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

Filing 935

Declaration in Support of #934 Administrative Motion to File Under Seal filed bySamsung Electronics America, Inc.(a New York corporation), Samsung Electronics Co. Ltd., Samsung Telecommunications America, LLC(a Delaware limited liability company). (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, #10 Exhibit J, #11 Exhibit K, #12 Exhibit L, #13 Exhibit M, #14 Exhibit N, #15 Exhibit O, #16 Exhibit P, #17 Exhibit Q, #18 Exhibit R, #19 Exhibit S, #20 Exhibit T, #21 Exhibit U, #22 Exhibit V, #23 Exhibit W, #24 Exhibit X)(Related document(s) #934 ) (Maroulis, Victoria) (Filed on 5/17/2012)

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EXHIBIT J 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 12 APPLE INC., a California corporation, 13 14 15 16 17 18 19 Plaintiff, Case No. 11-cv-01846-LHK EXPERT REPORT OF SANJAY SOOD 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, Defendants. 20 21 22 **CONFIDENTIAL – CONTAINS MATERIAL DESIGNATED AS HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY PURSUANT TO A PROTECTIVE ORDER** 23 24 25 26 27 28 EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 1 2 V. DESIGN IS IMPORTANT IN CONSUMER CHOICE 12. Over the past five years, I have conducted surveys as part of my research on the 3 impact of product design on consumer choice. Research on consumer behavior—including my 4 own research—demonstrates that design plays an important role in consumers’ purchasing 5 decisions. As described below, my research examines consumer willingness to pay a premium 6 for good design, how consumers process information about design, and the impact of design on a 7 consumer’s sense of self. 8 13. Typically, the research paradigm provides consumers with a choice between an 9 attractive-looking product and an average-looking product. Depending on the study parameters, 10 the products will have varying levels of functional feature information provided, with up to five 11 other attributes, including price, shown in addition to design. I have examined a host of product 12 categories, ranging from some that are more public in nature such as socially oriented products 13 (e.g., sunglasses, blue jeans, etc.) as well as categories that are more private in nature and less 14 socially oriented (e.g., tape dispensers, CD alarm clock radios, etc.). Based on the studies I have 15 conducted and that are described below, I have determined that an attractive design for a product 16 is a critical driver of purchasing decisions in both public and private categories. 17 14. My research also reveals that while consumers are greatly influenced by attractive 18 design, they are not necessarily consciously aware of this influence. Consumers may not realize 19 the significance of design in their purchasing decisions, or may be unwilling to identify design as 20 the single most important factor in their purchase decisions. 21 15. The overall pattern of results suggests that design is a highly valued product 22 attribute that can provide a strong competitive advantage in the marketplace. The results of my 23 studies have revealed that consumers are willing to pay large price premiums for products with an 24 attractive design.1 Because design is an important factor in consumer buying decisions, a 25 company such as Apple that has attractive product designs has a significant competitive 26 27 28 1 Exhibit C, Claudia Townsend and Sanjay Sood, The Impact of Product Aesthetics on Choice: A Dual Process Explanation. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 3 1 advantage. My research shows that not only are consumers more likely to buy those specific 2 products, they are willing to pay more for them. Moreover, other research suggests that if a 3 company has a consistent focus on design, it may acquire a reputation as an innovator in design 4 that may increase the overall value of the brand and create a positive image that attracts more 5 customers.2 6 B. The Impact of Product Aesthetics on Choice 7 16. The primary focus of some of my studies has been to identify the price premium 8 that consumers would be willing to pay for a product with an attractive design. My research 9 reveals a systematic underweighting of design as a reason for choice when consumers are asked 10 directly to rate the importance of design, as opposed to when consumers are asked indirectly by 11 being offered a choice between two specific products, one of which has a more aesthetically 12 pleasing design than the other. I have conducted several studies that examine this contrast in the 13 importance of design when asking the question directly or indirectly. For example, when asked 14 directly (as in the case of a survey or questionnaire) about how much extra they would be willing 15 to pay for a product with an attractive design, consumers replied that they would be willing to pay 16 about a 30% price premium in categories such as sunglasses. 17 17. When asked indirectly through a choice task, however, the results differed 18 significantly. Specifically, we provided consumers a choice between a product with an attractive 19 design and a product with an average design, presented in side by side pictures. Different sets of 20 people were given different prices for the two products, with the average-looking product priced 21 at a “base” price and the attractively-designed product priced at a premium, starting at a 22 15% premium over the base price and going up from there. A fundamental principle in business 23 is that as the price of a product increases, its market share decreases. In our studies, this principle 24 did not hold true for products with attractive design. Instead, the market share of the attractive 25 26 27 28 2 Kevin Lane Keller, Strategic Brand Management, (3rd edition, Upper Saddle River, NJ: Prentice-Hall, 2008); Kevin Lane Keller, The Brand Report Card, HARV. BUS. REV., 3 (Jan-Feb. 2000); Kevin Lane Keller, Conceptualizing, Measuring, and Managing Customerbased Brand Equity, 57 JOURNAL OF MARKETING, 1-22 (March 1993). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 4 1 product remained the same even when the price premium increased dramatically to 210%. The 2 results demonstrate that consumers are very willing to pay a substantial price premium for an 3 attractively designed product. 4 18. In contrast, the market share decreased when consumers were given a choice 5 between two products with the same design but varied product attributes. We employed the same 6 research paradigm described above for products that varied in terms of price (starting with a 15% 7 price premium) and functionality. However, this time consumers were shown an identical picture 8 for both options to indicate they had the same design. For example, consumers were given a 9 choice between a product that was average in functionality and a product that was superior in 10 functionality (e.g., sound quality for a CD alarm clock) with no variation in design. As the price 11 of the superior functioning product increased, its market share decreased. The same pattern holds 12 for products that varied in quality and brand name. That is, when consumers were given a choice 13 between a product rated average in quality (or from an average brand) and a product rated high in 14 quality (or superior brand), the market share of the high-quality (or superior brand) product 15 decreased as its price increased. Thus, we conclude that the remarkably flat price response is 16 uniquely associated with products that have good design. 17 19. Our studies show that the powerful impact of design is related to its visual nature. 