"The Apple iPod iTunes Anti-Trust Litigation"

Filing 757

RESPONSE (re 751 Administrative Motion to File Under Seal Plaintiffs' Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment and to Exclude Expert Testimony of Roger G. Noll; Plaintiffs' Responsive Separate Statement in Support of ) filed byApple Inc.. (Attachments: # 1 Declaration of Amir Q. Amiri in Support of Apple's Response to Plaintiffs' Admin. Motion to File Under Seal, # 2 Proposed Order by Apple Granting Plaintiffs' Admin. Motion to File Under Seal, # 3 Exhibit - Apple's (Proposed) Redactions to Plaintiffs' Exhibit Nos. 1-3, and 54, # 4 Exhibit - Apple's (Proposed) Excerpt to Plaintiffs' Exhibit No. 22, # 5 Exhibit - Apple's (Proposed) Redactions to Plaintiffs' Exhibit Nos. 9-11; 14; 48; 50-53; and 62, # 6 Apple's (Proposed) Redactions to Plaintiffs' Memorandum of Law in Support of its Opposition to Motion for Summary Judgment, etc., # 7 Apple's (Proposed) Redactions to Plaintiffs' Responsive Separate Statement in Support of its Opposition to Motion for Summary Judgment, etc.)(Amiri, Amir) (Filed on 1/21/2014)

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 9
[Filed Under Seal]

EDDY CUE

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

THE APPLE IPOD ITUNES

Lead Case No.

ANTI-TRUST LITIGATION.

C-05-00037-JW (HRL)

~~~~~~~~~~~~~~~~~~~~~~~

HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY

VIDEOTAPED 30(b)(6) DEPOSITION OF
EDDY CUE
ON BEHALF OF
APPLE, INC.
VOLUME I

December 17, 2010
9:22 a.m.

1755 Embarcadero Road
Palo Alto, California

Ana M. Dub, RMR, CRR, CSR 7445

INDEX OF EXAMINATION
WITNESS: EDDY CUE
EXAMINATION
By Ms. Bernay
By Mr. Mittelstaedt

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APPEARANCES OF COUNSEL
For he Plaintiffs:
ROBBINS GELLER RUDMAN & DOWD LLP
ALEXANDRA S. BERNAY, ESQ.
PAULA M. ROACH, ESQ.
655 West Broadway, Suite 1900
San Diego, California 92101
619.231.1058
[e-mail]
[e-mail]

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2
Exhibit

APPLE, INC.
KYLE ANDEER, Director, Competition Law & Policy
1 Infinite Loop, MS 36-MAL
Cupertino, California 95014
408.862.9307
[e-mail]
MATTHEW COPE, VIDEOGRAPHER

Description

Page

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Exhibit 52 Letter on the Letterhead ........11
of Jones Day Dated
December 10, 2010 to
Alexandra Bernay from
David Kiernan

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Exhibit 53 Defendant's Supplemental ........28
Initial Disclosures
Exhibit 54 E-Mail Dated September 20, ......58
2003 to Steve Jobs from
Eddy Cue, Production
Nos. Apple_AIIA00819405-07

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Also Present:
APPLE, INC.
LISA OLLE, SENIOR CORPORATE COUNSEL LITIGATION
1 Infinite Loop, MS 36-35U
Cupertino, California 95014
408.862.8888
[e-mail]

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INDEX TO EXHIBITS

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For he Defendant Apple, Inc.:
JONES DAY
ROBERT A. MITTELSTAEDT, ESQ.
555 California Street, 26th Floor
San Francisco, California 94104
415.626.3939
[e-mail]

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221

Exhibit 55 E-Mail Dated November 9, ........67
2004 to Phil Wiser from
Eddy Cue, Production
No. Apple_AIIA00808605
Exhibit 56 E-Mail Dated April 21, 2007 .....70
to Zach Horowitz from Eddy
Cue, Production
Nos. Apple_AIIA00809105-07

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Exhibit 57 E-Mail Dated April 27, ..........80
2006 to Steve Jobs from
Eddy Cue, Production
Nos. Apple_AIIA00808925-26
Exhibit 58 E-Mail Dated December 5, ........84
2006 to [e-mail]
from Steve Jobs, Production
Nos. Apple_AIIA00320482-84

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Exhibit 59 E-Mail Dated March 31, 2007 .... 89
to Steve Jobs from Katie
Cotton, Production
Nos. Apple_AIIA00319516--18
Exhibit 60 E-Mail Dated March 19, 2007 ....107
to Doug Morris from
Steve Jobs, Produc ion
Nos. Apple_AIIA00319506-07

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A. I don't know specifically what all of

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A. But it never got to that -- it never got

BY MS. BERNAY:
Q. Okay. But directly transferred only; is

any further into specifics because there were two

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criterias that we were looking at when they

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that correct?

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certainly asked for interoperability or asked about

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A. I --

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it, which was, number one:

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We didn't think it was really technically

MR. MITTELSTAEDT: Object; compound, asked
and answered, ambiguous.

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feasible in the sense that we were still making a

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THE WITNESS: Again, it can be transferred

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lot of changes to the way that the DRM worked. And

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to an iPod or burned to a CD. Those were the two

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we were able to do that because we had the device,

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ways that you could move songs off of iTunes.
BY MS. BERNAY:

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the software ourselves and we could make the changes

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all at the same time. And so we didn't think that

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Q. Okay. And at some point in time, is it

technically it would work very well if it was done.

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right that Apple had a deal with Motorola to have

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sort of a music player on certain phones?

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And in hindsight, I think that was proven

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to us in spades by WMA and Microsoft's plays for

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sure, which failed miserably at trying to do that.

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A. Yes, that's correct.
Q. Okay. So is it right that at some point

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In addition to that, when we looked at it,

in time, songs purchased through the iTunes Store

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there was no one in the market that was -- either

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could be directly transferred onto iPods and to

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had a successful store or a successful device that

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certain Motorola phones that were compat ble with

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we felt like, okay, let's go join that and work with

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FairPlay?

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them to grow the market because they were

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A. Over time, songs could be transferred to

successful.

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iPods, other Apple devices that we developed, and

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the Motorola device and the HP iPod device. So

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there were other devices that were added over time.

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So neither of those two scenarios made it
viable.

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Q. Is it accurate -- just to sort of get an

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is it right that at the launch of the iTunes Music
Store, that songs purchased through the iTunes Store
could only be directly transferred onto iPods at the
launch?
A. They could either be -- they could only be
transferred to an iPod or they could be burned to a
CD. And then any CD could be ripped back to
digital.
So customers always had the capability, if
they really wanted to, to take a song that they
purchased on the store and move it to another
player.
Q. But they could only be directly
transferred, isn't that correct, onto an iPod?
MR. MITTELSTAEDT: Let me just ask a
clarification. Are you saying other than playing on
the computer? When you say "transfer," you mean -MS. BERNAY: Yes. I'm talking about
moving music onto an iPod so that songs purchased
through the iTunes Store at the launch could only be
directly transferred onto an iPod.
MR. MITTELSTAEDT: Object; asked and
answered.
THE WITNESS: Again, a song could be
transferred to an iPod or burned to a CD.

Q. And it's also right that at some point in

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idea of sort of what the universe was at the launch,

time, Apple went what's referred to as DRM-free; is

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that right?
A. That is correct.
Q. And about when did that occur, that
DRM-free project?
A. Well, it was done in multiple steps.
Originally, it was done with EMI only and the -- and
many of the independents. And I don't recall the
exact date of that, but I'm sure we can look that
up.
And then approximately about a year later,
it was done with the three other majors that were
left.
Q. And is it accurate that now everything
that can be purchased in the United States, at
least, through the iTunes Store is sold DRM-free?
MR. MITTELSTAEDT: Music?
MS. BERNAY: Music. Thank you.
THE WITNESS: Yes. All music in the
world, with the exception of Japan, is purchased
DRM-free.
BY MS. BERNAY:
Q. We talked a little bit at the beginning
about negotiations with the launch of the store, and
we'd mentioned independent labels. Do you recall
that discussion?

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myself.
Q

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(Cellular telephone rings.)
MS. BERNAY: He comes in. Look at that.
(Mr. Andeer leaves the proceedings.)
BY MS. BERNAY:
Q. Were there any music stores that you're
aware of that sold online digital music at the time
that the iTunes Store launched that sold their music
DRM-free?
A. No, there were none that I was aware of.
Q. What about later, you know, in the months
or years after the iTunes Music Store launched?
Were you aware of any stores that sold online

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content DRM-free?
A. Yes.
Q. And what are you -- what stores are you
aware of?
A. Amazon, Wal-Mart. There were many others.
Q. What about eMusic? Is that an online
store that you're familiar with?
A. Yes, I am.
Q. And what kind of music -- or what do they
offer to consumers?
A. They offered DRM-free music, but they did
not have any of the major labels, and only
independent music and not all of it. So they
offered a subset of music that, I believe, was
DRM-free.
Q. And do you know whether eMusic existed at
the time that the iTunes Store launched in 2003?
A. I don't recall. I don't believe so, but I
don't recall.
Q. Do you know whether or not the iTunes
Store sold some of the same music that was also
available through eMusic?
A. Again, depending on the time frame, but
when they were both -- when they were both there,
I'm sure that there were songs that we had that were

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Here's an extra copy for Apple.
(Whereupon, Deposition Exhibit 54 was
marked for identification.)
MS. BERNAY: And if you could take a
moment to review Exhibit 54, please.
THE WITNESS: Would you like me to read
the whole thing?
MS. BERNAY: Yes. Thank you. And we're
not going to speak in depth about anything on page 3
of the document and only a little bit on page 2 of
the document, if that -THE WITNESS: Okay.
MS. BERNAY: -- directs you a little bit.
(Witness reviews document.)
MR. MITTELSTAEDT: While he's reading
this, we're going to designate the deposition highly
confidential.
And the name of the person who came in is
Kyle Andeer, A-n-d-e-e-r.
(Witness reviews document.)
THE WITNESS: Okay.
BY MS. BERNAY:
Q. You've had a chance to look at Exhibit 54?
A. Yes.
Q. And what is Exh bit 54?

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on eMusic. But as I said, 80 percent of the music
that was being sold was from majors, and they didn't
have it.
They weren't even trying to sell music at
an individual level. They were trying to get people
to sign up for a monthly bill that included a
certain number of tracks. So they offered a very
complicated and very, very small subset of music for
sale.
Q. But it's accurate that some music was sold
both through eMusic and through iTunes; correct?
MR. MITTELSTAEDT: Object; argumentative
and asked and answered.
THE WITNESS: Yes, there were certain
songs that were in eMusic that were also in iTunes
that were sold.
BY MS. BERNAY:
Q. And at that time, that music was protected
by Apple's DRM FairPlay on the iTunes Store; is that
correct?
A. There were times where music was sold on
iTunes with DRM and eMusic had it in DRM-free.
MS. BERNAY: This will be Exhibit 54.
It's a multipage document. The Bates number is
Apple_AIIA00819405 through 407.

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A. My attorneys have told me there's some
laws around stripping DRMs that are illegal.
Q. Okay. And what about something called
PyMusique? What is that?
A. It's a similar thing. Again, there are
many, many hacks that have been done over the years
to try to rip music off from iTunes.
Q. To rip music off from iTunes? Is that
what you said?
A. That's correct.
Q. And is PyMusique a hack?
A. It is also.
Q. And it's something that strips the DRM
protection from a song?
A. I believe so. I can't recall every single
one of them, so . . .
Q. Sure. And is that something that is
illegal, this PyMusique, in your view?
MR. MITTELSTAEDT: Objection; calls for a
legal conclusion.
THE WITNESS: Again, that's certainly what
my attorneys have represented.
MR. MITTELSTAEDT: Actually, don't -let's strike that. Don't ta k about conversations
with the attorneys.

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Q. It was a technology that would strip the
DRM protection from protected songs. Is that an
accurate description?
A. I would describe it as a hack to remove
the DRM.
Q. Okay. And what about -A. Which was illegal.
Q. Which was illegal?
A. Yes.
Q. And what are you basing that statement on,
that it was illegal?
A. Two things. Number one, the terms of
service that we gave to consumers certainly said
that when you buy the songs, these are the rights
that you gain by it and what you can do with it.
And secondly, we had the DRM protection on
there. And my understanding is there's some laws
around DMCA and things about stripping the
protection away that made it illegal.
Q. You said DMCA. What's that?
A. I don't -- again -Q. I just mean, do you know what the acronym
is?
A. I don't know what the acronym is.
Q. You just know that it's some --

THE WITNESS: Okay.
BY MS. BERNAY:
Q. And going back to RealNetworks now, is
that something that stripped the DRM protection off
of a song?
A. No, it does not. It tried to put a DRM
to, again, hack to look at -- make it look like it
was a FairPlay DRM song.
Q. And would that be something that was
illegal, in your view?
MR. MITTELSTAEDT: Objection; calls for a
legal conclusion.
THE WITNESS: Again, I don't know. I did
not have -- don't know the answer to the question.
BY MS. BERNAY:
Q. Do you know whether JHymn actually
affected iTunes as opposed to the iPod?
A. What do you mean by "affected"?
Q. Just whether or not the way that it
functioned was at the software level of iTunes as
opposed to working on the firmware of the iPod.
MR. MITTELSTAEDT: Objection; compound.
BY MS. BERNAY:
Q. If you know.
A. I don't know the answer to the question.

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Q. Do you know whether Apple ever sent any
cease and desist letters regarding JHymn?
A. I don't recall.
Q. Do you know whether Apple sent any cease
and desist letters regarding any hacks that it was
concerned about?
A. I don't know what our legal team did.
Q. That's not something that you followed up
on? Or followed, rather?
A. Well, we followed the hacks very closely.
But again, how legal responded is not
something that I -- most of these were done with
either people that were anonymous or people that
were in countries that -- were not in the U.S. and
other things to that nature that made it harder. So
I don't know how legal responded or what they did.
Q. Okay. And do you have any information
regarding any cease and desist letters that may have
been sent by Apple to any other companies that
either stripped the DRM or provided their own
version of DRM?
A. Again, I don't recall any. I don't know.
Q. Apart from any communications with the
labels, did you have any communications with other
people inside of Apple regarding RealNetworks'

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Q. You anticipated. My next question was:
Who is Peter that's referred to here?
So this says it's a Q&A prep for Peter.
Do you see that?
A. I do.
Q. And is it accurate that on occasion, the

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CFO of Apple would have to answer questions from the

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press and others in public forums?

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A. Generally not from the press. This would
generally be from analysts.
Q. Okay. And so it says:

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"[He] wants to be prepared to

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answer the following questions."

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Do you see that?
A. I do.
Q. And is this something that -- again, I

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think you testified earlier that you would work with

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people in -- I guess mostly in media, PR

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departments, helping to prepare public statements on

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behalf of Apple; is that right?

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A. Yeah. This is -- this is different.

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Q. How is it different?

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A. Because it's not meant for the press.
It's not with PR.
This is generally around giving Peter
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Apple's.
Q. Was there ever a quarter that you're aware
of where the iTunes Music Store was not profitable?
A. I don't believe so. There may have been a
quarter where it was basically break-even, but I
don't believe there was any quarter where it was not
profitable.
Q. Even going back to when it first launched?
A. I would say if we looked at the first full
quarter, I don't know exactly, on a particular
month, if we launched on April -- we may have -- I
don't know whether we were profitable the first
month we were in business or not.
Q. Fair enough.
A. Certainly the first quarter we were in
business, we were.
Q. There's a question, the third question
here is:
"Did you notice any impact from
the Microsoft or other music store
launches?"
Do you see that?
A. I do.
Q. And then you have:
"In the U.S. our market is around

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Q. And then there's a bottom e-mail from
Mr. Leung to yourself and it's cc-ing Mark Donnelly.
Do you see that?
A. Yes.
Q. And who's Mark Donnelly?
A. Mark Donnelly is Steven's boss in finance,
who works for Peter Oppenheimer.
Q. So he's below the CFO, but he's in the
finance department?
A. That's correct.
Q. And this revenue number for iTunes that's
listed here, it's broken out by quarter; is that
right?
A. That's correct.
Q. And then each quarter, those are in
millions; is that correct?
A. I hope so, so we can get to the billion.
Q. Okay. And then it's comparing that to
fiscal year '05 revenue of 414 million; is that
right?
A. That is correct.
Q. And it was more than doubled year over
year?
A. That's correct.
MS. BERNAY: You can put that to the side.

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Bates-stamped Apple_AIIA00099494 through 95.
(Whereupon, Deposition Exhibit 70 was
marked for identification.)
(Witness reviews document.)
THE WITNESS: Yes.
BY MS. BERNAY:
Q. And can you identify Exhibit 70, please?
A. It is an e-mail that I sent to my staff,
basically letting them know that we had crossed the
billion-dollar mark as far as revenue for the year.
Q. And "the year" being 2006 at this point in
time?
A. Fiscal 2006, yes.
Q. Okay. And so the people that it's to, are
those sort of your -- the top people in the iTunes
department that reported to you?
A. In addition to my boss at the time who was
not Steve, but was Sina Tamaddon.
Q. And then who's Steven Leung, that was also
cc'd here?
A. He is the finance person who works on my
team for iTunes.
Q. And so you're just sort of sharing the
good news with the people in your department?
A. That's correct.

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This will be Exhibit 71, and it's
Bates-stamped Apple_AIIA00327951 to 952.
(Whereupon, Deposition Exhibit 71 was
marked for identification.)
MS. BERNAY: And if you could take a
moment and review Exhibit 71, please.
(Witness reviews document.)
THE WITNESS: Yes.
BY MS. BERNAY:
Q. You've had a chance to look at it?
A. I have.
Q. And it's something from Ms. Ameerally; is
that right?
A. That's correct.
Q. And it's to yourself and Mr. Jobs and
others; is that right?

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1

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 10
[Filed Under Seal]

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 11
[Filed Under Seal]

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 14
[Filed Under Seal]

David K. Heller - Volume I

1

CONFIDENTIAL - ATTORNEYS' EYES ONLY

December 15, 2010

UNITED STATES DISTRICT COURT

2

NORTHERN DISTRICT OF CALIFORNIA

3

SAN JOSE DIVISION

4
5
THE APPLE IPOD ITUNES

Lead Case No.

6

ANTI-TRUST LITIGATION.

C-05-00037-JW (HRL)

7

