specifically part of

the business plan that what they were going to try to do at Real was to get ahead of the other competitor companies, knowing -THE COURT: time? MR. WILLIAMS: No, Your Honor. They don't enter Isn't that what companies do all the

markets where they know that the other side's position is that you are stealing their content, anticipating that the litigation is going to be there, and developing their product for a year and a half, with all of the e-mails, the engineering documents that are produced as part of that, and then not start a litigation hold until they, in fact, file their lawsuit, or rather until after they file their lawsuit. Clearly, Your Honor, the record is replete with evidence that this was much more than the possibility that 25

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there was going to be litigation. discussion about it.

In fact, there was

There were plans about how to speak,

what language to use in e-mails that were written during that time. And a totally separate point is the fact that when they

finally did put in the litigation hold in October of 2008, a year and a half after the project began, they made it retroactive, Your Honor, back to July of 2007. No real reason for July 2007, but they made it retroactive, meaning that they recognized that there was prior documentation that would have been developed in that year-and-a-half period. They recognized that by virtue of the

date that they chose for the litigation hold, but that doesn't have any principal basis either because the program started in January of 2007, and there are documents from back in that time period that they were tracking the Kaleidescape litigation, that they had tracked the fact that there had been a decision Kaleidescape. And so you have to go way back before the actual lawsuit was filed in order to determine when this particular plaintiff, on these particular facts, in fact, anticipated the litigation, knew it was going to happen, with whom, and over what. Because the whole idea for this -THE COURT: Okay. I got it.

MR. WILLIAMS: Thank you.

You think you get it, Your Honor?

26
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THE COURT:

Mr. Cunningham. If I may, because Mr. Williams' use

MR. CUNNINGHAM:

of the term "business plan," I think, directs us right to the key case which our San Jose's Judge White has published the Hynix vs. Rambus decision. And I think it would be helpful, if

I may, if I could hand the Court a chronology. THE COURT: I'm just glad he had that litigation, not

What a task that was. MR. CUNNINGHAM: Your Honor, in the Hynix case, we

had a situation where there wasn't just a company with a business plan to bring litigation. there to litigate. We had a company that was

It was going to enforce a patent portfolio.

So the record in that case was replete with discussions about a litigation strategy. The issue was whether or not a document retention policy that resulted in something called "Shred Days" at the company, all of which were, under advice of counsel, plainly happened and were part of anticipating some kind of litigation, whether or not that constituted spoliation. And what Judge

White rightly recognized is you can talk about and think about litigation all you want. It can be part of your business plan,

part of your strategy, like it was in Rambus. But you've got to get down -- to make a -- to trigger the document-preservation obligation and to define what probable or reasonably foreseeable is under the spoliation 27

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standard, you have to have eliminated critical contingencies that might prevent, avoid or resolve the litigation short of it happening. And so if we look at our chronology, one of the factors that Judge White keyed in on in the Hynix v. Rambus litigation was: When did Rambus have a litigation budget. And

in our case, we didn't have a litigation budget. And Mr. Kimball is a for-real, honest-to-God general counsel. budget. He's held accountable for his budgets. He doesn't get to just ignore it. He has to

He didn't have a

budget for litigation in this case until after the lawsuits were filed and until after the document preservation notices went out. Your Honor, it is the case that litigation counsel in this case, my firm, we didn't get involved in this case until September 7th. And the reason, even though there was all sorts

of talk about the fact that the studios might well sue in this case, the reason we didn't know -- we didn't think litigation was probable, or that the company didn't, was because they knew that, at the right point, there was going to be a negotiation with the studios. And that began in August, in August of 2008.

And quite frankly, it started off on a pretty good foot. And at one point, there was a deal in principal with Viacom. So this whole mess might well have been avoided. The

parties entered into a standstill agreement, and that was 28

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reflected on September 9th. broke down.

Negotiations continued.

