Software Rights Archive, LLC v. Google Inc. et al

Filing 199

S o f t w a r e Rights Archive, LLC v. Google Inc. et al

D o c . 19

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

"T H E A P P L E IPOD ITUNES ANTI-T R U S T LITIGATION ." ___ ___ ___ ___ ___ ___ ___ __

) ) ) ) ) )

C -05 -0037- JW D E C E M B E R 1 6, 2008 P A G E S 1 - 54

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (APPEARANCES CONTINUED O N T H E NEXT PAGE .) 23 24 25 1 OFFICIAL COURT REPORTER : I R E N E RODRIGUEZ, C S R, CRR CERTIFICATE NUMBER 8074 FOR THE PLAINTIFFS: COUGHLIN, STOIA , GELLER, RUDMAN & ROBBINS BY: B O N N Y E . SWEENEY 655 W. BROADWAY SAN DIEGO , CALIFORNIA 92101 BRAUN LAW GROUP , P .C. BY: MICHAEL D. BRAUN 12304 SANTA MONICA BOULEVARD SUITE 109 LOS ANGELES, CALIFORNIA 90025 THE PROCEEDINGS WERE HELD BEFORE THE HONORABLE U N I T E D STATES DISTRICT JUDGE JAMES WARE A P P E A R A N C E S:

U.S. COURT REPORTERS

Dockets.Justia.co

1 2 3 FOR THE PLAINTIFFS: 4 5 6 7 FOR THE DEFENDANTS: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 JONES DAY B Y: ROBERT A . MITTELSTAEDT CARLYN CLAUSE 555 CALIFORNIA STREET 2 6TH FLOOR SAN FRANCISCO , CALIFORNIA 94104 BONNETT , FAIRBOURN, FRIEDMAN & BALINT B Y: FRANCIS J. BALINT , J R. 2901 N. CENTRAL AVENUE SUITE 1000 PHOENIX , ARIZONA 85012 A P P E A R A N C E S: (CONT 'D)

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SAN JOSE , CALIFORNIA

DECEMBER 16, 2008

PROCEEDINGS 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MOTION. M S. SWEENEY: THANK Y O U, YOUR H O N O R. THE HONOR . ( WHEREUPON , C O U R T C O N V E N E D A N D THE FOLLOWING PROCEEDINGS WERE HELD: ) T H E CLERK: CALLING CASE NUMBER 05 -00 37,

THE APPLE IPOD ITUNES ANTITRUST LITIGATION. O N FOR PLAINTIFFS' MOTION FOR CLASS CERTIFICATION. TWENTY MINUTES EACH SIDE. COUNSEL , PLEASE COME FORWARD AND STATE YOUR APPEARANCES . M S. SWEENEY: GOOD MORNING. BONNY

SWEENEY FOR T H E D I R E C T PURCHASER PLAINTIFFS. WITH ME IS PAULA ROACH ALSO OF MY OFFICE , FRANK B A L I N T, AND MICHAEL BRAUN. M R. MITTELSTAEDT : GOOD MORNING , YOUR

BOB MITTELSTAEDT F O R APPLE AND WITH ME IS

C A R L Y N C L A U S E FOR APPLE . T H E COURT: VERY WELL. M S. SWEENEY, YOUR

DIRECT PURCHASER PLAINTIFFS R O S E N, TUCKER , A N D CHAROENSAK SEEK CLARIFICATION OF A CLASS OF ALL PEOPLE I N THE UNITED STATES WHO PURCHASED IPODS 3

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DIRECTLY FROM APPLE BETWEEN A P R I L 2 003 A N D T H E PRESENT. I N THIS CASE, AS YOUR HONOR IS AWARE BECAUSE THE COURT H A S R U L E D ALREADY ON T W O MOTIONS TO DISMISS, PLAINTIFFS SEEK DAMAGES A N D INJUNCTIVE RELIEF F O R APPLE' S UNLAWFUL T Y I N G CONDUCT A N D I T S UNLAWFUL MONOPOLIZATION . PLAINTIFFS CLAIM THAT APPLE UNLAWFULLY TIED THE IPOD TO THE DIGITAL DOWNLOADS THAT ARE PURCHASED THROUGH THE ITUNES STORE BOTH VIDEO AND MUSIC . PLAINTIFFS ALSO CLAIM THAT APPLE UNLAWFULLY MONOPOLIZED OR ATTEMPTED TO MONOPOLIZE A L L T H R E E MARKETS ; THAT IS , T H E DIGITAL P O R T A B L E PLAYER MARKET, THE DIGITAL VIDEO DOWNLOAD MARKET, AND THE DIGITAL MUSIC DOWNLOAD MARKET. I N OUR PAPERS , YOUR HONOR , PLAINTIFFS S H O W E D THAT A L L O F T H E REQUIREMENTS OF RULE 23( A) A R E SATISFIED AND IN ADDITION THAT A C L A S S I S PROPERLY CERTIFIED U N D E R BOTH RULES 23 (B) (2) F O R INJUNCTIVE RELIEF A N D 2 3(B )(3 ) F O R DAMAGES. W E ALSO SUBMITTED A N EXPERT REPORT FROM PROFESSOR NOLL OF STANFORD UNIVERSITY. PROFESSOR

NOLL IS AN ECONOMIST W H O H A S BEEN VERY A C T I V E I N T H E F I EL D F O R MORE THAN 40 YEARS . HE' S PUBLISHED 4

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MORE THAN 1 3 B O O K S, MORE THAN 30 0 A R T I C L E S, AND HE SUBMITTED A N OPINION IN WHICH HE CONCLUDED THAT USING T H E K I N D S O F T O O L S THAT T H E ECONOMISTS U S E, PLAINTIFFS SHOULD BE ABLE TO PROVE USING COMMON PROOF BOTH COMMON I M P A C T THAT EACH MEMBER OF T H E PROPOSED CLASS SUFFERED ANTITRUST DAMAGES , AND ALSO PROFESSOR NOLL PROPOUNDED THREE ALTERNATIVE DAMAGES METHODOLOGIES THAT C A N BE USED T O SHOW DAMAGES TO T H E C L A S S. A L L THREE OF THESE METHODOLOGIES HAVE BEEN ADOPTED B Y C O U R T S IN NUMEROUS OTHER ANTITRUST CASES , INCLUDING MOST RECENTLY JUDGE HAMILTON AND JUDGE WILKINS BOTH O F THE NORTHERN DISTRICT CERTIFIED T H E DR A M C L A S S A N D THE SRAM CLASS IN RELIANCE ON E X P E R T NOLL 'S EXPERT R E P O R T. NOTABLY APPLE DID NOT SUBMIT ANY EXPERT TESTIMONY T O CHALLENGE PROFESSOR NOLL' S CONCLUSIONS . THERE I S JUST ONE UNCHALLENGED EXPERT REPORT I N THIS CASE, YOUR HONOR, A N D I T I S PLAINTIFFS' EXPERT PROFESSOR NOLL. I N O U R OPENING B R I E F A N D IN OUR REPLY BRIEF , PLAINTIFFS DEMONSTRATED THAT EACH ELEMENT O F THEIR C L A I M S, THEIR ANTITRUST C L A I M S, CAN BE P R O V E N WITH COMMON PROOF . 5

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A S T O T H E TYING CLAIM, T H E ELEMENTS A R E FAIRLY STRAIGHTFORWARD. YOU HAVE T O PROVE THAT

THEY' RE SEPARATE PRODUCTS. A P P L E H A S CONCEDED THAT THEY 'RE SEPARATE PRODUCTS SO THERE 'S NO QUESTION THAT THAT PROOF WILL BE COMMON . I N A D D I T I O N, PLAINTIFFS HAVE TO SHOW THAT APPLE HAS SOME MEASURE, NOT NECESSARILY MONOPOLY POWER , B U T SOME MEASURE IN T H E T Y I N G M A R K E T. IS T H E T Y I N G PRODUCT M A R K E T I S T H E MARKET F O R DIGITAL DOWNLOADS . A N D THAT, AS PROFESSOR NOLL OPINED IN H I S MANY COURTS HAVE HELD, THE QUESTION OF T H E APPROPRIATE DEFINITION OF THE M A R K E T A N D WHETHER T H E DEFENDANT HAS M A R K E T P O W E R, THOSE ISSUES A R E BOTH SUSCEPTIBLE OF ESTABLISHING THROUGH COMMON PROOF , NOT THROUGH INDIVIDUAL PROOF . PLAINTIFFS ALSO HAVE T O SHOW THAT APPLE' S CONDUCT HAD N O T INSUBSTANTIAL E F F E C T O N C O M M E R C E I N THE TIED PRODUCT MARKET . N O W, THIS IS A VERY DE MINIMUS TEST A N D WE E X P E C T THAT APPLE WILL CONCEDE THAT POINT . T H E ONLY A P P L E A R G U M E N T I N OPPOSITION TO PLAINTIFFS' MOTION I S C O E R C I O N. THIS IS THE ONLY THAT

ARGUMENT THAT APPLE MAKES TO ARGUE THAT T HE CLASS 6

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S H O U L D N O T BE CERTIFIED . A N D THE PROBLEM WITH A P P L E'S COERCION ARGUMENT , YOUR HONOR , I S THAT IT IS O N E THAT H A S ALREADY BEEN R E J E C T E D B Y THIS COURT TWICE IN DENYING APPLE' S T W O MOTIONS T O DISMISS . I T H A S ALSO BEEN REJECTED BY T H E N I N T H CIRCUIT. A P P L E A R G U E S THAT EVEN T H O U G H T H E TIE , THAT IS THE RESTRICTION ON I T U N E S THAT PREVENTS DIGITAL DOWNLOADS , BOTH VIDEO A N D M U S I C, FROM PLAYING DIRECTLY ON ANY PORTABLE P L A Y E R O T H E R THAN T H E IPOD , EVEN T H O U G H THAT RESTRICTION IS PRESENT IN EACH AND EVERY DOWNLOAD , A N D EACH A N D EVERY IPOD, THAT YOU HAVE TO TAKE INDIVIDUAL TESTIMONY T O DETERMINE WHETHER ANY INDIVIDUAL MEMBER O F THE CLASS WOULD HAVE PURCHASED T H E TIED PRODUCT BUT F O R T H E T I E. B U T THAT'S N O T WHAT T H E L A W REQUIRES. A S YOUR HONOR RECOGNIZED IN DENYING APPLE 'S TWO MOTIONS TO DISMISS, BOTH I N T H E SLATTERY CASE AND IN T H E T U C K E R CASE, IN THE NINTH CIRCUIT THE COURT IS N O T R E Q U I R E D T O O R T H E PLAINTIFF I S N O T REQUIRED TO DEMONSTRATE ACTUAL COERCION . R A T H E R, T H E PLAINTIFF IS REQUIRED TO 7

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DEMONSTRATE M A R K E T L E V E L C O E R C I O N A N D THE NINTH CIRCUIT HELD I N T H E CASE O F M O O R E V E R S U S JAS O N MATTHEWS THAT COERCION MAY BE IMPLIED FROM A SHOWING THAT A N A P P R E C I A B L E N U M B E R OF BUYERS HAVE ACCEPTED BURDENSOME TERMS. OF B U Y E R S. S O PLAINTIFF HAS TO SHOW THAT A N APPRECIABLE N U M B E R O F B U Y E R S OF THE TIED PRODUCT WOULD N O T HAVE PURCHASED THAT PRODUCT BUT F O R T H E T I E. PLAINTIFF DOESN' T HAVE TO SHOW THAT EACH A N D E V E R Y M E M B E R OF THE CLASS WOULD HAVE MADE A N IDENTICAL DECISION. A S PROFESSOR NOLL O P I N E D IN HIS R E P O R T A N D TESTIFIED AT HIS DISPOSITION , WHAT MATTERS IS THAT THERE IS A SUFFICIENT N U M B E R THAT IT ENABLED APPLE TO INCREASE I T S M A R K E T POWER AND THEREBY INCREASE T H E P R I C E O F T H E TIED PRODUCT THAT IS THE IPOD. N O W, IN T H E M O O R E CASE , W H I C H I MENTIONED, AND THIS IS 550 F. 2D 120 7, AND THAT CASE INVOLVED AN ALLEGED TIE BETWEEN THE SALE OF CEMETERY LOTS AND MEMORIAL MARKERS. N O W, T H E F A C T S O F THAT CASE WERE THAT T H E DEFENDANT O W N E D E I GH T O F T H E S E CEMETERIES . ONLY 8 A N APPRECIABLE NUMBER

