Unites States of America v. Apple, Inc. et al

Filing 186

Letter addressed to Judge Cote from Amazon.com, Inc. (Michael Kipling) dated 2/19/2013 re: Apple/Amazon discovery dispute. Document filed by Amazon.Com, Inc. (Attachments: #(1) Exhibit Zapolsky Decl., #(2) Exhibit A, #(3) Exhibit B, #(4) Exhibit C) (cr)

Exhibit A

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------x
UNITED STATES OF AMERICA,
Plaintiff,
vs.

CASE NO.
12-CV-2826(DLC)

APPLE INC., et. al,
Defendants.
--------------------------------x
HIGHLY CONFIDENTIAL
VIDEOTAPED DEPOSITION
RUSSELL GRANDINETTI
JANUARY 28, 2013
1918 Eighth Avenue
Seattle, Washington

REPORTED BY:
PAUL J. FREDERICKSON, CCR, CSR
JOB NO. 28636

RUSSELL GRANDINETTI - HIGHLY CONFIDENTIAL
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of action that did not involve legal issues and advice

Q. Was there a discussion in that meeting of

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from counsel.

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any respect in which agency might be good for Amazon,

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that is, sort of a "just say yes" policy and go to

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agency because it's in Amazon's business interest? Was

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13:31:30

that discussed?

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9

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13:34:01

MR. BUTERMAN: Objection to form.

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5

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A. Again, because I was informed by counsel

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about the serious legal issues involved in the agency
proposal, in my mind the business and legal issues are

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inextricable, and that's the reason we asked -- I

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believe they joined the meeting. I was -- they told

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13:32:01

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13:31:46

me it was appropriate for them to join the meeting,

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and we sought their advice during the discussion.

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A. No.

13:34:26

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Q. So if that's all Mr. Kipling is going to
let me answer, I guess that's about it. Correct?
A. I think that's for you to determine.
Q. There came a time when Amazon did move to
agency with certain publishers; am I right?
A. Yes, that's correct.
Q. They did so with Macmillan on February 5;
am I right?
A. I don't remember the specific date but
that time frame sounds correct.

14

for --

A. The same answer.
Q. Simon & Schuster on March 23?

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Q. I'm sorry, who told you it was appropriate

Q. HarperCollins on February 23?

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13:34:37

A. Again, the time frame sounds correct.
Q. Hachette on April 2?

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Q. Were they --

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A. Having reported the circumstances of the

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proposals we were given from publishers, the advice I

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Q. And Penguin on May 25?

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got from counsel was there were serious legal issues

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A. I believe so, yes.

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tied up with the proposals we had received from

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Q. Well, let's take Macmillan, the first one.

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13:32:21

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13:32:09

A. Our counsel.

publishers, and that if we met, we should include

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When was the first decision made to sign an agency

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them, so we get their advice.

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contract with Macmillan?

13:34:51

13:35:04

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A. Again, once again that time frame sounds
correct in my mind.

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Q. And were they there for the entire meeting?

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A. I don't remember the specific date.

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A. Yes.

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Q. Close to February 5?

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13:32:29

GRANDINETTI - HIGHLY CONFIDENTIAL

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Q. At the end of the meeting did you have a

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5

separate meeting with Mr. Bezos?

13:35:21

which we signed the agreement, obviously the decision
to do so would have predated it.

A. No, I did not.

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Q. Can you tell me any suggestion that anyone

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made in that meeting about terms that Amazon might be

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willing to agree to in connection with an agency

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proposal?

13:35:35

MR. KIPLING: Again, I'm going to instruct

A. Well, since I believe that's the date

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13:32:52

GRANDINETTI - HIGHLY CONFIDENTIAL

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11

Q. Okay.
Was there any decision made at this meeting to
sign an agency agreement with any of the publishers?
A. Could you be more specific about time
frame, which meeting you're talking about?

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12

Q. I'm sorry, I'm going back to the boathouse

that you were getting from your counsel that you -- that

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meeting. Excuse me, sir, I'm back at the boathouse

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13:33:02

you that unless this was distinct from the legal advice

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Amazon instructs you not to answer that.

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meeting.