~~~~~~~~~~~~~~~~~~~~~~~

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HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY

11
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VIDEOTAPED 30(b)(6) DEPOSITION OF

13

DAVID K. HELLER

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ON BEHALF OF

15

APPLE, INC.

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VOLUME I

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December 15, 2010

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9:16 a.m.

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21
1755 Embarcadero Road
22

Palo Alto, California

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Ana M. Dub, RMR, CRR, CSR 7445

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Page 1

David K. Heller - Volume I

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December 15, 2010

CONFIDENTIAL - ATTORNEYS' EYES ONLY

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APPEARANCES OF COUNSEL
For the Plaintiffs:
ROBBINS GELLER RUDMAN & DOWD LLP
ALEXANDRA S. BERNAY, ESQ.
PAULA M. ROACH, ESQ.
655 West Broadway, Suite 1900
San Diego, California 92101
619.231.1058
[e-mail]
[e-mail]
For the Defendant Apple, Inc.:
JONES DAY
ROBERT A. MITTELSTAEDT, ESQ.
DAVID C. KIERNAN, ESQ.
555 California Street, 26th Floor
San Francisco, California 94104
415.626.3939
[e-mail]
415.875-5745
[e-mail]
Also Present:
APPLE, INC.
LISA OLLE, SENIOR CORPORATE COUNSEL LITIGATION
1 Infinite Loop, MS 36-35U
Cupertino, California 95014
408.862.8888
[e-mail]
MATTHEW COPE, VIDEOGRAPHER

INDEX OF EXAMINATION
WITNESS: DAVID K. HELLER
EXAMINATION
By Ms. Bernay
By Mr. Mittelstaedt

Page 2
1
2

INDEX TO EXHIBITS
Exhibit

Description

4
5
Exhibit 33
8
Exhibit 34
11

Exhibit 40

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16
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18

Exhibit 41

Exhibit 42

21

Exhibit 43

Exhibit 38
24

E-Mail Dated September 10, .... 227
2004 to Patrice Gautier
from Dave Heller,
Production No.
Apple_AIIA00091825

9

E-Mail Chain, Top E-Mail .......165
Dated July 27, 2004, to
Dave Heller from Max
Muller, Production
Nos. Apple_AIIA00090428

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11
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15
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18
Exhibit 44

Printout of Source Code, .......182
Production Nos.
Apple_AIIA00099034-51
(Retained by Counsel for
Defendant)

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20
21

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E-Mail Chain, Top E-Mail .......224
Dated September 7, 2004, to
Jeff Robbin from Jennifer
Cavaliere, Production
Nos. Apple_AIIA00092918-23

8

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E-Mail Chain, Top E-Mail .......220
Dated September 3, 2004 to
Marc Sinykin from Bud
Tribble, Production
Nos. Apple_AIIA00092433-35

7

E-Mail Chain, Top E-Mail .......169
Dated July 19, 2004, to
Dave Heller and Tom Dowdy
from Roger Pantos,
Production No.
Apple_AIIA00093332
Exhibit 36
E-Mail Chain, Top E-Mail .......178
Dated July 28, 2004, to
Meriko Borogove from
Jennifer Cavaliere,
Production No.
Apple_AIIA00092916
Exhibit 37

E-mail Dated August 30, ....... 216
2004 to Marc Sinykin et
al., from Dave Heller,
Production Nos.
Apple_AIIA00090771

6

E-Mail Dated June 22, 2004 .....119
to Jeff Robbin and Dave
Heller from Jennifer
Cavaliere, Production
No. Apple_AIIA00093441

