Campbell et al v. Facebook Inc.

Filing 180

EXHIBITS re 179 Notice (Other),,, Exhibits to Joint Notice of Refiling of Documents Accompanying Class Certification Briefs and Evidentiary Objections filed byFacebook Inc.. (Attachments: # 1 Exhibit 26 (Unredacted), # 2 Exhibit 27 (Redacted), # 3 Exhibit 28 (Redacted), # 4 Exhibit 29 (Unredacted), # 5 Exhibit 30 (Redacted), # 6 Exhibit 31 (Redacted), # 7 Exhibit 32 (Redacted), # 8 Exhibit 33 (Unredacted), # 9 Exhibit 34 (Redacted), # 10 Exhibit 35 (Unredacted), # 11 Exhibit 36 (Unredacted), # 12 Exhibit 37 (Redacted), # 13 Exhibit 38 (Unredacted), # 14 Exhibit 39 (Unredacted), # 15 Exhibit 40 (Unredacted), # 16 Exhibit 41 (Unredacted), # 17 Exhibit 42 (Redacted), # 18 Exhibit 43 (Redacted), # 19 Exhibit 44 (Redacted), # 20 Exhibit 45 (Redacted), # 21 Exhibit 46 (Redacted), # 22 Exhibit 47 (Redacted), # 23 Exhibit 48 (Redacted), # 24 Exhibit 49 (Unredacted), # 25 Exhibit 50 (Unredacted))(Related document(s) 179 ) (Chorba, Christopher) (Filed on 3/28/2016)

EXHIBIT 9

UNREDACTED VERSION OF DOCUMENT(S) SOUGHT TO BE SEALED
1
2
3
4
5
6
7

Michael W. Sobol (State Bar No. 194857)
[e-mail]
David T. Rudolph (State Bar No. 233457)
[e-mail]
Melissa Gardner (State Bar No. 289096)
[e-mail]
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
275 Battery Street, 29th Floor
San Francisco, CA 94111-3339
Telephone: [phone]
Facsimile: 415.956.1008

12

Hank Bates (State Bar No. 167688)
[e-mail]
Allen Carney
[e-mail]
David Slade
[e-mail]
CARNEY BATES & PULLIAM, PLLC
11311 Arcade Drive
Little Rock, AR 72212
Telephone: [phone]
Facsimile: 501.312.8505

13

Attorneys for Plaintiffs and the Proposed Class

8
9
10
11

14
15

UNITED STATES DISTRICT COURT

16

NORTHERN DISTRICT OF CALIFORNIA

17
18
19

MATTHEW CAMPBELL and MICHAEL
HURLEY, on behalf of themselves and all
others similarly situated,
Plaintiffs,

20

Case No. C 13-05996 PJH (MEJ)
UPDATED REPORT OF FERNANDO
TORRES IN SUPPORT OF PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION

21

v.

Judge: Honorable Phyllis J. Hamilton

22

FACEBOOK, INC.,

HEARING
Date: March 16, 2016
Time: 9:00 a.m.
Place: Courtroom 3, 3rd Floor
|
The Honorable Phyllis J. Hamilton

23
24

Defendant.

25
26
27
28
UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1
2

I.

Experience and Qualifications
1.

I am a professional economist and have over 30 years’ experience in applied and

3

theoretical economics. In the course of this experience, I have been a consultant, a university

4

professor, and a business manager. Both my undergraduate and post-graduate degrees are in

5

economics, the latter with a concentration in econometrics. Econometrics is the application of

6

mathematics, statistical methods, and computer science to economic data. Since 2004, I have

7

specialized in the analysis and valuation of intellectual property and intangible assets. Currently I

8

am a member and Chief Economist of IPmetrics LLC, an intellectual property consulting firm.

9

2.

During the past ten years, I have undertaken a plurality of valuation engagements

10

where I have appraised the value of a variety of intangible assets in several contexts, such as for

11

licensing and transaction rate setting, for loan collateral analysis, and generally to assist in the

12

decision making process regarding the economic role of intangible assets, including intellectual

13

property. I also regularly give presentations and write about valuation techniques as applicable to

14

intangibles, and have co-designed and taught the course “Valuing Intangible Assets for

15

Litigation” for the National Association of Valuation Analysts.

16

3.

Additionally, I have served as a consultant on numerous cases involving

17

intellectual property infringement contract issues and contractual disputes. I have prepared over

18

50 expert reports and have trial, arbitration, and deposition experience as an expert witness on

19

behalf of both plaintiffs and defendants. I have experience in complex commercial litigation

20

cases nationally. I currently consult with and have consulted with clients in California, New

21

York, Texas, Colorado, and Florida.

22

4.

In the course of my career, I have observed the evolution of online social networks

23

and advertising, both as a business owner and as an economist. In the vast majority of intellectual

24

property infringement cases I have worked on, online advertising and the leverage of information

25

to support such activity play a central role. I have long studied and analyzed how online

26

advertising works as well as the nature of the markets that evolve out of, and are supported by,

27

the internet. Understanding these markets has been enabled not only by my education in

28

economics, but also been informed by my knowledge of programming acquired first in college as
UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

a tool for the analysis of economic phenomena, and later in my professional life having developed

2

a financial statement analysis and forecasting software system,1 and an inventory and billing

3

management system for an acute care hospital.2

4

5.

In recent years, I have been called upon to testify in cases where the intersection of

5

social media and advertising has been alleged to have breached rights and principles of privacy,

6

publicity, trademarks, and patents. In some cases, the issues I have reported on for the courts

7

were the benefits derived by the social media/advertising platform infringing the rights of

8

publicity of a class of users,3 while in others the issue has been the economic value of social

9

media marketing in sustaining the viability of traditional media properties.4 Moreover, many

10

trademark infringement and trade secret cases also tend to involve the analysis and assessment of

11

online advertising activity.5

12

6.

I am being compensated for my work in this case at the rate of $375 per hour.

13

Attached hereto as Exhibit A is a copy of my most current curriculum vitae setting forth in detail

14

my qualifications and experience.

15

II.

16

Introduction, Assignment, and Summary of Conclusions
7.

The Plaintiffs’ Consolidated Amended Class Action Complaint (the “CAC”)6

17

alleges that Facebook utilizes information surreptitiously gathered from purportedly “private”

18

correspondence sent between Facebook users, and uses that information in a number of ways,

19

including:

20
21
22
23
24
25
26
27
28

1

The software system was distributed to the nearly 500 nationalized industrial companies in
Mexico to coordinate budgeting and for which I received a Diploma for Public Service from the
Federal Government of Mexico in 1988.
2
Developed for a private hospital in 1991 in Ensenada, Baja California, Mexico.
3
In: Fraley et al. v. Facebook, Inc., case 11-1726 before the USDC for the Northern District of
California.
4
In: S. Mattocks v. Black Entertainment Television, LLC, case 13-61582 before the USDC for the
Southern District of Florida.
5
In, e.g., Gen. C.E. Yeager v. Aviat Aircraft Inc. and S. Horne, case 10-CV-2055 before the
USDC for the Eastern District of California; Laserfiche v. SAP A.G., case 10-7843 (USDC for the
Central District of California); and Estate of Michael Jackson, et al., v. Howard Mann, et al., case
11-cv-584 (USDC for the Central District of California).
6
Consolidated Amended Class Action Complaint, filed April 25, 2014.
-2-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

a. to increment the “Like” counts of third party websites that
installed Facebook’s “Like” button social plug-in until, on
information and belief, at least October 2012;7

2
3

b. to catalogue information about specific URLs that were shared
and use that information for targeted advertising or other
purposes;8 and

4
5

c. to catalogue information about Facebook users who shared such
URLs and use that information for targeted advertising or other
purposes.9

6
8.

7

According to the CAC, the putative Class Period began on December 30, 2011.10 I

8

understand that the practice of scanning the content of private messages continues to date,

9

although the impact on “Like” counter may have continued through December 2012.11
9.

10
11

Class:

12

All natural-person Facebook users located within the United States
who have sent, or received from a Facebook user, private messages
that included URLs in their content (and from which Facebook
generated a URL attachment), from within two years before the
filing of this action up through the date of class certification.

13
14
10.

15
16

I further understand that the Plaintiffs are seeking certification of the following

In this context, I have been asked to analyze the following questions with regard to

the Class defined above:

17

a. Is there proof common to the proposed Class capable of
showing that—and how much—Facebook profited or otherwise
benefited from the Electronic Communications Privacy Act
(“ECPA”) and the California Invasion of Privacy Act (“CIPA”)
violations alleged in the CAC?

18
19
20

b. Is there a reliable Class-wide or formulaic method capable of
quantifying the amount of such profits or value of such benefits
to Facebook and of allocating those profits to the Class?

21
11.

22

Based upon my work to date, I have reached the following conclusions:12

23
24
25
26
27
28

7

Id. at §§27, 39.
E.g., Id. at §86.
9
E.g., Id. at §30.
10
Id. at §59.
11
Id. at §§27, 39.
12
It is, of course, possible that with additional information, including production from Facebook,
and inputs, these conclusions could be refined. The list of documents I have considered in
forming my opinions is attached to this report as Exhibit B.
8

-3-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

a. There is evidence common to the Class capable of showing that
Facebook profited or otherwise benefited from the scanning
alleged to violate ECPA and CIPA in the CAC. Specifically, as
explained in the body of this report, I have concluded that the
profits or other unjustly-obtained benefits may be analyzed and
quantified based upon Facebook’s records without reference to
individual proof with respect to any member of the Class, such
Class membership being identifiable and ascertainable based
upon Facebook’s records.

2
3
4
5
6

b. Class-wide evidence capable of showing profits or other
benefits to Facebook falls into two categories (1) evidence
concerning Facebook’s use of information derived from private
messages by creating associations within Facebook’s Social
Graph (described in more detail below); and (2) evidence
concerning Facebook’s profits or other benefits resulting from
its campaign to encourage third-party websites (“Marketers”) to
install the Facebook Like button, of which, as alleged,
Facebook’s unlawful scanning was an integral part.