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MR. PARKER: All right. Let's go to the

13:35:46

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Was there any decision made that you would sign

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bottom line here.

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BY MR. PARKER:

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A. I'll point out that a few times we've said

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that the legal issues here were inextricably bound up

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with the business issues, and as a result I wouldn't

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talk about the content of the meeting in anymore
detail.

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Q. Was any decision reached among participants

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13:33:22

at the meeting, which included Mr. Bezos, to begin

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negotiating agency contracts with any publisher?

13:36:01

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A. I don't recall.

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Q. Any decisions made on any course of action

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13:33:47

that did not involve legal issues on how to respond to
agency?

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an agency agreement with any particular publisher?

Q. But that's a yes/no question. Is there --

13:36:07

you know, was any decision made? That's all I'm

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A. There were no decisions made in the course

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asking.

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MR. KIPLING: I think you can just say yes or

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no if you remember.

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any terms?
A. My recollection of this time period is we

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13:36:13

A. I don't -- I believe the answer is no.

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4

Q. No. All right.

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were going to try to convince publishers to stay on

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Did Mr. Bezos express an opinion as to how

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the wholesale model as best as we could.

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7
8
9

the -- the business strategy that he would recommend in

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Q. And resist the agency?

order to respond to the request by certain publishers

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A. Yes.

that Amazon adopt an agency model?

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Q. And maintain the 9.99 price?

A. We've talked a couple of times about the

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9

content of this meeting and participation of counsel

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13:36:34

13:38:46

and the advice we sought.

13:38:56

A. Well, what prices -- under the wholesale

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model we would be free to set prices unilaterally. We
were happy with our pricing. So my assumption would

I would just say as a general matter, we talk

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be that we planned to continue our pricing.

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about -- to the extent we meet as a team on any topic,

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Q. You said earlier that the 9.99 price and

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13:36:46

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we talk about as a group and these decisions are very

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the other strategy followed by Amazon was all in all

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typically group decisions.

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profitable. Did you mean it was profitable in 2008 and

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2009 or that over time it would become profitable?

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13:39:12

Q. I've just asking, did he make a
recommendation? That's all I'm saying.

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goes to some of the more detailed concepts of the

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meeting, and based on the advice of counsel, I'll just

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13:36:59

A. And, again, I think your specific question

decline to comment.

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me a question about profitability from time to time,
and our belief in both the short and the long term was

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Q. Were there documents prepared for this

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our pricing allowed us to run a profitable business.

meeting? In other words, was there a deck prepared or

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was there a --

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MR. BUTERMAN: Object to form.
A. Again, earlier in the questions you asked

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13:39:27

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13:37:11

A. I believe --

A. I don't recall.

13:39:42

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Q. In 2008 and 2009; am I right? Is that what
you're saying?
A. Again, from period to period or week to

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week or month to month it could be volatile but yes in

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excuse me -- recall about this time period is things

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answer to the question, we believed it was a

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13:37:21

One thing I do recommend -- not recommend,

were moving so quickly, you know, it wasn't always

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profitable business.

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possible to create documents on the topic.

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13:39:50

5
6

Q. Was there any memo coming out of the

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meeting that summarized some or anything of what was

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said that you're aware of?

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13:37:36

A. I don't recall one.

9

Q. Even though you were pricing New York Times
best sellers below cost?
MR. BUTERMAN: Objection as to form.
MR. KIPLING: And this is argumentative and I
think redundant.
But go ahead.

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Q. You didn't prepare one, in any event?

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A. I don't recall having prepared one.

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Q. All right.

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13

When you left the meeting, what was your

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A. In the Kindle business over 2008 and 2009

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there were occasions where we priced books below cost.

13:39:59

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MR. BUTERMAN: And also misstates prior
testimony.

14
15

going to employ to deal with the request by

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When we step back and look at the total business

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HarperCollins and others that Amazon move to an agency

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across all the books we sold, we believe we were

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13:37:48

understanding of the strategy that you personally were

model?

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pricing books that allowed us to run a profitable
business.

13:40:10

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13:38:05

MR. BUTERMAN: Objection to form.
A. Could you repeat the question one more

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time, please? Or read it back, please.

