"The Apple iPod iTunes Anti-Trust Litigation"

Filing 302

Transcript of Proceedings held on 11/23/09, before Judge Ware. Court Reporter/Transcriber Irene L. Rodriguez, 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. Redaction Request due 12/28/2009. Redacted Transcript Deadline set for 1/4/2010. Release of Transcript Restriction set for 3/4/2010. (Rodriguez, Irene) (Filed on 12/7/2009)

"The Apple iPod iTunes Anti-Trust Litigation"

Doc. 302

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 ___ ___ ___ ___ ___ ___ ___ __ 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "T H E A P P L E IPOD ITUNES ANTITRUST LITIGATION. " ) ) ) ) ) ) ) )

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I N THE UNITED STATES DISTRICT COURT FOR T H E N O R T H E R N D I S T R I C T O F CALIFORNIA SAN JOSE DIVISION

C -05 -00037 -JW N O V E M B E R 2 3, 2009

P A G E S 1 - 58

THE PROCEEDINGS WERE HELD BEFORE THE HONORABLE U N I T E D STATES DISTRICT JUDGE JAMES WARE A P P E A R A N C E S: FOR THE PLAINTIFFS: COUGHLIN, STOIA , GELLER, RUDMAN & ROBBINS BY: B O N N Y SWEENEY THOMAS R. MERRICK 655 WEST BROADWAY SUITE 1900 SAN DIEGO , CALIFORNIA 92101 ZELDES & HAEGGQUIST BY: H E L E N Z E L D E S 625 BROADWAY , S U I T E 9 0 6 SAN DIEGO , CALIFORNIA 92102 F O R T H E DEFENDANTS: JONES DAY BY: R O B E R T A. MITTELSTAEDT MICHAEL SCOTT 555 CALIFORNIA STREET 26T H F L O O R SAN FRANCISCO, CALIFORNIA 9 4 1 0 4 OFFICIAL COURT REPORTER : I R E N E RODRIGUEZ, C S R, CRR CERTIFICATE NUMBER 8074 1

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Dockets.Justia.com

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NOVEMBER 23, 2009

PROCEEDINGS ( WHEREUPON , C O U R T C O N V E N E D A N D THE FOLLOWING PROCEEDINGS WERE HELD: ) T H E CLERK: CALLING CASE NUMBER 05 -00 037 ,

THE APPLE IPOD ITUNES ANTITRUST LITIGATION. O N FOR VARIOUS MOTIONS . EACH SIDE F O R ALL MOTIONS. T H E COURT: BE SUFFICIENT BUT -M S. ZELDES : T H E COURT: THAT'S O U R F I R S T MOTION. YOUR FIRST MOTION I S FOR MORE I 'M SURE THAT 'S NOT GOING TO FIFTEEN MINUTES

F I R S T INTRODUCE YOURSELVES T O M E. M S. SWEENEY: GOOD MORNING, YOUR H O N O R.

BONNIE SWEENEY FOR THE DIRECT PURCHASER PLAINTIFFS . M R. MERRICK: GOOD MORNING, YOUR H O N O R.

T H O M A S MERRICK ALSO FOR T H E D I R E C T PURCHASER PLAINTIFFS. M S. ZELDES : GOOD MORNING , YOUR HONOR .

HELEN Z E L D E S O N B E H A L F OF STACY SOMERS T H E I N D I R E C T PURCHASER PLAINTIFFS . M S. ROACH: GOOD MORNING, YOUR HONOR.

PAULA ROACH ON B E H A L F O F D I R E C T PURCHASER 2

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Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PLAINTIFFS. M R. MITTELSTAEDT :

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AND F O R A P P L E, YOUR

HONOR , BOB MITTELSTAEDT AND MICHAEL SCOTT . T H E COURT: WELL , A S M S. GARCIA DIRECTLY

SUMMARIZED IT, WE HAVE VARIOUS MOTIONS . W E HAVE A MOTION BY T H E D I R E C T PURCHASER PLAINTIFFS TO MODIFY T H E DEFINITION OF T H E C L A S S T O INCLUDE ITUNE PURCHASERS. W E HAVE A MOTION , I T D O E S N'T S A Y B Y WHOM , B U T A M O T I O N F O R RECONSIDERATION OF T H E 2 3(B )(2 ) CLASS , I BELIEVE THAT'S APPLE 'S MOTION ; A MOTION F O R DECERTIFICATION OF THE RULE 23( B)( 3) CLASS, THAT MUST B E A P P L E'S MOTION A S WELL ; A N D THEN I HAVE A SUPPLEMENT AL MOTION F O R C L A S S CERTIFICATION OF T H E RULE 23 (B) (2) CLASS . I ACTUALLY W A N T E D T O HEAR FROM THE PLAINTIFFS FIRST BECAUSE I APPROACHED THIS WHOLE PROBLEM AS ONE OF T R Y I N G T O UNDERSTAND WHAT IS THE PLAINTIFF'S THEORY A N D CLAIM. A N D I A C T U A L L Y W O N D E R E D WHETHER OR N O T T H E M O T I O N TO MODIFY T H E C L A S S W A S AT THE INSTANCE OF T H E PLAINTIFFS THEMSELVES OR WHETHER O R N O T THEY TOOK THE COURT 'S QUESTION AS BEING THE ONLY REASON FOR THE MODIFICATION . I KNOW THAT T H E R E A R E ISSUES OF MOOTNESS 3

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AND OTHERS THAT ARE RAISED WITH RESPECT T O WHETHER OR N O T T H E COURT SHOULD C H A N G E T H E DEFINITION, BUT I DID WANT TO HEAR T H E MOTIVATIONAL STATEMENT. M R. MERRICK: AGAIN , THOMAS MERRICK FOR

T H E DIRECT PURCHASER PLAINTIFFS, YOUR HONOR. Y E S, I WOULD SAY THAT THE COURT 'S JULY 17 TH, ORDER A S K I N G F O R ADDITIONA L B R I E F I N G W A S ONE OF O U R PRIMARY MOTIVATING FACTORS. WHAT IT D I D I S, I T H I N K, SHOWED UP RIGHTFULLY SO, WHICH T H E C O U R T I S CORRECT IN S E E I N G, THAT T H E R E W A S A G A P IN THE INJUNCTIVE R E L I E F C L A S S THAT COULD ONLY BE CURED IF WE ALSO INCLUDED ITUNES PURCHASERS . S O I WOULD HOPE THAT ANSWERS YOUR INITIAL QUESTION , B U T THAT W A S OUR MOTIVATING FORCE. T H E COURT: WELL , THIS IS ON T H E M O N O P O L Y

CORRECT. S T A T E F O R ME AS CLEARLY A S

YOU CAN WHAT I S THE CLAIM THAT WOULD THEN ENCOMPASS T H E I T U N E PURCHASERS AS PART OF THAT C L A S S. M R. MERRICK: WELL, T H E MONOPOLIZATION

CLASS , O R C L A I M R A T H E R, U N L I K E T H E TYING CLAIM, IS BASED ON SOME SIMILAR ASPECTS TO T H E T Y I N G C L A I M B U T N O T ALL . 4

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T H E MONOPOLIZATION AND ATTEMPTED MONOPOLIZATION C L A I M S A R E BASED ON APPLE' S MAINTENANCE AND ACQUISITION O F MONOPOLY POWER I N T H E M U S I C P L A Y E R MARKET , T H E ON- LINE M U S I C M A R K E T, A N D T H E ON- LINE V I D E O M A R K E T PER T H E COMPLAINT. THAT BEING T H E CASE , T H E (B) (2) CLASS SEEKING INJUNCTIVE R E L I E F WOULD BE TRYING TO -- IS AIMED AT REMEDYING A L L OF THAT CONDUCT , T H E MONOPOLIZATION CONDUCT ON ALL THREE OF THOSE FRONTS. T H E COURT: I MISSED T H E THIRD. THE

MONOPOLY IN T H E P L A Y E R MARKET , T H E MUSIC MARKET A N D T H E? M R. MERRICK: T H E COURT: M R. MERRICK: T H E COURT: VIDEO MARKET. A N D THE VIDEO M A R K E T. T H E O N-LINE . AND THIS WAS ACCOMPANIED SO I' M T O

WITHOUT ANY CHANGES IN THE PLEADINGS.

RELY ON THE CURRENT PLEADINGS F O R THAT PURPOSE? M R. MERRICK: CORRECT, YOUR HONOR. AND

THIS IS THE CLASS THAT WE' RE MOVING ON N O W, THAT WE 'RE M O V I N G T O HAVE T H E DEFINITION CHANGED TO, IS T H E SAME CLASS AS WHAT WAS PLED IN THE COMPLAINT ORIGINALLY. T H E COURT: Y E S. A L L RIGHT. 5

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N O W, GOING TO T H E M O N O P O L Y C L A I M, STATE AS CLEARLY AS YOU C A N WHAT THAT CLAIM IS. M R. MERRICK: WELL, APPLE 'S OVERALL U S E

OF INTEROPERABILITY, IF I CAN P U T I T A S SUCCINCTLY AS THAT; THEIR M A R K E T P O W E R W I T H I N THE MUSIC P L A Y E R M A R K E T F O R IPODS; THEIR M A R K E T P O W E R W I T H I N THE ITUNES MUSIC STORE MARKET WORKING TOGETHER CREATED A MAINTENANCE OF MONOPOLY POWER IN THOSE MARKETS WHICH THEN LED TO A HARM T O C O M P E T I T I O N, THE LACK OF INTEROPERABILITY, I N J U R Y T O T H E CONSUMERS , H I G H E R P R I C E S, S U P P L Y A N D SELECTION OF COMPETING PRODUCTS W A S D A M P E N E D D U E TO THE MONOPOLY . THE

NUMBER AND EFFECTIVENESS O F COMPETITORS WOULD B E DIMINISHED, A N D THAT 'S SORT O F A NUTSHELL OF O U R ALLEGATIONS IN T H E COMPLAINT. T H E COURT: T H E CLARITY O F THAT IS Y E T T O

G E T T O M E, AND I' M T R Y I N G TO ASK Y O U T H E S E QUESTIONS BECAUSE IT DOES SEEM T O M E THAT IF I' M GOING TO M O D I F Y A N Y T H I N G, I NEED TO UNDERSTAND B E T T E R WHAT IT IS THAT WOULD BE CAPTURED BY IT. I ACTUALLY NEED TO STUDY THIS B E T T E R B E F O R E I 'M IN A P O S I T I O N T O G R A N T THIS MODIFICATION. WHAT I WORRY ABOUT IS THAT T H E INTEROPERABILITY IS THE EVIL THAT I S B E I N G ALLEGED . 6

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I N O T H E R W O R D S, THAT I T'S N O T D RM, WHICH IS SOMETHING THAT PERHAPS IS IMPOSED B Y T H E OWNER OF T H E COPYRIGHT, B U T I T I S W H A T E V E R I S C A L L E D INTEROPERABILITY. M R. MERRICK: YOUR HONOR. T H E COURT: M R. MERRICK: A L L RIGHT. A COUPLE HEARINGS AGO THE I CAN ADDRESS THAT I THINK ,