7
8
9
10
11

c. Standard economic methods are capable of reliably quantifying
the aggregate amount of profits to Facebook, and the aggregate
value of other benefits to Facebook that resulted from scanning
and subsequent uses or potential uses of the information derived
therefrom.

12
13
14

d. The damages calculated are based on the economic benefits the
Defendant received from the information intercepted from the
private messages sent by the Class members. Facebook benefits
from advertising revenue from adding the intercepted user-URL
links into their targeting platform and from enhancing their
understanding of how and what users share links to. The
benefit is defined not only by the potential act of generating
additional revenue from targeting ads to the senders of
intercepted messages, but also by the additional use in better
targeting these and similar users (in marketing terms); and the
benefit is ultimately proportional to the number of URLs
intercepted from private messages.

15
16
17
18
19
20
21

III.

A.

23

25
26
27
28

Facebook, Inc.

12.

22

24

Case Background

Facebook operates the world’s largest social marketing and information platform.

The social network side of the business has over 1.5 billion users around the world.13 On August
13

Measured as monthly active users (“MAUs”), which Facebook defines as “a registered
Facebook user who logged in and visited Facebook through our website or a mobile device, used
our Messenger app, or took an action to share content or activity with his or her Facebook friends
or connections via a third-party website or application that is integrated with Facebook, in the last
30 days as of the date of measurement” (Facebook, 2014 10-K Page 35). Current MAUs from:
Facebook, Inc.’s 2015 Q3 Earnings Report (November 4, 2015) Slide 5. At
http://investor.fb.com/results.cfm.
-4-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

24, 2015, 1 in 7 people on Earth used Facebook,14 which is equivalent to approximately 51% of

2

all internet users worldwide.15 In the U.S. and Canada, there are currently 217 million (monthly

3

active) users16 which represent 61% of 357 million people in the region.17 Facebook’s advertising

4

network generates revenue in excess of $1.4 billion monthly,18 49.3% of which is attributable to

5

users in the U.S. and Canada.19 Furthermore, Facebook’s most recent disclosure states that, in the

6

U.S. and Canada, Facebook users performed advertising revenue-generating activities at a rate of

7

$9.86 per quarter per user.20

8
9

13.

Facebook’s online social networking service allows users to communicate through

the sharing of text, photograph, video, and internet content. In addition, these activities are

10

supported by a variety of Facebook applications on mobile devices, including Facebook

11

Messenger, Instagram and WhatsApp.21 While Facebook positions its business as focused on

12

“creating value for people, [M]arketers, and developers,” it generates the bulk of its revenues

13

from the latter two categories and then principally to the degree they want to reach the former.

14

14.

Facebook represents a significant opportunity for Marketers due to the

15

combination of the size of the user base and the abundance of rich user data.22 Thus, access to the

16

wealth of information captured on Facebook enables advertisers to reach people across devices

17
18
19
20
21
22
23
24
25
26
27
28

14

Facebook CEO Mark Zuckerberg’s public post on Facebook.com of August 27, 2015, at:
(https://www.facebook.com/zuck/posts/10102329188394581).
15
Based on the current estimate of worldwide internet users of 2.919 billion people (14.04 million
in the USA) according to the Wolfram|Alpha Knowledgebase, using data from the World Bank
(http://www.wolframalpha.com/ accessed 10/26/15).
16
Facebook, Inc.’s 2015 Q3 Earnings Report, Slide 5 (op cit.).
17
According to U.S. Census projections (321.37 million people in the USA in July 2015) and
Statistics Canada estimates (35.85 million people in Canada in July 2015) [In:
http://www.census.gov/population/projections/data/national/2014/summarytables.html, and
http://www.statcan.gc.ca/pub/91-002-x/2015002/t002-eng.pdf].
18
Facebook, Inc.’s 2015 Q3 Earnings Report, Slide 8 (op cit.), quarterly data divided by three.
19
Facebook, Inc.’s 2015 Q2 Earnings Report, Slide 10 (op cit.).
20
This is the ratio of quarterly revenue to monthly active users per Facebook, Inc.’s 2015 Q3
Earnings Report, Slide 12 (op. cit.).
21
Facebook, 2014 10-K Page 5 (User and Revenue data cited above do not include Instagram or
WhatsApp users).
22
As expressed by Facebook’s Adam Isserlis, Manager, Corporate Communications,
Ads/Monetization; Colleen Coulter, Product Marketing Communications Manager, in “IAB
Social Media Buyers Guide” available on the Interactive Advertising Bureau website
(http://www.iab.net/socialmediabuyersguide).
-5-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

and, importantly, to effectively measure the impact of their advertising. In its public disclosures,

2

Facebook emphasizes that the platform creates value for Marketers by its unique combination of:

3

a. Reach, with over a billion and a half monthly active users in
2015;23

4

b. Relevance, supporting ad targeting by rich demographics and
interests data plus Marketers’ and third party data cross
referencing;24

5
6

c. Social Context, by providing information to leverage
recommendations from friends;25 and,

7
8

d. Engagement, with ad products prompting interaction and
sharing.26

9
10

15.

In this report, I will refer to advertisers that use Facebook’s website and the

11

corresponding development tools to leverage the targeted access to the massive user base as

12

‘Facebook Marketers’ or simply ‘Marketers.’

13

16.

Facebook also represents an important platform for software developers by

14

providing access to a substantial user base, a payment management mechanism, and analytical

15

information about the use of applications.27

16

17.

Facebook has built a dominant position in the social networking market and, as

17

such, attracts a significant amount of consumers’ time and attention. According to the Business

18

Intelligence Report on Social Engagement, in 2013 Americans spent an average of 37 minutes

19

daily on social media, a higher time-spend than any other major internet activity, including

20

email.28 More recently, Facebook claims that “when it comes to time spent by users of the

21

platform, across Facebook, Messenger and Instagram, people are now spending more than 46

22

minutes per day on average.”29 This amount of attention is leveraged by Facebook in providing

23

23

24
25
26
27
28

Facebook, Inc.’s 2015 Q3 Earnings Report, Slide 5 (op cit.). and Facebook, Inc. Form 10K
2012, p. 7.
24
Facebook, Inc. Form 10K 2012, p. 7.
25
Id., p. 8.
26
Id.
27
Facebook for Developers website: https://developers.facebook.com/.
28
Business Insider, Business Intelligence Report on Social Engagement
(http://www.businessinsider.com/social-media-engagement-statistics-2013-12).
29
Mark Zuckerberg’s remarks during the Second Quarter, 2015 Earnings Call (page 1 of the
Footnote continued on next page
-6-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

Marketers access to a relevant and sizable audience, and now constitutes the company’s

2

overwhelming source of revenue; currently, advertising accounts for 95.5% of Facebook’s

3

revenue.30

4

18.

From an economic perspective, Facebook is thus a platform business and operates

5

a two-sided market. That is, much like broadcast television and terrestrial radio in the past,31

6

Facebook essentially sells to Marketers access to “the thoughts and emotions” of an audience

7

aggregated on the basis of providing online social media products and user-generated content to

8

“users,” rather than simply the transmission of content. In sharp contrast to broadcast media, with

9

Facebook the access is readily measurable and the advertising messages finely targeted and

10

distributed. Thus, essentially, on one side of the market Facebook accrues users providing online

11

products,32 and on the other it sells advertising placements to Marketers. Furthermore, on the

12

user acquisition side, Facebook competes with other social media offerings, such as Twitter and

13

Google+, and with other online activities (including news and video reading/watching). Further,

14

Facebook is developing the platform as a portal through which users can access news,33 discover

15

content by searching,34 and incorporate more and more online activities.35 On the advertising

16

sales side, Facebook competes with both online advertising outlets, such as Google AdWords and

17

DoubleClick,36 and off-line advertising media (including traditional broadcast TV and print

18

advertising). Facebook’s competitive advantage stems from the power of leveraging the deep

19

Footnote continued from previous page
transcript) held on July 29, 2015. Available at: http://investor.fb.com/results.cfm.
30
Facebook, Inc.’s 2015 Q3 Earnings Report, Slide 8 (op cit.).
31
See, inter alia, Ch. 7-Broadcasting in: H. Vogel, Entertainment Industry Economics,
Cambridge University Press, 8th Ed., 2011.
32
As a company, these products now include Instagram and WhatsApp, expanding the original
Facebook and then Messenger products. Facebook, 2014 10-K, p. 5.
33
For example, with the introduction of the “Instant Articles” initiative and new deals with
publishers like the Washington Post (http://media.fb.com/2015/05/12/instantarticles/).
34
E.g., with expanding the power of Facebook search
(http://newsroom.fb.com/news/2015/10/search-fyi-find-what-the-world-is-saying-with-facebooksearch/).
35
Such as video, with video hosting and action tracking
(http://newsroom.fb.com/news/2015/06/news-feed-fyi-taking-into-account-more-actions-onvideos/), app acquisitions like Instagram and WhatsApp, and with plugins to track activities
outside of Facebook.
36
See Google Products and Advertising Platforms (www.thinkwithgoogle.com/products/).

20
21
22
23
24
25
26
27
28

-7-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

targeting knowledge available from its unique access to an increasingly complete and

2

computerized social network, including by tracking users beyond the Facebook.com website.

3

Consequently, the two activities, providing online social networking services and selling

4

advertising, are inextricably connected; the profit motive permeates both sides of the operation.

5

19.

Facebook competes for advertising expenditures, among other means, by

6

differentiating its platform from competitors’ as the most effective because of the unique ability

7

to leverage the Social Graph, described in more detail below. Researchers in the field of social

8

and economic networks have noted specifically that they “…find evidence that social advertising

9

is effective, and that this efficacy seems to stem mainly from the ability of targeting based on

10

social networks to uncover similarly responsive consumers.”37 In practice, the superior

11

effectiveness of advertising on this basis is demonstrated by the increasing click-through rates

12

(“CTR”) of ads placed through Facebook as opposed to ads placed through Google’s display

13

network.38

14

B.

The Social Graph

15

20.