13:40:19

Q. And when you looked at the business as a

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whole, you said books, you also included the cost of

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MR. PARKER: Can you read that back:

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the e-reader as well? I mean, excuse me, revenue from

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[The court reporter read back the question.]

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the sale of the e-readers as well?

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A. I don't recall the specific outcome of the

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13:38:35

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meeting in those terms.
Q. Do you recall any outcome of the meeting in

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13:40:33

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MR. KIPLING: Object to form.
A. Could you just repeat the question one
more time, please?

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THE WITNESS: Yeah, if we could take a

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minute, that would be great. I would appreciate it.

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4
5

MR. PARKER: Yeah. No, I got it. No

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problem.

14:13:15

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GRANDINETTI - HIGHLY CONFIDENTIAL
A. I don't remember specifically them saying
that.
Q. All right.
MR. PARKER: So let's do 52 here. All

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THE WITNESS: Thank you very much.

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right. We're going to look at the --

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MR. PARKER: I'm sorry. I didn't realize I

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BY MR. PARKER:

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14:07:35

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stepped on something.

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THE WITNESS: No, no.

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THE VIDEOGRAPHER: We are now going off the

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So going back on Macmillan, shortly following

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record. The time is 2:07 p.m.

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the boathouse meeting, Amazon made a decision not to

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[Recess at 2:07 p.m.]

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sell Macmillan's books; am I right?

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[Resuming at 2:11 p.m.]

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14:11:30

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14:13:27

Q. While we're finding the document, let me
ask a couple of questions.

THE VIDEOGRAPHER: We're back on the record.
The time is 2:11.

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14:13:48

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A. It was some number of weeks after that. I
don't remember when.
Q. Right.

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MR. PARKER: All right. Let's go.

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And we talked about the participants in that

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MR. KIPLING: Yes, I believe there is a

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decision. And your business objective in doing that

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was what?

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14:11:37

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pending question and he can respond to it.
The question was: Did he ever talk to Apple at

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any time about any business arrangement?

14:13:55

A. Much later on Apple was making a

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frame, significant change to their policy about the

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14:11:52

significant change, I believe it's the 2011 time

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App Store, which affected the Kindle app in the App

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Store, and during that time I had some direct

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14:14:07

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A. In -MR. KIPLING: In doing what?
A. Yeah, could you clarify? Yeah.
Q. Excuse me. In refusing to -- withdrawn.
Let me start over.
Your business objective in refusing to sell
Macmillan's books was what?

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conversations with Apple about that policy and its

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A. Our hope was that they would reconsider

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impact on Kindle and vice versa.

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moving off of wholesale terms and we could convince

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them to stay on the terms we had been, under which we

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had been doing business.

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A. Phil Schiller, Eddie Cue, Steve Jobs.

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Q. Okay.

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14:12:03

Q. With whom at Apple did you speak?

But nothing during the 2010 time period when

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14:14:19

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you're negotiating these agency deals?
A. No, I did not.
Q. All right.

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Did anybody at the publisher in connection with

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things were moving very quickly. But I'm sure if it
wasn't me, it would have been David that communicated
that decision to them.

negotiating the agency deals mention the type of

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contract that they may have had with Apple?

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A. In my experience publishers didn't often

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or ever -- I can't recall them talking about Apple

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14:12:36

specifically.

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A. Yes.
Q. Okay.

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Based upon what I was reading in the press at

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And who from Macmillan?

the time and indirect intimations of publishers,

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sometimes I got the sense that their negotiations with

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us were being driven by their Apple contracts but I --

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I can't point to anything specifically.

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14:14:58

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A. John Sargent and I think Brian Napak flew
out to see us shortly before we came to that decision.
Q. Okay.

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Now, the decision not to deal with -- not to

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Q. Can you point to any publisher that said

sell Macmillan's books, to say the least, did not turn
out well for Amazon; am I right?

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that, that what we're doing now is being driven by our

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14:13:08

Q. So you and David were carrying the ball on
the negotiations and discussions with Macmillan?

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14:14:44

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14:12:50

A. I am sure I did. I don't remember
specific conversations but -- and it was -- you know,

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14:14:32

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Q. Did you personally communicate that to
anybody at Macmillan?

