Apple Inc. v. Samsung Electronics Co. Ltd. et al

Filing 426

Reply Declaration of Sanjay Sood in Support of #86 Apple's Motion for a Preliminary Injunction filed by Apple Inc.. (Attachments: #1 Exhibit A, #2 Exhibit B, #3 Exhibit C, #4 Exhibit D, #5 Exhibit E, #6 Exhibit F, #7 Exhibit G, #8 Exhibit H, #9 Exhibit I)(Related document(s) #424 ) (Bartlett, Jason) (Filed on 11/28/2011) Modified text on 11/29/2011 (dhm, COURT STAFF).

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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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APPLE INC., a California corporation,

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Plaintiff,
v.
SAMSUNG ELECTRONICS CO., LTD., A
Korean business entity; SAMSUNG
ELECTRONICS AMERICA, INC., a New York
corporation; SAMSUNG
TELECOMMUNICATIONS AMERICA, LLC, a
Delaware limited liability company,

Case No.

11-cv-01846-LHK

REPLY DECLARATION OF
SANJAY SOOD IN SUPPORT OF
APPLE’S MOTION FOR A
PRELIMINARY INJUNCTION
Date: October 13, 2011
Time: 1:30 p.m.th
Courtroom: 8, 4 Floor
Honorable Lucy H. Koh

Defendants.

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PUBLIC REDACTED VERSION
EXHIBITS D AND H FILED UNDER SEAL

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REPLY DECL. OF S. SOOD IN SUPPORT OF APPLE’S MOTION FOR A PRELIMINARY INJUNCTION
CASE NO. 11-CV-01846-LHK
sf-3049875

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I, SANJAY SOOD, declare as follows:

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I am an Associate Professor at the Anderson Graduate School of Management of

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the University of California, Los Angeles (“UCLA”). My teaching and research interests are

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marketing management, brand management, advertising, and consumer behavior. I have been

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asked by counsel for Apple Inc. to provide a declaration addressing issues that I understand have

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been raised by Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., and Samsung

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Telecommunications America, LLC (collectively, “Samsung”) in connection with Apple’s

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Motion for a Preliminary Injunction, including the impact of design on consumer behavior. This

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declaration sets forth my professional opinion on these issues as an expert in marketing and

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branding.

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I.

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QUALIFICATIONS
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I hold a Ph.D. in Marketing from Stanford University. I also received a Master of

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Business Administration degree from Northwestern University and a Bachelor of Science in

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Electrical Engineering from the University of Illinois at Urbana-Champaign.

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3.

Over the past thirteen years, I have taught marketing management, brand

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management, and entertainment marketing to students in graduate education and executive

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education programs at UCLA and Rice University. A copy of my curriculum vitae is attached

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hereto as Exhibit A.

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4.

I am an associate editor at both the Journal of Marketing and the Journal of

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Consumer Psychology. I am also on the editorial boards of the Journal of Marketing Research

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and the Journal of Consumer Research. I also have published numerous journal articles on

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consumer behavior, brand equity, and other marketing topics. A list of my honors, awards,

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articles, and speaking engagements appears in my curriculum vitae. (See Ex. A.)

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5.

My research focuses on marketing management, brand management, advertising,

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and consumer behavior. Specifically, I have studied the effects of branding strategies and product

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experience on brand evaluations, competitive anticipation in marketing decision making, and the

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effects of design on consumer behavior.

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6.

In the past five years, I have provided expert opinions concerning marketing and

consumer behavior in the following cases:
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Levi Strauss & Co. v. Abercrombie & Fitch Trading Co., Case No. 07-cv-

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03752-JSW (N.D. Cal.) (expert for Levi Strauss & Co. on trade dress

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recognition and likelihood of confusion);
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Experian Information Solutions, Inc. v. LifeLock, Inc.,08-cv-00165-AG-

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MLG (C.D. Cal.) (expert for Experian Information Solutions, Inc. on

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consumer behavior); and
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Erica Possin v. ConsumerInfo.com, Inc., d/b/a Freecreditreport.com,

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SACV10-00156-JVS (C.D. Cal.) (expert for ConsumerInfo.com, Inc. on

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consumer perceptions of advertising).

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I also have been professionally engaged by the following companies to provide

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corporate training and consultation regarding marketing and branding: Microsoft Corporation,

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MTV Network, The Walt Disney Company, Kaiser Permanente, Sony Corporation, Sanofi-

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Aventis, Novartis, Irish Medical Devices Association, State Farm, Lynx Grills, and National

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Promotions & Advertising, Inc.

