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
Page 1
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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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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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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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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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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