COURT S T A T E D SOMETHING THAT I THOUGHT PUT IT VERY SUCCINCTLY, WHICH IS THAT THERE IS DRM A N D THEN THERE IS APPLE 'S DRM . A P P L E'S DR M MADE IT SO THAT ONLY T H E DOWNLOADS WOULD ONLY WORK WITH A N APPLE AND THAT ONLY APPLE IPODS COULD SYNC WITH ITUNES. T H E RECORD LABELS D I D WANT D RM. PART WE DO AGREE WITH. HOWEVER , T H E RECORD L A B E L S ALSO WERE IN FAVOR OF INTEROPERABILITY WHICH WOULD HAVE BEEN -WHICH IS T H E R E A S O N WHY -- WHICH IS O U R REAL MAJOR COMPLAINT. W E UNDERSTAND THAT THERE NEEDS TO BE SOME COPYRIGHT PROTECTION , B U T THE W A Y THAT APPLE WENT ABOUT DOING THAT THROUGH I T S OWN PROPRIETARY DR M - A GREATER EXAMPLE IS AN E- MAIL THAT WE FILED UNDER SEAL THAT I S A T T A C H E D T O A DECLARATION IN T H E R E P L Y 7 THAT

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BRIEF ON -- THAT THE M O T I O N F O R REDEFINING T H E CLASS WHERE APPLE INTERNALLY IS TALKING A B O U T O N E OF T H E R E C O R D LABEL' S R E A C T I O N T O REAL NETWORKS CHANCE O R - - I 'M SORRY -- EFFORTS T O MAKE THEIR MUSIC STORE IN A SENSE BE ABLE T O WORK WITH AN IPOD. AND WHAT HAPPENED I S THAT THEY WENT T O T H E R E C O R D LABELS A N D SAID WHAT DO YOU THINK ? AND

IN T H E E -MAIL THE R E C O R D L A B E L S SAID W E D O N' T HAVE A PROBLEM A N D OUR CONCERN WOULD BE INTEROPERABILITY. W E W O U L D LIKE TO S E E A P P L E

LICENSE TO REAL A N D SO IT WOULD GIVE U S MORE OPPORTUNITY TO SELL OUR PRODUCT. A G A I N, WE' RE GETTING INTO EVIDENCE BASED ISSUES A N D FACT B A S E D ISSUES, A N D I THINK THAT' S KIND OF AN EXAMPLE O F T H E KIND O F A C T I V I T Y THAT WE 'RE ALLEGING . T H E COURT: S O THAT THE CLASS NEEDS T O

INCLUDE THE PURCHASERS OF MUSIC? A N D IS THAT A L L PURCHASERS O F M U S I C? M R. MERRICK: FROM ITUNES , Y E S. THE

R E A S O N I T N E E D S T O INCLUDE PURCHASERS OF MUSIC IS THAT AFTER THERE' S - - A P P L E D I D STOP U S I N G D RM IN I T S I T U N E S DOWNLOADS IN JANUARY OF 200 9, BUT T H E 80 0 P O U N D GORILLA , T H E ELEPHANT IN THE ROOM AS IT 8

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WERE WOULD STILL BE 5 BILLION L O C K E D S O N G S THAT A R E STILL IN EXISTENCE. LONGER BEING USED . A N D THAT 'S AFTER THE DR M I S N O THAT'S WHAT THE FOCUS OF T H E

(B )(2 ) C L A S S W O U L D B E A N D ALSO T H E VIDEO, T H E V I D E O STILL H A S D R M IN IT AS WELL. T H E COURT: WHEN IT STOPPED DRM , I T

STOPPED ITS D R M O R I S I T A L L DRM 'S? M R. MERRICK: T H E COURT: A L L. A L L HAS BEEN STOPPED. SO IF

Y O U B U Y THE MUSIC , Y O U' RE THEN ABLE TO DUPLICATE I T MULTIPLE TIMES , Y O U CAN TRANSFER IT MULTIPLE TIMES . T H E COPYRIGHT OWNER HAS LOST ANY CONTROL OVER I T S DISTRIBUTION. M R. MERRICK: HOW MUCH CONTROL THEY LOST

I' M N O T SURE B U T THEY D O N' T HAVE T H E D R M ON IT NOW , B U T, AGAIN, Y O U S T I L L HAVE FIVE BILLION LOCKED SONGS . T H E COURT: A N D SO THE FOCUS WOULD BE ON

T H E PURCHASERS OF I T U N E S W H O REMAIN H A V I N G D R M, APPLE D R M PROTECTED MUSIC? M R. MERRICK: T H E COURT: M R. MERRICK: CORRECT. A N D ONLY T H O S E? WELL, T H E C L A S S W O U L D

CONSIST AS PLED, WOULD CONSIST O F BOTH IPOD BUYERS AND THE ITUNES BECAUSE, AGAIN , THE MONOPOLIZATION 9

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IS L A R G E R THAN JUST THE L O C K E D S O N G S LEFT IN IT . IT H A S T O D O WITH T H E LACK OF INTEROPERABILITY. T H E COURT: AND WHAT I S THE HARM T O

COMPETITION WITH RESPECT T O THE IPOD PURCHASERS ? THEY' RE ABLE T O D O W N L O A D T H E APPLE DRM PROTECTED MUSIC ? M R. MERRICK: THEY ARE , B U T THE IDEA

THERE IS THAT HAVING T H E D R M ON IT AT THE TIME IMPACTED WHETHER THEY COULD USE COMPETING SOURCES A N D WHETHER COMPETING SOURCES COULD U S E T H E I R, COULD U S E I TUNES. S O I T'S BOTH. WELL , W H Y WOULD THE

T H E COURT:

PURCHASE RS -- I S E E, SO T H E PURCHASER OF THE IPOD, IT 'S NOT SO MUCH WHAT I S ENCODED INTO THE MUSIC , I T IS WHAT IS ENCODED INTO T H E P L A Y E R SO THAT I T I S N O T ABLE TO PLAY OTHER MUSIC. M R. MERRICK: Y O U'R E R I G H T. T H E COURT: PART OF IT , T O O? THAT 'S THE THAT' S PART OF IT , T O O,

WHOLE POINT OF T H E D R M -- PART O F T H E CLASS WITH RESPECT TO THE P L A Y E R; RIGHT? M R. MERRICK: T H E COURT: DECODE O T H E R M U S I C. M R. MERRICK: AND I F THEY HAVE DOWNLOADED 10 RIGHT . THAT T H E PLAYER ITSELF W O N'T

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A N Y M U S I C INTO THEIR IPOD, THAT MEANS THAT I T'S TIED INTO ONLY AN IPOD AND THEY COULDN 'T BUY A COMPETING PLAYER. T H E COURT: VERY WELL. L E T ME TAKE THAT NOW L E T'S GO TO T H E

AS T H E E X P L A N A T I O N O F T H E WHY . W H Y N O T? M R. MITTELSTAEDT :

FIRST OF ALL , YOUR

HONOR , O N T H E SECTION 2 CLAIM A N D WHAT IT IS , ACCORDING T O T H E COMPLAINT THEY ARE S I M P L Y REALIZING A N D INCORPORATING B Y REFERENCE ALL OF T H E PREVIOUS ALLEGATIONS , THE ALLEGATIONS THAT DEALT WITH TYING. A S I READ THE COMPLAINT, YOUR H O N O R, THEIR SECTION 2 CLAIM I S THE SAME THING A S THEIR TYING CLAIM . T H E COURT: I AGREE WITH YOU . AS I

UNDERSTAND IT, ALTHOUGH T H E TECHNOLOGICAL T I E DOESN 'T WORK, AS FAR AS T H E C O U R T I S CONCERNED, AS A STRICT TYING CLAIM , THEY A R E REALLEGING IT AS A SECTION 2 C L A I M. M R. MITTELSTAEDT : YES . AND AT T H E

APPROPRIATE TIME, A N D I THINK IT DOES BEAR O N WHAT WE 'RE TALKING ABOUT THIS MORNING , O U R POSITION IS GOING TO BE THAT UNDER FOREMOST PRO , T H E NINTH CIRCUIT CASE YOUR HONOR H A S R E L I E D ON, BECAUSE THE 11

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TYING CLAIM , THE CONDUCT UNDERLYING THE TYING CLAIM IS N O T ANTICOMPETITIVE IT, IN T H E W O R D S O F T H E NINTH CIRCUIT IN FOREMOST PRO , Q U O T E, "IS OF NO ASSISTANCE TO THE PLAINTIFF'S EFFORTS TO STATE A CLAIM F O R R E L I E F FOR MONOPOLIZATION A N D ATTEMPTED MONOPOLIZATION , BOTH OF WHICH REQUIRE AT LEAST SOME ALLEGATION OF ANTICOMPETITIVE CONDUCT. " T H E -T H E COURT: SECTION 2 CASE ? M R. MITTELSTAEDT : IT WAS BOTH A T Y I N G WELL , W A S FOREMOST PRO A

CASE AND A SECTION 2 CASE AFTER FINDING THAT T H E INTRODUCTION O F TECHNOLOGICALLY RELATED PROJECTS ALONE W A S N O T AN ANTICOMPETITIVE A C T, EVEN I F, AS T H E N I N T H CIRCUIT SAID, T H E PRODUCTS WERE INCOMPATIBLE WITH PRODUCTS OFFERED BY COMPETITORS. AFTER THE COURT FOUND THAT AND THROUGHOUT T H E SECTION 1 TYING CLAIM, T H E C O U R T WENT ON TO FIND THAT THAT SAME CONDUCT W A S OF NO ASSISTANCE T O T H E PLAINTIFF IN TRYING TO ESTABLISH A SECTION 2 CLAIM . S O I THINK THAT THAT BEARS O N WHETHER THE PLAINTIFF S H O U L D GET A CLASS CERTIFIED HERE. T H E OTHER ASPECT OF THEIR CLAIM , YOUR HONOR , A T B O T T O M, AS YOUR HONOR HAS RECOGNIZED 12

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B E F O R E, IS THEY A R E SAYING THAT APPLE SHOULD HAVE USED MICROSOFT 'S DRM OR IT S H O U L D HAVE LICENSED FAIR PLAY T O COMPETITORS. O U R POSITION IS THAT T H E R E I S S I M P L Y NO ANTITRUST DUTY ON AN INNOVATIVE COMPANY T O D O EITHER O F THOSE THINGS. THE IDEA THAT MICROSOFT COULD COME INTO THIS COURT, F O R EXAMPLE , A N D SUE APPLE F O R N O T USING MICROSOFT SOFT WARE, AND THAT MICROSOFT , I F THEY CAN 'T DO THAT, CONSUMERS S H O U L D N O T BE ABLE T O DO THAT STANDING IN THE SHOES OF MICROSOFT. T H E COURT: WELL , L E T ME SEE IF I CAN

STATE T H E C L A I M A S I HAVE ARTICULATED IT TO MYSELF , A N D THIS IS JUST A SUMMARY . IT' S N O T NECESSARILY

WHAT THE PLAINTIFF W O U L D A G R E E T O B E T H E I R C L A I M. A S I HAVE ARTICULATED IT TO MYSELF , T H E PLAINTIFFS ARE CLAIMING THAT APPLE HAS MONOPOLY POWER IN MUSIC A N D THAT USING I T S M O N O P O L Y P O W E R I N MUSIC , I T LEVERAGES THAT M A R K E T PLAYER TO EXTRACT A PREMIUM WITH RESPECT TO PLAYERS BY TECHNOLOGICAL TYING BETWEEN THE MUSIC A N D T H E PLAYER SUCH THAT I F Y O U WANT TO ENJOY THIS 60, 70 PERCENT -- I'V E SEEN DIFFERENT NUMBERS WITH RESPECT T O T H E POWERS IN MUSIC -- IF Y O U WANT TO ENJOY T H E BENEFIT OF THAT MUSIC , YOU HAVE T O BUY A PLAYER. 13