The main way in which individual Facebook users knowingly connect with each

16

other is by selecting the “Friend” button to add them to their network. The main way users

17

knowingly interact with brands that have Facebook pages is to select the “Like” button so a

18

“fan”39 link is created allowing the Facebook page’s posts to appear on each fan’s home page (on

19

the “news stream” of posts from friends and liked pages). Facebook also creates connections that

20

users may not be aware of. For example, beyond the Facebook.com website or applications, users’

21

browsing and other activities are also able to be logged using cookies,40 pixels41 and similar

22
23
24
25
26
27
28

37

C. Tucker, “Social Advertising,” February 15, 2012, SSRN (http://ssrn.com/abstract=1975897).
Since mid-2014 Facebook CTRs have increased by 35% vis-à-vis a 25% increase on Google’s
network, according to the latest “Digital Advertising Report Q3 2015”, Adobe Digital Index
(www.cmo.com/adobe-digital-index.html), p.18.
39
In Facebook marketing, while it is natural to speak of a “Friend” of a person, the equivalent for
brands is to use “Fan” instead, although they may also be used interchangeably.
40
Cookies are small files that are stored on the user’s device by the website or application being
used and some ads being viewed.
41
Pixel tags in this context are also called clear GIFs, web beacons, or pixels and are small blocks
of code on a webpage or application that allow them to perform actions such as read and place
cookies and transmit information to Facebook or its partners.
38

-8-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

internet technologies.42 The resulting information is used in delivering targeted advertising and

2

refining the information represented on the Social Graph.

3

21.

Facebook’s Social Graph represents the integration of information collected by

4

Facebook about Facebook users, and encompasses their location, demographics, interests,

5

behaviors, and connections, in order to target advertising and marketing communications to

6

specific groups of users identified by these attributes.43

7

22.

Figure 1 illustrates one hypothetical user on the social network (at the center),

8

technically referred to as a “node.” This user is connected to two friends by lines called “edges,”

9

has “Liked” a page (For the F8 Developers Conference, illustrated by its logo on the upper right

10

corner), is interested in cooking (link labeled “cook”), has watched a video on Netflix (bottom

11

right link), and has listened to music on Spotify (middle left link).

12
Figure 1
Facebook Social Graph Illustration44

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

42

See also https://www.facebook.com/help/cookies/.
Although the term is borrowed from Mathematics and Sociology, it was introduced in the
Facebook context by Mark Zuckerberg during the 2007 F8 Developers Conference on May 24,
2007.
44
From Business Insider
(http://static3.businessinsider.com/image/4f5112e169bedd1526000061/facebook-opengraph.jpg).
43

-9-

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

23.

Figure 1 is a partial visual representation of the Social Graph. In practice, the

2

information contained in the Social Graph is stored in a (complex and distributed) database. The

3

data model Facebook utilizes is called TAO (The Objects and Associations).45 The constituent

4

parts of this model – illustrated above – are Objects (representing the “nodes,” or data items, such

5

as a user or a location) and Associations (representing the “edges,” or relationships between

6

Objects).

7

24.

Thus, as illustrated, even activities (accessing pages, clicking on Like or Share

8

buttons) performed on websites or applications outside of Facebook can, and are, represented in

9

the Social Graph. Granting controlled access and writing abilities to this wealth of information to

10

registered developers, on April 21, 2010, Facebook released the Open Graph Protocol,46 which

11

enables any web page to become a rich object in a Social Graph, and the Graph API,47 which is

12

the primary way for apps to read and write to the Facebook Social Graph.48 Facebook builds and

13

maintains full access to the full Social Graph leveraging its own record of users’ connections

14

behind-the-scenes.

15

C.

The Like Button

16

25.

Facebook social plugins, such as the “Like” Button, are lines of code that third-

17

party websites can integrate into their sites, which display a Facebook logo and execute the

18

programmed code when the page is accessed and/or a Facebook user clicks on it.49 Facebook first

19

implemented the Like Button in or around February 200950 and, in Facebook’s F8 conference in

20
21
22
23
24
25
26
27
28

45

See https://www.facebook.com/notes/facebook-engineering/tao-the-power-of-thegraph/10151525983993920
46
The Open Graph protocol is programming code used on Facebook to allow any web page to
have the same functionality as any other object on Facebook. See Open Graph Protocol open
source website (http://ogp.me/).
47
API, or “Application Programming Interface,” is the code that a third party may utilize to build
software on top of Facebook’s platform. Through Facebook’s API, the third party product is able
to utilize parts of Facebook’s code (and access certain tranches of Facebook’s data) for its
functionality.
48
See https://developers.facebook.com/docs/graph-api.
49
Facebook SDK Documentation
(https://developers.facebook.com/docs/javascript/quickstart/v2.5#plugins).
50
J. Kincaid in: TechCrunch (http://techcrunch.com/2009/02/09/facebook-activates-like-buttonfriendfeed-tires-of-sincere-flattery/).
- 10 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

2010, it was opened up for third party developers for marketing and application development

2

uses.51

3

26.

As illustrated in Figure 1 above, a Like becomes a Social Graph connection

4

between a user and a Marketer that has installed a Facebook Social plug-in.52 Generally speaking,

5

“Liking” a “Page” means the user is connecting to that Page, and “Liking” in reference to a post

6

from a friend, which means the user is letting that friend (or friend of a friend) know that the user

7

“likes” his or her post (without leaving an explicit comment).53 The first is a link between a user

8

and a Marketer, the second is a link among users. The “Likes” recorded as a result of scanning

9

private messages addressed in this case are of the first type.

10

27.

Facebook developed social plug-ins, such as the “Like” button to continue

11

expanding its network by affiliating with Marketers or third party websites. Social plug-ins

12

enable advertisers and Marketers to integrate user activity inside and outside of the Facebook

13

website. The initial performance metric for these advertising activities was the number of

14

“Likes” associated with a company within Facebook and, increasingly, outside of Facebook on

15

Marketers’ websites.

16
17

28.

Figure 2 below is an illustration from Facebook materials addressed to Marketers

on the benefits of using social plugins.

18
19
20
21
22
23
24
25
26
27
28

51

Facebook F8 April 21, 2010.
Facebook, Social Plugins FAQs, at: https://developers.facebook.com/docs/plugins/faqs/#ref.
53
See Facebook Help Center at: https://www.facebook.com/help/228578620490361.
52

- 11 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

Figure 2
Benefits of Using Like Button Plugins
(Facebook Document FB000026793)

2
3
4
5
6
7
8
9
10

29.

Facebook is well aware of the power of the Like button to generate actionable

11

signals for advertisers.54 From its launch in April 2010, the impact of Social Plugins was

12

significant, generating 815 million clicks on “Like” buttons daily in the first few weeks.55

13

30.

Facebook has promoted this social plug-in aggressively to third-party websites by,

14

for instance, taking control of News Feed content.56 In turn, Marketers that wished to maintain

15

their reach via the social network had to respond by increasing the integration of Facebook into

16

their marketing strategies and budgets.57

17

D.

The Alleged Violations

18

31.

Facebook published a privacy policy and posted descriptions of Facebook’s

19

private messaging service claiming it would provide a way to communicate privately and that the

20

messages would be private.58

21
22
23
24
25
26
27
28

54

According to internal communications produced in discovery, for example, Facebook personnel
sought marketing clients’ cooperation to further promote the Like Button aiming “…to show the
power of the Like button and how people are using it to determine what’s popular.”
(FB000011746).
55
According to Defendant’s internal communications on May 8, 2010 (FB000011715-6).
56
See Facebook Media, “An Update to News Feed: What it Means for Businesses”
(https://www.facebook.com/business/news/update-to-facebook-news-feed) and “News Feed FYI:
Balancing Content from Friends and Pages” (http://media.fb.com/2015/04/21/news-feed-fyibalancing-content-from-friends-and-pages/).
57
See, e.g., MarketingLand (http://marketingland.com/facebooks-latest-tweaks-favor-friendscould-hurt-page-reach-125931).
58
CAC, at §§21-24.
- 12 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

32.

The CAC alleges that Facebook actually scanned the content of private messages

2

and used information concerning any URLs contained within the messages to artificially increase

3

the appearance of user engagement with third-party websites by increasing the count on such

4

sites’ Like buttons, as well as for other, undisclosed, purposes.59

5

33.

Additionally, and beyond the end of 2012, Facebook allegedly kept track of the

6

information gleaned from users’ shares of the URLs in at least two ways: in the aggregate, by

7

noting the number of times that such URLs were shared by private messages, and individually, by

8

logging the fact that an individual who shared a URL in a private message had done so.60

9

34.

Consequently, in the context addressed in the background section, the following

10

methodological discussion addresses two distinct aspects of how Facebook benefited from the

11

accused actions:

12

a. Benefits from the additional information that enhances the
Social Graph as a means to increase advertising revenue and
profits; and,

13
14

b. Benefits from artificially increasing the “Like Count” on third
party websites using Facebook social plugins,61 because it
enhances clients’ impression of how effective Facebook
Marketing is and incentivizes Marketers’ willingness to invest
in Facebook Marketing.

15
16
17
18
19
20
21
22
23
24
25
26
27
28

59

URL stands for Uniform Resource Locator, the unique identifier of each document on the
internet. Defined initially by Tim Berners-Lee in: “Uniform Resource Locators (URL): A Syntax
for the Expression of Access Information of Objects on the Network” (March 1994) in:
http://www.w3.org/Addressing/URL/url-spec.txt.
60
CAC at §§25-26.
61
At least up to the end of 2012.
- 13 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1
2
3
4

IV.

The Measure of Damages
A.

Benefits Resulting from Enhancing the Social Graph by Incorporating
Intercepted Data.

35.

As discussed below, the incremental value of Facebook’s benefits from enhancing

5

the Social Graph by including data intercepted in private messages can be calculated on a per

6

URL link basis. This incremental profit from Facebook’s accused behavior can be calculated by

7

utilizing the corresponding inputs and the algorithm discussed in this section.

8
9

36.

It is not disputed that Facebook’s Social Graph is a valuable asset. The value

fundamentally arises from the aggregation of the collected information from all users in general,

10

as well as from the information intercepted from the Class members’ private messages. By its

11

actions, Facebook has denied Class members the ability to restrict access to elements of

12

information about them (URL links) and is profitably utilizing the information by enhancing the

13

value of its own social media advertising platform, which helps Facebook maintain and grow its

14

market share in the face of competition. Thus, by gathering data from Class members as alleged

15

by Plaintiffs, Facebook directly benefits by enhancing the informational content and targeting

16

power of their key revenue-generating asset: the Social Graph.

