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

Filing 482

Transcript of Proceedings held on 10/26/09, before Judge Marilyn Hall Patel. Court Reporter/Transcriber James Yeomans, Telephone number [phone]. 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 1/25/2010. (jjy, COURT STAFF) (Filed on 10/28/2009)

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

Doc. 482

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PAGES 1 - 56 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE MARILYN HALL PATEL, JUDGE REALNETWORKS, INC., ET AL., ) ) ) PLAINTIFFS, ) ) VS. ) NO. C 08-04548 MHP ) DVD COPY CONTROL ) ASSOCIATION, INC., ) ET AL., ) ) DEFENDANTS. ) ____________________________) SAN FRANCISCO, CALIFORNIA MONDAY, OCTOBER 26, 2009 TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFF: WILSON SONSINI GOODRICH & ROSATI 1301 AVENUE OF THE AMERICAS 40TH FLOOR NEW YORK, NY 10019 JONATHAN M. JACOBSON LISA DAVIS BILL WAY ATTORNEYS AT LAW

BY:

WILSON SONSINI GOODRICH & ROSATI ONE MARKET STREET SPEAR TOWER, SUITE 3300 BY: SAN FRANCISCO, CA 94105 LEO CUNNINGHAM COLLEEN BAL ATTORNEYS AT LAW (APPEARANCES CONTINUED ON FOLLOWING PAGE) REPORTED BY: JAMES YEOMANS, CSR #4039, RPR OFFICIAL REPORTER COMPUTERIZED TRANSCRIPTION BY ECLIPSE

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

Dockets.Justia.com

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APPEARANCES:

(CONTINUED) WILSON SONSINI GOODRICH & ROSATI 1799 K STREET, NW, FIFTH FLOOR WASHINGTON, DC 20006 RENATA B. HESSE ATTORNEYS AT LAW MUNGER TOLLES & OLSON LLP 355 SOUTH GRAND AVENUE 35TH FLOOR LOS ANGELES, CA 90071 KELLY MAX KLAUS GLENN DOUGLAS POMERANTZ ATTORNEYS AT LAW MUNGER TOLLES & OLSON LLP 560 MISSION STREET 27TH FLOOR SAN FRANCISCO, CA 94105 ROHJIT SINGLA ATTORNEYS AT LAW AKIN GUMP STRAUSS HAUER & FELD 580 CALIFORNIA STREET 15TH FLOOR SAN FRANCISCO, CA 94104 REGINALD DAVID STEER ATTORNEY AT LAW AKIN GUMP STRAUSS HAUER & FELD 2029 CENTURY PARK EAST SUITE 2400 LOS ANGELES, CA 90067 STEPHEN ROY MICK ATTORNEY AT LAW SIMPSON THACHER & BARTLETT 2550 HANOVER STREET PALO ALTO, CA 94304 HARRISON J. FRAHN, IV MICHAEL LIZUNO ATTORNEYS AT LAW

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

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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MONDAY, OCTOBER 26, 2009

2:00 P.M.

(THE FOLLOWING PROCEEDINGS WERE HEARD IN OPEN COURT:) THE CLERK: CALLING CIVIL 08-4548, REALNETWORKS, INC.

VERSUS DVD COPY CONTROL ASSOCIATION, ET AL. THE COURT: MAY I HAVE YOUR APPEARANCES, PLEASE. GOOD AFTERNOON.

MR. POMERANTZ:

GLENN POMERANTZ ON BEHALF OF THE STUDIOS, WITH ME MY COLLEAGUE KELLY KLAUS. MR. STEER: REGINALD STEER ON BEHALF OF THE DVD CCA

AND MY COLLEAGUE STEVE MICK IS HERE WITH ME. MR. FRAHN: GOOD AFTERNOON.

HARRISON FRAHN FROM SIMPSON THACHER & BARTLETT ON BEHALF OF PARAMOUNT AND VIACOM. MIKE LIZUNO. THE COURT: YES. OVER HERE. I'M JOINED WITH MY COLLEAGUE

MR. JACOBSON:

YOUR HONOR, JONATHAN JACOBSON FROM

WILSON SONSINI FOR REAL, I'M JOINED MY COLLEAGUE RENATA HESSE, MARK OUWELEEN, COLLEEN BAL, BILL WAY, LEO CUNNINGHAM WHO YOU KNOW, AND LISA DAVIS WHO YOU KNOW. THANK YOU. THE COURT: THANK YOU.

NOW, THIS IS YOUR MOTION, WHO'S GOING TO BE HEARD ON THIS? MR. POMERANTZ: MAY. JAMES YEOMANS - OFFICIAL REPORTER - [phone] I WILL ADDRESS THE MOTION FIRST, IF I

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THE COURT:

YES.

AND WHEN YOU SAY FIRST?

MR. POMERANTZ: THE COURT:

MR. STEER --

YOU'RE GOING TO BE JOINED BY OTHERS AS

MR. POMERANTZ:

MR. STEER HAS SEPARATE ARGUMENTS ON

BEHALF OF DVD CCA, I WILL BE SPEAKING ON BEHALF OF THE STUDIOS. THE COURT: YES, OKAY.

WHAT DO YOU UNDERSTAND THE THEORY THAT'S SET FORTH BY REAL, REALNETWORKS, BUT I REFER TO IT AS REAL GENERALLY FOR SHORTHAND, THE THEORY THAT IS NOW ESPOUSED WITH RESPECT TO THE BASIS FOR THE ANTITRUST VIOLATIONS? MR. POMERANTZ: IT DEPENDS WHETHER YOU'RE READING THE IN THE COMPLAINT THEIR

COMPLAINT OR THE OPPOSITION BRIEF.

THIRD CAUSE OF ACTION, I THINK, PRIMARILY BASED ON THE FACT THE CSS LICENSE ITSELF CONSTITUTES AN ILLEGAL CONSPIRACY, A GROUP BOYCOTT. IN THEIR OPPOSITION BRIEF THEY SEEM TO SAY THAT THERE MAYBE SOME AGREEMENT FLOATING OUT THERE SEPARATE AND APART FROM THE LICENSE, THAT THEN WAS IMPLEMENTED OR THE LICENSE WAS A VEHICLE FOR THAT AGREEMENT. WE DON'T THINK EITHER ONE OF THOSE REALLY MATTERS AT THE END OF THE DAY, WHETHER IT'S ONE OR THE OTHER, BECAUSE WE THINK OUR ARGUMENTS ARE VALID EITHER WAY. THEN THERE'S THE FOURTH CAUSE OF ACTION, WHICH IS THE -- A SEPARATE CAUSE OF ACTION ASSERTED ONLY AGAINST THE JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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STUDIOS, NOT THE DVD CCA, THAT SEEMS TO BE BASED ON THE DISCUSSION IN THE FEW WEEKS PROCEEDING THE FILING OF THE LAWSUIT THAT REAL SAYS CONSTITUTE A SEPARATE CONSPIRACY OR GROUP BOYCOTT. AGAIN, WE BELIEVE THAT IS ALSO INVALID FOR

CERTAIN REASONS SET FORTH IN OUR BRIEF. SO I'M SURE THAT MR. JACOBSEN WILL HAVE SOME VIEW AS TO WHAT THEY ARE ALLEGING. WE THINK THEY KIND OF MANEUVERED

AROUND TRYING TO GET AROUND ARGUMENTS, WHEN THEY SEE ONE ARGUMENT THEY SAY ONE THING, WHEN THEY SEE ANOTHER ARGUMENT THEY SAY SOMETHING ELSE. IT DOESN'T REALLY MATTER HERE, REALLY DOESN'T, WHETHER THEY ALLEGING THE LICENSE ITSELF IS UNLAWFUL OR WHETHER THEY ALLEGE THERE'S SOME AGREEMENT FLOATING OUT THERE SEPARATE FROM THE LICENSE, IT DOESN'T MATTER. WHAT WE THINK MATTERS, YOUR HONOR, IS JUST WHAT'S IN THE COMPLAINT, THAT'S WHAT A MOTION TO DISMISS IS ALL ABOUT. WE THINK THAT WHAT THEY HAVE ALLEGED IN THE COMPLAINT AND WHAT THEY HAVE NOT ALLEGED IN THE COMPLAINT IS MORE THAN ENOUGH TO GRANT OUR MOTION ON SEVERAL GROUNDS. AND WE HAVE THREE SEPARATE GROUND, WHICH I'D LIKE TO GET INTO IN A MOMENT, BUT I DON'T WANT TO IGNORE THESE TWO GIGANTIC ELEPHANTS IN THE ROOM. WE ALL KNOW THAT ANTITRUST CONSPIRACY DID NOT STOP REAL FROM LAUNCHING REAL DVD INTO THE MARKETPLACE, THEY LAUNCHED IT INTO THE MARKETPLACE. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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WHAT STOPPED REAL FROM FURTHER SELLING IT WAS THIS COURT'S INJUNCTIONS. BECAUSE THEY WERE ACTING UNLAWFULLY THIS NO ANTITRUST

COURT ENJOINED THEM FROM CONTINUING TO SELL IT.

CONSPIRACY STOPPED THEM FROM SELLING THE PRODUCT, THEY LAUNCHED IT IN THE MARKETPLACE. SO WE ALL KNOW THAT THERE'S NOTHING THE COMPLAINT CAN SAY THAT CHANGES THOSE FACTS AND IT DOESN'T SAY ANYTHING DIFFERENT THAN THAT. AND, SECOND, WE ALL KNOW THAT IT'S VERY COMMON AND VERY PRO-COMPETITIVE TO HAVE UNIFORMED INTELLECTUAL PROPERTY LICENSES, YOUR HONOR DISCUSSED THOSE KIND OF LICENSES IN THE PRELIMINARY INJUNCTION RULING. IT HAPPENS ALL THE TIME.

AND THERE'S UNIFORMITY IN THOSE LICENSES, MEANING, THAT INDIVIDUAL LICENSEES CAN'T ENTER INTO INDIVIDUAL AGREEMENTS THAT CHANGE THE TERMS IN SOME WAY, SO THAT THERE'S A LEVEL PLAYING FIELD AMONG ALL THE LICENSEES. AND WE ALL KNOW THOSE KIND OF AGREEMENTS ARE OUT WE ALL KNOW THAT THEY ARE VERY PRO-COMPETITIVE IN THE

MARKET, IT ALLOWS THE MARKETS TO WORK EFFICIENTLY. THAT'S ALL THEY REALLY ARE ALLEGING HERE, AT THE END OF THE DAY, IS THAT EVERYBODY AGREED CSS COULD -- WOULD BE A NO COPY TECHNOLOGY. IF YOU USE CSS YOU CAN'T COPY, THAT'S IT.