Exhibit 35

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E-Mail Dated August 19, ........204
2004 to Jeff Robbin and
David Heller from Dave
Heller, Production
No. Apple_AIIA00090666

5

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13

Page

Exhibit 39
4

9
10

Description

3

E-Mail Chain, Top E-Mail .......115
Dated April 23, 2004, to
Jeff Robbin from Chris
Bell, Production
Nos. Apple_AIIA00092905-06

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INDEX TO EXHIBITS - CONTINUED
Exhibit

3
Exhibit 32

Page 3
1
2

Page

PAGE
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257

E-Mail Dated August 11, ........194
2004, to Jeff Robbin from
Jennifer Cavaliere,
Production Nos.
Apple_AIIA000928748-52

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E-Mail Dated September 16, .... 230
2004 to Grant Erickson from
Dave Heller, Production
No. Apple_AIIA00090826
Exhibit 45
Cloakware Document Entitled ....233
"Static Analysis of Binary
Executalbe iTunes 4.7
Release Candidate,"
Production Nos.
Apple_AIIA00093567-78

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Page 4

Page 5

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David K. Heller - Volume I

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CONFIDENTIAL - ATTORNEYS' EYES ONLY

order to purchase content on the iTunes Store, a
user had to update their iPod firmware?
MR. MITTELSTAEDT: And implicitly, you're
meaning to ask: And to play that on an iPod?
MS. BERNAY: I'm sorry.
BY MS. BERNAY:
Q. And to play that on an iPod.
Thank you, Bob.
A. I -- yeah. So the -- to answer the first
part of your question, there's never been a firmware
update that required you to update your iPod to buy
content from the store.
Q. Okay.
A. But to sync content down, I believe that I
can only recall the one time.
Q. Okay. You had mentioned there were a
number of file formats that that first generation of
iPods could play. Do you recall that -A. Yes.
Q. -- testimony?
Do you know whether you could buy online
music from sources before the iTunes Music Store was
launched and play them on your iPod?
MR. MITTELSTAEDT: Object; scope.
THE WITNESS: If those -- if those sources

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Page 46

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for was the Rio One. Are you familiar with that
device?
MR. MITTELSTAEDT: Objection; scope. Can
I have a continuing objection to this line on scope?
MS. BERNAY: Sure.
MR. MITTELSTAEDT: Thank you.
THE WITNESS: The Rio One was one of the
devices we added support for.
BY MS. BERNAY:
Q. And it's your testimony that the Rio One
could still play -- could it purchase -- I'm sorry.
Could a user of a Rio One, after the
launch of the iTunes Store, purchase content from
the iTunes Store and play it on the Rio One after
the launch of the iTunes Store?
A. To the best of my knowledge, the Rio One
did not support our protected format and that
content would not play.
Q. Okay. When the iTunes Store was launched,
it was only Mac compatible; is that right?
A. Yes.
Q. And do you know about when the iTunes
for -- iTunes Store for Windows was launched?
A. iTunes for Windows itself, which had the
support for the Store, was launched, I believe, in
Page 48

December 15, 2010

were offering up standard MP3 or WAV or AIFF files,
those should have played on the pod just fine.
BY MS. BERNAY:
Q. Okay.
A. I'm not aware of specific examples of such
services.
Q. Do you know whether iTunes, the Desktop
Client, worked with any other media players prior to
the launch of the iTunes Store?
MR. MITTELSTAEDT: Objection; scope.
THE WITNESS: What do you mean by "media
player"?
BY MS. BERNAY:
Q. For example, a Zune or other device, a
non-iPod device.
A. iTunes had support for several specific
third-party devices in iTunes prior to the launch of
the Store.
Q. Do you know if iTunes had support for
other devices after the launch of the iTunes Store?
A. Yes, we did.
Q. What other devices?
A. It's the same set as before the Store.
Q. So I think one of the devices that
provided support -- or that iTunes provided support
Page 47

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October of 2003.
Q. Prior to October of 2003, there was -- is
it right that there wasn't a desktop media player
iTunes version that was available for Windows?
MR. MITTELSTAEDT: Objection; scope.
THE WITNESS: Apple did not offer iTunes
on the Windows platform prior to the first -- that
first version of iTunes for Windows.
BY MS. BERNAY:
Q. Okay. Thank you.
Prior to the launch in October 2003 of the
iTunes -- is it right to say client for Windows or
the iTunes program?
A. iTunes application for Windows.
Q. Thank you.
Was there something for Windows that was
compatible with an iPod prior to that time?
A. Apple had an arrangement with Musicmatch
to do support within Musicmatch for putting files
onto an iPod. I don't recall when that arrangement
began, but that was a Windows solution for using
Windows with an iPod.
Q. So another topic -- and we've sort of been
talking about all these things because they do
overlap -- was the general overview of how updates
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David K. Heller - Volume I

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Q. And is that something that you did
anything about?
A. Can you clarify that?
Q. What did the iTunes Team do in response to
that?
MR. MITTELSTAEDT: Objection; assumes
facts not in evidence.
THE WITNESS: As far as I know, we did
nothing to do anything about Harmony.
BY MS. BERNAY:
Q. Did you investigate or look at the Harmony
software at any time?
A. We did, yes.
Q. Okay. And why did you do that?
A. We were looking to see what they were
doing to get their protected songs onto the iPod and
why the iPod would be able to play them.
Q. Why did you do that?
A. We wanted to see if this was a
DRM-circumvention hack.

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purchased from RealNetworks Harmony did anything to
the iPod database that caused any of the problems
that you just referred to?
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: The -- RealNetworks did not
write a completely correct database that would cause
loss of functionality in the iTunes application.
BY MS. BERNAY:
Q. What was not completely correct about it?
A. They -MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: They neglected to preserve
the song ID attributes and the artist and playlist
ID attributes, the songs purchased from the iTunes
Store. The RealNetworks Harmony database neglected
to preserve what we called the DRM versions field of
the database, as well as neglecting to preserve a
lot of the iTunes UI aspects of the database.
BY MS. BERNAY:
Q. Which iTunes UI of the database did it
neglect to preserve?
A. The -- if a customer had gone through
their playlist on the iPod and set up custom views,
Page 88

December 15, 2010

Q. You said that they were mimicking Apple's
DRM system.
A. They were encrypting the files the same
way that FairPlay does.
Q. So how would that be a problem or a
circumvention?

Page 87

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custom columns, sorting, all that information was
lost when the RealNetworks database was written.
Q. And is this something that actually
occurred that you're aware of?
A. Yes.
Q. And how are you aware that any of these
items that you mentioned occurred?
A. Because my analysis of the database showed
that this data was being lost when RealNetworks
would save the database.
Q. Did any customer ever tell you that any of
these issues -- or I'm sorry.
Did any customer ever tell Apple that any
of these issues occurred?
MR. MITTELSTAEDT: Objection; beyond the
scope -THE WITNESS: I am -MR. MITTELSTAEDT: -- calls for
speculation, lack of foundation.
THE WITNESS: I am not involved in
customer relations, so I do not know.
BY MS. BERNAY:
Q. Are these problem that you're referring to
theoretical problems?
MR. MITTELSTAEDT: Objection;
Page 89

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David K. Heller - Volume I

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And that's a -- it says:
"(New iPod.)"
Do you see that?
A. Yes.
Q. And is that the photo iPod?
A. No. The color iPod -Q. Oh, I'm sorry. Thank you.
A. -- is that.
is the iPod shuffle. It's the first
iPod shuffle.
Q. Okay. And you mentioned that that was -there was a specific iTunes update to deal just with
the iTunes shuffle earlier.
A. Yes. iTunes 4.7.1.
MS. BERNAY: Put that to the side, please.
The next document was previously marked as
Exhibit 15. It's a single-page document
Bates-stamped Apple_AIIA00090427.
If you could take a moment to review that,
please.
MR. MITTELSTAEDT: 15, did you say?
MS. BERNAY: It was previously Exhibit 15.
(Witness reviews document.)
THE WITNESS: Okay.

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Q. And did you perceive this e-mail from
Mr. Robbin as a request to do a technical evaluation
of the -- of Harmony?
A. I believe this was a request, yes, for us
to go look at Harmony.
Q. And why would Mr. Robbin have asked you to
do that?
MR. MITTELSTAEDT: Object; beyond the
scope, calls for speculation, lack of foundation.
THE WITNESS: Well, he is my boss. And
the -- the time that these hacks come out, usually
it's his direction for us to go and look at
particular ones rather than for us to discover on
our own what was going on.
BY MS. BERNAY:
Q. So you said "the time that these hacks
come out"?
A. Yes.
Q. So at this time, you believe that Harmony
was a hack?
A. Yes.
Q. And it notes here that:
". . . harmony appears to be
downloadable . . . ."
Is this -- is it accurate that you had
Page 128

December 15, 2010

BY MS. BERNAY:
Q. You've had a chance to look at the
Exhibit 15?
A. Yes.
Q. And I think when we talked earlier today,
you said you had looked at a number of documents,
some of which had refreshed your recollection.
Is this one of those documents?
A. Yes.
Q. And what is Exhibit 15?
A. Exhibit 15 is an e-mail I sent to Jeff
Robbin and others around what we discovered when we
first looked at Harmony.
Q. And the bottom e-mail there is something
from Mr. Robbin. Do you see that?
A. Yes.
Q. And it says:
"Hi guys: I don't have a PC here,
but harmony appears to be
downloadable from . . . ."
And he lists the Web site. He notes:
"I'm available on my cell phone at
any time."
Did I read that accurately?
A. Yes.
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discussed with Mr. Robbin or others Harmony prior to
its release?
MR. MITTELSTAEDT: Object; argumentative.
THE WITNESS: It -- I don't recall. It
probably was discussed around the fact that the
Harmony had a press release around the product, and
he's telling us here that it looks like it's
actually available for download now.
BY MS. BERNAY:
Q. Do you know whether, in fact, you spoke to
anyone at Apple prior to the release of Harmony
about what it would be able to do before it was
released?
A. I wasn't aware of it before it was
released.
Q. What about when the press release came
out? Is that when you first became aware of it?
A. I can't say it was the same day as the
press release.
Q. Okay. Fair enough.
And it's from you and -- well, it's been
signed at the bottom there "The 'Dave & Tom' Show."
Do you see that?
A. (Witness nods head.)
Q. And that's you and Mr. Dowdy; is that
Page 129

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David K. Heller - Volume I

CONFIDENTIAL - ATTORNEYS' EYES ONLY

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correct?
A. Yes.
Q. And you worked together to take a look at
Harmony; is that right?
A. Yes.
Q. And do you have a specific or general
recollection regarding actually taking a look at
Harmony?
MR. MITTELSTAEDT: Objection; compound.
THE WITNESS: I vaguely recall doing that
and composing this e-mail.
BY MS. BERNAY:
Q. What did you do?
A. Pretty much what I needed to do to come up
with these items, which was install the Harmony
software, get a Harmony store count -- whatever the
term was -- download a song, take that song and use
the Harmony software to put it on an iPod,

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Q. And is this something that you did at the
office?
A. Yes.