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A N D SO IT LEVERAGES I T S M A R K E T POWER IN MUSIC TO EXTRACT A PREMIUM FROM THE M A R K E T I N PLAYERS. N O W, I HAVEN' T Q U I T E S O R T E D OUT Y E T, AS I' M STRUGGLING WITH THIS CASE , WHAT THAT DOES I N TERMS OF W H O S H O U L D BE IN THE CLASS , B U T THAT - A N D THEN I HAVE ALSO SEEN IN THE PLAINTIFF'S COMPLAINT THAT APPLE HAS A N 8 0 PERCENT MARKET SHARE IN PLAYERS, B U T I T S E E M S T O M E THAT THIS CASE STARTED OUT WITH BOTH TECHNOLOGIES, T H E M U S I C A N D T H E PLAYERS IN T H E BALANCE . AND WE 'RE T R Y I N G T O

WORK OUR W A Y THROUGH EXACTLY WHAT I S T H E THEORY A N D WHAT SHOULD BE T H E C L A S S G I V E N THAT T H E O R Y A N D THE R E L I E F THAT IS BEING S O U G H T. M R. MITTELSTAEDT : UNDERSTOOD. A N D I 'M

FOCUSSING O N T H E FIRST PART, YOU KNOW, WHAT IS THEIR CLAIM A N D THEN I' LL GET QUICKLY TO THE S E C O N D PART WHAT DOES THAT IMPLY FOR T H E C L A S S I S S U E. B U T ON THE W A Y THAT YOUR HONOR STATED THEIR CLAIM , I AGREE , I THINK , THAT THAT' S T H E WAY THEY STATE IT. THAT. F I R S T O F A L L, AS YOUR HONOR HAS FOUND , IT 'S NOT A MATTER -- IT 'S NOT ACCURATE THAT ITUNES MUSIC C A N N O T PLAY ON AN IP O D, ON AN IPOD 14 B U T THERE ARE T W O T H I N G S WRONG WITH

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A S YOUR HONOR FOUND IN T H E LAST ORDER , IT 'S JUST A M A T T E R O F U S I N G ANOTHER STEP OR TWO IN ORDER TO PLAY THAT M U S I C O N COMPETING PLAYERS. S O T H E ABSOLUTE NATURE OF THAT THE PLAINTIFF'S STATEMENT O F T H E I R CASE IS JUST CONTRARY TO T H E F A C T S. T H E OTHER POINT, T H O U G H, AND THIS IS MORE IMPORTANT, IS WHAT T H E PLAINTIFFS A R E DOING IS DESCRIBING THEIR CLAIM IN A F A I R L Y GENERIC HIGH LEVEL W A Y. BUT WHEN YOU UNRAVEL THAT , WHAT THE CLAIM AMOUNTS TO IS THAT A P P L E W A S REQUIRED TO USE SOME TYPE OF ANTI-P I R A C Y DRM . APPLE HAD A CHOICE OF

USING MICROSOFT'S , A T L E A S T THEORETICALLY , O R DEVELOPING ITS O W N. A N D I T C H O S E T O U S E ITS O W N.

A N D THE PLAINTIFFS HAVE N O T COME U P WITH A N Y C O H E R E N T T H E O R Y ABOUT WHY THAT IS AGAINST T H E ANTITRUST LAWS . T H E COURT: WELL , A S I UNDERSTAND THE

T H E O R Y - - A N D I A M ONLY DOING IT THIS WAY AS OPPOSED TO HAVE T H E PLAINTIFF DOING IS TO KEEP YOU TALKING. I S THAT T H E R E A S O N THEY DEVELOP ED THEIR O W N I S T O SELL PLAYERS AT A PREMIUM . IN OTHER 15

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WORDS , I T SAW A MARKET THAT I T COULD DEVELOP . I T C O U L D HAVE DEVELOPED I T S OWN IN A FASHION THAT WOULD NOT HAVE RESTRICTED THE MUSIC T O OTHER PLAYERS, BUT I T CHOSE T O RESTRICT THE MUSIC TO I T S P L A Y E R AS PART O F I T S DEVELOPMENT EFFORT . T H E ANTICOMPETITIVE MOTIVATION WAS N O T T O PROTECT THE COPYRIGHT O W N E R B U T IT WAS TO MAKE -TO HARM COMPETITION AND PLAYERS THAT C O U L D PLAY T H E MUSIC . M R. MITTELSTAEDT : BUT , YOUR HONOR , WHEN

A COMPANY I S D E C I D I N G O N DESIGNING A PRODUCT OR LAUNCHING A N E W PRODUCT , I T'S MOTIVATION TO TRY A N D SELL MORE COMPLEMENTARY PRODUCTS , T O T R Y AND G E T A N ADVANTAGE OVER COMPETITORS . THAT MOTIVATION IS N O T

ENOUGH T O STATE A SECTION 2 VIOLATION. I MEAN, T H E I S S U E I S DOES A COMPANY DEVELOPING A NEW PRODUCT HAVE ANY ANTITRUST DUTY T O MAKE THAT PRODUCT INTER OPERABLE WITH COMPETITOR 'S PRODUCTS . A N D THE ANTITRUST C A S E S A R E LEGION THAT S A Y THAT A COMPANY DOES N O T HAVE TO DO ANYTHING TO HELP COMPETITION. S O - - A N D I T H I N K THAT THAT PRINCIPLE IS ENCAPSULATED WELL IN S A Y I N G THIS , YOUR HONOR , T H E PLAINTIFFS, ONE O F THEIR THEORIES I S THAT APPLE 16

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S H O U L D HAVE USED MICROSOFT 'S DRM INSTEAD OF DEVELOPING ITS O W N. THAT WOULD HAVE BEEN O N E AT LEAST THEORETICAL WAY T O HAVE MORE INTEROPERABILITY. THERE 'S JUST NOTHING IN T H E ANTITRUST LAWS THAT SAYS THAT A P P L E W A S REQUIRED TO DO THAT. S O, YOU KNOW, THAT, I MEAN, THAT I S, I THINK , HORN BOOK ANTITRUST LAW . COMPETITORS . NO DUTY T O HELP BUT

NO DUTY T O D E S I G N YOUR P R O D U C T S I N A

WAY THAT MAKE THEM INOPERABLE . Y O U THINK ABOUT THE RAMIFICATIONS OF THEIR THEORY. APPLE COULD NOT HAVE LEGALLY UNDER

THEIR T H E O R Y BROUGHT T H E IPOD TO M A R K E T O R T H E I T U N E S M U S I C S T O R E T O M A R K E T UNLESS IT INVESTED ENOUGH MONEY T O MAKE THOSE THINGS INTEROPERABLE WITH COMPETITOR'S PRODUCTS . THAT WOULD THWART INNOVATION , A N D THAT'S WHAT THE NINTH CIRCUIT SAID I N F O R E M O S T P R O. S I M P L Y D O N' T HAVE TO MAKE YOUR P R O D U C T S INTER OPERABLE WITH OTHERS. THAT WOULD STOP THE YOU

INNOVATION, A N D THAT 'S WHY THERE 'S NO ANTITRUST DUTY TO DO THAT. T H E COURT: I KNOW THIS I S EVID ENTIARY I N

N A T U R E, BUT MY MIND IS DRAWN TO A CIRCUMSTANCE THAT I HAVE H E A R D A T SOME POINT ALONG T H E W A Y IN THIS 17

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LITIGATION WHERE THAT EVEN THOUGH I T HAD DEVELOPED I T S O W N VERSION O F D R M, WHEN A COMPETITIVE PRODUCT THAT CAME A L O N G THAT COULD U S E I T, APPLE DID SOMETHING T O C H A N G E ITS VERSION OF DRM TO MAINTAIN T H E RELATIONSHIP BETWEEN T H E MUSIC AND T H E D I R E C T DOWNLOAD TO T H E IPOD . INDIRECT WAYS TO DO IT. A N D SO SHOULDN'T T H E C O U R T A T L E A S T A L L O W THIS TO PROCEED T O T H E POINT WHERE I C A N LEARN MORE ABOUT THAT THROUGH DISCOVERY? I D O N'T KNOW IF I AGREE WITH YOU THERE ARE

CHANGING T H E C L A S S DEFINITION IS T H E W A Y -- THE ROUTE TO THAT BUT W H Y SHOULDN 'T I P A Y ATTENTION TO THAT? M R. MITTELSTAEDT : THE ALLEGATION IS THAT

A YEAR A N D A HALF AFTER T H E I T U N E S MUSIC STORE WAS LAUNCHED , S O N O W WE' RE UP TO OCTOBER O F 2 004 , REAL NETWORKS DEVELOPED SOME TYPE OF DRM THAT MIMICKED FAIR PLAY. A N D SO WHEN REAL NETWORKS SOLD MUSIC ON THEIR MUSIC STORE , I T W A S INTERPRETED BY THE IPOD AS APPLE 'S FAIR PLAY D R M PROTECTED MUSIC. T H E WAY THEY DID THAT, A N D THIS IS ALLEGED IN THE COMPLAINT, IS REAL N E T W O R K S W A S ABLE TO , I N T H E WORDS OF THE COMPLAINT, DISCERN PART OF APPLE 'S SOFTWARE CODE, PART O F T H E I R CODE F O R T H E 18

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APPLE I S UNDER A STRICT CONTRACT WITH THE L A B E L S, WAS AT T H E TIME , T O M A I N T A I N T H E SECURITY OF I T S D R M FOR OBVIOUS REASONS. A N D SO THIS W A S AN INSTANCE WHERE THE COMPETITOR HAD BEEN ABLE T O, WHETHER B Y HACKING , REVERSE ENGINEERING, OR OTHERWISE, FIGURE O U T PART OF T H E S O F T W A R E CODE . A P P L E, LIKE A L L SOFTWARE MANUFACTURERS, PERIODICALLY U PDATES I T S S O F T W A R E F O R A VARIETY OF REASONS, FIXING BUGS , STAYING A STEP O R TWO AHEAD OF HACKERS OR WHATEVER. A N D AS THE EVIDENCE WILL SHOW THAT APPLE W A S P L A N N I N G A SOFTWARE UPGRADE AND WENT AHEAD AND INSTITUTED THAT. T H E E F F E C T OF THAT S O F T W A R E

U P D A T E W A S TO BLOCK THIS HACK . REAL COULD COME BACK A N D TRY TO R E H A C K AROUND THE SOFTWARE UPDATE . W E ARE PROVIDING DISCOVERY T O THE PLAINTIFFS ON THAT I N C I D E N T. THE PLAINTIFFS HAVE

ASKED F O R A 30 (B) (6) DEPOSITION, A N D W E'R E WORKING O U T T H E DETAILS WITH THEM. A N D I'M CONFIDENT THAT AFTER THAT DEPOSITION IS TAKEN AND WHEN WE FINISH COMPLETING PRODUCING DOCUMENTS ON THAT, THAT I S S U E S H O U L D GO 19