BUT IF YOU DON'T USE CSS, THE CSS LICENSE SAYS NOTHING ABOUT WHAT CAN OR CAN'T DO AND REAL DOESN'T ALLEGE OTHERWISE. SO THOSE ARE SORT OF THE TWO ELEPHANTS IN THIS ROOM. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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NO MATTER WHAT ARGUMENTS EVERYBODY MAKES, WHICH IS THAT THE CONSPIRACY DIDN'T STOP THEM FROM LAUNCHING REAL DVD AND UNIFORM LICENSING IN THE INTELLECTUAL PROPERTY SPACE PRO-COMPETITIVE. THE COURT: THE CSS LICENSE DOESN'T PREVENT ANYONE

FROM COPYING CONTENT, CORRECT? MR. POMERANTZ: THE COURT: PROSCRIPTIONS? MR. POMERANTZ: HONOR, WAS THAT -THE COURT: I'M NOT REFERENCING WHAT YOU WERE ACTUALLY CORRECT. ALL I WAS SAYING, YOUR IT DOESN'T --

HAS TO DO -- IT OTHER -- OTHER

SAYING, BUT IT DOESN'T PREVENT YOU FROM GETTING A LICENSE FROM THE CONTENT OWNER TO COPY MUSIC CONTENT, CORRECT? MR. POMERANTZ: CORRECT. IN FACT, THE STUDIO, AS

EVERYBODY KNOWS, LICENSE THEIR CONTENT TO ITUNES OR AMAZON, A LOT OF OTHER PLACES, THEY SEND OUT DIGITAL COPIES, NONE OF THOSE HAVE CSS. SO WHATEVER A LICENSEE CAN OR CAN'T DO WITH THOSE IS NOT AT ALL GOVERNED BY THE CSS LICENSE, WHICH ONLY PERTAINS WHEN CSS IS BEING USED. SO OUR FIRST ARGUMENT, YOUR HONOR, IS THAT REAL HAS NOT ADEQUATELY ALLEGED INJURY IN FACT OR CAUSATION, AND THAT ALL ARISES FROM A SUPREME COURT TEST IN ASSOCIATED GENERAL CONTRACTORS. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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BASICALLY, WHAT THAT CASE IS THAT ANY ANTITRUST PLAINTIFF HAS TO ALLEGE WHAT THEIR HARM IS, WHAT THE DEFENDANTS DID WRONG, AND THAT WHAT THE DEFENDANTS DID WRONG CAUSED THEIR HARM. THAT'S AN ESSENTIAL ELEMENT OF ANY ANTITRUST CLAIM AND YOU HAVE TO PLEAD IT IN THE COMPLAINT. AND AS WE KNOW FROM

IGBAL AND TWOMBLY YOU CAN'T JUST SAY THE CONCLUSORY STATEMENT THAT THE HARM WAS CAUSED BY THE CONSPIRACY, YOU NEED TO PLEAD MORE. REAL DID PLEAD MORE, TO ITS CREDIT, THEY DIDN'T JUST PLEAD A CONCLUSION ON THE ISSUE OF CAUSATION. SPECIFICALLY PLEADED WHAT THEIR HARM WAS. DOES YOUR HONOR HAVE A COPY OF THE COMPLAINT IN FRONT THEY VERY

THE COURT:

YES.

SECOND AMENDED COMPLAINT?

MR. POMERANTZ: THE COURT:

YES.

CERTAINLY. THEY PLEAD THAT HARM IN PARAGRAPHS 110

MR. POMERANTZ: THROUGH 112.

AND IN THAT SECTION, WHICH IS HEADED THE GROUP

BOYCOTT HAS HARMED REALNETWORKS THEY ALLEGE TWO DIFFERENT KINDS OF HARMS. THE FIRST IS IN PARAGRAPH 112 WHERE THEY SAID REAL'S ENTRY INTO THE MARKET WAS DELAYED, AND THAT'S ON THE TOP OF PAGE 29, YOUR HONOR, THEY REFER TO DELAY IN THE LAST SENTENCE OF 112. THAT SAME DELAY IS ALSO ALLEGED IN PARAGRAPH 110. SO

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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THEY WERE DELAYED INTO THE MARKET FROM SELLING REAL DVD. THE SECOND HARM THAT THEY SPECIFICALLY ALLEGE IS A TAINT THAT'S IN PARAGRAPH 111. THAT REAL DVD HAS BEEN TAINTED THOSE ARE THE TWO

WITH A MISLABEL OF BEING AN ILLEGAL PRODUCT.

HARMS THAT THEY ALLEGE, THAT'S WHAT THEIR COMPLAINT SAYS. THE ONE THING WE ALL KNOW IS THE ALLEGE CONSPIRACIES DIDN'T CAUSE EITHER ONE OF THOSE HARMS. THAT EITHER. THE COURT: WELL, THE -- ONE OF THE DEVICES, AT LEAST, AND THEY DON'T ALLEGE

WAS OUT IN THE MARKET TO SOME EXTENT BEFORE THE INJUNCTION OR TRO? MR. POMERANTZ: PRECISELY. SO NO CONSPIRACY STOPPED

THEM FROM LAUNCHING IT, THE ONLY THING STOPPED THAT PRODUCT CONTINUING BEING SOLD IS YOUR HONOR'S INJUNCTION. SO, AND NOWHERE IN THEIR COMPLAINT DO THEY SAY THAT THE CONSPIRACY CAUSED THE DELAY. AND THE REASON WHY THEY

DIDN'T SAY THAT IS BECAUSE NOWHERE IN THE COMPLAINT DO THEY ALLEGE THEY WENT TO EACH STUDIO AND SAID MAY WE PLEASE HAVE A LICENSE. BECAUSE, YOUR HONOR, REMEMBER THE WHOLE GIST OF THEIR POSITION WAS THEY DIDN'T NEED A LICENSE FROM EACH INDIVIDUAL STUDIO, THAT THE CSS LICENSE WAS ENOUGH, IT ALLOWED THEM TO LAUNCH REAL DVD. SO IF THE CONSPIRACY THEY'RE ALLEGING IS THAT AGREEMENT THAT EACH OF THEM -- I'M SORRY, THE CONSPIRACY JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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THEY'RE ALLEGING THE STUDIOS AGREED NOT TO ISSUED INDIVIDUAL LICENSES, THEY NEVER ASKED FOR ONE, THEY NEVER ALLEGED THEY ASKED FOR ONE. THEY CLEARLY -- THE CONSPIRACY ISN'T WHAT CAUSED THEIR HARM AND WE ALL KNOW WHAT CAUSED THEIR HARM. WHAT CAUSED THEIR

HARM WAS THAT THEY WERE ACTING UNLAWFULLY AND YOUR HONOR ENJOINED THEM FROM SELLING THE PRODUCT. AND SO IT'S CLEAR UNDER THE ASSOCIATED GENERAL CONTRACTORS STANDARD FOR CAUSATION THAT THEY HAVE NOT ADEQUATELY ALLEGED THAT. THE ALLEGED CONSPIRACY CASE HAD THE

SPECIFIC INJURIES THAT THEY ALLEGE IN PARAGRAPHS 110 THROUGH 112. NOW, THEY ARGUED IN RESPONSE THAT, WELL, YOUR HONOR'S INJUNCTIONS WERE ONLY PRELIMINARY, THEY WEREN'T FINAL RULINGS, THEY HAVE BEEN ADJUDGED A LAW VIOLATOR. IT'S TRUE THAT YOUR HONOR'S RULINGS RIGHT NOW ARE PRELIMINARY RULINGS, BUT IT DOESN'T MATTER BECAUSE IT'S THOSE PRELIMINARY RULINGS THAT STOPPED THEM FROM SELLING REAL DVD, THAT DELAYED THEIR FURTHER SELLING IT INTO THE MARKET AND THAT TAINTED THEM WITH THE LABEL OF ISSUING AN ILLEGAL PRODUCT. IT'S THEIR OWN ILLEGAL CONDUCT THAT LEAD TO THE INJUNCTIONS, IT'S THOSE INJUNCTIONS THAT STOPPED THEM FROM SELLING. SO OUR FIRST ARGUMENT, YOUR HONOR, IS THAT THEY HAVE

NOT ADEQUATELY ALLEGED CAUSATION. THE COURT: WHAT ABOUT THE ALLEGATION WITH RESPECT TO

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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PARAMOUNT AND THEIR NEGOTIATIONS? PARAMOUNT MAYBE -- PARAMOUNT'S LAWYERS GOING TO SPEAK TO THAT? MR. POMERANTZ: I'LL BE PREPARED TO ADDRESS IT, IF

THEY THINK I'VE NOT COVERED EVERYTHING. SO THAT'S -- THAT HAS TO DO WHETHER THEY HAVE ADEQUATELY PLED DIRECT EVIDENCE OF A CONSPIRACY. HONOR, THAT'S ON PARAGRAPH 74 OF THE COMPLAINT. AND IF YOU LOOK AT PARAGRAPH 74 AND ACCEPTING IT AS TRUE, WHAT THAT SAY IS THAT REALNETWORKS AND PARAMOUNT ENGAGED IN NEGOTIATIONS AND THAT THOSE NEGOTIATIONS BROKE DOWN OVER PRICE. IN FACT, WHAT THEY SPECIFICALLY ALLEGE IS THAT PARAMOUNT INDICATED IT WAS NOT PREPARED TO BREAK WITH THE STUDIO CARTEL WITHOUT SUBSTANTIAL COMPENSATION FOR DOING SO. IF YOU PASS ENOUGH WE'LL GO AHEAD AND DO A DEAL WITH YOU. THERE'S NOTHING THERE THAT INDICATES THAT THERE WAS AN AGREEMENT AMONGST STUDIOS TO DENY INDIVIDUAL LICENSES AND WE ALL KNOW THAT'S NOT THE CASE BECAUSE THE STUDIOS CAN'T GIVE INDIVIDUAL LICENSES UNDER THE UNIFORM CSS LICENSE. THAT'S AN ATTACHMENT TO THEIR COMPLAINT, YOUR HONOR, FULLY ABLE AND, IN FACT, ENTITLED TO RELY ON THE TERMS OF THAT LICENSE. THE LICENSE ON ITS FACE IS A UNIFORM LICENSE THAT NO AND, YOUR

INDIVIDUAL LICENSEE CAN CHANGE. REMEMBER THE LICENSOR IS THE DVD CCA, SO PARAMOUNT JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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COULD NOT, ON ITS OWN, SAY DON'T WORRY ABOUT THAT SPECIFICATION, THAT'S OVER THERE, THAT PREVENTS COPYING, THAT'S NOT PARAMOUNT'S RIGHT TO DO, THAT'S THE DVD CCA'S RIGHT TO DO. THE COURT: WHAT KIND OF A LICENSE COULD PARAMOUNT

ENTER INTO WITH RESPECT TO CONTENT? ESSENTIALLY -- ESSENTIALLY ANY KIND OF RECORDING THAT WERE NOT CSS PROTECTED? MR. POMERANTZ: THE COURT: CERTAINLY.

WHAT ABOUT CSS PROTECTED? THEY COULDN'T DO ANYTHING THAT WOULD

MR. POMERANTZ:

AFFECT ANY OF THE SPECIFICATION OR ANY OF THE LICENSE TERMS BECAUSE IT'S NOT THEIRS TO CHANGE. THERE IS AN AMENDMENT PROCESS FOR THE CSS LICENSE, AND CERTAINLY PARAMOUNT AND REAL COULD HAVE GONE TO THE DVD CCA AND ITS MEMBERS, FOLLOWED THE PROTOCOL FOR TRYING TO GET AMENDMENT FOR ALLOWING CERTAIN THINGS TO HAPPEN. EITHER EVERYBODY GETS THE BENEFIT OF THAT OR NOBODY DOES. THEY'RE NOT -- THE WHOLE POINT OF THIS, WAS THAT YOU

WEREN'T GOING TO ALLOW JUST PARAMOUNT AND REAL TO ENTER INTO A LICENSE THAT BASICALLY PROVIDED REAL WITH FAVORABLE TREATMENT WITH RESPECT TO THE CSS SPECIFICATIONS AND THE CSS LICENSE, THAT WOULD UNDERCUT THE WHOLE POINT HAVING A UNIFORM LICENSING PROCEDURE. SO THIS IS NOT DIRECT EVIDENCE, YOUR HONOR, THE LAW DEFINES WHAT DIRECT EVIDENCE IS. DIRECT EVIDENCE IS SOMETHING

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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WHERE THERE IS NO INFERENCE NEEDED WHATSOEVER. THEY TRIED TO CREATE THIS AND ARGUE THIS IS REAL DIRECT EVIDENCE, BUT BY INSERTING THE WORDS PREPARED TO BREAK WITH A STUDIO CARTEL AND AS IF TO SAY THAT REAL, I'M SORRY, THAT PARAMOUNT SAID THAT, THIS DOES NOT SAY PARAMOUNT SAID WE WON'T BREAK WITH THE STUDIO CARTEL, DOESN'T SAY THAT AND I SERIOUSLY DOUBT THAT'S WHAT PARAMOUNT SAID. THE WORDS STUDIO CARTEL CLEARLY ARE REFERRING BACK TO THE ALLEGATIONS REAL HAS MADE IN ITS OWN COMPLAINT. AND THAT'S

EXACTLY WHAT HAPPENED IN TWONBLY AND THE COURT SAID THAT ALLEGATION IS JUST REFERRING TO PRIOR ALLEGATIONS, IT'S CONCLUSION THAT YOUR DRAWING. THEY'RE DRAWING THE PHRASE STUDIO CARTEL FROM THEIR EARLIER ALLEGATIONS, THERE DOES NOT SAY THAT'S WHAT PARAMOUNT SAID. THE COURT: A MOMENT. BUT DON'T WE GET BACK TO THIS LICENSE FOR

COULD THEY ENTER INTO A LICENSE WITH PARAMOUNT OR

ANY OTHER STUDIO THAT SUBJECT TO THE CSS AGREEMENT, SUBJECT TO THE CSS AGREEMENT? MR. POMERANTZ: THE COURT: ABSOLUTELY.