They

The Munger Tolles lawyers wrote the threatening letter on September 25th. And that's the day, September 25th,

that is unambiguously the day that our duty to preserve should have begun. here. And we were a little late, but it won't matter And I think if you were

It's that September 25th date.

to go back -THE COURT: was destroyed? MR. CUNNINGHAM: subsequent period. Because nothing was destroyed in the Why wouldn't it matter? Because nothing

The alleged -- if I may, the alleged

destruction by Basche and deleting emails by Hamilton, all of that had to have been long before June, June of 2008. And on

my very fancy graphic here, I've tried to put events of destruction, purported destruction on one side, and the events in the litigation on the other side. So I really think that the Hynix decision is a perfect roadmap for how this Court should resolve this case. And the answer is we don't have -- you know, this foreseeability of litigation is like a proximate cause standard. You have to bounce it around for policy It's unworkable to have every company being

considerations.

developed preserving documents from whenever. Mr. Williams thinks that it's probative that we 29

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selected that July date in our document preservation notice. All you do is you go back a reasonable amount of time. doesn't mean anything. That

That doesn't mean that you should

always start preserving at the time that your subsequent notice says, "Might include relevant evidence." do with it. Anyway, I would direct Your Honor to a reading of the Hynix Rambus case. THE COURT: break down? MR. CUNNINGHAM: 9th. They really broke down after the There When did the negotiations of the studios It's got nothing to

I think it was about the 24th, 25th of September.

was a lot of intense negotiation going on, and I could be off by a few days. But it was -Were there discussions about litigation

THE COURT:

during those negotiations? MR. CUNNINGHAM: Well, there was enough of a

discussion that there was a standstill and forbearance agreement entered into among all of the studios and RealNetworks. That happened on September 9th. And did that also include anything about

THE COURT: preservation?

MR. CUNNINGHAM: THE COURT:

That was not included, Your Honor.

And that was September -9th. 30

MR. CUNNINGHAM:

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THE COURT:

-- 9th?

And do you know, were any

documents destroyed between September 9th and October 6th, I guess it is? MR. CUNNINGHAM: I believe that none were, Your

Honor, and I believe that not just because I'm optimistic, but because, as we've been pressed to provide declarations regarding relevant persons' document maintenance habits, it turns out we have a number of pack-rats at the RealNetworks in Seattle. So I think it's very unlikely that anything was

destroyed, and there has certainly been no indication that anything was destroyed. THE COURT: Now, with respect to Ms. Hamilton's

notebooks, the ones that are missing -MR. CUNNINGHAM: THE COURT: Yes.

-- anything further on that? If I could speak to the notebooks, I That

MR. CUNNINGHAM: would like to.

So we know about one notebook for sure.

was a book that Ms. Hamilton tendered to the HR person whose name is Dewitt and is a declarant and her then current boss whose name is Ricci Matthews. Ms. Hamilton had been off the relevant projects for three months. So she left. She was part of the Facet team. She had left on June 18th in

That's the hardware product team.

a blowup with her management, and she went to a project called Helix. Helix has nothing to do with Real DVD, Facet or Vegas. 31

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So for 90 days, she was working on Helix.

She gets

terminated on September 24th, and she brings with her to the meeting where she's terminated her then current notebook, and that's the -- that notebook hasn't been found. There is no reason to think that that notebook had anything to do with Real DVD, be it Facet or Vegas, not just because 90 days have passed, but for the further reason that Ms. Hamilton was asked by her former boss to give him everything related to Facet at a particular point in time, and it was about -THE COURT: about that time? MR. CUNNINGHAM: reassignment. It was actually six weeks after her Was this before her reassignment, or at

Her boss thought that he would find a

replacement and that she could give her stuff to the replacement. He didn't find the replacement. So he eventually

said, "Give it to me."