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FIVE OF THOSE CEMETERIES A C T U A L L Y R E Q U I R E D THAT A P E R S O N W H O WANTED TO PURCHASE A CEMETERY LOT ALSO PURCHASED A MARKER. THE NINTH CIRCUIT HELD THAT THAT WAS SUFFICIENT. A N D THE NINTH CIRCUIT SAID THAT

RELYING UPON THE LEADING SUPREME COURT TYING CASES , THE COURT SAID THE NINTH CIRCUIT , OUR READING O F T H E SUPREME COURT 'S OPINIONS SUPPORTS THE VIEW THAT COERCION M A Y B E IMPLIED FROM A SHOWING THAT AN APPRECIABLE NUMBER O F BUYERS HAVE ACCEPTED BURDENSOME TERMS SUCH A S THE TYING PRODUCT MARKET. COERCION OCCURS WHEN THE BUYER MUST ACCEPT THE TIED ITEM AND FOREGO POSSIBLY DESIRABLE SUBSTITUTES . W E ALSO CITED A NUMBER OF OTHER CASES SUPPORTING THE POINT MADE BY THE NINTH CIRCUIT IN MOORE . FOR EXAMPLE, T H E B A F U S CASE , W H I C H W E CITE

IN O U R P A P E R S, YOUR HONOR, CERTIFIED A CLASS ON T H E BASIS THAT THERE WAS AN APPRECIABLE N U M B E R O F B U Y E R S W H O WERE INFLUENCED BY T H E T I E RATHER THAN AN ABSOLUTE REQUIREMENT THAT EACH A N D EVERY MEMBER OF T H E P R O P O S E D C L A S S W A S BOUND BY THE T I E. APPLE ALSO MAKES THE ARGUMENT THAT THE TYING CLAIM C A N'T BE CERTIFIED BECAUSE OF WHAT IT R E F E R S T O A S T H E PACKAGE T H E O R Y OF DAMAGES. 9

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A P P L E R E L I E S ON AN ELEVENTH CIRCUIT CASE WHICH CITES T H E N I N T H CIRCUIT 'S SIEGLE CASE FOR T H E PROPOSITION THAT, WELL, IN SOME CASES A T I E ACTUALLY REDUCES -- HAS T H E E F F E C T IT MAY INCREASE T H E P R I C E O F T H E TIED PRODUCT , B U T IT HAS T H E E F F E C T O F R E D U C I N G T H E PRICE OF THE TYING PRODUCT. I N O T H E R W O R D S, APPLE SAYS HERE Y O U HAVE TO DETERMINE WHETHER T H E I T U N E S VIDEO AND DIGITAL DOWNLOADS W A S DECREASED AS A RESULT OF T H E T I E. WELL , THAT I S N'T REALLY A CORRECT STATEMENT O F T H E LAW IN T H E N I N T H CIRCUIT . T H E SIEGLE CASE INVOLVED THE CLASS . THE

NINTH CIRCUIT DID N O T O V E R T U R N T H E CLASS DECISION N O R D I D THE NINTH CIRCUIT OVERTURN THE LIABILITY JUDGMENT IN FAVOR OF T H E PLAINTIFFS . RATHER , THE

NINTH CIRCUIT SAID THAT Y O U HAVE TO TAKE THIS INTO ACCOUNT IN CALCULATING THE A M O U N T O F DAMAGES . S O I T I S MERELY A DAMAGES QUESTION AND A S BLACKIE AND MANY OTHER NINTH CIRCUIT A N D MANY O T H E R NORTHERN CALIFORNIA CASES HAVE HELD , EVEN IF THERE ARE DAMAGES ISSUES, THAT DOES NOT PRECLUDE CERTIFICATION OF A C L A S S. N O W, MOREOVER , T H E SIEGLE CASE WAS A L I T T L E UNUSUAL BECAUSE THERE THERE WAS NO PRICE F O R THE ALLEGED TYING PRODUCT. T H E SO- CALLED TYING 10

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PRODUCT WAS T H E U S E OF THE TRADEMARK NAME CHICKEN DELIGHT WHICH APPARENTLY H A D VALUE IN THE M A R K E T. HERE , O F C O U R S E, PLAINTIFFS AND MEMBERS OF T H E C L A S S PAID MONEY F O R T H E I R I T U N E S DIGITAL VIDEO AND MUSIC DOWNLOADS. W E ALSO HAVE A CLAIM FOR MONOPOLIZATION BOTH FOR ATTEMPTED MONOPOLIZATION A N D MONOPOLY MAINTENANCE OR CREATION . N O W, APPLE DOESN 'T REALLY ADDRESS THIS ARGUMENT AT A L L I N T H E I R P A P E R S. APPLE MERELY SAYS

THAT IT' S B A S E D O N O U R TYING THEORY , A N D, THEREFORE, IT FAILS FOR T H E SAME REASONS. WELL , I N FACT , PLAINTIFFS HAVE ALLEGED A MONOPOLIZATION CLAIM THAT DON 'T RELY S O L E L Y ON THEIR TYING CLAIMS. THERE ARE SEVERAL DIFFERENT ASPECTS O F APPLE 'S CONDUCT THAT PLAINTIFFS CONTEND A R E AND WERE ANTICOMPETITIVE . A N D AS WE EXPLAINED IN O U R P A P E R S, A L L O F T H E E L E M E N T S O F T H E PLAINTIFFS' MONOPOLIZATION AND ATTEMPTED MONOPOLIZATION CLAIMS WILL B E PROVEN RELYING ON EVIDENCE THAT I S C O M M O N TO THE CLASS BECAUSE IT IS PRINCIPALLY, IF N O T E N T I R E L Y, EVIDENCE THAT IS IN THE HANDS OF APPLE . FIRST THE PLAINTIFF HAS T O SHOW THAT 11

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APPLE H A S M A R K E T POWER IN THE PROPERLY DEFINED MARKET. MARKETS. A N D THEN T H E PLAINTIFFS HAVE TO SHOW THAT APPLE ACQUIRED OR MAINTAIN ED THAT M O N O P O L Y THROUGH WILLFUL OR ANTICOMPETITIVE CONDUCT. A N D THE ANTICOMPETITIVE CONDUCT THAT IS OUTLINED IN O U R P A P E R S AND IN T H E AMENDED COMPLAINT IS , O N E, T H E ENCRYPTION THAT WE COMPLAIN ABOUT, NAMELY, THAT APPLE ENCRYPTS THE DIGITAL DOWNLOADS WITH IT' S O W N PROPRIETARY DRM , THEREBY PREVENTING DIRECT PLAY BACK O N ANY PORTABLE PLAYER OTHER THAN THE IPOD . I N A D D I T I O N, APPLE HAS TAKEN STEPS THROUGHOUT THE CLASS P E R I O D T O P R E C L U D E E N T R Y B Y WOULD BE COMPETITORS . WHEN A COMPETITOR FIGURED AND AGAIN W E ALLEGE THREE MONOPOLY

O U T H O W TO PLAY I T U N E S MUSIC ON ITS COMPETING PORTABLE PLAYER, APPLE PROMPTLY ISSUED A SOFTWARE FIX THAT PREVENTED THAT . APPLE COULD HAVE LICENSED ITS PROPRIETARY DR M ENCRYPTION TO O T H E R S. IT COULD HAVE PURCHASED

A LICENSE T O O T H E R S FOR ANOTHER ENCRYPTION METHODOLOGY . ENCRYPTION. IT COULD HAVE USED A NON PROPRIETARY T H E R E A R E ALL SORTS OF WAYS IN WHICH

APPLE 'S CONDUCT W A S DESIGNED TO -- INTENDED TO AND 12

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H A D T H E EFFECT OF PRECLUDING ENTRY INTO T H E MARKET A N D M A I N T A I N I N G I T S OWN MONOPOLY IN A L L T H R E E MARKETS. T H E COURT: N O W, HAVE I PREVIOUSLY RULED

IN A N Y W A Y THAT T H E I R U S E OF THEIR OWN DR M I S WILLFUL CONDUCT THAT WOULD SUPPORT A MONOPOLY CLAIM ? M S. SWEENEY: YOUR HONOR IN THE RULINGS

ON T H E M O T I O N TO DISMISS RECOGNIZED T H E PLAINTIFFS ' ALLEGED NUMEROUS WAYS I N WHICH APPLE COULD HAVE AVOIDED THE T I E A N D AVOIDED - - A N D YOUR H O N O R D I D N O T SPECIFICALLY RULE THAT USING I T S O W N DRM W A S ANTICOMPETITIVE O R WILLFUL CONDUCT. S O THAT ISSUE REMAINS TO BE RESOLVED ON A MORE COMPLETE RECORD . T H E COURT: THAT 'S THE PART OF THE

MONOPOLY A N D ATTEMPTED MONOPOLY CLAIM THAT I 'M NEEDING MORE HELP FROM THE PARTIES ON AND UNDERSTANDING, BUT I HAVE COME T O THE TENTATIVE CONCLUSION THAT I CAN PROCEED WITH CLASS CERTIFICATION AND LEAVE THIS FOR LATER . Y O U A G R E E WITH THAT? M S. SWEENEY: T H E COURT: Y E S, YOUR H O N O R. A L L RIGHT. I MIGHT GET A I SUPPOSE

DIFFERENT VIEW FROM YOUR O P P O N E N T, BUT IT SEEMS TO 13

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ME THAT WHAT I AM BOTHERED BY BY THIS ARGUMENT THAT IT 'S WILLFUL CONDUCT IS BECAUSE IT SEEMS TO ME THAT WHAT I UNDERSTAND ABOUT D R M S O F T W A R E I S THAT IT 'S SOMETHING THAT IS DONE TO PROTECT T H E COPYRIGHT OWNER AND THAT ALL DOWNLOAD, SOFTWARE DOWNLOAD DISTRIBUTORS HAVE TO INCORPORATE SOMETHING O F THAT KIND IN THE SOFTWARE . A N D SO IT SEEMS TO ME THAT T H E QUESTION THAT I HAVE IN MY MIND IS WHETHER W I L L F U L N E S S MUST BE SOMETHING MORE THAN SIMPLY CHOOSING A PARTICULAR DRM OVER ANOTHER. A N D WHAT I REMEMBER EARLY ON IN T H E CASE IS WHAT YOU 'RE TELLING ME THAT SOMEHOW THERE W A S A MODIFICATION O F T H E DRM IN A WAY THAT WAS ANTICOMPETITIVE, NOT T H E P R E S E N C E O F A D R M. A N D SO I'M T R Y I N G T O MAKE SURE THAT A S I PROCEED I HIGHLIGHT THAT I NEED TO UNDERSTAND THAT ISSUE BETTER. THIS MAY N O T B E T H E TIME T O D O I T,

B U T I T'S O N E O F T H O S E ISSUES THAT I 'M STRUGGLING WITH. M S. SWEENEY: HONOR . I APPRECIATE THAT , YOUR

AND PLAINTIFFS' VIEW IS THAT O N THIS R E C O R D WE D O N'T

WE HAVEN 'T YET H A D A N Y MERITS DISCOVERY. HAVE A COMPLETE RECORD.

