"The Apple iPod iTunes Anti-Trust Litigation"

Filing 740

Administrative Motion to File Under Seal filed by Apple Inc.. (Attachments: # 1 Declaration Kiernan Declaration ISO Administrative Motion to Seal, # 2 Proposed Order Granting Motion to Seal, # 3 Exhibit Rdacted Version of Defendant's Notice of Motion and Motion for Summary Judgment and to Exclude Expert Testimony of Roger G. Noll, # 4 Exhibit SEALED Version of Motion for Summary Judgment and to Exclude Testimony, # 5 Exhibit REDACTED - Separate Statement ISO MSJ, # 6 Exhibit SEALED - Separate Statement ISO MSJ, # 7 Exhibit REDACTED - Exhibit 3 to Amiri Decl., # 8 Exhibit SEALED - Exhibit 3 to Amiri Dec, # 9 Exhibit REDACTED - Exhibit 4 to Amiri Dec, # 10 Exhibit SEALED - Exhibit 4 to Amiri Dec, # 11 Exhibit REDACTED - Exhibit 5 to Amiri Dec, # 12 Exhibit SEALED - Exhibit 5 to Amiri Dec, # 13 Exhibit REDACTED - Exhibit 6 to 8 to Amiri Dec, # 14 Exhibit SEALED - Exhibits 6 to 8 to Amiri Dec, # 15 Exhibit REDACTED - Exh 9 to Amiri Dec, # 16 Exhibit SEALED - Exh 9 to Amiri Dec, # 17 Exhibit REDACTED - Exh 10 to Amiri Dec, # 18 Exhibit SEALED - Exh 10 to Amiri Dec, # 19 Exhibit REDACTED - Exh 11 to Amiri Dec, # 20 Exhibit SEALED - Exh 11 to Amiri Dec, # 21 Exhibit SEALED - Exh 13 to Amiri Dec, # 22 Exhibit REDACTED - Exh 14 to Amiri Dec, # 23 Exhibit SEALED - Exh 14 to Amiri Dec, # 24 Exhibit SEALED - Exh 15 to Amiri Dec, # 25 Exhibit SEALED - Exh 16 to Amiri Dec, # 26 Exhibit SEALED - Exh 17 to Amiri Dec, # 27 Exhibit SEALED - Exh 18 to Amiri Dec, # 28 Exhibit SEALED - Exh 19 to Amiri Dec)(Kiernan, David) (Filed on 12/21/2013)

Exhibit 10
[PUBLIC VERSION - REDACTED]

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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OAKLAND DIVISION

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____________________________________
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)
THE APPLE IPOD ITUNES ANTI-TRUST

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LITIGATION

No. C-05-0037 YGR

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____________________________________)

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VIDEOTAPED DEPOSITION OF ROGER G. NOLL

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San Francisco, California

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Thursday, May 16, 2013

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Volume 1

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Reported by:

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JENNIFER L. FURIA, RPR, CSR

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CA License No. 8394

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Job No. 1663538

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it's specific to the specific generation class products

2

and I -- if I have those correctly characterized through

3

indicator variables in the regression, the improvement

4

effect of those will be -- be accounted for in the

5

regression.

6

value power from the 7.0 variable will arise to the

7

anticompetitive effect.

8

Q

And all -- the only incremental explanatory

09:47:20

Give me an example.

9

MS. SWEENEY:

Objection to form.

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THE WITNESS:

That if -- if a particular

09:47:33

11

generation of an iPod was first released in September of

12

2006 there are technical attributes of that product.

13

have a bunch of indicator variables to indicate their

14

technological -- their functional characteristics.

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I

Those will -- the -- the effect on price of

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those technical characteristics would be accounted for

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in those coefficients.

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7.0 variable to take into account is things that were

19

not part of the functional characteristics of those

20

models.

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09:47:54

BY MR. MITTELSTAEDT:

22

Q

The -- all that's left for the

09:48:15

Okay, so what -- what indicator variables do

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you have in your regressions that you say would account

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for anything else that 7.0 did that's not allegedly

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anticompetitive?

09:48:27
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A

Well, for example, the -- the -- the -- as

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time has progressed, the -- the generations are

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basically based on capacity changes.

4

those capacity variables that are interactive with time.

5

Plus there's other functionality variables in there as

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well.

And I have all

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Q

Okay, well, that's what I'm asking.

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A

You know, like, Photo and all that -- those

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things.

09:48:43

10
11

I mean there's four or five of them listed in

the regression.
Q

Okay.

09:48:52
I want to be specific on this.

Or I

12

want you to be specific.

13

you have that you say would measure any aspect of 7.0

14

other than the -- the aspect that is alleged to be

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anticompetitive?