And he says in his declaration, and

it's Mr. Woods who is the declarant on this, he says in his declaration, That was about six weeks after her termination on June 18th, which puts it right at the beginning of August. So there is no reason to think that the one notebook that we know about had anything to do with anything that might conceivably be at issue in this case. THE COURT: Does she indicate otherwise,

Mr. Williams, in her deposition -32

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MR. WILLIAMS: THE COURT: missing notebook. MR. WILLIAMS:

Yes, she does, Your Honor.

-- with regard to the contents of that

Well, what she testified to, I

believe, and Mr. Singla is the one who took the deposition, but I believe that she testified that she had a total of three notebooks that she believed related to this project. She

believe that had she had one of them on her last day, and we don't know whether she had the same notebook for the Facet Program and then used the same notebook when she moved on to the new program to which she had been reassigned. But totally

separate and apart from that single notebook which she tendered on that date that she was terminated is that fact that she had two other notebooks that relate to the Facet project that were in her office that have not been produced. And she testified

clearly that it had all, in chronological fashion, all of the dates of meetings, determinations about what would be done and what would not be done. THE COURT: Well, that's what I'm talking about, are

the ones that are missing that were believed to have something related to the Real DVD and Facet. MR. WILLIAMS: What about those?

Her testimony is that all three of the

notebooks, the one that she tendered on her last day, and the other two that she had prepared over the course of her time with the company, that all of them would have information 33

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relating to Facet. That is what she testified to, and I know Mr. Singla will correct me if I'm wrong. But the critical thing is that

there are at least these two notebooks that were in her office when she was escorted out of her building on the date in question. But those notebooks have not been produced. There

has been no explanation at all for why we don't have them. And one other point about that. You know, Real has

taken to attacking Ms. Hamilton and selectively waiving any sort of privilege that she might have and putting before the Courts the parts of her personnel file that they want to put in front of the Court. this fact: But I would ask the Court to recognize

At the time that Ms. Hamilton testified at her She

deposition, she expected those notebooks to appear.

described what was in them, and she had no knowledge that Real was going to represent to the Court that they couldn't find them. That wasn't the point at the time. They were not There was

alleging at the time that they couldn't find them.

no representation, in other words, that was made to the studios about the status of those notebooks at the time that she testified. So -Well, what about the explanations for

THE COURT: their nonexistence?

MR. CUNNINGHAM: because it's a mystery.

Let me tell you what we know,

And it doesn't require casting 34

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aspersions on Ms. Hamilton on this occasion.

The fact is that,

on the day of her termination -- and her testimony was that the Studios' briefs vary from what the actual testimony was on that. that. She said she gave one notebook over. We've talked about Two people

The other two were in her desk drawer.

looked in her office that day, her then current manager, Mr. Matthews and the HR representative, Mr. Dewitt. them recall seeing the notebooks in the office. Neither of

So we don't Bear in

think they were there on the day she was terminated.

mind, she was supposed to have and purported to have turned over everything relating to Facet in early August at her boss's direction. And parenthetically, what the company got from

Ms. Hamilton when she did provide that material, it was given over to legal and has been preserved. spoliation of any Hamilton notebooks. THE COURT: found, right? MR. CUNNINGHAM: THE COURT: in when she left? MR. CUNNINGHAM: She was actually asked to turn those The notebooks have not been found. So there has been no It just hasn't happened.

Well, but the notebooks have not been

And it was -- she was asked to turn them

notebooks in, in early August. THE COURT: Earlier than that? Yes.