IN OTHER WORDS, CONTENT THAT CSS PROTECTED

AND THEIRS -- COULD THEY THEN AGREE WITH PARAMOUNT OR ANY OTHER STUDIO TO LICENSE THAT CONTENT SUBJECT TO THE CSS AGREEMENT? MR. POMERANTZ: AS LONG AS IT DOESN'T CHANGE THE CSS

AGREEMENT, THE ANSWER IS, YES. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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THE COURT: CONDITIONS?

RIGHT, SUBJECT TO ALL THE TERMS AND

MR. POMERANTZ: THE COURT:

ABSOLUTELY.

REALLY BE LAWYER LIKE ABOUT IT. THINK ABOUT IT WHAT MR. GLASER SAID

MR. POMERANTZ:

WHEN HE WAS ON THE STAND HERE, THEY WEREN'T -- THEIR OBJECTIVE WASN'T REALLY TO COPY DVD'S, IT WAS TO HAVE -- GET MOVIES TO A HARD DRIVE AND THEN COME UP WITH ALL THESE FEATURES THAT ALLOW THE USER TO ORGANIZE THEM AND SORT THEM AND GET ADDITIONAL INFORMATION AND PARENTAL CONTROLS AND THINGS OF THAT SORT. THERE'S LOT OF WAYS TO GET MOVIES ONTO A HARD DRIVE AND REAL HAD EVERY RIGHT TO GO TO EACH STUDIO INDIVIDUALLY AND SAY, LET'S TALK ABOUT A DEAL THAT WE CAN GET MOVIES ONTO HARD DRIVES TO ALLOW PEOPLE TO THEN ORGANIZE THEM WITH OUR REALLY SOPHISTICATED COOL REAL DVD SOFTWARE. THEY COULD HAVE DONE THAT, THEY COULD HAVE GONE THERE. THERE'S NOTHING THEY ALLEGE IN THIS COMPLAINT OR ANY OF US KNOW ABOUT THAT WOULD PRECLUDE THAT KIND OF BILATERAL AGREEMENT BETWEEN THE STUDIO AND REAL, IF IT DIDN'T INVOLVE COPYING A CSS-PROTECTED DISK. AND THEY ALLEGE THAT THERE'S WAYS OF DOING THAT, IT'S NOT AS IF IT'S SOMETHING OUTSIDE OF THE COMPLAINT. FOR

EXAMPLE, IN THEIR COMPLAINT THEY ALLEGE THAT THE STUDIOS ARE PUTTING OUT SOMETHING CALLED A DIGITAL COPY AND THEY SPECIFICALLY ALLEGE THAT DIGITAL COPIES COMPETE WITH WHAT REAL JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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IS TRYING TO DO WITH REAL DVD. WHAT A DIGITAL COPY IS, IT'S A DISK THAT IS NOT CSS ENCRYPTED AND IT COMES IN A PACKAGE WITH THE DVD THAT IS CSS ENCRYPTED, AND IT ALLOWS THE PURCHASER TO PUT A COPY OF THE MOVIE RIGHT ONTO THEIR HARD DRIVE, AND IT'S WITHOUT CSS LICENSE. SO THEY KNOW THAT THAT EXISTS AND THAT YOU CAN DO IT BECAUSE THEY ALLEGE IT IN THEIR COMPLAINT. SO YOUR HONOR

DOESN'T NEED TO GRANT THIS MOTION, YOUR HONOR DOESN'T NEED TO GO BEYOND WHAT YOU ALREADY KNOW FROM WHAT THEY ALLEGE IN THEIR COMPLAINT, IT'S THERE AND IT SAYS THAT. AND THAT GETS ME TO THE SECOND GROUND FOR WHY I THINK YOUR HONOR SHOULD DISMISS THIS COMPLAINT. AND THAT IS THAT

TWONBLY AND IQBAL, I'M SURE EVERYBODY COMES IN TODAY AND SAY TWONBLY AND IQBAL TO YOUR HONOR. THE COURT: I SAY IT RIGHT BACK TO THEM. I KNOW, SO I'M TALKING ABOUT KENDALL.

MR. POMERANTZ:

KENDALL IS THE NINTH CIRCUIT INTERPRETATION OF TWONBLY, AND WHAT KENDALL SAYS IS THAT THIS IS IN THE ANTITRUST CONTEXT, ALLEGATIONS OF FACT THAT COULD JUST AS EASILY SUGGEST RATIONAL LEGAL BUSINESS BEHAVIOR BY THE DEFENDANTS AS THEY COULD SUGGEST AN ILLEGAL CONSPIRACY ARE INSUFFICIENT TO PLEAD A VIOLATION OF THE ANTITRUST LAWS. SO WHAT YOU DO IS YOU LOOK AT THEIR COMPLAINT, ASSUME THE STUDIO DID WHAT THEY SAY WE DID, IS THAT CONSISTENT WITH JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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LAWFUL BEHAVIOR? AND IF IT IS CONSISTENT WITH LAWFUL BEHAVIOR IT MAY ALSO BE CONSISTENT WITH THE CONSPIRACY, BUT IF IT'S EQUALLY CONSISTENT WITH LAWFUL BEHAVIOR THEY HAVE NOT STATED AN ANTITRUST CLAIM. WHAT ARE THEY ALLEGING HERE, THEY'RE BASICALLY ALLEGING THE STUDIOS AGREED, HEY, WE WANT TO HAVE A NO COPY TECHNOLOGY THAT NONE OF US CAN CHANGE, AND THAT THIS CONSUMER ELECTRONICS COMPANIES AND THAT THE IT COMPANIES ALSO CAN'T CHANGE, IT'S A NO COPY TECHNOLOGY, BUT IT'S NON-EXCLUSIVE, SO. IF YOU USE THIS TECHNOLOGY YOU KNOW NO ONE CAN COPY AND YOU CAN'T CHANGE THE TERMS OF THE LICENSE, AND IF YOU DON'T LIKE THAT YOU DON'T HAVE TO USE THAT TECHNOLOGY, YOU CAN GO DO IT IN SOME OTHER WAY. THAT'S TOTALLY LAWFUL BEHAVIOR AND THERE'S MANY, MANY, MANY CASES OUT THERE THAT SAY IT'S COMPLETELY LEGITIMATE TO COME UP WITH A NON-EXCLUSIVE DISTRIBUTION METHOD THAT IS EXCLUSIVE, THAT IS -- I'M SORRY, THAT IS LIMITED WHERE YOU CAN'T COPY IT AND YOU CAN'T CHANGE IT, IT'S UNIFORM LICENSE. AND THAT'S WHAT WE HAVE HERE AND THE ONE CASE WE CITE TO YOUR HONOR IS SUPPORT OF THAT PROPOSITION IS THE CBSV V. ASCAP CASE THAT HAS TO DO WITH THE BLANKET LICENSE THAT ASCAP AND BMI ISSUED FOR PERFORMANCE RIGHTS TO MUSICAL COMPOSITIONS. AS YOUR HONOR REMEMBERS, THAT CASE WENT UP TO THE SUPREME COURT. SUPREME COURT SAID LIKE IT LICENSE OR NOT PER

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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SE ILLEGAL, AND THEN THEY SEND IT BACK DOWN TO THE COURT OF APPEAL TO DECIDE WHETHER UNDER THE RULE OF REASON IT WAS UNLAWFUL. AND IN THAT REMANDED CASE THE, I BELIEVE, THE SECOND CIRCUIT SAID THAT UNDER THE RULE OF REASON IT IS NOT UNLAWFUL. THERE IS NO RESTRAINT BECAUSE BESIDES THE BLANKET LICENSE TO GET RIGHTS TO MUSICAL COMPOSITIONS, CBS COULD GO TO EACH COMPOSER AND GET THE LICENSE. IT WAS A NON-EXCLUSIVE BLANKET LICENSE, NOTHING TO STOP THE CBS FROM GOING DIRECTLY TO EACH COMPOSER AND GETTING DIRECT LICENSE FROM THE COMPOSER OR MUSIC PUBLISHER. THAT WAS ON A FACTUAL RECORD AT TRIAL, BUT EVERY FACT YOU WOULD NEED TO MAKE THAT FINDING HERE IS ALREADY ADMITTED IN THE COMPLAINT. BECAUSE THEY ADMIT THAT CSS IS NOT THE ONLY WAY

THAT MOVIE STUDIOS DISTRIBUTE THEIR MOVIES, THEY ADMIT DIGITAL COPIES AND OTHER WAYS NOT USING CSS ARE AVAILABLE AND THEY WERE AVAILABLE TO REAL. SO, AGAIN, BECAUSE OF THE TWONBLY STANDARD WHICH SAYS, AND IQBAL AND KENDALL WHICH SAYS THEY HAVE TO ALLEGE SOMETHING THAT IS INCONSISTENT WITH LAWFUL BEHAVIOR, THEY HAVEN'T DONE THAT, THERE'S NOTHING UNLAWFUL WITH WHAT THEY ALLEGE EVEN IF YOU ACCEPT IT AS TRUE. THERE'S ALSO THE FOURTH CAUSE OF ACTION I DON'T WANT TO FORGET THAT, WHICH IS THE ALLEGATION THAT THE CONVERSATIONS FEW WEEKS BEFORE TRIAL, I'M SORRY, BEFORE THE FILING OF THE JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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COMPLAINT CONSTITUTED A CONSPIRACY BECAUSE THE STUDIOS WOULDN'T LICENSE TO REAL. THERE'S NOTHING ABOUT THAT THAT'S INCONSISTENT WITH LAWFUL BEHAVIOR. REAL COMES TO EACH STUDIO THREE WEEKS BEFORE

THEY'RE ABOUT TO LAUNCH A PRODUCT AND SAYS, BY THE WAY, WE'RE LUNCHING THIS PRODUCT, FOR EACH OF THEM TO DECIDE NOT TO ENTER INTO A LICENSE AGREEMENT WITH REAL IN THAT SITUATION IS, OBVIOUSLY, CONSISTENT WITH LAWFUL BEHAVIOR. THEY SAY IT'S

BECAUSE OF A CONSPIRACY, BUT IT'S OBVIOUSLY CONSISTENT WITH LAWFUL BEHAVIOR ALSO. AND I KNOW THIS IS WHERE YOUR HONOR HEARS TWOMBLY AND IQBAL A LOT, WHICH IS WHAT KIND OF DETAIL DO YOU NEED TO HAVE IN A COMPLAINT? I WOULD SUBMIT, YOUR HONOR, THAT THERE IS NO WAY, IF THERE IS NO DIRECT EVIDENCE HERE AND I WOULD SUBMIT THAT PARAMOUNT'S ALLEGATION IS NOT DIRECT EVIDENCE. THAT THEY HAVE AN OBLIGATION TO MEET THE TWONBLY AND IQBAL STANDARDS WITH RESPECT TO DETAILED ALLEGATIONS WITH SPECIFIC ALLEGATIONS, WHO DID WHAT TO WHOM, ET CETERA. THEY DON'T EVEN MENTION WHAT EACH OF THE STUDIOS DID OR DIDN'T DO IN CONNECTION WITH THIS CONSPIRACY A FEW WEEKS BEFORE TRIAL. AND I WOULD SUGGEST, YOUR HONOR, THIS IS THAT WAS

WOEFULLY SHORT OF THE IGBAL AND TWONBLY REQUIREMENTS. OUR SECOND ARGUMENT. OUR THIRD ARGUMENT IS NOERR-PENNINGTON.

