J.T. Colby & Company, Inc. et al v. Apple, Inc.

Filing 116

DECLARATION of Claudia Ray in Support re: 114 MOTION in Limine to Exclude any Testimony, Argument or Evidence Regarding the Expert Reports and Opinions of Mike Shatzkin.. Document filed by Apple Inc.. (Attachments: # 1 Exhibit 1 (Part 1 of 2), # 2 Exhibit 1 (Part 2 of 2), # 3 Exhibit 2 (Redacted), # 4 Exhibit 3 (Redacted), # 5 Exhibit 4, # 6 Exhibit 5 (Filed Under Seal), # 7 Exhibit 6, # 8 Exhibit 7, # 9 Exhibit 8 (Redacted), # 10 Exhibit 9)(Cendali, Dale)

Exhibit 3
REDACTED

CONFIDENTIAL
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------x
J.T. COLBY & COMPANY, INC.
d/b/a BRICK TOWER PRESS, J.
BOYLSTON & COMPANY, PUBLISHERS
LLC and IPICTUREBOOKS, LLC,
Plaintiff,
vs.

No. 11-cv-4060

APPLE, INC.,
Defendant.
-----------------------------x

CONFIDENTIAL
VIDEOTAPED DEPOSITION OF
30(b)(6) JOHN T. COLBY, JR.
New York, New York
Wednesday, July 18, 2012
10:20 a.m.

Reported by:
Jennifer Ocampo-Guzman, CRR, CLR
Ref: 7845
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2

MR. CHATTORAJ:

Objection, calls

3

for speculation.

You may answer.

4

A.

Generally.

5

Q.

What's your understanding?

6

A.

The owner died in a car accident

7

and the widow didn't want to fund the company

8

to continue operations.

9
10

Q.

Do you have any other information

as to why the company filed for bankruptcy?

11

A.

No.

12

Q.

Prior to the filing by iBooks, Inc.

13

of its bankruptcy petition, had you ever

14

worked for iBooks, Inc.?

15

A.

No.

16

Q.

Had you ever done business with

17

iBooks, Inc.?

18

A.

Yes.

19

Q.

What business had you done?

20

A.

The book business.

21

Q.

What business had you done with

22

iBooks, Inc. prior to its filing for

23

bankruptcy?

24
25

MR. CHATTORAJ:

Objection, asked

and answered.
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Confidential-Colby

2

A.

I'm not sure what you mean by

3

"business."

4

Q.

Well, I asked you what that

5

business had you done -- you had said you had

6

done business with iBooks, Inc. prior to its

7

filing for bankruptcy, so what was the nature

8

of that business?

9

A.

It was a book transaction.

10

Q.

What was it?

11

MR. CHATTORAJ:

Objection to form.

12

Q.

What type of book transaction?

13

A.

Byron purchased the rights to one

14
15

of our titles, under our Brick Tower imprint.
Q.

And was that your only business

16

dealings with iBooks, Inc. prior to its

17

filing for bankruptcy?

18

A.

Yes.

19

Q.

And what title was purchased?

20

A.

"The Way of The Pirate" by Robert

21
22

Downie, D-O-W--N-I-E.
Q.

So according to the bankruptcy

23

petition, am I correct that the net value of

24

iBooks was negative to the tune of

25

approximately $600,000?
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2

A.

Yes.

3

Q.

And what document reflects the

4

Simon & Schuster sales?

5

A.

I-wks05.xls.

6

Q.

So -- and you claim that these

7

documents were obtained after you acquired

8

the assets, you wrote to the distributors and

9

you asked them to give you summaries of the

10

sales figures; is that right?

11

MR. CHATTORAJ:

Objection.

12

A.

Not completely, no.

13

Q.

What's wrong about it?

14

A.

Some of the information came from

15

the trustee and some of the information came

16

from the distributors.

17

Q.

Okay.

Did any of the information

18

used to create exhibits A, B and C come from

19

the preexisting business records of iBooks,

20

Inc.?

21

A.

No.

22

Q.

What information did you obtain

23

from the trustee?

24
25

MR. CHATTORAJ:
A.

Objection.

350 boxes of information.

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Q.

Let me be more specific.

What

3

information did you obtain from the trustee

4

that you used to create exhibits A, B and C?

5

MR. CHATTORAJ:

Objection.

6

A.

