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)

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HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 ________________________________ 5 MATTHEW CAMPBELL, MICHAEL ) 6 HURLEY, and DAVID SHADPOUR, on ) 7 behalf of themselves and all ) 8 others similarly situated, ) 9 10 11 Plaintiffs, vs. 13 14 ) Case No. FACEBOOK, INC., 12 ) ) C 13-05996 PJH Defendant. ) Volume I ________________________________) HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 15 16 Videotaped Deposition of FERNANDO TORRES, 17 taken on behalf of Defendant, at the offices of 18 Lieff, Cabraser, Heimann & Bernstein, 275 Battery 19 Street, San Francisco, California, beginning at 20 8:10 a.m. and ending at 4:42 p.m., on Friday, 21 December 18, 2015, before Chris Te Selle, CSR 22 No. 10836. 23 24 Job No. 2194240 25 PAGES 1 - 307 Page 1 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 economic methods are able to be applied to determine 2 the benefit that Facebook has derived, and, from the 3 alleged actions; and, and that would be, basically, 4 it. 5 Q. 6 7 8 And you said, damages can be measured. 08:36:01 08:36:22 Have you measured damages in this case? A. I haven't applied the methodology to the ideal information, because it has not been produced. 9 Q. 10 information? 11 A. Well, the data from Facebook. 12 Q. Is there specific -- 13 A. That -- 14 Q. I'm sorry. 15 A. That relates exactly to the alleged 16 17 18 19 What do you mean by, the ideal 08:36:46 Go ahead. 08:36:56 actions. Q. And what are the alleged actions, as you understand them? A. Well, I would summarize it in the 20 interception of private messages, and the data that 21 I would need is mainly the number of those messages 22 that were intercepted that contained URLs, and the 23 total number of messages for the same time periods 24 to assess the relative importance of those numbers. 25 Q. When you say, the total number of messages 08:37:07 08:37:40 Page 27 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 that contained URLs, and the total number of 2 messages for the same periods, same time periods, 3 can you explain the comparison. 4 understand the two variables there. 5 A. 08:37:42 I'm not sure I Well, one of the measures that I would be 6 looking for would be the percentage of messages that 7 contain those URLs and that were intercepted during 8 08:37:53 the class period. 9 10 Q. And what is your understanding of the proposed class in this case? 11 A. Of the definition of the class? 12 Q. Yes, sir. 13 MR. DIAMAND: 08:38:17 14 15 Calls for a legal conclusion. You can answer, if you can. THE WITNESS: Well, again, that would be in, 16 the actual definition of the class is either on the 17 motions or on my report. 18 you that it would be those members of Facebook that 19 sent private messages and had their private messages 20 intercepted and included URLs during the class 21 period. 22 08:38:29 BY MR. CHORBA: From memory, I can tell 23 Q. Do you know what a URL attachment is? 24 A. A URL attachment? 25 Q. Yes. 08:38:53 08:39:08 Page 28 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 A. I'm not sure I understand the use of that 08:39:15 particular combination of terms. Q. Earlier, you mentioned data from Facebook, 4 and you said that the ideal information would be the 5 number of messages containing URLs; is that correct? 6 7 A. Not exactly. 08:39:30 The ideal information includes that information that you mentioned. 8 Q. What else? 9 A. There's -- well, for example, exactly the 10 advertising revenue from U.S.-based members, because 11 the only publicly-available information refers to 12 U.S. and Canada. 13 Q. 08:39:54 And would that be advertising revenue 14 attributed to the alleged intercepted messages that 15 contained URLs? 08:40:14 16 A. No. 17 Q. Were you asked to develop a methodology to 18 19 It's advertising revenue in general. identify putative class members in this case? MR. DIAMAND: Objection. To the extent that 20 this addresses communications between your counsel 21 and you, caution you not to answer. 22 that without doing that, go ahead. 23 THE WITNESS: 08:40:46 If you can do So, as, as an economic expert, I, 24 that falls outside of my scope. 25 BY MR. CHORBA: 08:41:04 Page 29 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 opinion in those terms. 2 can't say if it should. 3 BY MR. CHORBA: 4 5 Q. I can't, as an economist, I So you are not offering an opinion on as to whether or not a class should be certified. 6 08:43:04 A. 08:43:15 The matter of should is a legal question. 7 What I'm doing in the report is, assuming it is 8 certified, then it makes sense to analyze damages. 9 Q. Okay. So, your report is triggered and 10 your opinion is triggered only if a class is 11 certified. 12 MR. DIAMAND: Objection. 13 THE WITNESS: 08:43:32 Again, that would be a legal 14 opinion. 15 BY MR. CHORBA: 16 17 Q. We will do this the longer way. 18 19 All right. 08:43:44 Are you offering an opinion on any of the Rule 23 elements, yes or no? 20 A. I don't even know what the Rule 23 is. 21 Q. All right, let's go through them. 22 08:43:52 Are you offering an opinion on 23 commonality? 24 A. 25 expert. I'm not a legal expert; I'm an economics That's not part of my scope. 08:44:00 Page 32 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 A. No. 2 Q. Ascertainability? 3 A. No. 4 Q. Superiority? 5 A. No. 6 Q. Manageability? 7 A. No. 8 Q. If no class is certified, will you have 9 10 11 12 08:44:41 08:44:45 any expert opinions in this case? MR. DIAMAND: Objection. Calls for a legal 08:44:54 conclusion. THE WITNESS: I can have the opinions. 13 know if they'll be useful. 14 I don't BY MR. CHORBA: 15 16 17 Q. Have you been asked to give opinions if no class is certified in this case? MR. DIAMAND: Objection. 08:45:01 Yes or no. To the extent that 18 this, again, goes into what I didn't, or with 19 counsel, didn't ask you to do, I'd caution you not 20 to answer. 08:45:13 21 THE WITNESS: 22 if I was asked or not. 23 BY MR. CHORBA: 24 25 Q. Right. So, I can't tell you if, Do you know the answer whether or not your opinions will be used if a class is certified? 08:45:27 Page 34 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 way in which there would not have been a benefit to 2 Facebook. 3 Q. 08:57:38 And what, based on your understanding of 4 the allegations in the complaint, and your 5 assumption that those allegations are true, what was 6 the benefit to Facebook, as you understand it? 7 A. 08:57:48 Well, the accumulation of the information 8 gleaned from the messages, basically, the edges 9 between members and the marketers and entities 10 identified by the URLs, is accessible through, as 11 part of the social graph, it's accessible to 12 Facebook in developing the targeted advertising 13 services that, that generate this revenue. 14 Q. Thank you. 08:58:12 That's helpful. 15 Let's assume that the information is 16 accessible to Facebook, as the provider of the 17 service, so, information from messages is 18 accessible. 19 A. Uh-huh. 20 Q. I'm asking you this as a hypothetical. 08:58:35 21 It's available, but it's not used for targeted 22 08:58:44 advertising. 23 Would that impact your opinions at all? 24 MR. DIAMAND: Objection. Hypothetical. 25 THE WITNESS: That would be a technical 08:58:58 Page 45 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. Does your opinion that there were, that 2 there's a methodology to determine damages hinge on 3 whether or not the information resulted in a revenue 4 09:01:27 generating activity for Facebook? 5 MR. DIAMAND: Objection. 09:01:37 6 THE WITNESS: So, my methodology determines the 7 benefit to Facebook from a specific action, and 8 that's, that's what it refers to, the alleged 9 action. 10 11 BY MR. CHORBA: Q. 09:02:00 Why doesn't it examine, your methodology 12 examine, instead of examining benefit to Facebook, 13 why doesn't it examine detriment to the putative 14 class? 15 16 17 MR. DIAMAND: Objection. Calls for a legal 09:02:12 conclusion. THE WITNESS: So, my report and methodology 18 that I developed was asked to analyze the benefits 19 to Facebook, so that's, so, it doesn't calculate the 20 detriment to the class members, or the potential 21 class members, because it wasn't meant to. 22 BY MR. CHORBA: 23 24 25 Q. 09:02:31 So, you have not developed a methodology to calculate damages to putative class members. MR. DIAMAND: Objection. 