18 That is, consumers process information about design so quickly that they are not necessarily 19 aware of the impact of design. In the research paradigm described above, when design is shown 20 verbally in terms of ratings instead of visually in terms of pictures, the flat price response of 21 design disappears. To examine the importance of the visual/verbal distinction, we converted the 22 visual presentation of design into numerical ratings. First we asked a set of consumers to rate the 23 overall looks/design of the good-looking and average-looking products used above on a 100-point 24 scale. We then averaged these ratings and provided them to a second set of consumers in a choice 25 task that now featured a numerical (not visual) variation in design. Specifically, this second set of 26 consumers was given a choice between a product rated average in design (e.g., 48/100, the design 27 rating of the average-looking product) and a product rated highly in design (e.g., 73/100, the 28 actual design rating of the good-looking product). Similar to functionality, when design was EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 5 1 described verbally in ratings, the market share of the attractive product decreased as its price 2 increased. 3 20. It is important to note several additional precautions that provide further 4 confidence that the results could be uniquely attributed to design. We conducted a pretest to 5 confirm unanimity of aesthetics. In the pretest, a subset of the participants from the main study 6 described above were presented with two black and white pictures side-by-side for each product 7 category, and they were asked to indicate which one had the better “overall looks/design.” There 8 was more than 90% agreement in each product category for the better-looking design. Thus, 9 there was general agreement amongst the subject population about which products were beautiful. 10 In addition, we attempted to separate design from functionality. That is, respondents were told 11 that all other features were the same across products except for the design and the price. This 12 statement was included so that respondents would not infer that the product with good design was 13 also better in terms of functionality or quality more generally. Finally, we focused on categories 14 that are more privately consumed and therefore do not rely on fashion or have value in terms of 15 social signaling. For example, we studied CD alarm clocks and desk lamps, products that are 16 functional in nature and do not have very much social currency. One would expect design to be 17 more important in fashion categories such as clothing and indeed the results are similar and/or 18 larger in magnitude. 19 C. The Impact of Bias on Choice of High Aesthetics 20 21. My research also shows that consumers may be reluctant to identify “design” as a 21 reason for their purchase decision when responding to surveys. Similar to the price-premium 22 research described above, we asked consumers two sets of questions that were designed to test 23 directly and indirectly whether they felt that “design” justified purchase decisions. Specifically, 24 consumers were presented with the following scenario: “Person A and Person B are both 25 shopping for a new blender. There are two options. One is more aesthetically pleasing while the 26 other functions better [or is lower priced or better branded]. Person A opts for the more 27 aesthetically pleasing option. Person B opts for the better functioning product [or lower priced or 28 better branded] option.” Based on this scenario, consumers were asked, “Who is smarter?” EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 6 1 None of the respondents said that Person A was smarter in any of the three scenarios (design vs. 2 function, price, or brand). This research demonstrates that, although consumers weigh design 3 heavily in their purchase decisions (as discussed above), consumers perceive that reporting that 4 their decisions are being driven by design is not a rational or “smart” decision. As a result, 5 consumers may systematically underreport the impact of design in their decision making because 6 of the bias reflected above. 7 D. The Impact of Deliberation on Choice of High Aesthetics 8 22. In another study, we asked consumers questions that indirectly tested whether they 9 felt that design justified purchasing decisions. Specifically, consumers were given the choice 10 between an aesthetically appealing product and an average-looking product, similar to the studies 11 of willingness to pay described above. We used five product categories in this study: tape 12 dispensers, blenders, CD alarm clocks, desk lamps, and wall clocks. In contrast to the earlier 13 studies, consumers were given four functional features (in addition to design and price) as a basis 14 for evaluations for each of the products. For example, in tape dispensers the functional features 15 included whether or not the base was no-slip (feature A), whether or not the base was weighted 16 (feature B), whether or not the dispenser could handle more than one size of tape (feature C), and 17 whether or not it was easy to load the dispenser with tape (feature D). 18 23. All of these functional features were shown to the respondents; however, the 19 features differed in terms of whether or not they favored the aesthetically pleasing option. For 20 half of the respondents, two of the features (e.g., features A and B) favored the aesthetically 21 pleasing option (e.g., this dispenser had a weighted base and a no-slip base) and the other two 22 features (e.g., features C and D) favored the average-looking option (e.g., this dispenser could 23 handle more than one tape size and was easy to load). This was reversed for the other half of 24 respondents so that the features that previously favored the average-looking option (e.g., 25 features C and D) now favored the aesthetically pleasing option and the features that previously 26 favored the aesthetically pleasing option (e.g., features A and B) now favored the average-looking 27 option. After choosing an option, consumers were asked to rate how important each feature was 28 in their decision. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 7 1 24. Across the product categories, each feature set (e.g., features A and B or features C 2 and D) was weighted as being significantly more important whenever it was paired with the more 3 aesthetically pleasing product. In other words, when asked about the importance of certain 4 features in terms of being a basis for choice, consumers in this study consistently inflated the 5 importance of functional features that were paired with the more aesthetically pleasing products, 6 regardless of which feature set was paired with those products. This research demonstrates that 7 consumers may justify their choice of an aesthetically appealing product by overweighting 8 functional product features because they may be reluctant to articulate that design drove their 9 purchasing decisions. 10 25. As stated above, based on my research, the distinctiveness of a product’s design is 11 a critical driver of purchasing decisions. The experimental paradigm that we used in the studies 12 paired an aesthetically pleasing product with an average-looking product. Consumers’ choices 13 made it clear that consumers are willing to pay substantially more for an aesthetically pleasing 14 product; yet, when asked directly, consumers would underweight the importance of design as a 15 basis for their choices. Instead, they overweighed the importance of functional features, such as a 16 tape dispenser with a no-slip base. This is consistent with research in the field of consumer 17 behavior that shows that when consumers are surveyed about their choices, they tend to give 18 reasons that are easier to justify to themselves and others (e.g., a tape dispenser with a no-slip 19 base) rather than reasons that are less rational and harder to justify (e.g., an attractive-looking tape 20 dispenser).3 Thus, although consumers prefer notable, attractive designs, they nonetheless tend to 21 underweight the importance of design when directly asked about its importance, and they 22 correspondingly overweight other factors. 