17

37.

The more nuanced the data and the inferences that can be drawn from it, the more

18

effective Facebook marketing becomes and the greater the share of advertising revenue that the

19

Company can extract. For example, in a recent Earnings Call Facebook’s Chief Operating

20

Officer, Sheryl Sandberg, highlighted an advertising campaign on Facebook in which the fast

21

food chain Wendy’s wanted to reach a very specific target group for the launch of a new product

22

(“Jalapeño Fresco Spicy Chicken”): “millennials that are spicy food lovers”. Wendy’s worked

23

with Facebook to create a campaign with five video ads specifically targeted at Facebook users

24

that fit that socio-demographic (millennials) and affinities (spicy food lovers) profile. The

25

targeting of the campaign, based on the information in the Social Graph, was successful in

26

exceeding goals in terms of: (a) the impact of the ads, as significantly more consumers recalled

27

seeing the ads; and (b) in terms of sales, with a significant increase in purchases among the target

28
- 14 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

segment.62 The more precise the socio-demographic and affinities profile, the more successful

2

and, therefore, profitable, an advertising campaign can be. The value of the Social Graph asset is

3

significant. Working off of publicly-available information, this value can be ascertained as

4

follows, applying the generally recognized Income Approach to Valuation.63

5

38.

Under the Income Approach, the value of an asset is measured by the net present

6

value of the net economic benefit to be received over its economically useful life.64 The three

7

essential factors of this measurement of value are: (1) the value of the net income stream

8

(revenue minus expenses) that can be generated by the asset; (2) an assumption as to the duration

9

of the net income stream; and (3) an assumption as to the risk associated with the realization of

10

the anticipated net income.65 These factors can be determined mainly based on Facebook’s

11

financials.

12

39.

Focusing on the Social Graph delimited as far as possible to the U.S., Facebook

13

has stated that, as of June 30, 2015, advertising revenue from the U.S. is in the order of $1,459

14

million per quarter increasing to $1,630, as of September 30, 2015.66 This is revenue attributable

15

to the Social Graph because it enables the unique selling proposition of targeted advertising on

16

Facebook. Furthermore, according to Facebook, the average cost of revenue, marketing and

17

sales, and general and administrative expenses during the same periods was 40.75%, rising to

18

41.25%, as a percentage of revenue.67 Thus, a profit of $3,459 to $3,830 million per year is

19

attributable to the U.S. portion of the Social Graph asset.68

20

62

21
22
23
24
25
26
27
28

Example discussed by Sheryl Sandberg (Facebook COO) during the 2015 Q2 earnings call held
on July 29, 2015. Available at: http://investor.fb.com/results.cfm.
63
See, inter alia, G.V. Smith and R.L. Parr, Valuation of Intellectual Property and Intangible
Assets, John Wiley & Sons, 2000; R. F. Reilly and R.P. Schweihs, Valuing Intangible Assets,
McGraw Hill, 1999.
64
See, e.g.: Smith and Parr (2000), p. 164.
65
Ibid, p. 169.
66
This is the average of the quarterly advertising revenue from the activities of users located in
the U.S. and Canada during the four quarters ending June 2015 ($1,622 million) and September
2015 ($1,812) as disclosed in: Facebook, Inc.’s 2015 Earnings Reports (July 29, 2015, November
4, 2015) Slide 10 (op cit.). A further adjustment is made to exclude data for Canada, multiplying
by the ratio of the size of the U.S. Population to the total of the two countries (89.96% = 321.37 /
(321.37+35.85) per official U.S. Census and Statistics Canada sources (op. cit.).
67
Facebook, Inc.’s 2015 Earnings Reports (July 29, 2015, November 4, 2015) Slide 13 (op cit.).
Per accepted valuation standards, Research and Development expenses are not includable in this
Footnote continued on next page
- 15 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

40.

The economically useful life of the asset in question, that is, the usefulness of the

2

information represented in the Social Graph, is not immutable; people’s locations, friends,

3

affinities, and interests change over time. While the Social Graph contains a varied spectrum of

4

information, as a proxy for the likely obsolescence of the information embodied in the Social

5

Graph, the most significant indicator, in my opinion, is geographical mobility. One of the

6

primary selection criteria in defining a target market is location; there is generally no point in

7

advertising to users in locations where sales cannot be made, while other primary attributes tend

8

not to change as often.69

9

41.

Geographical mobility is periodically measured by the U.S. Census. On average,

10

in the span of five years, 35.4% of the population moves.70 This represents an exponential

11

decline in the accuracy of address information of 8.37% per year.71 At this rate, 50% of people

12

will have moved in about eight years.72 In addition, considering the broader context of the

13

valuation of comparable intangible assets for financial reporting, a marketing asset frequently

14

identified in business mergers and acquisitions is the Customer List. The median remaining

15

economic life of Customer Lists among publicly traded U.S. companies is also eight years.73

16

Thus, while it is likely that a lot of the information on the Social Graph will still be current after

17

eight years, a primary attribute and targeting selector (location) will not be accurate for the

18
19
20
21
22
23
24
25
26
27
28

Footnote continued from previous page
valuation because, by definition, their effects are in the future, not as of the valuation date (June
30, 2015).
68
The result of multiplying the quarterly revenue times four quarters and deducting 40.75% for
expenses.
69
These would be parameters such as age, gender, household income, which change predictably,
slowly, sporadically, or not at all.
70
U.S. Census Bureau, Geographical Mobility: 2005 to 2010 (December 2012), Table 2, Page 5
(http://www.census.gov/prod/2012pubs/p20-567.pdf).
71
This equivalent annual rate is calculated algebraically solving the equation expressing the
Census fact that the ratio of the population in year 5 relative to the population in year 0 is 64.6%
(100% - 35.4%) and this is equal to (1 + annual rate)5.
72
Technically, in 7.9 years, calculating: log(0.50) / log(1–0.0837).
73
Data from: Business Valuation Resources, “Benchmarking Identifiable Intangibles and Their
Useful Lives in Business Combinations” BVR 2012, p. 66 (www.bvresources.com).
- 16 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

majority of people. Based on these considerations, I have concluded that a reasonably reliable

2

remaining useful life for valuing the Social Graph asset is eight years.74

3

42.

A reasonable estimate of the corresponding market discount rate for this asset can

4

be based on the most current assessment of the risk factors recommended by the most reputable

5

industry sources.75 The discount rate is made up of a series of components reflecting the time-

6

value of money (the so-called Risk Free rate76), the general additional risk of equity returns

7

(known as the Equity Risk Premium77), the additional variations of net income in the relevant

8

industry (the Industry Risk Premium), and the incremental risks unique to the asset class. Thus I

9

considered the risk-free rate of 4.0%,78 a market equity risk premium of 5.0%,79 as well as an

10

advertising industry risk premium of 3.66% based on generally accepted data sources.80 In

11

addition, I considered a risk premium reflecting the incremental risks associated with intangible

12

assets relative to financial and tangible business assets of 6.0%.81 Adding together these various

13

components, I thus arrived at the discount rate for the Social Graph asset of 18.66%.82

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

74

This is a conservative position since, in reality, Facebook users tend to maintain their
information current as part of the normal use of the network. The asset is being valued “as is” in
mid-2015, without considering continued updating.
75
Duff & Phelps, 2015 Valuation Handbook: Guide to the Cost of Capital, John Wiley & Sons,
2015
76
In valuation theory, this rate is the return available on a security that the market generally
regards as free of the risk of default. In practice, in the U.S., this is the yield on government
securities, adjusted (or normalized) to remove the distortion of the artificially depressed,
unsustainable rates during the 2008 financial crisis. [Duff & Phelps (2015), Ch. 3].
77
Conceptually, this premium is defined as the extra return, over the expected yield of risk-free
securities, which investors expect to receive from an investment in the market portfolio of
common stocks (Duff & Phelps 2015, pp. 3-17).
78
Technically, this rate is the normalized 20-year U.S. Treasury yield [Duff & Phelps (2015),
Ch. 3].
79
This is the considered forward equity risk premium recommended by Duff & Phelps.
80
See, Duff & Phelps (2015), pp 3-35 and 5-21 (The industry risk premium corresponds to a Beta
of 1.73). In addition, some valuation models consider a specific “Size Premium” which, in this
case, is not necessary since the Facebook Social Graph is evidently the largest marketing database
in the economy.
81
As recommended by IPmetrics for intellectual property (IP) valuation analyses based on market
interest rate spreads for IP-backed securities (See, e.g., M. Loumioti, “The use of intangible assets
as loan collateral” Harvard Business School, 2011 Available at the Social Science Research
Network: http://ssrn.com/abstract=1748675).
82
This is the result of adding the risk-free rate and the three identified risk premiums
corresponding to equity, industry, and asset considerations (18.66 = 4 + 5 + 3.66 + 6).
- 17 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

43.

Consequently, applying the aforementioned method and inputs, which are the type

2

of methods and parameters applied by valuation professionals like myself, the (U.S.) Social

3

Graph asset relating to the U.S.is valued at approximately $14.5 billion, as illustrated by the

4

results in the following tables:
Table 1

5

U.S. Social Graph Valuation
(As of 2015 Q2)

6

1

Annual
Profit
($
millio
ns)
$ 3,459

0.84274

$ 2,915

2

3,459

0.71022

2,457

3

3,459

0.59853

2,070

11

4

3,459

0.50441

1,745

5

3,459

0.42509

1,470

12

6

3,459

0.35824

1,239

13

7

3,459

0.30190

1,044

8

3,459

0.25443

880

7
Year

8
9
10

14

Table 1.A

(As of 2015 Q3)

17

1

Annual
Profit
($
millio
ns)
$ 3,830

0.84274

$ 3,228

2

3,830

0.71022

2,720

3

3,830

0.59853

2,293

4

3,830

0.50441

1,932

5

3,830

0.42509

1,628

6

3,830

0.35824

1,372

7

3,830

0.30190

1,156

8

18

3,830

0.25443

975
$15,304

Year

19
20
21
22
23
24

Discount
Factor
(at
18.66%)

Total Value:

25

28

$13,820

U.S. Social Graph Valuation

16

27

Discounted
Value
($
millions)

Total Value:

15

26

Discount
Factor
(at
18.66%)

44.