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A

So what indicator variables do

09:49:09

Okay, if we -- if a new model of iPod is

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introduced in September of 2006, then what's going to

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happen?

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first list of variables will get turned on about

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Classic, Mini, Shuffle.

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Q

Well, first of all, one of the -- those -- this

09:49:24

Yeah, I want to be on the same page with you,

so what page are you on?

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A

At any of the -- anything in the appendix.

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Q

I know, but just pick one, because you're

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looking at one.

I just need to know what it is, that's

09:49:34
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all.

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3

A

back and pick one that's actually used.

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5

Okay, let's pick one that -- why don't we go

Okay, go to Exhibit 13.1.

Hold on.

"Reseller, sales,

log, regression, results, outliers excluded."

6

Okay.

09:50:05

So the first thing that would happen is

7

the whatever this -- the family the model is, like

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Classic, Mini, Nano, Shuffle will get -- will get turned

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on if it's one of those.

Then the capacity, the

10

appropriate capacity variable will get turned on.

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typically as time goes through, the new models have more

12

capacity.

13

And

09:50:24

And then the interaction with that capacity

14

will get turned on.

And then way at the end there's

15

photo, video and photo.

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on.

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And there will be something about the cost.

Those may or may not get turned

09:50:40

And then there will be something about the size.

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So all those variables will reflect all

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the -- will -- will produce a unique combination of

20

those attributes that is applicable to that particular

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model.

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Q

My question focused on 7.0.

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A

Yeah.

09:51:07

So when something is introduced after

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the 7.0 update occurs, that product will have attributes

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that are new.

And it will -- it will produce a

09:51:28
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Q

I'm asking you more in theory at this point.

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If 7.0 did something more than what you've just

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described --

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A

Like, for example?

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Q

-- and it's not captured in one of these

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variables that you just referred to, capacity, whether

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it's photo or video or the size or the cost,

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then -- then the coefficient for 7.0 would pick up that,

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09:52:43

right?

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A

Like what?

I mean, I don't understand what

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the -- what the 7.0 in principle could do.

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09:53:05

in principle it could do?

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Q

Anything that's not captured by one of your

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other variables.

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in your 7.0 variable, correct?

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A

What is it

The effect of that would be captured
By definition.

09:53:22

So if you lick your iPod it tastes like wine?

Is that what 7.0 does, something like that?
I'm just -- I have no clue what you're talking

19

about, what it might be.

If there's some wonderful

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attribute of iPods that cannot be obtained in any way

21

other than 7.0 and that component is in there, sure, it

22

would affect the price.

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make it more valuable, assuming it's unique, a unique

24

attribute that wasn't otherwise included, but I don't

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know what it is and I've never seen anybody describe

09:53:40

It would make the -- it would

09:53:57
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anything like is that.
Q

And -- this is the point of my question.

The

3

effect of that other attribute would be included in your

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7.0 variable, correct?

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A

If there was one, yes.

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Q

And what did you do, if anything, to determine

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what 7.0 did over and above, as you put it, create the

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09:54:11

incompatibility with Harmony?

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A

I've read the technical expert's --

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MS. SWEENEY:

Objection, asked and answered.

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THE WITNESS:

I'm not the technical expert

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about what's in 7.0.

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the plaintiff's expert.

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09:54:29

I'm not neither your expert nor

BY MR. MITTELSTAEDT:

I relied upon their reports.

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Q

Did you read Apple's press release for 7.0?

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A

Oh, at some point I've read it, yes.

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Q

And did it say -- do you remember anything it

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09:54:38

said on this topic?

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A

Not sitting here, no.

20

Q

Is it accurate to say that your task was to

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opine on whether 7.0 harmed competition in a market for

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portable digital players and, if so, to opine on the

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amount of damages to iPod purchasers from September 12,

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09:54:52

2006 to March 31, 2009?

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A

I was asked to do that, yes.

09:55:23
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A

Well, that's an interesting question.

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The -- the 7.0 -- the effect of 7.0 on prices is not

3

necessarily limited to just the products that were sold

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that had 7.0 in them.

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Once 7.0 had been released, and because

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consumers would have the expectation that as products

7

came along that they would, in fact, be incompatible

8

with Harmony, so as I -- we went through this in the

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10:09:52

last deposition.

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It's not obvious that the right way to measure

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the effect of 7.0 is to focus exclusively on the

12

products that had 7.0 loaded on them as of September

13

2006, because consumers' attitudes about iPods and

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their -- their -- and -- and their degree to which

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they're going to get locked in would depend, would be

16

perceived as depending on, not only what 7.0 is doing

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10:10:12

now, but what it's going to be doing in the future.