I KNOW YOUR

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HONOR IS VERY FAMILIAR WITH NOERR-PENNINGTON, I'VE SEEN YOUR NAME ON A NUMBER OF CASES INVOLVING NOERR-PENNINGTON. WE BELIEVE HERE THAT THE EXPRESS ALLEGATIONS IN THE COMPLAINT SHOW THAT NOERR HAS TO BE TRIGGERED IN A NUMBER OF WAYS. LET'S START WITH THAT FOURTH CAUSE OF ACTION, THE ONE ABOUT FEW WEEKS BEFORE, THE DISCUSSION A FEW WEEKS BEFORE THE FILING OF THE LAWSUIT. THEY HAVE SOME VERY SPECIFIC ALLEGATIONS, YOUR HONOR, WHICH SHOW THAT THOSE WERE SETTLEMENT DISCUSSIONS. I WOULD

JUST GIVE YOU PARAGRAPH NUMBERS YOU CAN SEE WHAT THEY SAY. PARAGRAPH 97 WHERE THEY REFER TO ATTEMPTS TO RESOLVE THE ENSUING DISPUTE, PARAGRAPH 132 WHERE THEY REFER TO ATTEMPTS TO RESOLVE THE STUDIO DEFENDANTS STATED CONCERNS, PARAGRAPH 88 DISCUSSES THE TOLLING AGREEMENT THAT THE PARTIES ENTERED INTO, TOLLING IN ORDER TO PRECLUDE HAVING TO FILE A LAWSUIT RIGHT AWAY. IT IS VERY, VERY CLEAR UNDER NINTH CIRCUIT LAW, SOSA IN PARTICULAR, SOSA VERSUS DIRECT TV, THAT SETTLEMENT DISCUSSION THAT PRECEDE THE FILING OF A LAWSUIT JUST AS PROTECTED UNDER NOERR AS ANYTHING THAT HAPPENS DURING THE LAWSUIT BECAUSE IT'S INCIDENTAL TO THE LITIGATION. AND REAL WANTS YOUR HONOR TO FIND THAT WHAT WE WERE DISCUSSING, COMMERCIAL TERMS, MARKETING OPPORTUNITIES AND OTHER THINGS LIKE THAT, WE WEREN'T DISCUSSING SETTLEMENT. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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WELL, SOSA ADDRESSES THAT AS WELL, ANY PRE-LITIGATION SETTLEMENT DISCUSSION IS GOING TO HAVE COMMERCIAL INTEREST AT STAKE, THAT'S WHAT HAPPENS IN BUSINESS LITIGATION. THE MERE FACT THERE ARE COMMERCIAL TERMS BEING DISCUSSED DOESN'T IN ANY WAY SUGGEST THAT THOSE WEREN'T SETTLEMENT DISCUSSIONS THAT ARE PROTECTED. WE CLEARLY KNEW THAT THERE WAS A DISPUTE, THEY ADMIT IT AND THE PARTIES WERE ATTEMPTING TO RESOLVE IT, THAT'S A SETTLEMENT DISCUSSION PROTECTED BY NOERR. THE THIRD CAUSE OF ACTIONS ALSO BASED ON ACTIVITIES THAT ARE PROTECTED UNDER NOERR. TWO RESPECTS, YOUR HONOR.

LET'S GO BACK TO THE ISSUE OF HARM. REMEMBER THAT THEIR HARM IS THAT THEY WERE DELAYED IN LAUNCHING REAL DVD AND THAT THERE WAS A TAINT THAT THEIR PRODUCT WAS ILLEGAL. THOSE TWO HARMS ARE SPECIFICALLY CAUSED BY YOUR HONOR'S RULINGS AND IF THE HARM IS CAUSED BY A GOVERNMENTAL DECISION, INCLUDING A COURT RULING, NOERR APPLIES. THAT'S WHAT THE ARMSTRONG SURGICAL CASE SAYS AND THAT'S WHAT OTHER CASES SAY. IF AN ELEMENT OF THE CLAIM, A

REQUIRED ELEMENT OF THE CLAIM REQUIRES YOU TO LOOK AT A GOVERNMENTAL DECISION, INCLUDING A COURT DECISION, IT'S BARRED UNDER NOERR. SECONDLY, HERE OTHER ELEMENTS OF THEIR CLAIM ARE ALSO IMPLICATING PETITIONING ACTIVITIES. THEY TALK ABOUT THE

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COLLECTIVE INTERPRETATION THAT THE STUDIOS AND THE DVD CCA HAVE GIVEN TO THE CSS LICENSE, THAT'S IN PARAGRAPH 82. AND THEY SPECIFICALLY REFER TO THINGS THAT HAPPENED IN THIS COURTROOM DURING THE PRELIMINARY INJUNCTION PROCEEDING, PARAGRAPHS 51 THROUGH 53. THEY ARE UNQUESTIONABLY BASING THEIR CLAIM ON A COLLECTIVE POSITION THAT THE STUDIOS AND THE DVD CCA ASSERTED IN THIS COURTROOM AND THAT'S PROTECTED BY NOERR. THOSE ARE THE THREE BASIS OF OUR CLAIM, CAUSATION, THEY HAVEN'T PLED ANYTHING THAT'S INCONSISTENT WITH LAWFUL PRO-COMPETITIVE BEHAVIOR AND NOERR-PENNINGTON. THANK YOU, YOUR HONOR. THE COURT: ALSO, WHAT DO YOU UNDERSTAND, ALTHOUGH,

ONE WAY NOT NEED TO GET TO THAT, AT LEAST, AT THIS STAGE, THE RELEVANT MARKET TO BE? I SEE ALLEGATIONS IN THE COMPLAINT, BUT WHAT DO YOU UNDERSTAND THAT RELEVANT MARKET TO BE? MR. POMERANTZ: YOUR HONOR, I THINK, THE RELEVANT

MARKET THAT THEY HAVE PLED IS CREATING OR OTHERWISE OBTAINING MOVIES THAT THE CONSUMER ALREADY OWNS IN A DVD FORMAT. THEY TRIED TO SAY IN THEIR BRIEF THE RELEVANT MARKET IS -- REQUIRES THAT THEY COPY DIRECTLY FROM A DVD, BUT THAT'S NOT WHAT THEY PLED, THAT IS NOT WHAT THEY PLED. WAS -THE COURT: WHAT YOU JUST STATED. WHAT THEY PLED

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MR. POMERANTZ: PARAGRAPH 99 AND -THE COURT:

-- WHAT I JUST STATED.

IN FACT,

RIGHT. -- AND THE REASON WHY THEY PLED THAT,

MR. POMERANTZ:

YOUR HONOR, BECAUSE THEY REALLY COULDN'T PLEAD THAT THEY HAD TO COPY DIRECTLY FROM A DVD BECAUSE THAT'S NOT WHAT MR. GLASER SAID ON THE STAND AND THAT IS A BINDING ADMISSION ON REAL. HE IS THE CEO OF THE COMPANY. HE TESTIFIED TO THAT ON

DIRECT EXAMINATION IN THE PRELIMINARY INJUNCTION PROCEEDING. IT IS BINDING FOR PURPOSE OF THIS MOTION. SO WHEN THEY WROTE PARAGRAPH 99 THEY SPECIFICALLY DESCRIBED A MARKET WHERE TO CREATE OR OTHERWISE OBTAIN AND, YOU KNOW, YOUR HONOR, YOU KNOW THAT ALSO FROM THEIR ALLEGATIONS REGARDING THE DIGITAL COPY. LOOK AT PARAGRAPH 112 AGAIN. PARAGRAPH 112 REFERS TO

OUR SELLING OF THESE DIGITAL COPIES AND SAYS THAT WE'RE TRYING TO CAPTURE THE MARKET FOR THEMSELVES, WHAT THEY'RE TALKING ABOUT IS MARKET REAL WANTS TO ENTER. BUT, OF COURSE, DIGITAL COPY IS NOT CSS. SPECIFICALLY ALLEGE THAT IN PARAGRAPH 103. DIGITAL COPIES IS WITHOUT CSS ENCRYPTION. SO THEY HAVE SPECIFICALLY PLED THAT THE RELEVANT PRODUCT MARKET INCLUDES PRODUCTS THAT ARE NOT ENCRYPTED WITH CSS, OTHERWISE THERE'S NO WAY THAT DIGITAL COPY PRODUCTS COMPETE WITH REAL DVD. AND YET THAT'S WHAT THEY ALLEGE. THEY

103 SAYS THAT

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SO YOU KNOW THAT THEIR PRODUCT MARKET IS BROADER THAN JUST COPYING DIRECTLY FROM DVD'S, BOTH BY PARAGRAPH 99 WHERE THEY DEFINE THE RELEVANT PRODUCT MARKET AND BY THE ALLEGATIONS OF DIGITAL COPY IN PARAGRAPHS 112 AND 103. THE COURT: DO YOU UNDERSTAND THEY HAVE A DIFFERENT

ARGUMENT NOW IN THEIR OPPOSITION TO YOUR MOTION? MR. POMERANTZ: YES. I BELIEVE THAT IN THEIR

OPPOSITION TO OUR MOTION THEY'RE SAYING THE PRODUCT MARKET IS LIMITED TO CSS-PROTECTED DISKS. BUT I DON'T BELIEVE THAT PRODUCT MARKET CAN, FIRST OF ALL, IT'S NOT WHAT THEY PLED. AND, SECONDLY, I DON'T BELIEVE THEY REASONABLY CAN PLEAD THAT GIVEN WHAT MR. GLASER SAID ON THE STAND. THE COURT: OKAY. THANK YOU. I WILL HEAR FROM ALL

THE DEFENDANTS THAT ARE GOING TO BE HEARD AND THEN I'LL HEAR FROM REAL. MR. STEER: THANK YOU, YOUR HONOR. I'M, AGAIN,

REGINALD STEER ON BEHALF OF THE DVD CCA. THE COURT: MR. STEER: STILL REGINALD STEER. NO CHANGE SINCE HALF AN HOUR AGO. AND I

AGREE WITH THE POINTS MR. POMERANTZ HAS MADE, BUT LET ME ADD A COUPLE OF THINGS TO THEM THAT ARE A LITTLE DIFFERENT FOR THE ALLEGATIONS AGAINST THE DVD CSS. FIRST, AS TO NOERR-PENNINGTON, THE ANALYSIS HERE IS EXTREMELY SIMPLE, BECAUSE WHEN ONE READS THE COUNTERCLAIMS JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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AGAINST DVD CCA WHAT THEY SAY IS THAT DVD CCA'S INTERPRETATION OF THE CSS LICENSE AGREEMENT -THE COURT: I'LL FOLLOW ALONG. MR. STEER: THE COURT: MR. STEER: COUNTERCLAIM PARAGRAPH 37. UH-HUH. ALSO 34, 36, IN THAT RANGE. THERE'S OTHER WHICH PARAGRAPH ARE YOU LOOKING AT? AND

PARAGRAPHS IN ADDITION, YOUR HONOR, BUT I THINK THOSE ARE THE KEY ONES. THE COURT: OKAY. THE ANTITRUST COUNTERCLAIM APPEAR

TO START AT PARAGRAPH 39; IS THAT CORRECT? OR THEY START EARLIER THAN THAT? MR. STEER: THE COURT: I'M SORRY. ARE YOU LOOKING AT THE EARLIER AMENDED? I THINK, THE COMPLAINT AGAINST THE DVD

MR. POMERANTZ:

CCA IS DIFFERENT THAN THE COMPLAINT AGAINST US. MR. STEER: IT IS. IF YOU'RE LOOKING AT, YOUR HONOR,

IF YOU'RE LOOKING AT THE SECOND AMENDED COMPLAINT. THE COURT: MR. STEER: I'M LOOKING AT THE WRONG ONE. YOU'RE LOOKING AT THE WRONG DOCUMENT

BECAUSE THE COUNTERCLAIMS AGAINST US ARE A LITTLE BIT DIFFERENT. THE COURT: OKAY. AT LEAST, IN TERMS OF THE PARAGRAPH

MR. POMERANTZ: NUMBERING.