09:02:49 Page 48 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 THE WITNESS: That, that was not my task, no. 09:02:50 BY MR. CHORBA: Q. If you can turn to paragraph 7, I'm going 4 to bounce back a little bit, and I'll show you other 5 documents today, but let's keep this one handy. 6 This is Exhibit 1 for a reason. 7 paragraph 7, Mr. Torres, and it carries over from 8 pages 2 to 3, you state there in your introduction 9 assignment and summary of conclusions, under that 09:03:04 And, if you look at 10 heading, you say, the plaintiffs' consolidated 11 amended class action complaint, the CAC, alleges 12 that Facebook utilizes information surreptitiously 13 gathered from purportedly private correspondence 14 sent between Facebook users and uses that 15 information in a number of ways, including, and then 16 it goes on, A, B, C. 17 09:03:23 09:03:40 Did I read that correctly? 18 A. Yes. 19 Q. And you assumed, again, this is a place 20 where you assume the specific allegations in the 21 consolidated amended complaint were true; is that 22 correct? 23 A. Yes. 24 Q. 09:03:50 If we go to A, so, if we flip to page 3, 25 and, again, this is one of the uses in the complaint 09:04:06 Page 49 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 report. 2 don't know what happens. 3 me. 4 BY MR. CHORBA: 5 6 Q. If in the future no class is certified, I 09:52:15 The future is unknown to You'd have to conduct a fresh analysis at 09:52:23 that point, is that what I'm hearing? 7 A. 8 MR. DIAMAND: Objection. 9 THE WITNESS: I don't know what I would do. 10 I don't know. BY MR. CHORBA: 09:52:51 11 Q. Have you ever used Facebook? 12 A. Yes. 13 Q. Are you currently a member of Facebook? 14 A. Yes. 15 Q. How long have you had a Facebook account? 16 A. I opened my account around 2009. 17 Q. And has it been active since then? 18 A. Well, I checked yesterday, it was still 19 20 21 09:53:03 active, so it hadn't been cut off. Q. You never, you never intentionally closed 09:53:25 your account? 22 A. No. 23 Q. That was good. 24 25 Have you ever sent a Facebook message? A. I think I have. 09:53:46 Page 80 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 Q. Do you recall whether or not you ever sent 09:53:48 a Facebook message with a URL in it? 3 A. No, I don't think so. 4 Q. So I assume, then, you never sent a 5 message with a URL attachment? 6 MR. DIAMAND: Objection. 7 THE WITNESS: No. 09:54:01 8 9 10 11 12 13 BY MR. CHORBA: Q. Do you remember if you sent more than one Facebook message containing a URL? A. 09:54:15 As I said, I haven't sent a message containing a URL. Q. 14 15 So, one precludes the other. Oh, I'm sorry. I misunderstood you. Is it possible you did, and you just forgot, or are you pretty confident you didn't? 16 A. I'm pretty confident I didn't. 17 Q. 09:54:27 Approximately how many Facebook messages 18 in total have you sent in your life? 19 A. I think it's in the order of two or three. 20 Q. Have you ever received a Facebook message? 21 A. Yes. 22 Q. Do you recall approximately how many 23 09:54:45 you've received? 24 A. One. 25 Q. One. Did that Facebook message contain a 09:54:57 Page 81 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Which records are you referencing there? 2 A. 10:24:47 So, I would expect class membership to be 3 identifiable, based on Facebook's records as to what 4 messages were sent, what messages could have been 5 intercepted or not. 6 membership identification would belong. 7 Q. That's where the class 10:25:03 And are you offering an opinion in this 8 case that class membership is identifiable and 9 ascertainable based upon Facebook's records? 10 MR. DIAMAND: Objection. 11 THE WITNESS: To the extent that's a technical 12 issue as to what records to look at to identify the 13 membership in the class, that's not, that's outside 14 of my scope. 15 BY MR. CHORBA: 10:25:19 16 Q. 10:25:33 So, are you assuming that class membership 17 is identifiable and ascertainable based upon 18 Facebook records, or are you opining that? 19 A. I'm considering that that is something 20 that will happen when the class is certified, if it 21 is. 22 Q. 23 MR. DIAMAND: Objection. 24 THE WITNESS: 10:25:46 I would expect that formal class 25 And so it would occur after certification? membership would be determined once the definition 10:26:00 Page 93 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 advertising services to marketers. 10:31:52 2 Q. What do you mean by, marketers? 3 A. In this report, I mean by marketers the 4 same thing that Facebook defines as marketers, which 5 are their clients, the people responsible for 6 advertising, companies, entities, organizations, and 7 whether they are direct entities or agencies in the 8 advertising market. 9 10 11 12 13 14 15 Q. Do you have any specific examples that you can give? A. 10:32:10 10:32:31 Well, other than an ad agency or a specific company, like Coca Cola. Q. And why did you use this term, this defined term, Marketers, with a capital M? A. Because it's not any marketer. It's 16 advertisers in Facebook, so it's a shorthand 17 10:32:53 notation for that. 18 19 Q. Would you include, it says here, third party websites, parentheses, marketers. 20 Is there, are there other, I guess, 21 entities or individuals that fall under the term 22 10:33:10 marketers that aren't third party websites? 23 A. The limitation is the other way around. 24 There are other third party websites that are not 25 marketers in the sense of Facebook. 10:33:26 Page 98 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 4 private messages. Q. 10:43:45 And do you lay out these calculations anywhere in your report? A. Well, in the body of the report, in 5 section 4, I lay out the methodology and the 6 beginnings of the calculations that can be done with 7 publicly-available information. 8 the calculations, because I haven't received the 9 precise data from Facebook. 10 Q. 11 12 10:43:57 I haven't finalized And you said, in section 4 of your report. 10:44:23 Would that be both sections A and B, or is it one specific section? 13 A. I would say it's probably both. 14 Q. And you said you haven't finalized the 15 16 calculations. 10:44:36 What do you mean? You haven't actually 17 calculated the amount in the aggregate, or for a 18 specific person? 19 MR. DIAMAND: Objection. 20 THE WITNESS: Right. Vague. So, I have not calculated 21 a final number, and definitely not a final number 22 per person. 23 and I haven't made any estimates or assumptions, in 24 addition, to try to simulate or substitute for that 25 information. 10:44:47 The information has not been provided, 10:45:12 Page 107 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 BY MR. CHORBA: 2 Q. 10:45:19 Does your methodology account for 3 potential benefits to class members from the 4 challenged practices? 5 A. No. I mean, in calculating the benefits 6 to Facebook, I don't consider benefits to somebody 7 10:45:36 else. 8 9 Q. And both methodologies in section 4 A and 4 B measure benefit to Facebook? 10 A. Correct. 10:45:49 11 Q. So at no point, well, let me ask you, have 12 you attempted to calculate detriment to the putative 13 class? 14 MR. DIAMAND: Objection. 15 THE WITNESS: As I said, that, that's not part 16 of my scope. 17 Facebook. 18 10:46:09 BY MR. CHORBA: 19 20 Q. My scope is to analyze the benefits to Have you been asked to prepare a rebuttal opinion to any report prepared by Facebook? 21 A. No. 22 Q. 10:46:29 Circling back, just in front of you, 23 paragraph 11 B, is your definition of marketers 24 limited to third party websites that have a like 25 button social plugin installed? 10:46:50 Page 108 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 in the disclosures. 2 10:59:54 Yahoo does a bad job about it, because 3 they really don't have enough information about the 4 person, so it's not well-targeted. 5 that there is litigation involving any of those two. 6 Q. And -- okay. I don't know 11:00:11 If Twitter were to engage 7 practices, in practices similar to those alleged in 8 this case, would you change your practices with 9 using Twitter? 10 A. My personal view is that you do have to 11 read what the privacy policy is, and you have to 12 know to expect that if you are not paying for a 13 11:00:35 product, you are the product. 14 Q. If we look, I'm going to flip back to the 15 report, paragraph 18. It's a lengthy paragraph, but 16 I'd like to focus on the last two sentences, so it 17 carries over from pages 7 to 8. 