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AWAY JUST LIKE THE ISSUE O F CHIP DISABLING A S I THINK H A S GONE AWAY. T H E R E'S ANOTHER ALLEGATION I N T H E COMPLAINT THAT APPLE DISABLES THE PROCESSOR CHIP I N T H E IPOD SO THAT IT WON 'T PLAY MICROSOFT' S D R M. THAT' S SIMPLY UNTRUE . T H E PLAINTIFF 'S EXPERTS HAVE SAID THAT THEY KNOW NOTHING ABOUT THAT, A N D I THINK THAT WILL GO AWAY. I F I T D O E S N'T GO AWAY VOLUNTARILY, WE 'LL DISPROVE THAT AS WELL. F O R PURPOSES OF THE CLASS DISCUSSION T H O U G H, YOUR H O N O R, IF THE PLAINTIFFS EVENTUALLY E N D U P FOCUSSING ON THIS REAL NETWORK HACK I N LATE 20 04, THAT HAS IMPLICATIONS, I T H I N K VERY SERIOUS IMPLICATIONS O N WHETHER THEY GET A CLASS AND WHAT KIND OF SCOPE OF THE CLASS WOULD BE IF A N Y. BECAUSE T H E I S S U E O F W H O, IF A N Y O N E W A S HARMED B Y APPLE ISSUING A REGULARLY PERIODIC SOFTWARE UPDATE I S SOMETHING THAT HASN 'T BEEN ADDRESSED B Y T H E PLAINTIFFS A N D IT IS COMPLICATED A N D I T W O U L D N' T G O BACK , Y O U KNOW, TO THE START OF T H E M U S I C S T O R E. T H E COURT: Y O U DO NOT HAVE CURRENTLY

B E F O R E T H E COURT A M O T I O N TO DISMISS T H E SECTION 2 20

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CLAIM F O R FAILURE TO STATE A CLAIM; CORRECT? M R. MITTELSTAEDT : NO. WE TRIED TO DO

THIS IN A F A I R L Y SYSTEMATIC W A Y AND I THINK NOW THAT THE TYING C L A I M S A R E GONE, I T H I N K THAT 'S THE NEXT STEP. T H E COURT: THAT WOULD PUT THE ISSUE I 'M NOT

B E F O R E T H E COURT IN A DIFFERENT LIGHT.

DISPOSED TO GRANT YOUR MOTION TO M O D I F Y - - I 'M NOT DISPOSED TO DENY THE M O T I O N T O M O D I F Y THE CLASS ON MOOTNESS GROUNDS. A S COUNSEL POINTS OUT EVEN THOUGH THERE H A S BEEN A CHANGE IN T H E TECHNOLOGY , T H E R E A R E STILL A GROUP OF PEOPLE W H O A R E STILL AFFECT E D BY T H E O L D TECHNOLOGY, AND AS I UNDERSTAND I T T H E R E I S MONEY ASSOCIATED WITH THE CURRENT CHANGE. I S T H E R E A N Y T H I N G ELSE TO S A Y O T H E R THAN WHAT I HEAR AS A POTENTIAL 12 (B) (6) R E A S O N N O T TO MODIFY T H E CLASS? M R. MITTELSTAEDT : YES . WHEN THE

PLAINTIFFS MOVED TO CERTIFY T H E CLASS, THIS INJUNCTIVE RELIEF CLASS , T H E I R P O I N T, THEIR MAIN POINT W A S THAT APPLE W A S CONTINUING TO U S E THIS D R M AT T H E M U S I C S T O R E A N D YOUR H O N O R CERTIFIED THE (B )(2 ) C L A S S F O R THE D I R E C T PURCHASERS ON THAT B A SIS . 21

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A N D THEN I N JULY OF THIS YEAR WHEN IT W A S BROUGHT TO YOUR H O N O R'S ATTENTION THAT APPLE H A D STOPPED DOING THAT A N D APPLE HAD STOPPED DOING THAT BECAUSE THE R E C O R D L A B E L S WITHDREW THAT REQUIREMENT . FIRST PLACE . APPLE NEVER WANTED TO U S E D R M IN THE THAT'S IN T H E R E C O R D.

A P P L E USED D R M ONLY BECAUSE THE L A B E L S REQUIRED IT A N D WHEN T H E L A B E L S WITHDREW THAT REQUIREMENT , APPLE WAS VERY QUICK T O STOP USING DRM IN I T S M U S I C S T O R E. S O THAT RE LIEF, THE R E L I E F I T W A S SEEKING W A S LITERALLY MOOT A N D THAT'S W H Y Y O U INVITED A P P L E TO DECERTIFY T H E (B) (2) CLASS . N O W, IN RESPONSE TO THAT ONE , THEY QUESTION WHETHER APPLE REALLY IS I N T E N T O N N O T USING DRM I N THE FUTURE . W E HAVE SUBMITTED A DECLARATION FROM EDDIE C U E, WHO IS T H E HEAD OF T H E M U S I C S T O R E, WHO H A S SAID -- A N D THIS IS DOCUMENT 25 6, MR. C U E, WHICH IS C- U-E -- H A S SAID , " WEL L B E F O R E THE L A B E L S AGREED T O D O S O APPLE PUBLICALLY EXPRESSED ITS DESIRE T O SELL DR M FREE MUSIC . " NOW THAT THE L A B E L S HAVE A G R E E D THAT APPLE MAY SELL MUSIC THEY PROVIDE T O APPLE WITHOUT U S E O F D R M, APPLE SELLS ONLY DRM FREE MUSIC. 22

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" APPLE IS NOT AWARE THAT THE R E C O R D L A B E L S HAVE A N Y PLAN TO REINSTITUTE A DRM REQUIREMENT A N D A P P L E H A S NO INTENTION OF OPERATING A MUSIC STORE THAT S E L L S D R M MUSIC IN THE F U T U R E." THAT 'S MR. C U E'S DECLARATION . THIS ISSUE. THAT MOOTS

I T M A K E S N O S E N S E F O R THE PLAINTIFFS

TO , T O B R I N G THIS CASE AND P U R S U E A CLASS TO ESTOP APPLE FROM DOING SOMETHING THAT IT NEVER WANTED TO DO IN T H E F I R S T P L A C E A N D THAT I T STOPPED DOING AS SOON AS ITS CONTRACTS WITH T H E R E C O R D LABELS WOULD PERMIT. T H E COURT: L E T ME -- THIS I S PERHAPS

B E Y O N D T H E MOTION , B U T DO I UNDERSTAND THAT ALTHOUGH T H E M U S I C I S D R M FREE, IS IT INTEROPERABILITY LIMITED FREE ? I N O T H E R W O R D S, CAN Y O U N O W DOWNLOAD MUSIC FROM THE STORE A N D PLAY IT DIRECTLY ON TO A P L A Y E R O T H E R THAN AN IPOD? M R. MITTELSTAEDT : T H E COURT: YES .

S O THAT THAT INTEROPERABILITY

LIMITATION HAS ALSO BEEN REMOVED ? M R. MITTELSTAEDT : YES . IN RESPONSE TO

THAT, I THINK THAT T H E PLAINTIFFS HAVE TO ADMIT THAT THAT MAIN RELIEF THAT THEY WERE SEEKING AND T H E R E L I E F ON WHICH YOUR H O N O R CERTIFIED THE (B )(2 ) 23

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CLASS IN T H E F I R S T P L A C E I S MOOT . S O T H E I R FALL BACK P O S I T I O N I S, WELL, THERE 'S ALL THAT MUSIC OUT THERE THAT PEOPLE B O U G H T B E F O R E THAT STILL H A S D R M ON IT. S O I T'S ON THAT BASIS THAT THEY WANT TO CERTIFY THIS C L A S S A N D THEY WANT TO BROADEN THE CLASS . T H E COURT: WHAT IS WRONG WITH THAT? SEVERAL THINGS. THE

M R. MITTELSTAEDT : MAIN ONES A R E THIS:

AS YOUR HONOR NOTED, TO HAVE

AN IPOD CLASS WHERE THE INJUNCTIVE RELIEF RELATES TO WHAT IS GOING ON WITH T H E MUSIC LOOKS LIKE I T'S A DIS CONNECT. A N D THE PLAINTIFFS HAVE N E V E R A N S W E R E D, I D O N'T THINK SATISFACTORILY , YOUR HONOR 'S QUESTION ABOUT H O W Y O U CONNECT THAT KIND OF RELIEF REMOVING T H E D R M WITH T H E IPOD C L A S S. WHAT THEY DID INSTEAD WAS S A Y, WELL, WE 'LL BROADEN THE CLASS . WE' LL ADD N E W P E O P L E.

WE 'LL A D D I T U N E S MUSIC PURCHASERS W H O DON 'T HAVE IPODS . THAT DOESN 'T SOLVE THE PROBLEM THAT THEY HAVE WITH RESPECT TO T H E IPOD PURCHASERS AND IT JUST CREATES MORE PROBLEMS FOR THE MUSIC PURCHASERS. 24

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A N D LET ME EXPLAIN WHY . WHAT THEY HAVE T O SHOW IS THAT -- WELL, L E T M E S T A R T WITH , WITH T H E PRACTICAL ISSUE. THEY S A Y THAT IT 'S A C O S T L E S S A N D EFFORTLESS FOR APPLE TO R E M O V E D R M FROM A L L OF THESE SONGS THAT HAVE BEEN PREVIOUSLY DOWNLOADED. W E HAVE SUBMITTED ANOTHER DECLARATION FROM MR. C U E, THIS O N E AUGUST 31 , 2 009 WHERE HE DESCRIBES THE TECHNICAL REASON WHY THAT I S NOT TRUE. A N D WHAT H E E X P L A I N S I S THAT , A N D I'M GOING TO QUOTE THIS, "WHEN A CUSTOMER BUYS D R M FREE VERSIONS OF PREVIOUSLY PURCHASED MUSIC , A P P L E DOES N O T SIMPLY, " Q U O T E, "'REMOVE' T H E D R M FROM T H E PREVIOUSLY PURCHASED FILES ." M R. CUE GOES ON TO EXPLAIN THAT WHAT APPLE DOES INSTEAD I S PROVIDE A NEW FILE OF HIGHER AUDIO QUALITY WHICH IS THEN DOWNLOADED BY T H E CUSTOMER . A N D THE R E C O R D L A B E L S UNDER THE CONTRACT WITH APPLE TREAT EACH O F T H E S E N E W DOWNLOADS AS A NEW TRANSACTION. A N D SO TO PROVIDE CUSTOMERS WITH D R M FREE VERSIONS OF MUSIC THEY PREVIOUSLY B O U G H T, APPLE IS REQUIRED TO P A Y T H E LABELS A CERTAIN A M O U N T PER 25

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DOWNLOAD , A N D THAT A M O U N T IS IN THE R E C O R D U N D E R SEAL, A N D A P P L E ALSO INCURS CREDIT CARD FEES A N D LICENSING U P G R A D E S A N D SO FORTH. S O FOR STARTERS, THIS IDEA THAT APPLE CAN MAGICALLY R E M O V E DRM IS N O T TRUE . IT' S A SEPARATE

TRANSACTION THAT COSTS APPLE MONEY, A N D THAT 'S WHY APPLE CHARGES CUSTOMERS . T H E COURT: A N D IF YOU 'RE ABLE TO GET

OVER THE PLAINTIFF'S COMPLAINT A B O U T I M P O S I N G I T I N T H E F I R S T P L A C E, THEN THAT WOULD BE LEGITIMATE. Y O U'R E N O T, THEN THAT I S - - THAT 'S A REMEDY. M R. MITTELSTAEDT : THAT POINT. WELL, LET 'S GET TO IF

I S I T A R E M E D Y A N D FOR WHOM?