MR. CUNNINGHAM: THE COURT:

And has there been enough of a -- do we 35

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have really a strong declaration from somebody who has recently gone through the files and the offices and whatever else and talked with everybody they need to talk with to find out what happened to those notebooks? MR. CUNNINGHAM: I think we have, because Your Honor,

when you get a spoliation motion, you're motivated to find what you've allegedly spoliated. found it. So we've looked and we haven't

Now, I think the quality of our declarations on that

point is sufficient with respect to what Mr. Woods tells us, what Mr. Matthews and Mr. Dewitt tell us, that we don't have tz the notebooks; we don't believe they were there; and we don't know where else to look. THE COURT: Are they the only persons who would know? I believe that they are because of

MR. CUNNINGHAM:

this funny transition and the key event where she -- where Mr. Woods says to her, "Give me the stuff that relates to Facet." MR. SINGLA: Your Honor, one thing I think on this is

very interesting is they've put in numerous affidavits from Ms. Hamilton's including many affidavits from Ms. Hamilton's colleagues on the Facet Project. And none of them deny,

although they had every intention to, none of them deny that she had notebooks; that she took notes at these meetings. There was no suggestion in the record that her testimony at this point, disgruntled or not, is the absolute truth that she 36

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kept comprehensive notebooks about all of her work and the team's decision-making on Facet. the record. true. That's just not disputed in

Mr. Barrett put in a declaration saying it's not All of her colleagues say those

He didn't do that.

notebooks existed. Second, she was let go literally days before they sued us. So even Mr. Cunningham, although we disagree with

this, but even Mr. Cunningham agrees that, at the very least, they had an obligation to preserve evidence as of September 25th. She was let go on September 24th. There is no reason to

think that her testimony, that her notebooks, with all of the information about Facet, were sitting in her office on September 24th. There is no reason to think that's not true.

And RealNetworks focuses, Mr. Cunningham, on Mr. Dewitt, the HR manager. But the obligation to preserve this evidence was not

just Mr. Dewitt's. Ms. Hamilton's former boss, all of her colleagues, they knew that she had these notebooks in every meeting. And

when they were asked by the lawyers to produce all the evidence relating to Facet, they had an obligation to say, "Oh, yeah. Ms. Hamilton, she had those notebooks, where are they," and to produce those notebooks. The testimony and the -- from the

declarations say that the notebooks were destroyed sometime in December or January, it looks like. They say that her office So where are the 37

was locked in September -- on September 24th.

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notebooks?

They were in the office.

They were locked on

September 24th.

They sat there, apparently, for three or four

months, according to Real's declarations, until the office was cleaned out. Now, whether they were thrown away negligently or however they're missing, they are missing and they went missing during this case, while we're litigating, while we're taking discovery. MR. CUNNINGHAM: Respectfully, there is a dispute in I'll remind

the evidence regarding what Mr. Singla just said.

you, I said that we have declarations that say on the day she was fired, the people who looked in her office didn't see those notebooks. So what was destroyed later on in December were the

content of the office. There is no proof that when those contents were destroyed, they included the notebooks. the contrary. THE COURT: Well, I think we're not going to get it How many of these people may be called There is evidence to

resolved here, either.

to testify at the motion on the preliminary injunction; do you know? I'm not going to hear from any of them? MR. CUNNINGHAM: You wouldn't hear from Mr. Dewitt or

her then -- her boss at the time, no, you wouldn't hear from either of them. THE COURT: Any of them? Okay. I mean, we have to 38

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move on. calendar.

I haven't another -- just a few other matters on the

With respect to this whole question of then the order on October the 6th. correct? MR. CUNNINGHAM: Your Honor, there were three They did go to the Facet That did not include Facet at that time,

identical e-mails that were sent. team.

One of the Facet team members in his deposition, In fact, if you look

Mr. Beilman, did not recall getting it.

at Exhibit A to Lindsey Godfrey's declaration, you will see that there are the e-mails there, and Mr. Beilman, did, in fact, get the e-mail. So it did go to the Facet team. The

company did all the right steps. took all the right steps. THE COURT:

About eight days late, but it

Now, also you mentioned earlier something

about -- and it sounded as if it was a decision that Real made with regard to waiving the attorney-client privilege, you know, with respect to Ms. Hamilton and Ms. Hamilton's testimony. MR. CUNNINGHAM: THE COURT: Yes. I'm sorry --