18 you are there. 19 It's on line 18, on page 7. 20 advantage stems from the power of leveraging the 21 deep targeted knowledge available from its unique 22 access to an increasingly complete and computerized 23 social network, including by tracking users beyond 24 the Facebook.com website. 25 activities providing online social networking 11:01:13 Let me know when I will just read it, to focus you. Facebook's competitive 11:01:36 Consequently, the two 11:01:54 Page 118 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. But if the claims are not correct, would 2 you have any basis for stating that either Exhibit 4 3 or Exhibit 3 have any information gleaned from 4 11:36:47 messages on Facebook? 5 MR. DIAMAND: Objection. 11:37:01 6 THE WITNESS: Again, these documents are 7 marketing documents from Facebook. This is designed 8 to sell the product and to actually develop the 9 product. This is designed to market Facebook 10 advertising as a medium to other marketers who are 11 looking into online advertising. 12 What you are asking is about the technical 13 information that would allow somebody to make a 14 technical determination of whether that specific 15 information that is gleaned from the private 16 messages eventually makes its way to one or more 17 advertising campaigns. 18 11:37:16 BY MR. CHORBA: 19 20 Q. 11:37:32 And what kind of technical information would you need to make that determination? 21 MR. DIAMAND: Objection. 22 THE WITNESS: 11:37:42 I'm not looking for technical 23 data to do a technical analysis. What I would need 24 is a technical expert to determine that, in fact, at 25 least in some way, the information gleaned from the 11:37:57 Page 147 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 messages is usable to Facebook. 2 BY MR. CHORBA: 3 4 Q. 11:38:02 You stated earlier that the technical information has not been produced. 5 A. To my knowledge. 11:38:10 6 Q. Do you know whether it's been produced, 7 and you just haven't seen it, or it's your 8 understanding it hasn't been produced at all? 9 MR. DIAMAND: Objection. 10 THE WITNESS: My understanding is, it hasn't 11 been produced beyond maybe what pertains to the 12 named plaintiffs, but, information about the class, 13 I don't think it has been produced. 14 11:38:19 BY MR. CHORBA: 15 16 Q. What about source code? Are you aware if 11:38:33 source code has been produced in this case -- 17 A. I'm not aware. 18 Q. -- more than 10 million lines of source A. I'm not aware of that, because it's not my 19 20 21 22 code? 11:38:40 task to analyze the source code. Q. So, do you have any factual basis to state 23 that either, that any of the targeted options in 24 Exhibit 3 or Exhibit 4 contain information gleaned 25 from Facebook messages? 11:38:58 Page 148 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 basis to state that objects and associations are 2 created from Facebook messages. 3 A. 12:53:33 Again, the factual basis would be 4 technical data, technical information that is not in 5 my scope to analyze. 6 if it's information that is made part of Facebook's 7 resources, it's information that is available to 8 use. 9 Q. From an economic perspective, 12:53:45 And if Facebook does not create objects 10 and associations based on URLs in Facebook messages, 11 would that impact your damages methodology? 12 A. 12:54:04 Well, to the extent that that hypothetical 13 situation would indicate that there is no, or that a 14 particular course of action or cause of a litigation 15 might not be sustained, my report would not be 16 relevant to that particular hypothetical. 17 Q. 12:54:30 Particular hypothetical, again, if it were 18 not true, you are saying your report wouldn't come 19 in in that instance? 20 21 22 MR. DIAMAND: Objection. Calls for a legal 12:54:50 conclusion. THE WITNESS: Right. So, in, under those 23 circumstances that are in your hypothetical, I don't 24 know, I can't know if my report would be either 25 appropriate, or used, or anything else. 12:55:04 Page 165 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 is, Facebook in integration is more effective than 2 it really is. 3 4 5 Q. 01:06:17 Why does it make it appear that the integration is more effective than it is? A. Because the like count is increasing, 6 despite the fact that the person is not clicking on 7 01:06:31 the like button on the third party website. 8 9 Q. And does that opinion depend on how much the like counter is increasing, based on messages? 10 MR. DIAMAND: Objection. 11 THE WITNESS: Not necessarily. 12 01:06:46 BY MR. CHORBA: 13 Q. Why not? 14 A. Because it depends, it would depend on 15 exactly what the proportion of the enhancement is. 16 During some, at some point, according to some of the 17 experiments reported on The Wall Street Journal, the 18 like count was increasing twice, or, or, in a 19 two-to-one ratio, to including the URLs in the 20 messages. 21 01:06:55 01:07:20 So, if that happens to a website, a third 22 party website that has like counts organic like 23 counts of, in the order of one or two, then it's a 24 100 percent increase. 25 If it happens to Coca Cola, and they 01:07:34 Page 174 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 already have 500,000 likes on their third party 2 website, that is a miniscule less than a 1 percent, 3 so, they won't be as influenced or as impressed by 4 the increase. 5 Q. 6 And if you look -- thank you. 01:07:36 01:07:54 If you look at 34 B, it states, benefits 7 from artificially increasing the like count on third 8 party websites using Facebook's social plugins. 9 10 11 What did you mean by, artificially increasing the like count on third party websites? A. 01:08:10 Well, because the idea that the, or the 12 description of the counter next to the like button 13 on the third party website is that it represents the 14 number of times people have clicked on that button. 15 And it was being increased not because 16 people were doing that action of clicking there, 17 they were referencing the URL in a private message. 18 Q. 01:08:23 What if someone sent a URL in a Facebook 19 message, knowing and intending that the like count 20 would be increased? 21 an artificial increase of the like count? 22 A. Would you consider that to be 01:08:43 Well, that could stand as a description of 23 what the experiments reported in The Wall Street 24 Journal article were, that they were noticing that, 25 and the artificial nature of it is that you are 01:09:02 Page 175 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 the like count. 01:16:16 2 A. Uh-huh. 3 Q. If somebody is paid to click on the like 4 button on a third party website, would you consider 5 that to be an artificial increase of the like count? 6 A. 01:16:23 In that situation, an artificial increase 7 is something that is not a click by somebody who's 8 interested in the brand. 9 Q. How about if someone, think of another 10 example, someone is interested in clicking on that 11 brand, but not maybe in the way of developing an 12 affinity or support of that brand. 13 example of a contest. 14 contest. 15 haircut this week, and 100 people enter, only one 16 person gets the, gets the, and they enter by 17 01:16:40 clicking on the like button. So, let's use an A local hairdresser offers a If you like my page, you get a free 18 A. Uh-huh. 19 Q. 01:16:57 Would those be artificial increases in the 20 like count? 01:17:07 21 MR. DIAMAND: Objection. Hypothetical. 22 THE WITNESS: In that hypothetical situation, I 23 think you would consider, or, economically, you are 24 still considering that it's artificial, that it's a 25 misuse of the original intent of the likes, of the 01:17:19 Page 181 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 like count. 2 01:17:23 I think that's what's behind Facebook changes 3 to just using like as the operating verb, and trying 4 to make it more nuanced, going forward. 5 BY MR. CHORBA: 6 7 Q. 9 What are you referring to there? sorry, I lost you. 8 A. 01:17:37 I'm When you said it's -- Well, lately, Facebook has hinted at introducing other alternatives for people to express 10 their response or reaction to posts and things like 11 that. 12 if somebody posts a death or reports a death in the 13 family, that the summary way to show your, your 14 awareness of the message, or anything else, is to 15 click on like. 16 01:17:49 I mean, it's always been a curious thing that Q. 01:18:14 I follow you, but, for now, we're just 17 dealing with this case, and it's the like, and I'm 18 trying to understand. 