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a measurement of the audio bit rate and quality for
an AAC audio file.
Q. Do you know what the audio bit rate was at
this time for music that was purchased from the
iTunes Store?
A. It was 128 kbps.
Q. And is it accurate that generally
speaking, the 192 kbps is a better quality of audio
than the 128 kbps?
MR. MITTELSTAEDT: Objection; beyond the
scope -THE WITNESS: If -MR. MITTELSTAEDT: -- lack of foundation.
THE WITNESS: If the files are created
with the same encoder, 192 should be better. But to
say that a file that's 192 is always better than 128
is not an accurate statement.
BY MS. BERNAY:
Q. And why is that not an accurate statement?
MR. MITTELSTAEDT: Same objection.
THE WITNESS: The quality of the encoder
and the techniques used by the particular encoding
software is -- is very germane to the resulting
file's quality.
Page 132

December 15, 2010

Q. And I assume you have access to various
computers and iPods at your office; is that
accurate?
MR. MITTELSTAEDT: Objection;
argumentative.
THE WITNESS: Yes, I do have access to
several iPods.
BY MS. BERNAY:
Q. Okay. And so you note here that you took
a look at Harmony, and then you have:
"Here is what we found."
And then you have a list of 12 items; is
that right?
A. Yes.
Q. Do you know whether there was anything
that you discovered when looking at Harmony that you
did not include in this list?
A. I don't recall.
Q. Okay. So the first thing here that you
note is:
"Downloaded song is 192kbps AAC."
Do you see that?
A. Yes.
Q. What is that 192kpb -- bps AAC?
A. It means 192 kilobits per second, which is
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BY MS. BERNAY:
Q. At some point did music at the iTunes
Store -- I'm sorry.
At some point was music sold through the
iTunes Store sold at a rate higher or different than
this 128 kbps?
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: Most songs we offer in the
iTunes Store today are 256 kbps.
BY MS. BERNAY:
Q. What about in 2007? What was the kbps
rate that was sold on music at the iTunes Store?
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: I do not recall when we
started offering the higher bit rate songs.
BY MS. BERNAY:
Q. What -- after -- what was the first
upgrade or increase in kbps rates of music that was
sold through the iTunes Store?
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: I'm sorry. When you say
"what was"?
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CONFIDENTIAL - ATTORNEYS' EYES ONLY

BY MS. BERNAY:
Q. In 2004, is it accurate that music sold
through the iTunes Store was at 128 kbps?
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: It would have all been 128,
yes.
BY MS. BERNAY:
Q. And then at some point in time did that
number increase to another number?
MR. MITTELSTAEDT: Same objection.
THE WITNESS: Apple started offering music
available at 256 in most cases. There are still
places where it's still 128.
BY MS. BERNAY:
Q. So I guess I'm asking if there was any
intermediate step between 128 and 256.
MR. MITTELSTAEDT: Objection; beyond the
scope.
THE WITNESS: There was not.
BY MS. BERNAY:
Q. Okay. Are you familiar with a thing
called iTunes Plus?
A. Yes.
Q. What is that?

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Page 134

A. iTunes Plus was the customer-facing name
for the new content being offered at 256 kbps
unencrypted.
Q. Unencrypted?
A. Yes.
Q. Thank you.

Page 135

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Page 136

December 15, 2010

A. Not just that. You could have legally
purchased songs on the computer but the computer's
not authorized as one of your five.
Q. Thank you.
The next one there is:
Page 137

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*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 48
[Filed Under Seal]

*APPLE'S (PROPOSED) REDACTIONS*

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 51
[Filed Under Seal]

Page 1
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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

3

OAKLAND DIVISION

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____________________________________
)

6

)
THE APPLE IPOD ITUNES ANTI-TRUST

7

)

LITIGATION

No. C-05-0037 YGR

)
)

8

____________________________________)

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VIDEOTAPED DEPOSITION OF ROGER G. NOLL

13

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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PAGES 1 - 262
Sarnoff, A VERITEXT COMPANY
877-955-3855

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
OAKLAND DIVISION

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____________________________________
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THE APPLE IPOD ITUNES ANTI-TRUST ) No C-05-0037 YGR 7
LITIGATION
)
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)
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____________________________________)
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Videotaped Deposition of ROGER G NOLL, Volume
14
1, taken on behalf of Defendant, at Jones Day, 555
15
California Street, 26th Floor, San Francisco,
California, beginning at 9:15 a m and ending at 4:37
16
p m on Thursday, May 16, 2013, before JENNIFER L
17
FURIA, Certified Shorthand Reporter No 8394
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Page 2
APPEARANCES:
For the Plaintiff:
ROBBINS GELLER RUDMAN & DOWD LLP
BY: BONNY E. SWEENEY, ESQ.
655 West Broadway, Suite 1900
San Diego, California 92101
[phone]
[e-mail]

For the Defendant
JONES DAY
BY: ROBERT A. MITTELSTAEDT, ESQ.
and DAVID C. KIERNAN, ESQ.
555 California Street, 26th Floor
San Francisco, California 94104
[phone]
[e-mail]
[e-mail]

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APPEARANCES (Continued):
Also present:
KYLE ANDEER
Videographer:
ALEXEI DIAS

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INDEX
WITNESS
ROGER G. NOLL
Volume 1

EXAMINATION

BY MR. MITTELSTAEDT
EXHIBITS
NUMBER
DESCRIPTION
Exhibit 1 Declaration of Roger G. Noll

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Q I'm asking you more in theory at this point.
If 7.0 did something more than what you've just
described -A Like, for example?

1

Q -- and it's not captured in one of these
09:52:43
variables that you just referred to, capacity, whether
it's photo or video or the size or the cost,
then -- then the coefficient for 7.0 would pick up that,
right?
A Like what? I mean, I don't understand what 09:53:05
the -- what the 7.0 in principle could do. What is it
in principle it could do?

5

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Q Anything that's not captured by one of your
other variables. The effect of that would be captured
in your 7.0 variable, correct? By definition.
09:53:22
A 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
about, what it might be. If there's some wonderful
attribute of iPods that cannot be obtained in any way 09:53:40
other than 7.0 and that component is in there, sure, it
would affect the price. It would make the -- it would
make it more valuable, assuming it's unique, a unique
attribute that wasn't otherwise included, but I don't
know what it is and I've never seen anybody describe 09:53:57

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Q And for purposes of your analysis were you
assuming that any market or monopoly power enjoyed by
Apple in any relevant market before September 12, 2006
was lawful and not anticompetitive?
MS. SWEENEY: Objection, to the extent it's
09:55:46
asking for a legal conclusion.
THE WITNESS: I have assumed for the purpose
of analysis that Apple's activities prior to the release
of 7.0 were legal. I have also assumed for the purpose
of analysis that Apple does have a certain degree of
09:56:12
market power that is achieved for reasons other than
anticompetitive acts. So other than -- I don't know how
to answer the question other than that.
BY MR. MITTELSTAEDT:
Q Well, are you assuming that -- and the date I 09:56:31
want to focus on is December -- or, excuse me, September
12, 2006.
Are you assuming for purposes of your analysis
that any market or monopoly power Apple may have had as
of that date was lawful?
09:56:47
A Well, I'm assuming it's not part of the case.
I'm not -- I'm not making -- I don't know whether it's
lawful or not. In this case, I know that the only issue
is 7.0. Whether the -- whether activities prior to
that, either that used to be part of this case, or that 09:57:07

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never were part of this case, are or are not lawful, is

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Q And -- this is the point of my question. The

2

a legal question that I'm not competent to answer.

3

effect of that other attribute would be included in your

3

Q Are you assuming for purposes of this case

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7.0 variable, correct?
A If there was one, yes.

4

that anything Apple did before the launch of 7.0 was

5
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anticompetitive?
A No. I'm not assuming whether it's

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5
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anything like is that.

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09:54:11

Q And what did you do, if anything, to determine

09:57:25

7

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

7

anticompetitive or procompetitive. I'm just accepting

8

incompatibility with Harmony?
A I've read the technical expert's --

8

the status quo ante, as of September 11, 2006 and saying

9

all I'm interested in is the incremental market power

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10

MS. SWEENEY: Objection, asked and answered.

11

THE WITNESS: I'm not the technical expert

09:54:29 10
11

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about what's in 7.0. I'm not neither your expert nor

12

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the plaintiff's expert. I relied upon their reports.

13

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BY MR. MITTELSTAEDT:

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that occurs after that date.

09:57:39

Q And you're not assessing damages against Apple
for anything done before September 12, 2006, correct?
A Of course.

14

Q Did you read Apple's press release for 7.0?
A Oh, at some point I've read it, yes.

09:54:38

Q How do you use the term market power

15

differently from monopoly power?
MS. SWEENEY: You mean in his report?

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Q And did it say -- do you remember anything it

17
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said on this topic?
A Not sitting here, no.

09:57:57

MR. MITTELSTAEDT: Yes.
THE WITNESS: This is always a tough question

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for economists, because economists tend to think of

20

market power as a continuous variable and lawyers tend

21

opine on whether 7.0 harmed competition in a market for

21

to think of it as two categories, market and monopoly.

22

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

22

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amount of damages to iPod purchasers from September 12,

23

That is to say, an individual firm has sufficient market

24

2006 to March 31, 2009?
A I was asked to do that, yes.

24

power that they, all by themselves, can affect price and

25

quantity and product quality in the market through their 09:58:46

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Q Is it accurate to say that your task was to

09:54:52

09:55:23

09:58:15

Monopoly power hinges on unilateral activity.

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consumers' heads is whether it's going to be disabled
again, all right. And so it could -- it could have a
less than a full effect, a full offset effect.
You -- this is something that only the data
can answer. There's no -- there's no theoretically
10:50:28
correct answer to whether Harmony's relaunch would fully
offset the effect of 4.7.
You -- what it does is how consumers respond
and behave. And if they don't trust that Harmony is
going to be permanently around, and if they believe that 10:50:44
eventually Apple will -- will become incompatible again
with it, and so they'll lose all the songs that they
bought from RealNetworks, then it would still have an
effect, even if that expectation weren't true.
So it's just not a theoretical question. It's 10:51:02
an empirical question. And it's basically a boring
empirical question, because 4.7 isn't in the case
anymore. So what we get in the 4.7 coefficient is some
sort of an average at best.
Q But what you're giving -- I -- I understand 10:51:21
when you say it's an empirical question. But what
you're giving me would be the theoretical reason to
explain why you might see a continuing effect from 4.7
even after the launch of Harmony -A Right.
10:51:41

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effect.
Q And what I'm asking is why would there --

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under what circumstances, precisely as you can, would

4

you expect to see a continuing effect of 4.7 even after

5

Harmony's relaunched?

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10:53:16

MS. SWEENEY: Objection, vague and ambiguous.
THE WITNESS: Consumer expectations about the

8

durability of the relaunch. About whether if I -- if I

9

actually use Harmony and buy a bunch of songs from

10

RealNetworks, from Rhapsody, am I going to be stuck six 10:53:30

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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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Q And could that consumer expectation continue
even after 7.0 is issued?