23 24 25 26 27 28 3 Eldar Shafir, Itamar Simonson & Amos Tversky, Reason-Based Choice, 49 COGNITION 11 (1993). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 8 1 E. The Impact of Self-Affirmation on Choice of High Aesthetics 2 26. My research also reveals that choosing a product with an attractive design can 3 actually enhance a consumer’s sense of self.4 The study participants were randomly assigned to 4 one of three groups based on the following conditions: (1) self-affirmation; (2) self- 5 disaffirmation; or (3) control.5 As before, consumers were asked to make a choice between an 6 average-looking product and an attractive product. In this study, however, the consumers were 7 asked to write a short essay prior to making the choice. We provided a list of values to the self- 8 affirmation and self-disaffirmation groups of consumers and requested that they rank them in 9 order of importance. Then, we asked the self-affirmation group to write about a value from the 10 list that was most important to them personally and we asked the disaffirmation group to write 11 about a value from the list that was least important to them personally. The control group was 12 asked to write about what they did the prior day between 5 pm and 7 pm. For example, a 13 consumer in the self-affirmation group may describe an example of when they were honest (very 14 important value) before making the choice. Research in psychology suggests that people are 15 constantly in a state of requiring affirmation and that we have a natural tendency to seek it out.6 16 Similarly, earlier psychologists have described people as in a constant state of “ego- 17 enhancement”7 and that there is a basic need to enhance and protect the self to which all other 18 19 20 4 Exhibit D, Claudia Townsend and Sanjay Sood, Self-Affirmation Through the Choice of Highly Aesthetic Products. 5 21 22 23 24 25 26 27 28 Both the self-disaffirmation and control groups actually serve as control conditions. The two groups allow the study to test whether participants who have engaged in a self-affirming activity are less likely to engage in another self-affirming activity (such as selecting an attractive product) or more likely to engage in a disaffirming one (such as selecting an average-looking product) and thus provide evidence that self-affirmation is a motive for choosing highly aesthetic objects. The control group was added to ensure that the act of discussing one’s values does not have an effect on choice. 6 Claude Steele, The Psychology of Self-affirmation: Sustaining the Integrity of the Self, ADVANCES IN EXPERIMENTAL SOCIAL PSYCHOLOGY, 261-302, (ed: L. Berkowitz, New York: Academic Press, 1988). 7 Gordon W. Allport, The Ego in Contemporary Psychology, PSYCHOLOGICAL REVIEW 50, 451-478 (1943). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 9 1 29. In summary, my research on product design indicates the following: (i) that 2 consumers are willing to pay substantial price premiums for an attractive-looking product; 3 (ii) design is an important feature even in categories that are typically private in nature where 4 social currency is not a big issue, perhaps because choosing attractive products affirms one’s 5 sense of self, and (iii) consumers may not be aware of the effect of design, hence the influence of 6 design may not be revealed in surveys where consumers are asked directly. In fact, we would 7 expect this effect to become larger with products that do have social currency. When given a 8 choice between an average-looking product and an attractive-looking product, however, it is clear 9 that design has a large influence on the decision even in more mundane categories. 10 30. I note that my research is consistent with anecdotal evidence from Apple. When 11 Jonathan Ive, Apple’s Senior Vice President of Industrial Design, was asked: “[d]o consumers 12 really care about good design[,]” he responded: 13 One of the things we’ve really learnt over the last 20 years is that while people would often struggle to articulate why they like something – as consumers we are incredibly discerning, we sense where [there] has been great care in the design, and when there is cynicism and greed. It’s one of the thing [sic] we’ve found really encouraging.10 14 15 16 17 18 VI. BUILDING BRAND EQUITY VIA CREATING STRONG BRAND ASSOCIATIONS 31. A brand is one of the most valuable assets of a company.11 For example, 19 according to BrandZ, in 2011 the world’s most valuable brand was Apple, valued at over 20 21 22 23 24 25 26 27 28 10 See Mark Prigg, Sir Johnathan Ive: The iMan Cometh, 11 This section includes concepts from the following sources: Kevin Lane Keller, Strategic Brand Management, (3rd edition, Upper Saddle River, NJ: Prentice-Hall, 2008); Kevin Lane Keller, Conceptualizing, Measuring, and Managing Customer-based Brand Equity, 57 JOURNAL OF MARKETING, 1-22 (March 1993). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 11 1 $150 billion.12 In addition to being valued financially, the benefits of having a strong brand can 2 be described in terms of the advantages it provides in the marketplace. These benefits include: 3 1. Greater customer loyalty—customers desire a relationship with the brand because it has relevant meaning. They are willing to seek the brand out and actively tell others about the brand. 4 5 2. Less vulnerability to competitive marketing actions—other brands are not perceived as acceptable substitutes even though the products may be functionally similar. 6 7 3. Larger price margins—consumers are willing to pay a premium to keep the brand relationship. 8 9 4. Greater trade cooperation and support—bargaining power increases with the trade because other products are not perceived as substitutes. In addition, it is easier for strong brands to develop trade relationships. 10 11 12 5. Increased marketing communication effectiveness—a wellunderstood brand does not have to spend as much money to get its positioning across to consumers. 13 14 6. Additional brand extension opportunities—consumers are more likely to accept new products from brands that they know and trust. 15 16 17 18 19 20 21 22 23 24 32. Given the significant benefits of having a strong brand, it is imperative that the brand be managed with the utmost care. Indeed, if not managed effectively, even iconic brands can lose their power in the marketplace. Kodak, Sears, and Saturn are a few examples of brands that have lost tremendous value over the years. 33. Creating a strong brand entails establishing relevant meaning in the mind of the customer. Brand equity is strengthened when a company consistently uses the same branding association for its products over time, especially if that association is perceived to be unique. Brand equity is lost when the association is not emphasized or when it ceases to be unique in the market. 25 26 27 28 12 “BrandZ Top 100: Most Valuable Global Brands 2011,” Millward Brown Optimor, APLNDC-Y0000234947-234999, at APLNDC-Y0000234953; “BrandZ Top 100: Most Valuable Global Brands 2007,” Millward Brown Optimor, APLNDC-Y0000234143-234169 at APLNDCY0000234152. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 12 1 34. In order to better understand how to conceptualize brand equity, it is helpful to 2 consider the difference between a product and a brand. Branding is the primary means to 3 distinguish the goods of one producer from those of another. Keller’s Customer-Based 4 Brand Equity model provides a framework that distinguishes between products and brands. A 5 product is anything that can be offered to a market for attention, acquisition, use, or consumption 6 that might satisfy a need or want. Thus, a product may be a physical good (e.g., a cereal, tennis 7 racquet, or automobile), service (e.g., an airline, bank, or insurance company), retail store (e.g., a 8 department store, specialty store, or supermarket), or a person (e.g., a political figure, entertainer, 9 or professional athlete). 10 35. Whereas a product refers to the functional aspects of a good or service, a brand 11 refers to the abstract meaning that differentiates that product in some way from other products 12 designed to satisfy the same need. These points of differentiation may be rational features related 13 to product performance or more emotional features related to what the brand represents to 14 consumers. Thus, extending the example from above, a branded product may be a physical good 15 (e.g., Kellogg’s Corn Flakes cereal, Prince tennis racquets, or Ford Taurus automobiles), a service 16 (e.g., United Airlines, Bank of America, or Transamerica insurance), a store (e.g., 17 Bloomingdale’s department store, Body Shop specialty store, or Safeway supermarket), or a 18 person (e.g., Bill Clinton, Tom Hanks, or Michael Jordan). The important aspect for companies is 19 to emphasize an association consistently over time so that the brand meaning becomes evident to 20 consumers. 21 36. Customer-based brand equity is defined as the differential effect that brand 22 knowledge has on consumer response to the marketing of that brand. A brand is said to have 23 positive customer-based brand equity when customers react more favorably to a product and the 24 way it is marketed when the brand is identified as compared to when it is not (e.g., when it is 25 attributed to a fictitiously named or unnamed version of the product). As described below, brand 26 knowledge is the critical component that drives brand equity. 27 28 37. For example, blind tests routinely find differences in consumer responses between products when the brand is known relative to when the brand is not known. Many consumer EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 13 1 categories such as cola, soap, and pain relievers have competitive products that perform very 2 similarly when the brand name is not known. The reality, however, is that Coke, Dove, and 3 Tylenol are some of the strongest brands in the world and when those brands are revealed in 4 consumer tests, that knowledge affects the results. This brand strength reflects the importance of 5 brand knowledge, which creates brand meaning and ultimately generates the differential 6 responses to marketing programs. Two colas may be quite physically similar in composition but 7 Coke and Pepsi are perceived to be vastly different due to the knowledge accumulated about these 8 brands over time. Thus, brands and brand equity reside in the minds of consumers, and it is of 9 paramount importance to actively manage this knowledge with effective brand marketing 10 programs. Of utmost importance is the creation and consistent reinforcement of a unique point of 11 difference around which the brand can be positioned. 12 38. Uniqueness is critical to establish, because the strongest brands have a 13 recognizable point of difference that differentiates them from the competition. For example, 14 consider a brand like Pepsi. Brand knowledge is often examined by asking customers what 15 comes to mind when the brand name is mentioned. When asked about Pepsi, consumers may 16 mention, for example, category associations (cola), attributes (sweet taste), and image 17 associations (endorsers like Britney Spears). These responses represent the knowledge that 18 customers have about the Pepsi brand in memory and form the basis of brand equity. What is 19 important for Pepsi, however, is whether consumers mention something related to the brand’s 20 point of difference. In this case, many customers tend to say that Pepsi is for young people, or 21 people who think young, or for Generation Next, etc. This is exactly what the brand manager at 22 Pepsi desires, that customers understand brand meaning and can communicate the brand’s point 23 of difference. 24 VII. APPLE IS KNOWN FOR DESIGN 25 A. The Importance of Design to Steve Jobs and Apple 26 39. Apple’s focus on design is evident in the way Apple has structured itself internally 27 and how it expresses itself externally. From the outset, Apple co-founder Steve Jobs believed in 28 EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 14 1 the power of design.13 Eulogizing Jobs as designer first and CEO second, the New York Times 2 pointed out Jobs’ attention to design and detail, stating: “He thought about design . . . . In fact, 3 he went beyond thinking about it. He obsessed over it—every curve, every pixel, every ligature, 4 every gradient.”14 John Maeda, President of the Rhode Island School of Design, stated that Jobs’ 5 single greatest design achievement “is the Apple organization, an organization that actually cares 6 about design more than technology.”15 7 40. Steve Jobs was widely recognized as a design visionary throughout his career.16 8 For example, Paola Antonelli, senior curator of architecture and design at the Museum of 9 13 For instance, the Wall Street Journal stated: 10 The most productive chapter in Mr. Jobs’s career occurred near the end of his life, when a nearly unbroken string of successful products like the iPod, iPhone, and iPad changed the PC, electronics and digital-media industries. The way he marketed and sold those products through savvy advertising campaigns and Apple’s retail stores helped turn the company into a pop-culture phenomenon. 11 12 13 14 15 At the beginning of that phase, Mr. Jobs described his philosophy as trying to make products that were at ‘the intersection of art and technology.’ In doing so, he turned Apple into the world’s most valuable company with a market value of $350 billion.” (emphasis added) 16 17 18 19 Yukari Iwatani Kane, Steven Paul Jobs, 1955-2011, Wall Street Journal, October 5, 2011, 14 20 21 Nick Bilton, Steve Jobs: Designer First, C.E.O. Second, October 6, 2011, 15 22 23 24 25 26 27 28 How Steve Jobs Changed the World of Design, October 7, 2011, 16 John Markoof, Redefined the Digital Age as the Visionary of Apple, N.Y. Times, October 5, 2011; Obituary: Apple co-founder and Silicon Valley pioneer Steve Jobs is dead,, October 7, 2011,; Steve Jobs: The Passing of a tech visionary, SFGate, October 6, 2011,; See Steve Lohr, The Power of Taking the Big Chance, N.Y. Times, October 8, 2011, EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 15 1 Modern Art in New York exclaimed that Jobs “had an exceptional eye for design, and not just an 2 eye, but an intelligence for design.”17 Jobs explained his focus on design, stating “[d]esign is the 3 fundamental soul of a man-made creation that ends up expressing itself in successive outer layers 4 of the product or service.”18 5 B. Design is in Apple’s DNA 6 41. As a result of Steve Jobs’ focus on design, one of Apple’s primary points of 7 difference is its strong association with design. This association derives from a continued 8 emphasis on design over decades in the marketplace. Apple has placed the utmost importance in 9 product design. The focus on design, however, is not limited to the look of the products. Apple’s 10 corporate culture values design. Apple’s advertising showcases design. Even Apple retail stores 11 and product packaging emphasize design. 