A N D WE BELIEVE, OF COURSE ,

THAT THE EVIDENCE WILL BEAR O U T OUR ALLEGATIONS IN 14

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OUR COMPLAINT THAT THERE ARE SEVERAL DIFFERENT TYPES OF CONDUCT THAT A P P L E ENGAGED IN THAT CONSTITUTE WILLFUL A N D ANTI-COMPETITIVE CONDUCT . D I D YOUR H O N O R WANT ME TO -T H E COURT: M S. SWEENEY: T H E COURT: N O, GO AHEAD. OKAY. I W A S JUST PAUSING AT THAT

POINT BECAUSE THAT I S A N AREA THAT I M A R K E D FOR MYSELF T O GET A BETTER UNDERSTANDING O F A T SOME APPROPRIATE POINT . M S. SWEENEY: THANK Y O U, YOUR H O N O R. AS

I MENTIONED BEFORE, PLAINTIFFS' EXPERT PROFESSOR NOLL HAS DESCRIBED T H R E E P R O P O S E D METHODOLOGIES F O R CALCULATING DAMAGES. O N E IS THE B E F O R E A N D AFTER;

T H E S E C O N D IS THE YARDS T I C K M E T H O D; A N D T H E THIRD IS O N E THAT LOOKS AT APPLE 'S PROFIT MARGINS, IT 'S MARKU P S. A L L THREE OF THESE METHODS HAVE BEEN R E L I E D UPON BY C O U R T S I N O T H E R ANTITRUST CASES, INCLUDING I N T H E DR A M CASE WHICH W A S A PRICE FIXING CASE; T H E SRAM CASE, ANOTHER PRICE FIXING CASE. THEY ALSO HAVE BEEN ADOPTED BY COURTS THAT HAVE CERTIFIED CLASSES WHERE PLAINTIFFS ALLEGE TYING CLAIMS. F O R EXAMPLE, THE S E C O N D CIRCUIT IN T H E 15

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VISA CHECK MASTER MONEY LITIGATION CERTIFIED A CLASS OF MERCHANTS - - E X C U S E ME -- WHO CHALLENGED VISA AND M A S T E R CARD 'S TYING OF THE MERCHANT 'S ACCEPTANCE OF SIGNATURE DEBIT TO THEIR ACCEPTANCE OF C R E D I T C A R D S. I N THAT CASE THE PLAINTIFFS' E X P E R T PROFFERED A METHODOLOGY THAT USED T H E YARDSTICK METHOD. T H E E X P E R T COMPARED THE COST OF ACCEPTANCE

OF SIGNATURE D E B I T, WHICH IS WHERE YOU HAVE TO SIGN TO U S E T H E CREDIT CARD AND P I N D E B I T A N D THE COURT HELD THAT W A S AN APPROPRIATE METHOD F O R D E T E R M I N I N G T H E OVERCHARGE C A U S E D B Y T H E TIE . T H E BAFUS CASE, WHICH WE CITE I N O U R P A P E R S, ALSO R E L I E S UPON A YARDS T I C K M E T H O D AND THAT ALSO I S A TYING CASE. A P P L E SAYS THAT THE APPROPRIATE METHODOLOGY F O R D E T E R M I N I N G DAMAGES IN A TYING CASE IS A METHODOLOGY CITED IN THE L E S S I G CASE . A NINTH CIRCUIT CASE . B U T AS WE POINT OUT IN O U R P A P E R S, T H E L E S S I G CASE H A S N O A N A L Y S I S A S T O WHAT KIND OF DAMAGES METHODOLOGY IS APPROPRIATE IN A T Y I N G CASE . I T MERELY, EXCUSE M E, AFTER TRIAL -T H E COURT: WATER . 16 Y O U CAN PAUSE A N D G E T SOME THAT'S

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HONOR .

M S. SWEENEY:

OH , T H A N K Y O U, YOUR HONOR.

I N T H E LESSIG CASE THE COURT HELD THAT T H E INTRODUCTION BY THE PLAINTIFF O F CERTAIN EVIDENCE REGARDING THE COST O F SUBSTITUTE PRODUCTS WHICH W A S T H E ONLY E V I D E N C E I N T H E RECORD AS TO DAMAGES WAS SUFFICIENT TO SUPPORT T H E JURY'S VERDICT. S O W E D O N' T T H I N K THAT T H E LESSIG CASE HAS ANY APPLICABILITY. A N D I S E E T H E LIGHT IS ON,

YOUR HONOR, A N D I WANT TO RESERVE SOME TIME FOR REBUTTAL SO I' LL CLOSE MY REMARKS N O W. VERY MUCH. T H E COURT: A L L RIGHT. COUNSEL . THANK YOU

M R. MITTELSTAEDT :

GOOD MORNING , YOUR

IT WOULD BE UNPRECEDENTED A N D CONTRARY TO

PRECEDENT T O CERTIFY T H E CLASSES OR T H E C L A S S REQUESTED B Y THE PLAINTIFFS HERE . I F A N Y ONE H A D T H E TYING OR MONOPOLIZATION CLAIM THAT THEY ALLEGE, THE ONLY WAY TO PROVE IT WOULD BE BY INDIVIDUAL PROOF. AND

THAT' S TRUE BOTH FOR T H E A L L IMPORTANT COERCION ELEMENTS A N D I T'S ALSO TRUE F O R FACT O F I N J U R Y OR IMPACT. I N A TYING CASE THE PLAINTIFF C O M E S INTO COURT AND PROVES THAT I N ORDER T O BUY A HIGHLY 17

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DESIRABLE PRODUCT HE W A S ALSO F O R C E D T O B U Y A PRODUCT THAT H E DIDN 'T WANT, THE TIED AND T H E T Y I N G PRODUCT. S O I N T Y I N G C A S E S, THE PRODUCT THAT H E'S F O R C E D T O B U Y IS ONE THAT HE DOESN' T WANT BY DEFINITION. H E'S COERCED, HE 'S FORCED INTO BUYING

T H E PRODUCT THAT HE DOESN' T WANT IN ORDER TO B U Y T H E PRODUCT THAT HE DOES WANT . HERE WHAT IS WRONG WITH THIS CASE RIGHT FROM THE O U T S E T I S THAT THEY' RE SAYING THAT THE PRODUCT THAT A L L OF THEIR CLASS MEMBERS, ALL CONSUMERS HAVE BEEN FORCED TO B U Y I S A N IPOD , O N E OF T H E MOST POPULAR PRODUCTS IN THE COUNTRY. S O T H E I R B U R D E N IS TO SHOW THAT SOMEBODY , THAT EVERYBODY THAT WHOEVER I S I N THEIR CLASS WAS F O R C E D T O B U Y AN IPOD R A T H E R THAN B U Y I N G AN IPOD F O R A L L OF THE REASONS THAT P E O P L E BUY IPODS , COMPLETELY UNRELATED TO T H E AVAILABILITY OF MUSIC FROM APPLE' S M U S I C S T O R E. I 'LL G E T INTO THIS IN MORE D E T A I L BUT WHEN THEY TALK ABOUT THE MOORE CASE , THE NINTH CIRCUIT CASE THAT SAYS THAT Y O U CAN INFER COERCION IF AN APPRECIABLE N U M B E R O F P E O P L E AGREE TO AN ONEROUS TERM, A BURDENSOME TERM. THAT HAS N O

APPLICATION HERE, THAT EVIDENTIARY INFERENCE OR 18

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IMPLICATION H A S N O BEARING HERE, NO APPLICATION BECAUSE BUYING AN IPOD IS NOT A BURDENSOME TERM , IT 'S NOT ONEROUS, IT 'S NOT SOMETHING THAT P E O P L E WOULD DO ONLY IF THEY'R E F O R C E D TO DO IT. S O THIS IDEA THAT THEY C A N JUST SORT OF WAVE THEIR HANDS AND S A Y EVERYBODY IS COERCED T O B U Y A N IPOD WITHOUT ANY PROOF , WITHOUT GOING P E R S O N BY P E R S O N A N D WITHOUT A S K I N G WHY D I D Y O U BUY YOUR IPOD? W A S IT BECAUSE Y O U WERE F O R C E D BECAUSE Y O U

H A D B O U G H T MUSIC FROM A P P L E S T O R E, OR WAS IT F O R A N Y O T H E R N U M B E R OF REASONS? S O, FIRST OF ALL , WHAT IS WRONG WITH THE WHOLE CASE AND WHAT HAS , Y O U KNOW, STRONG BEARING ON WHETHER THEY C A N CERTIFY A CLASS IS THAT THE PRODUCT THAT THEY HAVE SELECTED FOR T H E TIED PRODUCT IS A VERY POPULAR PRODUCT. S E C O N D L Y, IT' S SEPARATELY AVAILABLE A N D CAN B E USED SEPARATELY. A N D THAT'S TRUE BOTH O F EVERYBODY KNOWS AND WE

T H E M U S I C A N D OF THE IPOD.

N O W HAVE IT IN T H E R E C O R D IN THE DEPOSITIONS OF T H E PLAINTIFFS AND THEIR E X P E R T, YOU C A N WALK INTO AN APPLE STORE A N D B U Y AN IPOD. ABOUT T H E M U S I C. N O B O D Y -- AND Y O U C A N BUY MUSIC ON T H E MUSIC STORE A N D N O B O D Y EVER SAYS WE 'RE ONLY GOING 19 NOBODY EVER ASKED YOU

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TO SELL YOU MUSIC IF Y O U A G R E E T O B U Y AN IPOD. T H E OTHER WAY WE KNOW SOMETHING IS WRONG WITH THIS CASE IS EACH OF THE PLAINTIFFS, A L L FIVE OF THEM, TESTIFIED THAT THEY BOUGHT IPODS VOLUNTARILY WITHOUT COERCION. I N MOST CASES THEY HADN'T EVEN BOUGHT MUSIC FROM THE MUSIC STORE Y E T. S O W E KNOW THEY WEREN' T COERCED . HAVE ADMITTED THEY W E R E N'T COERCED. THEY

T H E R E'S NEVER

BEEN A T Y I N G CASE BY A CONSUMER WHERE THE CONSUMER COMES IN A N D SAYS THAT I WASN 'T COERCED B U T YET I WANT TO REPRESENT A CLASS AND S A Y THAT T H E C L A S S WAS COERCED . I N ADDITION, THEY HAVE NOT IDENTIFIED A S I N G L E P E R S O N WHO THEY SAY W A S COERCED ON T H E THEORY THAT THEY HAVE THEORIZED HERE AND THEY HAVEN 'T COME U P WITH A N Y M E T H O D OF IDENTIFYING ANYBODY WHO THEY SAY W A S COERCED . T H E COURT: L E T' S D I V I D E THE

CONSIDERATION INTO WHETHER OR N O T T H E R E I S P R O O F O F INDIVIDUAL COERCION WITH WHETHER OR N O T T H E R E N E E D S BE PROOF OF INDIVIDUAL COERCION AND -- BECAUSE Y O U'R E RAISING BOTH. A N D I BELIEVE THAT MY PRIOR LOOK A T THIS LEAD ME TO BELIEVE THAT INDIVIDUAL COERCION IS 20

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UNNECESSARY IF I CAN IDENTIFY COERCION AT A MARKET LEVEL . N O W, Y O U M A Y TAKE I S S U E WITH THAT, B U T I T SEEMS TO ME THAT THAT I S WHAT Y O U, THAT I S WHAT Y O U A R E F A C E D WITH IN TERMS OF T H E C O U R T'S PRIOR R U L I N G A N D ESSENTIALLY WHAT Y O U'R E I N V I T I N G M E T O D O I S T O GO BACK TO THAT, REEXAMINE IT , A N D TURN I T A R O U N D A N D THEN GO TO INDIVIDUAL COERCION AS OPPOSED T O M Y NEEDING TO FIND INDIVIDUAL COERCION . M R. MITTELSTAEDT : HEAD ON. DISMISS. LET ME ADDRESS THAT

T H E COURT -- AND THIS IS ON THE M O T I O N T O S O Y E A R S A G O BEFORE WE H A D D E P O S I T I O N S,

BEFORE W E WERE COMING T O THE CLASS CERT STAGE WHERE T H E Q U E S T I O N I S H O W ARE T H E PLAINTIFFS GOING TO PROVE THEIR CASE AND C A N THEY PROVE IT ON A CLASS BASIS ? YOUR HONOR R E L I E D O N T H E MURPHY CASE FOR THIS CONCEPT O F MARKET LEVEL COERCION. WITH ALL

RESPECT, MURPHY DOES NOT SUPPORT THAT PROVISION , THAT PROPOSAL. M U R P H Y SAYS I T S T A R T S OFF RELYING ON JEFFERSON PARISH, T H E SUPREME COURT CASE, THAT SAYS AN ESSENTIAL CHARACTERISTIC O F T Y I N G I S FORCING T H E BUYER , A N D I'M PARAPHRASING, FORCING T H E BUYER INTO T H E P U R C H A S E O F A TIED PRODUCT THAT HE DIDN' T WANT . 21

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CASE.