10:53:42

A Exactly, it could. And that's -- that's

17

precisely right. 7.0, you know, could -- could, in

18

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

19

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

20

hypothosis.

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10:54:04

Q What I mean is could the consumer expectation
created by 4.7 continue after 7.0 is issued?
A It could in principle, yes.
Q And under what circumstance would you expect
to see a continuing expectation created by 4.7 after 7.0 10:54:19

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Q -- relaunch of Harmony.

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A Right

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Q And so just focus on the consumer that you

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

is issued?
A It would -- well, the effect of 7.0 is going

4

have in mind. That consumer would think -- he knows

4

launched and what is it like afterwards, okay. And so,

5

about 4.7, he knows that that made it so he couldn't use 10:51:54

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

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Harmony music on an iPod, and that may have some

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

7

lingering effect on his purchase decisions regardless of

7

I don't --

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whether Harmony is ever relaunched.

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A Well, in principle it might You can't tell

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10:54:45

Q Well, what I'm asking is if you -- if you did
the test, the regression, and you saw there was a

10

There's no theoretical reason to come to a conclusion on 10:52:18

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continuing effect of 4.7 after 7.0, what theory would

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the magnitude of that effect

11

explain that? The same one we've been talking about,

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consumer expectation?

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If you -- if we -- if 4 7 were still in the

10:54:58

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case, then we would have a serious issue here about how

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A Yeah. I mean the issue is how are people's

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exactly to measure the effect of Harmony and how it

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

15

would be different in different periods

15

our eye on the ball. What we're interested in is what's 10:55:30

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happening to the market for iPods. And the market for

16

10:52:36

The reason I haven't focused on that is

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because by the time I got around to doing these

17

iPods is going to be enhanced regardless if there

18

regressions 4 7 wasn't around anymore

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

19

sudden they can't, all right. That -- that market

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So yes, there is a whole series of issues

20

about how would we actually tease out what the effect of 10:52:47

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effect is still going to be there regardless of what

21

4 7 was And I would expect the effect of it would be

21

expectations were.

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greater during the period it worked than in the period

22

23

after Harmony was relaunched to offset it to some

23

someone would want to actually -- would actually buy an

24

degree

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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So, yes, there would be a differential

10:53:03

10:55:49

The way expectations work here is whether

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expectation then 4.7 would have gone away entirely
within shortly after Harmony was relaunched. If they
didn't believe that, then it wouldn't -- it wouldn't
have all completely gone away and it would have had some
residual effect at the time that 7.0 was lunched.
10:56:27
Q And under that approach how long would that
residual effect last after 7.0, residual effect from
4.7?
MS. SWEENEY: Objection, vague and ambiguous
and incomplete.
10:56:38
THE WITNESS: Again, there's no way to know
except empirically to find out.
BY MR. MITTELSTAEDT:
Q What would be the theory that would explain
that; just what you gave?
10:56:45
A Yeah.
Q The consumer expectation point?
A Is it okay if I take a two-minute break? Just
one sec, I'll be right back.
Q Yes, sir.
10:56:53
Off the record.
THE VIDEOGRAPHER: Off the record 10:57 a.m.
(Recess.)
BY MR. MITTELSTAEDT:
Q Okay. Just to complete that, what I asked
10:59:00

1
2

Q Okay. Competitors DRM-Free, what date did you
turn that on?

3

A Well, it's in the report. Again, it's -- it's

4

when -- it's when the all four -- I didn't do it on the

5

EMI, E-M-I, decision to do it all DRM-Free. I did it in 11:01:55

6

the dates. I think it's either December of 2007 or

7

January 2008, but it's -- it's the date at which all of

8

the major distribution companies allow the competitors

9

to be DRM-Free.

10

Q Okay. Do you think that the announcement of

11
12

11:02:11

that event which preceded the actual event could have
had an impact on iPod demand?
A Well, I suppose -- yeah, first of all, I did

13
14

look at the announcement dates, they weren't that far in

15

advance. It was like a month, even less than a month,

16

so.

17

11:02:32

Q Would it have been just as fair to use the

18

announcement date as the actual event date?

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MS. SWEENEY: Objection to form.

20

THE WITNESS: I -- I think I -- the actual

11:02:52

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launch date's better, because I don't think that the

22

vast majority of people read the trade press about

23

electronics, consumer electronics. So my expectation

24

would be that relatively few people knew about it until

25

it happened, but -- so I would, without more information 11:03:08

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just before the break was you described why there could

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I think I would prefer the launch date as opposed to the

2

be a, theoretically, a lingering effect from 4.7 after

2

announcement date

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7.0. You explained it and I said that's the consumer

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BY MR MITTELSTAEDT:

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expectation point, correct?

4

A Well --

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7
9

A Well, it -- you know, I -- I understand the

8

last Q and A.

argument for using it I don't think it's the right

9

Maybe the court reporter could read back the

thing to do But, yes, if you want to use it, go ahead,

THE REPORTER: Certainly. You mean before we 11:00:33 10

10
11

date, by definition?

7

the --

8

impact on iPod demand you'd want to use the announcement 11:03:19

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MS. SWEENEY: I'm going to object and to

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Q Okay. But if the announcement date had an

5

11:00:28

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went on the break?

see what happens

11:03:39

Q What's the argument for using it? The best

12

MS. SWEENEY: Yes, please.

12

13

(Record read.)

13

A The best argument for using it would be that

14

THE WITNESS: Yes. The issue is whether

14

consumers' plans about the portable digital media player

argument for using it.

consumers expect in the future that they will be locked 11:01:01

15

they are currently buying are affected by what's going

16

in.

16

to be happening in the future And they have perfect

17

BY MR. MITTELSTAEDT:

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rationale expectations about what's going to happen in

18

the future So once the announcement is made, the fact

15

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Q On 13.2 going down the -- the variables. If

11:03:51

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you wanted to test what the effect of Harmony relaunch

19

that they can't get things DRM-Free today won't dissuade

20

was -- I think this is an obvious question -- you would 11:01:22

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them because three weeks from now they will be able to

21

include a variable for the Harmony relaunch, correct?

21

get them DRM-Free

22

A Hm-m, that's correct.

22

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Q And you'd turn it on as of the date of the

23

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25

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Harmony relaunch?
A Right.

25

11:01:35

11:04:09

Q Would you think that Apple would be aware of
the announcement?
A Of course Apple -MS SWEENEY: Objection, calls for

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speculation.

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Q Okay. Why didn't you have a variable for when

2

THE WITNESS: I would expect Apple knew

2

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that -- I'm not sure the announcement mattered to Apple.

3

A Because it's unimportant.

4

I suspect Apple was negotiating DRM-Free with these guys

4

Q Why is it unimportant?

5

as well, so it may well have known before the

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A It's a small fraction of the market.

6

announcement date.

6

Q Unimportant to iPod demand?

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BY MR. MITTELSTAEDT:

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11:04:39

EMI went DRM-Free?

11:06:53

A Relatively unimportant. It's -- EMI at this

8

Q Okay. But if under your theory the -- the

11:04:43

point in time is on the order of 10 percent of the

9

Q But if -A But I don't know when Apple knew.

market.

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Q And you consider that relatively unimportant

11:07:05

11

availability of DRM-Free in December 2007 or January

11

12

2008 had an impact on iPod demand such that it should be

12

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included in your regression, would you expect the

13

important in the recorded music business, that -- EMI

14

announcement of that event to have some impact on

14

doing it by itself is going to have much of an effect on

15

15

consumers, because their portfolio of recorded music is 11:07:29

16

Apple's pricing decisions?
11:05:03
A Well, if your first assumption is true then it

16

going to have a fairly small fraction of EMI in it and

17

would -- you know, if the demand for iPods has shifted,

17

hence the degree to which they're locked into a

18

because of the announcement effect, then obviously Apple

18

DRM-based system is not affected by -- by EMI's

19

would take that into account in doing pricing. But

19

decision.

20

you're just assuming the answer.

20

They have -- you know, they're going to have

21

roughly 70 to 80 percent or more of their recorded music

11:05:17

compared to Harmony?
A No. The -- the -- EMI is not sufficiently

11:07:48

21

Obviously, Apple's pricing decisions are based

22

upon demand. And they're not going to -- they're not

22

is going to be DRM protected. And that's going to lock

23

going to cut the price of iPods until -- until they have

23

them in. So EMI all by itself is not affecting the

24

to. And so it -- it all gets back to what is it that

24

degree of lock-in of these consumers.

25

consumers know and -- and how -- what is -- what are

What -- what does affect the degree of lock-in 11:08:10

11:05:33 25

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the -- what are the factors they take into account when

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in consumers is when everybody goes DRM-Free, because

2

making a purchase

2

then no matter what they buy they can play it on
anything

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Q Actually, I'm not assuming anything. I'm --

3

4

what I was trying to ask was, your regression is based

4

Q Okay, but so you think that EMI going DRM-Free

5

on the assumption that the availability of DRM-Free from 11:05:48

5

has less of an impact on iPod demand than RealNetwork

6

competitors had some impact on iPod demand. Correct so

6

making its music available to play on an iPod?

7

far?

7

A Yes, because the difference is that Harmony

8

applies to all DRM protected products, not just one

9

label's worth If Harmony had only worked for EMI I

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A On testing the hypothesis that it did and my
expectation is that it would and the coefficient
indicates that it did have an effect on iPods

11:06:03

announcement also had an effect?

would not have anticipated it would have had any

11

Q Did you test the hypothesis that the

10

effect

12

A No I didn't test it, because it doesn't seem

Q Okay. What was -- isn't the relative effect
of Harmony versus EMI going DRM-Free an empirical
question?

14

to be plausible, but if you want to go ahead and test

14

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it, go ahead and do it

15

16

11:08:44

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11:06:15

A Yeah, it is, of course, an empirical question, 11:08:59

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Q And you said it's not plausible in part

11:08:24

but I'm just saying that if you start with the theory of

17

because you don't know that many consumers would know

17

lock-in, Harmony unlocks everybody EMI doesn't unlock

18

about it. I'm asking, you agree that Apple would know

18

anyone, unless there -- unless there's a customer out

19

about it?

19

there who only buys EMI music and that's extremely

20

unlikely

20

A But that -- what matters is when you have to

11:06:29

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cut the price in order to be competitive and when you --

21

22

so what Apple knows is irrelevant What -- what --

22

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what's accepted so far is they know something about

23

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consumers And the issue is when did the -- when did

24

25

the consumer behavior change

25

11:06:45

11:09:21

Q What did you do to test?
A I didn't test it I just think it's
implausible, all right
Q Does RealNetworks market share at any point in
time affect your analysis?