12 42. Apple has stated that its overall business strategy includes leveraging its unique 13 ability to design and develop products that represent innovative industrial design. According to a 14 recent annual report: 15 The Company’s overall business strategy is to control the design and development of the hardware and software for all of its products, including the personal computer, mobile communications and consumer electronics devices. The Company’s business strategy leverages its unique ability to design and develop its own operating system, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design.19 16 17 18 19 20 21 22 23 24 25 43. This sentiment on the importance of design is echoed in comments from the entire Apple leadership team. Cordell Ratzlaff, a chief architect of the Mac OS X operating system, said: “We did the design first. We focused on what we thought people would need and want, and 17 James B. Stewart, How Jobs Put Passion Into Products, N.Y. Times, October 7, 2011, 26 18 27 19 28 Id. Apple 10-K/A (Amended Annual Report) filed January 25, 2010, APLNDCY0000135185-APLNDC-Y0000135265 at APLNDC-Y0000135191. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 16 1 how they would interact with their computer.” 20 Similarly, Jonathan Ive, the Senior Vice 2 President of Industrial Design at Apple, reflecting upon the importance of design, said that the 3 appearance of Apple products is “the result of painstaking attention to detail.”21 Clearly, Apple’s 4 corporate culture places tremendous value on design. 5 C. Publicity Surrounding Products and Product Launches 6 44. This internal emphasis on design is also expressed externally to consumers. For 7 example, Apple commonly uses the “product as hero” approach in its advertising of the iPhone 8 and iPad. 22 This approach is described in Apple’s iPhone, iPad, and iPod touch marketing 9 communications.23 The “product as hero” ads showcase the product’s look and feel, often with 10 close up shots that reveal the elegant product design. For example, Philip Schiller, Apple’s 11 Senior Vice President of Worldwide Product Marketing, stated that: 12 when we create our website, one of the first things you’ll see when you go look at the iPhone is a beautiful photo of it because how it looks is really tantamount. I think it’s one of the most important things, that it’s beautiful and the design is something unique and distinctive, and we will show that.24 13 14 15 16 17 18 19 20 See “Design Thinking and Innovation at Apple,” Harvard Business School Case Study No: 9-609-066, revised March 4, 2010, APLNDC-Y0000134928–134940. 21 See id. 22 20 21 22 23 24 25 26 27 See, e.g., Deposition of Sissie Twiggs on July 27, 2011, 97:20-21; Deposition of Tamara Whiteside on February 28, 2012, 34:1. 23 See, e.g., iPhone Advertising Guidelines, APLNDC0002155318-APLNDC0002155322, at APLNDC0002155320; iPhone 3G Advertising Guidelines, APLNDC0002155335APLNDC0002155338, at APLNDC0002155336; iPhone 3GS Launch Kit – US (June 2009), APLNDC0002008363-APLNDC0002008405, at APLNDC0002008368-69, APLNDC0002008380; iPod Family Asset Kit – U.S. (Sep. 2009), APLNDC0001327374– 1327415, at APLNDC0001327376; January 2010 iPhone Asset Kit U.S. (Dec. 2009), APLNDC0001335264-APLNDC0001335280, at APLNDC0001335266; APLNDC0002203459 and APLNDC0002203464 in APLNDC0002203457–2203482; 9090-EF03-BB00003101 at p. 5; iPad Asset Kit-US (Apr. 2010), APLNDC0001964084-1964099, at APLNDC0001964087; iPad 2 Business Asset Kit – English (Mar. 2011), APLNDC0002027210-APLNDC0002027226, at APLNDC0002027225. 24 28 Deposition of Philip Schiller on February 17, 2012, 121:16-22. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 17 1 2 45. stated: 3 Apple as a company comes from the design of our products. It is the key to what makes our products distinctive, and that’s something we live with every day, fortunately. . . . As I mention all the time, showing our product as hero, with the design elements in the center of our advertising, is absolutely critical. And probably like anyone with their own product, they like to show their product as it appears in the best light possible. And we’re fortunate with Apple products that there are so many gorgeous design elements to them, there’s a lot to show off.25 4 5 6 7 8 9 10 11 12 13 14 15 As another example, Sissie Twiggs, Apple’s Director of Worldwide Advertising 46. Apple’s products have attained unprecedented levels of publicity and news coverage.26 The launch of the iPhone in 2007 was covered exhaustively by the national media,27 as was each introduction of each new iPhone model.28 The formal launch of the iPad was even more extensively covered, with several major media outlets posting live blog reports throughout the event.29 These products were exceedingly successful and they appeared in a variety of mass media channels, from newspapers, magazines, television, and movies. Although it does not pay for product placements, Apple iPhone and iPad products are frequently seen in popular 16 17 25 18 26 19 20 21 22 23 24 25 26 27 28 Deposition of Sissie Twiggs on July 27, 2011, 164:17-165:4. See, e.g., Jefferson Graham, Apple Buffs Marketing Savvy to a High Shine, USA Today, March 9, 2007, 27 See, e.g., John Markoff, Apple, Hoping for Another iPod, Introduces Innovative Cellphone, N.Y. Times, Jan. 10, 2007; Ellen Lee, Apple Unveils All-in-One iPhone, S.F. Chronicle, Jan. 9, 2007; Jon Swartz, Apple Unveils All-in-One iPhone, USA Today, Jan. 10, 2007; Li Yuan & Pui-Wing Tam, Apple Storms Cellphone Field, Wall Street Journal, Jan. 10, 2007. 28 See, e.g., Brad Stone and Jenna Wortham, iPhone Stars in Apple Show, Supported by Software, N.Y. Times, June 8, 2009; Ryan Kim, Apple Unveils Faster iPhone with New Features, S.F. Chronicle, June 9, 2009; Nathan Olivarez-Giles and Shan Li, Apple Fans Camp Out to Get New iPhone 4S, L.A. Times, Oct. 15, 2011; Casey Newton, Apple’s iPhone 4S Generates Big 1stDay Sales, S.F. Chronicle, Oct. 14, 2011; For Apple Fans, New iPhone Worth the Wait, Chicago Tribune, Oct. 15, 2011; 29 See, .e.g., David Gallagher, (New York Times blog entry titled “The iPad’s Big Day”). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 18 1 television programs.30 For example, an episode of the hit ABC series Modern Family revolved 2 around a character’s efforts to obtain an iPad the day it was released.31 The iPad quickly became 3 associated with leading newsmakers and public figures throughout the world. 4 XVI used an iPad to send the Vatican’s first tweet and photos of the Pope with his iPad were 5 viewed all over the world.32 President Barack Obama stated in an interview that he uses his iPad 6 to read newspapers that he used to read in print.33 And Oprah Winfrey named the iPad one of her 7 “Ultimate Favorite Things.”34 In addition, Apple recently won a product placement award for its 8 products appearing in a significant number of movies that were top box office hits in 2011.35 9 47. Pope Benedict Apple has made substantial expenditures on advertising since the iPhone was 10 launched in 2007.36 In fiscal year 2008, Apple spent $97.5 million in the U.S. on iPhone 11 advertising. Apple’s U.S. advertising expenses in the U.S. for the iPhone were $149.6 million, 12 $173.3 million, and $226.6 million in fiscal years 2009, 2010, and 2011, respectively.37 Between 13 fiscal year 2008 and the end of the first quarter of fiscal year 2012, Apple spent a total of $747.2 14 million on iPhone advertisements in the U.S.38 The iPhone advertisements reflect Apple’s 15 “product as hero” philosophy and most advertisements include a large photograph of the iPhone, 16 17 18 19 20 30 Suzanne Lindbergh, Director of Buzz Marketing at Apple, discussed marketing and product placement at her deposition. See generally Deposition of Suzanne Lindbergh on February 28, 2012. 