I'M REFERRING TO THE COUNTERCLAIMS AGAINST DVD CCA

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AND IF IT'S AT PAGE 19 OF THOSE COUNTERCLAIMS, AT THE VERY BOTTOM PARAGRAPH 37 SAYS: IF THE DVD CCA AND STUDIOS ARE RIGHT IN THEIR COLLECTIVE INTERPRETATION ET CETERA, ET CETERA, ET CETERA, THEN THE AGREEMENT IS ILLEGAL. SO IT'S THE INTERPRETATION THAT

THEY'RE ATTACKING HERE AS FAR AS DVD CCA IS CONCERNED. THE ONLY ALLEGATION AS TO THE ISSUANCE OF ANY SUCH INTERPRETATION HAVING ANYTHING TO DO WITH REALNETWORKS, YOUR HONOR, IS THAT DVD CCA ADVANCED ITS INTERPRETATION IN THIS COURTROOM AND IT HAD TO DO THAT BECAUSE IT WAS SUED BY REALNETWORKS. WE DID NOT INITIATE THIS LITIGATION, REALNETWORKS INITIATED LITIGATION AGAINST DVD CCA, AND IF THAT DOES NOT FALL WITHIN THE PRIVILEGE CREATED OR THE EXEMPTION CREATED BY NOERR-PENNINGTON I CAN'T IMAGINE WHAT DOES. THE COURT: AS A MATTER OF FACT, DVD CCA WAS NOT A

PARTY PLAINTIFF IN THE ACTION BROUGHT IN THE CENTRAL DISTRICT. MR. STEER: THE COURT: MR. STEER: THE COURT: REALNETWORKS? MR. STEER: CORRECT. WE HAD TO DEFEND OURSELVES AND THAT'S CORRECT, YOUR HONOR. OKAY. WE DID FILE COUNTERCLAIMS. YES, BUT THAT WAS THIS ACTION INITIATED BY

THAT DEFENSE INCLUDED DEFENDING THE CSS LICENSE AGREEMENT AND ADVOCATING THE INTERPRETATION WE BELIEVE IS CORRECT. CLEARLY

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PRIVILEGED. THE COURT: HAD THERE BEEN AT ANY TIME IN THE PAST ANY

COMMUNICATION BETWEEN REAL AND DVD CCA ABOUT ITS INTERPRETATION OF THE AGREEMENT? MR. STEER: YOUR HONOR, THERE'S NO ALLEGATIONS OF ANY

SUCH COMMUNICATION, AND THE COURT WILL RECALL THAT DURING THE PRELIMINARY INJUNCTION PHASE REALNETWORKS KIND OF MADE SOME NOISE ABOUT HOW DVD CCA WOULDN'T COMMUNICATE WITH US, WOULDN'T TALK TO US. THEY DIDN'T -- NEVER OFFERED ANY EVIDENCE THAT THEY ASKED TO TALK ABOUT INTERPRETATION OF THE AGREEMENT, HOW IT WOULD APPLY TO THEM OR ANYTHING OF THAT SORT, BUT THEY THREW UP THAT ACCUSATION KIND OF IN THE AIR. SO THE ANSWER TO THE COURT'S QUESTION IS, THERE IS NOTHING ALLEGED HERE AND NOR WAS ANYTHING IN THE RECORD. THE COURT: NO, NOT IN THE COMPLAINT, I'M GOING OVER

THE FOUR CORNERS, SOMETIMES WE DO THAT, YOU KNOW, NOT IN THE FINAL WRITTEN OPINION, OF COURSE. MR. STEER: OF COURSE. PURELY FOR BACKGROUND. SO AS

I SAY, NOERR-PENNINGTON PROTECTS THE DVD CCA'S CONDUCT IN THIS LITIGATION. LET'S GO BACK TO WHAT DVD CCA IS ALLEGED TO HAVE DONE IN THESE COUNTERCLAIMS BECAUSE THERE IS A LITTLE BIT MORE. WHAT THERE IS THE ACCUSATION THAT DVD CCA SOMEHOW WAS THE INSTRUMENTALITY OF CONSPIRACY AMONG STUDIOS. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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WELL, THE TERM INSTRUMENTALITY REALLY ISN'T DEFINED, THEY DON'T SAY HOW IT WAS AN INSTRUMENTALITY, BUT IF WE LOOK AT WHAT FEW FACTS THEY DO ALLEGE, IT'S PRETTY CLEAR WHAT THEY'RE SAYING. THEY'RE SAYING REALNETWORK TRIED TO NEGOTIATE SOME SORT OF UNDEFINED LICENSE WITH SOME STUDIOS, THE ONLY ONE WE KNOW OF BY NAME IS PARAMOUNT BECAUSE THEY MAKE AN ACCUSATION AGAINST PARAMOUNT. THE STUDIOS DID NOT DECIDE, THEY DECIDED NOT TO ENTER INTO SUCH LICENSING AGREEMENTS WITH REAL. THERE'S NO

ALLEGATION THE DVD CCA, BY THE WAY, HAD ANYBODY THERE AT THOSE NEGOTIATIONS, PARTICIPATED, WAS CONSULTED OR WAS IN ANY WAY AWARE OF OR INVOLVED WITH THOSE NEGOTIATIONS. THE COURT: MR. STEER: OR INFLUENCED PARAMOUNT IN ITS DECISION? OR IN ANY REGARD HAD ANYTHING TO DO WITH

SO THE NEXT STEP IS THAT SOMEONE FROM -- THEY ALLEGE

SOMEONE FROM ONE OF THE STUDIOS TOLD THEM THAT THEY NOT LICENSED BECAUSE THEY UNDERSTAND THAT THE CSS LICENSE AGREEMENT PROHIBITS THEM LICENSING REAL. BUT, AGAIN, THERE'S NO EVIDENCE OR ALLEGATION, I SHOULD SAY, THAT ANYBODY SPOKE TO DVD CCA. THIS IS SOMEBODY

ELSE'S INTERPRETATION OF THE CSS LICENSE AGREEMENT AND THERE'S NOTHING CONSPIRATORIAL ABOUT IT. AND WE KNOW, AS MR. POMERANTZ HAS STATED, STUDIOS DO, IN FACT, LICENSE THEIR CONTENT SEPARATE AND APART FROM USING JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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CSS. AND, AGAIN, THE CSS LICENSE AGREEMENT, YOUR HONOR, IS NOT EXCLUSIVE. NOTHING IN IT REQUIRES STUDIO TO USE CSS ON ALL

OF THE MOVIE DVD'S THAT IT PRODUCES OR ANY OF THEM. IT'S AVAILABLE ONCE LICENSED AND ONCE LICENSED THE LICENSEE MUST ADHERE TO THE TERMS OF THE LICENSE. DEFEAT THE INTELLECTUAL PROPERTY RIGHTS INVOLVED. BUT IT'S EVIDENT AS REALNETWORK ITSELF ALLEGES THERE'S DIGITAL COPY THAT ISN'T PROTECTED BY CSS, SO THERE ARE WAYS TO ENTER INTO SUCH AGREEMENTS WITHOUT INVOLVING CSS. AND THAT, YOUR HONOR, I SUSPECT EXPLAINS WHY DVD CCA HAD ABSOLUTELY NO ALLEGED INVOLVEMENT IN THESE COMMUNICATIONS BETWEEN REALNETWORKS AND THE STUDIOS. SO THE BOTTOM LINE IS THAT -THE COURT: YOU WOULD AGREE WITH MR. POMERANTZ, I TAKE REAL NETWORKS KNEW THAT, MUST NOT

IT, THAT YOU COULD ALSO ENTER INTO AN AGREEMENT WITH A STUDIO TO COPY CSS PROTECTED WORK IF, IN FACT, YOU AGREE TO ADHERE TO THE CSS LICENSE TERMS, CORRECT? MR. STEER: HONOR, CORRECT. THE COURT: MR. STEER: THAT'S WHAT I'M -AS MR. POMERANTZ EXPLAINED, THERE IS A SUBJECT TO THE CSS LICENSE TERMS, YOUR

PROCEDURE FOR AMENDMENT, IT REQUIRES APPROVAL OF THE ENTIRE ORGANIZATION ULTIMATELY OR REPRESENTATIVES OF THE ENTIRE ORGANIZATION. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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AND THERE'S NO ALLEGATION THAT THAT PROCESS OR PROCEDURE WAS EVER STARTED OR SUGGESTED BY REALNETWORKS. SO

IT'S AN AVENUE THEY APPARENTLY CHOSE NOT TO PURSUE BECAUSE THE COURT HAS HEARD THEIR POSITION, HAS BEEN THAT THEY, IN FACT, WERE IN COMPLIANCE WITH THE CSS LICENSE AGREEMENT. THEY NEVER TOOK THE POSITION THAT WE'LL DO SOMETHING ELSE TO CHANGE IT BECAUSE WE GOT TO DO THAT IN ORDER TO COMPLY WITH IT. THEY SIMPLY -- NOT SIMPLY, BUT IN A COMPLICATED WAY

ARGUED WHAT THEY DO COMPLY WITH THE AGREEMENT, THEY'RE WRONG. SO MY POINT, YOUR HONOR, IS THAT THE CONCLUSORY ALLEGATION THAT SOMEBODY USED THE EXISTENCE OF THE CSS LICENSE AGREEMENT AS AN EXCUSE FOR NOT ENTERING INTO A LICENSING ARRANGEMENT WITH REALNETWORKS, THAT DOESN'T STATE ANTITRUST CLAIMS AGAINST DVD CCA. I WANTED TO MAKE THIS ARGUMENT FOR YEARS IN A CIVIL CASE, I CAN DO IT FINALLY, MY CLIENT WASN'T THERE PERIOD. THE COURT: MR. STEER: THE COURT: OKAY. THANK YOU. THANK YOU. YOUR HONOR, IF I COULD JUST CLARIFY.