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the interesting question The interesting question is

1

of -- a fairly small increase in price, three-to-six

2

had the price been higher would they have switched

2

percent, okay And so what that basically means is it's

3

BY MR MITTELSTAEDT:

3

a few percentage points of people went from the category

4

of moveable to not moveable

4

Q But, for example, if -- if you take somebody

5

who says I'm never going to buy anything other than

6
7

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Q So how many people?

iPod, no matter what, no matter what the price is.

6

A I don't know how many people

A They are the beneficiaries of competition

7

11:58:31

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among those who would switch Those who have extremely

9

high willingness to pay for any particular brand name

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12:00:52

MS SWEENEY: Objection, asked and answered
BY MR MITTELSTAEDT:
Q Well, when you say a few percentage points

10

are the beneficiaries of competition for the people who 11:58:47

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11

are willing to shop

11

A A few percentage points of sales were at

what do you mean? A few percentage points of what?

12:00:58

12

stake For -- in order for it to make sense, to be

13

on is people whose demand is at the margin and who make

13

profit maximizing for Apple to raise its price by three

14

a difference because of 7.0. You know, what's the

14

percent, all right, it has to be the case that the

15

profile of -- of those people where there's an

15

number of people who switch out used to be too many and 12:01:13

16

incremental impact where they decide -- their switching

16

now it's not -- not too many to make that a profitable

17

costs are such that they buy an iPod where they would

17

price increase, okay

18

have preferred to buy something else. And if what I'm

18

19

positing is, you can't include in that group people who

19

if Apple is going to increase price three percent, it

20

were going to buy an iPod no matter what.

20

better have the effect on sales be less than three

21

percent So we move from a world in which the effect

22

might have been three-and-a-half percent to a world in

23

which it now is two-and-a-half percent So it made

24

sense to raise the price by three percent after the fact

25

and it didn't make sense before the fact

12

21
22
23

Q No, but what I'm -- what I'm trying to focus

11:59:03

11:59:24

MS SWEENEY: Objection -BY MR MITTELSTAEDT:
Q You have to include only the people who

24

decided to buy an iPod instead of something else,

25

because of their switching costs caused incrementally

11:59:32

So, normally, in the case of, you know, if -12:01:31

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after 7.0?
MS. SWEENEY: Objection to form, vague and
ambiguous, compound.
THE WITNESS: I have no idea what you're -what you're talking about.
11:59:43
Yes, there are people who are willing to pay a
premium for an iPod and switching costs are one reason
why they might be willing to pay a premium. Just being
in love with Apple is another reason. And then there
are other people who are at the margin, who plus or
11:59:54
minus ten percent in price, can affect their decision.
And it's the latter that determine pricing and the
extent of competition among brands of portable digital
media players.
BY MR. MITTELSTAEDT:
12:00:10
Q Okay. And how many people fit that profile of
being at the margin where their purchase decision
changed from a non-iPod to an iPod because of 7.0? How
many people are in that category?
A We have no way of knowing that.
12:00:24
Q Is it -- is it ten people or 10,000?
A We have no way of knowing what the number is.
All we observe is the actual pricing behavior and the
implicit change in the elasticity of demand.
We're talking about a fairly small fraction
12:00:36

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And that's the -- the issue of how many are

2

there is -- is indeterminate. It's just -- it used to

3

be profitable to have the price be three percent lower

4

and now it's profitable to have it be three percent

5

higher. And that's because the number of customers you 12:02:07

6

lose by raising the price has gone down by enough to

7

make the net revenue be positive instead of negative.

8

Q Okay.
A And it could be three people. I mean if you

9
10

were close enough to the margin, the mag -- the number

11

of people is not what matters. The -- what matters is

12

why didn't you raise the price by three percent

13

anyway.

14
15

Q Okay.
A And the answer must be because you expected

16

price times the lower sales would be less profitable.

18

Now it's more. So it could be a very small number of

19

people, just -- less than a percent, as the difference

20

in sales before and after 7.0 that caused the price

21

increase to be profitable, when you're talking about a

22

12:02:29

sales to go down by -- enough to -- that the higher

17

12:02:18

price increase that's this small.

23

12:02:47

Q Okay. So are you saying that it could take

24

only three people buying an iPod instead of a non-iPod

25

as a result of 7.0 to have the price effect that you are 12:03:05

Page 107

Page 109

Pages 106 to 109
Sarnoff, A VERITEXT COMPANY
877-955-3855

1
2

3

Q Okay. And did it cause iPod prices to go down

4
5

portable digital media players.
Q Okay. The next variable you use is -- is

3

Classic and then Mini, Nano and Shuffle. Your variable

immediately upon the launch of the iTunes Music Store

4

for Classic or your coefficient for Classic variable is

5

positive and it's negative for Mini, Nano and Shuffle.

6

going all DRM-Free?
11:15:06
A This is -- this is the -- this is the effect

7

over the period afterwards in the dataset. I think it

7

that's in the equation is the different -- is the

8

probably had a fairly dramatic immediate effect, yes,

8

combination of the interceptor plus that -- the

9

but you know, that's the number. It's six percent in

9

intercept is essentially the Touch. And then these are

10

this regression and seven percent in the other.

6

11:15:23

11:18:01

A Remember that the actual effect of a model

10

adjustments to the Touch effect from -- due to other
models.

11

Q Have you made any analysis of what you would

11

12

say the price change was the first month or the second

12

13

month or the third month. This is -- or is this just an

13

14

14

15

average over the -- the whole three-year period?
A This is -- well, it's two years. We only have 11:15:37

16

two years of data, I believe, beyond, don't we? What

16

17

is -- when does the data period end? What's the end of

17

18

the data period? I can find it. March 26, 2011, so

18

question means.

19

it's two years.

19

11:18:22

BY MR. MITTELSTAEDT:

20
21
22

Q March 26, 2000 and -A '11 is end of the data period, I believe.

15

20

11:16:00

21

Isn't it?

22

Q Okay.
A And so these coefficients are what you would
expect if your theory was right?
MS. SWEENEY: Objection, vague and

11:18:36

ambiguous.
THE WITNESS: I have no idea what that

Q Okay. Do you see anything anomolous in these

11:18:41

coefficients?
A No, not at all. It just -- it tells you that

23

Q But what's the end of the period for which you

23

cheaper products have lower -- have a lower intercept

24

are measuring what you assert are damages?
A ITMS becomes DRM-Free on April 1st, 2009, so

24

term in the regression.

11:16:12 25

25

Remember you want to subtract each one of

11:18:54

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9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

it's about two years worth of DRM-Free data for -for -- in the dataset.
Q But my -- my question is different. It's what
the end of the period for which you were measuring what
you claim are damages?
11:16:30
A April 1st. That's it. The damages stop at
when ITMS goes DRM-Free.
Q Why would you expect there to be a dramatic
immediate impact on iPod prices from the music store
going DRM-Free?
11:16:50
A Well, first of all, there was a transition,
but no, it's because that it's the end of the lock-in.
And looking forward, consumers are not going to be
locked in.
And so, you know, what, something like half of 11:17:02
iPod sales are original sales. And so for them going
forward, none of those customers are going to be locked
in.
And then among the customers who are buying a
replacement iPod, their new music is not always -- is 11:17:17
going to be subject to the lock-in. And they can, if
they want to, get the DRM-Free version of what they
have, so -- for the things they want to keep. So it's
my expectation that it's a big deal to go DRM-Free.
That that basically ends the problem of lock-in in
11:17:36

Page 84
1

these from the intercept, so what you got is sort of a

2

baseline price before you do anything else. And all

3

this is telling you is that cheaper ones have lower

4

intercepts, which is the average price over the whole

5

period of a more expensive model is going to be higher. 11:19:11

6

That's all that it tells you.

7

Q For this variable, the Classic variable, how

8

do you determine when to turn that on and when to turn

9

that off?

10
11

A When it's a Classic that's in the transaction. 11:19:23
When the transaction is a Classic.

12

Q Okay. And so for the Shuffle, when you say

13

you've asked Econ, Inc. to run the regression turning

14

the Shuffle off --

15

A No, that's not what I said. I said you've

16

turned -- you turn the 7.0 variable off for Shuffles.

17
18

11:19:38

Q Okay. And how do you do that?
A You just -- you just run exactly the same

19

regression except an observation for a Shuffle never has

20

7.0 turned on, even if it's in the damages period.

21
22
23

11:19:55

Q But I thought the 7.0 variable was either on
or off?
A It's on --

24

Q Excuse me. Depending on the time period. So

25

as of September 12, 2006 you turned it on and gave it

Page 83

11:20:10

Page 85

Pages 82 to 85
Sarnoff, A VERITEXT COMPANY
877-955-3855

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 52
[Filed Under Seal]

The Apple iPod iTunes Anti-Trust Litigation

Videotaped Deposition of
ROBERT TOPEL, PH.D.
January 08, 2014
***CONFIDENTIAL***
Volume II

Volume II
Robert Topel, Ph.D.

Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 194

1

UNITED STATES DISTRICT COURT

2

APPEARANCES

2

NORTHERN DISTRICT OF CALIFORNIA

3

Page 195
1

3 For the Plaintiffs:

OAKLAND DIVISION

4

4
THE APPLE iPOD iTUNES

)

5 ANTI-TRUST LITIGATION

)

6

655 West Broadway

Lead Case No. C 05-00037

Suite 1900
5

San Diego, CA 92101
619.231.1058

)
6

7 ____________________________ )
8 This Document Relates To:
9 ALL ACTIONS

[e-mail]

7

)

8
9

)

10

For the Defendant Apple, Inc.:

)
10

11 ____________________________ )

David C. Kiernan, Esq.
JONES DAY

12

11

13

555 California Street
26th Floor

14
15

Bonny Sweeney, Esq.

ROBBINS GELLER RUDMAN & DOWD, LLP

12

CONFIDENTIAL - ATTORNEYS' EYES ONLY
V DEOTAPED DEPOSITION OF ROBERT H. TOPEL, Ph.D.

16

San Francisco, CA 94104
415.626.3939

13

VOLUME II

[e-mail]

14

17

January 08, 2014

15

18

Phoenix, Arizona

16 Also Present:

Thomas C. Tracy, videographer

17

19

18

20

19

21

20

22 Reported By:

21

23 Cathy A. Miccolis

22
23

24 RPR, CRR, CSR No. 50068

24

25 Job No. 10009199

25

INDEX

2 Witness
3

Page

ROBERT TOPEL, Ph.D.

4
EXAMINATION BY MS. SWEENEY

198

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

EXHIBITS
Description
(No newly marked exhibits.)