Apple content? Anybody say that to you? Any of the

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25

publishers say that to you?

14:15:13

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MR. BUTERMAN: Objection to form.
A. Could you say more about what you mean by

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it did not turn out well?

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Q. So you're saying -- okay. Did -- why did

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14:15:20

Q. Well, I'm sorry.

3

you decide to start selling the Macmillan books on

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The customers didn't like the fact they couldn't

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Sunday?

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6

buy their Macmillan books through Amazon; am I correct?

14:18:39

A. It happened so quickly, I don't think it

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A. It became clear to us that we -- this was

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not a problem isolated to Macmillan, that we faced the

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was fast enough to really assess what customers

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prospect of losing many of the books we sold from some

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thought.

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of our largest publishing partners, and as much as we

9

did not agree with the decision and wanted to

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14:15:32

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11

Q. All right.

14:19:03

that, that decision?

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forestall it, moving to the terms we had been given

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You don't remember a customer backlash against

was ultimately the right -- we felt was ultimately the
right business decision for us.

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13

recall there being a wide variety of media opinion,

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Q. Who made that decision?

14
14:16:52

A. Well, it was a very public step and I

punditry, customer message board postings.

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A. As is usual, we met as a team and agreed

MR. PARKER: Okay.

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14:19:19

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16

Let's look at this.

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[Deposition Exhibit 16 marked.]

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14:16:54

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BY MR. PARKER:

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Q. Have you had a chance to look at this

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email, sir?

14:19:30

on it as a team.

Q. And the team would have been you and who
else?
A. I think the people on this email chain are
very likely participants in that discussion.

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Q. So that would be Mr. Bezos?

A. I have read the email, yes.

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A. Our general counsel, David and Tim, who

Q. I see that you're copied on it. And it's

22

are lawyers, who helped us in various capacities,

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from Mr. Bezos. And what we have here, you will agree

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Steve, Ian, myself.

24

with me, is a consumer complaint; am I correct?

24

Q. Who is Mr. Hart, Greg Hart?

25

A. Greg was technical assistant for Jeff.

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14:17:10

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A. It appears the person who wrote this

14:19:49

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email, Mr. Hawkinson, took issue with our decision to

2

Q. And technical assistant meaning what? I'm

3

halt the sale of Macmillan books.

3

4
14:17:21

5
6
7
8
9

14:17:31

10

A. It looks like he emailed Jeff in investor
relations.

A. It's just a role. It's kind of like --

5

Q. Chief of staff sort of a thing?

6

14:20:00

right?

sorry, I don't know what that is.

4

Q. And he contacted Mr. Bezos directly; am I

A. Yeah, I think that's probably a good --

7

14:20:11

Washington, D.C. terms we would call him the chief of

9

A. Well, there's a number of people. Yes,
I'm included on the cc.

Q. So Mr. Hart would be somewhat of a -- in

8

Q. And Mr. Bezos sent it to you?

staff.

10

A. Yeah, that's -- chief of staff is not a
term that I recall being used at Amazon.

11

Q. Including you.

11

12

Did he have any instructions as to what he

12

Q. Yes.
[Laughter.]

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14
14:17:43

wanted you to do in connection with this or any

13

customer complaints?

14

15
16
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A. I don't recall any instructions.

Q. When was that?

20

A. I think it was that Sunday.

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22
23

MR. PARKER: Wrong Washington. Right?
Q. Was this -- was this decision made at a
meeting? Or a phone call or a meeting at some point?
A. I don't remember if it was a call or a

18

meeting. I think that weekend we may have ended up

19

talking by phone but I don't remember specifically.

20

Q. Did you go back to the boathouse?

Q. So this was Saturday the 30th Mr. Bezos

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A. I don't believe so, no.

sent it to you, and Sunday you had a switch in policy?

22

Q. So you had a phone call?

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A. I don't remember the meeting.

14:20:39

A. On Sunday we decided to relent to the

24
14:18:24

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A. Yes.

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15
16

Q. Did there come a time when Amazon
capitulated and started selling Macmillan books again?

18

14:18:01

14:20:23

collective demands of publishers to move to the agency

25

model.