Discounted
Value
($
millions)

Since Facebook already has the infrastructure and software development platform

in place to develop and grow the Social Graph, as well as access to the marketing clients that fund
- 18 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

the advertising campaigns, the additional information collected through the accused activities has

2

arguably zero incremental cost. Therefore, from an economic perspective, virtually all of the

3

incremental advertising revenue generated from the enhancement can justifiably be considered

4

incremental profit to Facebook. Therefore, the impact of additional information intercepted from

5

private messages on Facebook’s revenue flows directly to the bottom line (profits).

6

45.

With the relevant quantitative information, I would estimate the value of the

7

enhancement to the Social Graph as commensurate with the ratio of (1) intercepted URLs in

8

private messages during the Class period to (2) the total number of links on the Social Graph.

9

46.

Absent specific Facebook network data,83 from public information it can be

10

ascertained that during 2010, Facebook had an average of 127.1 million monthly active users in

11

the U.S.84 On average, within Facebook as a whole, the average monthly active user sent nearly

12

43 messages per month.85 Thus, in 2010, I estimate that the U.S. user base sent approximately

13

65.4 billion messages.86 The following Table shows the results of these estimates on an annual

14

basis.

15
16
17
18
19
20
21
22
23
24
25
26
27
28

83

From the document production, I found that around April of 2012, an internal Facebook report
identified around 600 million monthly active users of the messenger service (see FB000008271).
My estimate, as shown on the table calls for a number between 687 and 751 million.
84
According to Facebook Inc.’s Form 10-K Disclosures, The four quarters of 2010 in the U.S. &
Canada had MAUs of 130,137,144, and 154 million respectively. The average cited is adjusted to
exclude users in Canada.
85
Considering Facebook’s disclosure in connection with the redesign of the Messenger platform,
stating that 350 million MAUs sent 15 billion messages per month, or an average of 42.857
messages per MAU/month, at: https://www.facebook.com/notes/facebook-engineering/theunderlying-technology-of-messages/454991608919.
86
This is the result of multiplying 42.857 messages/user/month times the 127.07 million users,
times 12 months.
- 19 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1
Table 2

2

U.S. Messaging Activity
(2010 – 2015)

3
Year

5

Monthly
Average
Users

Estimated
Messages

(millions)

4

(millions)

6

2010

127

65,353

7

2011

155

79,464

2012

169

86,867

2013

178

91,725

2014

184

94,848

2015H1

190

97,855

8
9
10
47.

11
12

Table 2 may well understate the amount of messaging activity on the network.
48.

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Since user engagement has increased over the Class Period,87 the estimates on

The relative impact of this additional, but allegedly wrongfully obtained

information, on the value of the Social Graph can in principle be ascertained as the addition of
information to the Social Graph. In the absence of detailed information about it, I have relied on
public information to approximate the optimal analysis.
49.

Facebook researchers have published results of the formal characterization of the

entire social network of active members88 of Facebook in May 2011, comprising 721 million
active users.89 From this universe, 149 million are U.S. Facebook users.90 Among these U.S.
social network users, there were 15.9 billion friendship links or graph “edges,” and the average
U.S. user had around 214 Facebook friends.91 The graph is highly connected, in the sense that
87

According to Facebook, between August 2012 and May 2013 user engagement, as illustrated in
the number of likes generated per day, increased from 2.7 Billion to 4.5 billion on average
(https://www.facebook.com/photo.php?fbid=10151908376831729&set=a.10151908376636729.1
073741825.20531316728&type=1&theater).
88
Defined for analysis as “the number of members that logged into the site in the 28 days before
the May 2011 date of the study and had, at least, one Facebook friend.” See, e.g.: J. Ugander, B.
Karrer, L. Backstrom, C. Marlow, “The Anatomy of the Facebook Social Graph”, White Paper,
18 Nov. 2011, Cornell University (http://arxiv.org/abs/1111.4503v1), p. 2.
89
Id. at p. 14.
90
This is nearly 60% of the eligible U.S. population at the time, see Ugander, et al. (2011) p. 2.
91
Ugander, et al. (2011) p. 2.
- 20 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

typical Facebook members are linked (as “friends” and “friends of friends”) in such a way with

2

the rest of the network as to be able to reach the vast majority of individuals with only a few

3

“hops” or jumps from one friend to another. Specifically, in the U.S. network the average

4

distance between people was found to be 4.3 friends and, furthermore, 96% of all Facebook

5

members were within 5 degrees of separation.92

6

50.

This high degree of “connectedness” is one aspect of the Social Graph that makes

7

it attractive for advertisers and why recommendations from Facebook Friends can be so effective;

8

properly targeted, relatively few recommendations can reach virtually the whole potential market.

9

Moreover, with interests, brand pages, and other actions, the Social Graph now includes more

10

data points (“nodes”) and links (“edges”) than just Facebook Friends. It is the targeting, and

11

specifically the granularity and breath of the targeting information that is enhanced by additional

12

user–URL links, which Facebook gathered unlawfully from intercepting and scanning private

13

messages.

14

51.

Therefore, the economic value of the benefits Facebook derives from the

15

unlawfully gathered user–URL links is proportional to the impact of this additional information

16

on the total information on the Social Graph. In principle, the benefit to Facebook in this respect

17

would be measured by attributing the corresponding portion of the incremental value of the Social

18

Graph to the accretion of the unlawfully gathered links.

19

52.

In other words, at a point in time (t), the value of the Social Graph to Facebook can

20

be expressed as the product of the number of links (L) in the Graph times the value, or worth, of a

21

link (w):

22

Vt = Lt × wt

23

At the next period (t+1), the value is:

24

Vt+1 = Lt+1 × wt+1

25

The change in value to Facebook, the incremental benefit, is then:

26

ΔV = Vt+1 – Vt = Lt+1 × wt+1 – Lt × wt .

27
28

92

Ugander, et al. (2011) p. 5.
- 21 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1
2

53.

Adding and subtracting the value of today’s links at yesterday’s unit value (Lt+1 ×

wt):

3

ΔV = Lt+1 × wt+1 – Lt × wt + Lt+1 × wt – Lt+1 × wt

4

and re-grouping the components of this equation, we have:

5
6

ΔV = Lt+1 (wt+1 – wt ) + (Lt+1 – Lt ) wt
54.

Thus, this equation can be interpreted as stating that: The incremental benefit to

7

Facebook is the sum of the effect of the change in the value of a link, plus the effect of the change

8

in the number of links. Only the second component is directly attributable the capture of

9

additional links, so that the measure of damages (D), with full information, would be calculated

10

as follows, considering only the unlawfully gathered additional links:

11
12
13
14

D = (Lt+1 – Lt ) wt
55.

The calculation of the total value is straightforward; multiplying the corresponding

link value to obtain the incremental benefit to Facebook.
56.

The economic benefit to Facebook from the intercepted links can then be

15

estimated applying the per link values, i.e. wt, to the incremental number of links attributable to

16

the intercepted messages, i.e. (Lt+1 – Lt ).

17
18
19

57.

With the input of the number of intercepted URLs, this value per link estimate can

be applied to determine the total benefit to the defendant.
58.

All Class members are subject to the accused scanning and, in this sense, are

20

injured in the same manner, while Facebook benefits from the aggregate information intercepted

21

out of all the messages.

22

59.

Facebook benefits from advertising revenue from adding the user-URL links into

23

their targeting platform and from enhancing their understanding of how and what users share

24

links to. The benefit is defined not only by the potential act of generating additional revenue

25

from targeting ads to the senders of intercepted messages, but also by the additional use in better

26

targeting these and similar users (in marketing terms); and the benefit is ultimately proportional to

27

the amount of information intercepted from private messages.

28
- 22 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

60.

Therefore, it is my opinion that a proper attribution of damages among Plaintiff

2

Class Members, calculated as benefits received by the Defendant, should be based on the number

3

of links (URLs) intercepted.

4

B.

Benefits from Inflating the Like Count on Third Party Websites

5

61.

According to the CAC, Facebook also benefits from using the information

6

obtained from the intercepted messages by increasing the counter associated with the “Like”

7

button on third party websites.93 Independently of the actual advertising revenue as analyzed in

8

the previous section, Facebook benefits by providing additional perceived value to all Marketers

9

using these counters to evaluate the effectiveness of Facebook marketing. Due to the wrongful

10

capture of links, and exacerbated by the double counting, Facebook marketing appeared more

11

effective to Marketers and, in turn, Facebook’s clients were induced to extend their relationship

12

with Facebook, not simply by increasing advertising budgets, but at least in part by investing

13

more in building Facebook Pages and installing a variety of plugins feeding additional

14

information for Facebook’s targeting and marketing purposes.

15

62.

As explained in this section, the economic benefit derived by Facebook

16

attributable to one specific way in which it has used the information obtained from the Class

17

Members messages to increase the “Like” count on its clients’ websites lies between two bounds:

18

a higher bound represented by the cost that client websites saved by not having to acquire

19

additional “Likes” calculated at a dollar amount “Y” per “Like”; and a lower bound determined

20

by the market value of artificially acquired “Likes” for pages made possible by manipulating the

21

counting system, of a different dollar amount “Z” per “Like.” This amount represents a cost

22

savings or benefit Facebook was able to provide to its clients directly as a result of the breach of

23

privacy of messages and identifying URLs of Facebook Marketers. Facebook thus benefits from

24

the higher usage rates from Marketers incentivized by the higher Return of Investment (ROI) of

25

the advertising expenditures through the Facebook platform.

26
27
28

93

CAC at §27 and 39.
- 23 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

63.

Marketers are interested in increasing the number of “Likes” associated with their

2

use of the social plugins on their websites outside of Facebook, not simply in growing the number

3

of “Likes” on their Facebook pages.

4

64.