THERE ARE MANY ITUNES MUSIC PURCHASERS W H O A S F A R AS THIS R E C O R D SHOWS, YOUR HONOR, A N D A S F A R A S C O M M O N SENSE TAKES US, A R E PERFECTLY CONTENT. THEY BOUGHT T H E I R M U S I C. THEY KNEW ABOUT

T H E L I M I T A T I O N S, AND THEY PAID 9 9 CENT S F O R THE SONG. A N D NOW THEY' RE PLAYING THAT MUSIC ON THEIR HOME COMPUTERS , Y O U KNOW, THROUGH HEADPHONES , OR THEY HAVE B U R N E D THAT M U S I C T O C D'S A N D THEY 'RE USING CD 'S JUST LIKE THEY WOULD USE CD 'S BOUGHT AT A STORE, MEANING THAT THEY PLAY THEM O N A C A R 26

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STEREO O R THEIR HOME STEREO. O R THEY , AFTER BURNING , THEY RIPPED I T BACK TO THEIR COMPUTER AND N O W THEY 'RE PLAYING IT ON IPOD COMPETITORS BECAUSE T H E PROCESS O F BURNING DESTROYS T H E D R M. O R I TUNES PURCHASERS, IF THEY HAVE B O U G H T MUSIC SINCE EARLY 20 07 AND THEY BOUGHT EM I, ONE OF T H E L A B E L'S MUSIC , THAT W A S A L L DRM FREE FROM E A R L Y 20 07. S O T H E R E A R E A L O T OF MUSIC PURCHASERS O U T T H E R E W H O ARE N O T H A R M E D IN THE SLIGHTEST B Y PLAINTIFF'S T H E O R Y O F LACK OF INTEROPERABILITY. THE CLASS THAT THEY WANT YOUR HONOR T O A D D, ITUNES MUSIC PURCHASERS, THEY HAVE G O T TO SHOW A COUPLE OF T H I N G S. O N E, THEY HAVE TO SHOW THAT

IT 'S THE PRIMARY RELIEF THAT THEY'R E SEEKING F O R THESE PEOPLE. I N O R D E R T O CERTIFY A (B) (2) CLASS T H E PLAINTIFFS HAVE T O SHOW THE INJUNCTIVE RELIEF I S T H E P R ED O M I N A N T R E L I E F THAT THEY 'RE SEEKING. B U T IF PROVIDING D R M FREE MUSIC TO THESE PEOPLE W O U L D N O T GIVE THEM A N Y BENEFIT , I T'S PEOPLE W H O A R E PERFECTLY HAPPY , M A Y B E P E O P L E WHO D O N'T EVEN KNOW T H E R E I S D R M ON THEIR MUSIC. I F T H O S E P E O P L E WOULDN 'T BE BENEFITTED B Y 27

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G I V I N G THEM THIS FREE UPGRADE , I T'S IMPOSSIBLE FOR T H E PLAINTIFFS TO S A Y THAT THIS RELIEF THAT THEY'R E SEEKING ON BEHALF OF A L L O F T H E S E P E O P L E IS THE PRIMARY -- THE P R EDOMINANT R E A S O N F O R THIS CASE . I T W O U L D B E G I V I N G RELIEF TO P E O P L E W H O D O N'T NEED IT, W H O W O U L D N' T BENEFIT FROM IT, W H O W O U L D N'T DO ANYTHING WITH IT IF THEY G O T IT. A T THE SAME TIME , YOUR HONOR , I T WOULD I M P O S E A N E N O R M O U S COST ON APPLE . THE R E C O R D S H O W S

T H E A M O U N T THAT A P P L E PAYS TO T H E L A B E L S PER UPGRADE PER N E W FILE A N D Y O U MULTIPLY THAT T I M E S T H E FOUR BILLION SONGS THAT A P P L E H A S SOLD A N D IT' S AN ENORMOUS A M O U N T O F MONE Y, AN ENORMOUS AMOUNT OF MONEY THAT WOULD NOT BENEFIT, MOST, IF A N Y O F T H E P E O P L E THAT THEY ALLEGE AS T H E C L A S S. S O THAT APPLIES BOTH T O THE IPOD PURCHASERS AND IT APPLIES TO THIS, THIS N E W GROUP. IT JUST WOULDN 'T BENEFIT T H E IPOD C L A S S I N A DIFFERENT W A Y. THE IPOD CLASS ALREADY HAS THEIR

IPODS BY DEFINITION. A N D SO NOW GOING TO THOSE IPOD PURCHASERS A N D S A Y I N G, HERE, WE 'RE GOING TO GIVE YOU D R M FREE MUSIC F O R FREE , T H E R E'S NO SHOWING IN THE R E C O R D THAT THAT WOULD BENEFIT A SUBSTANTIAL PORTION O F THE CLASS O R BENEFIT ANYBODY. 28

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Y O U' RE -- I D O REALIZE THAT

GIVEN T H E COMPLEXITY OF THIS THE TIME THAT I HAVE ALLOWED IS NOT GOING TO BE SUFFICIENT TO HANDLE EVERYTHING. S O L E T ME TURN T O YOUR OPPONENT . I T DOES SEEM TO ME THAT O N E POSSIBILITY THAT SHOULD BE B E F O R E T H E COURT AND IT 'S THE O N E THAT I R A I S E D AND THAT IS TAKE N O A C T I O N WITH RESPECT TO MODIFYING T H E CLASSES UNTIL T H E C O U R T H A S DEFINITIVELY RULED WITH RESPECT TO WHETHER OR N O T G I V E N T H E COURT' S RULINGS ON THIS TYING CLAIM THERE IS A VIABLE SECTION 2 C L A I M THAT C A N B E STATED. AND THAT I HAVE NOT GIVEN SEPARATE

CONSIDERATION TO BECAUSE THAT WILL AFFECT T H E QUESTIONS B E F O R E THE COURT . N O W, I DON 'T EXPECT Y O U T O B E I N A POSITION TO RESPOND TO THE M E R I T S O F THAT , B U T WHY DOESN 'T THAT MAKE SENSE ? M R. MERRICK: MERITS A LITTLE B I T. WELL, I CAN RESPOND TO THE O N E IS THAT I T I S N O T UNUSUAL

F O R A COURT TO FIND THAT T H E R E I S N O T Y I N G C L A I M A N D Y E T FIND THAT THERE IS A MONOPOLIZATION CLAIM BASED ON SOME OF THE SAME FACTUAL ARGUMENTS THAT PLAINTIFFS HAVE SAID WOULD SU PPORT A T Y I N G C L A I M. A GOOD EXAMPLE O F THAT MOST RECENTLY IS, 29

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A N D I T'S IN T H E P A P E R S, T H E T E L L I S ATLAS CASE W H I C H IS 20 08 WESTL A W 4 491 123 0 N O R T H E R N D I S T R I C T FROM NOVEMBER OF LAST YEAR. A N D THERE THE DEFENDANTS SUCCESSFULLY MOVED F O R SUMMARY JUDGMENT ON T H E T Y I N G C L A I M, AND IT W A S GRANTED . THE PLAINTIFFS - - THEN THEY SAID THAT THE PLAINTIFFS WERE PRECLUDED FROM BRINGING EVIDENCE THAT WOULD HAVE SUPPORTED THE TYING CLAIM IN SUPPORT OF THEIR MONOPOLIZATION CLAIM. T H E COURT SAID, NO, THAT ISN 'T THE W A Y THAT IT WORKS. Q U O T E, THIS I S FROM STAR PAGE 2 ,

"T E L L I S ATLAS' S FAILURE TO PROVE THAT NAVTEQ ," WHICH IS N- A-V -T- E-Q , " ALLEGED T Y I N G CONDUCT W A S UNLAWFUL , DOES NOT AUTOMATICALLY REQUIRE THAT SUCH CONDUCT BE REMOVED FROM T H E S C O P E O F T H E SECTION 2 INQUIRY. " I D O N'T THINK T H E C O U R T H A S RULED DEFINITIVELY THAT APPLE HAS BEEN GUILTY O F N O ANTICOMPETITIVE CONDUCT . T H E C O U R T. T H E COURT' S R U L I N G ON THE TYING CLAIM W A S BASED ON T H E N A T U R E OF A SECTION 1 CLAIM WHICH IS N O T T H E SAME A S A SECTION 2 C L A I M. T H E COURT: WHAT I HEAR Y O U SAYING IS 30 THAT I S S U E WASN 'T BEFORE

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THAT ULTIMATELY I WOULD FIND IN YOUR F A V O R O N I T. T H E Q U E S T I O N THAT I ASKED IS WHY SHOULDN' T I DO THAT FIRST BEFORE MODIFYING THE CLASS DEFINITION BECAUSE IT WOULD PROVIDE M E WITH AN OPPORTUNITY TO HAVE THE PLAINTIFF ARTICULATE I T S REMAINING CLAIM DE VOID O F T H E TYING CLAIM BECAUSE MOST OF WHAT HAPPENS IN THIS COMPLAINT IS IT IS ALLEGED I N G R E A T D E T A I L A S A TYING CLAIM A N D THEN A L L O F THAT IS INCORPORATED B Y REFERENCE INTO A VERY SHORT STATEMENT O F THE SECTION 2 CLAIM . S O I T'S -- IT R E A L L Y CHALLENGES T H E COURT , A S I HAVE STARTED O U T TO START TO UNDERSTAND A LITTLE B I T A B O U T T H E PLAINTIFF 'S CASE, AND I HAVEN 'T WORKED MY W A Y THROUGH IT Y E T. M R. MERRICK: I DO BELIEVE, YOUR H O N O R - -

THIS MOTION DOES ASK M E T O

ARTICULATE THE CLASS IN A WAY THAT, FIRST OF A L L, I WOULD HAVE TO MAKE SURE THAT THE TIME LIMITATIONS INVOLVED IN A L L O F T H E S E CHANGES A R E RESPECTED, IF INDEED T H E S E CHANGES A R E. D O Y O U AGREE THAT T H E DRM -- FREEDOM FROM D R M, THE APPLE D R M H A S ALSO ELIMINATED T H E INTEROPERABILITY CLAIM? M R. MERRICK: AS F A R A S I AM AWARE . I'M 31

U.S. COURT REPORTERS

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N O T F A M I L I A R E N O U G H WITH T H E TECHNOLOGY B E H I N D IT TO GIVE A DEFINITIVE A N S W E R, BUT I DO BELIEVE THAT THEY ARE A L L I N T E ROPERABLE , Y E S. T H E COURT: A L L RIGHT. AND PART O F THE

CERTIFICATION AND DEFINITION OF A N E W CLASS HAS TO BE WHAT RELIEF IS -- DO Y O U S T I L L HAVE A (B) (3) CLASS HERE AS WELL A S A (B )(2 ) C L A S S? M R. MERRICK: T H E COURT: Y E S. UNDERSTANDING THAT I KNOW I H A V E N'T GOTTEN

RELATIONSHIP I S IMPORTANT.