A N D THEN T H E COURT SAYS, WE AGREE WITH T H E D I S T R I C T C O U R T THAT SUMMARY JUDGMENT FOR DEFENDANTS WAS APPROPRIATE . AS THAT C O U R T S T A T E D,

T H E U NCONTRADICTED E V I D E N C E S H O W S THAT NO PLAINTIFF W A S F O R C E D TO ACCEPT A TIED PRODUCT . S O I N T H E MURPHY CASE THE COURT AFFIRMED SUMMARY JUDGMENT FOR T H E DEFENDANT. THE DEFENDANT

W O N O N T H E GROUND THAT THE PLAINTIFF H A D NOT SHOWN THAT HE WAS F O R C E D T O A C C E P T THE TIED PRODUCT. T H E COURT DIDN'T S A Y, WELL, THAT D O E S N'T M A T T E R A S LONG AS HE C A N P R O V E M A R K E T LEVEL COERCION . IN THAT CASE T H E C O U R T SAYS , Y O U' RE OUT

OF COURT , PLAINTIFF, BECAUSE YOU HAVEN 'T PROVED COERCION . T H E PLAINTIFFS, YOUR H O N O R, DO NOT T R Y AND SUPPORT THE PRIOR DECISION BASED O N THE MURPHY CASE. THEY RECOGNIZE A T LEAST IMPLICITLY THAT

M U R P H Y D O E S N'T SUPPORT A CONCEPT OF M A R K E T L E V E L COERCION . WHAT THEY DO IS THAT THEY GO TO T H E M O O R E T H E R E I S A PRIOR DECISION IN T H E M O O R E CASE

AT 47 3 F .2D 32 8 THAT TALKS ABOUT T H E E V I D E N C E O F COERCION IN THAT RECORD . I N M O O R E I T S E L F, MOORE S T A R T S O F F BY S A Y I N G T HAT COERCION IS REQUIRED . IT SAYS T Y I N G S 22

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INVOLVE A S E L L E R' S REFUSAL TO SELL ONE PRODUCT UNLESS THE BUYER ALSO PURCHASES ANOTHER PRODUCT . AND THEN I T SAYS , REVIEWS THE EVIDENCE O F COERCION ON THAT RECORD , A N D THEN I T SAYS , "C O E R C I O N M A Y BE IMPLIED FROM A SHOWING THAT AN APPRECIABLE NUMBER O F BUYERS HAVE ACCEPTED BURDENSOME TERMS. " A N D THIS I S WHAT I WAS REFERRING T O BEFORE. IN ORDER TO G E T T H E BENEFIT O F A N

INFERENCE THAT THERE 'S COERCION, THEY HAVE T O SHOW THAT AN APPRECIABLE NUMBER OF B U Y E R S A C C E P T E D BURDENSOME TERMS. B U T BUYING AN IPOD IS NOT A BURDENSOME TERM. O N E CANNOT INFER FROM THE MERE FACT THAT

SOMEBODY BUYS AN IPOD THAT THEY WERE COERCED INTO DOING THAT AND THAT WAS TRUE WHETHER I T'S AN INDIVIDUAL OR WHETHER Y O U LOOK A T A L L INDIVIDUALS. T H E COURT: WELL , YOU STATE THAT BUYING

AN IPOD IS NOT A BURDENSOME TERM B U T A M I TO S I M P L Y A C C E P T THAT AT THIS POINT? M R. MITTELSTAEDT : YOUR H O N O R, IF I C O U L D

HAND UP A HANDOUT THAT WILL ADDRESS THAT ISSUE. THIS FIRST CHART SUMMARIZES THE EVIDENCE IN T H E R E C O R D AND SOME OF IT IS CONFIDENTIAL SO I' M N O T G O I N G T O S A Y IT OUT LOUD. BUT WHAT W E KNOW 23

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FROM THE DATA IS THAT A MAJORITY OF IPOD USERS E I T H E R RECEIVE THEIR IPOD AS A GIFT , S O THEY WEREN 'T COERCED, OR THE P E R S O N B U Y I N G IT WASN'T COERCED OR THEY N E V E R B O U G H T MUSIC FROM A P P L E'S MUSIC STORE SO THEY COULDN 'T HAVE BEEN COERCED BY THAT. A N D AT PAGE 6 OF O U R B R I E F W E S E T FORTH T H E DATA ON THAT, B U T I T'S A SIZEABLE PERCENTAGE O F IPOD PURCHASERS JUST NEVER GO TO T H E M U S I C S T O R E. SO THEY COULDN 'T HAVE BEEN COERCED UNDER THE PLAINTIFFS' T H E O R Y, OR THEY B O U G H T THE IPOD BEFORE B U Y I N G A N Y MUSIC FROM T H E MUSIC STORE, SO THEY COULDN'T HAVE BEEN COERCED , O R THEY HAVE VERY S M A L L ELEMENTS OF I T U N E S M U S I C O N T H E I R IPOD . S O U N D E R T H E I R LOCK -IN T H E O R Y I T D O E S N'T WORK BECAUSE T H E MAJORITY OF THE MUSIC ON AN IPOD COMES FROM SOURCES O T H E R THAN T H E M U S I C S T O R E, NOTABLY A PERSON' S C D COLLECTION . S O WHAT WE KNOW IS THAT A L O T O F P E O P L E B O U G H T I P O D S EVEN B E F O R E T H E MUSIC STORE WAS LAUNCHED . YOU KNOW, IT DIDN' T COME ON T H E S C E N E

UNTIL 18 MONTHS A F T E R I P O D S H A D BEEN INTRODUCED A N D WERE SELLING. W E KNOW THAT FIVE O U T OF THE FIVE PLAINTIFFS ADMIT THEY W E R E N'T COERCED. THEY BOUGHT 24

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IPODS IN THESE CIRCUMSTANCES. A N D AS I S A Y, THERE 'S NEVER BEEN A CONSUMER CLASS A C T I O N W H E R E I T W A S ADMITTED BY THE NAMED PLAINTIFFS THAT T H E R E WASN 'T ANY COERCION . S O THEY D O N'T G E T T H E BENEFIT O F A N INFERENCE THAT JUST BECAUSE Y O U BUY AN IPOD YOU WERE COERCED T O D O I T, BECAUSE A S I S A Y, A M A J O R I T Y OF IPOD USERS COULDN 'T POSSIBLY HAVE BEEN COERCED. A N D T H E PLAINTIFFS RECOGNIZE THAT. A N D SO WHAT THEY DO , A N D THIS I S O N T H E S E C O N D PAGE , T H E I R E X P E R T COMES UP WITH A LIST OF CHARACTERISTICS O F T H E PERSON THAT THEY S A Y IS COERCED. A N D HERE'S WHAT ACCORDING TO THEIR E X P E R T THEY HAVE T O FIND . FIRST OF ALL , T H E PERSON H A S T O

BUY ENOUGH MUSIC FROM ITUNES THAT I T MATTERS ; THEN THEY HAVE T O WANT TO PLAY IT ON A PORTABLE PLAYER, A PORTABLE DIGITAL PLAYER; A N D THEN THEY WANT TO -- THEY HAVE TO P R E F E R A N IPOD COMPETITOR, R A T H E R THAN AN IPOD; A N D THEN THEY HAVE TO SHOW THAT THEY D O N'T KNOW HOW TO BURN AND R I P T H E MUSIC BECAUSE I T IS ADMITTED ON THIS RECORD THAT BY BURNING A N D THEN RIPPING THE MUSIC , Y O U CAN PLAY ITUNES MUSIC ON A COMPETING PLAYER. 25

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I N A N ADDENDUM T O O U R OPPOSITION B R I E F, YOUR HONOR, WE S E T F O R T H SOME S C R E E N S H O T S THAT SHOW HOW THAT PROCESS O F BURNING A N D RIPPING WORKS . A N D THE PLAINTIFFS HAVE A D M I T T E D THAT A CONSUMER C A N MAKE C O P I E S O F T H E RECORDINGS Y O U GET FROM ITUNES MUSIC STORE AND READ THEM BACK INTO A PERSONAL COMPUTER AS D R M FREE FILES . AT FOOTNOTE 8 OF OUR BRIEF . AND THEN NOLL , THEIR EXPERT, SAYS THAT T H E MECHANISM TO PLAY I T U N E S FILES ON COMPETING PLAYERS IS TO DO AN ACTUAL OR A VIRTUAL BURN OF T H E CD A N D THEN REPLAY I T. A N D THE PLAINTIFFS HAVE A D M I T T E D THAT IT 'S EASY T O D O THAT . AND AT PAGE 9 O F O U R BRIEF, THAT'S QUOTED

WE S E T F O R T H T H E DEPOSITION TESTIMONY WHERE THEY ADMIT IT TAKES UNDER A MINUTE TO DO THAT. KNOW HOW TO DO IT . THEY D O I T FREQUENTLY . THEY AND T H E

FIRST PLAINTIFF, MR. SLATTERY , A D M I T T E D THAT BY BURNING AND RIPPING, HE C A N PLAY COMPETING - - H E CAN PLAY ITUNES MUSIC O N COMPETING DEVICES. A N D I A S K E D H I M, A N D BURNING A N D RIPPING IS A PROCESS THAT Y O U HAVE DONE NUMEROUS TIMES? OH , Y E S, MANY. A N D SO ALL THEY HAVE T O D O I S P U T A B L A N K CD IN THEIR COMPUTER , H I T THE BURN DISK I CON IN 26

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I T U N E S A N D IT BURNS THE MUSIC , C O P I E S THE MUSIC TO A CD, A N D THEN THEY JUST DRAG IT BACK TO THEIR MUSIC LIBRARY AND THEY CAN P U T I T O N A N Y COMPETING PLAYER THAT THEY WANT T O. A N D AS I S A Y, APPENDIX 2 TO OUR OPPOSITION SETS FORTH THAT PROCESS. S O WHAT THE PLAINTIFFS SAY I S THAT THEY ACKNOWLEDGE THAT IF YOU BURN AND R I P A N D KNOW H O W TO DO IT , THEN Y O U'R E N O T UNDER THEIR THEORY COERCED. Y O U' RE NOT L O C K E D I N. YOU CAN PLAY

ITUNES MUSIC O N A COMPETING PLAYER. S O THE OTHER ELEMENT FOR THEIR COERCED CONSUMERS I S THAT THIS PREFERENCE FOR A COMPETING P L A Y E R H A S TO BE NOT S T R O N G E N O U G H TO JUSTIFY THIS SMALL A M O U N T O F TIME A N D E F F O R T IT TAKES TO DO THE BURNING AND RIPPING BECAUSE I F Y O U REALLY WANT A COMPETING P L A Y E R, THEN YOU 'RE GOING TO TAKE, Y O U KNOW, T H E M I N U T E OR LESS I T T A K E S T O D O THIS EASY STEP OF BURNING A N D RIPPING. A N D ONLY I F THEY MEET ALL OF THOSE REQUIREMENTS C O U L D THEY S A Y THAT THEY' RE FORCED TO BUY A N IPOD . WELL , WHAT IS T H E S IGNIFICANCE OF ALL OF THAT? F I R S T O F A L L, T H E PLAINTIFFS THEMSELVES 27

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D O N'T MEET THOSE CRITERIA. ANYBODY WHO DOES.