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10:10:35

So that, you know, that that is a problem to

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be overcome.

Having said that, this is supposed to be

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products sold during the class period.

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supposed to be.

That's what it's

22

Q

With 7.0 loaded into them as you say?

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A

10:10:52

I think so, but I'm not certain sitting here.

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25

I would have to check to find out.
Q

Okay.

What would be the reason for doing it

10:11:22
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I'm -- I'm going to have to check to be sure, but I

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believe what's in -- in Exhibits 14 through 16 is all

3

the products that were sold during the class period as

4

opposed to just those that had 7.0 loaded on them.

5

BY MR. MITTELSTAEDT:

10:13:52

6

Q

Okay.

7

A

But I'm not certain of that.

8

And I'll have to

check to be sure.

9
10

Let's take a break.

Q

Okay.

Well, if -- do you remember what you

instructed Econ, Inc. to do in that respect?

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MS. SWEENEY:

Objection, asked and answered.

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THE WITNESS:

10:14:01

I think so, but I'm not

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absolutely certain of it, because I just -- I've just

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had --

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BY MR. MITTELSTAEDT:

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17

Q

10:14:13

Well, what's your best recollection of what

you instructed --

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A

My best recollection is that it's supposed to

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be the ones that had 7.0 on them, but I'm not certain of

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that.

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10:14:21
Q

Okay.

And what would be the rationale for

doing it that way?

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MS. SWEENEY:

Objection, vague and ambiguous.

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THE WITNESS:

If you did it only for the ones

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that had 7.0 on them, it would be because you thought

10:14:29
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that the effect was limited to just the products that

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had 7.0 loaded.

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If you, instead, did it for all products, it

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was because you thought that the most important effect

5

was knocking Harmony out of the market.

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think that the latter is actually correct, but I may

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have told them to do the former.

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9

And I -- I

10:14:45

I just don't remember.

I think knocking Harmony out of the market is
the key event and -- and causing -- causing RealNetworks

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longer to try to compete to sell music to play on iPods

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is the -- is -- is the market-defining event from the

12

standpoint of what the pricing strategy of portable

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digital media players would be.

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10:15:03

So I think that's the right way to do it, but

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I'm not sure that's exactly what I asked them to do,

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because I -- or they understood that that's what I asked

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them to do.

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BY MR. MITTELSTAEDT:

19

Q

10:15:18

In -- in this report did you do any analysis

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or do you present any analysis of which one of those is

21

the right way to do it?

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23
24
25

A

10:15:26

I think I -- I do talk about knocking Harmony

out of the market here, yes.
Q

But -- but specifically as to whether the

damages model should include models that don't have 7.0

10:15:46
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effect.

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Q

And what I'm asking is why would there --

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under what circumstances, precisely as you can, would

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you expect to see a continuing effect of 4.7 even after

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Harmony's relaunched?

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MS. SWEENEY:

Objection, vague and ambiguous.

7

THE WITNESS:

Consumer expectations about the

10:53:16

8

durability of the relaunch.

About whether if I -- if I

9

actually use Harmony and buy a bunch of songs from

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RealNetworks, from Rhapsody, am I going to be stuck six

11

months from now with them not working because it will be

12

disabled again.

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BY MR. MITTELSTAEDT:

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15
16

Q

And could that consumer expectation continue

even after 7.0 is issued?
A

10:53:30

Exactly, it could.

10:53:42
And that's -- that's

17

precisely right.

18

fact, have, you know, a similar story to it.

19

fact, 7.0 was never undone, so we can't test that

20

hypothosis.

21
22

Q

7.0, you know, could -- could, in
But, in

10:54:04

What I mean is could the consumer expectation

created by 4.7 continue after 7.0 is issued?

23

A

It could in principle, yes.

24

Q

And under what circumstance would you expect

25

to see a continuing expectation created by 4.7 after 7.0

10:54:19
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is issued?
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It would -- well, the effect of 7.0 is going

3

to be what was it like before 7.0 was -- 7.0 was

4

launched and what is it like afterwards, okay.

5

again, it's an empirical question whether -- what

6

people's state of mind was prior to the launch of 7.0.

7

I don't --

8
9

Q

And so,
10:54:45

Well, what I'm asking is if you -- if you did

the test, the regression, and you saw there was a

10

continuing effect of 4.7 after 7.0, what theory would

11

explain that?

12

consumer expectation?

13

A

Yeah.

10:54:58

The same one we've been talking about,

I mean the issue is how are people's

14

attitudes about Har -- remember, it's important to keep

15

our eye on the ball.

16

happening to the market for iPods.