31 See Brian Steinberg, ‘Modern Family’ Featured an IPad, but ABC Didn’t Collect, 32 See, e.g., 33 21 22 23 24 25 26 See Julia Edwards, Obama Received an Early iPad From Steve Jobs 34 ”Oprah’s Ultimate Favorite Things 2010,” The Oprah Winfrey Show, November 19, 2010 ( 35 See 36 See Beth Snyder Bulik Marketer of the Decade: Apple 37 See APLNDC-Y0000051623. 38 See APLNDC-Y0000051623. 27 28 EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 19 1 often highlighting its unique design. Attached as Exhibit E are examples of iPhone print and 2 billboard advertising. 3 48. Likewise, Apple has invested substantial sums in advertising since the iPad 4 launched in 2010. Apple’s U.S. advertising expenses for the iPad were $149.5 million and 5 $307.7 million in fiscal years 2010 and 2011, respectively. 39 Between fiscal year 2010 and the 6 end of the first quarter of fiscal year 2012, Apple spent a total of $535.8 million on iPad 7 advertising in the U.S.40 The iPad advertisements also reflect Apple’s “product as hero” 8 philosophy and virtually all advertisements include a large photograph of the iPad, frequently 9 highlighting its unique design. Attached as Exhibit F are examples of iPad print and billboard 10 11 advertising. 49. Apple Stores are also an expression of design and many of them have won 12 architecture awards.41 Not only are the stores visually appealing in terms of architecture, 42 the 13 layout inside of the store differs significantly from other consumer electronics stores such as 14 Best Buy. The products are not jam packed on a shelf, rather they are spaced out on tables to 15 allow consumers to admire the design, similar to a museum, and even to interact with the 16 products in a spacious environment. There is a genius bar instead of a help desk.43 Consumers 17 18 19 20 39 See APLNDC-Y0000051623. 40 See APLNDC-Y0000051623. 41 21 22 23 24 25 26 27 28 See, e.g., (Opéra Paris); (Fifth Avenue); (Covent Garden); (San Francisco); (North Michigan Avenue); (Lincoln Park) 42 See David Hill, Steve Jobs: A Great Client (“From the start—Apple’s first two stores opened on May 19, 2001, in Tysons Corner, Virginia, and Glendale, California—the stores were noted for their sleek, minimalist design, a reflection of Apple’s products.”). 43 See Bohlin Cywinski Jackson, Apple Soho, EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 20 1 like these stores so much that there are often lines to get in on opening day. 44 The stores are yet 2 another communication device that further associates Apple with design.45 3 50. Even the packaging for Apple products reinforces the uniqueness of Apple 4 products. Steve Jobs said: “When you open the box of an iPhone or iPad, we want that tactile 5 experience to set the tone for how you perceive the product.”46 For the iPhone, the packaging 6 features a compact black or black-and-white box with metallic silver lettering on a matte black 7 surface, with the sides of the top of the box extending down to cover the bottom portion of the 8 box completely. The exterior of the box has minimal wording and a simple, prominent, nearly 9 full-size photograph of the iPhone itself. The style carries over within the box—the iPhone is 10 cradled within a specially designed display so that the iPhone, and nothing else, is visible when 11 the box is opened. The iPad packaging is similarly innovative. Like the iPhone, it utilizes a box 12 that, when opened, prominently displays the iPad so that it is immediately visible, with all other 13 accessories and materials layered beneath it. The exterior of the box has a simple, prominent, 14 nearly full-size photograph of the iPad on a white background. Like the products, advertising, 15 and retail stores, the packaging of Apple products reinforce the importance of design to Apple 16 17 18 19 20 21 22 23 24 25 26 27 28 44 See Shara Tibken, Apple Opens New York Grand Central Store, (“Apple Inc. opened its latest retail store Friday in New York’s historic Grand Central Terminal to hundreds of eager shoppers from around the country who had been waiting in line for as long as a day.”). 45 See (“In an effort to bring public attention to its products, the always daring and innovative Steve Jobs began a campaign a few years ago of opening modern, uniquely designed Apple retail stores that reflected the company’s design philosophy.”); see also (Apple stores are meant to act as “brand ambassadors.”). 46 See Walter Isaacson, The Real Leadership Lessons of Steve Jobs EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 21 1 and the Apple brand.47 Examples of the Apple packaging are attached as Exhibits G 2 (iPhone 3GS) and H (iPad 2). 3 D. Design Recognition 4 51. The end result of the commitment to design is widespread praise for Apple from 5 critics and consumers alike. Notably, the iPad and iPhone have both won numerous design 6 awards. The iPad was named as one of Time magazine’s 50 Best Inventions of the Year 2010, 7 Engadget’s 2010 Editors’ Choice Gadget of the Year, and it received a 2010 Red Dot Award for 8 Product Design. Likewise, the iPhone received a 2008 Design and Art Direction (D&AD) 9 “Black Pencil” award, a 2008 International Forum (iF) Product Design Award, and the 2008 10 International Design Excellence Award (IDEA) Best in Show. More recently, Engadget included 11 the iPhone as part of its list of the 10 Gadgets That Defined the Decade. 12 13 52. The iPhone’s beauty and distinctive appearance have also been praised in many articles, including the following: 14 A New York Times review of the iPhone (January 11, 2007) notes that “[a]s you’d expect of Apple, the iPhone is gorgeous.”48 15 A New York Times article (June 27, 2007) describes the iPhone as “a tiny, gorgeous hand-held computer,” and notes that “[t]he phone is so sleek and thin, it makes Treos and Blackberrys look obese.”49 16 17 18 A Wall Street Journal article (June 27, 2007) stated that smartphone “designers have struggled to balance screen size, keyboard usability and 19 20 21 22 23 24 25 26 27 28 47 See generally (“Apple’s look is always simple and clean and the packaging for the iPad is true to the brand.”). 48 David Pogue, Apple Waves Its Wand at the Phone 49 David Pogue, The iPhone Matches Most of Its Hype ne. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 22 1 battery life . . . . [T]he iPhone is, on balance, a beautiful and breakthrough handheld computer.”50 2 3 53. Consumers also praise Apple for the design of its products. According to Apple’s 4 internal research, attractive appearance and design is identified as an important reason for choice 5 of the iPhone and iPad. Indeed, this strong association between Apple’s products and design is 6 evident throughout the world as design was rated in importance from a high of 94% in China to a 7 low of 76% in Japan in the context of iPhone choice.51 Significant numbers of U.S. respondents 8 consistently rated “attractive appearance and design” as “very important” or “highly” important to 9 their decision to purchase the iPhone.52 This research suggests that Apple products have created a 10 11 12 point of difference related to design that should be nurtured by the company. 54. Apple has conducted several primary market research studies that confirm that the design and appearance of the iPhone are important to consumers. For example, in one survey of 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 50 Walter S. Mossberg and Katherine Boehret, Testing Out the iPhone 51 See iPhone Buyer Survey, FY11-Q3, APLNDC-Y0000027506-APLNDCY0000027599, at APLNDC-Y0000027572 (“attractive appearance and design” was rated in importance from a high of 94% in China to a low of 76% in Japan); see also iPhone Buyer Survey, FY11-Q2, APLNDC-Y0000027423-APLNDC-Y0000027505, at APLNDCY0000027450 (“attractive appearance and design” was rated in importance from a high of 86% in the United Kingdom to a low of 75% in Japan); iPhone Buyer Survey, FY11-Q1, APLNDCY0000027341-APLNDC-Y0000027422, at APLNDC-Y0000027362 “attractive appearance and design” was rated in importance from a high of 85% in the United Kingdom and Germany to a low of 74% in Japan); iPhone Buyer Survey, FY10-Q4, APLNDC-Y0000027256-APLNDCY0000027340, at APLNDC-Y0000027277 (“attractive appearance and design” was rated in importance from a high of 89% in the United Kingdom to a low of 78% in Japan). 