TO T H E I N D I R E C T PURCHASERS W H O ALSO HAVE A C L A I M, A N D I DO WANT TO RESERVE SOME TIME TO HEAR FROM THEM AS WELL. B U T TALK M E O U T OF WAITING. M R. MERRICK: A N Y R E A S O N TO. A S T H E COURT IN DECEMBER IN GRANTING THE (B )(2 ) C L A S S I N T H E FIRST PLACE NOTED, A N D I T'S DOCUMENT 19 6, "PLAINTIFFS SEEK T O ENJOIN DEFENDANT FROM MAINTAINING ITS RESTRICTIVE TECHNOLOGY PRACTICES I N T H E FUTURE ," WHICH I G U E S S Y O U COULD S A Y M A Y B E H A S RESOLVED, ASSUMING THAT WE CAN TAKE MR . C U E AT HIS WORD. B U T WE DON 'T HAVE A N Y WELL, I DON 'T THINK THERE' S

DISCOVERY O N A N Y OF THAT I N F O R M A T I O N, BUT -- "A N D SEEK TO COMPEL DEFENDANT T O," QUOTE -UNQUOTE, 32

U.S. COURT REPORTERS

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"U N L O C K MEDIA ALREADY PURCHASED FROM I TMS SO IT M A Y BE P L A Y E D O N N O N- IPOD DIGITAL MEDIA PLAYERS. " THAT H A S N O T OCCURRED ON A BACKWARDS LOOKING BASIS, A N D W E'R E TALK ING ABOUT , A G A I N, IT' S NOT A N INCONSIDERABLE BURDEN. FIVE BILLION S O N G S. W E'R E TALKING ABOUT

APPLE IS T H E 8 00 POUND GORILLA

IN T H E SONG DOWNLOAD M A R K E T. T H E COURT: B U T YOU AGREE HERE THAT T H E

B U R D E N W O U L D ONLY BE IMPOSED ON APPLE WITH RESPECT TO THOSE CONSUMERS W H O WOULD HAVE A N O N-IPOD P L A Y E R A N D W O U L D WISH TO RECON FIGURE T H E M U S I C S O I T C O U L D PLAY ON THOSE? M R. MERRICK: I WOULDN 'T AGREE WITH THAT .

I -- WE -- OBVIOUSLY I T'S A FACT B A S E D ANALYSIS AS TO I N J U R Y, BUT T H E P O I N T W E'R E M A K I N G IS THAT THE FACT THAT T H E R E A R E FIVE BILLION L O C K E D SONGS STILL O U T T H E R E I S I N A N D OF ITSELF IS A FORM OF I N J U R Y. T H E COURT: W H Y, W H Y I F I T'S -- W H Y I S I T

A FORM O F I N J U R Y IF YOU HAVE AN IPOD? M R. MERRICK: WELL, SOMEBODY IS GOING TO

EVENTUALLY HAVE T O MAKE A DECISION AS TO BUYING A NEW MUSIC PLAYER. F O REVER. T H E S E T H I N G S DO NOT LAST

TECHNOLOGY IMPROVES WITH CHANGES. A T SOME POINT SOMEBODY IS GOING TO HAVE 33

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Filed12/07/09 Page34 of 57 IF THAT DECISION

TO DEAL WITH M A K I N G A D E C I S I O N.

IS IN A N Y W A Y WHATSOEVER INFLUENCED BY T H E FACT THAT THEY HAVE BLOCKED SONGS ON THEIR IPOD THAT IS STILL AN ANTICOMPETITIVE - - O R A N ANTITRUST INJURY . A S F A R AS THE COST TO APPLE, T H E I S S U E HERE FOR CLASS CERTIFICATION PURPOSES FOR T H E (B )(2 ) C L A S S I S WHETHER OR N O T THAT TRANS L A T E S ITS CLAIM INTO DAMAGES. A N D I T D O E S N'T .

T H E FACT THAT APPLE M A Y HAVE TO P A Y A LICENSING F E E TO A T H I R D P A R T Y D O E S N'T MAKE THE COST OF THEM COMPLYING WITH A N INJUNCTIVE -- WITH T H E EQUITABLE RELIEF DAMAGES TO THE CLASS . A DIS CONNECT FUNDAMENTALLY THERE . A N D AS FAR AS H O W MUCH MONEY IT WOULD COST APPLE, IT WOULD BE VERY EXPENSIVE . IT' S VERY THERE' S

EXPENSIVE BECAUSE APPLE AGAIN IS T H E 8 00 POUND GORILLA. T H E R E'S T H E D U K E S VERSUS WALMART CASE THAT IS CITED IN THE MATERIALS THAT WHERE THEY T A L K E D A B O U T WHAT AN ENORMOUS A M O U N T O F M O N E Y I T WAS GOING T O COST WALMART. WELL , THAT 'S ENTIRELY BASED BECAUSE WALMART IS THE 80 0 P O U N D GORILLA RETAILER . AND IT

WOULD COST APPLE BECAUSE A P P L E I S T H E 800 POUND GORILLA IN THE MUSIC DOWNLOAD SALES . 34

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SAYING. T H E COURT:

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Y O U KNOW, THE O N E PROBLEM I

HAVE AS I KEEP GOING BACK AND FORTH IN MY MIND AS TO WHETHER OR NOT THIS IS A C O N S U M E R L E G A L R E M E D I E S CASE OR ANTITRUST CASE I HAVE TO P A Y ATTENTION TO WHAT IS IT THAT I S G O I N G O N HERE . THE HARM HAS TO

BE TO COMPETITION , T H O S E W H O WOULD BE IN THE BUSINESS OF M A K I N G PLAYERS A N D M U S I C I GUESS . A N D THE CONSUMERS, I G U E S S, WOULD BENEFIT FROM THIS R E M E D Y, B U T I 'D HAVE T O COME UP WITH A R E M E D Y THAT S P E A K S T O T H E WORLD OF COMPETITION AS OPPOSED TO THE WORLD OF ULTIMATE CONSUMERS, DON 'T I? M R. MERRICK: Y E S, AND THAT' S WHAT WE 'RE

THAT' S W H Y UNLOCKING T H E F I L E S I S S T I L L

IMPORTANT T O T H E COMPETITIVE MARKET BECAUSE OF THE FIVE BILLION SONG BACKLOG OF ANTICOMPETITIVE BEHAVIOR . T H E COURT: T H A N K Y O U.

BEFORE I G O BACK OVER HERE I WANTED T O GIVE THE INDIRECT PURCHASER COUNSEL AN OPPORTUNITY TO SPEAK , A N D I'L L L E T YOU RESPOND TO THAT. M S. ZELDES : THANK YOU , YOUR HONOR .

HELEN Z E L D E S A G A I N F O R THE S O M E R S C L A S S. RESPONDING TO T H E C O U R T'S REQUEST FOR CLARIFICATION OF HOW T H E C A S E S OVERLAP A N D H O W OUR 35

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BROADER.

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C L A I M S A R E TIED T O T H E RELIEF REQUESTED, THE INDIRECT PURCHASERS AND T H E D I R E C T PURCHASERS INJUNCTIVE RELIEF CLASSES OVERLAP ALMOST COMPLETELY. Y O U ASKED US TO CLARIFY THAT , A N D WE BOTH SEEK TO HAVE T H E RESTRICTIONS REMOVED FROM T H E ITM S FILES . HOWEVER , THE INDIRECT PURCHASERS CLASS I S W E SEEK TO REPRESENT F O L K S W H O HAVE ALSO

PAID, ALREADY PAID T O CONVERT THEIR MUSIC TO D R M FREE FILES. THEY HAVE ALREADY PAID THIS 30 PERCENT

CONVERSION FEE A N D S O THAT 'S HOW O U R CLASSES A R E DIFFERENT. T H E COURT: A N D THE D I R E C T PURCHASER

CLASS WOULD NOT INCLUDE THOSE ? M S. ZELDES : THEY HAVE NOT INCLUDED THOSE

PEOPLE, THAT'S CORRECT, YOUR HONOR. THEY INCLUDE PEOPLE WHO ALREADY HAVE A LIBRARY, A N D THEY 'RE A S K I N G LIKE WE A R E, APPLE TO CONVERT THOSE FILES FOR FREE AT NO COST T O T H E CONSUMER , B U T THERE' S A GROUP OF P E O P L E, A SUBSTANTIAL GROUP OF FOLKS W H O HAVE ALREADY PAID THIS HEFTY 30 PERCENT CONVERSION C H A R G E A N D WE' RE S A Y I N G U N D E R O U R (B) (2) CLASS WE WOULD BE ENTITLED TO D I SGORGEMENT O F THAT 30 PERCENT FEE . 36

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E COURT:

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WELL , Y O U SEE , I 'M CONFUSED

BECAUSE I D I D NOT UNDERSTAND THE INDIRECT PURCHASERS TO HAVE A N Y T H I N G T O D O WITH I T U N E S A S MUCH AS INDIRECT PURCHASERS O F T H E PLAYER , T H E IPOD. BECAUSE THERE IS NO SUCH THING AS INDIRECT PURCHASERS OF ITUNES . M S. ZELDES : T H E COURT: YOU 'RE CORRECT, YOUR HONOR. S O W H Y WOULDN 'T I FIND THAT

IF I' M G O I N G T O A D D ITUNES PURCHASERS TO THE CLASS , THAT THAT WOULD - - THERE WOULD B E A DUPLICATION BETWEEN THE INDIRECT PURCHASER C L A S S A N D THE D I R E C T PURCHASER'S CLASS ? M S. ZELDES : THAT I S CORRECT , THE CLASSES

OVERLAP TO THE E X T E N T THAT WE 'RE BOTH SEEKING T H E FIRST T W O P R O N G S OF THE INJUNCTIVE RELIEF WHICH IS TO R E M O V E T H E DRM GOING FORWARD ON CONSUMER' S F I L E S AND T O CONVERT THE FILES THAT THE FOLKS ALREADY HAVE, B U T T H E R E'S A GROUP OF FOLKS THAT A R E NOT REPRESENTED . A N D YOU 'RE RIGHT , F O R INJUNCTIVE R E L I E F THERE IS NO DIFFERENCE. DIRECTLY FROM APPLE. S O W E'R E N O T INDIRECT PURCHASERS F O R THE PURPOSES OF THAT PART O F T H E INDIRECT -- THE 37 EVERYBODY BUYS THE MUSIC

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INJUNCTIVE RELIEF CLASS .

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B U T THERE' S NOBODY SEEKING THAT RELIEF. SO T H E F O L K S W H O HAVE ALREADY PAID THAT 3 0 PERCENT , WHICH IS A SUBSTANTIAL CONVERSION F E E. AN INSUBSTANTIAL RESTRAINT . BEING SOUGHT. THAT 'S NOT

THERE' S N O RELIEF

SO THAT IS A C L A S S THAT IS DIFFERENT

FROM THE , Q U O T E-UNQUOTE , " DIRECT PURCHASERS. " A N D APPLE' S MAIN BEEF WITH THAT IS THAT Y O U C A N' T A S K FOR D I SGORGEMENT T O G E T A ( B)( 2) CLASS . THEY'R E EITHER SAYING T H E M O N E T A R Y RELIEF AND THAT' S N O T

P R EDOMINATES O R Y O U CAN 'T GET IT . THE STANDARD.