19 So, in that contest hypothetical, you 20 would view that as an artificial like, correct, from 21 an economics perspective? 22 23 24 25 A. Within the context of that hypothetical, Q. 01:18:23 And, just to be clear, if the web page had yes. a like button, but no counter next to it -- 01:18:37 Page 182 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. Mr. Torres, the reporter's just handed you 2 a document that bears the title, we've marked it as 3 Exhibit 5, it bears the title Facebook Q2 2015 4 01:27:14 Results. 5 Can you please take a look at that. 6 A. Yes. 7 Q. And is this, have you seen this document 8 before? 9 A. Yes. 10 Q. Is this the document upon which you relied 01:27:23 11 for purposes of determining that $1.593 billion 12 figure? 13 A. Yes. 14 Q. 01:27:31 Was there any other material you relied 15 upon? 01:27:41 16 A. For that number, no. 17 Q. Precise. I appreciate it. And, more 18 specifically, as stated in footnote 66, you took the 19 numbers from slide 9 of this Exhibit 5 -- 20 A. Uh-huh. 01:27:54 21 Q. -- is that right? 22 A. Yes. 23 Q. If you can turn to slide 9. Can you just 24 briefly walk me through how you came up with that 25 number. 01:28:03 Page 190 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 A. So, the four numbers in the dark portion 2 of the columns of the bars, those are the revenue 3 01:28:05 numbers for the U.S. and Canada region. 4 5 Q. So that's for Q3 2014 through Q2 2015, those four columns; is that right? 01:28:28 6 A. Yes. 7 Q. So, the numbers, let's just read them off, 8 so we're clear: 1514, 1864, 1739, and 1967? 9 A. Yes. 10 Q. And, what, did you add those together? 11 A. Yes, and then average them. 12 Q. And how did you average them? 13 A. Divide by four. 14 Q. And that's how you came up with the 15 $1.593 billion figure? 16 A. No. 01:28:41 01:28:53 Like it says there, I did another 17 adjustment to, in an attempt to exclude the data 18 from Canada, so I applied 89.96 percent to take into 19 account of the ratio of Canadian population to U.S. 20 population. 21 Q. Thank you. 01:29:12 And what was the ratio that 22 you used there, what was the data? 23 It was Census data? 24 A. Yes. 25 Q. Is it commonly accepted economic practice 01:29:25 Page 191 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 to rely on Census data to back out Canadian revenue 2 versus U.S. revenue? 3 A. 01:29:27 Well, in the absence of the right 4 information, because Facebook is not reporting just 5 the U.S. information, so, in the absence of that 6 information, which I believe was asked for, one way 7 to estimate it is to assume that the penetration 8 rate is the same in the U.S. and Canada, and that 9 also means that the ratio population is the same as 10 11 the ratio of users. Q. 12 13 14 01:29:40 01:30:03 But you said that's one way. Is that the best way, in your experience, in lieu of the breakdown from -A. That's a, that's a, I believe, a 15 reasonable approximation, because one of the 16 underlying reasons that companies oftentimes 17 conflate the U.S. and Canada is that the populations 18 are relatively similar for these purposes, so they 19 have the same penetration, they have the same 20 attitudes. 21 language, and -- For the most part, they share a 22 Q. A. -- it's a small percentage. 24 Q. 01:30:44 Have you relied on -- sorry. 23 01:30:21 I didn't mean to interrupt you, sir. 25 Have you relied on Census data before to 01:30:55 Page 192 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 make this type of breakdown in giving an expert 2 opinion or making a valuation? 3 A. Yes. 4 Q. 01:30:57 And then you deducted expenses of 5 40.75 percent; is that correct? 6 A. Yes. 7 Q. 01:31:08 Why did you deduct expenses of 8 9 10 40.75 percent? A. Because I want to determine profits, not total revenue. 01:31:18 11 Q. Do you know the actual expenses? 12 A. The actual expenses are not disclosed by 13 14 15 16 user geography. Q. Is it possible that this understates Facebook's expenses? A. 01:31:29 Because it's an average for the overall 17 company, it's just as likely to understate it as to 18 overstate it. 19 20 Q. But it's possible it understates the expenses, correct? 01:31:42 21 A. A lot is possible. 22 Q. But it is possible? 23 A. Well, strictly speaking, there are going 24 to be expenses that cannot be allocated to either 25 one of the geographies, so, in the end, even if we 01:31:58 Page 193 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 had full access to the information, an apportionment 2 was going to be necessary. 3 Q. 01:32:07 And on slide 9, you understand that slide 4 9 concerns revenue by user geography, as noted at 5 the top of the page, correct? 01:32:25 6 A. Correct. 7 Q. And do you understand that the term, 8 revenue, for purposes of slide 9, includes more than 9 just revenue generated by advertising? 10 A. Yes. Did -- 01:32:43 11 Q. Look at slide 8. 12 A. Yeah, so I probably, so, there may have 13 been a mistake in the, in the page number, because I 14 used most of these slides, but the idea is 15 advertising revenue, which is on slide 10. 16 17 18 19 20 Q. 01:33:09 So, you intended to use the figures in slide 10, rather than the figures in slide 9? A. I think I, that's what I used in the calculations. Q. I would have to double-check. Well, I will represent to you, we did the 21 math, and the figures are based on slide 9. 22 want to take a break and do the calculations again, 23 01:33:31 they are based on slide 9, as cited in footnote 66. 24 25 If you So, is this a mistake in your report? MR. DIAMAND: Just a minute. 01:33:48 Page 194 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 THE WITNESS: 2 01:33:49 approximation. 3 Well, it's an error in the BY MR. CHORBA: 4 5 6 Q. And that would be an error in the approximation on page 18, table 1? A. Yes. 01:33:52 It might have adjusted a little bit, 7 because advertising revenue is 90-some percent of 8 the total revenue, so the error, if any, is less 9 than 10 percent. 10 11 Q. What if I told you the error was 01:34:10 $1.2 billion? 12 Is that a little bit, in your opinion? 13 A. That would be incorrect. 14 Q. Why? 15 A. I don't think there's a way that ad 16 revenue, which, for example, just to take the actual 17 numbers, in the second quarter of '15, advertising 18 revenue from the U.S. and Canada is 1826, and total 19 01:34:20 revenue is 1967. 20 Q. Well, help me understand -- 21 A. That's a difference of 100 million. 22 Q. Look on table 1. 23 01:34:38 Which figure there is populated by your 24 error in relying on slide 9 instead of slide 10? 25 Which number is that? 01:34:50 Page 195 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 A. I don't understand the question. 2 Q. You said that you used slide 9 in your 3 report. 4 were looking at, and, if you can turn to page 18 in 5 your report, I'm just trying to figure out where 6 this impacts your report. 7 this table is impacted by using slide 9 instead of 8 slide 10? 01:34:53 You intended to use slide 10, which, if we 01:35:04 Table 1, which figure on Is it the annual profit column? 9 A. Yes. 10 Q. And would it be each, each instance 11 12 13 14 01:35:19 3.776 billion is used? A. Well, yes, although those would be discounted at different rates. Q. Correct, but, if you add them up over 15 eight years, would you be surprised that the net 16 impact is $1.27 billion difference? 17 01:35:35 $15 billion, and it's 13.8 billion. You have 18 A. But you can't add the numbers in that 19 column. 20 Q. Which column? 21 A. The column of annual profit. 22 Q. Oh, I understand. 01:35:55 You are going to fix 23 the annual profit column. It'll be the same number. 24 We'll come back to that, why you are using the same 25 number based on just one quarter, but it would be 01:36:06 Page 196 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 the same number, once corrected, for the whole 2 column, correct? 3 A. Yes. 4 Q. Okay. 01:36:08 5 And then you'd multiple it by the discount factor, and you'd get the discounted value. 6 A. Right. 7 Q. 01:36:15 But, if the annual profit number comes 8 down 10 percent each year, the discounted value 9 column is going to come down, as well, correct? 10 A. Right. So, the ratio in which it would 11 come down would be in the ratio of, roughly, the 12 01:36:27 difference is 125 million here, so, 125 in 1800. 