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I have been retained as an expert consultant in this case by Morrison & Foerster

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LLP, attorneys for Apple Inc. My hourly rate is $550. My compensation is in no way tied to the

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outcome of this case or any particular part of this case.

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II.

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SCOPE OF DECLARATION
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I have been asked by Apple’s attorneys to address several issues that I understand

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have been raised by Samsung in its opposition to Apple’s Motion for a Preliminary Injunction.

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These issues include: (a) the general impact of design in consumer purchasing decisions; (b) the

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specific impact of design on consumer decisions to purchase Apple’s iPhone and iPad products,

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as reflected in several smartphone consumer surveys cited by Michael Wagner or used by

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Samsung in its opposition; and (c) the impact of sales of competing products with substantially

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the same design on the brand image and marketing efforts of a company, such as Apple, that is

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known for its innovative and distinctive designs.
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10.

In preparing this declaration, I reviewed Apple’s Amended Complaint; Samsung’s

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Answer; Apple’s Motion for a Preliminary Injunction, the declaration of Sissie Twiggs in Support

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of Apple’s Motion for a Preliminary Injunction and exhibits to that declaration; the deposition

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transcript of Sissie Twiggs; the non-confidential portions of Samsung’s Opposition to Apple’s

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Motion for a Preliminary Injunction; the non-confidential portions of the Declaration of Michael

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J. Wagner in Support of Samsung’s Opposition to Apple’s Motion for a Preliminary Injunction

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and the non-confidential portions of the exhibits to that declaration; non-confidential Exhibit 162

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to the deposition transcript of Michael J. Wagner; a market study called “ComTech United States

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Report Q410,” dated February 11, 2011 (the “ComTech Report”); the iPhone Buyer Survey that

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covers the third quarter of Apple’s 2011 fiscal year (the “iPhone Buyer Survey, FY11-Q3”); the

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iPhone Buyer Survey that covers the second quarter of Apple’s fiscal year (the “iPhone Buyer

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Survey, FY11-Q2”); and the iPad Tracking Study that covers the second quarter of Apple’s 2011

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fiscal year (the “iPad Tracking Study, FY11-Q2”).

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As explained below, research on consumer behavior—including my own

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independent research—demonstrates that design plays an important role in consumers’

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purchasing decisions. Yet, consumers systematically underestimate the importance of design in

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response to direct surveys about their purchasing decisions. The surveys of smartphone

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customers that I have reviewed illustrate this phenomenon. Surveys that ask the importance of

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multiple different factors in choosing a smartphone consistently result in “design” being

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identified as an important factor. In contrast, when surveys ask the main reason for buying a

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product, consumers are unlikely to identify design as the most important factor. This does not

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necessarily mean that design is unimportant. Rather, it means that consumers may not realize the

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significance of design in their purchasing decisions, or may be unwilling to identify design as the

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single most important factor in their purchase decisions.

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Because design is an important factor in consumer buying decisions, a company

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such as Apple that has distinctive and attractive product designs has a significant competitive

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advantage. My research shows that not only are consumers more likely to buy those specific

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products, they are likely to pay more for them. Moreover, other research suggests that if a
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company has a consistent focus on design, it may acquire a reputation as an innovator in design

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that may increase the overall value of the brand and create a positive image that attracts more

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customers. If a second company sells competing products with substantially the same design, the

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first company can lose its competitive advantage with regard to its innovative product designs.

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This is because the availability of competing products with similar designs by the second

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company will make the first company’s products look less distinctive, and they may harm the first

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company’s reputation for uniquely appealing product designs.

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III.

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PRODUCT DESIGN PLAYS A SIGNIFICANT, BUT OFTEN
UNDERREPORTED, ROLE IN CONSUMER PURCHASING DECISIONS
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Since 2007, I have conducted approximately fifteen to twenty surveys as part of

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my research on the impact of design on consumer purchasing decisions. Typically these studies

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provide consumers with a choice between an attractive looking product and an average looking

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product. The products will have varying levels of functional feature information provided, with

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up to five other features, including price, shown in addition to design. I have examined a host of

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product categories, ranging from some that are more public in nature such as socially oriented

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products (e.g., sunglasses, blue jeans, etc.) as well as categories that are more private in nature

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and less socially oriented (e.g., tape dispensers, CD alarm clock radios, etc.). Based on the

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studies I have conducted and that are described above, I have determined that an attractive and

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distinctive design of a product is a critical driver of purchasing decisions in both public and

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private categories.