MR. POMERANTZ: THE COURT:

YOUR CLIENT ISN'T UNDER INDICTMENT, YOU

MR. STEER:

FOUR YEARS IN THE ARMY JAG CORP. MAY I, IN THE COLLOQUY WITH MR. STEER,

MR. POMERANTZ:

I JUST WANT TO CLARIFY ONE POINT BEFORE MR. JACOBSEN GETS ON, JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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SO HE CAN RESPOND. YOUR HONOR, WHEN YOU POSE THE QUESTION TO MR. STEER ABOUT WHAT KIND OF A LICENSE COULD BE ENTERED INTO SUBJECT TO THE CSS LICENSE, IT SOUNDED A LITTLE DIFFERENT TO ME WHEN I WAS SITTING THERE THAN WHEN HE WAS STANDING HERE. I WANT TO CLARIFY WHAT I BELIEVE IS THE STUDIOS' POSITION. LICENSE. THE CSS LICENSE IS A NO COPY LICENSE, YOU CAN'T COPY IF A STUDIO WANTS TO ENTER INTO AGREEMENT WITH REAL

THAT ALLOWS COPYING OF A CSS-PROTECTED DISK THE STUDIO WOULD HAVE TO DO TWO THINGS AND SO WOULD REAL. FIRST, HAVE TO ENTER INTO A LICENSE, BILATERAL LICENSE, STUDIO WITH REAL. BEFORE THEY COULD ACTUALLY

IMPLEMENT THAT LICENSE THEY WOULD HAVE TO GO BACK TO THE DVD CCA AND FOLLOW THE AMENDMENT PROCEDURE IN ORDER TO BASICALLY COME UP WITH AN EXCEPTION TO THE NO COPY RESTRICTION. THEY'VE DONE THAT IN THE PAST. THAT HAS HAPPENED IN

THE PAST WITH RESPECT TO BURN TO DVD COPYING, WHICH IS NOT WHAT'S AT ISSUE HERE. BUT I JUST WANTED CLARIFY, IF WHAT

YOU'RE DOING IS COPYING CSS-PROTECTED DISKS BILATERAL LICENSE CAN'T WORK UNTIL YOU GO BACK TO THE DVD CCA. IF WHAT YOU WANT TO DO IS GET A COPY OF A MOVIE ONTO A HARD DRIVE WITHOUT USING CSS PROTECTION, YOU DON'T HAVE TO GO TO THE DVD CCA, YOU CAN DO THAT BETWEEN THE STUDIO AND REAL. THE COURT: MR. STEER: MR. STEER, DO YOU AGREE WITH THAT? YES, YOUR HONOR, I DO. I THOUGHT THAT'S

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WHAT OUR COLLOQUY INVOLVED. THE COURT: MR. FRAHN: YES.

THANK YOU.

BRIEFLY ON THE BEHALF OF PARAMOUNT, BUZ

FRAHN OF SIMPSON THATCHER, NICE TO SEE YOU. I THINK, THAT YOUR HONOR'S QUESTION IS, WHAT COULD THEY HAVE BEEN NEGOTIATING ABOUT BETWEEN PARAMOUNT AND REAL? I THINK, THERE'S AT LEAST FOUR PRACTICAL THINGS THAT THEY COULD HAVE BEEN TALKING ABOUT. NUMBER ONE, AND REMEMBER THIS TALK HAPPENED JUST SEVERAL WEEKS BEFORE REAL SAID IT'S GOING TO INTRODUCE A PRODUCT, I THINK, THE FIRST SUBJECT OF DISCUSSIONS WOULD BE WHAT IS IN, RIGHT, THIS CAME OUT OF THE BLUE, AND SO YOU WANT TO FIND OUT WHAT IT WAS. THE SECOND THING THEY COULD HAVE BEEN TALKING ABOUT IS COMING UP WITH A DEAL THAT IS OUTSIDE CSS SUCH AS ITUNES OR THE AMAZON DOWNLOAD SERVICE, SOMETHING REALLY OUTSIDE OF CSS AND BUT ALLOWS REAL TO IMPLEMENT THE ADDITIONAL SERVICES THAT IT SAID IT WANTED TO OFFER. THE THIRD THING THAT COULD BE TALKING ABOUT IS TRYING TO STRUCTURE A DEAL SUBJECT TO AND IN COMPLIANCE WITH THE CSS LICENSE. AND THEN, I THINK, FOURTH THING THEY COULD HAVE BEEN TALKING ABOUT IS STRUCTURE A DEAL THAT'S DEPENDED UPON MUTUALLY COOPERATING TO SEEK AN AMENDMENT OF THE CSS LICENSE AND ANY OTHER NECESSARY AMENDMENTS TO ENABLE THE FUNCTIONALITY THAT JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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REAL WANTED TO PUT OUT THERE. NOW, NONE OF THAT IS IN REAL'S ALLEGATION. WE'RE

TALKING ABOUT THE FOUR CORNERS AGAIN, NONE OF THAT THOSE POSSIBILITIES ARE IN REAL'S ALLEGATION. BUT IMPORTANTLY WHAT ALSO MISSING FROM REAL'S ALLEGATIONS, ANY ALLEGATION THAT PARAMOUNT OR FOX, WHICH IS THE OTHER STUDIO THEY NAME OR ANY OF THE OTHER STUDIOS, THEY MIGHT HAVE HAD DISCUSSIONS WITH BEFORE LAUNCH WAS ENGAGING IN THOSE DISCUSSIONS IN BAD FAITH. SIMPLY NOT THERE. CERTAINLY ALL OF THE INFORMATION THEY MENTION IN

ABOUT THE DISCUSSIONS IS AVAILABLE TO REAL.

THE COMPLAINT THERE ARE NUMEROUS TERM SHEETS EXCHANGED, SO ALL OF THOSE DISCUSSIONS WE HAVE TO ASSUME WERE IN GOOD FAITH, THAT PARTIES ACTUALLY THOUGHT THEY COULD REACH A DEAL. WHETHER IT'S SUBJECT TO AN AMENDMENT, WHETHER IT'S OUTSIDE CSS, WE DON'T KNOW BECAUSE THEY DON'T PUT IT IN THEIR COMPLAINT, BUT THEY THOUGHT THEY COULD HAVE REACHED A DEAL IN GOOD FAITH. WHAT IS ALSO -THE COURT: MR. FRAHN: AT AN EXORBITANT PRICE. SUBSTANTIAL IN ONE SENTENCE, BUT WHAT WE DON'T SEE IS ANY DIRECT

EXORBITANT IN THE NEXT. EVIDENCE.

IN OUR PLEADING A COMPLAINT AND SOMEONE ON THE OTHER SIDED ADMITTED TO ME THEY WERE A MEMBER OF A CARTEL, YOU JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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CERTAINLY SEE SOME QUOTATIONS MARKS IN MY COMPLAINT. I WOULDN'T USE THE VERB INDICATED. THE WORD INDICATE MEANS. I DON'T KNOW WHAT

IF SOMEBODY SAID SOMETHING THEY SAID

IT, IF THEY DEMANDED SOMETHING THEY DEMANDED IT. WHEN YOU USE THE WORD INDICATED, THAT WAS THE WORD IS IN PARAGRAPH 74, THAT'S KIND OF A WISHY WASHY WORD WHICH SAYS, ESSENTIALLY, I'M TAKING FROM YOUR CONDUCT YOU INDICATED SOMETHING TO ME, I'M INFERRING SOMETHING, I THINK, THAT'S THE MOST THEY HAVE. CERTAINLY NOT DIRECT EVIDENCE, CERTAINLY DOESN'T RISE TO THE LEVEL OF THE DIRECT EVIDENCE. AND THE PRIMARY CASE THEY

CITE WHICH THE MAC TRUCK CASE WHERE YOU GOT THREE SEPARATE PEOPLE GIVING DETAILED TESTIMONY FROM THREE DIFFERENT SOURCES ABOUT THE WHO, WHAT, WHEN, WHERE AND HOW AS TO THE DIRECT EVIDENCE IN THE CONSPIRACY. SIMPLY THEY'RE NOT DIRECT EVIDENCE TO SAY THAT SOMEONE INDICATED WHATEVER EXORBITANT, OR EXTRAVAGANT, OR SUBSTANTIAL WHATEVER IT IS, JUST DOESN'T GET THERE. SO WHAT YOU HAVE, AT MOST, IS THE ALLEGATION THAT DIFFERENT STUDIOS BEGAN NEGOTIATIONS WITH REAL, THEY GOT TO DIFFERENT PLACES AND AT THE END OF THE DAY THEY COULDN'T REACH AGREEMENT ON PRICE. NOW, I WOULD SUGGEST TO YOU THE MORE PLAUSIBLE CONCLUSION FROM THOSE ALLEGATIONS NOT A CONSPIRACY, BUT A SEPARATE, PEOPLE WERE ACTING IN THEIR OWN INDEPENDENT ECONOMIC JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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SELF-INTEREST, NOT CONSPIRATORIALLY. THE COURT: NOW, WITH RESPECT TO THE EXAMPLES YOU WERE

GIVEN THE OPTIONS AVAILABLE AND THE THIRD ONE, BUT PARTICULARLY WITH NEGOTIATING ANY KIND OF COPYING ARRANGEMENT SUBJECT TO USE THE TERM IN COMPLIANCE WITH THE CSS. IS IT YOUR OPINION THAT THEY WOULD NOT NEED TO OBTAIN SOME KIND OF AMENDMENT IF THAT WAS GOING TO BE THE NATURE OF THE AGREEMENT? MR. FRAHN: NO, THAT'S NOT MY OPINION. IF THE NATURE

OF THE AGREEMENT WAS TO COPY CSS-PROTECTED MATERIAL, THEN YOU WOULD HAVE TO MAKE THAT AGREEMENT SUBJECT TO IMPLEMENTATION, ONLY AFTER YOU HAD AMENDED THE CSS LICENSE THROUGH THE DVD CCA PROCESS. THE COURT: MR. FRAHN: THE COURT: MR. FRAHN: THE COURT: MR. JACOBSON? MR. JACOBSON: YES, YOUR HONOR. YOUR HONOR, IF I MAY SO WE HAVE A CONSISTENT -I THINK, IT'S CLEAR. OKAY. THANK YOU, YOUR HONOR. WHO ARE WE GOING TO HEAR FROM,

APPROACH, I HAVE A COUPLE OF VISUAL AIDS FOR THE COURT. THEY'RE UP ON THE BOARD, I HAVE MINIATURES. THE COURT: THANK YOU. MR. JACOBSON: YOUR HONOR, I'M GOING TO TRY TO PROCEED PLEASE HAND THEM TO MR. BOWSER OVER HERE.

JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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IN AN ORGANIZED FASHION TO ADDRESS EACH OF THE ISSUES HERE. WE HAVEN'T HEARD ABOUT THE NATIONAL COOPERATIVE RESEARCH ACT OR THE SINGLE ENTITY DEFENSE AT ALL AS THE OTHER SIDE HAS ON PAPERS ON THOSE POINTS, BUT I DO WANT TO ADDRESS THE OTHER ISSUES. AND WHILE IT'S STILL FRESH IN OUR MIND I WANT TO SAY ONE THING ABOUT THE ALLEGATION CONCERNING PARAMOUNT. WE'LL

TALK A BIT MORE LATER, BUT I WILL TELL YOU RIGHT NOW THAT THE WORD USED BY THE PARAMOUNT REPRESENTATIVE IN THE COURSE OF THE MEETING WAS CARTEL. REPRESENTATIVE. THE COURT: THE COMPLAINT? MR. JACOBSON: SINCE WHEN -- IT'S A FAIR QUESTION, HOW COME IT'S NOT IN QUOTATIONS MARKS IN THE SPECIFIC QUOTATION FROM THAT

YOUR HONOR, BUT SINCE WHEN IS A COMPLAINT SUBJECT TO RULE 12 ANALYSIS BASED ON THE USE OR NON-USE OF QUOTATIONS ATTACHED TO A PHRASE IN A COMPLAINT? I NEVER HEARD THAT UNTIL THE ARGUMENT ADVANCED TODAY, JUST NOT THE LAW. THE COURT: I TELL YOU ONE THING. IF I WERE DRAFTING

A COMPLAINT AND I HAD SOME LANGUAGE THAT WAS STRAIGHT OUT OF THE MOUTH OF THE OPPOSITION, I WOULD SURE PUT IT, AND THIS IS A DEAD RINGER, THIS IS DEAD RINGER LANGUAGE, I'D PUT IT IN QUOTES. I WANT THE, YOU KNOW, THE RECIPIENTS OF THAT COMPLAINT JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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TO KNOW THAT THIS WAS WHAT WAS SAID. MR. JACOBSON: THE COURT: SAID. MR. JACOBSON: DIDN'T DO THAT. MAYBE WE SHOULD HAVE DONE THAT, WE AND YOU KNOW WHAT?