And did not that occur when, in fact, she

was testifying and allowed essentially to testify and go off even after the attorney-client privilege was asserted? MR. CUNNINGHAM: No. What happened at her deposition She would begin to

was that the questions would be asked.

answer them, and our attorney would interpose instructions to 39

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cease the answer as she began to tread on privileged grounds. Frankly, we think that she was someone artful in trying to evade those directions, but that's neither here or nor. The

fact is we tried to protect the privilege at her deposition. We believe we have done so. There has been no motion And if there were, we

suggesting that there has been a waiver. would contest it dramatically. THE COURT: overstep the lawyer? MR. CUNNINGHAM: I don't know.

How far -- how many times did she

I mean, I haven't

counted -- I think there were a number of times -- and I actually thought that there might be subsequent litigation on the instructions that hadn't happened. THE COURT: try to shut it down? MR. CUNNINGHAM: Your Honor, there was no time that I mean, were there times when you didn't

we did not try to shut it down, to the best of my recollection of the transcript, and I was not at that deposition. attempting to protect the privilege. MR. SINGLA: Your Honor, we have grave concerns on We were

this issue that the Court has raised. it doesn't directly relate to the spoliation motion, but this is an issue that we have looked at very closely. What we have seen is a pattern

both with respect to attorney-client privilege and asserting a joint privilege and also documents relating to her termination 40

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of selective waiver. privilege.

So, for example, attorney-client

The testimony is very clear -- no denial from the other side -- that their lawyers were trying from the very beginning to teach the engineers the language to use, the kind of e-mails to write, the kinds of words to use. In some

depositions, with some of their witnesses, they allowed us to ask, "What language did you guys use? What were the What did

conversations between you about what language to use? Mr. Barrett tell you?"

In other depositions, like Ms. Hamilton's, they would sometimes object and instruct witnesses not to answer and block us from inquiring into these conversations about language to use and how to tone and craft e-mails and documents. So there has been this pattern across depositions, not just within Ms. Hamilton's, of claiming privilege sometimes and then allowing witnesses to answer -- different witnesses to answer the same question. THE COURT: MR. SINGLA: THE COURT: Was Mr. Barrett an attorney? No, Mr. Barrett was not an attorney. Well, how does the attorney-client

privilege even get plugged in here if there were was no attorney giving this advice? MR. SINGLA: Well, the assertion that Real has made

and Real's lawyers has made, in some depositions, for example, 41

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sometimes in Ms. Hamilton's deposition, is that what Mr. Barrett was telling these engineers about how to write e-mails and the words to use and the ways to characterize ARccOS or CSF, that he had gotten those views based on his conversations with Real's lawyers at the beginning or instigation of the project. And so, therefore, when he told

somebody, "Don't use these words" -THE COURT: road today. MR. SINGLA: Well, one other thing I would point out, And we don't have time to go down that

Your Honor, is with respect to Ms. Hamilton -- I took her deposition. I just want to respond to a question the Court

raised about whether she's disgruntled, and I understand that she is somewhat disgruntled. But on the substance of her testimony on which we rely, there is very little objection from the other side. For

example, she said that litigation, she thought, was inevitable. She was told by Mr. Barrett that it was inevitable from the beginning. They don't deny that. Mr. Barrett doesn't deny

that he told her that and that that was their view from the beginning, that the litigation was inevitable. THE COURT: Okay. You know, we have to wind this up. We still

I have another matter that was on the 2:00 calendar.

haven't heard that one, to say nothing of 3:00 and 4:00. MR. WILLIAMS: I understand. Your Honor, may I make 42

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just one point with respect to the Hynix case that counsel was able to discuss. may? THE COURT: Can you be brief? Very brief. I just want to try to distinguish it, if I

MR. WILLIAMS: THE COURT:

Because I'm going to cut you off. Okay. In that case, Your Honor, here

MR. WILLIAMS:

are some of the steps that had to be met before the Court was going to find that there was no anticipated litigation. that matter, patents had to be issued. that was ever going to happen. In

It was unclear whether

Patents had to cover the The company had to make a

products that were being discussed.

decision about whether or not it was going to file a lawsuit. Those are all hurdles or steps that had to happen before the litigation would commence. Here, it's totally different. In this case, Real

knew that there had been litigation relating to Kaleidescape because that's why they did this product. would be a lawsuit pending. case, Your Honor. THE COURT: Okay. Thank you. They knew that there

And that's the distinction in the

MR. WILLIAMS: THE COURT:

Thank you.

And we've got dates for the preliminary And the thing

injunction, and we will issue an order on this.

that I want to say is -- and what's your last name, Kimball? 43

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MR. KIMBALL: THE COURT:

Kimball, Bob Kimball.

-- it's either you or your colleague

here, I'm going to hold personally responsible for preservation orders, enforcement of preservation orders, of discovery and making sure that the discovery complies with what is required, and that it is entirely produced so there is no gap between outside counsel and in-house counsel. You are responsible and

you're going to have to sign off on every discovery request or not the request but the responses to requests yourself or through -- I'm sorry, your name again. MR. WAY: Way, Your Honor. Mr. Way, is it? How do you spell it?

THE COURT: MR. WAY:

W-A-Y. Mr. Way, A-Y. Oh, that's easy. Mr. Way,

THE COURT:

one of you will have to sign off on it and be responsible so that we don't have any gaps at all here about whether discovery is being produced or whether, you know, the preservation orders are being issued or complied with. So it should have been clear, and hopefully it was clear from what was said earlier, with regard to Facet, as well any other product that may potentially be in litigation here, that any and all documents, et cetera, are to be preserved. And you know what those memos are supposed to look like. they go out, I trust, over your signature. MR. KIMBALL: We have litigation counsel. It went 44 And

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out over her signature, but it certainly happened at my direction, and the buck absolutely stops with me. responsible person. THE COURT: Is Mr. Way the second in command? Yes, he is. You or Mr. Way, so I'll be looking I will be a

MR. KIMBALL: THE COURT:

Okay.

for one of your names.

Make sure that, you know, when you say

that every and all documents that have been sought and searched for have, in fact, been turned over -- and I'm going to put the responsibility on your shoulders and Mr. Way's to look for those notebooks that Ms. Hamilton said -- and make sure that every corner of that office or the offices, whatever, not just her office, are turned to make sure that they aren't, you know, somewhere in the office. MR. KIMBALL: I will insure that we do the most

detailed possible search for those documents when we get back, and we will report back. THE COURT: responsive. Okay. I expect you to respond and be

Where are you a member of the bar. In Illinois and Washington.

MR. KIMBALL: THE COURT:

They're two states that we can -He clerked in the Ninth Circuit,

MR. CUNNINGHAM: however. MR. KIMBALL: Ninth Circuit, as well.

I clerked for Judge Alarcon in the

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THE COURT:

Okay.

Well, very good.

Okay.

So we're

going to see you on the 24th, right? MR. CUNNINGHAM: THE COURT: Yes.

Thank you. Thank you, Your Honor. Thank you, Your Honor.

MR. WILLIAMS:

MR. CUNNINGHAM:

(Hearing concluded at 3:36 p.m.)

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CERTIFICATE OF REPORTER I, MARGARET "MARGO" GURULE, Pro Tem Court Reporter for the United States Court, Northern District of California, hereby certify that the foregoing proceedings in Case No. CV 08-4547 Real Networks, Inc. v. DVD, Copy Control Associates, et al. and a related case, were reported by me, a Certified Shorthand Reporter, and were thereafter transcribed under my direction into typewriting; that the foregoing is a 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.

/s/_______________________ MARGARET "MARGO" GURULE CSR No. 12976 March 30, 2009

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