The importance of Marketers’ website counters being affected by the alleged

5

unlawful actions in this case resides in the fact that, during the Class period, it was a key

6

performance indicator of the marketing function for Facebook’s clients: the Marketers or

7

advertisers on whose websites it was shown. Advertisers, as businesses, are interested in the

8

return on their expenditures in advertising; the conventional ROI which compares gains from

9

advertisements with their cost. While the cost is relatively straightforward to ascertain, in the

10

digital advertising environment, gains from advertising are susceptible to estimation in a variety

11

of ways, such as by the number of visitors to a web page, the number of incoming links, the

12

activity on social networks (e.g., followers, comments, “retweets” or “shares,” references in

13

relevant blogs, views on social media web sites, RSS feed subscribers, among others).94 In the

14

Facebook environment, the number of Likes measured is typically interpreted as an indicator of

15

the reach of an advertising strategy and, given the particular brand/product combination, as a

16

factor in generating sales.95

17

65.

For this analysis, the general principles applied in identifying market valuations of

18

the economic worth of “acquiring” or “attracting” Facebook users to express their affinity for a

19

brand are consistent with the general Cost Approach to valuation; the measurement of value by

20

reference to the amount of money that would be required to replace the functionality of the

21

subject asset (the Like).96 Ultimately, the realized value of a specific set of “Likes” would

22

94

23
24
25
26
27
28

See, for example, Perdue, D. J. (2010). Social media marketing: Gaining a competitive
advantage by reaching the masses. Social Media Marketing, pp. 1, 3–36.
95
By definition, Sales can be seen as the product of marketing reach, times the impact of the ad
(leads per ad), times the yield (sales per lead). Thus, with a given degree of impact and yield, a
higher reach, measured by the Like count for example, generates higher sales. See, e.g.: D.
Buhalis and E. Mamalakis, “Social Media Return on Investment and Performance Evaluation in
the Hotel Industry Context,” in: I. Tussyadiah, A. Inversini (eds.), Information and
Communication Technologies in Tourism 2015, DOI 10.1007/978-3-319-14343-9_18, pp. 241253.
96
The underlying assumption is that the price of new assets (i.e., Likes) is commensurate with the
economic value of service that the property can provide during its life. See: G.V. Smith and R.L.
Parr, Valuation of Intellectual Property and Intangible Assets, John Wiley & Sons, 2000, p. 164.
- 24 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

generally exceed the cost, to a degree depending on the effectiveness of the specific marketing

2

strategies implemented to leverage them in practice.

3

66.

The effectiveness of the then-novel social network advertising campaigns was

4

typically measured by the number of Likes.97 Knowledge of the mechanics of this “Like” counter

5

obviously led to manipulations, such the “purchase” of spurious “likes,”98 which, at least in one

6

instance, had a market value as low as $0.075 per “like” and even deceptive campaigns that

7

encouraged people to copy and paste in their public Facebook posts certain texts with the

8

appropriate URLs embedded in them, so the Facebook mechanism would reward the intended

9

website with a viral increase of “Likes.”99

10

67.

Ultimately, the meaning of the counter became so diluted by 2013 that both

11

analytics firms and Facebook changed their assessment of the counter as well as the need for the

12

button graphic, developing the Facebook pixel and other hidden plug-ins, and began

13

supplementing these performance measures with other factors.100

14

68.

Therefore, Facebook benefited from the accused practice of using the results of

15

scanning supposedly private messages for URLs and affecting Like counts because this practice

16

gave its clients, Marketers, an incremental impression of effectiveness of their Facebook

17
18
19
20
21
22
23
24
25
26
27
28

97

Advertising generally strives for the general notion of Reach (“the number or percentage of
target audience members exposed at least once to media carrying an advertising message”). In
the online environment, user activity can be measured in great detail and the number of clicks on
a specifically-designed button, or other specific user action (including a link or URL), as reflected
in the Like count provide that measurement.
98
See, e.g., National Public Radio, Planet Money “For $75, This Guy Will Sell You 1,000
Facebook 'Likes'” originally broadcast on May 16,
2012(http://www.npr.org/sections/money/2012/05/16/152736671/this-guy-will-sell-you-sell-you1-000-facebook-likes).
99
Some hoaxes that repeatedly play out in the Facebook context are similar to a “chain letter”
model where users are encouraged to “copy and post” texts such as bogus “copyright”
notifications and spurious claims of privacy claims based on international law. See, e.g., W.
Oremus, “That Facebook Copyright Notice Is Still a Hoax” November 26, 2012, Slate
(http://www.slate.com/blogs/future_tense/2012/11/26/facebook_copyright_notice_berner_conven
tion_status_update_still_a_hoax.html).
100
Nielsen, the company behind the Ratings system, now emphasizes the notion of ‘Brand Lift’ to
measure the effectiveness of online marketing and, specifically, through Facebook (Nielsen
“Quickly and Accurately Measure the Effectiveness of Your Online Ad Campaigns” available as:
www.nielsen.com/content/dam/nielsen/en_us/documents/pdf/Fact%20Sheets/Nielsen%20BrandL
ift.pdf).
- 25 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

marketing campaigns. Marketers perceiving an incremental return of their spending on Facebook

2

campaigns were undoubtedly encouraged to allocate additional funds to these campaigns.

3

69.

Due to the success of social online networking, acquiring Likes on Facebook pages

4

and outside websites has become a fundamental goal for brands in all Business-to-Consumer

5

markets over the past decade. In studies aimed at estimating the costs of acquiring fans,

6

advertising industry experts have based their analysis on the average of paid advertising needed,

7

on average, to acquire a Facebook page “Like” and convert them into paying customers. In 2011,

8

a study quoted in the well-known trade publication Advertising Age,101 considered 5 million

9

Facebook ads placed by over 50 companies, the acquisition cost of “Fans,”102 calculated by

10

dividing the total cost of clicks by the total number of actions, was found to be $9.56 less than the

11

cost to acquire the same level of sales from non-Fans.103 This is an average of the sampled

12

companies from mostly the consumer packaged goods, auto and finance. Necessarily, the cost

13

per acquisition varies by industry, by product, as well as by the desired behavior from potential

14

customers when visiting the Facebook page. Table 3 shows the average effect summarizing the

15

findings, comparing the cost of attracting a variety of actions (called “conversion” events)

16

between Facebook users that previously “Liked” the corresponding brand, i.e., Fans, and visitors

17

that had not, i.e., Non-Fans.

18
19
20
21
22
23
24
25
26
27
28

101

Advertising Age, Nov. 22, 2011.
“Fans” standing for Facebook Friends on Brand Pages, is the term typically used in advertising
industry. See, inter alia, Peter Elbaor, “The Interconnection of Facebook Fan Pages” October 28,
2011, ComScore Insights Blog, (http://www.comscore.com/Insights/Blog/The-Interconnectionof-Facebook-Fan-Pages).
103
Study by SocialCode, LLC reported in trade publication Advertising Age
(adage.com/print/231128).
102

- 26 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

1

Table 3
Cost per Acquisition (CPA) on Facebook
Source: SocialCode, LLC
(May-Sept 2011)

2
3
4

Conversion Type

5

Non-Fan
CPA

Difference

$8.49

App Install

Fan
CPA
$ 2.61

$5.88

Contest Submission

76.25

17.21

59.04

6

Contest Voting

21.09

3.26

17.83

7

Fan Acquisition

5.17

3.39

1.78

Program Sign-Up

75.90

41.25

34.65

Purchase

43.86

12.88

30.98

Sweepstakes Entry

5.81

2.57

3.24

$ 14.93

$ 5.37

$9.56

8
9

TOTAL

10
11

70.

Since Likes can be profitable, as a result of those cost savings, a large number of

12

companies implement marketing strategies to acquire them. Another study found that the average

13

cost of advertising on Facebook to encourage a user to become a Fan – “Like” the advertiser’s

14

Facebook page – was $1.07.104 This cost also varies across sectors and over time. In 2012, the

15

cost per acquired Fan (i.e., cost per click in Fan acquisition campaigns) averaged $0.55.105 These

16

costs are leveraged through targeting via the Social Graph as brands can gain seven times greater

17

CTR by targeting Fans with ads which keeps cost per click at a minimum.106

18

71.

Therefore, the direct incremental impact of the accused practice on Facebook is to

19

increase advertising revenue, in the form of cost savings to advertisers from the accrual of Likes

20

from the intercepted private messages.

21
22
23
24
25
26
27
28

104

Webtrends, White Paper, 2011. Reported in The Wall Street Journal, “How Much Does a
Facebook Fan Cost?” February 1, 2011.
105
Based on data in WebTrends®, “Ads for Fans”, 2012, p. 4.
106
Ibid, p. 2.
- 27 -

UPDATED REPORT OF FERNANDO TORRES ISO
PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION;
C 13-05996 PJH (MEJ)

EXHIBIT A

FERNANDO TORRES, MSc
CHIEF ECONOMIST
Fernando Torres is an intellectual property economist with nearly 30
years of work experience in economics, financial analysis, and
business management in the U.S. and Mexico. He is a member and
Chief Economist at IPmetrics LLC, an IP consulting firm specializing in
the strategic analysis, valuation, and expert witness assessment of the
full spectrum of intangible assets.
Since 2004, Mr. Torres has applied his economics, finance and
business experience, as well as skills in quantitative techniques, to the
analysis and valuation of intangible assets, including valuation for transactional and litigation
purposes (bankruptcy and infringement cases). Prior to joining IPmetrics, Mr. Torres served as
Senior Economist at CONSOR® Intellectual Asset Management.
During recent years, Mr. Torres has undertaken projects involving the valuation and/or the
assessment of infringement damages regarding copyrights, trademarks, patents, trade secrets,
rights of publicity, and other intellectual assets in such industries as commercial agriculture,
auto parts, apparel and footwear, retail, pharmaceuticals, entertainment, telecommunications,
social media, as well as non-profit organizations, among others.
Mr. Torres regularly presents on topics related to intangible asset valuation in a variety of
venues, many of which qualify for CLE credit. During the past few years, Mr. Torres has been
an instructor for the course “Valuing Intangible Assets for Litigation,” which is part of the
requirements of the Certified Forensic Financial Analyst designation issued by the National
Association of Certified Valuation Analysts (NACVA).
Mr. Torres has been active in the area of the copyrights, privacy and rights of publicity
infringement issues, encompassing from the unlicensed use of celebrity images to class action
lawsuits involving the major social networking and web services companies.
Mr. Torres is also the editor and author of the online “Patent Value Guide” and his perspectives
on the value of patents and other intellectual property assets have been cited in the media,
including Managing Intellectual Property, The New York Times, Forbes.com, Business News
Network, Business Valuation Resources, and The Democrat & Chronicle.
Mr. Torres is a member of the National Association of Forensic Economics, and of the Western
Economics Association International, among others. His career has spanned from academia, to
branches of government, to private industry and consulting.
He first earned a B.A. in Economics from the Metropolitan University in Mexico City (1980), and
went on to earn a Graduate Diploma in Economics from the University of East Anglia (U. K.,
1981), and a Master of Science Degree specializing in Econometrics from the University of
London, England (1982).