I WOULDN'T USE THE WORD INDICATED, I'D USE

I'M TELLING YOU RIGHT NOW IN OPEN COURT THAT

THE PHRASE USED BY THE PARAMOUNT REPRESENTATIVE WAS QUOTE "I'LL REQUIRE BLOOD MONEY TO BREAK THE CARTEL." ALL RIGHT. IF WE HAVE TO FILE AMENDED PLEADING WE CAN

PUT THAT QUOTATION IN, BUT I'M TELLING YOU RIGHT NOW IT'S NOT A PARAPHRASE, IT'S NOT AN INFERENCE, IT'S DIRECT EVIDENCE FROM A PARTICIPANT IN AN AGREEMENT WITH RIVALS THAT THAT PARTICIPANT WAS A MEMBER OF A CARTEL WITH THE OTHER STUDIOS. THAT IS DIRECT EVIDENCE UNDER ANY SENSE OF THE TERMS, IT MAY BE WE SHOULD GET SOME LARK FOR NOT PUTTING QUOTATION MARKS AROUND THE WORD IN THE COMPLAINT, BUT I'M TELLING YOU AS A MEMBER OF THE BAR RIGHT NOW IN OPEN COURT THAT THOSE ARE THE WORDS THAT WAS USED. HONOR. THE COURT: NOW, THE CHARACTERIZATION ALSO DOES NOT SHOULDN'T BE ANY MISTAKE ABOUT IT, YOUR

NECESSARILY OBTAIN IF, IN FACT, THERE AREN'T FACTS TO SUPPORT THAT CHARACTERIZATION. MR. JACOBSON: THE COURT: LET'S NOW TALK ABOUT --

SOMEBODY MAYBE USING A CHARACTERIZATION

RATHER LOOSELY AS YOU GUYS ARE RUNNING A CARTEL OR SOMETHING, JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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BUT. MR. JACOBSON: NO, THIS WAS A STATEMENT BY PARAMOUNT

REPRESENTATIVE AND, AGAIN, THAT'S THE SORT OF ANALYSIS THAT ONE ENGAGES IN IN DISCOVERY THAT IS APPROPRIATELY THE SUBJECT OF RULE 56 MOTION PRACTICE, BUT CERTAINLY NOT THE BASIS FOR RULE 12 DISMISSAL OF COMPLAINT, YOUR HONOR. NOW, I'D LIKE TO GET BACK TO, AGAIN, WHICH IS, WHAT IS THIS CASE ABOUT? AND YOU ASKED WHAT ARE REALLY THE CLAIMS? THERE REALLY TWO CONSPIRACY CLAIMS BEING ADVANCED HERE. THE FIRST IS NOT A CONSPIRACY OF INTERPRETATION, THE FIRST IS THAT THE DVD CCA LICENSE AGREEMENT, THE CSS LICENSE IS A PRODUCT OF AN AGREEMENT AMONG HORIZONTAL COMPETITORS, THAT NO ONE WILL MAKE A COPY OF A CSS-PROTECTED DISK WITHOUT AMENDING THE AGREEMENT, SO WHICH REQUIRES THE ASSENT OF ALL THE MEMBERS. AS WE HEARD FROM COUNSEL A FEW MOMENTS AGO BEFORE DOING SO, THE EFFECT OF THAT IS THAT NO ONE CAN MAKE A COPY OF A CSS-PROTECTED DISK WITHOUT GOING TO THE REST OF THE STUDIOS TO GET THEIR ASSENT TO DO SO. THAT IS CONCERTED REFUSAL TO LICENSE AND WE'LL TALK ABOUT THE LEGAL IMPLICATIONS OF THAT, BUT THAT IS THE FIRST OF OUR TWO ANTITRUST CLAIMS. THE COURT: NOW, IT'S NOT STRICTLY A HORIZONTAL

ARRANGEMENT BECAUSE YOU HAVE OTHER PARTICIPANTS IN THIS JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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AGREEMENT, MANUFACTURERS, IT'S QUITE A VARIED GROUP OF PARTICIPANTS, SO IT'S NOT JUST AN AGREEMENT AMONGST COMPETITORS, HORIZONTAL COMPETITORS. MR. JACOBSON: THE COURT: THAT'S TRUE AND --

WHAT KIND OF AGREEMENT IS THAT? IT'S A HORIZONTAL AGREEMENT, YOUR

MR. JACOBSON:

HONOR, BUT PART OF THE ANALYSIS OF WHETHER THERE ARE SUCH VERTICAL OVERTONES TO THE AGREEMENT THAT WE SHOULD APPLY RULE OF REASON ANALYSIS IS, AGAIN, THE APPROPRIATE SUBJECT OF DISCOVERY AND MOTION PRACTICE. I WANT TO BRING UP PARAGRAPH 47 OF THE COMPLAINT, THE COMPLAINT AGAINST THE STUDIOS. ALTHOUGH, THIS RELATES DIRECTLY

TO THE ALLEGATIONS THAT BEGINS AGAINST THE ASSOCIATION AS WELL. THIS IS QUOTATION FROM TESTIMONY THAT TOOK PLACE BEFORE THE COURT -- I'M SORRY, DID I SAY 47? HAVE THE PARAGRAPHING WRONG ON THE CHART? SO THE STATEMENT IS -- I'M SORRY, THAT'S THE WRONG BOARD. PARAGRAPH 51. LOGISTICAL DIFFICULTIES, YOUR HONOR, YOU HAVE MY APOLOGIES. SO THE TESTIMONY OF MS. KING, THIS IS IN CONNECTION WITH THE DRAFTING OF THE INTERIM LICENSE AND THE PROVISIONS THAT ULTIMATELY BECAME PART OF THE FINAL AGREEMENT, WAS THAT THE STUDIOS WERE ADAMANT THAT THERE WOULD NEVER BE A COPY MADE TO THE HARD DRIVE, THAT IS A HORIZONTAL AGREEMENT. JAMES YEOMANS - OFFICIAL REPORTER - [phone] 74. AND DO I

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NOW, THERE ARE OTHER PARTIES THAT ARE PARTY TO THE LICENSE AGREEMENT, THAT'S TRUE, BUT WE BELIEVE THAT THIS ASPECT OF THE AGREEMENT, STEPPING BACK A FEW MONTHS, WE DIDN'T THINK THE AGREEMENT SHOULD BE READ THIS WAY. BUT WE NOW KNOW THAT IT IS, YOUR HONOR, READING THIS WAY, AND WE HAVE IT FROM COUNSEL ON THE OTHER SIDE THAT THERE IS AN AGREEMENT AMONG ALL THE STUDIOS AND THE DVD ASSOCIATION THAT THERE WILL BE NO COPIES MADE TO THE HARD DRIVE. THAT IS A HORIZONTAL AGREEMENT, THERE'S NO QUESTION THE CONCERTED ACTION ELEMENT OF A SHERMAN ONE CLAIM HAS BEEN ALLEGED HERE, ABSOLUTELY NO QUESTION ABOUT THAT. NOW, WE'LL GET IN A MINUTE TO THE LEGAL IMPLICATIONS OF THIS, IS THIS A CONCERTED REFUSAL TO DEAL SUBJECT TO PER SE ANALYSIS? IS IT SUBJECT TO ANALYSIS UNDER THE RULE OF REASON? THAT'S A SEPARATE QUESTION, BUT THE ELEMENTS OF CONCERTED -THE COURT: I THOUGHT YOUR ARGUMENT WAS WE DON'T DEAL

WITH THAT ON A MOTION TO DISMISS, WHETHER PER SE OR RULE OF REASON. MR. JACOBSON: YOUR HONOR, I THINK, THAT IS CORRECT

AND WE CITE THE CALIFORNIA DENTAL CASE FOR THAT PROPOSITION, AND I DO THINK THAT'S TRUE. BUT WHAT I WANT TO BE ABLE TO DEMONSTRATE TO YOUR HONOR IN A FEW MINUTES IS THAT, WHETHER YOU VIEW IT AS PER SE JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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OR WHETHER YOU VIEW IT WAS RULE OF REASON, EVERYTHING THAT ONE WOULD NEED TO HAVE IN A COMPLAINT IS IN THIS COMPLAINT. SO I DO NOT RETREAT FROM THE STATEMENT IN THE BRIEF WHICH I BELIEVE IS CORRECT AS A MATTER OF SOUND ANTITRUST ANALYSIS, THAT THAT IS AN ISSUE THAT'S REACHED LATER IN THE CASE ULTIMATELY, WHETHER IT'S RULE OF REASON OR PER SE, BUT CERTAINLY EITHER ONE, AND BOTH HAVE BEEN ALLEGED WITH SUFFICIENT PARTICULARITY IN THIS COMPLAINT TO WITHSTAND A MOTION UNDER RULE 12. NOW, SO THE FIRST CAUSE OF ACTION, THE FIRST CONSPIRACY IS THE CREATION OF THE CSS LICENSE AGREEMENT ITSELF, A PRODUCT OF AN AGREEMENT AMONG COMPETITORS CLEARLY JOINED IN BY THE DVD CCA. THERE'S NO PLAUSIBLE ARGUMENT OTHERWISE, THEY SO THAT IS THE FIRST CAUSE.

ARE THE ONES THAT ADMINISTER IT.

THE SECOND CAUSE OF ACTION IS THE LATER AGREEMENT AND ONE TO WHICH DVD CCA IS NOT CHARGED WITH PARTICIPATING, JUST THE AGREEMENT AMONG THE STUDIOS, AND THAT IS THE CARTEL AGREEMENT AMONG THE STUDIOS NOT TO AUTHORIZE REAL DVD WITHIN THE CONFINES OF THE CSS LICENSE AGREEMENT, TO HAVE THE REAL DVD PRODUCT AVAILABLE FOR THEIR OWN, INDIVIDUALLY OWNED CONTENT, AND THAT IS THE SECOND ALLEGATION IN THE CASE. THE COURT: WHICH PARAGRAPH ARE YOU REFERRING TO IN

THE COMPLAINT THAT GETS TO THAT? MR. JACOBSON: LET ME PULL OUT THE COMPLAINT. I'M

DEALING NOW WITH THE SECOND AMENDED COMPLAINT, BUT THE FIRST JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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ANTITRUST CAUSE OF ACTION IS LAID OUT AT PARAGRAPHS 118, ET SEQ. AND THE SECOND ANTITRUST CAUSE OF ACTION, WHICH IS OUR FOURTH CAUSE OF ACTION DECLARATORY, YOU MAY RECALL IS LAID OUT AT PARAGRAPHS 130, ET SEQ. NOW, MR. POMERANTZ SPENT A GREAT DEAL OF TIME TALKING ABOUT THE ISSUE OF CAUSATION. THE COURT: I KNOW, BEFORE THAT YOU SAY THAT THE

STUDIO DEFENDANTS CONSPIRED AND REACHED A COLLUSIVE AGREEMENT, THIS IS PARAGRAPH 32, TO ENGAGE IN COLLECTIVE REFUSAL TO DEAL, ET CETERA, ET CETERA. MR. JACOBSON: THE COURT: I'M SORRY, WHICH PARAGRAPH?

123 AND THE STUDIO DEFENDANTS. YES.

MR. JACOBSON: THE COURT: ALLEGATIONS?

BUT AREN'T THOSE THE KIND OF CONCLUSORY

THEY DON'T HAVE ANY MEAT ON THEM ABOUT WHAT, YOU KNOW, WHAT AGREEMENTS WERE MADE, WHO PARTICIPATED IN THOSE, WERE ALL THE STUDIO DEFENDANTS THERE OR SOME OF THEM THERE. IT'S VERY BEAR. YOU GOT A LOT OF PARAGRAPHS, BUT

THEY'RE SPARSE ON FACTS WHICH, I THINK, TWONBLY AND KENDALL SPEAK TO. MR. JACOBSON: YOUR HONOR, IF YOU JUST LOOK AT ONE

SENTENCE, OBVIOUSLY, YOU CAN LIMIT YOURSELF TO WHAT'S IN ONE SENTENCE. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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THE COURT:

I'M LOOKING AT A NUMBER OF PARAGRAPHS THAT

GO FROM THE ONE THAT YOU INITIALLY INDICATED ON PAGE -- MUST BE 33, EVEN BEFORE, YEAH, 33 OVER TO -MR. JACOBSON: THE COURT: BUT --

-- OVER TO PAGE 36 AND I DON'T SEE, YOU FACTS.