52 See iPhone Buyer Survey, FY11-Q3, APLNDC-Y0000027506-APLNDCY0000027599, at APLNDC-Y0000027523, APLNDC-Y0000027572 (“attractive appearance and design” was rated by 82% of U.S. respondents as “very important” or “somewhat important”); iPhone Buyer Survey, FY11-Q2, APLNDC-Y0000027423-APLNDC-Y0000027505, at APLNDC-Y0000027450 (“attractive appearance and design” was rated by 82% of U.S. respondents as “very important” or “somewhat important”); iPhone Buyer Survey, FY11-Q1, APLNDC-Y0000027341-APLNDC-Y0000027422, at APLNDC-Y0000027362 (“attractive appearance and design” was rated by 81% of U.S. respondents as “very important” or “somewhat important”); iPhone Buyer Survey, FY10-Q4, APLNDC-Y0000027256-APLNDC-Y0000027340, at APLNDC-Y0000027277 (“attractive appearance and design” was rated by 82% of U.S. respondents as “very important” or “somewhat important”). EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 23 1 early purchasers of the original iPhone, 78% responded that the “appearance and design” was 2 important to their decision to purchase the iPhone.53 Similarly, in surveys of purchasers of the 3 iPhone 3GS and iPhone 4, 82%, 81%, 82%, and 82% responded that “attractive appearance and 4 design” was somewhat or very important to their decision to purchase an iPhone in FY10-Q4,54 5 FY11-Q1,55 FY11-Q2,56 and FY11-Q3, respectively.57 6 55. Again, this data reflects that a large number of consumers who purchase the 7 iPhone value design as an important factor in making their purchasing decision. Note, however, 8 that the questions in these surveys asked consumers to rate importance of each feature 9 individually, hence ”design” could be important, and functionality, such as “easy-to-use,” could 10 also be important. Further, as explained above, because consumers undervalue the importance of 11 design to their buying decisions, it may be the case that design is even more important to 12 consumers’ decision to buy the iPhone than is indicated in the iPhone Buyer Surveys. Even if no 13 adjustments are made due to the general undervaluing of the importance of design, the iPhone 14 Buyer Surveys show that design is an important driver of purchasing decisions. Because the iPad 15 includes many of the same distinctive design features as the iPhone, I would expect that attractive 16 appearance and design is a similarly important driver of iPad purchasing decisions. Indeed, the 17 New York Times discussed the attractive design of Apple’s iPad in a recent article on the market 18 for tablet computers: “Apple also has a lead in design that will be tough to surmount. People 19 want to own its products because they are so good-looking.”58 20 21 22 53 APLNDC-Y0000029092-APLNDC-Y0000029135 at APLNDC-Y0000029125. 23 54 APLNDC-Y0000027256-APLNDC-Y0000027340 at APLNDC-Y0000027277-78. 24 55 APLNDC-Y0000027341-APLNDC-Y0000027422 at APLNDC-Y0000027362. 56 APLNDC-Y0000027423-APLNDC-Y0000027505 at APLNDC-Y0000027450. 25 57 26 27 28 APLNDC-Y0000027506-APLNDC-Y0000027599 at APLNDC-Y0000027523, APLNDC-Y0000027572. 58 David Stretifeld, Amazon Has High Hopes for its iPad Competitor, N.Y. Times, September 25, 2011. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 24 1 56. The Apple product designs are in fact so notable that they have even been featured 2 in museums. Apple’s products have been added to the collections of several museums, including 3 the Museum of Modern Art in New York,59 the San Francisco Museum of Modern Art,60 and the 4 Smithsonian Cooper-Hewitt National Design Museum in New York.61 Additionally, the 5 United States Patent and Trademark office featured iPhone-shaped displays in an exhibit 6 showcasing Steve Jobs’ numerous patents and trademarks.62 7 VIII. APPLE’S BRAND EQUITY, AMONG THE HIGHEST IN THE WORLD, IS TIED CLOSELY TO PRODUCT DESIGN 8 57. 9 10 have increased significantly. Apple is now one of the most highly ranked brands in the world. 58. 11 12 13 14 15 Since the iPhone was introduced in 2007, Apple’s brand rankings and brand value The BrandZ rankings by Millward Brown Optimor determined that Apple was the most valuable brand in the world in 2011. Since the iPhone was introduced in 2007, the BrandZ ranking of Apple has gone from No. 16 to No. 1, and its brand value has gone from $24.7 billion to $153.3 billion.63 BrandZ has attributed the increase in brand value and ranking to, in part, the iPhone and the iPad and Apple’s innovative product design: [Apple] earned an 84 percent increase in brand value with successful iterations of existing products like the iPhone, creation of the tablet category with iPad, and anticipation of a broadened strategy making the brand a trifecta of cloud computing, software, and innovative, well-designed devices. … At the start of last year, few people fretted that their lives felt bereft of a digital gadget smaller than their laptop but larger than their mobile phone. By the end of 2010, however, around 18 million of us owned iPads or other tablets. Apple understood that its customers wanted access to 16 17 18 19 20 21 59 See 60 See 61 22 See 23 24 25 26 27 28 62 Brian Chen, Patent Office Highlights Jobs’s Innovations, 63 “BrandZ Top 100: Most Valuable Global Brands 2007,” Millward Brown Optimor, APLNDC-Y0000234143-234169 at APLNDC-Y0000234152; “BrandZ Top 100: Most Valuable Global Brands 2011,” Millward Brown Optimor, APLNDC-Y0000234947-234999 at APLNDCY0000234953. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 25 1 data and images anywhere, anytime, in easy-to-view definition with an easy-to-use touch interface. In a span of a few months, the brand met these needs with the iPad and iPhone 4. Apple trusted that its customers would discover uses for these products that would help organize, simplify or complicate, but mostly improve their lives.… Apple continued quietly developing a cloud and loudly discovered an empty space in the computing category that it filled with a new device – the iPad.64 2 3 4 5 6 7 59. In 2010, BrandZ increased its valuation of the Apple brand by 32 percent from 2009, again focusing on Apple’s elegant designs, stating: 8 [T]his increase is a tribute to the company’s ability to transform itself from an electronics manufacturer into a brand that is central to people’s lives. Apple manages to celebrate creativity and selfexpression while, anticipating consumers’ needs and wants and meeting those needs with solutions that are noteworthy for their ease of use and elegance of design. Apple benefited specifically from the popularity of the iPhone, its 100,000 apps, and anticipation for the iPad.65 9 10 11 12 13 60. Interbrand increased the ranking of Apple’s brand from No. 33 in 2007 to No. 8 in 14 2011. Interbrand also highlighted the importance of the iPhone and iPad products to value of the 15 Apple brand: 16 Setting the bar high in its category and beyond, Apple is the icon for great branding meeting great technology to deliver a unique overall experience, making its giant leap from #17 to #8 in the rankings less than surprising. Consumers continue to follow its product launches with anticipation and are quick to integrate its sleek products into their lifestyles. Continuing its wave of first-tomarket products, Apple launched the iPad in 2010 creating the new tablet category in the process. Since its launch, young and old alike have embraced it as a tool, with organizations from education to health to sales coming on board as well. Apple has even 17 18 19 20 21 22 23 24 25 26 27 28 64 “BrandZ Top 100: Most Valuable Global Brands 2011,” Millward Brown Optimor, (emphasis added) APLNDC-Y0000234947-234999 at APLNDC-Y0000234954, APLNDCY0000234970, APLNDC-Y0000234988. 