24
14:20:50

25

Q. Did you -- whether it was a phone call or
in person or whatever, did you make a recommendation at

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A. There were a variety of different pieces

2

earlier today, we looked at Grandinetti Exhibit 16

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3

which is an example of a customer complaint that came

3

that we weighed, some of which were the collective set

4

in on the 30th.

4

of messages that we got from the publishing community

5

about the move to agency.

6

BY MR. WEINER:

5

A. Yes.

6

17:24:12

Q. So is it fair to say that customer

17:26:30

7
8

Amazon had at least some role in Amazon's decision to

8

9
17:24:28

indignation over being unable to buy Macmillan books on

7

negotiate an agency deal?

10
11

9

MR. BUTERMAN: Objection to form.

17:26:38

A. Over that short term, I don't think

10

Q. Now, Amazon doesn't lie to its customers;
right?
A. We certain endeavor to be direct and
honest with our customers.

11

Q. In fact, weren't you telling customers at

12

customer expression was that much of a factor, in part

12

exactly this time that you did not expect that all the

13

because I recall there being a very large diversity of

13

major publishers would take the same route as

14

customer expression on this topic.

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Macmillan?

15

BY MR. WEINER:

17:26:49

15

A. I don't recall anything along those lines.

16

16

17

on -- between the 29th and 31st that was favorable to

17

telling its customers that it did not expect other

18

eliminating the ability to buy Macmillan books on

18

major publishers to take the same route as Macmillan?

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17:24:54

Q. Were there -- was there customer expression

Amazon?

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A. I think any number of customers understood

20

Q. Would it surprise you if in fact Amazon was

A. I'm sorry, could you just say the question
one more time, please?

21

21

change the business model and raise prices on

22

telling its customers that it did not expect other

23

consumers, and my recollection is that if you looked

23

major publishers to take the same route as Macmillan?

24
17:25:09

that this dispute was in the context of an attempt to

22

at the message boards for Kindle on the topic, you

24

MR. BUTERMAN: Objection to form.

25

know, there were many, many, many posts from customers

25

A. I don't recall saying anything publicly

17:27:11

Q. Would it surprise you if in fact Amazon was

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on Friday, Saturday and Sunday that supported the

2

one way or another.

3

decision we were making.

3

BY MR. WEINER:

4
17:25:19

4

Q. Amazon's all about having a good customer

5

experience. That's what you've told us repeatedly

6

17:27:18

today; right?

5

Q. Did Amazon say anything publicly about its
expectations about --

6

A. I know we had --

7

A. That's certainly our goal.

7

Q. -- the other major publishers?

8

Q. Is it a good customer experience to be

8

9

unable to buy Macmillan titles?

10

A. Of course, in the short term we regret,

11
12

17:25:28

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9
17:27:43

A. We had some public statements on the topic
but I don't recall specifically what they were.

10

Q. Did Amazon believe as of January 31, 2010

you know, in that particular case we regretted not

11

that all the major publishers would take the same route

being able to sell Macmillan books.

12

as Macmillan?

13

MR. FRIEDMAN: Objection, form.

14

But obviously the much larger issue at play is

A. On that Sunday it was our belief that all

14
15

would be charged for books. And our goal here was to

15

publishers, all -- the five publishers that are part

16

try and preserve a model where an approach where we

16

of this suit, were going to insist on the same change.

17

could offer them great prices and set prices in a way

17

18

17:25:42

also the topic of what charge -- what prices they

that was attractive to them.

18

19
17:25:59

20
21
22
23
24

17:26:13

25

17:27:58

19

Q. So you wanted your customers to have the
ability to buy Macmillan books; right?

17:28:15

A. Of course we wanted the customers to be

21

MR. FRIEDMAN: Object to the form.
MR. KIPLING: Object to the form.
A. I guess I'm not understanding the

22

Q. So what was it over that weekend that made

question.

23

able to buy Macmillan books.

BY MR. WEINER:

24

you change your mind?
MR. BUTERMAN: Objection to form.

20

Q. So if you told your customers something to
the contrary, that would be lying?

17:28:29

25

Q. The question was, so if you told your
customers something to the contrary, that would have

79 (Pages 310 to 313)
DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099