THEY HAVEN 'T FOUND

THEY HAVEN 'T PROPOSED ANY CLASS

WIDE METHOD OF IDENTIFYING ANYBODY WHO FITS INTO THAT CATEGORY. THEY CERTAINLY H A V E N'T NARROWED T H E C L A S S TO THESE TYPES OF P E O P L E A N D THE R E A S O N THEY HAVEN 'T DONE A N Y OF THAT I S THAT THEY RECOGNIZE T H E ONLY WAY TO DETERMINE I F ANYBODY FITS INTO THIS S E T OF CRITERIA IS TO GO INDIVIDUAL BY INDIVIDUAL. S O THEY COME BACK A N D SAY , WELL , M O O R E SAYS THAT W E CAN JUST INFER THAT PEOPLE ARE COERCED. WELL , NOT UNDER THEIR THEORY . YOU C A N'T

INFER , JUST BECAUSE SOMEBODY HAS AN IPOD, THAT THEY MEET THESE CRITERIA. T H E ONLY W A Y TO DO THIS I S T O A N D THAT 'S WHY , YOUR

GO INDIVIDUAL BY INDIVIDUAL.

HONOR , WHEN Y O U LOOK AT T H E T Y I N G C A S E S, IN ANTITRUST C A S E S, YOU KNOW, PRICE F I X I N G C A S E S, C O U R T S O F T E N CERTIFY CLASSES BUT THAT' S N O T TRUE I N TYING CASES . THE PARTIES CITED ABOUT 2 0 TYING CASES WHERE A CLASS WAS REQUESTED I N T H E VARIOUS B R I E F S. I N 1 1 O F T H O S E, THE C O U R T S D E N I E D CLASSES. A N D IN THE NINTH CIRCUIT IN THE DISTRICT A N D THE

C O U R T S, THE PERCENTAGE IS ABOUT THE SAME.

KRELL CASE IN THE NINTH CIRCUIT IS A GOOD EXAMPLE. 28

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IN THAT CASE T H E COURT CERTIFIED SOME CLAIMS A N D REFUSED TO CERTIFY O T H E R C L A I M S. A N D THE DIFFERENTIATING F A C T O R IN THESE T W O L I N E S O F C A S E S A N D IN KRELL ITSELF IS THAT IF THERE IS A UNIFORM C O N T R A C T U A L R E Q U I R E M E N T THAT SAYS THAT I 'M NOT GOING TO SELL YOU PRODUCT A U N L E S S Y O U BUY PRODUCT B, AND I' M N O T GOING TO SELL T H E PRODUCT SEPARATELY, THEN THE C O U R T S FIND THAT THERE 'S A UNIFORM CLASS WIDE METHOD OF PROOF . T H E COURT: N O W, I AGREE WITH A L O T O F

WHAT YOU 'RE TELLING ME, B U T T H E R E I S SOME PARTS OF WHAT I UNDERSTAND ABOUT THIS CIRCUMSTANCE THAT Y O U'R E N O T ADDRESSING A N D IT HELPS YOUR A R G U M E N T I F Y O U W O U L D P A Y ATTENTION TO THAT. AND THAT I S THAT ANTITRUST LAW EVOLVED A S THE SOCIETY HAS EVOLVED AND INDUSTRIES AND TECHNOLOGIES AFFECTED B Y I T BRING DIFFERENT PROBLEMS TO BEAR. HERE WE LIVE IN A W O R L D T O D A Y

THAT IS VERY DIFFERENT THAN WHAT EXISTED THEN T H E DECISIONS THAT ARE BEING CITED T O M E AND ACROSS VARIOUS MARKETS THE PARAMETERS THAT THE COURTS S H O U L D U S E TO JUDGE COERCION CAN C H A N G E. W E EXIST I N A WORLD TODAY WHERE I NOTICE THAT ONE B U L L E T P O I N T Y O U HAVE N O T PUT ON YOUR SLIDE IS THAT THERE ARE AN APPRECIABLE N U M B E R O F 29

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CONSUMERS WHO UNDERSTAND THE RELATIONSHIP BETWEEN THE DIGITAL MUSIC MARKET AND DIGITAL MUSIC PLAYERS A N D C H O O S E TO PURCHASE PRODUCTS BASED UPON THAT LEVEL OF UNDERSTANDING. A N D DO I UNDERSTAND Y O U T O DENY THAT THERE A R E A GROUP OF PURCHASERS WHO APPRECIATE THAT APPLE H A S A LARGE M A R K E T I N DIGITAL MUSIC IN I T S I T U N E S S T O R E A N D WHO WOULD WISH TO PURCHASE THAT MUSIC UNENCUMBERED B Y A REQUIREMENT THAT THEY DOWNLOAD IT TO A DISK B E F O R E THEY C O U L D THEN DOWNLOAD IT TO A PLAYER A N D W H O WOULD WISH T O SIMPLY DOWNLOAD I T DIRECTLY T O A PLAYER BUT FIND THAT THEY C A N' T D O THAT ? W E A R E A SOCIETY OF CONVENIENCE . IF

GIVEN THE CHOICE BETWEEN A GAS STATION WHERE YOU COULD B U Y YOUR G A S WITHOUT H A V I N G T O G O I N S I D E BY S I M P L Y SLIDING A CAR D WITH A HIGHER PRICE THAN ONE THAT HAS A CHEAPER P R I C E I F Y O U GO INSIDE TO SOMEONE AND TALK TO THEM A N D DEAL WITH THEM, CONSUMERS ARE ONES WHO MIGHT TAKE THE FASTER COURSE O U T O F H A B I T. A N D SO THE MERCHANTS O F T H E WORLD KNOWING THAT PROCLIVITY C A N TAKE ADVANTAGE OF IT AND O N E O F T H E WAYS AS I UNDERSTAND A P P L E H A S TAKEN ADVANTAGE OF THAT IS TO SAY THAT IF WE MAKE A P L A Y E R W H I C H 30

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C A N ONLY DIRECTLY DOWNLOAD FROM THE INTERNET MUSIC C A L L E D T H E IPOD A N D NO OTHER PLAYER C A N D O THAT , A N D W E S E T UP OUR MUSIC IN A WAY THAT IT CAN ONLY DOWNLOAD DIRECTLY TO AN IPOD, CONSUMERS WILL PURCHASE THAT PRODUCT BECAUSE OF THEIR PROCLIVITY F O R THAT FAST AND CONVENIENT WAY OF DOING IT . D O Y O U DIS AGREE WITH A N Y T H I N G THAT I HAVE JUST SAID? M R. MITTELSTAEDT : YES A N D N O. THE

QUESTION IS THAT IT' S N O T APPLE TAKING ADVANTAGE O F SOMETHING THAT IT 'S CREATING ITSELF . GO DIRECTLY TO YOUR -T H E COURT: IT . I DIDN' T S A Y APPLE CREATED THIS D O E S N'T

TOOK ADVANTAGE OF IT AS A PROCLIVITY IN HUMAN

NATURE. M R. MITTELSTAEDT : LET ME ADDRESS THAT

A N D I T'S CLEAR A N D EVERYBODY AGREES THAT THE R E A S O N THAT MUSIC STORES U S E D R M, ANTI- PIRATE SOFTWARE IS BECAUSE THE R E C O R D L A B E L S REQUIRE I T. T H E COURT: AND I ACKNOWLEDGE THAT WHEN I

WAS SPEAKING WITH YOUR OPPONENT. M R. MITTELSTAEDT : AND IT 'S ALSO TRUE A N D

THIS IS A N E W FACT THAT PLAINTIFFS' E X P E R T H A S ACKNOWLEDGED THAT THERE 'S NOTHING W R O N G WITH APPLE USING ITS OWN PROPRIETARY SOFTWARE. H E SAID IT 31

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WOULD BE S T U P I D T O P R O H I B I T THAT , S T U P I D IS HIS WORD, BECAUSE IT WAS T H W A R T INNOVATION . SO HE' S O N

BOARD WITH APPLE USING ITS O W N S O F T W A R E R A T H E R THAN MICROSOFT'S , F O R EXAMPLE. T H E COURT: AND I HOPE I HAVE NOT SAID I THINK APPLE HAS

ANYTHING CONTRARY TO THAT.

DISTINGUISHED ITSELF AS A COMPANY B Y THAT VERY FREEDOM. M R. MITTELSTAEDT : SO TO GET TO YOUR

HONOR 'S QUESTION, L E T'S ASSUME THAT THERE A R E P E O P L E O U T THERE WHO B O U G H T I P O D S BECAUSE THEY WORK WELL WITH THE ITUNES MUSIC STORE AND WORK BETTER A N D D O N' T TAKE THAT EXTRA MINUTE THAN A COMPETING PLAYER. T H E COURT: Y O U CALLED IT A MINUTE . I'L L

L E T Y O U GO FOR N O W, BUT I' M A F R A I D I D O N' T A G R E E WITH YOU THAT IT' S A M I N U T E. M R. MITTELSTAEDT : T H E USER 'S TIME. LONGER. MINUTE. T H E COURT: WELL , Y O U SEE -- B U T THAT 'S WELL, IT' S A M I N U T E O F

YOU KNOW , THE COMPUTER TAKES

I CAN SHOW YOUR H O N O R H O W TO DO IT IN A

N O T T H E ISSUE BUT GO AHEAD . M R. MITTELSTAEDT : THE ISSUE , I THINK ,

YOUR HONOR, IS WHETHER THIS I S SOMETHING THAT C A N 32

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BE P R O V E D O N A CLASS WIDE BASIS OR WHETHER I T REQUIRES INDIVIDUAL PROOF. T H E COURT: THAT I THINK IS THE ISSUE .