13 Q. In one quarter. 14 A. Yes, but the ratio is, is, happens in all 15 16 four quarters. Q. 01:36:47 Mr. Torres, didn't you add up four 17 quarters, then divide by four, then multiply by 18 89 percent? 19 A. That's an average, so that ratio, the 20 ratio is the same across the four quarters, 21 approximately the same, so that ratio is the ratio I 22 would expect the numbers to come down. 23 24 25 Q. 01:36:56 But what would you expect the total value of $15 billion in -A. I would have to -- 01:37:14 Page 197 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 (The following portion was read: 2 Q. 3 01:37:14 value of $15 billion -- ) 4 5 6 7 8 Q. -- in table 1, what would you expect that to come down to? A. 01:37:17 I would have to revise the calculations to make a determination. Q. 9 10 But what would you expect the total And I've done that. And would it surprise you that it's $1.27 billion off? 01:37:24 11 MR. DIAMAND: Objection. 12 THE WITNESS: But it's not, you are not talking 13 about 1.27 in the quarterly number; it's 1.27 in 14 the -- 15 BY MR. CHORBA: 01:37:33 16 Q. That's what I said, sir. 17 A. -- in the capital amount. 18 Q. In the total discounted value, total value 19 at the end, where it's 15 million, that's 20 1.27 million overstated, correct? 21 22 23 24 25 A. 01:37:41 So, the ratio is the same, 1/16th, approximately. Q. Do you think a $1.27 billion calculation error is insignificant? A. It depends on its relation to the total, 01:37:54 Page 198 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 so that's why I'm saying it's a 1 in 16 error. 2 Q. But it's still an error. 3 A. 01:37:57 It's an error in the calculation, if what 4 5 you are saying is correct, because -Q. Well, is what I'm saying incorrect? 6 What's incorrect about it? 7 01:38:11 slide 9 versus 10. 8 9 10 A. We just went through I didn't say it was incorrect. I said, if it is correct. Q. Well, okay, Mr. Torres, which number is 11 correct? 12 01:38:21 slide 9, or slide 10? 13 A. 14 slide 10. 15 Is it, should the figures be based on The calculations should have been based on slide 10. 16 I thought I had done it on the basis of 01:38:36 MR. CHORBA: Do you want to take a break and 17 look at, do the quick calculation to test? 18 done it, but I need his testimony on what's right, 19 so we can, let's take a break. 20 allotted time for him to recalculate his table. 21 MR. DIAMAND: 23 THE VIDEOGRAPHER: I'm not using my 01:38:48 Shall we go off the record? 22 We've 24 25 Okay. It is 1:38. We are going off the record. (Recess: 1:38 p.m. to 1:49 p.m.) 01:38:57 Page 199 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 THE VIDEOGRAPHER: 2 01:49:35 It is 1:49. 3 We are back on the record. BY MR. CHORBA: 4 Q. Mr. Torres, when we broke, we were looking 5 at table 1, and I think you'd left to just 6 double-check the calculations. 7 8 9 01:49:41 Do you have any corrections to make to that table? A. Well, like I, I confirmed that the 10 adjustment that would need to be made to the number 11 derived on line 18 of paragraph 39 is a reduction in 12 the order of 9.17 percent that affects the total 13 value determined in table 1. 14 Q. So -- 15 A. So it's within the order of magnitude that 01:49:54 16 17 01:50:14 I thought. Q. Let's put aside the order of magnitude of 18 the error. 19 line 18, 3,776,000,000 per year. 20 21 22 23 24 25 What is the correct number? It says on What's the correct number? A. Well, I didn't make a note. 01:50:26 It's 9.17 percent less than this. Q. What's the correct number in paragraph 39 in your report? A. It's slightly less than this by 01:50:41 Page 200 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 9.17 percent. Q. 01:50:43 You are not going to tell me what the number is? 4 A. I don't have the number at hand. 5 Q. What did you calculate when we left? 6 What 01:50:47 did you do? 7 A. 8 number. 9 have used. 10 11 12 Q. I used the spreadsheet to calculate the I did the sum of the numbers that I should Can you bring that spreadsheet in so we 01:50:57 can get the correct numbers. MR. DIAMAND: Hold on. I don't think we 13 realized that what you were expecting was the 14 corrected number for line, or line 18 -- 15 MR. CHORBA: 16 MR. DIAMAND: 17 18 It is. Let's break and get it. We will provide that. not what our understanding was. MR. CHORBA: Okay. That was I'm sorry. Fair enough. 19 Let's break. 20 That's fine. I should have been clear. corrected figures in the report. 21 MR. DIAMAND: 22 THE VIDEOGRAPHER: 23 01:51:11 We want the 01:51:17 Okay. Okay. It's 1:51. We're going off the record. 24 MR. DIAMAND: 25 MR. BATES: Hold on. Just so we don't go off the record 01:51:26 Page 201 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 again, I just want to make sure we get exactly what 2 you want, so -- 3 MR. CHORBA: 4 MR. BATES: 5 MR. CHORBA: 6 MR. BATES: 7 Yeah. We're trying to -I understand. 01:51:36 -- provide you with what you MR. CHORBA: 9 MR. BATES: 11 Mr. Bates -- wanted -- 8 10 01:51:28 I understand. -- the last time around. MR. CHORBA: So, paragraph, in paragraph 39 and 01:51:36 in table 1 on page 18, the corrected figures. 12 MR. BATES: 13 For every single -- okay. MR. CHORBA: Yeah. I mean, I want the right 14 numbers so I can ask him questions today and not 15 bring him back again. 16 17 MR. BATES: Do you want like all the way through? 18 MR. CHORBA: 19 MR. BATES: 20 THE VIDEOGRAPHER: 21 Yes. Okay. It's 1:51. We're going off 01:51:56 the record. 22 23 01:51:50 (Recess: 1:51 p.m. to 2:05 p.m.) THE VIDEOGRAPHER: 24 It's 2:05. 25 We're back on the record. BY MR. CHORBA: 02:05:57 Page 202 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. Mr. Torres, when we broke, you were going 2 to take another look at the figures cited in 3 02:05:57 paragraph 39, footnote 66, and table 1. 4 Do you have corrections for us? 5 A. Yes. 02:06:06 6 Q. Can you give those to me, please. 7 A. Okay. So, starting in paragraph 39, at 8 the end of line 13, the advertising revenue is in 9 the order of 1,459,000,000 per quarter. And in 10 footnote 66, at the end of the second line, the four 11 quarters would be the four quarters between 12 July 2014 through June 2015. 13 02:06:31 1,622,000,000. The correct number is 14 Q. That's in place of the 1771? 15 A. 1771. Yes. And then in line 18, at the 16 beginning of the line, the profit is 3,459,000,000 17 02:06:52 per year. 18 MR. DIAMAND: Would you permit me to make one 19 additional point, which is that there's a reference 20 to slide 9 in footnote 66. 21 MR. CHORBA: 22 MR. DIAMAND: 23 02:07:11 Thank you, Nick. Which would be, I think, now, slide 10. 24 MR. CHORBA: 25 MR. DIAMAND: Thank you. I apologize for the objection. 02:07:18 Page 203 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 BY MR. CHORBA: 2 3 Q. 02:07:23 So, those three corrections on page 15, is that all, Mr. Torres? 4 A. Yes. And then that feeds into the table 5 1, where the annual profit numbers would be 6 3,459,000,000, and the discounted values in that 7 line, for the whole line, for the full column, would 8 be 2915, 2457, 2070, 1745, 1470, 1239, 1044, and 9 880, for a total of 13,820,000,000. 10 Q. Thank you. 11 A. Yes. 12 Q. Thank you for doing that. 02:07:32 13 Was that everything? 02:08:18 I appreciate it. 14 Is, you referenced earlier a spreadsheet. 15 Do you have a working sheet that has the 16 calculations for table 1 that you then used to 17 02:08:27 generate table 1? 18 A. Yes. I have a model set up in my 19 software. 20 *RQ 21 a copy of that, electronic copy of that model? 22 maybe I should direct this to you, Mr. Diamand, but 23 we have, I'm slightly off, and I think it may be 24 just rounding errors on our part. 25 consult that with our expert, and look at the actual MR. CHORBA: Would it be possible for us to get 02:08:46 And I'd like to just 02:09:00 Page 204 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 formulas, just to make sure. 2 MR. DIAMAND: 3 MR. CHORBA: 4 5 02:09:03 Okay, we can address that. Thank you. BY MR. CHORBA: Q. So, setting aside the mathematical error 6 that we discussed, Mr. Torres, do you have any other 7 concerns about the accuracy of the information 8 02:09:16 provided in paragraph 39 on page 15? 9 A. Not concerns. These, because these are 10 estimates, we're still waiting for the information 11 that corresponds to U.S. advertising revenue. 12 are just my estimates of that number. 13 02:09:34 These So, when we get it, we'll substitute it, 14 and there won't be any question of these 15 calculations. 