T H E STANDARD IS IF IT' S INCIDENTAL TO T H E INJUNCTIVE RELIEF , Y O U CAN HAVE MONETARY DAMAGES A S PART OF A ( B)( 2) CLASS AND T H E N I N T H CIRCUIT IS CLEAR ON THAT THAT EVEN IN CASES WHERE T H E PLAINTIFFS HAVE SOUGHT THINGS LIKE BACKPAY I N A N EMPLOYMENT DISCRIMINATION CASE, THE COURT H A S AWARDED OR CERTIFIED A (B) (2) CLASS . SIMILAR LY PARTICULARLY IN PROBE V E R S U S STATE TEACHERS ' RETIREMENT S Y S T E M, THERE WAS A G E N D E R B A S E D MORTALITY TABLES BEING USED AND T H E PLAINTIFFS SOUGHT MONETARY DAMAGES THERE AND T H E NINTH CIRCUIT AGAIN CERTIFIED A (B) (2) CLASS BECAUSE THEY FOUND THAT THE INJUNCTIVE RELIEF WAS 38

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OR (B )(3 ). THE PRIMARY RELIEF SOUGHT.

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A N D HERE T H E MONETARY RELIEF IS CLEAR LY A SUBSET O F THE OVERALL INJUNCTIVE RELIEF THAT BOTH PARTIES ARE SEEKING AND BOTH PARTIES A R E SEEKING. T H E COURT: S O YOUR CLASS WOULD BE A

(B )(3 ) C L A S S F O R THE MONETARY R E L I E F O F T H E PAST BECAUSE IT WOULD START TO OVERLAP WITH T H E ( B)( 2) CLASS OF T H E D I R E C T PURCHASERS WITH RESPECT TO THE FUTURE? M S. ZELDES : IT COULD BE EITHER A (B) (2)

I T C O U L D B E A SEPARATE DAMAGES CLASS IF YOUR HONOR WANTED TO CERTIFY THAT, OR IT COULD ALSO BE A PART O F A (B )(2 ) C L A S S. T H E INJUNCTIVE R E L I E F IS REM O V I N G THE D R M FROM ALL OF T H E F I L E S. THIS IS A S M A L L S U B S E T OF THIS IS

A L L O F T H E FIVE BILL ION FILES O U T T H E R E.

SOMEBODY W H O ALREADY PAID APPLE TO CONVERT THEM . SO IT IS A SUBSET . I T I S INCIDENTAL TO -- FLOWS FROM THE INJUNCTIVE RELIEF . AS SUCH Y O U COULD CERTIFY I T

UNDER (B )(2 ), IN THE ALTERNATIVE , Y E S, Y O U C O U L D CERTIFY. T H E COURT: M S. ZELDES : WHAT IS THIS SYNCING I S S U E? WELL, YOU KNOW, THEY WERE 39

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DAMAGES.

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TALKI N G ABOUT THERE' S N O INTEROPERABILITY ISSUES ANYMORE. T H E R E W A S AN ISSUE THIS LAST YEAR THAT

APPLE ACTUALLY TOOK NO AFFIRMATIVE ACTION FROM PALM 3, F O R EXAMPLE , FROM SYNCING WITH T H E ITUNES I WANT TO S A Y LIBRARY , A N D SO THAT'S WHAT THAT I S S U E I S. THAT 'S NOT A PRIMARY PART OF T H E INJUNCTIVE RELIEF WE 'RE SEEKING, B U T I T GOES TO T H E ANTICOMPETITIVE PRODUCT THAT APPLE IS TAKING AFFIRMATIVE STEPS TO STOP OTHER PLAYERS THAT COULD OTHERWISE SYNC UP WITH THEIR PLAYER . T H E COURT: F I N A L W O R D S. M R. MITTELSTAEDT : YOUR H O N O R, IN T H A N K Y O U.

DOCUMENT 86 IN T H E S O M E R S CASE W E RESPOND TO THEIR ARGUMENT TO S A Y I T I N A WORD. WHEN THEY' RE ASKING F O R REIMBURSEMENT OF T H E 3 0 C E N T S THAT CONSUMERS PAID TO G E T D R M FREE MUSIC , C O P I E S OF THE MUSIC THAT THEY H A D PREVIOUSLY DOWNLOADED, THAT IS NOT INCIDENTAL RELIEF THAT FLOWS FROM THE INJUNCTIVE RELIEF THAT THEY'R E SEEKING. THAT IS T H E R E L I E F THAT THEY 'RE SEEKING. A N D AS YOUR H O N O R POINTED O U T, THAT'S I T'S N O T INJUNCTIVE RELIEF. CALLI N G IT

D I SGORGEMENT D O E S N'T C H A N G E I T FROM DAMAGES TO INJUNCTIVE RELIEF . 40

U.S. COURT REPORTERS

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THE INDIRECT PLAINTIFFS HAD BEEN DENIED (B )(3 ) C L A S S. THEY DIDN'T MAKE THIS A R G U M E N T.

IT 'S NOT A GOOD A R G U M E N T, BUT IF THEY WANT T O MAKE THAT ARGUMENT, THEY SHOULD MAKE IT SO WE CAN RESPOND TO IT. T H E THING THAT S H E MENTIONED AT T H E E N D H A S NOTHING TO DO WITH DRM . THIS CASE. IT IS UNRELATED TO

IT 'S NOT ALLEGED IN THE COMPLAINT.

THEY HAVEN' T S O U G H T TO AMEND THE COMPLAINT T O A L L E G E I T, AND IT H A S NOTHING TO DO WITH DRM . THEY STILL HAVE NOT SAID, YOUR HONOR, A N D THIS IS THE K E Y P O I N T, HOW E I T H E R T H E EXISTING IPOD CLASS OR A NEW CLASS OF P E O P L E W H O DON 'T HAVE I P O D S WOULD BENEFIT FROM GETTING FREE DRM FREE MUSIC. THEY KEEP SAYING , WELL , I T WOULD UNLOCK, IT WOULD U N L O C K, IT WOULD UNLOCK , B U T THEY D O N' T S A Y H O W THAT W O U L D BENEFIT T H E VAST MAJORITY OF P E O P L E W H O, AS I SAY , A R E PERFECTLY CONTENT HAVING APPLE MUSIC THAT THEY B O U G H T FOR 99 CENTS KNOWING H O W I T C O U L D B E USED A N D P E O P L E WHO WERE PERFECTLY HAPPY USING THAT. THEY STILL HAVEN 'T IDENTIFIED A N Y BENEFIT E X C E P T F O R ONE THING , THEY S A Y, HOW ABOUT IF SOMEBODY W H O H A S AN IPOD W H O MIGHT WANT T O B U Y AN IPOD IN THE F U T U R E? 41

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OVERBROAD.

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WELL , N U M B E R ONE , T H E CLASS THEY WANT TO REPRESENT I S MUCH BROADER THAN THAT . LIMITED IT. T H E COURT: I THOUGHT IT WAS THOSE W H O THEY HAVE NOT

H A D I T U N E S WHO W I S H E D T O B U Y A DIFFERENT PLAYER IN T H E FUTURE EVEN I F THEY H A D A N IPOD N O W. M R. MITTELSTAEDT : YES , B U T AS TO THOSE

P E O P L E, THAT - - I F T H E R E I S ANYBODY LIKE THAT, IT' S ONLY A VERY SMALL PORTION OF THEIR PROPOSED CLASSES WHICH CONSIST OF ALL IPOD OWNERS A N D A L L ITUNES MUSIC OWNERS. A N D SO POINT NUMBER O N E I S I T'S R E A L L Y T H E C L A S S THAT THEY' RE ASKING IS R E A L L Y

OVERBROAD COMPARED T O THE VERY SMALL BENEFIT THAT THEY HAVE THEORETICALLY IDENTIFIED. N U M B E R TWO , I F THEY S A Y, OKAY, WELL, JUST GIVE FREE U P G R A D E S T O T H E PEOPLE W H O WANT TO REPLACE THEIR IPOD WITH A COMPETITOR, HOW A R E THEY EVER GOING TO IDENTIFY THOSE PEOPLE ? THAT'S A VERY

SUBJECTIVE INDIVIDUALISTIC KIND OF ANALYSIS. A N D IT DOES N O T WARRANT E I T H E R CERTIFYING A CLASS, L E T A L O N E GIVING FREE UPGRADES T O EVERYBODY W H O HAS AN IPOD WHO EVER BOUGHT A N Y MUSIC . A N D THAT'S IMPORTANT F O R TWO REASONS, O N E 42

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Filed12/07/09 Page43 of 57 THEY HAVE TO

IS BASED ON T H E C A S E S W E HAVE CITED .

SHOW THAT T H E INJUNCTIVE R E L I E F THAT THEY 'RE SEEKING WOULD SUBSTANTIALLY BENEFIT OR WOULD BENEFIT SUBSTANTIALLY A L L OF THE CLASS A N D THEY HAVEN 'T BEEN ABLE TO SHOW THAT A N D COMMON SENSE TELLS Y O U THAT 'S NOT T H E CASE . B U T THE OTHER THING IS THAT THEY HAVE TO SHOW THAT THIS FALLBACK R E L I E F THEY 'RE SEEKING NOW IS T H E PRIMARY R E A S O N F O R BRINGING THIS LAWSUIT . A N D, Y O U KNOW , T O M E I T DEFIES BELIEVABILITY FOR THEM TO SAY EARLIER THAT T H E MAIN R E A S O N I N V O L V E D GETTING APPLE TO STOP USING DRM IN I T S S T O R E O N A N ONGOING BASIS A N D N O W THE PRIMARY R E A S O N I S, IS JUST T O G E T THE D R M REMOVED , I N T H E FACE OF THEIR CLAIM FOR TREBLED DAMAGES. I MEAN, T H E TREBLED DAMAGES ARE T H E MAIN REASON FOR BRINGING THIS CASE , AND THIS FALL BACK RELIEF THAT WOULD BENEFIT, YOU KNOW , ONLY A SMALL PORTION OF THE PROPOSED CLASS , I F I T W O U L D BENEFIT ANYBODY, JUST CAN NOT BE CONSIDERED THE MAIN RELIEF . TWO OTHER POINTS QUICKLY. A T PAGE 9 OF

O U R M O TI O N TO RECONSIDER T H E (B) (2) CLASS WE CITE A NUMBER O F CASES THAT STAND FOR THE PROPOSITION THAT WHERE MOST OF THE CLASS WOULD N O T BENEFIT FROM AN INJUNCTION, A (B) (2) CLASS IS INAPPROPRIATE. 43

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THAT' S T H E SEPULVEDA CASE.

Filed12/07/09 Page44 of 57

AND THEN W E CITE JAMES AND OTHER CASES I N FOOTNOTE 7 THAT S T A N DS FOR T H E P R O P O S I T I O N THAT WHEN THE CLAIM BY T H E PLAINTIFF IS FOR SUBSTITUTE PRODUCTS OR SUBSTITUTE HOUSING, THAT'S A CLAIM FOR DAMAGES. I T'S N O T A CLAIM F O R INJUNCTIVE RELIEF. A N D I T H I N K J A M E S, YOUR H O N O R, PAGE 9 , FOOTNOTE 7 OF OUR M O T I O N T O RECONSIDER T H E ( B)( 2) CLASS IS DIRECTLY ON POINT A N D S H O W S WHAT THEY' RE T R Y I N G T O D O I S T O COME UP WITH SOME INJUNCTIVE -SOMETHING THEY COULD PASS OFF AS INJUNCTIVE RELIEF B U T I T'S N O T. IT 'S DAMAGES. THE DIRECT PLAINTIFFS SAY

F I N A L P O I N T.