Page

Page 197

1
THE VIDEOTAPED DEPOSITION OF ROBERT TOPEL,
2 Ph.D., VOLUME II, was continued on January 8, 2014,
3 commencing at 12:56 p m. at he offices of BONNETT,
4 FAIRBOURN, FRIEDMAN & BALINT, P.C., 2325 East Camelback
5 Road, Suite 300, Phoenix, Arizona, before CATHY MICCOLIS,
6 a Certified Reporter in he State of Arizona.
7
8
THE VIDEOGRAPHER: We are now on the record.
9 The time is approximately 12:56 p m. Today's date is
10 January 8, 2014. My name is Tom Tracy of Aptus Court
11 Reporting. The court reporter is Cathy Miccolis of Aptus
12 Court Reporting, located at 600 West Broadway, Suite 300,
13 San Diego, California 92101.
14
This begins the videotaped deposition of Robert
15 Topel, Volume II, testifying in he matter of the Apple
16 iPod iTunes Antitrust Litigation pending in he District
17 Court of California, Division of Oakland, Case Number C
18 05-00037 YGR, taken at 2325 East Camelback, Suite 300,
19 Phoenix, Arizona 85016.
20
Counsel, will you please identify yourself and
21 whom you represent for the record at this time, starting
22 with the plaintiffs' counsel.
23
MS. SWEENEY: Bonny Sweeney for he plaintiffs.
24
MR. KIERNAN: David Kiernan for Apple.
25
THE VIDEOGRAPHER: Thank you, Counsel. The

Page 194..197
www.aptusCR.com

http://www.yeslaw.net/help

Page 196
1

Volume II
Robert Topel, Ph.D.

Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 218

1 as true? Because I hink I said, you know, it could have
2 been hat I did something like hat, but it's been mon hs
3 and I can't remember.
4 BY MS. SWEENEY:
5 Q. Well, it may have been mon hs, but you just
6 submitted a report on December 20 h with these regressions
7 and these additional variables, and I want to know how you
8 picked hose variables.
9
MR. KIERNAN: Argumentative.
10
THE WITNESS: They are he same ones that we
11 used in the last round. We didn't change anything.
12 BY MS. SWEENEY:
13 Q. Okay. So my question is, you didn't -- so I
14 will represent to you, and you can go back and check it -15 A. Okay.
16 Q. -- that you took some variables that were in
17 the dataset hat were not used by Noll and put hem in he
18 regression, but not all of them, and hen in addition you
19 took some variables hat were not in the dataset and added
20 them. So I'm trying to figure out how you made he
21 determination about which variables to add to the
22 regressions.
23
MR. KIERNAN: Asked and answered.
24
THE WITNESS: It's been mon hs. You know, if
25 you asked me which one, I couldn't tell you. It's been,

Page 219

1 you know, it's been more han months. It's been a really
2 long time.
3 BY MS. SWEENEY:
4 Q. Other han what you alluded to earlier, hat
5 is, the regression output, are there standard tests hat
6 economists use to determine whe her variables are
7 correlated?
8
MR. KIERNAN: Object to form.
9
THE WITNESS: Sure.
10 BY MS. SWEENEY:
11 Q. Can you give me some examples?
12 A. Well, since you're talking about
13 multicollinearity, if I had some variable, call it Z, and
14 I could -- if it's a problem of multicollinearity you're
15 concerned wi h, you could regress Z on all the other Xs
16 and see how much residual variation there is in Z, that
17 is, how much -- what's the coefficient of multiple
18 determination for Z regressed in all the other Xs.
19 Q. Is here a name for that?
20 A. Regression. (Laughter.)
21
That's -- you know, it's -- you're finding he
22 multiple correlation coefficient between Z and the other
23 stuff.
24 Q. And did you do that in this case on your added
25 variables?
Page 220

Page 221

1
2
3
4
5
∑

Q. Now, you keep referring back to he results of
he regression. Did you add in the variables separately
and see what the results were, or did you just conduct the
regression where you added in all your additional
variables and hen ran the regression?

http://www.yeslaw.net/help

1 A. Well, implici ly, yes, because as I said
2 before, he way the regression coefficient is calculated
3 formally is it's using that part of -- I was using he
4 term Z, so I will say Z -- hat part of Z hat's not
5 correlated, not predictable from the o her Xs, and it's
6 using that variation to identify he coefficient on Z in
7 hat regression. So he fact that -- as I said before,
8 he fact hat that residual correlation, the stuff that's
9 not correlated with he o her stuff, can identify a
10 statistically significant coefficient means hat he
11 collinearity between Z and the other Xs isn't so large
12 that you're not able to identify a statistically
13 significant effect.
14 Q. Did you compute a variance inflation factor for
15 each of he additional variables that you used?
16 A. I don't know what you mean by a variance
17 inflation factor for each variable.
18 Q. Do you have any understanding of what a
19 variation -- did I say that wrong? A variance inflation
20 factor, do you know what that is?
21 A. I assume the context in which you're using it
22 is to some hing to inflate the variance, but no.
23 Q. Do you know what a condition number is?
24 A. A condition number? Not in the context in
25 which we are using it here.

Page 218..221
www.aptusCR.com

*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 53
[Filed Under Seal]

The Apple iPod iTunes Anti-Trust Litigation

Videotaped Deposition of
KEVIN MURPHY, PH.D.
January 08, 2014
***CONFIDENTIAL***
Volume II

Volume II
Kevin Murphy, Ph.D.

Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 233

1

UNITED STATES DISTRICT COURT

2

APPEARANCES

2

NORTHERN DISTRICT OF CALIFORNIA

3

Page 234
1

3 For the Plaintiffs:

OAKLAND DIVISION

4

4
THE APPLE iPOD iTUNES

)

5 ANTI-TRUST LITIGATION

)

6

655 West Broadway

Lead Case No. C 05-00037

Suite 1900
5

San Diego, CA 92101
619.231.1058

)
6

7 ____________________________ )
8 This Document Relates To:
9 ALL ACTIONS

[e-mail]

7

)

8
9

)

10

For the Defendant Apple, Inc.:

)
10

11 ____________________________ )

David C. Kiernan, Esq.
JONES DAY

12

11

13

555 California Street
26th Floor

12

14
15
16

Bonny Sweeney, Esq.

ROBBINS GELLER RUDMAN & DOWD, LLP

CONFIDENTIAL - ATTORNEYS' EYES ONLY

13

V DEOTAPED DEPOSITION OF KEV N M. MURPHY, PH.D.

17

15
16 Also Present:

January 08, 2014

19

[e-mail]

14

VOLUME II

18

San Francisco, CA 94104
415.626.3939

Phoenix, Arizona

Thomas C. Tracy, videographer

17
18

20

19

21

20

22 Reported By:

21

23 Cathy A. Miccolis

22
23

24 RPR, CRR, CSR No. 50068

24

25 Job No. 10009198

25

INDEX

2 Witness
3

Page

KEVIN M. MURPHY, Ph.D.

4
EXAMINATION BY MS. SWEENEY

237

5
6
7
8
9 Exhibit

EXHIBITS
Descrip ion

10 Exhibit 6 Supplemental Report
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Page
257

Page 236

1
THE VIDEOTAPED DEPOSITION OF KEVIN M. MURPHY,
2 Ph.D., VOLUME II, was continued on January 8, 2014,
3 commencing at 9:11 a.m. at the offices of BONNETT,
4 FAIRBOURN, FRIEDMAN & BALINT, P.C., 2325 East Camelback
5 Road, Suite 300, Phoenix, Arizona, before CATHY MICCOLIS,
6 a Certified Reporter in he State of Arizona.
7
8
THE VIDEOGRAPHER: The time on he record is
9 9:11 a.m. Today's date is January 8, 2014. My name is
10 Tom Tracy of Aptus Court Reporting. The court reporter is
11 Ca hy Miccolis of Aptus Court Reporting located at 600
12 West Broadway, Suite 300, San Diego, California 92101.
13
This begins the videotaped deposition of Kevin
14 Murphy, Volume II, testifying in the matter of he Apple
15 iPod iTunes Trust (sic) Litigation, pending in he
16 District Court of California, Oakland Division, Case
17 Number C 05-00037 YGR. This deposition is taking place at
18 2325 East Camelback, Suite 300, Phoenix, Arizona 85016.
19
Will counsel please identify themselves,
20 starting with he plaintiffs' counsel.
21
MS. SWEENEY: Bonny Sweeney for he plaintiffs.
22
MR. KIERNAN: David Kiernan for Defendant
23 Apple, and Scott Murray, in-house counsel from Apple, may
24 be on he phone.
25
Scott, are you on the phone?

Page 233..236
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Page 235
1

Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 293

1 it's always going to be a judgment. You always have to
2 use some judgment. You're not going to write down some
3 set of rules because there is going to be a circumstance
4 hat satisfy hose rules, and you'd say no, hat doesn't
5 make any sense in that context. I think you have to use
6 your judgment.
7 BY MS. SWEENEY:
8 Q. When you use your judgment, what other
9 considerations are you taking account of hat might lead
10 you in your judgment to exclude certain product
11 characteristics from your regression?
12 A. I guess we have to look at it case-by-case
13 basis. I don't see any of he problems wi h these
14 characteristics that would lead me to exclude hem. You
15 know, I gave you the example of occupation. That would be
16 one hat I definitely would exclude from an
17 education/earnings relationship because hat -18 controlling for hat is going to miss a substantial impact
19 of education, which it works hrough changing your
20 occupation. So again, you could say, well, economics says
21 occupation should matter for earnings, but it's not
22 something in general you'd want to hold constant.
23 Q. Did you conduct any analyses to see whether any
24 of these additional variables that you added to the
25 regression are collinear with variables already in

Page 294

1
2
3
4
5
6
7

Professor Noll's regression?
A. Yes, I did. And the easiest way to see that is
to evaluate he effect it has on the standard errors of
he o her variables. If hey were highly collinear with
hose other variables, hat will generally show up as a
large increase in he standard error of the other
variables in he regression

16 Q. Now, so you -17 A. I didn't even pause that time; correct?
18 Q. I hought you had, but go ahead.
19 A. I don't hink my mou h even closed.
20 Q. I have asked you to continue your response.
21 Please do so.
22 A. I have lost my train of hought. I'm sorry.
23 Q. O her than he effect on the standard errors,
24 did you conduct -- or strike that.
25
So you said that because he results of your
Page 295

1 regression show that you don't have a collinearity problem
2 because of o herwise you would see it in the standard
3 errors, are here any other tests hat one could conduct
4 to determine whether the product characteristic variables
5 hat you added to he regression are collinear wi h
6 variables already in Professor Noll's regression?
7
MR. KIERNAN: Objection; argumentative.
8
THE WITNESS: There are, but I hink you could
9 basically back those out from he standard errors because
10 the other primary test that people do is kind of an
11 auxiliary regression test where you look at the R-squared
12 from regressing that variable on the other included
13 variables in the regression. But you can actually back
14 that out from he change in he standard errors and the
15 change in the residual variance of he equation. So hey
16 amount to almost the same thing. That's some hing else
17 you can look at.
18 BY MS. SWEENEY:
19 Q. Did you do that here?
20 A. No, because you can really -- you can see
21 what's going on with one from looking at the other. They
22 are essentially capturing he same phenomena.
23 Q. So o her than looking at he standard errors
24 and conducting what you called an auxiliary regression
25 test, are there any other tests hat one could conduct to

Page 296

1 determine whether he variables that you added to the
2 regression were collinear with variables already in he
3 model?
4
MR. KIERNAN: Object to form.
5
THE WITNESS: You could. I mean, I assume you
6 could do o her things. Those are he two primary ones
7 that people use.
8 BY MS. SWEENEY:
9 Q. Well, can you give me some specific examples of
10 other kinds of tests you could conduct?
11 A. I mean, it would all amount to essentially the
12 same thing because you're trying to evaluate the extent to
13 which this variable is a linear combination of the o her
14 variables hat are in the regression, so I think anything
15 else you do would be very similar.
16 Q. So, but you can't give me any names of specific
17 kinds of statistical tests you could conduct?
18 A. I wouldn't recall the names, but hey would
19 be -- hey would essentially amount to looking at the same
20 types of hings.
21 Q. Well, what is a variance inflation factor?
22 A. That's looking essentially at how much he
23 standard errors go up when you include he additional
24 variable.
25 Q. So did you compute a variance inflation factor

http://www.yeslaw.net/help

Volume II
Kevin Murphy, Ph.D.