A N D S O T H E QUESTION THAT Y O U' RE ASKING ME TO RECONSIDER IS WHETHER O R N O T THE M A R K E T L E V E L COERCION IS PERMISSIBLE IN THIS CASE, AND I' M WILLING TO THINK ABOUT THAT MORE BECAUSE I D O T H I N K THAT THAT I S A N IMPORTANT ISSUE TO ANSWER . B U T IF I A N S W E R THAT I T I S P E R M I S S I B L E, DO Y O U HAVE AN ARGUMENT THAT THERE IS NO MARKET LEVEL COERCION ? M R. MITTELSTAEDT : THE ARGUMENT AT THAT

POINT IS H O W A R E THEY G O I N G T O P R O V E M A R K E T LEVEL COERCION ? THEY NEED TO COME UP WITH A M E T H O D T O

PROVE THIS ON A C L A S S WIDE BASIS A N D THEY HAVEN 'T SUGGESTED A N Y. I T'S , Y O U KNOW, WHETHER I T'S INDIVIDUAL -T H E COURT: I THINK BY DEFINITION, M A R K E T

LEVEL COERCION IS CLASS WIDE. M R. MITTELSTAEDT : PROVE COERCION ? I F I 'M RIGHT THAT T H E ELEMENTS OF THEIR COERCED CONSUMER ARE AS S E T F O R T H HERE ON CHART N U M B E R 2 , A N D LET 'S ADD TO IT WHAT I T H I N K I S 33 WELL, BUT H O W D O THEY

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IMPLICIT A N D WHAT W A S SUGGESTED BY YOUR H O N O R THAT Y O U HAVE TO KNOW THAT I F Y O U BURN A N D RIP , THEN Y O U C A N PLAY T H E M U S I C O N A COMPETING PLAYER, L E T'S A D D THAT. THAT 'S ANOTHER INDIVIDUAL ISSUE . A N D IN ORDER TO PROVE THAT I W A S COERCED OR IN ORDER TO PROVE THAT, Y O U KNOW , T H E MARKET W A S COERCED. A N D AGAIN, T H E M A R K E T IS JUST A BUNCH OF

INDIVIDUALS . A N D THERE' S - - Y O U KNOW, IF YOU C A N'T PROVE THAT I WAS COERCED WITHOUT ASKING M E AND EXPLORING M Y CIRCUMSTANCES , Y O U CAN 'T GET AWAY FROM THAT. T H E PLAINTIFFS C A N' T G E T AROUND THAT BY JUST

S A Y I N G, WELL, WE' RE NOT GOING TO LOOK AT INDIVIDUALS . WE' RE GOING TO LOOK A T EVERYBODY AS A

GROUP BECAUSE WHEN Y O U LOOK A T EVERYBODY AS A GROUP , Y O U STILL HAVE T O FIND O U T, YOU KNOW, W H Y D I D Y O U BUY YOUR IPOD? IPOD? I MEAN, SOME PEOPLE B U Y A N IPOD BECAUSE IT WORKS WELL WITH T H E MUSIC STORE AND THEY' RE DELIGHTED AND THEY WOULD NEVER BUY A COMPETING P L A Y E R EVEN IF IT W A S A S EASY TO U S E WITH T H E M U S I C STORE AS T H E IPOD BECAUSE THE IPOD IS A R E A L L Y GREAT DEVICE. SAME REASON O N C H A R T NUMBER 1. PEOPLE 34 WERE YOU HAPPY TO B U Y YOUR

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B U Y A N IPOD WITHOUT REGARD TO T H E M U S I C S T O R E. S O YOU NEED T O ASK INDIVIDUAL B Y INDIVIDUAL AND THAT' S W H Y, Y O U KNOW , I 'M NOT S A Y I N G TYING LAWS SHOULDN'T KEEP UP WITH T H E TIMES BUT AN ESSENTIAL ELEMENT OF TYING L A W A N D CLASS CERTIFICATION IS CAN Y O U P R O V E I T O N A CLASS WIDE BASIS A N D THEY D O N'T HAVE A M E T H O D FOR DOING THAT, ESPECIALLY IF YOU NEED INDIVIDUAL C O E R C I O N, BUT EVEN IF YOU CALL IT MARKET COERCION , I T'S STILL A GROUP OF INDIVIDUALS . YOUR HONOR , L E T ME JUST H I T TWO OTHER POINTS QUICKLY . IT' S N O T RIGHT THAT C O E R C I O N I S AS

O U R ONLY ARGUMENT AS AN INDIVIDUAL ISSUE.

COUNSEL RECOGNIZES THIS N E T OVERCHARGE IS ALSO A R E A S O N THAT THEY DON 'T RECOGNIZE THAT THEY ADDRESSED I T. B U T W E S A Y THE NEED TO PROVE PROOF

OF I N J U R Y O R T H E FACT O F D A M A G E IN THE NINTH CIRCUIT THAT N E E D S T O B E P R O V E D IN A T Y I N G CASE ON A PACKAGE B A S I S. LAW O N THAT . A N D THE BASIC IDEA, AS S E T F O R T H B Y T H E FREELAND CASE, T H E A T & T CASE I N T H E SOUTHE RN DISTRICT OF N E W YORK , I F A T I E C A U S E S A B U Y E R T O P A Y MORE THAN THE M A R K E T P R I C E F O R THE TIED PRODUCT, THE BUYER I S MOST LIKELY PAYING LESS THAN 35 AND CHART NUMBER 7 SUMMARIZES THE

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THE PRICE THAT THE SELLER COULD OTHERWISE CHARGE F O R T H E TYING PRICE. I N O T H E R W O R D S, THE PRICE ON T H E F I R S T PRODUCT IS LOWER AND THAT' S B A S I C E C O N O M I C T H E O R Y F O R T H E REASONS S E T FORTH IN THE FREELAND CASE. FREE LAND DENIES CLASS CERTIFICATION BECAUSE THE PLAINTIFF W A S UNABLE TO IDENTIFY A M E T H O D T O D E M O N S T R A T E THAT THAT HAD N O T H A P P E N E D. A N D THE R E A S O N THAT 'S IMPORTANT IS A CONSUMER IS N O T DAMAGES , I S N O T INJURED I F, IN FACT, THERE 'S BEEN A LOWERING OF T H E P R I C E O N T H E MUSIC WHICH IS O F F S E T I N A N Y INCREASE IN THE PRICE OF T H E IPOD . THAT'S T H E L A W OF THE NINTH CIRCUIT

IN T H E S I E G L E CASE A N D THE ELEVENTH CIRCUIT CASE W E CITE THERE IN THE B O T T O M B U L L E T SHOWS THAT. AND IT

INTERPRETS AND APPLIES THE NINTH CIRCUIT SIEGLE RULE. T H E COURT: MORE ABOUT THAT. WELL , I WANT TO LEARN A L O T

IN OTHER WORDS , I F T H E TIED - - I F

A TIE C A U S E S A BUYER TO P A Y MORE THAN THE M A R K E T PRICE F O R T H E TIED PRODUCT , T H E BUYER IS MOST LIKELY PAYING LESS THAN THE PRICE THE SELLER COULD PROFITABLY CHARGE . S O THAT IS -- IS THAT MORE O R LESS THAN M A R K E T F O R THE TYING PRODUCT? 36

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M R. MITTELSTAEDT : T H E COURT:

LESS, LESS.

LESS THAN MARKET ? YES . AND T H E IDEA IS

M R. MITTELSTAEDT :

THAT ON DAY O N E Y O U' RE SELLING T H E FIRST PRODUCT. T H E COURT: THERE 'S NO DAMAGE ? B U T HOW DOES THAT F O L L O W WHAT I F Y O U REDUCE IT BY A

N I C K E L A N D SOMETHING ELSE IS SOLD A T A PREMIUM, H O W DOES THAT MEAN THAT THERE IS NO DAMAGE ? M R. MITTELSTAEDT : YEAH, IT DEPENDS O N

T H E SIZE OF T H E OVERCHARGE A N D T H E SIZE O F T H E -T H E SIZE OF T H E OVERCHARGE A N D T H E SIZE O F T H E UNDER CHARGE IF Y O U WILL . T H E COURT: R I G H T. AND T H E R E L A T I V E

M R. MITTELSTAEDT :

N U M B E R O F U N I T S THAT Y O U B U Y OF EACH. T H E COURT: Y E S. AND SO IN T H E VISA

M R. MITTELSTAEDT :

CASE THE PLAINTIFFS' E X P E R T CAME IN A N D SAID THAT THERE 'S NO UNDERC H A R G E ON THE FIRST PRODUCT. AND

SO T H E C O U R T SAID , OKAY , W E D O N' T HAVE A PROBLEM WITH A NET OVERCHARGE. A N D HERE WHEN I ASKED PROFESSOR NOLL, WHAT ABOUT THE PRICE OF MUSIC , W A S THAT LOWERED ? A N D H E SAID HE HASN' T STUDIED IT , H E D O E S N'T PROPOSE TO STUDY IT AND HE 'S NOT GOING TO OFFER AN 37

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OPINION ON THAT. S O T H E BURDEN ON T H E PLAINTIFFS IN T H E NINTH CIRCUIT AND T H E E L E V E N T H CIRCUIT IS TO SHOW THAT THERE WAS A NET OVERCHARGE TAKING INTO ACCOUNT, IN O U R CASE , T H E AMOUNT OF MUSIC THAT AN INDIVIDUAL CONSUMER BOUGHT , T H E AMOUNT OF T H E UNDER CHARGE ON THAT, A N D C O M P A R E D WITH T H E N U M B E R OF IPODS THAT THE P E R S O N B O U G H T AND T H E OVERCHARGE ON THAT. T H E COURT: WHY SHOULD I DEAL WITH THIS

AT T H E C L A S S CERTIFICATION ? M R. MITTELSTAEDT : WELL, FOR T H E VERY

REASON, YOUR H O N O R, THAT T H E PLAINTIFFS D O N' T DEAL WITH IT. T H E REASON THEY DON 'T DEAL WITH IT IS THAT THE ONLY WAY TO ESTABLISH THIS FACT OF INJURY IN A REGIME WHERE T H E N E T OVERCHARGE MUST BE SHOWN ON A PACKAGE B A S I S I S T O G O C O N S U M E R B Y C O N S U M E R. I T R A I S E S INDIVIDUAL QUESTIONS, WHICH IS WHAT THE FREELAND CASE HELD A N D THAT'S W H Y FREE LAND DENIED CERT . THE PLAINTIFFS RECOGNIZE THAT BECAUSE

T H E R E L A T I V E A M O U N T OF PURCHASES MATTERS IN THIS NET OVERCHARGE APPROACH , YOU HAVE T O G O INDIVIDUAL BY INDIVIDUAL TO SEE WHETHER THEY B O U G H T ENOUGH MUSIC TO MAKE UP FOR T H E OVERCHARGE ON T H E IPOD . 38

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THAT' S A N INDIVIDUAL QUESTION . T H E R E'S NO CLASS WIDE WAY TO DO IT OR AT LEAST THEY HAVEN' T PROPOSED A N Y. A N D THAT'S W H Y A S

I SAY PROFESSOR NOLL JUST SAYS I 'M NOT GOING TO WORRY ABOUT THAT. T H E SECOND ARGUMENT ON FACT OF DAMAGES LEADS TO T H E SAME CONCLUSION. THE PLAINTIFFS AGREE

THAT AT LEAST ONE W A Y O F PROVING TYING DAMAGES IS TO LOOK AT THE DIFFERENCE OF PRICE BETWEEN T H E IPOD Y O U WERE F O R C E D T O B U Y AND T H E COMPETING PLAYER Y O U WANTED T O B U Y. THAT 'S WHAT T H E LESSIG CASE DOES, AND THAT' S WHAT T H E GRAY CASE ALSO C I T E D DOES A N D THAT' S A RELATIVELY STRAIGHTFORWARD METHOD O F PROVING DAMAGES. THEY D O N'T DO THAT. A N D THE R E A S O N THEY

D O N'T DO THAT IS THAT, TOO , R A I S E S INDIVIDUAL QUESTIONS. A S S E T FORTH IN OUR PREVIOUS ORDER TO PROVE THAT, Y O U HAVE TO GO INDIVIDUAL BY INDIVIDUAL S A Y I N G WHAT P L A Y E R D I D YOU WANT TO USE A N D D I D YOU WANT TO BUY AN IPOD AND WHAT WAS T H E DIFFERENCE IN PRICE AND THAT RAISES A N INDIVIDUAL QUESTION AND S O THEY DON 'T DO THAT. THAT 'S ANOTHER R E A S O N WHY T H E C L A S S - 39

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W H Y THIS M O T I O N S H O U L D NOT BE GRANTED.