65 “BrandZ Top 100: Most Valuable Global Brands 2010,” Millward Brown Optimor, (emphasis added) APLNDC-Y0000234185-234257 at APLNDC-Y0000234248. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 26 1 implemented the iPad in its innovative retail spaces as a service tool for customers as they wait in line.66 2 3 4 61. products. According to Interbrand: Apple is a brand that customers immediately understand. They know what they get out of adopting and associating with it. Its products are seen as innovative and creative. In contrast to Dell, which creates products that lack any consistent visual cues, Apple’s design is consistent and distinctive — from the clean, silver or smooth white of its laptops to the pocketsize rectangle of its iPod or iPhone.67 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Apple has successfully created a brand that stands for innovative designs and 62. In sum, outside of the field of fashion, I am not aware of any other mass market consumer-oriented company that has been as successful as Apple in tying design to its brand image. As described above, Apple uses a wide variety of techniques to ensure that consumers identify its designs as “Apple.” Of course, it starts with excellent product design, but it goes beyond that. It also features product design front and center in its advertisements, chooses the most conspicuous locations for outdoor advertising, designs its retail stores to showcase its products in a museum-like setting, designs its packaging as carefully as the products themselves, and its products receive extensive exposure in popular media—in the hands of the most influential celebrities and in the most popular television shows and movies. By integrating every aspect of its products’ design and presentation, Apple has created a strong association for the Apple brand. I believe that Apple’s corporate culture has emphasized an integrated approach to product design, packaging design, store design, advertising design, and product placement. As a result, Apple enjoys an unprecedented consumer association between the Apple brand and design. 22 23 24 25 66 26 27 28 “Best Global Brands 2011,” Interbrand, APLNDC-Y0000234947-234999 at APLNDCY0000234951. 67 “Best Global Brands 2010,” Interbrand, (emphasis added) APLNDC-Y0000234185234257 at APLNDC-Y0000234190. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 27 1 in developing the look and feel of the Apple products and their unique packaging has contributed 2 significantly to consumer awareness of the brand.68 As discussed above, Keller’s Customer- 3 Based Brand Equity model clearly predicts that Apple’s point of difference on design will be 4 eroded if competitor products that look similar exist in the market. A point of difference derives 5 its power to the extent that it is unique in the market. Pepsi is uniquely associated with youth in 6 colas, Volvo is uniquely associated with safety in automobiles, and McDonald’s is uniquely 7 associated with families in fast food hamburger restaurants. Similarly, Apple is known for its 8 unique and distinctive designs. Being unique helps strengthen the point of difference and 9 increases brand equity. 10 66. Without question, Apple has featured its distinctive design in its advertising. 11 iPhone and iPad ads generally showcase the products in use on television or display the products 12 prominently in print.69 This common technique seen in many Apple ads, as described above, is 13 sometimes referred to within Apple as “product as hero” advertising.70 That is, the approach is to 14 show the product itself as the star of the ad, rather than to use a spokesperson or to show a myriad 15 of product features as the star. Apple’s advertising tends to focus on big, bold product shots, 16 making the attractive and distinctive product design central in the ad and clear to the viewer. 17 Advertising is a significant strength for Apple, as evidenced by the awards that Apple has 18 received including Advertising Age’s first ever Marketer of the Decade Award in 2010.71 19 20 21 22 23 24 25 26 27 28 68 “Design Thinking and Innovation at Apple,” Harvard Business School Case Study No: 9-609-066, revised March 4, 2010, APLNDC-Y0000134928–134940 at APLNDCY0000134931. 69 The iPad Tracking Study, FY11-Q2, which covers the first quarter of the calendar year 2011, supports a connection between iPad advertisements and sales. The study shows that 18% of people surveyed in the United States who had purchased an iPad for themselves responded that the iPad ads triggered their decision to acquire an iPad. See iPad Tracking Study, FY11-Q2, APLNDC0000036349-APLNDC0000036570, at APLNDC0000036431. 70 See, e.g., Deposition of Sissie Twiggs on July 27, 2011, 97:20-21; Deposition of Tamara Whiteside on February 28, 2012, p. 34:1. 71 Beth Snyder Bulik, “Marketer of the Decade: Apple,” available at EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 29 1 67. Apple has consistently used this “product as hero” advertising technique across its 2 product line over the years. This common focus on the product combined with consistency across 3 Apple advertising would be expected to increase the distinctiveness of Apple’s designs in the 4 marketplace. Research on branding shows that repeatedly using a consistent advertising message 5 increases the strength of that message in consumers’ minds.72 A paper titled “The Brand Report 6 Card” discusses the top ten traits that strong brands share, and one of the traits is that the brand 7 stays consistent over time. The paper describes the case of Michelob and how the inconsistency 8 in its advertising led to consumer confusion about the brand. On the other hand, Apple has been 9 very consistent with its advertising over the last five years. The iPhone and iPad ads typically 10 feature the product, making it easy to appreciate the design. In addition, the ads have a simple, 11 elegant look that has helped Apple strengthen its association with design in the minds of 12 consumers. 13 68. If other products that look like the iPhone or the iPad are released on the market, 14 then the distinctiveness of the iPhone and iPad designs would begin to be eroded in the eyes of 15 the customer. For example, as discussed above, consumers consistently prefer a product with an 16 attractive design over a product with an average design, even if the average-looking product is 17 functionally as good as or even better than the product with the attractive design. Having 18 products with attractive and distinctive designs gives Apple a competitive advantage over other 19 companies that do not have such products. If other companies are able to offer products with 20 similar designs, however, Apple will lose this competitive advantage. 21 69. In addition, the sale of competing products with similar designs would erode the 22 ability of the iPhone and iPad to command price premiums based on design. Research has 23 pointed out that strong brands need to have a strong, favorable, and unique point of difference in 24 the marketplace. If products with similar designs to the iPhone and iPad are available, then 25 Apple’s strong point of difference of design would be eroded, and eventually design could 26 27 72 28 Kevin Lane Keller, The Brand Report Card, HARV. BUS. REV., Jan-Feb. 2000, at 3. EXPERT REPORT OF SANJAY SOOD CASE NO. 11-CV-01846-LHK sf-3118945 30

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