16 Q. 17 18 19 20 21 02:09:49 You said there's U.S. advertising revenue. What information are you waiting for? A. The advertising revenue that reflects only the U.S. Q. And it's your understanding that's been 02:10:03 requested? 22 A. Yes. 23 Q. Are you assuming that all advertising 24 revenue to Facebook is attributable to the social 25 graph? 02:10:14 Page 205 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 that determination, that determination would 2 constitute a quantification of the potential overlap 3 of the calculations, so, if there is information to 4 determine that, by somebody else, I could make a 5 count of that potential overlap. 6 BY MR. CHORBA: 7 8 9 10 11 12 Q. 02:13:24 But in your report, as stated, you haven't developed a methodology to account for that overlap? A. As the methodology states, I don't have that information available. Q. 02:13:39 What if an individual, the same individual sent the same URL in multiple Facebook messages? 13 14 02:13:08 Would each message be accounted for separately, under your damages methodology? 15 MR. DIAMAND: Objection. 02:13:58 16 THE WITNESS: The methodology depends, is 17 structured in two stages. One is to determine 18 eventually the value per link, and then I would 19 incorporate the number of links captured that fall 20 under the definition of a class. 02:14:20 21 So, it's a technical determination. 22 take that number from the technical analysis. 23 BY MR. CHORBA: 24 25 Q. I would Turning back to paragraph 39, how did you determine that the average cost of revenue, 02:14:34 Page 208 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 have you excluded expenses for research and 2 development? 3 A. Yes. 4 Q. But not in all of them? 5 A. No. 02:17:20 In some valuations, yes. It depends on what is being measured. 6 In some valuations, the research and development is 7 the only aspect it would take. 8 02:17:30 you would exclude, so, it depends. 9 Q. In some, it's one And in, staying on slide 13 of Exhibit 5, 10 why did you pick these four quarters of Q3 2014 11 through Q2 2015? 12 A. 02:17:46 Both in the revenue and the expenses, I 13 used the last four quarters, so, the trailing 12 14 months as of the latest information that I had 15 available by the time I did the report. 16 17 18 Q. 02:18:02 Are you assuming that costs do not change over time, or will not change over time? A. No. The implicit assumption is that I'm 19 using the cost structure that was prevalent on 20 average in the last, in the trailing 12 months. 21 Q. 02:18:15 If you were tasked with valuing the social 22 graph of Myspace in 2007, would you have used a 23 similar methodology as one that you've used here? 24 MR. DIAMAND: Objection. 25 THE WITNESS: Well, in that hypothetical 02:18:45 Page 211 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 situation, I would have to, to perform a series of 2 due diligence and preliminary analyses. 3 sure that Myspace had the same revenue model, so I 4 would have to reconsider the revenue model then, 5 and, to see if that is sufficient. 6 BY MR. CHORBA: 7 Q. 02:18:46 I'm not 02:19:06 What about the discount factor? Would you 8 have used the same methodology to come up with a 9 discount factor? 10 A. Yes. The general methodology that I use 11 for the discount factor is the same everywhere. 12 This is the generally accepted way of determining 13 02:19:16 that discount rate. 14 Q. In table 1 on page 18, are you assuming 15 the social graph will generate the same annual 16 profit every year? 17 A. Approximately, yes. 02:19:29 The underlying 18 assumption is that in valuing the asset, I'm not 19 considering further growth of the asset. 20 just the asset as it was in, at the end of the 21 second quarter of 2015. 22 That asset doesn't go away. This is 02:19:52 It's an 23 asset, so it continues to generate revenue for, on 24 average, an eight year remaining useful economic 25 life. 02:20:12 Page 212 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. So at the end of paragraph 44, you say, 2 therefore, the impact of additional information 3 intercepted from private messages on Facebook's 4 revenue flows directly to the bottom line, 5 parentheses, profits. 02:25:24 6 7 02:25:34 What's the basis for that statement? A. The definition of profits. Profits is, 8 or, the incremental profits are the incremental 9 revenue minus incremental costs. If incremental 10 cost is zero, incremental profit is incremental 11 revenue. 12 13 14 Q. 02:25:50 And if incremental profits isn't zero, then there would be a change, correct? A. Yes. If incremental costs are greater 15 than zero, then the profits would be a little lower 16 than revenue. 17 Q. Thank you. 02:26:01 I will read paragraph 45. 18 Again, I'll read it: 19 information, I would estimate the value of the 20 enhancement to the social graph as commensurate with 21 the ratio of, one, intercepted URLs in private 22 messages during the class period, to two, number 23 two, the total number of links on the social graph. 24 25 With the relevant quantitative 02:26:16 What is the relevant quantitative information that you require? 02:26:31 Page 217 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 A. The number of intercepted URLs in private 2 messages during the class period, and the number of 3 02:26:35 links on the social graph. 4 Q. So, it's those two numbers, one and two? 5 A. Those two classes of numbers. The number 6 is different every day, so there will be a periodic 7 02:26:46 report during the class period. 8 9 10 Q. And how would you determine the number of intercepted URLs in private messages during the class period? 02:27:01 11 MR. DIAMAND: Objection. 12 THE WITNESS: It's not my task to determine 13 that. 14 take it from the technical determination. 15 BY MR. CHORBA: 16 That's a technical determination. Q. I would 02:27:12 And if it were not possible technically to 17 determine the number of, quote, intercepted URLs, 18 would you be able to complete your analysis? 19 A. In that situation, it would still be the 20 case that I have to rely on whatever is the 21 determination of what the accused activities 22 resulted in, so it would require considering a 23 different measure if intercepted URLs and private 24 messages is not the right one. 25 Q. So, let me just make sure I understand. 02:27:26 02:27:46 Page 218 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 member sends the same number of messages on average 2 per month, for purposes of this analysis? 3 A. No. 4 Q. Why not? 5 A. I didn't have to, because I didn't 02:37:53 6 consider those, that's not part of the, the analysis 7 02:38:01 in the report. 8 Q. Why not? 9 A. Because I don't have the information about 10 what, how many messages each user sent, et cetera, 11 how many fall into the definition of the class, and 12 I'm going to wait to get that in order to, to use 13 any information in that realm. 14 Q. 02:38:14 Did you undertake any analysis of the 15 number of messages that the named plaintiffs in this 16 case have sent? 17 A. No. 18 Q. Have you ever seen those figures? 19 A. No. 20 MR. CHORBA: 02:38:32 21 Let's mark the next one Exhibit 6. 02:38:43 (Exhibit 6 was marked for identification 22 by the court reporter and is attached hereto.) 23 MR. CHORBA: 24 25 And let's do 7, while we're at it. (Exhibit 7 was marked for identification by the court reporter and is attached hereto.) 02:39:09 Page 227 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 organizations that contemplated hundreds and, if not 2 thousands, of advertising. 3 BY MR. CHORBA: 4 Q. Which ones? 5 A. So, for example, the Comdesk, Nielsen, and 03:32:04 6 the study, in particular, that's behind table, 7 table, table, table 3, from social code, that 8 analysis considered 5 million ads placed over, by 50 9 03:32:11 companies. 10 So I, I reference those kinds of studies 11 that cover a broad spectrum of advertisers, not any 12 03:32:38 one advertiser in particular. 13 Q. And, again, that's just one survey, but 14 you didn't familiarize yourself with the practices 15 of every marketer that advertises on Facebook. 16 MR. DIAMAND: Objection. 17 THE WITNESS: 03:32:57 I would think that it's virtually 18 impossible to familiarize yourself with the 19 practices of every advertisers on Facebook. 20 BY MR. CHORBA: 21 Q. Agreed. 