[e-mail]

www.ipmetrics.com

Fernando Torres
Qualifications and Experience
Page 2

Prior to specializing in IP, his career centered on financial analysis and management in the
private sector, having been both a brand development consultant and an entrepreneur in
several business ventures, mainly in the software development and health care industries.
During the 1980s, Mr. Torres was Professor of Economics at the Metropolitan University in
Mexico City, teaching Economic Policy, Economic Growth, Microeconomics, and Quantitative
Methods. Mr. Torres was later a financial consultant (NASD Series 7, 63, 65) for half a dozen
years with AXA Advisors LLC.

PROFESSIONAL ASSOCIATIONS





National Association of Forensic Economics
Western Economics Association International
American Economic Association
International Trademark Association

PUBLICATIONS


“Why only some patents are valuable” in: IPmetrics Blog, (May 13, 2015).



“General Principle I – Lack of Intrinsic Value” in: PatentValueGuide.com, (February
11, 2013).



“General Principle II – Patent Use is Key to Value” in: PatentValueGuide.com,
(February 8, 2013).



“Conceptual Patent Value Framework” in: PatentValueGuide.com, (January 31,
2013).



“The Impact of Reorganization on Trademark Values,” in: IP Management and
Valuation Reporter, March 2012, BVR, Portland, OR.



“Fundamental Principles of Patent Value,” in: IP Management and Valuation
Reporter, January 2012, BVR, Portland, OR.



“Key Factors of Infringement Damages Apportionment in the Java & Android Case”
in: IPmetrics Blog, (December 8, 2011).



Book Chapter: “Valuation, Monetization, and Disposition in Bankruptcy” in IP
Operations and Implementation for the 21st Century Corporation, John Wiley and
Sons, Inc. (November, 2011).



“Have Patent Litigation Damages Awards Been Worth It?” in: IPmetrics Blog, (April
29, 2011).



“Celebrity Advertising and Endorsement” in: IPmetrics Blog, (March 2, 2011).



“The Patent to Trademark Value Transition: Nespresso” IPmetrics Blog, (February 3,
2011).

[e-mail]

www.ipmetrics.com

Fernando Torres
Qualifications and Experience
Page 3



“The Liquidation Value of IP” in: IPmetrics Blog, (January 26, 2011).



“An Econometric Model of Trademark Values” in: IPmetrics Blog, (January 25,
2011).



Chapter 15: “Copyrights” in Wiley Guide to Fair Value Under IFRS, John Wiley and
Sons, Inc. (May, 2010).



“The Road to Asia,” Feature Article (co-author) in: World Trademark Review, No. 23,
February/March 2010, pp. 19-22.



"Trademark Values in Corporate Restructuring" (July, 2007). Social Sciences
Research Network: http://ssrn.com/abstract=1014741



“Establishing Licensing Rates Through Options”
(September, 2006) Social
Sciences Research Network: http://ssrn.com/abstract=1014743
and in:
http://formulatorres.blogspot.com/2006_05_01_archive.html



Book Chapter: “Ch. 9: Recent developments in Patent Valuation” in: Practicing Law
Institute, Patent Law Institute 2007: the Impact of Recent Developments on Your
Practice, PLI Course Handbook (March 19, 2007).



“Establishing Licensing Rates through Options,” in: ipFrontline, September 12, 2006
(http://www.ipfrontline.com/depts/article.asp?id=12586&deptid=3).

COURSES AND PRESENTATIONS


“What is a Brand Worth?” MCLE webinar, The State Bar of California, Trademark
Interest Group, March 2015.



“Intellectual Property Valuation Techniques,” MCLE presentation for Pillsbury
Winthrop Shaw Pittman, San Diego, CA, August 2014.



“10 Common Mistakes in IP Valuation/Damages”, CLE presentation to Jeffer
Mangels Butler & Mitchell LLP, Los Angeles, CA, July 2014.



“Intellectual Property Valuation Techniques,” MCLE presentation, San Diego, CA,
April 2013



“Intellectual Property Valuation and Monetization,” a seminar for the Special
American Business Internship Training (SABIT) Intellectual Property Rights program,
U.S. Department of Commerce. March, 2013.



“Valuing IP in the Context of Bankruptcy,” webinar for the Certified Patent Valuation
Analyst curriculum, Business Development Academy. October, 2011.



“Recent Developments in Intellectual Property Economic Damages,” Presentation at
the Annual Conference of the National Association of Forensic Economics. June,
2011.



“Valuing the Intangible: Where to Start?” CLE presentation to Sheppard Mullin
Richter & Hampton, LLP. December, 2009.

[e-mail]

www.ipmetrics.com

Fernando Torres
Qualifications and Experience
Page 4



“Defending and Enforcing Your Technology.” Panelist at: Foley’s Emerging
Technologies Conference: Navigating a New World – San Diego, CA (Foley &
Lardner LLP); September 2009.



”Intellectual Property Valuation, Monetization and Disposition in Bankruptcy” – CLE
presentation at the Spring Trademark Program of the NY Intellectual Property Law
Association – New York, NY; June 2009.



“Damages Valuation and Expert Witnesses” (co-presenter) – CLE presentations to:
•
•
•

Gibson, Dunn & Crutcher LLP – Irvine, CA (June, 2008)
Arent Fox, LLP — Washington, DC (April, 2008)
Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P.
Washington, DC (April, 2008)

–



“Valuing Intangible Assets for Litigation” (Instructor) – National Association of
Certified Valuation Analysts (NACVA) – Fort Lauderdale, FL; December 2007



“Valuing Intangible Assets for Litigation” (Instructor) – National Association of
Certified Valuation Analysts (NACVA) – Philadelphia, PA; October 2007



“Trademark Values in Corporate Restructuring” – Western Economics Association
International 82nd Annual Conference – Seattle, WA; July, 2007



“Entrepreneurship and Innovation” (Session Chair) – Western Economics
Association International 82nd Annual Conference – Seattle, WA; July, 2007



“Alternative Focuses for ‘But For’ Scenario Specification in Commercial Litigation”
(Discussant) – National Association of Forensic Economics, Western Conference –
Seattle, WA; June, 2007



“Patent Values in the Evolving I.P. Market” – Practicing Law Institute – Hot Topic
Briefing Teleconference; May 2007 (CLE Presentation)



“Key Issues in Intellectual Property Due Diligence” – Due Diligence Symposium
2007 – ACG – Iselin, NJ; April 2007



“Life Sciences IP Due Diligence” – American Conference Institute – San Francisco,
CA; January 2007



“Developments in Patent Valuation” – Practicing Law Institute – San Francisco, CA;
January 2007 (CLE Presentation)



“Collins & Aikman Europe and Other Cross-Border Asset Sales: A Tale of Two
Venues” – American Bankruptcy Institute, Winter Leadership Meeting – Phoenix, AZ;
December 2006



“Valuing Intangible Assets for Litigation” (Instructor) – National Association of
Certified Valuation Analysts (NACVA) – San Diego, CA; December 2006.

[e-mail]

www.ipmetrics.com

Fernando Torres
Qualifications and Experience
Page 5

LITIGATION-RELATED EXPERIENCE
(Last Four Years)
Date
Range
February
2012

March
2012

Parties

Case No.

Court

Status

The Int’l. Aloe
Science Council
Inc. V. Fruit of
the Earth, Inc.

11-CV-2255 United States Settled
District Court

A. Fraley, et al v.
Facebook, Inc.

11-CV-1726 United States Settled
District Court

District of
Maryland

Nature

Hired by

Involvement

Trademark
Infringement.

Kane
Kessler,
P.C.

Expert
Rebuttal
Report on
Damages,
Depositions

Rights of
Publicity

The Arns
Law Firm

Expert
Declarations
in Support of
Motion for
Class
Certification,
Value of
Injunctive
Relief,
Deposition

Northern
District of
California

Class
Action

Superior
Closed
Court of the
State of
California
(Los Angeles)

Rights of
Publicity

Wilson
Elser
Moskowitz
Edelman &
Dicker LLP

Preliminary
Expert
Damages
Report,
Arbitration

Contract,
Database

Neymaster
Goode, PC

Expert
Damages
Rebuttal
Report,
Deposition,
Arbitration

Copyright
&
Trademark
Infringement

Ezra
Brutzkus
Gubner
LLP

Expert
Damages
Report,
Deposition

Intangible
Asset
Fair
Market
Value

Tripp Scott
PA

Declaration,
Expert
Damages
Report,
Deposition

Patent
Infringement

Ferraiuoli,
LLC

Expert
Damages
Report,
Deposition

Contract,
Software
IP value

Kalbian
Hagerty
LLP

Expert
Rebuttal
Reports,
Depositions,
Trial
testimony

August
2013

Jude Law v.
Paloform Inc.

SC120354

September
November
2013

Scidera, Inc. v.
Newsham
Choice
Genetics, LLC

American
AAA 16174-00582- Arbitration
Association
12

February
2014

Lambert Corp.
v.
LBJC, Inc.et al.

13-CV-0778 United States Settled
District Court

S. Mattocks v.
Black
Entertainment
Television LLC

13-CV61582

April 2014

July – Aug.
2014

Aug. 2014Aug. 2015

Tierra
Intelectual
Borinquen, Inc.
v.
Toshiba
Corporation.
S. Abu-Lughod
v. S. Calis,
Tocali, Inc.,
ASCII Media,
Inc., et al.