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At the same time, my research reveals a systematic underweighting of design as a

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reason for choice when consumers are asked directly to rate the importance of design, as opposed

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to being asked indirectly by choosing between two specific products, one of which has a more

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aesthetically pleasing design than the other. I have conducted several studies that examine this

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contrast in the importance of design when asking the question directly or indirectly. For example,

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when asked directly (as in the case of a survey or questionnaire) about how much extra they

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would be willing to pay for a product with an attractive design, consumers replied that they would

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be willing to pay about a 30% price premium in categories such as sunglasses.
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When asked indirectly through a choice task, however, the results differed

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significantly. Specifically, consumers were given the choice between a product with an attractive

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design and a product with an average design, presented side by side. Different sets of people

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were given different prices for the two products, with the average looking product priced at a

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“base” price and the attractively designed product priced at a premium, starting at a 12-15%

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premium over the base price and going up from there. The results revealed that consumers were

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very willing to pay large premiums for an attractively designed product. In fact, the percentage of

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people who chose the product with the attractive design did not decrease significantly until the

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price premium of that product reached more than three times the base price. This research

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demonstrates that consumers are willing to pay a substantial price premium—up to three times

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the original price—for a product with an attractive design, which is many multiples above the

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30% price premium that they identify when asked directly about their willingness to pay more for

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a product with attractive design. Interestingly, we find a similar pattern of willingness to pay

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whether the category is more public (e.g., sunglasses) or more private (e.g., CD alarm clock

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radios) in nature.

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My research also shows that consumers may be reluctant to identify ‘design’ as a

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reason for their purchase decision when responding to surveys. Similar to the price-premium

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research described above, we asked consumers two sets of questions that were designed to test

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directly and indirectly whether they felt that ‘design’ justified purchase decisions. Specifically,

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consumers were presented with the following scenario: “Person A and Person B are both

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shopping for a new blender. There are two options. One is more aesthetically pleasing while the

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other functions better (or is lower priced or better branded). Person A opts for the more

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aesthetically pleasing option. Person B opts for the better functioning product (or lower priced or

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better branded) option.” Based on this scenario, consumers were asked, “Who is smarter?” None

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of the respondents said that Person A was smarter in any of the three scenarios (design vs.

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function, price, or brand). This research demonstrates that, although consumers weigh design

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heavily in their purchase decisions (as discussed above), consumers perceive that reporting that

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their decisions are being driven by design is not a rational or “smart” decision. As a result,
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consumers may systematically underreport the impact of design in their decision making because

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of the bias reflected above.

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In a separate study, we asked consumers questions that indirectly tested whether

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they felt that design justified purchasing decisions. Specifically, consumers were given the

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choice between an aesthetically appealing product and an average-looking product, similar to the

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studies of willingness to pay described above. We used five product categories in this study: tape

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dispensers, blenders, CD alarm clocks, desk lamps, and wall clocks. In contrast to the earlier

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studies, for each of the products consumers were given four functional features (in addition to

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design and price) as a basis for evaluations. For example, in tape dispensers the functional

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features included whether or not the base was no-slip (feature A), whether or not the base was

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weighted (feature B), if the dispenser could handle more than one size of tape (feature C), and

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whether or not it was easy to load the dispenser with tape (feature D).

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All of these functional features were shown to the respondents, however the

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features differed in terms of whether or not they favored the aesthetically pleasing option. For

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half of the respondents, two of the features (e.g., features A and B) favored the aesthetically

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pleasing option (e.g., this dispenser had a weighted base and a no-slip base) and the other two

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features (e.g., features C and D) favored the average-looking option (e.g., this dispenser could

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handle more than one tape size and was easy to load). This was reversed for the other half of

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respondents so that the features that previously favored the average-looking option (e.g., features

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C and D) now favored the aesthetically pleasing option and the features that previously favored

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the aesthetically pleasing option (e.g., features A and B) now favored the average-looking option.

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After choosing an option, consumers were asked to rate how important each feature was in their

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decision.

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Across the product categories, each feature set (e.g., features A and B or features C

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and D) was weighted as being significantly more important whenever it was paired with the more

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aesthetically pleasing product. In other words, when asked about the importance of certain

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features in terms of being a basis for choice, consumers in this study consistently inflated the

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importance of functional features that were paired with the more aesthetically pleasing products,
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regardless of which feature set was paired with those products. This research demonstrates that

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consumers may justify their choice of an aesthetically appealing product by overweighting

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functional product features because they may be reluctant to articulate that design drove their

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purchasing decisions.