THAT THEY A R E NOT ASSERTING A N Y MONETARY DAMAGES, NO MONETARY D A M A G E C L A I M S BASED ON ITUNES MUSIC STORE PURCHASERS, AND THEY CITE THEIR COMPLAINT WHICH SAYS THAT T H E DAMAGE CLASS IS LIMITED TO IPOD PURCHASERS. S O THEY CONCEDE, I THINK, THAT IT' S N O T E N O U G H F O R SOMEBODY TO HAVE B O U G H T ITUNES MUSIC . THEY HAVE N O T SUFFERED AN ANTITRUST I N J U R Y. HAVE NOT SUFFERED DAMAGES. THEY

I F THEY H A D, THESE

PLAINTIFFS WOULD HAVE BEEN SUING FOR THAT . O N E YEAR A G O THE PLAINTIFFS AGREED TO EXCLUDE ITUNES MUSIC PURCHASERS WHO DIDN' T HAVE 44

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IPODS FROM THE CLASS . T H E G R O U P.

Filed12/07/09 Page45 of 57

THEY ABANDONED THAT PART OF

N O W, WHEN YOUR H O N O R A S K E D T H E QUESTION, W H Y D I D YOU LIMIT IT TO IPOD PURCHASERS, INSTEAD O F ANSWERING THAT QUESTION , THEY T R Y A N D EVADE THE QUESTION BY EXPANDING T H E CLASS, EXPANDING T H E CLASS TO INCLUDE PEOPLE F O R WHOM THEY ARE N O T SEEKING MONEY DAMAGES. T H E COURT: NOW SLOW DOWN . WHAT I S THIS WHEN DID

CONCESSION THAT Y O U' RE TELLING M E A B O U T? IT H A P P E N A N D HOW D I D I T H A P P E N? M R. MITTELSTAEDT :

WHEN YOUR HONOR

CERTIFIED T H E DIRECT (B )(3 ) C L A S S. T H E COURT: MANIFESTED? A N D HOW W A S T H E I R CONCESSION

W A S THERE A S T I P U L A T I O N O R W A S IT JUST

MY DEFINITION? M R. MITTELSTAEDT : IF YOUR H O N O R RECALLS ,

THEIR ORIGINAL COMPLAINT ALLEGED A CLASS OF ITUNES PURCHASERS AND IPOD PURCHASERS. WHEN THEY MOVED TO CERTIFY, THEY LIMITED T H E M O T I O N TO ONLY T O IPOD PURCHASERS. WHEN YOUR HONOR CERTIFIED T H E C L A S S, YOU WENT BACK A N D CERTIFIED T H E C L A S S A S PLED IN T H E COMPLAINT. W E M O V E D F O R RECONSIDERATION OR F O R 45

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CLARIFICATION.

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T H E PLAINTIFFS D I D NOT O P P O S E THAT .

THEY DID N O T DISPUTE THAT THE CLASS S H O U L D B E LIMITED AS THEY H A D MOVED, WHICH W A S ONLY IPOD PURCHASERS AND EXCLUDED T H E I T U N E S PURCHASERS W H I C H THEY HAD ALLEGED IN THE COMPLAINT. AND S O YOUR

HONOR MODIFIED T H E ( B)( 3) CLASS DEFINITION T O INCLUDE ONLY IPOD PURCHASERS AND TO EXCLUDE ITUNES PURCHASERS WHO DIDN' T HAVE IPODS . AND THEN WHEN YOUR HONOR LAST JULY ASKED T H E Q U E S T I O N, WHY D I D Y O U DIRECT PURCHASERS LIMIT YOUR CLASS TO IPOD PURCHASERS , EVEN T H O U G H T H E INJUNCTIVE RELIEF Y O U'R E SEEKING H A S T O D O WITH MUSIC , INSTEAD OF ANSWERING THAT QUESTION , THEY R E V E R TED TO WHAT THEY H A D ALLEGED I N T H E COMPLAINT A N D T R I E D T O REACTIVATE THIS CLASS OF PEOPLE THAT THEY HAD ABANDONED. I THINK THAT, T O O, BEARS ON THE QUESTION OF WHETHER THIS R E L I E F THAT THEY 'RE SEEKING FOR THIS NEW CLASS IS T H E PRIMARY R E A S O N F O R THIS CASE . T H E COURT: I 'LL LOOK AT THAT HISTORY . I

GUESS THAT' S W H Y THE M O T I O N, BUT I DON 'T HEAR Y O U S A Y I N G THAT THAT OPERATES AS SOME KIND OF A JUDICIAL ESTOPPEL . POSITION . IT . 46 IT' S S I M P L Y A C H A N G E IN

THE QUESTION IS WHETHER I S H O U L D PERMIT

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 M R. MITTELSTAEDT :

Filed12/07/09 Page47 of 57 I T H I N K I T GOES TO

WHETHER IT' S T H E PRIMARY PURPOSE F O R B R I N G THIS . THEY HAD A GOOD REASON FOR NOT SEEKING THE CLASS ORIGINALLY . WHEN THEY' RE NOT SEEKING DAMAGES B A S E D O N ITUNES MUSIC PURCHASES, AND THEY HAVE EXPLICITLY SAID IN THE BRIEFING ON THIS MOTION , D O C U M E N T 2 36, PAGE 5, THAT THEY A R E N O T ASSERT ING MONETARY DAMAGES BASED ON MUSIC STORE PURCHASES , A N D THAT'S BECAUSE THERE' S N O ANTITRUST INJURY . I T'S T H E Q U E S T I O N YOUR HONOR ASKED , WHAT IS T H E HARM TO SOMEBODY W H O BUYS A MUSIC FILE WITH D R M F O R 99 CENTS AND USES THAT I N T H E WAYS THAT IT CAN B E USED ? Y O U KNOW, WHAT I S T H E HARM T H E R E? AND IF

THERE 'S NO HARM, HOW IS THAT GROUP ENTITLED TO INJUNCTIVE RELIEF ? A N D FOR THEM TO SAY , WELL , A P P L E O U G H T T O R E M O V E T H E DRM FROM ALL OF THESE SONGS . WELL,

PRESUMABLY THE P E O P L E KNEW THEY WERE B U Y I N G SONGS WITH DRM A N D THAT 'S WHY IT COST 99 CENTS. T H E COURT: I UNDERSTAND YOUR POSITION.

D I D Y O U STAND BECAUSE Y O U HAD A FINAL WORD? M R. MERRICK: I DID M A I N L Y BECAUSE I WANT

TO GO THROUGH -- I I N V I T E THE COURT TO READ THE 47

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 JAMES CASE. T H E COURT:

Filed12/07/09 Page48 of 57

I 'M GOING TO GO BACK A N D READ

THAT AND FOREMOST P R O A N D THERE WERE A L O T O F C A S E S THAT I STARTED THE FIRST TIME AROUND BUT MAINLY FOR T H E T Y I N G I S S U E S BUT COUNSEL' S A R G U M E N T INVITES ME TO GO BACK AND S E E WHAT THOSE CASES S A Y A B O U T T H E SECTION 2 CLAIMS. M R. MERRICK: JAMES -- OKAY. B U T O N T H E (B) (2) CLASS IN

THE CASE INVOLVED A CLASS ACTION O F

AMERICANS W H O HAD H O U S E S THAT WERE DEMOLISHED B Y T H E CITY A N D T H E CITY H A D -- THERE WERE L I E N S AGAINST THE PROPERTY THAT WERE DEMOLISHED F O R T H E COST OF THE DEMOLITION. THE SUBSTITUTE HOUSING ASPECT THAT APPLE LIKES TO K E Y I N O N WERE O N E O F MANY DIFFERENT K I N D S OF EQUITABLE R E L I E F. THERE WERE SEVERAL OTHER

FORMS OF EQUITABLE R E L I E F THAT T H E COURT DID FIND SUPPORTED A (B )(2 ) C L A S S, INCLUDING CANCELLING THE DEBT OF THE DEMOLITION COSTS, RELEASING T H E LIENS AND INSURING THEIR TITLE AND WHICH I WOULD SUGGEST IS A LITTLE C L O S E R T O WHAT WE HAVE HERE W H I C H I S THAT WE' RE ASKING F O R A P P L E T O I N A SENSE R E M O V E T H E LIEN A N D GIVE T H E P E O P L E CLEAR TITLE TO THE MUSIC THAT THEY B O U G H T IN THE FIRST PLACE . B U T WITH THAT I' LL LET MS . Z E L D E S HAVE 48

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 T H E LAST WORD. M S. ZELDES :

Filed12/07/09 Page49 of 57

I T H I N K I T'S A BIT

DISINGENUOUS, WITH A L L DUE RESPECT, TO S A Y THAT WE JUST CAME U P WITH THIS INJUNCTIVE R E L I E F NOW . W E HAVE ALWAYS PLED THAT PLAINTIFFS I N BOTH CASES ARE L O C K E D INTO THESE LIBRARIES. THIS

COURT FOUND LAST DECEMBER THAT INJUNCTIVE RELIEF P R EDOMINANT IN A DIRECT PURCHASER CASE . O U R SUBCLASS OF FOLKS WHO A R E SEEKING T H E D I SGORGEMENT O F CONVERSION FEES IS CLEARLY A S U B S E T OF T H E OVERALL INJUNCTIVE RELIEF WE 'RE SEEKING. IT

M A Y OVERLAP WITH THE D I R E C T PURCHASERS , B U T IT IS A S U B S E T A N D NOT T H E P R E D O M I N A N T R E L I E F SOUGHT . AND THAT FOLKS ARE PAYING THIS TREMENDOUS PREMIUM TO UNLOCK THEIR MUSIC SHOWS WHAT A RESTRAINT THAT IS . THAT I S A TREMENDOUS RESTRAINT .

IF IT W A S I NSIGNIFICANT , H O W COULD APPLE GET A 30 PERCENT MARGIN ON THAT? T H E COURT: WELL , I W O N'T GO INTO WHAT THAT HAS TO DO WITH

PART OF THAT A P P L E K E E P S.

WHETHER IT INCURS EXPENSES ASSOCIATED WITH TRANSFERRING. M S. ZELDES : AND THERE IS NO DISCOVERY O N IT IS AN ISSUE

THAT AT THIS P O I N T, YOUR H O N O R. THAT HAS N O T.

49

U.S. COURT REPORTERS

Case5:05-cv-00037-JW Document302 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AHEAD . M R. MITTELSTAEDT : T H E COURT:

Filed12/07/09 Page50 of 57

C A N I B R I N G THIS TO A CLOSE? YOUR H O N O R, COULD I THERE ARE THREE

M R. MITTELSTAEDT : A D D O N E HOUSEKEEPING POINT ? MOTIONS ON TODAY. T H E COURT: Y E S.

M R. MITTELSTAEDT : T H E TIME ON WHETHER -T H E COURT:

WE HAVE S P E N T MOST OF

I HAD FOUR ACTUALLY BUT G O

WE SPENT A L O T OF TIME

ON WHETHER THE (B )(2 ) C L A S S S H O U L D BE EXPANDED TO INCLUDE ITUNES STORE PURCHASER