The wks file.

7

Q.

Anything else?

8

A.

No.

9

Q.

Are there in existence

10

contemporaneous sales records, such as

11

invoices and the like, showing what the

12

actual sales in units and dollars were from

13

1999 through 2006 prior to your acquisition

14

of the assets in December?

15
16
17
18

MR. CHATTORAJ:
A.

Objection.

What do you mean by

"contemporaneous"?
Q.

Ordinary course of business

19

documents that iBooks, Inc. or Byron Preiss

20

Visual Publications would have had that

21

reflected sales information?

22

A.

None that I've seen.

23

Q.

All right.

So turning then to the

24

period post acquisition of the iBooks, of the

25

assets that included iBooks mark, so in other
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2

A.

In 2004, that's correct, right.

3

Q.

And why was it that the sales had

4

dropped from 2003 to 2004, do you know?

5

MR. CHATTORAJ:

Objection.

6

A.

These are net numbers, but there

7

are returns.

8

the increased sales in '03.

And the returns in '04 reflect

9

Q.

Could you explain what you mean?

10

A.

When Simon ships a book in December

11

of '03, the sales would be recorded as gross

12

in December of '03 on an accrual basis.

13

retailer inventories the book, sells the book

14

and they keep the book on the shelf until

15

it's sold, and that period could be 10 months

16

to 2 years following the update.

17

during that period the retailer has the

18

option of returning the book to the

19

distributor.

20

gross shipments for '03, there follows there

21

would be large returns in '04 and '05.

22

Q.

The

At any time

So hence if there is a large

I see.

In other words, on an

23

accrual -- while there were sales booked in

24

2003 -- the publisher -- the book store had

25

the right to return the books and then you
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2

had to subtract out those returns from your

3

revenue figures; is that right?

4

A.

Yes.

5

Q.

So do you know specifically what

6

titles were returned that accounted for the

7

drop from 2003 to 2004?

8
9
10
11
12

MR. CHATTORAJ:
A.

Objection.

I have to look at one of those

schedules to see.
Q.

But you believe it was the returns

that caused the drop?

13

A.

Oh, yes.

14

Q.

So now in 2004 had, again,

15
16

roughly in sales, but in 2005 the
sales plummeted almost

17

approximately.

18

the sales dropped over

19

to
Do you know why

2004 to 2005?

20

MR. CHATTORAJ:

in, from

Objection.

21

A.

I know part of the reason.

22

Q.

Which is?

23

A.

Simon & Schuster and Byron parted

24
25

company.
Q.

And Simon & Schuster had been the

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2

Q.

Is it fair to say that in 2005,

3

Mr. Preiss' company, iBooks, Inc., was in

4

poor financial shape?

5

MR. CHATTORAJ:

Objection.

6

A.

I don't know.

7

Q.

Is it -- well, let's turn from 2005

8

to 2006.

9

plummeted from approximately

10

And in 2006 the sales, once again,

MS. CENDALI:

11

Q.

--

Excuse me.

In 2005, the sales which had

12

dropped from the

13

2005 sales were roughly

14

2006 through approximately mid-December of

15

2006 when you acquired the assets that

16

included the mark iBooks, sales had shrunk to

17

only

, but in

, approximately.

18
19

in 2004, the

MR. CHATTORAJ:
A.

Why was that?

Objection.

There was many reasons, but in that

20

instance the returns from '03, '04, '05 came

21

back to haunt '06.

22

Q.

So in essence there was, in

23

layman's terms, was there a false sense of

24

prosperity in 2003 because there were sales

25

but the books sat on the shelves, no one
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2

25 to 50 percent for eBooks, but that's the

3

percentage of net proceeds.

4
5

Q.

Then there's a line for inventory

write-off, do you see that?

6

A.

I do.

7

Q.

What is encompassed under that

8
9
10
11

heading?
A.

That is the value of inventory that

we sold or destroyed in those specific years.
Q.

So for example, for 2011 there is

12

-- in the line inventory write-off there is

13

approximately

14

A.

I do.

15

Q.

Does that mean you sold

.

Do you see that?

16

inventory or that you destroyed

17

in

inventory or a combination of the two?

18
19
20
21

MR. CHATTORAJ:
A.

of

Objection.

That is a debit to inventory

write-off and a credit to inventory.
Q.