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As stated above, based on my research, the distinctiveness of a product’s design is

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a critical driver of purchasing decisions. The experimental paradigm that we used in the studies

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paired an aesthetically pleasing product with an average-looking product. Consumers’ choices

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made it clear that consumers are willing to pay substantially more for an aesthetically pleasing

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product; yet, when asked directly, consumers would underweight the importance of design as a

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basis for their choices. Instead, they overweighted the importance of functional features, such as

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a tape dispenser with a no-slip base. This is consistent with research in the field of consumer

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behavior that shows that when consumers are surveyed about their choices, they tend to give

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reasons that are more easy to justify to themselves and others (e.g., a tape dispenser with a no-slip

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base) rather than reasons that are less rational and harder to justify (e.g., an attractive looking tape

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dispenser). Attached hereto as Exhibit B is a true and correct copy of a paper that discusses this

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topic.1 Thus, although consumers prefer distinctive, attractive designs, they nonetheless tend to

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underweight the importance of design when directly asked about its importance, and they

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correspondingly overweight other factors.

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IV.

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SIGNIFICANCE OF DESIGN FOR SMARTPHONE BUYERS
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I have reviewed several surveys concerning the importance of design to buyers of

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smartphones such as the iPhone. The first survey is a June 2011 Nielsen survey described in an

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article that Michael Wagner cites in his declaration, which I understand was marked as Exhibit

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162 to Mr. Wagner’s deposition. Attached as Exhibit C is the document that was submitted as

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Exhibit 162 to Mr. Wagner’s deposition. As Mr. Wagner states in his declaration, the Nielsen

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Eldar Shafir, Itamar Simonson & Amos Tversky, Reason-Based Choice, 49 COGNITION
11 (1993).

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survey showed that “touchscreen capability” was ranked as the most important factor in a

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smartphone, while “other important decision drivers included ‘Internet access, apps, access to

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email, design, ease of use and price.’” (Wagner Dec. ¶ 84.) Thus, design was identified as “one

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of six drivers of demand.” (Id.) Indeed, the article noted that it was a “tossup” as to which of

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those six drivers of demand was most important. (Ex. C at 2.) The article concluded that

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“smartphone users want a lot of different things out of their device, which means that smartphone

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vendors will need to cover all their bases to be successful in the smartphone market.” (Id.) The

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summary of the survey results indicates that respondents were asked to identify the first, second,

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and third most important reasons for buying a smartphone. (Id. at 5.)

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In the Nielsen survey, design was presented as one of twenty potential reasons for

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choice. Similar to the discussion above, the identification of design may be underweighted as the

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majority of the other reasons were easier to justify as a basis for choice. For example, features

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such as “touchscreen capability” and “access to email” offer clear functional benefits that could

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be more easily justified to others relative to design.

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While the Nielsen survey in fact indicates that design is an “important decision

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driver” for smartphone buyers, as Mr. Wagner notes, consumers often undervalue the significance

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of design to their buying decision, as discussed above. Because of this phenomenon, it is likely

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that design was actually even more important to smartphone buyers than indicated by the Nielsen

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survey, and may have been among the top several reasons for purchase.

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Indeed, the

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New York Times discussed the attractive design of Apple’s iPad in a recent article on the market

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for tablet computers: “Apple also has a lead in design that will be tough to surmount. People

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want to own its products because they are so good-looking.” Attached hereto as Exhibit E is a

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true and correct copy of a printout of “Amazon Has High Hopes for its iPad Competitor.”2

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David Stretifeld, Amazon Has High Hopes for its iPad Competitor, N.Y. TIMES, SEPT.
25, 2011.

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V.

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THE SALE OF COMPETING PRODUCTS WITH SUBSTANTIALLY THE SAME
DESIGN WILL ERODE THE DISTINCTIVENESS OF THE IPHONE AND IPAD
DESIGNS

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I have been asked to comment on the statements of Michael Wagner concerning

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the impact on Apple of Samsung’s sales of competing products with substantially the same design

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as the iPhone and iPad. In particular, I have been asked to comment on Mr. Wagner’s statements

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that Apple “fails to provide any linkage whatsoever between Samsung’s sales and the erosion of

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the distinctiveness of Apple’s designs” (Wagner Dec. ¶ 17) and that the Apple brand is so strong

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that the sales of Samsung’s products cannot have any adverse effect on the distinctiveness of

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Apple’s designs, or on the price-competitiveness of Apple’s products. (Wagner Dec. ¶¶ 24, 27.)

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Mr. Wagner’s statements demonstrate that he does not understand the effects that can occur when

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a distinctive design is copied by others in the marketplace.