[e-mail]

Closed

Central
District of
California
United States Closed
District Court
Southern
District of
Florida
13-cv-47

United States Settled
District Court
Eastern
District of
Texas

13-cv-2792

United States Closed
District Court
Central
District of
California

www.ipmetrics.com

Fernando Torres
Qualifications and Experience
Page 6

Date
Range
Feb – Mar
2015

Jan. - May
2015

Parties

Case No.

Court

Status

Nature

Hired by

Involvement

S. Nerayoff vs.
L. Rokhsar

2031572012

Supreme
Closed
Court Of The
State Of New
York

Value of
Patent
Assets

Baker &
Hostetler
LLP

Expert
Declaration
on Patent
Value,
Trial
testimony

In Re Google,
Inc., Privacy
Policy
Litigation.

12-cv-1382

United States Closed
District Court

Breach of
Contract
Class
Action

Grant &
Eisenhofer
P.A.

Expert
Report on
Privacy
Damages,
Deposition

[e-mail]

Northern
District of
California

www.ipmetrics.com

EXHIBIT B

Exhibit B - List of Materials Relied On:
I relied on the following documents and materials in forming my opinions:
Academic Literature
1.

Vogel, Harold L. Entertainment Industry Economics. Cambridge
University Press, 2011..

2.

Smith, Gordon V., and Russell L. Parr. Valuation of intellectual property
and intangible assets. Vol. 13. Wiley, 2000.

3.

Reilly, Robert F., and Robert P. Schweihs. Valuing intangible assets.
McGraw Hill Professional, 1998.

4.

Business Valuation Resources, “Benchmarking Identifiable Intangibles
and Their Useful Lives in Business Combinations” 2012, p. 66
(www.bvresources.com).

5.

Duff & Phelps, 2015 Valuation Handbook: Guide to the Cost of Capital,
John Wiley & Sons, 2015

6.

Loumioti, Maria. "The use of intangible assets as loan collateral." Harvard
Business School Job Market Paper (2011).,
(http://ssrn.com/abstract=1748675)

7.

Ugander, Johan, Brian Karrer, Lars Backstrom, and Cameron Marlow.
"The anatomy of the facebook social graph." arXiv preprint
arXiv:1111.4503 (2011). (http://arxiv.org/abs/1111.4503v1)

8.

Perdue, David J. "Social media marketing: Gaining a competitive
advantage by reaching the masses." Senior Honors Papers (2010): 127.

9.

Buhalis, Dimitrios, and Emmanouil Mamalakis. "Social media return on
investment and performance evaluation in the hotel industry context." In
Information and Communication Technologies in Tourism 2015, pp. 241253. Springer International Publishing, 2015.

10.

Goldfarb, Avi, and Catherine Tucker. "Shifts in privacy concerns."
Available at SSRN 1976321 (2011). (http://ssrn.com/abstract=1976321)

11.

Tucker, Catherine. "Social advertising." Available at SSRN 1975897
(2012). (http://ssrn.com/abstract=1975897)

12.

Tucker, Social Networks, Personalized Advertising, and Perceptions of
Privacy Control, Time Warner Research Program on Digital
Communications, Summer 2011
(http://209.59.135.49/pdf/TWC_Tucker_v3a.pdf).

Articles and Other Online Sources
1.

Business Insider, Business Intelligence Report on Social Engagement
(http://www.businessinsider.com/social-media-engagement-statistics2013-12).

2.

Business Insider Depiction of Social Graph
(http://static3.businessinsider.com/image/4f5112e169bedd1526000061
/facebook-open-graph.jpg).

3.

MarketingLand (http://marketingland.com/facebooks-latest-tweaks-favorfriends-could-hurt-page-reach-125931).

4.

W. Oremus, “That Facebook Copyright Notice Is Still a Hoax” November
26, 2012, Slate
(http://www.slate.com/blogs/future_tense/2012/11/26/facebook_copyright
_notice_berner_convention_status_update_still_a_hoax.html)

5.

Trade publication, Advertising Age, Nov. 22, 2011,
(adage.com/print/231128).

6.

Peter Elbaor, “The Interconnection of Facebook Fan Pages” October 28,
2011, ComScore Insights Blog,
(http://www.comscore.com/Insights/Blog/The-Interconnection-ofFacebook-Fan-Pages).

7.

Webtrends, white paper, 2011. Reported in The Wall Street Journal,
“How Much Does a Facebook Fan cost?” February 1, 2011. Based on data
in WebTrends®, “Ads for Fans”, 2012, p. 4.

8.

Facebook CEO Mark Zuckerberg’s public post on Facebook.com of
August 27, 2015, at:
(https://www.facebook.com/zuck/posts/10102329188394581)

9.

Wolfram|Alpha Knowledgebase, using data from the World Bank
(http://www.wolframalpha.com/ accessed 10/26/15).

10.

US Census projections and Statistics Canada estimates [In:
http://www.census.gov/population/projections/data/national/2014/summar
ytables.html, and http://www.statcan.gc.ca/pub/91-002-x/2015002/t002eng.pdf]

11.

“IAB Social Media Buyers Guide” by Facebook’s Adam Isserlis,
Manager, Corporate Communications, Ads/Monetization; Colleen Coulter,
Product Marketing Communications Manager available on the Interactive
Advertising Bureau website (http://www.iab.net/socialmediabuyersguide).

12.

Facebook for Developers website: https://developers.facebook.com/.

13.

“Instant Articles” initiative and new deals with publishers like the
Washington Post (http://media.fb.com/2015/05/12/instantarticles/).

14.

Expanding the power of Facebook search
(http://newsroom.fb.com/news/2015/10 /search-fyi-find-what-the-worldis-saying-with-facebook-search/).

15.

Video, with video hosting and action tracking
(http://newsroom.fb.com/news/2015 /06/news-feed-fyi-taking-intoaccount-more-actions-on-videos/), app acquisitions like Instagram and
WhatsApp, and with plugins to track activities outside of Facebook

16.

Google Products and Advertising Platforms
(www.thinkwithgoogle.com/products/)

17.

“Digital Advertising Report Q3 2015,” Adobe Digital Index
(www.cmo.com/adobe-digital-index.html), p.18, 24.

18.

Open Graph protocol, this is used on Facebook to allow any web page to
have the same functionality as any other object on Facebook. See:
http://ogp.me/.

19.

https://developers.facebook.com/docs/graph-api

20.

Facebook SDK Documentation
(https://developers.facebook.com/docs/javascript/quickstart/v2.5#plugins).

21.

J. Kincaid in: TechCrunch (http://techcrunch.com/2009/02/09/facebookactivates-like-button-friendfeed-tires-of-sincere-flattery/).

22.

Facebook Help Center (Each Facebook account has a unique username.
On a user’s timeline page, their username will appear at the top of the
browser and look something like www.facebook.com/[username]).
https://www.facebook.com/help/228578620490361.

23.

Facebook, Social Plugins FAQs, at:
https://developers.facebook.com/docs/plugins/faqs/#ref.

24.

Facebook for Business post on November 14, 2014
(https://www.facebook.com/business/news/update-to-facebook-newsfeed).

25.

Facebook Media, “An Update to News Feed: What it Means for
Businesses” (https://www.facebook.com/business/news/update-tofacebook-news-feed)

26.

“News Feed FYI: Balancing Content from Friends and Pages”
(http://media.fb.com/2015/04/21/news-feed-fyi-balancing-content-fromfriends-and-pages/).

27.

Facebook’s disclosure in connection with the redesign of the Messenger
platform, at: https://www.facebook.com/notes/facebook-engineering/theunderlying-technology-of-messages/454991608919

28.

Facebook, between August 2012 and May 2013 user engagement, as
illustrated in the number of likes generated per day, increased from 2.7
Billion to 4.5 billion on average

(https://www.facebook.com/photo.php?fbid=10151908376831729&set=a.
10151908376636729.1073741825.20531316728&type=1&theater).
29.

Nielsen “Quickly and Accurately Measure the Effectiveness of Your
Online Ad Campaigns” available as:
www.nielsen.com/content/dam/nielsen/en_us/documents/pdf/Fact%20She
ets/Nielsen%20BrandLift.pdf.

30.

National Public Radio, Planet Money “For $75, This Guy Will Sell You
1,000 Facebook 'Likes'” originally broadcast on May 16, 2012
(http://www.npr.org/sections/money/2012/05/16/152736671/this-guy-willsell-you-sell-you-1-000-facebook-likes).

31.

https://www.facebook.com/notes/facebook-engineering/tao-the-power-ofthe-graph/10151525983993920

32.

“Uniform Resource Locators (URL): A Syntax for the Expression of
Access Information of Objects on the Network” by Tim Berners-Lee
(March 1994) in: http://www.w3.org/Addressing/URL/url-spec.txt.

33.

US Census Bureau, Geographical Mobility: 2005 to 2010 (December
2012), Table 2, Page 5 (http://www.census.gov/prod/2012pubs/p20567.pdf).

34.

https://www.facebook.com/help/cookies/

Document produced by Defendant in Campbell et al. v. Facebook, Inc.
1.
2.
3.
4.
5.
6.
7.

FB000012475
FB000015766
FB000026790
FB000026793
FB000011745
FB000011715
FB000008271

Other Information
1.

Plaintiffs’ Consolidated Amended Complaint filed on April 25, 2014

2.

Facebook, Inc. 2014 10-K

3.

Facebook, Inc.’s 2015 Q3 Earnings Report (November 4, 2015) At:
http://investor.fb.com/results.cfm

4.

Facebook, Inc.’s 2015 Q2 Earnings Report, July 29, 2015

5.

Facebook, Inc. 2012 10-K

6.

Second Quarter, 2015 Earnings Call held on July 29, 2015. Available at:
http://investor.fb.com/results.cfm.

7.

Facebook securities registration statement (SEC Form S-1/A May 16,
2012 p 2).

8.

Facebook F8 Developer Conference, April 21, 2010.

9.

Facebook, Inc. 2010 10-K Disclosures