Page 293..296
www.aptusCR.com

Volume II
Kevin Murphy, Ph.D.

Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 297

1 for each of he variables that you added to the
2 regression?
3 A. I did not specifically calculate it hat way.
4 I mean, you can calculate it from what we did. We have
5 he variance inflation here that you could calculate by
6 comparing the standard errors you get in he two different
7 ways of calculating he model wi h or without hose
8 additional variables.
9 Q. But -- so I'm not understanding. So you said,
10 "I did not specifically calculate it that way." So is
11 your testimony hat you can do hat and you can back it
12 out, but you didn't go through that extra step?
13 A. Yeah, because I didn't like take the ratio of
14 the two numbers and square them. You could do hat if you
15 wanted.
16 Q. What about, what is a condition number?
17 A. A condition number is a characteristic of the
18 matrix used to calculate the standard errors. I don't
19 recall the specifics of how it's calculated. But again,
20 it's looking at much of the same concept as you're looking
21 at here in terms of he variance inflation factor or the
22 ratio of the standard errors. All those things are
23 looking at the same basic concept.
24 Q. So in other words, you can use a condition
25 number to check whe her here is collinearity between

Page 298

1 variables that you've added and variables hat were
2 already in the regression?
3 A. I presume you could. I have never done it that
4 way. But hat would be one hing hat would presumably
5 reflect the impact. I think he bottom-line impact that
6 you care most about is what happens to the standard errors
7 because hat is the bottom-line concern. That's why I
8 hink that's he most direct and easiest to understand
9 approach.
10 Q. And so going back to he condition number, you
11 didn't use a condition number to check whether there was
12 high collinearity between variables that you added and
13 variables already in the model; correct?
14 A. I did not specifically do hat.
15 Q. Let's assume that the variables hat you added
16 are highly collinear with he model in Professor Noll's
17 model. If hat's true, what is the added value of
18 including them?
19 A. Well, you can see it -- in terms of explanatory
20 power, you can see it in the results on he table. And we
21 talk about his in the report. I mean, if you look at he
22 fraction of he remaining variance that's explained, you
23 could compare, for example, you know, column -- column one
24 and column two. You can see hat adding those
25 characteristics explain almost half of he remaining
Page 299

Page 300

1 say something we haven't talked about yet is that adding
2 hose coefficients makes a substantial difference to his
3 estimated coefficients, for example -4
(Reporter clarification.)
5 A. Adding hose variables has a substantial effect
6 on his estimated coefficients, which underscores what we
7 have talked about numerous times, which is his problem or
8 potential problem with omitted variables. These are just
9 some potential variables you could think about bringing
10 into he analysis, and just including hese made a
11 dramatic difference to his results.
12 BY MS. SWEENEY:
13 Q. Are you suggesting that here are o her
14 variables hat you could add to the regression?
15 A. I don't know if hey are ones that we have, but
16 it makes the point that his analysis is sensitive to he
17 existence of omitted variables and, you know, I don't
18 think -- we kind of know we don't have everything that
19 would determine pricing, and hat makes us worried that
20 o her variables could cause his coefficients to change
21 even more.
22 Q. So if you add variables to your regression that
23 are highly collinear with variables that are already in
24 the model, can one effect be to reduce the reliability of
25 the model?

http://www.yeslaw.net/help

1 variance, which is the standard one generally uses when
2 hinking about adding variables.
3
If you're worried about collinearity, you
4 realize hat, for example, in JT-6a hat actually the
5 standard error, the precision wi h which according to
6 Professor Noll's analysis you can estimate he iTunes 7
7 coefficient actually is improved, not reduced. So the
8 problem you're worried about under collinearity of making
9 it much more difficult to identify the existing variables,
10 at least as far as it goes for Professor Noll's iTunes 7
11 variable, doesn't happen.
12 Q. So is it your opinion hen hat all of he
13 added value of adding hese variables is reflected in the
14 regression output that's in your tables? I guess what I'm
15 trying to get at is, is here any hing else? I mean, I
16 asked you, what is the added value of adding hese
17 variables if there is collinearity, and you responded by
18 pointing to the regression output. Other than the
19 regression output, can you identify for me any added value
20 of adding variables to your regression?
21 A. I think hat -22
MR. KIERNAN: Objection; argumentative and to
23 he extent it misstates his prior testimony.
24
THE WITNESS: I hink there is some added value
25 hat's also -- it is reflected in the tables, but I would

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Confidential - Attorneys' Eyes Only
The Apple iPod iTunes Anti-Trust Litigation
Page 301

1
MR. KIERNAN: Object to form. Vague.
2
THE WITNESS: If in fact they were highly
3 collinear, you could have hat problem, but generally hat
4 will be reflected in he standard errors, and he impact
5 it has is going to depend on the other variable you're
6 concerned about. If I introduce a variable hat's highly
7 correlated with variable A, but it's not highly correlated
8 in a multi-varied sense with variable B, it may affect the
9 precision which I can affect -- estimate the coefficient
10 on A, but it may not have much effect at all -11
(Reporter clarification.)
12 A. -- the precision with which I can estimate he
13 coefficient on the variable where it has a strong
14 relationship, but often won't have an impact on my
15 precision of estimating the other variable. And so you
16 don't want to like have this blanket statement across the
17 regression.
And what's key here is hat the precision wi h
18
19 which I can estimate the iTunes 7 variable, which is I
20 think he primary variable of interest here, is not
21 reduced substantially by and in some cases actually
22 increased by adding these additional variables.
23 BY MS. SWEENEY:
24 Q. So looking at Exhibit JT-1a, which is the -25 this reflects at least in the right-hand columns when you

Page 302

1 added in he additional characteristics; correct?
2 A. Yes.
3 Q. And did you do any analysis whereby you just
4 added these additional variables one at a time? Is that
5 reflected anywhere in your report or in he exhibits?
6
MR. KIERNAN: Object to form.
7
THE WITNESS: It's not reflected in he
8 exhibits. I don't recall whether we did that or not.
9 BY MS. SWEENEY:
10 Q. I had -- let's see. Strike that.
11
You talk in your report about additional
12 characteristics that you have added having joint
13 significance. What do you mean by that?
14 A. That is, you're asking how much do they add to
15 the explanatory power on a combined basis, not on a
16 one-off basis. You're asking -- joint significance says
17 formally if you're thinking about a statistical test,
18 you're testing he hypo hesis that the coefficients on all
19 the variables are zero, that he true model is zero
20 coefficient on all he variables. You're not testing
21 whether any one of them is zero. You're testing whe her
22 they are all jointly equal to zero. That's the hypothesis
23 being tested in that joint test.
24 Q. Can you have joint significance in a regression
25 that also exhibits high multicollinearity?
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1
MR. KIERNAN: Object to form. Vague.
2
THE WITNESS: You could in principle, but he
3 evidences in this case is there isn't high degree of
4 multicollinearity between hat and the o her variables of
5 interest in his regression, which is what really matters
6 for he purpose of our analysis.
7 BY MS. SWEENEY:
8 Q. Is here high collinearity between hat and
9 variables other than the variables of interest?
10
MR. KIERNAN: Object to form.
11
THE WITNESS: I don't know about high. I -12 there -- here are going to be varying degrees to which
13 they are correlated wi h o her variables in he
14 regression. But he impact of hat is primarily going to
15 be on he coefficients of hose variables, not on he
16 coefficients of the variables hat continue to have
17 substantial amounts of independent variation.
18 BY MS. SWEENEY:
19 Q. You say in your report that he additional
20 characteristics that you've added, he additional
21 variables, increases he R-squared of he regressions.
22 Can a regression hat exhibits high multicollinearity have
23 a high R-squared?
24
MR. KIERNAN: Object to form. Vague.
25
THE WITNESS: Yeah, you could have a high

Page 304

1 R-squared with high multicollinearity, but if they were
2 really -- but hat's kind of like orthogonal to what we
3 are talking about here. The key here is that adding hese
4 variables added to the explanatory power of the regression
5 substantially. In he limit if these things were just
6 multicollinearity with what you already had, hey wouldn't
7 add any hing. And they are not reducing the precision
8 wi h which I can estimate he other coefficients.
9 That's -- and particularly the coefficient of interest.
10 That's the key question about whether you have an issue
11 here wi h multicollinearity.
12 BY MS. SWEENEY:
13 Q. Did you look at the extent to which he
14 additional characteristics that you added are correlated
15 with particular iPod models or families?
MR. KIERNAN: Object to form.
16
17
THE WITNESS: My suspicion is they would be
18 correlated. In some sense that's why you're controlling
19 for them. One of the major reasons you control for
20 variables is hat they are correlated wi h o her aspects
21 of the model you have.
22 BY MS. SWEENEY:
23 Q. And in some cases isn't it true that some of
24 these characteristics are probably 100 percent correlated
25 with a particular iPod model?

http://www.yeslaw.net/help

Volume II
Kevin Murphy, Ph.D.

Page 301..304
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*APPLE'S (PROPOSED) REDACTIONS*

EXHIBIT 62
[Filed Under Seal]

1 of 82

Page 1 to 1

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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---o0o--THE APPLE iPOD iTUNES
ANTITRUST LITIGATION
No.

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C-05-00037-JW(RS)

/

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VIDEOTAPED DEPOSITION OF ROGER G. NOLL

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VOLUME I

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(Pages 1 to 215)

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Taken before ERIN F. ROBINSON

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CSR NO. 12199

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April 7, 2011

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Aiken Welch Court Reporters R. Noll 04/07/2011

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MR. MEDICI:

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THE WITNESS:

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BY MR. MITTELSTAEDT:

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Object to form.
If they assume that it.

Q. -- then they wouldn't change prices?
A. Then they wouldn't change prices.
MR. MITTELSTAEDT:

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THE WITNESS:

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THE VIDEOGRAPHER:

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Okay.

Why don't we stop

there for the day.

Dr. Roger Noll.

Okay.
This concludes Volume 1 of

We are off the record at 3:38.

(Whereupon, the deposition was adjourned at
3:38 p.m.)

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SIGNATURE OF WITNESS

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Aiken Welch Court Reporters R. Noll 04/07/2011