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I have seen copies of a selection of iPhone and iPad advertisements that were

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attached as exhibits to the Declaration of Sissie Twiggs submitted in support of Apple’s Motion

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for a Preliminary Injunction, as well as iPhone and iPad advertisements that I have seen in the

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media in my everyday life. Without question, Apple has featured its distinctive design in its
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advertising. iPhone and iPad ads generally showcase the products in use on television or display

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the products prominently in print. This common technique seen in many Apple ads is sometimes

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referred to as the “product as hero” approach in advertising. That is, the approach is to show the

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product itself as the star of the ad, rather than to use a spokesperson or to show a myriad of

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product features as the star. Apple’s advertising tends to focus on big, bold product shots, making

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the attractive and distinctive product design central in the ad and clear to the viewer. Advertising

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is a significant strength for Apple, as evidenced by the awards that Apple has received including

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Advertising Age’s first ever Marketer of the Decade Award in 2010. Attached hereto as Exhibit

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F is a true and correct copy of a website printout discussing this award.3

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Apple has consistently used this “product as hero” technique across its product line

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over the years. This common focus on the product combined with consistency across Apple

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advertising would be expected to increase the distinctiveness of Apple’s designs in the

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marketplace. Research on branding shows that repeatedly using a consistent advertising message

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increases the strength of that message in consumers’ minds. Attached hereto as Exhibit G is a

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true and correct copy of a paper titled “The Brand Report Card” that discusses this issue.4 The

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paper discusses the top ten traits that strong brands share, and one of the traits is that the brand

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stays consistent over time. The paper describes the case of Michelob and how the inconsistency

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in its advertising led to consumer confusion about the brand. On the other hand, Apple has been

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very consistent with its advertising over the last five years. The iPhone and iPad ads typically

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feature the product, making it easy to appreciate the design. In addition, the ads have a simple,

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elegant look that has helped Apple strengthen its association with design in the minds of

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consumers.

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Beth Snyder Bulik, “Marketer of the Decade: Apple,” available at
http://adage.com/article/special-report-marketer-of-the-year-2010/marketer-decadeapple/146492/.
4
Kevin Lane Keller, The Brand Report Card, HARV. BUS. REV., Jan-Feb. 2000, at 3.

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If other products that look like the iPhone or the iPad are released on the market,

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then the distinctiveness of the iPhone and iPad designs would begin to be eroded in the eyes of

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the customer. For example, as discussed above, consumers consistently prefer a product with an

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attractive design over a product with an average design, even if the average-looking product is

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functionally as good as or even better than the product with the attractive design. Having

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products with attractive and distinctive designs gives Apple a competitive advantage over other

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companies that do not have such products. If other companies are able to offer products with

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similar designs, however, Apple will lose this competitive advantage.

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In addition, the sale of competing products with similar designs would erode the

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ability of the iPhone and iPad to command price premiums based on design. Research has

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pointed out that strong brands need to have a strong, favorable, and unique point of difference in

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the marketplace. If products with similar designs to the iPhone and iPad are available, then

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Apple’s strong point of difference of design would be eroded, and eventually design could

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become a point of parity that is shared among several brands. Attached hereto as Exhibit I is a

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true and correct copy of a paper titled “Three Questions You Need to Ask About Your Brand,”

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which discusses this topic.5 In other words, Apple would no longer be able to use its distinctive

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design as a unique way to differentiate its products from competitors and price premiums related

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to design would likely erode. Indeed, to the extent that Apple’s “product as hero” advertising

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increases demand for products with Apple’s designs, Apple’s advertising will actually benefit

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competitors that are selling products that look like Apple’s.

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39.

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Kevin Lane Keller, Brian Sternthal, and Alice Tybout, Three Questions You Need to Ask
About Your Brand, HARV. BUS. REV., Sept. 2002, at 3.

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Further, Apple’s reputation as an innovator in design may be tarnished if other

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companies are selling products with similar designs. Apple has a well-established reputation of

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coming out with remarkable new products and designs that look very different from what has

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come before. If consumers can buy products with similar designs from other companies, Apple’s

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design will no longer stand out from the crowd of competing products. Eventually design will no

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longer be a compelling strength for Apple. To the extent that similar designs exist, then design

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will become less important and other features such as function and/or price will become more

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important in the purchase decision.
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There are compelling anecdotal examples of this erosion of distinctiveness in the

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marketplace. For example, at one time, high-end kitchens were denoted by appliances with a

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sleek design featuring a distinctive stainless steel look. The uniqueness of the stainless steel

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design conveyed status, and consumers were willing to pay huge price premiums for these

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appliances. Now, however, such a design is no longer as distinctive as many manufacturers have

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copied the stainless steel look in the marketplace.

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REPLY DECL. OF S. SOOD IN SUPPORT OF APPLE’S MOTION FOR A PRELIMINARY INJUNCTION
CASE NO. 11-CV-01846-LHK

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