But does that indicate then that --

22

does that reflect sales or destruction of

23

inventory?

24
25

A.

It reflects the -- in this case,

the destruction of inventory, right,
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destruction of inventory, correct.
Q.

And why was there a destruction of

inventory?
A.

The returns from orders and other

independence were nonsalable.

7

Q.

And so in 2011 you received

8

approximately

9

had to be destroyed; is that right?

worth of returns that

10

A.

No.

11

Q.

Correct me.

12

A.

That's an inventory valuation that

13

once was an asset that needed to be removed

14

from the balance sheet to show the

15

destruction and removal of that asset.

16

Q.

I understand.

But the reason the

17

asset had to be removed from the balance

18

sheet is that when you got the returns from

19

Border's and some of the independence, they

20

couldn't be sold so you destroyed the books

21

instead?

22

A.

That is part of the reason, yes.

23

Q.

Is there any other part of the

24

reason?

25

A.

My distributor NBN was having its

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problems selling print copies of our books.

3

Q.

Why?

4

A.

I wish I knew, other than the

5

Border's collapse.

6

Q.

Did you change distributors?

7

A.

Not completely.

8

Q.

Does NBN still distribute books

9

bearing the iBooks imprint?

10

A.

Yes.

11

Q.

Does it still distribute print

12

versions of those books?

13

A.

Yes.

14

Q.

Does it distribute any electronic

15

versions of those books?

16

A.

No.

17

Q.

Does your new distributor

18

distribute any books bearing the iBooks

19

imprint?

20

A.

Yes.

21

Q.

Who is your new distributor?

22

A.

Lightning Source Ingram Book

23
24
25

Company.
Q.

And why did you bring on Lightning

Source as a new distributor?
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A.

Three reasons:

One, they wanted

3

our business; Two, NBN couldn't sell our

4

stuff satisfactorily; and, three, they

5

offered better marketability and

6

merchantability of our iBooks list than NBN

7

could do.

8
9

Q.

Does Lightning Source also

distribute any of your books electronically?

10

A.

They do.

11

Q.

Does that include books, iBook or

12

ipicturebooks imprints?

13

A.

That's correct.

14

Q.

And do you plan on phasing out NBN?

15

MR. CHATTORAJ:

Objection.
I don't know.

16

A.

I don't know.

17

Q.

Was NBN happy that you brought on a

18

new distributor?

19

A.

Not really, no.

20

Q.

In 2010 it looks like under total

21

cost of sales or under inventory write-off

22

there is a write off of about

23

you see that?

24

A.

I do.

25

Q.

Was that the same situation of

.

Do

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returns that needed to be destroyed?
A.

That's right.

And also inventory

needed to be liquidated, yes, that's right.
Q.

So you ended up with a line called

6

gross margin, and in 2011 it's listed as

7

negative

; is that right?

8

A.

That's right.

9

Q.

What does that mean?

10

A.

The

11

Q.

Yes, when it says negative

12
13

?

-- there is a negative sign there,
right?

14

A.

Right.

15

Q.

Does that mean that you didn't make

16

a profit, you were at a loss in 2011 in terms

17

of profitability?

18

A.

On what basis?

19

Q.

I'm just trying to understand.

20

said gross margin.

21

It

What is supposed to be

captured by gross margin?

22

A.

That's the operating loss for 2011.

23

Q.

So even though you had increased

24

sales in 2011, you ended up having an

25

operating loss; is that true?
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2

A.

Probably was J. Boylston & Company.

3

Q.

And that registration was obtained

4

after this lawsuit was filed, correct?

5

MR. CHATTORAJ:

Objection.

6

A.

I believe so.

7

Q.

Does J. Boylston have an active

8

website at ipicturebooks.net?

9

A.

No.

10

Q.

What happens when someone goes to

11

ipicturebooks.net?

12
13

MR. CHATTORAJ:
A.

Objection.

I don't know.

14

(Defendant's Exhibit 44,

15

ipicturebooks.net website printout,

16

marked for identification, this date.)

17

MS. CENDALI:

18

Exhibit 44.

19

Q.

I'll show you

20

Does this reflect what happens when

a consumer types URL ipicturebooks.net?

21

A.

I don't know.

22

Q.

Why haven't you put any content on

23
24
25

ipicturebooks.net?
A.

I'm unsure how to effectively

market a web strategy.
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