I T SHOULD

BE D E N I E D BECAUSE THEY HAVE I N ESSENCE FORFEITED, GIVEN UP , N O T PURSUED THAT RELATIVE STRAIGHTFORWARD M E T H O D O F PROVING DAMAGES FOR AN INDIVIDUAL. A N D IF THERE' S ANYBODY O U T T H E R E I N T H E WORLD , A N D AGAIN, THEY HAVEN' T IDENTIFIED ANYBODY THAT MEETS ALL OF THESE CRITERIA . THAT PERSON

WOULD WANT TO COME I N A N D HAVE A RELATIVELY SIMPLE CASE AND S A Y, HERE'S MY MEASURE OF DAMAGES. IT 'S

T H E DIFFERENCE BETWEEN THE REAL, T H E S A N S A, THE WHATEVER I WANTED TO B U Y A N D THE IPOD. D O N'T DO THAT. A N D FINALLY, LET ME ADDRESS THEIR SECTION 2 CLAIM. I N T H E FREELAND CASE FOOTNOTE 1 6 T H E AND THEY

COURT SAYS THAT W H E R E Y O U HAVE T Y I N G PRACTICES AND THEY' RE MOST REGULARLY CHALLENGED A S T Y I N G C L A I M S WHEN THE CONDUCT AT ISSUE IS REALLY ALLEGED TO BE A TYING CLAIM , I T'S FROM THE TYING CASE LAW THAT GUIDANCE MUST BE SOUGHT IN AN ATTEMPT TO EVALUATE THE INJURY CLAIMED B Y THE PLAINTIFFS. AND THEN THEY SAY THE PRINCIPLES GLEANED FROM THOSE CASES ARE EQUALLY APPLICABLE T O T H E N O N-T Y I N G C L A I M S WHEN T H E BASIC ALLEGATION GOES TO TYING . A N D THAT'S WHAT IS GOING ON HERE. THEY 40

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C A N'T -- TO T H E E X T E N T THAT THEY HAVE PROBLEMS WITH INDIVIDUAL PROOF FOR THEIR TYING CLAIM , THEY C A N'T G E T R I D OF THAT S I M P L Y BY SAYING , OKAY , W E'R E N O T GOING TO CALL IT TYING OR COERCIVE. CALL IT EXCLUSIONARY . BECAUSE WHEN THEY'R E - - I N O R D E R T O HAVE A SECTION 2 CLAIM FOR EXCLUSIONARY CONDUCT O N THE FACTS THAT THEY'R E G O I N G O N HERE OR ON T H E T H E O R Y, THEY HAVE T O SHOW THAT CONSUMERS WERE COERCED INTO DOING SOMETHING THAT THEY OTHERWISE W O U L D N'T DO A N D THEREBY EXCLUDED COMPETITION OR EXCLUDED COMPETITORS . S O HOWEVER THEY PHRASE THEIR CLAIM , I T A L L GETS BACK TO WHETHER T H E R E W A S ANY COERCIVE E F F E C T O N CONSUMERS AND WHETHER THEY WANT TO CALL IT COERCIVE TYING OR EXCLUSIONARY. THE CASE THAT REALLY LAYS OUT I THINK THE IMPORTANCE OF THIS C O E R C I V E E F F E C T IS THE COLBURN CASE. MOORE . I N THAT CASE JUDGE CONTI DENIED A CLASS S A Y I N G THAT T H E C O E R C I V E E F F E C T, IF A N Y, OF THE ALLEGED TYING AGREEMENT COULD NOT B E MEASURED O N A CLASS WIDE BASIS. I T H A D TO GO INDIVIDUAL B Y I T W A S JUDGE CONTI' S CASE . IT CAME A F T E R W E'R E G O I N G T O

INDIVIDUAL AND THIS IS AFTER MOORE AND HE SAID ON 41

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T H E F A C T S O F THAT CASE, Y O U NEED TO GO INDIVIDUAL BY INDIVIDUAL AND SO WE 'RE N O T G O I N G T O CERTIFY A CLASS . THAT CASE IN MY VIEW W O U L D N O T HAVE COME O U T A N Y DIFFERENTLY IF THE PLAINTIFF W O U L D HAVE SAID, OKAY, L E T'S N O T CALL IT COERCION . CALL IT EXCLUSIONARY . I T W O U L D REQUIRE T H E SAME KIND OF ANALYSIS OF WHETHER ANY CONSUMER H A D BEEN COERCED INTO BUYING AN IPOD THAT THEY DIDN' T WANT TO B U Y. FINALLY , YOUR HONOR , THE PLAINTIFFS O N THIS BURNING AND RIPPING ISSUE I N THEIR REPLY BRIEF RAISE T H E Q U E S T I O N A B O U T WHETHER IT 'S LAWFUL TO BURN AND R I P. A N D THEY SAID , Y O U KNOW, IF IT' S N O T L A W F U L, THEN A L L OF THIS GOES AWAY AND THIS IS ONE INDIVIDUAL ISSUE THAT WOULD B E WITHDRAWN. A T PAGE 6 OF THIS HANDOUT I SUMMARIZE T H E L A W O N THAT A N D, YOU KNOW, O U R VIEW IS THAT IT' S LEGAL TO BURN AND R I P A N D THAT THAT 'S NOT A REASON T H E - - THAT 'S NOT A WAY F O R T H E PLAINTIFFS T O A V O I D T H E I M P A C T OF THE AVAILABILITY O F BURNING A N D RIPPING. A N D JUST T O EMPHASIZE ONE POINT , YOUR HONOR , A S W E S E T FORTH IN THE BRIEF , T H E PLAINTIFFS 42 LET 'S JUST

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AND THEIR EXPERTS ADMIT THAT BURNING AND RIPPING I S A VIABLE OPTION. O N E CAN QUARREL ABOUT HOW LONG IT TAKES TO DO THAT, H O W EASY IT IS TO DO THAT, B U T THAT ONLY HIGHLIGHTS THAT IT 'S AN INDIVIDUAL I S S U E. T H E PLAINTIFFS H A V E N'T COME UP WITH A N Y CLASS WIDE METHOD OF S A Y I N G N O B O D Y OUT THERE KNOWS H O W T O BURN A N D R I P. IT . Y O U KNOW, NOBODY EVER DOES

IT' S N O T AN OPTION . AND THEY COULDN' T D O THAT GIVEN THE

ADMISSIONS OF THEIR OWN CLIENTS. A N D SO LET ME E N D WITH THIS THOUGHT A N D IT 'S REALLY T H E W A Y I B E G A N THAT THIS REALLY IS AT B O T T O M I THINK A CON TRIVED ANTITRUST C L A I M BECAUSE IT 'S BASED ON APPLE USING ANTI-P I R A C Y SOFTWARE BECAUSE THE R E C O R D L A B E L S REQUIRE I T. A N D IT' S EQUALLY CONTRIVED O R EVEN MORE CONTRIVED T O T R Y TO TURN THIS INTO A C L A S S A C T I O N AND A CLASS ACTION NOT JUST FOR CONSUMERS BUT ALSO FOR RESELLERS. I 'LL RELY ON WHAT W E S A Y IN THE

P A P E R S A B O U T W H Y THE CLASS SHOULDN' T B E CERTIFIED FOR THE RESELLERS LIKE WALMART AND TARGET AND BEST B U Y. THEY' RE OBV IOUSLY A DIFFERENT CATEGORY OF

PURCHASER. THESE PLAINTIFFS , YOUR HONOR MAY RECALL, 43

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WHEN THEY F I R S T M O V E D F O R CLASS CERTIFICATION, IT W A S M R S. -- W H O W A S IT? W A S A T THAT TIME. I F O R G E T W H O THE PLAINTIFF A N YH O W, THEY

MAYBE SLATTERY.

MOVED FOR CLASS CERTIFICATION .

IT WAS TAKEN O F F

CALENDAR WHEN THE N E W COMPLAINT WAS FILED A N D THEN T H E COMPLAINT WAS CONSOLIDATED. B U T THE FIRST TIME AROUND WHEN THEY M O V E D F O R C L A S S, THEY DIDN 'T MENTION, THEY DIDN 'T INCLUDE T H E RESELLERS AND I THINK THAT'S BECAUSE THEY'R E OBVIOUSLY I N A DIFFERENT CATEGORY. THEY HAVE NOT A G A I N,

ASKED F O R A N Y DISCOVERY ON T H E RESELLERS. THEY' RE IN A DIFFERENT CATEGORY.

THEY 'RE B U Y I N G

HUGE VOLUMES A N D THEIR PURCHASING DECISIONS ARE DIFFERENT. A N D THESE PLAINTIFFS, YOU KNOW, A R E N O T TYPICAL OF RESELLERS THAT BUY MILLIONS A N D M I L L I O N S OF IPODS . O U R PAPER ALSO ADDRESSES THE REQUEST FOR AN INJUNCTIVE RELIEF CLASS THAT CLEARLY I S INAPPROPRIATE BECAUSE T H E THRUST OF THIS CASE I S F O R DAMAGES A N D S O L E T ME END AS I STARTED. WHAT IS UNUSUAL ABOUT THIS CASE A N D WHAT WOULD MAKE IT UNPRECEDENTED T O CERTIFY A CLASS IS T H E IPOD IS A VERY POPULAR PRODUCT. ONE CANNOT

INFER THAT THE ONLY REASON ANYBODY WOULD BUY IT IS 44

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BECAUSE THEY WERE COERCED TO DO SO.

S O THIS

EVIDENTIARY INFERENCE FROM MOORE SIMPLY D O E S N'T WORK. T H E R E'S NEVER BEEN A C L A S S ACTION CERTIFIED WHERE THE ALLEGED TYING AND TIED PRODUCTS WERE SEPARATELY AVAILABLE, NOT ONLY SEPARATELY AVAILABLE B U T COULD BE USED SEPARATELY A N D HERE EVERYBODY A G R E E S THAT I T U N E S MUSIC CAN BE P L A Y E D O N A COMPUTER. I T C A N BE PLAYED ON AN IPOD, A N D I T

C A N B E P L A Y E D WITH A N E X T R A STEP ON A N Y COMPETING PLAYER. T H E R E'S NEVER BEEN A C L A S S CERTIFIED IN THAT CIRCUMSTANCE BECAUSE IT OBVIOUSLY , I S A Y OBVIOUSLY, TO ME IT RAISES INDIVIDUAL ISSUES ABOUT WHY SOMEBODY BOUGHT THEIR IPOD AND WHETHER THEY CAN MEET THE CRITERIA THAT THE PLAINTIFFS HAVE S E T FORTH . T H E R E'S NEVER BEEN A C L A S S A C T I O N IN A CONSUMER CASE WHERE ALL OF T H E PLAINTIFFS ADMIT THAT THEY B O U G H T THE ALLEGED UNWANTED PRODUCT VOLUNTARILY . THEY A D M I T THAT THEY WEREN' T COERCED .

A N D, YOUR HONOR, WHEN THE COURT GOES BACK TO LOOK AT THE MOORE CASE, ANOTHER DIFFERENCE T O KEEP IN MIND I N M O O R E I S M O O R E W A S A CASE BROUGHT BY A COMPETITOR. A N D S O T H E R E T H E COURT WAS A S K I N G 45

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T H E Q U E S T I O N, HOW MUCH COERCION OF CONSUMERS DOES A COMPETITOR NEED T O SHOW IN ORDER TO PROVE A CLAIM FOR LOST PROFITS BECAUSE THEY WERE EXCLUDED FROM THE MARKET? THAT 'S A MUCH DIFFERENT CIRCUMSTANCE

BECAUSE THERE THE ISSUE IS H O W MUCH OF T H E M A R K E T H A S T O B E FORECLOSED TO A COMPETITOR B Y THIS TYING IN ORDER F O R T H E COMPETITOR T O HAVE A CLAIM FOR LOST PROFITS. A N D SO IT' S O N E THING IN A CASE LIKE THAT TO S A Y, YOU KNOW, OF C O U R S E A QUESTIONER DOESN' T HAVE TO SHOW THAT HE W A S COERCED AT A L L. BUYING THE PRODUCT. HE 'S NOT

AND S O WHATEVER THE COURT SAYS

IN THAT CONTRACT DOESN' T A P P L Y A T L E A S T D I R E C T L Y I N T H E CASE WHERE A CONSUMER COMES IN AND T H E C O N S U M E R IS S A Y I N G I WANT TO RECOVER DAMAGES B U T I WASN' T COERCED. A T PAGE 14 OF O U R B R I E F W E Q U O T E FROM PROFESSOR A R E D A, YOU KNOW, T H E LEADING E X P E R T O N ANTITRUST L A W AND FROM HIS TREATISE A N D WHAT HE SAYS I T H I N K I S R E L E V A N T T O A L L OF THIS. HE SAYS

THAT IF YOU WOULD HAVE PURCHASED T H E TIED PRODUCT A N YW A Y, SO YOU WOULD HAVE BOUGHT AN IPOD REGARDLESS OF T H E RELATIONSHIP TO THE MUSIC STORE , Y O U LACK STANDING TO O B T A I N DAMAGES BECAUSE YOU HAVEN 'T BEEN DAMAGED BY TYING. Y O U HAVEN' T BEEN COERCED TO DO 46

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ANYTHING .