03:33:09 Turning back to paragraph 62 in 22 your report, we'll save some time if you just keep 23 it open, because we're going to concentrate on that 24 section. 25 And, again, you didn't perform any actual 03:33:26 Page 259 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 THE WITNESS: Yes. 03:34:25 BY MR. CHORBA: 3 Q. Which case? 4 A. In the Fraley v. Facebook case. 5 Q. Did that report ultimately provide an 6 7 03:34:31 estimated amount of damages to the putative class? A. If I recall correctly, I may have an 8 estimate, but I don't think I, I gave a definite 9 number, because the -- I have an estimate based on 10 broad averages based on one study that was done by 11 Facebook. 12 13 14 15 16 Q. 03:35:00 And do you have a broad estimate based on averages for damages in this case? A. In this section of the methodology, no; that's why I'm using the literals Y and Z. Q. 03:35:14 And how about for your other portions of 17 your methodology? 18 damages? 19 A. No. Do you have a rough estimate of I have a rough estimate of part of 20 the components of the methodology. 21 the full information about the messages that are 22 subject to the class. 23 24 25 Q. I'm waiting for 03:35:28 And what is your rough estimate of the amount that you were able to calculate? MR. DIAMAND: Objection. 03:35:43 Page 261 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 THE WITNESS: So, I only calculated the, as an 2 estimate, the value of the social graph as of the 3 second quarter of 2015. 4 03:35:45 BY MR. CHORBA: 5 Q. And what is that value? 03:35:56 6 A. That's the value from table 2. 7 Q. That's the one that we corrected earlier? 8 A. Yes. 9 Q. So, $13 billion? 10 A. 13.8 billion, yes. 11 Q. And have you opined on how, if that's a Table 1. 12 component of the damages, how those will be 13 03:36:12 allocated, apportioned to putative class members? 14 MR. DIAMAND: Objection. 15 THE WITNESS: Yes. 16 03:36:26 in the report. 17 I believe that is in the, BY MR. CHORBA: 18 Q. Where are you pointing, sir? 19 A. To paragraph 60, on page 22, where it says 20 that it's, it is my opinion that a proper 21 attribution of damages among plaintiff class 22 members, calculated as benefits derived by the 23 defendant, should be based on the number of links, 24 URLs intercepted. 25 Q. So, how would you apportion that, pursuant 03:36:42 03:36:55 Page 262 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 to that statement, how would you apportion the 2 $15 billion, or I think it's now $13 billion? 3 MR. DIAMAND: Objection. 4 THE WITNESS: 03:36:57 Well, first, the 13 billion is 5 not the amount of damages. 6 social graph. 7 That's the value of the BY MR. CHORBA: 8 Q. 9 MR. DIAMAND: Objection. 10 THE WITNESS: I didn't calculate it. 03:37:07 11 What's the amount of damages, then? BY MR. CHORBA: 12 Q. 13 MR. DIAMAND: 14 03:37:15 How are you going to calculate it? Objection. Asked and answered. BY MR. CHORBA: 15 Q. How are you going to calculate it? 16 MR. DIAMAND: Also, objection. 17 THE WITNESS: Applying the methodologies set 18 out in section 4 A. 19 03:37:20 BY MR. CHORBA: 20 Q. Are certain class members under your 21 methodology going to get more than other putative 22 03:37:33 class members? 23 A. I don't know for a fact. 24 Q. Will certain class members get zero 25 It is possible. dollars, under your methodology? 03:37:48 Page 263 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 THE WITNESS: Correct, so I don't have in front 2 of me the information that I would need to make that 3 determination. 4 that's my answer. 5 BY MR. CHORBA: 03:40:46 6 Q. So, assuming complete information, 03:40:59 So, again, I'm asking you to assume that 7 there was no social plugin on this Craigslist 8 website on July 11, 2012. 9 there wouldn't be damages under section 4 B for that If that's true, then 10 particular message, correct? 11 There might be under 4 A, but not under 4 B. 12 MR. DIAMAND: Objection. 13 THE WITNESS: 03:41:11 So, in that hypothetical 14 situation, if the information that has not been yet 15 provided fits that construct, probably not. 16 BY MR. CHORBA: 17 Q. 03:41:25 And the information that has not been 18 provided would be whether or not that Craigslist 19 website had a social plugin at the time of that 20 message. 21 22 23 A. 03:41:42 For this aspect, yes, that's what we would like to know. Q. Thank you. Let's turn back, and, again, 24 I'm in your report, I think we're on paragraph 62, 25 where you have the X, excuse me, the Y and the Z 03:41:52 Page 266 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 A. Yes. 03:45:57 2 Q. And what is that market? 3 A. I believe there are reports that marketers 4 are able to acquire likes, or increases to their 5 counts, for a fee. 6 Twitter, et cetera. 7 Q. I see that advertised on 03:46:11 And does, to the extent there is such a 8 market, does the market value all likes the same 9 way? 10 MR. DIAMAND: Objection. 11 THE WITNESS: The concept of the market value 12 refers to everything in the market, depending on the 13 definition of the market. 14 the same, but not all likes have the same value, 15 depending on their use. 16 03:46:28 BY MR. CHORBA: 17 Q. So, in that sense, it's 03:46:54 And would the likes differ based on the 18 third party website, for example, Coca Cola versus a 19 personal blog? 20 MR. DIAMAND: Objection. 21 THE WITNESS: Yes. 03:47:05 In principle, each like can 22 be leveraged in different ways so it's valued 23 differently. 24 Facebook, ultimately. 25 BY MR. CHORBA: The point is, the benefit is to 03:47:21 Page 270 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 Q. And it's your opinion that that benefit to 03:47:21 Facebook is the same? 3 MR. DIAMAND: Objection. 4 THE WITNESS: No, that's not my opinion. 5 BY MR. CHORBA: 03:47:29 6 Q. What is your opinion? 7 A. That Facebook benefits from the aggregate. 8 Q. So the aggregate, even though if 9 individual increased likes are valued differently, 10 in the aggregate, it's benefiting from the 11 collective total of all of those. 12 MR. DIAMAND: Objection. 13 THE WITNESS: Yes. 03:47:42 That's, that's the type of 14 economy that Facebook works in. 15 BY MR. CHORBA: 16 Q. 03:48:00 If you look at paragraph 64 on the next 17 page, in the middle of the page, or middle of that 18 paragraph, and you can review the whole paragraph, 19 but I want to direct your attention to like 11, 20 where it states, while the cost is relatively 21 straightforward to ascertain, in the digital 22 advertising environment, gains from advertising are 23 susceptible to estimation in a variety of ways, such 24 as by the number of visitors to a web page, the 25 number of incoming links, the activity on social 03:48:24 03:48:39 Page 271 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 4 overcompensated in that hypothetical? MR. DIAMAND: Objection. 03:57:18 Misstates prior testimony. THE WITNESS: In that hypothetical situation, 5 you are also assuming that the URLs were intercepted 6 by Facebook during the time when they were 7 incrementing the likes, and the methodology is 8 attributing, is not measuring the effect, the 9 detriment, for example, to the class member, so it's 10 allocating to class members as a whole the benefits 11 to Facebook as a whole. 12 03:57:28 BY MR. CHORBA: 13 Q. I understand. 03:57:57 But, once it's allocated -- 14 that's how you are measuring it -- but, then, once 15 you get to the stage when you are allocating it to 16 individual class members, if it is allocated to a 17 class member who sent a message containing a URL, 18 but there was no incrementation of the like count, 19 would you agree that that would overcompensate that 20 specific class member? 21 MR. DIAMAND: 22 03:58:08 03:58:21 Objection. BY MR. CHORBA: 23 Q. Yes or no? 24 A. No, it wouldn't, because it would be, 25 actually, it would be exact, because Facebook had to 03:58:26 Page 279 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 inflated like count; do you know that? 2 A. I don't understand the question. 3 Q. What is the value? 4 MR. DIAMAND: Objection. 5 THE WITNESS: 04:04:52 The numeric value? 6 04:05:00 BY MR. CHORBA: 7 Q. Yeah, let's start there. 8 A. I don't know what the number is. 9 Q. What would you need to know that? 10 A. So, the information that I list here is 11 the, how many URLs were intercepted that had, that 12 eventually led to like counts being increased, and 13 the ratio of those increases to the total like 14 counters, and that applied to the value of the 15 advertising revenue perceived by Facebook. 