KNOW, I SEE CONCLUSIONS, BUT I DON'T SEE SPECIFICITY. MR. JACOBSON: THE COURT: PARAGRAPH 74 IS SPECIFIC.

PARAGRAPH 74? 74 IS SPECIFIC. THAT IS THE PARAGRAPH

MR. JACOBSON:

WE WERE TALKING ABOUT EARLIER. THE COURT: THIS PARTICULAR PARAGRAPH? YES.

MR. JACOBSON: THE COURT:

I SEE. WE DON'T NEED THAT BOARD. THOSE ARE --

MR. JACOBSON:

WE DON'T NEED THAT BOARD. YOUR HONOR, WE HAVE ALLEGED IN THAT PARAGRAPH, AGAIN, YOU KNOW, I TAKE YOUR HONOR'S ADMONITION THAT SHOULD HAVE NOT USED THE WORD INDICATED, WE SHOULD HAVE LAID IT OUT, BUT THE ALLEGATIONS IN PARAGRAPH 64 WHICH I HAVE ELABORATED ON HERE IN OPEN COURT AND WILL BE PREPARED TO FILE AMENDED COMPLAINT IF YOUR HONOR DEEMS IT NECESSARY, I REALLY DON'T THINK IT IS, BUT IF YOU BELIEVE THAT IT IS, WE WILL DO SO, THOSE RELATE TO THE FOURTH CAUSE OF ACTION. THE SECOND ANTITRUST CAUSE OF ACTION.

AND THAT STATEMENT BY PARAMOUNT IS ABOUT AS EXPLICIT AS ONE CAN GET. JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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NOW, THERE'S NO DOUBT WHO THE PARTICIPANTS WERE, PARAMOUNT WAS AWARE AT THE TIME THAT REAL WAS IN DISCUSSIONS WITH ALL OF THE DEFENDANTS, STUDIO DEFENDANTS WHO HAVE BEEN NAMED IN THE CASE. THE CARTEL ADMISSION THAT WAS MADE BY PARAMOUNT PLAINLY PERTAINED TO EACH OF THOSE COMPANIES. AGAIN, IF WE

HAVE TO AMEND THE COMPLAINT TO STATE THAT WITH EVEN GREATER PARTICULARITY, WE ARE PREPARED TO DO SO. IT'S NECESSARY, I THINK, IT'S CLEAR. THE COURT: YOU WERE GOING TO TALK ABOUT CAUSATION, BUT I DON'T THINK

THE COURTROOM IS FILLING UP WITH 3:00 O'CLOCK AND THEN SOON THE 4:00 O'CLOCK. MR. JACOBSON: WASN'T MY CHOICE TO GO FORWARD AND I'M

GOING TO BE AS QUICK AS I CAN BECAUSE I REALLY DON'T THINK IT'S THAT COMPLICATED ONCE YOU UNDERSTAND THE ALLEGATIONS. PLEASE, JUST LEAVE THE BOARDS THE WAY THEY ARE. DON'T NEED ANYTHING. SO LET ME GO THROUGH IT QUICKLY. THE ILLEGALITY I

DEFENSE DEPENDS ENTIRELY ON THE PROPOSITION THAT REAL DVD VIOLATES THE CSS LICENSE AGREEMENT. THAT PROPOSITION. AS YOU KNOW WE CONTESTED IT AT GREAT LENGTH AND WITH GREAT EMOTION IN THIS COURT. WE LOST, THE CASE IS ON APPEAL, YOUR HONOR HAS AGREED WITH

BUT WE'RE ASSUMING FOR PURPOSE OF TODAY THAT THAT LOSS CONTINUES AND MR. POMERANTZ IS RIGHT IN THAT NARROW ASPECT OF JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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HIS CAUSATION ARGUMENT. BUT WHAT HE TOTALLY BLANKS WAS HE TOTALLY IGNORING THE CSS LICENSE AGREEMENT PRECLUDES COPIES OF DVD'S BECAUSE OF THE HORIZONTAL AGREEMENT AMONG THE STUDIOS THAT IT WOULD DO SO. THE ONE REFERRED TO IN PARAGRAPH 51, THE BOARD THAT WAS PREVIOUSLY UP THERE, THE STATEMENT OF MS. KING THE STUDIOS ARE ADAMANT IN CONSTRUCTING THAT LICENSE AGREEMENT THAT COPIES OF DVD'S NOT BE MADE. SO THE CAUSATION ARGUMENT IS ENTIRELY CIRCULAR. YES,

IT IS TRUE IT VIOLATES THE CSS LICENSE AGREEMENT BASED ON YOUR HONOR'S RULING, BUT THAT'S NOT THE ISSUE. WE GET TO THAT STATE OF AFFAIRS? WE GOT TO THAT STATE OF AFFAIRS BECAUSE OF A HORIZONTAL AGREEMENT AMONG THE STUDIOS THAT THAT IS WHAT THE CSS LICENSE AGREEMENT WOULD SAY. THE COURT: AREN'T YOU ALSO IGNORING THE FACT THAT THE THE ISSUE IS HOW DID

COURT FOUND THAT REAL WAS IN VIOLATION OF THE DMCA? MR. JACOBSON: THE COURT: AND REAL --

AND WAS ACTING ILLEGALLY ITSELF BY VIRTUE

OF THE ACTIVITIES IT WAS ENGAGING IN. MR. JACOBSON: YOUR HONOR, I'M NOT IGNORING THAT, LET

ME ADDRESS THAT PRECISELY. THE PRINCIPLE REASON FOR THE VIOLATION OF THE DMCA, IS THAT THERE WAS NO INDIVIDUAL AUTHORIZATION BY THE STUDIOS OF THAT CONTENT, OF THE COPYING OF THE CONTENT TO THE HARD DRIVE, JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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BUT THAT WAS MADE IMPOSSIBLE, AGAIN, BY THE TERMS OF THE CSS LICENSE AGREEMENT. FT CSS LICENSE AGREEMENT DOESN'T REQUIRE UNIVERSAL AGREEMENT AMONG ALL THE STUDIOS TO ALLOW THE DVD CONTENT TO BE COPIED TO THE HARD DRIVE, THEN THERE IS NO VIOLATION OF THE DMCA. SO THE ENTIRE ARGUMENT THAT IS A RED HERRING. IT

ASSUMES THAT THE ORIGINAL AGREEMENT TO CRAFT THE CSS LICENSE AGREEMENT IN THE WAY IT DOES WAS LAWFUL, BUT THAT'S THE ISSUE IN THE CASE. THAT'S NOT THE ANSWER, THAT'S THE ISSUE, YOUR HONOR. SO THE CAUSATION ISSUE TRULY -THE COURT: HOW DO YOU THINK YOU WOULD HAVE FAIRED IF

THE ACTION HAD BEEN BROUGHT JUST AS A -- BY CLAIMING A VIOLATION OF THE DMCA? MR. JACOBSON: THE COURT: I THINK --

WITHOUT REGARD TO ANY VIOLATION OF ANY OF

THE LICENSE AGREEMENT? MR. JACOBSON: BUT THE REASON THERE'S A DMCA VIOLATION SO

IS THAT IT'S NOT AUTHORIZED UNDER THE LICENSE AGREEMENT.

IT'S ENTIRELY CIRCULAR, YOUR HONOR, IT'S ENTIRELY CIRCULAR. THE COURT: PERSON'S SQUARE. MR. JACOBSON: THE COURT: WELL -I GUESS, ONE PERSON'S CIRCLE IS ANOTHER

NOT SURE WHERE THE CIRCULAR IS IN THIS

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CASE.

I THINK, I HAVE A PRETTY GOOD IDEA, THOUGH. MR. JACOBSON: THE COURT:

SO HOW --

YOUR HONOR, IF YOU GO BACK --

HOW ARE YOU -- WHAT IS THE INJURY AND WHAT THE INJURY, I THINK, I CAN FIGURE

IS THE CAUSE OF THAT INJURY? OUT. MR. JACOBSON: THAT'S THE INJURY. THE COURT: UH-HUH.

THE INJURY IS WE CAN'T MARKET REAL DVD,

RIGHT.

MR. JACOBSON:

WHAT IS THE CAUSE OF THAT INJURY?

THE CAUSE OF THAT INJURY IS THE CRAFTING OF THE CSS LICENSE AGREEMENT IN A WAY THAT NO INDIVIDUAL STUDIOS CAN AUTHORIZE A COPY OF THE CONTENT TO THE HARD DRIVE. THE COURT: BECAUSE THE COURT ENFORCES THE DMCA AND

THE COURT ENFORCED THE LICENSE AGREEMENT, THE CSS LICENSE AGREEMENT AND WHICH YOU TAKE ISSUE, BUT THE COURT ENFORCED IT. I DON'T KNOW HOW YOU GET AROUND THE NOERR-PENNINGTON PROBLEM. MR. JACOBSON: THAT'S A COMPLETELY SEPARATE ISSUE AND

WHAT YOUR HONOR IS TALKING ABOUT JUDICIAL ORDER IS NOT A NOERR-PENNINGTON ISSUE, IT'S A SOVEREIGN COMPULSION ISSUE. THAT'S ANALYTICALLY INACCURATE WITH ALL RESPECTS TO THE NOERR-PENNINGTON ISSUE. HAS NOTHING TO DO WITH THE

AGREEMENT TO DRAFT THE CSS LICENSE AGREEMENT IN THE WAY THAT THE STUDIOS DID. ONCE YOU UNDERSTAND THAT THE PRINCIPLE BASIS OF THIS CLAIM IS THE COLLECTIVE AGREEMENT AMONG THE STUDIOS TO CRAFT JAMES YEOMANS - OFFICIAL REPORTER - [phone]

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THE CSS LICENSE AGREEMENT IN A WAY THAT PRECLUDES INDIVIDUAL ACTION BY THE STUDIOS, THE DMCA ARGUMENT GOES AWAY, ALL OF THE CAUSATION ARGUMENTS GO AWAY. THE CAUSE IS THE CREATION OF THE CSS LICENSE AGREEMENT IN THAT FASHION. FTC SS LICENSE AGREEMENT HAD BEEN CREATED IN

A FASHION THAT AUTHORIZED STUDIOS TO LICENSE REAL INDIVIDUALLY, THEN EACH STUDIO COULD HAVE MADE THAT DETERMINATION ON ITS OWN INDIVIDUALLY. IT'S ADMITTED IN OPEN COURT TODAY THAT A STUDIO CANNOT DO SO UNDER THE CSS LICENSE AGREEMENT, THAT IT REQUIRES THE ASSENT OF ALL THE STUDIOS, THAT IS ALL THE CONCERTED ACTION WE NEED, THAT RESOLVES THE CAUSATION ISSUE. THE ONLY ISSUE THEN IS TRULY WHETHER THE AGREEMENT, THE CSS LICENSE AGREEMENT AND THE CONSTRUCTION THE STUDIOS EFFECTED IS ONE THAT RESTRAINS TRADE UNREASONABLY? THERE'S NO NOERR-PENNINGTON ISSUE ASSOCIATED WITH THAT LONG BEFORE LITIGATION BEGAN OR EVEN CONTEMPLATED. THE COURT: BUT IT WASN'T BEING ENFORCED, AT LEAST, IN FACT, AT ONE

NOT THE OPPORTUNITY FOR THAT ENFORCEMENT.

POINT I UNDERSTOOD THAT THE POSITION THA