YOU JUST BOUGHT T H E PRODUCT , Y O U WOULD

HAVE BOUGHT IT A N YW A Y. A N D THEN H E SAYS , T H E RESULT IS THAT TYING ARRANGEMENT PURCHASER CONSUMER CLASS ACTIONS , SEEKING DAMAGES C A N N O T BE CERTIFIED IF T H E C L A S S MIGHT INCLUDE SOME PURCHASERS WHO WOULD HAVE PURCHASED T H E TIED PRODUCT IN A N Y E V E N T BECAUSE THAT PERSON HASN' T BEEN DAMAGED, HASN' T SUFFERED ANTITRUST INJURY. H E W O U L D HAVE BOUGHT I T A N YW A Y.

HERE , A S I HAVE SAID, THE PLAINTIFFS HAVE N O T T R I E D T O N A R R O W THEIR CLASS TO THE P E O P L E W H O MEET THESE CHARACTERISTICS . T H E COURT: I APPRECIATE YOUR ARGUMENT,

A N D I DO NEED TO HAVE Y O U BRING IT TO A C L O S E MAINLY BECAUSE THERE ARE A COUPLE O F ISSUES THAT I NEED TO DEAL WITH B E F O R E I C A N MOVE INTO THESE MORE ESOTERIC THEORIES THAT YOU HAVE HIGHLIGHTED FOR ME WELL ENOUGH . AND SO THANK Y O U VERY MUCH. OKAY. THANK Y O U, YOUR

M R. MITTELSTAEDT : HONOR . T H E COURT:

COUNSEL , YOU RESERVED SOME O F

YOUR TIME FOR REBUTTAL. I APOLOGIZE T O T H O S E W H O ARE HERE FOR O U R 10 :00 O' CLOCK HEARING, BUT I NEED T O GIVE COUNSEL TIME FOR REBUTTAL A N D W E'L L B E DONE IN ABOUT T E N 47

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MINUTES. M S. SWEENEY: WILL BE BRIEF. THANK Y O U, YOUR H O N O R, I

M R. MITTELSTAEDT 'S ARGUMENT

FOCUSSED PRIMARILY O N THE MERITS ISSUES I N THIS CASE AND I JUST W A N T E D TO REMIND T H E C O U R T THAT N O T ONLY IS THAT A P P R O P R I A T E I N C L A S S CERTIFICATION B U T IN THIS CASE DISCOVERY HAS BEEN BIFURCATED. HAVE HAD NO M E R I T S DISCOVERY. S O THE QUESTION WHETHER BURNING AND RIPPING IS A V I A B L E OPTION , O F C O U R S E WE DON 'T AGREE THAT IT IS A V I A B L E OPTION . THAT'S A MERITS WE

ISSUE THAT WILL B E ADDRESS ED AFTER FULL DISCOVERY. T H E QUESTION ABOUT WHETHER T H E R E C A N BE INTERPLAYABILITY WITHOUT VIOLATING DRM , THAT IS ANOTHER MERITS QUESTION AND W E HIGHLIGHTED I N OUR OPENING BRIEF THE STATEMENT O F SOME OF T H E L A B E L S THAT THEY W O U L D LIKE TO S E E INTEROPERABILITY . S O OBVIOUSLY THE L A B E L S HAVE A DIFFERENT POINT OF VIEW THAN A P P L E. THAT IS APPLE' S VIEW IS ,

WELL, WE HAVE TO DO IT THIS W A Y BECAUSE OTHERWISE WE WOULD BE VIOLATING COPYRIGHT LAWS. S O THAT 'S ANOTHER MERITS ISSUE THAT I S RESERVED UNTIL AFTER PLAINTIFFS HAVE H A D AN OPPORTUNITY TO CONDUCT DISCOVERY . I WOULD ALSO LIKE T O CORRECT SOME OF THE 48

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M I SSTATEMENTS THAT M R. MITTELSTAEDT MADE.

H E MADE THERE

C L A I M S A B O U T FIVE PLAINTIFFS IN THIS A C T I O N. ARE THREE PLAINTIFFS , THREE NAMED PLAINTIFFS .

PLAINTIFF SLATTERY DISMISSED H I S C L A I M. PLAINTIFF S O M E R S IS A PLAINTIFF IN THE INDIRECT PURCHASER ACTION, NOT THIS ACTION. M R. MITTELSTAEDT SAID REPEATEDLY THAT EACH OF THOSE PLAINTIFFS A D M I T T E D THAT HE OR S H E WAS NOT COERCED INTO BUYING A N IPOD . IN FACT, THE

DEPOSITION TESTIMONY READS A LITTLE DIFFERENTLY THAN THAT. PLAINTIFF TUCKER , WHO PURCHASED TWO IPODS , S H E PURCHASED AN IPOD AFTER HER FIRST O N E BROKE , W A S ASKED BY MR. MITTELSTAEDT, WHY D I D Y O U BUY THAT ? AND S H E SAID BECAUSE MY FIRST ONE BROKE . H E THEN ASKED , A N D HOW D I D Y O U CHOOSE AN IPOD RATHER THAN SAY AN IR I V E R? AND SHE ANSWERED,

BECAUSE ALL OF MY MUSIC W A S ALREADY IN I T U N E S A N D THAT WOULD HAVE BEEN T H E ONLY W A Y T O KEEP MY MUSIC . AND I MENTION THIS JUST T O SHOW THAT THERE A R E DISCREPANCIES IN T H E R E C O R D AND THERE A R E SIMILAR TESTIMONY BY T H E O T H E R PLAINTIFFS B U T NONETHELESS , A S YOUR HONOR HAS RECOGNIZED , THE QUESTION IS N O T WHETHER WE C A N SHOW ON A CLASS MEMBER B Y CLASS MEMBER BASIS WHETHER THERE WAS 49

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COERCION BUT WHETHER THERE WAS COERCION A T THE MARKET L E V E L. A N D THE M U R P H Y CASE IS STILL GOOD LAW . IT 'S TRUE THAT IN THAT CASE T H E PLAINTIFF D I D N O T PREVAIL BUT T H E C O U R T S T A T E D THE APPROPRIATE STANDARD , W H I C H W A S ALSO S T A T E D IN THE MOORE CASE WHICH WE T A L K E D A B O U T EARLIER . PROFESSOR NOLL'S COMMENTS ALSO HAVE BEEN A LITTLE B I T DISTORTED IN ARGUMENT. PROFESSOR NOLL

H A S I N H I S 60 PAGE REPORT, WHICH APPLE DOESN 'T ADDRESS AT ANY TIME IN ITS BRIEF OR IN ARGUMENT , I N H I S R E P O R T HE DEVOTED A N U M B E R O F P A G E S T O EXPLAINING HOW AN ECONOMIST W O U L D G O A B O U T DETERMINING WHETHER THERE WAS AN E F F E C T O N T H E MARKET, THAT I S, WHETHER T H E R E W A S MARKET LEVEL COERCION A N D I BELIEVE THAT T H E RELEVANT PAGES ARE 39 THROUGH 49. DECLARATION . PROFESSOR NOLL EXPLAINED IN HIS DEPOSITION THAT Y O U DON 'T HAVE T O SHOW THAT EACH CLASS MEMBER WAS COERCED. AND THOSE BULLET POINTS THAT 'S IN EXHIBIT 1 TO MY

THAT MR. MITTELSTAEDT SENT UP TO T H E C O U R T, THAT WAS A N EXAMPLE THAT PROFESSOR NOLL GAVE O F HOW SOME P E O P L E, SOME MEMBERS OF T H E C L A S S WERE COERCED. A N D THE QUESTION IS WHETHER ANY OF THOSE 50

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CLASS MEMBERS WERE COERCED THAT IT HAD AN E F F E C T O N M A R K E T P O W E R POSSESSED BY APPLE? I F I T APPRECIABLY

ENHANCED APPLE 'S MARKET POWER , THEN APPLE W A S ABLE TO INCREASE T H E P R I C E O F I P O D S A N D THEREBY I N C R E A S E T H E P R I C E CHARGED TO EACH AND EVERY M E M B E R O F T H E CLASS . A N D THIS I S W H E R E W E G O BACK TO WHAT WE SAID IN OUR EARLIER OPENING P A P E R S AND THAT IS THAT APPLE HAS A N UNREMITTING POLICY. TECHNOLOGICAL RESTRICTION. I N E V E R Y I T U N E S DOWNLOAD AND IN EVERY IPOD THEREFORE IF E N O U G H C L A S S MEMBERS WERE COERCED TO E F F E C T I T A T T H E MARKET LEVEL , THEN EVERY CLASS M E M B E R PAID AN OVERCHARGE. A P P L E C I T E S A BUNCH OF TYING CASES A N D LOOKING, Y O U JUST HAVE TO READ T H E FACTS OF THOSE CASES WHERE THE COURTS DENY THE CERTIFICATION T O S E E THAT THEY' RE NOT APPLICABLE HERE. A N D THE COLBURN CASE, WHICH MR . MITTELSTAEDT MENTIONED A FEW TIMES , T H E PLAINTIFF INTRODUCED EVIDENCE OF O N E C O N T R A C T, HIS CONTRACT AND N O OTHER EVIDENCE THAT THERE WERE SIMILARLY S I T U A T E D PLAINTIFFS IN T H E C L A S S. T H E R E W A S NO EVIDENCE THAT T H E R E WERE OTHER SIMILAR CONTRACTS . 51 I T H A S THE

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S O THOSE CASES ARE INAPPOSITE FOR A NUMBER O F REASONS . A N D I WANT TO TAKE ISSUE WITH MR . MITTELSTAEDT' S STATEMENT THAT T H E PLAINTIFFS AGREED THAT THE LESS SIGNIFICANT DAMAGES METHODOLOGY IS APPROPRIATE IN T H E T Y I N G CASE . I N FACT , A S PROFESSOR NOLL TESTIFIED AT H I S DEPOSITION , I T'S JUST -- IT' S N O T THE CORRECT WAY T O G O ABOUT PROVING DAMAGES BECAUSE YOU HAVE T O LOOK AT THE "B U T FOR WORLD ." Y O U HAVE TO CONCEDE

FROM AN ECONOMIST POINT OF VIEW WHAT T H E MARKET WOULD LOOK LIKE I N THE ABSENCE O F THE ANTICOMPETITIVE MARKET. A N D SO IF WE WERE JUST , O F C O U R S E, TO S I T DOWN TODAY AND LOOK AT A COMPETING PRODUCT, THAT'S N O T T H E REAL B U T FOR WORLD BECAUSE, IN FACT, T H E PRICE OF THAT COMPETING PRODUCT IS AFFECTED BY THE T I E, BY THE MONOPOLISTIC CONDUCT BY APPLE . S O I T'S N O T A REALISTIC PICTURE A N D PROFESSOR NOLL TESTIFIED W H Y THAT W A S NOT AN APPROPRIATE METHODOLOGY . WITH RESPECT TO RESELLERS , W E EXPLAINED IN O U R B R I E F, WE CITED NUMEROUS CASES FOR T H E PROPOSITION THAT IT' S PERFECTLY APPROPRIATE TO INCLUDE RESELLERS IN T H E PLAINTIFF CLASS. 52

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