16 04:05:07 small portion. 17 That's a 04:05:37 That, divided by, so, that value divided 18 by the inflated like count, the total inflated like 19 count, gives the value of the average or the, of, 20 each, an average, in my sense there, is the same. 21 Q. 04:06:00 How do you propose, or do you propose a 22 way to determine the number of URLs that you claim 23 were intercepted? 24 MR. DIAMAND: Objection. 25 THE WITNESS: No. That's a technical question 04:06:13 Page 285 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 THE WITNESS: So, not here, but, typically, in 2 statistical inference, a 5 percent error is 3 customary and generally accepted. 4 04:08:54 BY MR. CHORBA: 5 Q. And if you are dealing with many billion 6 number of messages, in the aggregate, not containing 7 URLs that had like counts incremented, but I'm 8 referring to table 2, what would a 5 percent error 9 04:09:07 rate, in your estimation, translate into? 10 A. It wouldn't translate into a number that 11 can be compared to the number of messages. 12 5 percent refers to something else, to the 13 probability of making a mistake in the calculation 14 04:09:25 of the average with respect to the population mean. 15 16 Q. The So you said, a 5 percent error rate is 04:09:45 customary and generally accepted. 17 Would the error rate be higher or lower 18 when you are dealing with tens of billions of 19 messages? 20 MR. DIAMAND: Objection. 21 THE WITNESS: Again, in a statistical analysis, 22 the error rate refers to those two probabilities. 23 It does not refer to multiplying it by the number of 24 elements in the set. 25 BY MR. CHORBA: 04:09:56 04:10:08 Page 289 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 Q. 2 So, are you able to say the bare minimum? 04:10:08 Well, let me ask you, based on the 3 messages that are contained in Exhibits 6 and 7, are 4 you able to come up with an estimate? 5 MR. DIAMAND: Objection. 6 THE WITNESS: An estimate of what? 7 BY MR. CHORBA: 8 9 10 Q. An estimate of the number of intercepted A. I don't understand the question. URLs? 11 12 13 04:10:19 04:10:26 Based on, based on what? Q. Based on the messages that are summarized in Exhibits 6 and 7 in the chart. 14 MR. DIAMAND: Objection. 15 THE WITNESS: Well, I'm taking your 16 representation that this is about 800 and some, and 17 this is, let's say, under -- 18 04:10:38 BY MR. CHORBA: 19 Q. Seventeen. 20 A. -- under, it's under 20, so, about, let's 21 22 04:10:49 round it up, 900 instances, right? The reference point I would take or the 23 comparison that I would do is that a 5 percent error 24 rate for a sampling of the U.S. population requires 25 a sample size in the thousands of people. 04:11:15 Page 290 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 So, a poll, to be statistically 2 significant to represent the views of 300 million 3 people, would need to take a look at 5 or 6,000. 4 depends on the estimates of the variance that's 5 04:11:18 relevant for the variable being measured. 6 large proportion of the population in the U.S., I 8 would expect that a proper determination of the 9 04:11:35 So, because Facebook is covering such a 7 It sampling techniques that would be applicable if 10 Facebook doesn't come up with the actual 11 information, would be in the order of the thousands 12 of people, as, as a representative sample that would 13 give, its averages would give a statistically sound 14 representation of the population mean. 15 Q. And so it wouldn't be a number of 16 04:12:14 messages; it would be a number of people who use 17 04:11:54 Facebook? 18 MR. DIAMAND: Objection. 19 THE WITNESS: Well, I would think that it would 20 depend more on the number of members, because the 21 number of messages per member can vary, but it might 22 be necessary to consider the joint distribution of 23 messages and members, as well. 24 BY MR. CHORBA: 25 Q. Turning to paragraph 73 -- 04:12:28 04:12:41 Page 291 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 this benefit may have been converted to advertising 2 revenue benefiting Facebook. 3 4 04:25:07 Do you know what the fraction of the benefit is? 5 A. Not as of this date, no. 6 Q. And does your report assume that 7 advertisers would have passed 100 percent of their 8 04:25:18 cost savings on to Facebook? 9 A. Is that my assumption, that they would -- 10 Q. Yes. 11 A. No. 12 Q. What is your assumption, then? 13 A. That a fraction would have been converted. 14 Q. Which fraction? 15 MR. DIAMAND: Objection. 16 THE WITNESS: I don't have the information to Is that your assumption? 17 04:25:49 determine that fraction. 18 04:25:37 BY MR. CHORBA: 19 20 21 22 23 24 25 Q. Can you tell me if it's more than 50 percent? A. 04:25:55 I can't tell you, because I don't have the information to determine it. Q. So you can't give me any estimate on the range of zero percent to 100 percent? A. No. Without information, all I can tell 04:26:05 Page 295 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 spending, because there is an overlap in the time 2 periods, and that is basically what creates that 3 overlap that has to be accounted for. 4 04:29:13 So, if it were to be the case that benefits 5 from one perspective are the same as the benefits 6 from the other perspective, then, yeah, the overlap 7 with, would mean that you wouldn't add them 8 together. 9 BY MR. CHORBA: 10 Q. 04:29:28 You would just have one. And what if the benefits were greater than 11 the calculated effect from the incremental 12 advertising revenue? 13 04:29:42 negative number? 14 A. That would result in a In, it would be a very strange 15 hypothetical situation where that would even be the 16 case, because of the length of the time period. 17 18 19 Q. 04:30:06 But, if it were the case, it would be a negative number? A. So, whatever the methodology determines 20 for those two numbers would have to do the analysis 21 of the overlap, and, if the overlap overwhelms the 22 situation, then only one of them would be 23 appropriate. 24 Q. 25 04:30:16 So, you would never have a negative number; you'd just pick the higher one? 04:30:30 Page 299 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 2 3 A. No. The net. I would always pick the net 04:30:32 damages. Q. But how would the net, if you are saying 4 that you would deduct the amounts, the analysis in 5 this section shall be deducted from the benefits 6 calculated under the methods described in the 7 previous section, okay, I'm saying, if the benefits 8 were greater than the calculated -- 9 A. 04:30:43 Now, what this means is that -- 10 MR. DIAMAND: Objection. 04:30:59 11 THE WITNESS: -- what this means is that the 12 overlap has to be taken into account. That overlap 13 can be calculated, when everything is said and done, 14 and that overlap means that only one of the two 15 calculations will prevail. 16 BY MR. CHORBA: 17 Q. One of the two, meaning A or B? 18 A. 04:31:12 So, if you add A and B, you would then 19 20 have to take away the overlap. Q. I see. Okay. So, that calculation is 21 just attempting to deduct that overlap for the time 22 period. 23 A. Yes. 24 Q. 04:31:21 Does your damages methodology account for 25 It would avoid double-counting. the possibility that the benefit of the challenged 04:31:37 Page 300 Veritext Legal Solutions 877-955-3855 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY 1 I, the undersigned, a Certified Shorthand 2 Reporter of the State of California, do hereby 3 certify: 4 That the foregoing proceedings were taken 5 before me at the time and place herein set forth; 6 that any witnesses in the foregoing proceedings, 7 prior to testifying, were duly sworn; that a record 8 of the proceedings was made by me using machine 9 shorthand which was thereafter transcribed under my 10 direction; that the foregoing transcript is a true 11 record of the testimony given. 12 Further, that if the foregoing pertains to the 13 original transcript of a deposition in a Federal 14 Case, before completion of the proceedings, review 15 of the transcript [X] was [ 16 ] was not requested. I further certify I am neither financially 17 interested in the action nor a relative or employee 18 of any attorney or party to this action. 19 20 21 IN WITNESS WHEREOF, I have this date subscribed my name. Dated: 1/5/2016 22 23 <%signature%> 24 CHRIS TE SELLE 25 CSR No. 10836 Page 307 Veritext Legal Solutions 877-955-3855

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