17

iPods is going to be enhanced regardless if there

18

were -- was anybody out there using Harmony and all of a

19

sudden they can't, all right.

20

effect is still going to be there regardless of what

21

expectations were.

22

What we're interested in is what's

10:55:30

And the market for

That -- that market
10:55:49

The way expectations work here is whether

23

someone would want to actually -- would actually buy an

24

iPod with the expectation they were going to be able to

25

use Harmony indefinitely on iPods.

And if they had that

10:56:05
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expectation then 4.7 would have gone away entirely

2

within shortly after Harmony was relaunched.

3

didn't believe that, then it wouldn't -- it wouldn't

4

have all completely gone away and it would have had some

5

residual effect at the time that 7.0 was lunched.

6

Q

If they

10:56:27

And under that approach how long would that

7

residual effect last after 7.0, residual effect from

8

4.7?

9
10

MS. SWEENEY:

Objection, vague and ambiguous

and incomplete.

11

10:56:38

THE WITNESS:

Again, there's no way to know

12

except empirically to find out.

13

BY MR. MITTELSTAEDT:

14
15

Q

What would be the theory that would explain

that; just what you gave?

10:56:45

16

A

Yeah.

17

Q

The consumer expectation point?

18

A

Is it okay if I take a two-minute break?

19
20

Just

one sec, I'll be right back.
Q

Yes, sir.

10:56:53

21

Off the record.

22

THE VIDEOGRAPHER:

23

(Recess.)

24
25

Off the record 10:57 a.m.

BY MR. MITTELSTAEDT:
Q

Okay.

Just to complete that, what I asked

10:59:00
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11:13:07
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11:13:17
Q

And does the size of RealNetworks' market

7

share, would you expect that to have some impact on the

8

degree to which it impacted iPod demand under your

9

theory if there was any impact at all?

10

A

If there was an impact it is the fraction of

11

people who used Harmony to play stuff on an iPod.

12

11:13:38

They're the ones whose demand became elastic.

13

Q

And then your next variable, going back to

14

13.2, is ITMS all DRM-Free.

15

variable?

16

A

Why did you include that
11:14:04

Well, because the -- the main vehicle for the

17

lock-in effect on the Apple side is using Fair Play and

18

when Apple stops using Fair Play on ITS, then anything

19

you buy from ITS from that point on can play on

20

anything.

21

you buy your music from ITS, so that -- that strikes me

22

as a big deal.

So you're no longer locked into an iPod if

11:14:27

A very important deal.

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11:14:49
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after 7.0?

2
3

MS. SWEENEY:
ambiguous, compound.

4
5

Objection to form, vague and

THE WITNESS:

I have no idea what you're --

what you're talking about.

6

11:59:43

Yes, there are people who are willing to pay a

7

premium for an iPod and switching costs are one reason

8

why they might be willing to pay a premium.

9

in love with Apple is another reason.

Just being

And then there

10

are other people who are at the margin, who plus or

11

minus ten percent in price, can affect their decision.

12

And it's the latter that determine pricing and the

13

extent of competition among brands of portable digital

14

media players.

15

BY MR. MITTELSTAEDT:

16

Q

Okay.

11:59:54

12:00:10

And how many people fit that profile of

17

being at the margin where their purchase decision

18

changed from a non-iPod to an iPod because of 7.0?

19

many people are in that category?

How

20

A

We have no way of knowing that.

21

Q

Is it -- is it ten people or 10,000?

22

A

We have no way of knowing what the number is.

23

All we observe is the actual pricing behavior and the

24

12:00:24

implicit change in the elasticity of demand.

25

We're talking about a fairly small fraction

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from one to thousands?

2

A

Right.

3

Q

Okay.

A

What is there about thousands you don't

4
5
6

And when you say thousands, what do you

mean?
12:10:14

understand?

7

Q

One thousand, ten thousand?

8

A

Yeah, a few thousand.

9

Q

A thousand thousands?

10

A

Well, let's go back to what the story is here.

11

The number -- the number of daily sales of iPods is --

12

you know, I don't know what the number is.

13

of thousands a day, something like that.

14

be, you know, one or two percent of that would be the

15

upper bound.

12:10:21

Maybe tens
And it could

12:10:45

16

Q

So a couple thousand?

17

A

Yeah.

18

Q

Okay.

Do you have any information or any

19

estimate on how many iPod users bought music from

20

RealNetworks?

21
22

MS. SWEENEY:

25

Objection.

I think that was

already asked and answered.

23
24

12:11:05

THE WITNESS:

No.

BY MR. MITTELSTAEDT:
Q

Let's turn to music prices.

What -- what

12:11:21
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